Gas bill cut 'too little, too late'
British Gas is cutting household gas prices by 5% after months of calls by regulators and politicians to pass on a fall in wholesale energy costs - but it was immediately branded "too little, too late" by Labour.
The firm, which is Britain's biggest energy supplier, said the cut would reduce average annual bills by £37 and benefit 6.8 million customers - piling the pressure on rivals to follow suit.
It threw the energy sector back into the political spotlight four months ahead of the general election in which Labour will pledge to cap tariffs.
Prime Minister David Cameron welcomed the move and said it would not have been possible under Labour's proposed price freeze.
But Labour leader Ed Miliband said: "A 5% fall is too little and it is too late. It is not nearly good enough. Wholesale prices have fallen by 20%."
Regulator Ofgem said the cut was a "step in the right direction" after it spent months calling on suppliers to explain the growing gap between falling wholesale gas prices and those charged to households.
A spokesman said: "Cutting prices is an explanation that consumers will understand and in a competitive market we would expect others to follow suit."
The announcement comes a week after Big Six rival E.ON became the first to pass on a slide in wholesale energy costs by announcing an immediate 3.5% cut in gas tariffs from January 13.
SSE, npower, EDF and Scottish Power make up the rest of the firms that dominate UK energy supply.
British Gas, which is owned by Centrica, provides gas and electricity to around nine million households. The cut will apply from February 27.
It said 1.6 million customers on one of its fixed tariffs will not benefit from the cut though will be able to switch. There are also 740,000 electricity only customers who will not receive a cut.
British Gas added that it would be keeping prices under review "for further movements up or down".
The move comes less than a month into the tenure of new Centrica chief executive Iain Conn, a former BP executive.
He said: "We've been watching the significant moves in the international energy market extremely closely for some time, with the aim of helping customers with a price cut at the earliest possible opportunity.
"Taking this decision now, at a time of continuing uncertainty, shows our absolute commitment to pricing competitively, with customers at the forefront of our minds."
Mr Conn's predecessor, Sam Laidlaw, had warned last month that the threat of a price freeze could have pushed some suppliers into buying more energy in advance, limiting their ability to take advantage of lower wholesale gas prices.
At £37 per household, today's announcement falls short of industry estimates of the £136 of savings that could be passed on.
But British Gas finance director Michael Uzielli said the prospect of a price freeze had no impact on the timing or the scale of the cut, saying: "It's not about politics."
Mr Uzielli said tariffs were based on "costs and the competitive envrionment". Last autumn Centrica had revealed a further loss in customer accounts taking the exodus to 250,000 for 2014 to date.
Explaining the scale of the today's cut, the company pointed to the fact that wholesale gas prices account for less than 50% of the average dual fuel bill with other costs such as transmission and distribution, and environmental and social levies making up much of the rest.
Martin Lewis, founder of independent consumer website moneysavingexpert.com, said: "I doubt we'll see the big cuts that the drop in wholesale prices warrants before the general election.
"Most providers are petrified of the potential Labour government's price freeze, so they're worried if they make large cuts now, they'll be locked in, even if wholesale prices rose again.
"If only Ed Miliband hadn't pre-announced the price freeze it, it would've been a strong policy."
The announcement comes two weeks after Chancellor George Osborne launched a probe into whether key sectors such as energy firms were passing on the costs of falling wholesale prices to consumers.
Labour proposed giving Ofgem new powers to force suppliers to do so.
The sector is also in the midst of an in-depth investigation by the Competition and Markets Authority which could result in bigger suppliers such as British Gas being broken up.
Mr Osborne described today's announcement as "real progress" but said the sector would continue to be monitored very closely.
Mr Cameron told ITV: "This is excellent news and we should be absolutely clear that this price cut would not be happening if we'd listened to Labour and put in place their 20-month price freeze."