What will the British Gas cut mean for you?

British Gas has announced it will cut the price of gas by 10% - becoming the first major energy company to announce a price reduction since 2007. But what does it mean for you and are more cuts in store?

The energy giant's owner, Centrica, says the 10% cut in standard tariff gas prices, which although announced on 22 January will not come into effect until 19 February, will benefit more than 7.5 million customers and reduce gas bills by around £84 a year. British Gas customers will be able to trim a further £15 off their quarterly gas bills if they pay within 15 days of receiving their bill.

“This price cut will go some way to helping customers manage their budgets, and we will continue to do what we can, when we can," says Phil Bentley, managing director of Centrica.

British Gas customers can now expect their annual bill to fall to £1,240 a year, according to moneysupermarket.com.

However, the energy giant raised its energy prices twice last year - by 15% in January and by a record 35% in July. And analysis by uSwitch.com reveals that, despite this cut, average energy bills are still 36% higher than they were a year ago.

In addition, an estimated 2.7 million customers with a fixed-price energy contract will not see the benefit of the cuts, as their plans are typically fixed for two or three years. British Gas ran a high-profile advertising campaign last summer immediately following its 35% rise, guaranteeing its customers ‘no price rises until 2011’.

Scott Byrom, utilities manager at moneysupermarket.com, says: "As far as bill payers are concerned, a 10% drop does little to compensate for the record price increases of 2008.”

Lower bills

Earlier in January Scottish Power announced it was cutting its fixed-price tariff PriceSure by £81 sparking predictions of an energy price war in the spring.

Gerard Magee, head of marketing at Scottish Power, said at the time that the provider would consider cutting other tariffs in-line with cheaper wholesale crude oil: “If we continue to see a sustained drop in wholesale energy costs then we will reduce prices as soon as we’re able.”

Experts were also optimistic that the move by Scottish Power would set the ball in motion and lead to cuts by other suppliers.

Responding to Scottish Power's cut, Joe Malinowski, founder of energy price comparison website TheEnergyShop.com, said. “We believe that this is just the opening shot in the coming round of price cuts and is expected to set a minimum level for other suppliers to compete with.”

So, now that this prediction has been realised and British Gas has implemented a cut for its standard tariff customers, what can households who use other providers expect to happen to their energy bills?

Most commentators say the move by British Gas is likely to result in lower energy bills for all in 2009 as rivals follow suit. And, according to Aamir Baloch, spokesperson for energyhelpline.com, it won’t be long before competitors act.

“There are six large players in the market, and when one moves a game of one-upmanship begins,” he says. “They are under intense pressure by the energy watchdog Ofgem to be seen as supporting their customers, so I expect households to start seeing price cuts very soon.”

Ken Geddes, sales and marketing director at energy price comparison website Energylinx.co.uk, agrees: “When one energy company acts another follows suit. We’ll soon see at least another two energy giants slash their prices, while the remaining three may not have quite as much mileage in how low they can go.”

Geddes believe further cuts could be seen as soon as over the next few weeks.

Time to switch

But Ann Robinson, director of consumer Policy at uSwitch.com, urges consumers not to wait for further cuts.

"Rather than holding out for price cuts, consumers should help themselves now by making sure they are paying the lowest possible price for their energy and learning to use less of it,” she says. “Moving to dual fuel, paying by direct debit and managing your plan online will all help to save money - switching to a competitive plan could cut your annual energy bill by up to £350."

Figures from uSwitch reveal that even after the cuts by British Gas, EDF Energy remains the cheapest energy provider in the UK, charging customers £1,211 a year for a standard dual fuel plan. British Gas is second (£1,240), followed by Scottish and Southern Energy (£1,259), Npower (£1,291) and Eon (£1,297). Scottish Power is the most expensive provider at £1,369 a year.

Geddes is also concerned that the 7.5 million households on the British Gas’ standard tariff may still be paying over the odds despite the cut, simply because they have never switched energy supplier.

He estimates that those who have never switched supplier and are paying by monthly direct debit could still save on average a further 13.73% by switching to an online account with the cheapest energy supplier.

For pensioners and those on low incomes, the cut is still just a drop in the water.

Gordon Lishman, director general of Age Concern, says: "Unless further reductions follow, and are made across all tariffs and energy companies, many of the poorest pensioners will continue struggle to pay their energy bills.

"Even with price decreases, millions of the poorest pensioners and families will still be living in fuel poverty and will continue to pay more for their energy than wealthier customers.

“The government and energy companies must ensure that the poorest pensioners and families get a fair deal. It is essential that social tariffs are reformed and the pricing penalties leaving cash, cheque and pre-payment customers paying more for their energy are removed."