Soaring energy prices fuelling a domestic crisis across the UK

There may be panic at the petrol pumps, but the increasing price of oil means that gas and electricity bills have also seen inflation-busting rises – and there's worse to come as Gina Davidson discovers.

FOR a while it seemed that the customer had the best of all worlds. The monopolies of British Gas and the national electricity board were smashed, so if you didn't like how much you were forking out for your domestic fuel, then all you had to do was switch. Oh yeah, you gotta switch, as the advert goes.

But now, thanks to the continuing rise in oil prices and the increasing reliance on importing gas, that option isn't quite what it seems any more.

The days of being able to save a bundle on your bills by moving from one utility company to another have gone. As energywatch's director of campaigns Adam Scorer says: "The sad truth is that millions of consumers are switching but their bills still rise. For millions more, switching to a cheaper tariff is either fraught with difficulty or just plain impossible.

"In a high price environment where the average bill exceeds £1000 a year, the least expensive deal on offer does not equal affordable energy. No-one can seriously think that switching, by itself, provides the answer for Britain's besieged energy consumers."

Besieged is the right word. In the last five years gas bills have soared by 108.7 per cent, while electricity prices have risen by 69 per cent. This year alone, gas and electricity prices have risen by 15 per cent.

As a result everyone is feeling the pinch – but those on low incomes and state pensions have been hardest hit. In fact, pensioners' winter fuel payments have been wiped out. A typical pensioner household aged 65 to 74, with gas central heating, has seen gas bills go up by £260 per year, and electricity by £160 per year, while the value of the winter fuel payment per household for those aged 60-79 is just £200, and £300 for those aged over 80.

Meanwhile, a study published this week shows that 6.8 million households are currently in debt to their supplier – with the average amount households owe standing at £114.

Other research, this time by Age Concern, the Child Poverty Action Group and National Energy Action, has shown the number of households in fuel poverty – that's those that have to spend more than ten per cent of their disposable income on power – has soared by 600,000 in recent months to 4.5 million.

This includes the vast majority of single pensioners and lone-parent families entitled to basic state benefits, who now face a choice between heating and eating. It also looks like things are likely to get worse.

Already wholesale gas and electricity prices have risen by a third since the start of February and the problem is made worse by rocketing oil prices, which hit a record £59 a barrel this week.

Unless wholesale prices fall substantially, bills will start rising again by August or September – possibly by as much as 25 per cent for gas, while electricity could go up another ten per cent.

Such a hike would add around £180 to a standard average bill, pushing it towards £1200 a year. Unsurprisingly energywatch has already warned the Government that such a huge increase will "consign another million households to fuel poverty".

The Government has been trying to do something. Along with the big six power companies it announced a £225 million scheme to lift 100,000 households out of fuel poverty over the next three years, involving low tariffs or funding home insulation. But according to Mr Scorer, more needs to be done.

"To give real help to the fuel poor and vulnerable consumers, the Government must mandate suppliers to produce a social tariff for their neediest consumers – one which will be the lowest tariff available and not be available only online.

"Also, energy companies raise more than £320m from prepayment users, around a million of whom are fuel poor. On average a prepayment customer pays £215 more than a direct debit online user and one million fuel poor homes have prepayment meters – this needs to end.

"Furthermore, the Government needs to invest £320m to help cold weather payment groups get the winter fuel payment."

Mark Todd, of energyhelpline.com also believes winter fuel payments should be extended to help cover bills. "There is no doubt that there is an energy crisis looming. The winter fuel allowance that is paid to the elderly should be extended to the poor, because it should be as much about stopping poor kids freezing in their homes as old people."

What the Government can't control though is the fact that North Sea reserves are dwindling. As a result, by 2010, the UK will be importing at least half its gas from countries such as Norway and Russia – which could see the country literally being held to ransom to get the energy it requires.

Sam Laidlaw, chief executive of Centrica, believes the gas that's imported could cost even more. "Seven years from now, we'll be importing at least 75 per cent of the gas we need. To get this gas we have to compete on price terms with European energy suppliers who are buying under contracts directly linked to the price of oil – which has risen by 80 per cent since early 2007. The wholesale gas price has risen sharply in response. The time-lag of pricing mechanisms in Europe means it may be higher in the winter," he says.

"Price volatility is also intense. Current prices for summer 2008 are at unprecedented levels, more than 45 per cent higher than this time last year – and yet despite this, gas has not been flowing into the UK when high prices should have attracted it in."

Indeed, Norwegian gas suppliers have already stated that Britain is a secondary priority for its gas exports compared with mainland Europe – no matter the price the power companies pay.

Anyone got any candles?