British Gas Price Cut – Is It Enough?

British Gas Price Cut

chief architect x2 sales Back in October 2013, we posted an article on Moneystepper questioning why gas prices keep going up. Today, we take a look at the second British Gas price cut in 2015, but ask whether it’s really reflective of underlying gas prices.

 




 

What did we see in October 2013?

To quickly conclude our previous article, we noted:

  • Over the previous 10 years, British Gas prices have increased their prices to the customers by an average of 10.6% every year (201% in total), or 8.6% per year greater than inflation (128% increase over inflation in total).
  • The inflation adjusted cost of the raw product of natural gas fell 50% in the same period.
  • Customers were severely suffering whereas shareholders (through capital growth and dividends) were profiting from the price increases.
  • However, the real winners were clearly the executive bosses. For example, the base salary of the managing director increased by 13.5% per year over the same 10 year period.

 

 

Recent price falls

As reported by BBC News in their breaking news today, British Gas has said that it will cut household gas prices by 5%. This is the second gas price fall in 2015, with an equal 5% price cut being announced by British Gas in January 2015.

So, in total, this reflects a fall in gas prices of 9.75% cumulatively since the start of 2015. The consumer should be jumping for joy, right?

Well, not in my opinion….

 




 

Is this enough?

Let’s look at this from a VERY simplified point of view. It may not explain everything, but in my opinion it gives us a great starting point.

Looking at the price data for natural gas price from 3 months before 2015 until today (15/07/2015), the indexed value has fallen from 56.33 in October 2015 to 42.83 in July 2015 (data taken from Energy Brokers).

This is a fall of 24%.

When this is compared to falling prices with British Gas, then it doesn’t look quite as generous for the consumer.

We should add inflation into the equation, because British Gas will have lots of ongoing costs, but latest UK inflation figures gives a CPI in June 2015 of 0%.

Therefore, British Gas’ raw materials fell by 24% in the last few months, but they have only reduced their prices by 9.75% in 2015.

I, for one, cannot wait to see if the chief executives follow the 0% inflation when they award themselves their annual price rises in order to make sure that the UK energy consumer isn’t ripped off. I doubt it somehow…!

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