Lack of competition fuels rise in gas and electricity prices, says watchdog

21 May 2008 / by Daniela Gieseler
Million of Britons are paying far more than they should on energy bills due to a lack of competition. The claim comes from Energywatch CEO Allan Asher who spoke to MPs in a hearing of the House of Commons Business and Enterprise Select Committee yesterday.

Mr Asher said it was a "myth" that there was competition between the gas and electricity suppliers operating in the UK.

"Sadly we have seen the 20 suppliers of 10 years ago shrink into just six in a comfortable oligopoly who really don't feel a need to innovate or compete, and sadly consumers are the losers," he said.

He pointed out that the price difference between the cheapest deal - £952 at Scottish and Southern Energy – to the most expensive deal, which is £972 at npower, amounted to just a "few pence a week". The average dual fuel energy bill has risen to a whopping £1.048 per year.

The lack of competition among gas and electricity suppliers means that prices are rising much faster in the UK than elsewhere in Europe. In comparison to other European countries British energy costs are ranked 4th for electricity and 10th highest for gas.

The committee is investigating accusations that power suppliers do not hesitate to pass on price increases on the wholesale market, but are in no way interested to cut their customers' bills when wholesale prices fall.

In addition, all six British suppliers increased their prices in unison earlier this year which has raised suspicions of price fixing. Although no direct evidence could be found, Mr Archer said he believed suppliers were following the lead of British Gas when increasing or reducing prices.

At the moment, the six suppliers cater for 55 per cent of the British market, and Mr Archer said this could rise to 75 per cent if EDF's acquisition of British Energy went through – which would make the situation even worse for consumers.

Mr Archer also accused the industry of using immoral practices and exploiting consumers, especially those on pre-payments meters which had to pay "punitively higher prices".

"Why is it that pre-payment meter customers are paying up to £400 a year more for the identical commodity? This is an immoral premium," he said.

His comments were followed by a storm of protests from energy suppliers.

A spokesman for British Gas accused Mr Archer of misleading customers saying: "Despite the impact of record oil prices on the cost of gas internationally, Britain's household gas bills remain the lowest in Western Europe, and our electricity is among the cheapest, too."

But, the fact is that thousands of customers struggle to pay their gas and electricity bills which have risen by 15 per cent since the beginning of this year, and there are fears that providers will increase prices further in the months to come.

Mr Archer called the government to act quickly to encourage new suppliers to enter the British market to build new generating stations and offer more competitive prices to the public.

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