British Gas has warned customers to expect hikes to their energy bills in the near future, just one week after cutting the price of its online tariff.
At the start of May, the energy giant cut the cost of electricity by an average of 4.5% for its Click Energy 5 deal. But customers’ joy at that decision has proved short lived, with British Gas telling them today that it will probably increase its prices in order to bolster profits for the months ahead.
“While the current outlook for gas prices does create a challenging environment for energy suppliers, we will take the necessary action to deliver reasonable margins in the retail business,” the company warns in its latest financial report.
All aboard the energy price rollercoaster
This constant reshuffling of energy prices is by no means unique to British Gas - for months all of the big six suppliers have been hiking and cutting their tariffs at an alarming rate.
This has had a massive impact on customers looking to stay on the cheapest energy tariff. In the past, when you switched to a cheaper deal you were able to relax, safe in the knowledge that you’d be saving on bills for a substantial amount of time.
Nowadays you’d need to switch suppliers on a monthly basis in order to stay ‘ahead of the game’.
In fact, provided you’re already on an online tariff and pay by direct debit, it’s unlikely that a one-off switch will save you a significant amount of money in the long term.
Short term gain
As a great example of the energy tariff merry-go-round, I switched from British Gas to Eon’s cheapest tariff earlier this year, only for Eon to hike my bills substantially within a month, meaning I was no longer on one of the cheapest tariffs.
Similarly, my colleague was lured to British Gas’ Click Energy 4, the cheapest tariff on the market at that time. One week after signing up, he was hit with an 18% price hike.
And the same thing has happened to the thousands of customers who switched energy suppliers in recent months. The table below tracks the changes in energy tariffs this year, and clearly shows that no deal remained the cheapest for very long.
Online tariffs in 2008: Cheapest to most expensive
| January | February | April | May |
| British Gas (£742) | E.ON (£769) | Npower (£795) | British Gas (£866) |
| E.ON (£769) | SSE (£777) | EDF (£819) | Npower (£878) |
| ScottishPower (£770) | EDF (£819) | British Gas (£880) | ScottishPower (£886) |
| SSE (£777) | British Gas (£880) | ScottishPower (£886) | E.ON (£891) |
| EDF (£819) | ScottishPower (£886) | E.ON (£891) | SSE (£896) |
| Npower (£901) | Npower (£901) | SSE (£896) | EDF N/A |
Why has this happened?
There are two reasons why prices are changing so rapidly. Firstly, and most importantly, is the fact that oil prices are soaring and show no sign of stopping. This in turn means suppliers have to constantly update their prices.
The second reason is a little more sinister. Suppliers know that customers have become more vigilant and now take the time to check who has the best deal around. By undercutting their competitors for a short while, they are able to attract a number of new customers before hiking their rates again.
It’s a sneaky, yet effective marketing ploy.
So how can you avoid the rollercoaster?
While you could argue that locking into a fixed or capped price tariff is a way around this, you pay such a high premium on these deals – up to £200 a year - that it seldom works out worthwhile.
As we mentioned earlier, the only way to ensure you save money in the long run is to switch to an online tariff and pay by direct debit.
As the table below shows, these tariffs have proved consistently cheaper than standard ones, despite the various price changes.
With energy prices expected to rise by as much as 46% this year (according to price comparison site uSwitch), it’s imperative that anyone who has yet to make the switch to online does so immediately.
| January | February | April | May |
| Standard Plan | £937 | £1,026 | £1,048 | £1,048 |
| Online Plan | £796 | £839 | £861 | £883 |
| Saving | £141 | £187 | £187 | £165 |
Keep switching, though
While the financial incentive may not be as strong as it was before, it’s important that customers do keep switching if they are unhappy with their current supplier, for whatever reason.
Switching is the only weapon the customer has, and it sends a clear message to the energy giants that you are unwilling to put up with a shoddy service. If enough people jump ship, it can even convince them to lower prices.
