British Gas becomes the first large energy supplier to hike prices after price cap increase, others expected to follow

First of many?

British Gas is likely to be just the first of many energy suppliers to raise the price of its standard variable tariffs.

The move follows Ofgem’s controversial decision to hike the energy price cap to an annual £1,138 for a dual fuel bill. From the 1^{st of} April the price cap for credit meter standard tariffs, based on typical use, will climb from £1,042 per year to £1,138 per year with the excuse being resurgent wholesale energy prices.

Another factor prompting the rise in the energy price cap was the ongoing Covid-19 pandemic. The economic damage caused by the lockdowns has seen a surge in the number of unpaid energy bills.

The price cap rise also includes a £23 hike to help energy supplier claim back the cash they have been missing due to said unpaid bills.

For customers paying by prepayment meter, the energy price cap will rise by £87 from £1,070 to £1,156.

A British Gas spokesman confirmed the price hike would be set to the maximum allowed by Ofgem by saying, "Ofgem announced a new price cap on February 5, we’ve confirmed that we would move our SVT to the new Ofgem price cap level."

Also read: Ofgem Hikes Energy Price Cap raising Energy Bills to pre-pandemic levels

British Gas strikes

British Gas has been in the news recently for staff strikes after its management announced its intention to alter employment contracts, incorporating worse terms and conditions for over 20,000 staff.

The strikes resulted in negotiations which led to management dropping some demands, however, the company still insisted on a longer working week for field engineers without additional pay. Skilled engineers responsible for boiler installation and repair now face working 156 extra hours a year for the same salary alongside a cut in sick pay and holidays.

The price rises by British Gas will impact 2.3 million of its customers who are currently on its default energy tariff and is likely to see the company’s revenue increase by an extra £230 million. A further 11 million consumers will be hit by price hikes if the other major suppliers follow British Gas’ lead.

Also read: British Gas recorded a 15% decline in electricity demand among UK business due to Covid 19 and more strike action on the way

Criticism of the price rises

The moves by both Ofgem and British Gas has created a lot of criticism from consumer groups who suggest that the price hikes will unfairly penalise already struggling consumers.

“Ofgem’s announcement of an increase to the energy price cap has fired the starting gun on a race to hike bills. British Gas is first out of the gate to announce a price rise, confirming that default tariff customers will see bills increase by an average of £97 from April 1^st. We expect to see more of these announcements in the coming days and weeks, but there’s no reason why you have to wait helplessly for your bills to soar,” said Sarah Broomfield, an energy expert from Uswitch.

News of this price rise – which amounts to an eye-watering £229m – couldn’t come at a worse time for British Gas customers, after almost a year coping with higher energy bills due to lockdown restrictions.

“Although Ofgem has given a green light for price rises on default tariffs from April, energy suppliers are not obliged to hike the bills for hard-pressed consumers. We call on British Gas’ rivals to do the right thing by their customers and hold off any increases, especially as hopes rise for the easing of restrictions from the vaccine roll-out,” said Tom Lyon, director of energy at energyhelpline.com.

Also read: Government unveils new strategy to protect vulnerable consumers and reduce energy bills, what does this mean for energy suppliers?

Opportunities for smaller energy suppliers

With the price cap rise, energy suppliers are allowed to raise their prices. Often the larger suppliers hike their prices to as close as the price cap as they possibly can a strategy that often creates criticism from consumer groups but also an opportunity for smaller energy suppliers.

Smaller energy suppliers can attract new suppliers by offering cheaper tariffs that often deeply undercut those set by the likes of British Gas.

We could see a surge in the number of consumers switching to cheaper, smaller alternatives but only if challenger suppliers hammer home the message that they can offer a better deal.

Read our tips on how to attract new customers to a smaller energy supplier HERE.

Further Reading 

Smaller Energy Suppliers continued to snap up market share in 2020 shows new report

Green Tariffs alone not enough to attract Environmentally minded consumers

Octopus Energy wins big at the 2021 Uswitch energy awards as challenger energy suppliers dominate

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