HOUSEHOLDERS have been warned that they will be hit with even bigger fuel bills this winter, after energy bosses admitted that large prices rises were on the way.
Senior executives of the "big six" energy firms were questioned yesterday by a committee of MPs on why prices were so high.
They did nothing to quell fears that bills could rise by up to 40 per cent. The firms argued that increases in the cost o
f wholesale gas were the cause and said their profit margins were so tight they would be forced to pass on costs to the public.
They also revealed that energy companies volunteered to give discount vouchers to the lowest-income householders back in February but that the government had dismissed the suggestion.
While no executive was prepared to confirm what the exact rise would be, Ian Marchant, the chief executive of Scottish and Southern Energy, said: "Unless something drastic happens, I can see the whole industry's prices will have to go up significantly." When questioned on reports that energy bills could rise by as much as 40 per cent this August, Mr Marchant said his company had not yet finalised the price hikes.
Rupert Steele, director of regulation at ScottishPower, said figures across the industry would "have to rise significantly".
This will come as a blow to householders who are already facing rising food prices and hikes in interest rates as global pressures put the squeeze on the UK economy.
While the Bank of England has warned inflation may rise to 4 per cent, other measures show the cost of living has gone up by more.
Sam Laidlaw, chief executive of Centrica, parent company of British Gas, also told the parliamentary business and enterprise select committee that he had not made a decision yet on prices.
But he added: "It is clear that... at some point in the future gas prices are going to have to move up."
Mr Laidlaw defended Centrica's £1.2 billion profit and insisted that accusations of "fat cat earnings" were unfair. Despite soaring prices and bills, the average profit margin in the industry was 3.5 per cent and unsustainable, he said.
Mr Laidlaw said: "We need to make a return in this business because we need to invest in new sources of gas for the UK."
Dr Paul Golby, chief executive of E.ON, also defended the high prices, saying the companies were seeing "a seismic shift in commodity prices".
Mr Marchant agreed that owing to high wholesale prices "at present, supply is loss– making".
Scottish and Southern Energy and ScottishPower buy gas on the international markets. European energy suppliers have been accused of rigging the markets with long-term contracts, where the price of gas is tied to oil.
Rupert Steele, director of regulation at ScottishPower, said that European markets were "not as open as they should be". This could be contributing to the volatility of gas prices in Britain, he said.
Vincent DeRivaz, chief executive of EDF Energy, admitted that "in the gas wholesale market, there is some improvement to be made".
MPs questioned energy companies about the help they offered to poorer customers. Energy firms already contribute £50 million for social tariffs to help the most cash-strapped customers.
But they have come under pressure from the government to increase this to £150 million.
Amid inflation-busting bill hikes, the government has held high-level talks with power companies to discuss how to help the poorest people cope with soaring bills.
However Mr Marchant said energy companies had volunteered to give discount vouchers to the lowest-income householders but the government had dismissed the suggestion.
"I said we can support a voucher scheme but we are not going to write government a cheque … We felt a voucher scheme could have been ready for this coming winter."
Mr Steele also revealed ScottishPower had spoken to the government about social tariffs and introducing a voucher scheme "but then they decided to go down a different route".
Graham Kerr, of energywatch Scotland, yesterday said there was now a case for European specialists to decide whether they can force the renegotiation of European gas supply contracts.
He said there was no reason why energy companies could not "cross-subsidise" to soften the blow to consumers."
If the predicted 40 per cent rises are realised more than one million Scottish households, almost one in two, will be fuel poor by next spring," he said.
"The way forward in both cases is to direct the competent competition authorities in Britain and Brussels to improve the level of new entry and competitiveness in the British market and to smash the oil-gas link across Europe. The problems may be big and structural, but Scottish consumers need a better response than a shrug of resignation."
£6 a gallon – and Brown gets the blameBRITAIN is seeing an increasing number of fuel protests – from lorry drivers to bikers – as prices continue to rise.
Yesterday PetrolPrices.com, which analyses diesel and petrol costs, revealed that the average price of diesel in the UK has broken the £6 a gallon mark for the first time – the equivalent to 131.9p a litre.
Scotland currently has the highest average price for diesel at 132.8p, followed by Wales at 132.5p, then Northern Ireland at 132p. Only England is below the landmark figure, at 131.6p.
The UK average for both unleaded petrol and diesel was at a record high yesterday, following a three-month period where prices have broken records almost every day.
Unleaded fuel currently stands at 118.6p, making it on average around 13p less than diesel.
The minimum price found for unleaded petrol is 113.9p while the maximum is 129.9p.
The average price of diesel in the UK has increased by 24p since the beginning of the year, or 22 per cent. The price of diesel hit £5 a gallon for the first time in January this year.
An AA/Populus poll revealed that nearly half of Britain's motorists blame the government for surging fuel costs despite Gordon Brown's attempts to champion their cause with high-profile lobbying of the world's oil producers.
No big pay hikes, no interest-rate cuts, no sign of costs fallingINFLATION has already overshot the government's target of 2 per cent.
Mervyn King, the governor of the Bank of England, earlier this month had to write to the Treasury to warn that it had reached 3.3 per cent in May, and could go over 4 per cent by the end of the year.
This is only according to the government's preferred method of inflation, the Consumer Price Index, which does not take into account mortgage interest payments and some other housing costs.
The RPI, which does include these costs, is already at 4.4 per cent. With costs already soaring, companies and the public sector are being pressured to offer more generous pay rises to stop workers' standards of living dropping.
This comes as a double blow to businesses as they are already grappling with higher commodity prices and a hike in interest rates. With inflation set to rise for the rest of the year, the Bank of England is highly unlikely to cut interest rates, meaning there will be no reprieve for home owners.
The problem of rising inflation is also affecting the booming economies of Asia and has hit America, too.
You'll need £800 a year more to feed a familyFAMILIES are having to spend almost £800 more on their annual grocery bill as the highest rate of food inflation for a generation forces up supermarket prices.
A recent study from price comparison website MySupermarket.co.uk, said an average family who spent £100 a week on food shopping last year will now have to find an extra £780 a year to put the same items in their shopping basket.
One standard example – the price of a pint of milk – illustrates the effect of the price hikes and some of the reasons behind it. The supermarket price of milk has leapt by 17 per cent in the past year to around 33p.
The price of milk and other dairy staples has been driven up by a huge increase in demand from China and India. The burgeoning middle classes in these fast-growing economies are switching to a more western diet, intensifying demand and so bringing higher prices.
The price of a big brand loaf of bread has risen by 25 per cent – 23p – to £1.29 in just a year.
It has been reported that the cost of wheat has doubled in price.
The increase stems from poor harvests linked to weather extremes, including droughts in Australia. At the same time, an increasing amount of wheat is being used to make biofuels.
Various staples have been the subject of price rises over the past 12 months. A kilo of peas has gone up from £1.19 to £1.79 at Tesco, while a dozen eggs at Sainsbury's has leapt from £1.62 to £2.35.
The full article contains 1522 words and appears in The Scotsman newspaper.
