Energy price cuts leave £3 billion hole in customer pockets

Consumers are being left with a £3.1 billion hole in their pockets despite recent energy price cuts, reveals uSwitch.com, the independent price comparison and switching service. Even though Britain's big six suppliers cut their prices in 2009 and now again in 2010, the reductions have not been enough to make up for the eye watering £381 or 42% hike that hit households in 2008.

The gap between the two is yawning. While price rises added £4.3 billion in total to household energy bills, price cuts have wiped £1.2 billion back off again - leaving a £3.1 billion shortfall.

The reductions have chipped £102 or 8% off the average household energy bill wiping out just 27% of 2008's increases.

Importantly for consumers, the average household energy bill in January 2008 was £912, rising to £1,293 following increases. Now, price cuts will bring it down to £1,191 - which means consumers will be paying £279 or 31% more than they were just over two years ago. 

However, while standard prices have dropped by £102 or 8%, suppliers have reduced online prices by £213 or 19%. Yet despite suppliers consistently offering their most competitive prices online, just 5% or 1.3 million households are on an online plan.

Suppliers have cut their prices largely as a result of low wholesale gas prices. But despite a substantial part of household electricity being generated by gas fired power stations there has been very little change in household electricity prices. In fact, this year the only supplier to do anything for standard electricity customers is npower. While not cutting electricity prices it boosted the discounts available to monthly direct debit electricity only customers to the equivalent of a 4.8% cut. ScottishPower however is helping 60,000 vulnerable customers who heat their homes with electricity by giving them a new £50 winter rebate.

There is still hope of a second wave of price cuts later this year, but consumers should certainly not bank on it. Instead they should move to an online energy plan so that they can benefit from the most competitive prices. These plans are now around £300 a year cheaper than suppliers' standard plans, offering households a real opportunity to bring their energy prices back to pre-2008 levels.

Ann Robinson, Director of Consumer Policy at uSwitch.com, says: "This 4% or £48 dip in energy prices will seem like a drop in the ocean to cash strapped consumers, especially as most of the cuts this year came too late to help people with their winter bills. Households are still struggling to get to grips with the impact of 2008's 42% or £381 price hike. When this is coupled with the effect of a particularly hard winter you can see why some may be left feeling let down.

"My advice to those who were relying on price cuts to bring their energy bills down to a more manageable level is to shop around. While suppliers have cut their standard prices by £102 or 8%, they have reduced online prices by £213 or 19%. Online energy plans are now around £300 a year cheaper than standard plans offering us all the chance to bring our energy prices back down to pre-2008 levels. I would like to see all households move to dual fuel, pay by direct debit and sign up to an online plan so that they can enjoy lower prices straight away."