The price of hot air rising

Once again, we are being warned that the price of living is going up. Petrol? Food? VAT? Probably. But the cause of the latest rise is the ever increasing household energy bill. Estimates suggest that the average household is now paying a massive £300 more than last year on their energy bills. With a colder than average winter forecast and snow predicted as early as November, this is bad news, but even worse news for those on fixed or low incomes, often those most vulnerable in society. A recent report commissioned by Professor John Hills at LSE has found the rises causing a shortfall of around £402 in the poorest incomes leaving people with the choice to ‘heat or eat’.

Energy industry regulator Ofgem has accused energy firms of multiplying their profit margin by as much as eight times over the past few months, now earning around £125 per customer per year compared to £15 in June. Unsurprisingly energy companies have furiously denied this claim. In fact, Scottish and Southern Electric and British Gas estimate their profit margins per customer to be £62 and £24 respectively. Firms have instead pointed to rising wholesale prices due to rising demand from emerging economies as the cause, with Britain importing 50% of gas supplies.

The ‘big 6’ energy firms, consumer groups and Ofgem met on 17 October in attempts to find solutions. The summit, hosted by Energy Secretary Chris Huhne, aimed to “deliver an energy market that is trusted, simple and transparent” yet many felt that although the summit promised a lot, little concession was made with only a promise to write to customers advising them on switching. This appears an empty gesture as many of the industry’s critics, including Ofgem, have placed the blame on the companies’ deliberately complicated tariffs as a barrier to price competition. Many disappointed commentators saw the government’s failure to impose any sanctions or targets on suppliers as a reluctance to upset any of the powerful interests within the industry.

Ofgem hope to overcome the lack of competition in the industry by introducing reforms to the presentation of prices, with at-a-glance “no-frills” tariffs to ensure consumers can easily and quickly compare to ensure they get the best deal. All things going smoothly, it is hoped that these changes will become industry standard by next winter. In the meantime, the government has offered some recommendations as to how to reduce household bills.

Aside from the home insulation grants offered to over 70s and partial grants to home owners and private tenants, the government has advised that paying through direct debit can reduce bills by up to £100 per year. Although you are likely to be paying around £35 a month the payments remain the same all year round and may result in a lovely repayment at the end of the year, if you are careful with how much you use. Additionally, simply opting out of paper bills in favour of managing your account online can save at least a couple of percent of your final bill. Finally, Huhne’s rather obvious advice that “we should be checking whether or not we’re on the cheapest tariff” might be worth looking in to, if of course, you can negotiate the tariffs. And the hidden exit fees. Perhaps easier said than done?

Whether the increase in the size of your energy bills are the result of greedy utility companies or simply an unfortunate consequence of growing global demand for a crucial commodity, it seems unlikely that it is likely to slow down, let alone fall. With a government reluctant to intervene, and at least a year to wait for clearer prices, it seems the burden of reducing outgoings remains firmly with us, the ill-informed consumer.