Gas and electricity price cuts: The truth behind the headlines

Tuesday, 17 January 2012 09:07

By Kate Saines

There’s nothing like an energy price cut to give you a much-needed warm glow in the cold winter months.

And thanks to the mild winter, thus far, the gas and electricity providers have been coming forward one by one over the past two weeks to announce they are cutting prices, culminating in the annoucement on January 16th of a cut in electricity by E.ON and Scottish Power becoming the final member of the "big six" to announce cuts as it reduces gas prices by five per cent.

However, when the dust settles on the headlines, the fact is the cuts announced in the last week represent about 15 per cent of the value of the increases announced by the same firms in the autumn.

Each of the "big six" increased gas prices by between 15 and 20 per cent between August and November and four of the six raised the cost of electricity by over ten per cent, with just npower at 7.2 per cent and EDF at 4.5 per cent lower.

Customers are left without any meaningful competition from the price cuts as all of the tariff cuts from the main six suppliers are reduced by between £26 and £39 pounds annually. Whilst any decrease is welcome it pales into insignificance against the average rise of £220 for a household on a dual fuel tariff as a result of the autumn hike in prices.

Assuming this winter would be as harsh as those in the previous two years, the providers overstocked on energy and the wholesale price of gas has now plummeted by as much as 25 per cent.

Taking advantage of this, two of the smaller energy companies Ovo and The Co-operative, decided to slash their prices in a bid to win over some of the competition.
First Co-operative Energy revealed in December it would be reducing the price of gas and electricity by around three per cent on February 1st, a move which would save the average customer £35 a year.

Then independent energy company Ovo announced on January 6th it was cutting the price of its dual fuel gas and electricity tariff by five per cent with immediate effect.

The move was, naturally, welcomed as it meant Ovo’s New Energy tariff became one of the cheapest deals around – and this, of course, ruffled the feathers of the competition.

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It would only be a matter of time, the experts predicted, before the other bigger energy companies followed in the footsteps of Co-op and Ovo and made their own prices a bit more competitive.

Sure enough EDF Energy – one of the ‘Big Six’ energy providers – announced on January 11 it was cutting its gas prices by five per cent from February 7th.

And then British Gas, instigator of the 15 per cent rise in prices last year, announced it would be slashing prices on electricity by five per cent with immediate effect.

Around the same time, another of the ‘Big Six’, SSE, revealed a gas price cut of 4.5 per cent, effective March 26th and the extended guarantee it would not increase prices before October 2012.

And on Friday npower cut its gas prices by five per cent, or £39 on average, with effect from February 1st.

Today, E.ON followed suit with a six per cent cut in electricity prices from February 27th.

This all looks very positive indeed. But, scratch the surface and the price cuts do not look as appealing as they may seem at first glance.

For while prices have been reduced, providers have been selective about what they have cut.

Ann Robinson, director of consumer policy at price comparison website, said after the SSE announcement: “Suppliers are falling like dominoes, with three of the big six having reduced their energy prices within less than two days.

“But disappointingly for consumers, none have implemented cuts for both gas and electricity.”

She added: “SSE customers won’t see their prices drop until the end of March when the cold weather is likely to be coming to an end.”

And there’s another dying ember to lessen the warm glow – the price cuts go nowhere near to reducing the impact of previous hikes.

The average customer energy bill is up by 14 per cent compared to this time last year according to Consumer Focus. So will cuts of five per cent and similar really make much difference to our finances?

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Ann Robinson thinks not. “The bottom line for consumers is these cuts will go nowhere near cancelling out the £224 or 21 per cent hike in prices they’ve seen in the last 18 months.

“We can only hope these reductions are the first, and more will follow.”

Meanwhile Friends of the Earth pointed out that ‘yo-yoing’ prices also made it harder for families to budget.

Complaints about big-profit making energy companies were made in their droves last year. A Which? report revealed four million households complained about their energy supplier in 2011, and a large number of the complaints were about billing.

And figures from Citizen’s Advice reveal 43 per cent of people are worried they cannot afford their next fuel bill, with one in two admitting energy bills will put a strain on their finances this year.

This high level of dissatisfaction, the huge struggle many face to afford to heat their homes in addition to the fact both wholesale gas and electricity prices have both been falling over the last year should make a good case for bigger reductions.

Adam Scorer, director of policy and external affairs at Consumer Focus, said: “This narrowing of costs must be reflected in consumer prices.

“The widening gap between wholesale and retail prices has become the fault line for consumer confidence. Companies want to regain the trust of their customers. Narrowing the gap is a necessary part of achieving this.”

But even if more cuts are not implemented, as consumers, we do have one very powerful tool at our disposal if we are not happy with the price we are paying for our energy – namely, our feet.

The recent price cuts only apply to the company’s standard gas or electricity tariffs. So your best bet if you are still struggling to make energy bill payments is to move to other deals such as online tariffs, or those paid monthly by direct debit.

Read more: A step-by-step guide on how to find the best energy deals

This week is “Big Energy Week” which has been set up to help people reduce their energy bills. One of its aims is to encourage more people to find the best deal on their gas and electricity by shopping around and moving tariffs rather than just sticking with their current product. says moving to a better priced product could help consumers achieve average savings of £234 a year.

Clare Francis, site editor of Moneysupermarket, said: “Customers should weigh up whether they are on the best value deal for the area they live in and for the amount of energy they use.

“In some cases the fixed deals customers are already on may still be the best option.”

Both Moneysupermarket and uSwitch recommend online tariff iSave v9 from First: Utility which has average bills of £1,030 per year and is currently top of the best-buy tables even after the price cuts announced last week.

uSwitch has flagged up Ovo’s New Energy Fixed tariff, with average bills of £1,061 as the next best deal, followed by Scottish Power’s Online Fixed Energy (May 2013) tariff. This one has average bills of £1,070.

Energy price cuts at a glance
Provider Price cut Effective from Average standard bill cut by
Co-operative Energy Cutting standard duel fuel by 3% Feb 1st  £35 a year
Ovo Energy Cutting dual fuel by 5% Immediate £55 a year
EDF Energy Cutting gas by 5% Feb 7th £38 a year
British Gas Cutting electricity by 5% Immediate £26 a year
SSE Cutting gas by 4.5% March 26th £28 a year
npower Cutting gas by 5% Feb 1st £39 a year
E.ON Cutting electricity by 6% Feb 27th £31 a year
Scottish Power Cutting gas by 5% Feb 27th £36 a year


Best-buy dual fuel energy tariffs
Supplier Plan name Price
First: Utility isave dual fuel V9 £1,030
Ovo Energy New energy fixed £1,061
ScottishPower Online fixed energy May 2013 £1,070
npower Go fix 10 £1,078
EDF Energy Fix to March 2013 £1,080
E:On Save online 11 £1,106
British Gas Online energy £1,142
Co-op Energy Pioneer £1,145
SSE Online standard £1,179

















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Read more: A step-by-step guide on how to find the best energy deals

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