British Gas price freeze offer ‘kicks can down the road’

A move by British Gas to offer its standard variable tariff (SVT) customers a price freeze over winter could lead to affordability issues surfacing at a later period, an industry expert has warned.

Rik Smith spoke to Utility Week following the announcement that the supplier’s SVT customers would be given the option to freeze their direct debits at the current rate, despite the forthcoming price cap increase.

The Centrica-owned retailer has become the latest supplier to confirm an increase to its SVT, in line with the next price cap level, to £1,277 – the highest since the cap was introduced.

However, it will allow 2 million customers to freeze their direct debits over the winter months, a move which it claims will save them an extra £50.

In a statement the company said the latest price cap increase comes at a “very expensive time of year” for some as furlough ends and the Christmas period begins.

“Freezing direct debit payments until after winter will keep an extra £50 in customers pockets. We want to give our direct debit customers the option to create a bit of extra financial breathing space if they need it,” it added.

The company confirmed there will be a catch-up period to account for the money owed and added that it will assess the market outlook next February before making a final decision on changing direct debit payments to reflect the increase to its default tariff.

Meanwhile customers who would rather manage the increase immediately can amend their direct debit sooner.

The move has been met with scepticism by former Uswitch energy spokesman Smith, who believes struggling customers could be landed with payment issues further down the line.

Smith, who now works for a property lettings platform but was speaking in a personal capacity, said: “They are talking about how Christmas is an expensive time, yes it is, but what they are doing is making it really expensive in the spring for people and that’s not the answer either. People tend to spend a lot at Christmas and then January and February are pretty tough times as well as people recover from that expenditure.

“It sounds cute and cuddly but as soon as you peel back the veneer that’s very appealing, actually this could be pretty bad news for people who are struggling to pay today because come the review point later it’s going to be reviewed up significantly.”

Smith, who worked for British Gas between 2013 and 2016, added the supplier was “compounding the problem for themselves”.

“They are basically kicking the can down the road. They do not have to increase the direct debits now but they are going to have to increase them later as a result,” he said.

Several suppliers have announced they are increasing their prices, following the news that from 1 October the default price cap is to rise to its highest ever level.

Record wholesale costs mean  customers on default tariffs paying by direct debit will see an increase of £139 – from £1,138 to £1277. PPM customers meanwhile will see an increase of £153 – from £1,156 to £1309.

EDF was the first to announce price increases and it has since been followed by Bulb, Scottish Power and Ovo Energy (including the SSE brand).