The power struggle: fuel price soars, oil firms' profits leap, home bills climb

Local & National

Wednesday, April 30, 2008

The price of power and who foots the bill for Britain's rocketing energy costs took centre stage yesterday as the oil giants Shell and BP unveiled huge combined profits of £7.2bn, made in just three months, and consumers were hit with a new round of steep rises in prices from gas and electricity to air travel.

Npower, Britain's fourth largest domestic power supplier, signalled the start of what experts said will be another round of price increases in gas and electricity after it abolished its cheapest online dual fuel tariff and raised charges for new internet customers by up to 20 per cent. Industry analysts expect all energy bills to rise by another 20 to 25 per cent by next spring, pushing another one million Britons into fuel poverty.

The hike was just one of several being absorbed by consumers yesterday, ranging from an increase of up to £30 per return flight in the fuel surcharge paid by British Airways' passengers, to petrol pump prices now averaging 109p per litre of unleaded fuel. One forecourt in Kent was charging 129p per litre.

Amid a row about the "extreme" size of the first-quarter profits announced by BP and Shell, which exceeded City expectations, Gordon Brown called on the oil companies to invest more in increasing production in the North Sea. The Prime Minister admitted he was "very worried" about the impact of rising oil prices on pensioners and families, as opposition politicians pointed to the growing disparity between corporate profits and the financial squeeze being felt by households.

Sarah Teather, the Liberal Democrat business spokeswoman said: "Many people will feel deeply uncomfortable that some of the world's wealthiest companies are experiencing a profit surge at a time when household budgets are under tremendous pressure.

"Consumers are already facing huge price hikes in food and utility bills. Now petrol prices seem to be rising, while oil companies' profits are going sky-high.

Oil companies should not be profiteering while so many are struggling to make ends meet. We need to ask whether the price rises being passed on to consumers are proportionate."

The first rumblings of popular discontent were felt on the streets of London yesterday when some 250 hauliers staged a noisy protest against record diesel prices which they said could drive them out of business.

Pump prices are expected to continue to rise, despite the return to work yesterday by staff at the Grangemouth oil refinery, where strike action over a pensions dispute was blamed for helping to push crude oil prices to just under $120 (£60) a barrel. It could take as much as three weeks before the refinery is restored to full production.

A cavalcade of HGV's paraded along Park Lane with their horns blaring. The haulage industry wants the 2p increase in fuel duty planned for October to be deferred and a fuel duty regulator to be appointed with the power to reduce the Government's income from petrol and diesel sales when oil prices rise.

Motoring lobbyists estimate the Treasury is making an extra £123m a month more than it was a year ago in VAT on fuel sales. Edmund King, president of the AA, said: "The motorist feels somewhat battered from all sides, seeing the oil companies going off with cash in their pockets and the Treasury filling its coffers. It's the ordinary motorist that's bearing the brunt of this."

BA said its decision to increase its fuel surcharges for the third time in less than six months "reflects continuing oil prices". The troubled airline's finance director warned last month that it would become unprofitable if oil prices remained at "just under $120 a barrel". Opec warned this week that prices could reach $200 by the end of this year.

For their part, the oil companies insisted their dramatic rise in profits was because of the near doubling of the price they received for a barrel of oil during the past year and not from their forecourt sales. The two said they already pay high taxes to the Treasury and blamed the high price of crude on financial speculators. Between them, Shell and BP pumped profits of more than £3m an hour in the first three months of 2008 with Shell recording a 12 per cent rise to £3.92bn and BP improving by 48 per cent to £3.32bn.

The Prime Minister said he recognised the impact that Britain's economic problems were having and pledged help for families and pensioners. He told GMTV: "We have got this credit crunch, we have got food prices rising, we have got fuel prices rising. I feel very worried about the effect of that on ordinary hard-working families and on pensioners."

The trend for passing on increasing fuel costs to consumers was continued by Npower, which has 6.8 million customers, when it withdrew its cheapest gas and electricity product available online. The replacement tariff is between 10 and 20 per cent more expensive depending on location. The company declined to comment, insisting it had no immediate plans for further price rises.

Analysts have been predicting that big gas and electricity suppliers will find it hard to resist offsetting their costs with higher fuel bills, meaning an average household bill could rise by up to £190 over the next 12 months. Such an increase would raise the number of Britons in fuel poverty – defined as needing to spend 10 per cent or more of income on energy – to about 5.5 million people.