Last week, energy supplier Scottish Power announced that it would be increasing gas prices by 19% and electricity tariffs by 10%, which would add £175 a year to the average bill. Analysts uniformly predicted that Scottish Power’s rivals would quickly follow suit, leaving customers increasingly stretched in an already difficult financial climate punctuated by spending cuts and tax increases. If this does happen, economists are warning inflation could be pushed higher as a result.
With anxiety about the intentions of the other 5 major energy companies growing, the Government’s energy secretary Chris Huhne has suggested that consumers shouldn’t take price hikes “lying down”, but should hunt for cheaper options. It also seems likely that ministers are looking into the possibility of forcing companies to be transparent with all customers about whether they’re on the cheapest available tariff.
Reports suggest that 1 or more of the other big energy companies is on the verge of announcing a substantial price increase, with the others likely to follow suit in the coming weeks. This comes during a period that has been described by Sir Mervyn King (Governor of the Bank of England) as the most prolonged decline in standards of living since the 1920s.
In order to give smaller companies a better chance of competing in the energy market, the Government is introducing measures to reduce costs and cut red tape. The aim is to make the market more competitive, which should, in theory, lead to better deals for consumers. It’s also expected that energy regulator Ofgem will introduce a range of measures designed to mitigate the domination of the market by 6 big players (Scottish Power, nPower, EDF, Scottish and Southern, E.ON and British Gas).
Scottish Power has attributed its price increases to spiralling wholesale gas and oil prices, which have risen by around 30% in 2011 due to a combination of unrest in the Middle East, the weak dollar, and the demand from emerging markets.