British gas is expected to announce a gas price hike of up to 30% in the coming weeks, forcing its average customer to pay £800 a year for gas alone.
With wholesale gas prices at near record highs, it was merely a matter of time before these costs were passed on to the customer, and it seems British Gas will be the first to blink.
Controversially, the nation’s biggest supplier is believed to be favouring a large, one-off hike, rather than phasing the increases in over time.
This will come as a massive blow to its 16 million customers, many of whom will already be straining under the sky-high cost of living in Britain today.
British Gas won’t be alone
Exactly when the hike will be implemented is unclear, with some analysts expecting it as soon as end July, while others say it will be closer to end August.
One thing for certain is that the other suppliers won’t wait too long before following suit. No doubt they will hold off a little longer in the hopes of attracting any British Gas customers jumping ship to avoid the hike, but they will raise their tariff to a similar level soon enough.
That means we’re all facing significantly higher gas bills in the near future. With this in mind, now may be a good time to switch to one of the various fixed or capped rate energy tariffs on the market (and if you’re a British Gas customer, you’ll need to act fast).
Worth the premium?
As the name implies, you pay a premium and in return are guaranteed that your energy bills will not increase beyond a certain point.
Up until now, the premium has proved far too high to offer value for money, but with severe price rises on the horizon they could prove a far cheaper alternative.
So how much is the premium? The average fixed deal will set you back around £1,045, according to price comparison site uSwitch, while the average dual fuel online tariff costs £893 – a difference of £152, or around 15%.
That means if prices were to go up by more than 15% today, you’d be saving money with a fixed deal, but a smaller rise would see you lose out to those on the online tariff.
Not that clear cut
Given that British Gas customers are facing a 30% rise, this may seem like a fairly straightforward decision, but unfortunately it’s not that simple. For starters, that 30% figure is a worst case scenario, so the average increase will probably be far lower.
You also need to factor in the massive regional variations in price, which mean that you could be far better – or worse – off than the average, depending on where you live. A good example of this was seen in January this year, when Npower announced a hike of 15%, but some customers in London saw their rate increase by as much as 20%.
Both these factors will play a key role in determining the value of a fixed or capped deal for you.
The pros and cons
Unfortunately, short of looking into the future, there’s no way of knowing what price you will be paying in a few months time, so it’s always going to be a bit of a gamble regardless of which tariff you choose.
So what are the pros and cons of each? At present, the online tariff is £150 cheaper, so you’ll be far better of to start with, but with price rises imminent, that gap will narrow. Worse, prices could rise even further as we go into winter (generally the suppliers’ favourite time for price hikes), leaving your gas bills significantly higher than fixed customers - at a time when the general cost of living is extremely high.
Conversely, the fixed deal will see your bills rise sharply in the short term, but you’ll have the security of knowing your prices won’t go any higher for a while. However, it’s worth pointing out that you can only fix your bills for around one year, which isn’t anywhere near as long as you’d like (you wouldn’t go for a one year fixed rate mortgage, for example).
Generally speaking, customers who would not be able to afford a dramatic rise in their energy bill should seriously consider a fixed deal, and switch to one immediately before the tariffs rise.
What can you get for your money?
As the table below shows, there are a number of fixed or capped deals to choose from.
At first glance, the Scottish Power deal looks like the one to go for as it’s the cheapest, but keep in mind that the British Gas deal is fixed for four months longer (until end December), which could more than justify the higher tariff.
Make sure you give it a fair amount of thought before signing up, as there are termination fees of up to £50 if you want to leave before the contract expires.
Standard tariffs are now financially unviable
In summary, the case for fixed rate deals is stronger than ever before and many households should seriously consider it. But don’t assume that it is the only option for every household.
One thing you must absolutely not do is choose one of the standard tariffs, as they offer the worst of both worlds; costing far more than the online deals, but offering none of the security of the fixed deals.
Capped and fixed tariffs at the big six suppliers
| Supplier | Price | Term |
| Scottish Power Fixed Price energy 2009 Online NSC Dual Fuel | £1,020 | Fixed until August 2009 |
| npower One Dual Fuel | £1,025 | fixed until August 2009 |
| Scottish Power Fixed Price energy 2009 Dual Fuel | £1,032 | Fixed until August 2009 |
| E.ON Energy Saver Version 3 Dual Fuel | £1,060 | Capped until October 2009 |
| E.ON Price Protection v16 2009 Dual Fuel | £1,060 | Capped until October 2009 |
| British Gas Price Guarantee December 2009 Dual Fuel | £1,073 | Fixed until 31st December 2009 |
Source: uSwitch.com, correct at 10/7/08
