Anger as energy bills rise by 37pc

Minister accuses major suppliers of ‘unfair’ increases before Tories bring in price cap

ENERGY companies were last night accused of behaving in an unfair and unreasonable way after raising prices before a proposed government price cap is introduced.

Centrica, the owner of British Gas, warned that Theresa May’s flagship policy would drive up prices even higher by reducing competition.

However, the Conservatives will today confirm that the energy price cap forms a key pledge in their forthcoming election manifesto.

Energy suppliers were accused of “milking” their customers after they quietly raised the price of their cheapest gas and electricity deals by as much as 37 per cent since Mrs May first threatened to intervene last year.

The Conservatives said families are now paying £1.4billion more for their energy than they should be, and promised to “put it right” by capping prices if they are re-elected.

But Centrica, owner of British Gas, hit back by saying a price cap would end up pushing up average prices as it warned the Prime Minister her policy would lead to “unintended consequences”.

Iain Conn, the company’s chief executive, said the policy was anti-competitive and pointed out that a similar policy in Spain led to a £20 billion deficit in spending on infrastructure.

The Tories believe a price cap – which would be set by the regulator Ofgem and re-set every six months – will knock up to £100 off annual bills for around 18 million households.

On a day when the Tories traded blows with the so-called “Big Six” energy firms, Mrs May used a speech to party activists in the morning to say a cap would be “in the national interest” and would “support working families”.

Mr Conn responded in the afternoon by telling journalists at the Centrica’s annual general meeting that a price cap would “damage” customers, as a company statement said evidence from other countries suggested it would “lead to reduced competition and choice, and potentially higher average prices”.

Then, just before 6pm, the Conservatives released a manifesto announcement, under embargo, that confirmed for the first time their pledge of an “absolute” price cap – after the idea of a “relative” cap, setting a maximum differential between cut-price and standard deals, was scrapped.

The policy would benefit anyone who pays for their energy on a standard variable tariff, which accounts for 70 per cent of the market.

Greg Clark, the Business, Energy and Industrial Strategy Secretary, said: “We will act on our commitment to intervene when the energy market fails to treat people in a fair and reasonable manner.

“In the last few months, five of the largest energy suppliers have announced increases to their already

poor value standard tariffs. This clearly isn’t fair and reasonable and we are going to put it right.”

Since October, when Theresa May first suggested the Government was prepared to take action against firms that were “failing” their customers, the average cost of the cheapest deal has gone up by 15 per cent.

SSE has been behind the most extreme rise, data from the comparison website Uswitch shows. Its cheapest gas and electric deal has become 37 per cent higher over the period, jumping from £782.21 to £1,071.93 a year.

But as the cheapest deals have risen in price more rapidly, the difference between them and the standard tariffs has also closed, reducing potential savings for people who switch.

The average Big Six cheapest deal is now just £136.74 less than the cost of a standard tariff, compared with £226 in October. For SSE customers the cheapest deal is now £1,072, just £70 a year cheaper than its standard tariff at £1,142. In October its cheapest deal was £782, £286 a year cheaper than its standard rate of £1068.

Martin Lewis, founder of Moneysavingexpert.com, criticised the cap, saying the removal of cheap deals would “disincentivise” consumers to shop around for a better deal.

Centrica boss Mr Conn said: “We haven’t actually seen the policy yet and so we need to keep a cool head. What I’ve been trying to do is simply point out that there are many examples of unintended consequences. In New Zealand, a price cap resulted in price bunching up around the cap and a loss of competition.

“A price cap in Spain actually resulted in a €24billion deficit as a result of the artificial suppression of bills when the cost of transforming the energy system still needed to be paid for. That then fell to the government to pay for all of that.

“Now I’m not suggesting that something like that will happen in the UK but I want to try to avoid some of the unintended consequences happening.”