Millions of households face record high energy bills
Millions of households were warned last night that they face “unacceptable” rises in their energy bills after one of the biggest power firms announced average increases of nearly £200 a year.
By Myra Butterworth, Personal Finance Correspondent
10:15PM BST 07 Jun 2011
telegraph.co.uk
Scottish Power became the first of the six major suppliers to disclose a new round of price rises. It told five million customers that gas and electricity bills would go up by 19 per cent and 10 per cent respectively.
The increase, which will take effect on Aug 1, will push households’ average annual bills to almost £1,400; the highest level ever.
Other energy suppliers are expected to follow suit and increase their prices within weeks.
The announcement is a fresh blow to households whose budgets have been squeezed after repeated increases in inflation. The Bank of England has previously warned that rising energy bills are likely to be one of the main factors behind the continued rise in the cost of living.
The Spanish-owned company, which made an operating profit of approximately £800?million last year, blamed the increases on a “prolonged” rise in wholesale gas and electricity prices, which have jumped 30 per cent since November.
Experts said that the rise had been driven by increased demand for gas from Japan after the nuclear crisis in March. However, they pointed out that wholesale prices were still lower than three years ago during the financial crisis.
Scottish Power’s announcement was widely condemned by ministers, MPs, the energy watchdog and consumer groups.
Audrey Gallacher, of Consumer Focus, said: “This huge increase will be a body blow for consumers and we fear other firms will follow Scottish Power’s lead.
“Companies have been softening customers up for price rises for months but customers will be shocked at the scale of this rise.
“We know suppliers like the comfort of the pack and that price rises come in waves. Every household in the country will now be bracing themselves for impact.
“When this affects the cost of keeping warm and well, it is not an acceptable state of affairs.”
The consumer champion estimated that half a million people would struggle to pay their energy bills if the other five energy firms followed suit.
Richard Lloyd, the executive director of Which?, said: “These price hikes from Scottish Power will be a shock for its millions of customers already struggling with the rising cost of living.”
Last night MPs on the House of Commons business, innovation and skills committee threatened to order a new inquiry into power bills if other companies followed suit. Adrian Bailey, the chairman, said: “This increase is quite astonishing. It will have an enormous impact on the state of the economy.
“This is a double whammy. If Scottish Power is followed by others, I think we would want to look at the pattern of increase over the last year and any links to the international market. If there is a disconnect, we had already bought before listing or selling an enlarged “Friends Life” in 2013. The move meant Resolution failed to meet its original aim of building an insurance group valued at £10bn.
Speaking yesterday, John Tiner, chief executive, said the group is now valued at closer to £8bn than the original £10bn target. However, he added: “Our strategy means that we now have a businesses with focus and a competitive advantage over our rivals.”
Yesterday’s buy-back is unlikely to net a significant payout for the eight senior partners – which include Messrs Cowdery, Biggs and Tiner – who invested £20m in the company when it was listed in December 2008.
The value of their holding is now thought to be just over £28m, however they have received income through management fees paid to Resolution Group, a privately-owned consultancy, which sits separately from the listed Resolution Ltd. These fees are worth about 0.5pc of the non-cash value of the company, subject to a minimum payment of £10m, although no annual figures have so far been disclosed.
The eight partners will also be handed a so-called “value share” that is separate from their holding when the company is eventually listed or sold. According to a recent disclosure, this would be worth about £29m if they sold the company based on its current share price.
Sources close to Resolution told the Daily Telegraph that although further deals were currently off limits for the UK business, it could eventually be merged with the assets of a foreign insurer looking to exit the UK.
Resolution Group has already strengthened its executive team ahead of the launch of its next consolidation project in the insurance industry. Steve Taylor-Gooby from advisory group Towers Watson has been recruited to help explore opportunities in “life, asset management and other financial sectors” across Europe and the US.
Future ventures will focus on merging closed life funds – insurance funds that no longer write new business. Mr Cowdery’s first business consolidated these funds in the UK before it was sold to rival Pearl for £5bn in 2007. |
