Millions of British Gas customers will see their energy bills rise by 5.5% to an average £1,161 a year from the end of May, as the company becomes the first of the big six to announce an outright increase in tariffs this year.
Ministers called the price unjustified and said they were disappointed by the move.
The UK’s biggest energy supplier blamed the hike on rising wholesale gas and electricity prices, and government policies such as renewable energy subsidies, which are paid through energy bills.
E.ON announced a stealth hike on energy bills of up to £50 for some customers in March, but British Gas is the first large supplier this year to raise its standard variable tariff, the poor value tariffs that most households are on.
The rise will hit 4.1m of the firm’s 7.8m customers, who will pay £60 extra a year.
The move comes days after energy regulator Ofgem raised a price cap on 5m vulnerable households, and ahead of the government’s wider price cap for 11m households on standard variable tariffs. That ceiling is due to take effect before the end of the year.
British Gas blamed higher energy costs, government policies to reduce carbon emissions and the £11bn smart meter programme for the rise.
Mark Hodges, chief executive of Centrica Consumer, part of the British Gas parent company, said: “We fully understand that any price increase adds extra pressure on customers’ household bills. This increase we are announcing today is reflective of the costs we are seeing which are beyond our control.”
The firm repeated its suggestion that the government should shift green policy costs off energy bills and on to general taxation. Between August 2017 and February 2018, costs facing energy suppliers rose 7.9% primarily because of higher wholesale costs, according to Ofgem.
British Gas stopped signing up customers to its standard variable tariff at the end of March, arguing it discouraged consumers from engaging in the market. But last week Ofgem approved the firm’s request for an exemption allowing existing customers to stay on the tariff until mid-2019.
Claire Perry, energy minister, said today’s rise showed why the government was imposing a price cap. “We are disappointed by British Gas’s announcement of an unjustified price rise in its default tariff when customers are already paying more than they need to,” she said.
Comparison sites said the increase would be a “bolt from the blue” for millions, and other large suppliers could follow with their own price hikes.
“The danger now is that the rest of the big six may be tempted to follow suit. Customers can send the clearest message that they won’t tolerate being taken for a ride by switching supplier to a cheaper tariff, with savings of up to £491 on offer,” said Claire Osborne, energy expert at uSwitch.com.
The Guardian reported in February that a new round of price hikes was on the way, after smaller energy suppliers began raising tariffs.
British Gas announced recently it would cut 4,000 jobs due to tough competition and the prospect of a government price cap. The company was the last of the big six to put up prices last year, when it raised dual fuel bills by 7.3% on 15 September.
Separately on Tuesday, Co-operative energy said it had agreed a £9.25m deal to buy Flow Energy, one of the smaller energy suppliers, adding 130,000 customers to its base of 320,000.