Last month, we wrote that rising fuel prices and customer service blunders are pushing millions of households into fuel stress through no fault of their own. One month later and with the end of the current price cap fast approaching, the energy supply companies are starting to unveil their new tariffs and charges.
We are now getting an idea of how our bills are going to look this year and it isn’t pretty.
Energy price cap
Let’s quickly revise the price cap. This is set by Ofgem and sets a maximum price that energy supply companies can charge for each unit of fuel. That’s important. The price cap only applies to the cost of the fuel and it only applies to customers who are on the standard variable rate, not to those who sign up for fixed contract bills.
Today, a unit of gas is capped at 4p and a unit of electricity at 20p. In ten days time – on April Fool’s day – the price cap will rise by a staggering 54 percent. Gas will be capped at 7p a unit and electricity at 28p.
And that may just be the beginning. Ofgem reviews the cap every six months.
Even businesses are affected by rising energy prices
Matt runs a graphic design agency in Northamptonshire. He gets his electricity from the British Gas service for small businesses, called – and I kid you not – British Gas Lite.
A month ago, British Gas emailed him with details of their new charges. They gave him a few options – he could sign up to a fixed contract for up to three years or he could move to their own variable tariff.
Let’s look at the fixed contracts he was offered.
Note that the cost of the fuel goes up from 14p to – at worst – 33p. That’s an increase of 136 percent. Two and a half times the 54 percent increase of the new price cap.
The standing charge goes up a bit too, doesn’t it? More than a bit actually. It goes up from 27p to – again, at worst – 35p. Doesn’t sound so much but it’s actually an increase of 29 percent. Significantly more than inflation.
Perhaps Matt should switch to the variable rate that British Gas offered him. Let’s have a look.
But this is even worse. The price of fuel rises to 50p (a 257 percent increase) while the standing charge rockets up to 168p. That’s an increase of more than 600 percent.
An increase of more than 600 percent.
Matt is left with little choice really. Either he signs up for a few years or he goes shopping for another deal with a different energy company. Given the current state of the energy market, that’s a fool’s errand for most of us.
British Gas Lite.
Do you hear that sound? That’s Chris O’Shea, chief executive of British Gas owner Centrica, laughing at us.
Most of your bill is not fuel
We know that the wholesale price of gas has increased hugely in the last months, we know that much of our electricity here in the UK is made from gas, and we know that Russia’s war on Ukraine increases the chance that a major source of gas becomes unavailable. The price of both oil and gas has been rising for months, but since Vladimir Putin’s invasion of Ukraine, that rise has intensified.
Is it only to be expected then, that our bills will go up?
Political economist Richard Murphy, expertly demolishes the idea that these huge increases are inevitable. He feels there is no doubt at all that energy supply companies (the oil and gas producers in particular) are using the cover of the war in Ukraine to exploit customers.
The proportion of an electricity bill that is actually down to the cost of the fuel itself is about a third. The remaining two thirds include things like energy distribution, maintenance of connections, customer service, the billing system, meter readings, VAT, green levies. There is absolutely no reason why these things should increase by more than the rate of inflation. And certainly not by 600 percent.
More cash than they know what to do with
The cost of getting gas out of the ground hasn’t increased either. The wholesale price has soared because companies and countries are frantically buying up future supplies, in case there’s a shortage.
But there isn’t currently a shortage.
So the costs for companies who get the gas out of the ground have remained steady but they are selling the promise of their gas for so, so much more. As oil giant BP recently said, we have more cash than we know what to do with.
Fuel stress is generally agreed as the need to spend more than 10 percent of your income on your energy bills. This year, that is going to apply to millions of people in the UK. The poorest households may end up spending nearly 20 percent of their income on energy bills even with government support.
The government has tinkered around the edges a bit, in an attempt to look as if they’re helping. Yet somehow, as always, it’s the better off who end up benefiting from their efforts.
Why on earth isn’t the government taxing BP?
Matt is a successful business owner who has run his graphic design agency for 20 years. This year, his total fuel spend (electricity, gas and petrol) is likely to hit £5,000 – round about 10 percent of his income. Have we genuinely reached the point where everybody earning less than £50k falls prey to fuel stress?
For those millions of people who are already only just keeping their head above water, it’s hard to imagine how the coming months are going to play out. Lives will be damaged and shortened. I honestly cannot see how some lives are not going to be lost.