British Gas provokes fury with biggest ever price rise

British Gas  yesterday increased the pressure on household budgets after announcing the biggest ever increase in gas prices for its 16 million customers.

The 35% rise in gas bills was blamed on higher wholesale costs but came just hours before British Gas's parent company, Centrica plc, was due to reveal profits of £880m for the first half of the year.

Consumer groups reacted with anger to news that will dismay every gas-using household in the country. The move is expected to send another 1 million families into fuel poverty if replicated across the industry.

The operating profits are 19 per cent below last year after the group felt the impact of rising wholesale costs at British Gas, where profits fell 69 per cent to £166 million.

The group said the price increases were necessary to restore "reasonable profitability" to British Gas and invest in additional gas and power assets.

It means dual fuel customers – those that take both gas and electricity from the company – will see their bills increase by 25 per cent to £1,317, a £404 increase compared with the start of the year.

The price increases come just six months after the company increased its dual fuel bills by 16 per cent.

While it was widely expected that British Gas would put up its bills this summer, campaigners reacted with horror at the scale of the increase and warned that millions of consumers, including middle-class families, would struggle to afford the increase. 

Lindsay Hoyle, Labour MP for Chorley and a member of the Commons Business and Enterprise Committee said: 'These rises are indecent. If anything underlines the urgent need for a windfall tax on greedy energy companies, it’s rises like these.”

Tony Woodley, joint leader of the Unite union said: 'These latest vast profits now put the case for a windfall tax on big oil companies beyond argument.

The country’s four other main power suppliers –Scottish Power,  E.ON,  npower  and Scottish and Southern Energy– are expected to announce their own increases within days. Centrica, the owner of British Gas, said that it had taken the step because it was being forced to pay an extra £2 billion this year to meet the soaring wholesale cost of gas, which it said had risen 89 per cent over the past year.

British Gas can expect to pay less for its fuel in the short term, however, because the price of gas for delivery the following day has plummeted. It decreased by almost 50 per cent on Tuesday on the back of falling oil prices and weakening demand.

The firm’s announcement, which follows a similar rise by EDF last Friday, will add to the economic misery for millions of people struggling with spiralling bills for mortgages, food, council tax and insurance.

Citigroup analyst Peter Atherton said: "We expect all the UK retail energy suppliers... to announce retail tariff increases of around 25% before the end of September."

MPs on the Business and Enterprise Committee have urged the Government to have a "fundamental rethink" to help more people out of fuel poverty.

And other rivals among the UK's "big six" are sure to follow EDF and Centrica after Scottish & Southern Energy last week said it was becoming "more difficult by the day" to resist hitting customers with higher bills.

Around 10 million customers face increases of up to 44 per cent, with households in London, the Midlands and southern England hit by the biggest hikes due to regional price differences.

Patrick South, Age Concern Head of Public Affairs, said: "Energy companies say they can't absorb wholesale price rises, but in light of their profits this will sound hollow to the one in three pensioners likely to be in fuel poverty this winter."

Despite the drop in earnings, Centrica said it would raise its dividend to 3.9 pence a share from 3.35p.

A committee of MPs recently warned that higher gas and electricity bills would have serious consequences for millions of households.

Energywatch campaigns director Adam Scorer said households would be "staggered" at Centrica's profits, adding: "Customers will be outraged to learn that while they ponder how to make ends meet Centrica's shareholders are enjoying an increase in their dividends."