In Depth

Fact Check: Are government levies to blame for British Gas price rise?

Company says costs of policies has risen by up to £98 in past three years

This week's big personal finance news came courtesy of British Gas, which announced it was increasing the cost of its electricity by 12.5 per cent.

All of the so-called "big six" energy firms have now raised prices this year, most at double-digit rates, putting the issue back on the political agenda.

Energy prices have long been a political football. Most recently, Ed Miliband pledged to freeze fees ahead of the 2015 general election - a move the Tories branded "Marxist" but then adopted before this year's election in June.

A minority government means that's now fallen by the wayside, although Ofgem has been tasked with taking action and the days of the "standard" tariff could still be numbered.

However, there is another political dimension to British Gas's news - the company putting the blame on the UK's environmental policies.

What has been said

British Gas published a breakdown of the "hidden" costs in consumer energy bills and the changes since 2014, says the Daily Mail

It shows the main green taxes to fund investment into wind farms and solar panels are now worth around £112 a year on the average householder's bill, up from less than £48 three years ago.

Smart meter rollout, another government policy funded on bills, adds around £34, while funding discounts for poorer households make for about £11 per year.

Even accounting for a reduction of £37 in the cost of providing insulation to customers, British Gas says costs across the range of policy-led elements have risen by £88-£98 per customer.

This would seem to accord with a government announcement in January, when it said it would seek to reduce headline green subsidies after it was revealed the amount the average bill-payer was forking out had risen above £110, says the Daily Telegraph.

"The Government denied responsibility for the [British Gas] rise, saying policy costs make up a relatively small proportion of bills," says the Mail.

Is British Gas right?

British Gas's figures appear to be fairly robust. As the company said yesterday, they equate to a £62-per-customer rise in costs, even taking into account falls in wholesale prices since 2014.

Its latest price rise is worth around £76 a year, but it is the first increase since late 2013.

Some might say this makes a mockery of a price freeze if the costs are merely rolled up for later. Others may argue that the company's 15 per cent profit margins on gas supply are very high.

Nevertheless, British Gas's profits are falling - domestic energy supply earnings fell 26 per cent in the first six months of the year - and according to MoneySavingExpert, its average standard tariff of £1,120 after the increase is still below the big six average of £1,151.

So maybe British Gas isn't the big bad guy here and it is arranging other incentives for customers, such as discounted Sky TV.

But consumers should beware of the standard tariff, which is comparatively expensive whichever company it comes from.

MoneySavingExpert says the best fixed-price deal on the market - £834 a year - comes from Iresa, while even among big six, you can get a one-year fix for £924 - a saving of between £196 and £286 compared to the British Gas standard average.

If the price rise does nothing else, it will hopefully persuade more people to switch.

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