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United Kingdom

How the average energy bill has risen by an inflation-busting amount in last 20 years

Households are forking out inflation-busting sums for their energy compared to two decades ago, new data suggests.

In 1999 - two years into the Labour era under Tony Blair - the typical energy bill was just £666, according to data from Compare the Market.

Using the This is Money inflation calculator, that is the equivalent of £1,153 - some £101 cheaper than the current average energy bill in Britain.

But despite this, we're still better off than the early 1990s. The average bill was £847 in 1991, just after Conservative MP John Major came to power - which translates to £1,893 in today's prices.

 Graph showing the increase in price of electricity and gas compared to consumer price inflation

A recent increase in energy bills has been exacerbated by the 15million households that suffered a substantial rise to their monthly energy bills during April, driven by Ofgem's energy price cap.

The new price cap level, which came into effect from 1 April, saw households on standard variable tariffs face an average annual increase of £117. 

You can see the full impact this had on the graph above. 

This means the cost of electricity and gas soared by 11 per cent and nine per cent, respectively in a short space of time.

To combat rising costs, customers have long been encouraged to switch from an SVT to a fixed tariff which is typically much cheaper.  

Peter Earl, head of energy, at Compare the Market, said: 'The cost of these essential services that allow us to heat and light our homes, and cook our food, has risen exponentially over the last 20 years putting even more strain on our household budgets.

'There are many factors that drive energy prices; however, it can't be denied that the introduction of the energy price cap has caused suppliers to push up prices even further on their standard and default tariffs, which could be adding hundreds more pounds to millions of household's bills every month.

'It's more important than ever to switch your provider and make sure you're stuck on a standard or default tariff. 

'Households could save up to £374 by switching to a competitively priced fixed tariff.'

COST OF ENERGY - 20 YEARS AGO TO NOW
Year Average Standard UK Household Bill (both fuels combined)
1991                                                        £847
1999 £666
August 2019 £1254 
Source: House of Commons Briefing Paper, Number 04153 

Another reason energy prices have increased so rapidly is due to the fact that, at the beginning of the century, gas prices were unusually low – down about a third from 1987 to late 2000, after falling rather consistently since the late 1980s.

These falls were the result of a variety of factors including price controls, increased competition and less issues with supply and demand.

However, gas prices started to shoot up in the years to come, rising by 82 per cent by 2008 before falling and rising again in recent years.

Electricity prices also fell in the late 1990s – once again impacted by the variety of factors that affected gas prices. 

They started to rise around 2003 and have been on a fairly persistent upward trend since then. 

Change: Energy bills have increased rapidly over the past 20 years due to a number of factors

Other factors include the fact household bills now have environmental levies that make up about 9.67 per cent of an energy bill (now about £121 per annum on average) while infrastructure and overhead costs in the industry have increased. 

There is also fear that bills are on the rise due to increased network costs - while these charges were reduced by 50 per cent in the first 15 years after privatisation, they have been rising again as new networks are built to help connect low carbon energy, replace old gas mains and renew ageing parts of the network.

Victoria Arrington, spokesperson for Energy Helpline, said: 'After falling in the late 20th century, energy prices have mostly been on the rise since the early 2000s. 

'This is due to a variety of factors, from network costs to infrastructure and inflation – and energy prices may get only worse in the years to come! 

'But you could "rewind the clock" when it comes to how much you pay for energy – you could bring down your bills by hundreds of pounds by just taking a few minutes to switch and save.' 

Energy expert at uSwitch, Cordelia Samson, added: 'Twenty years ago the energy suppliers had not long been privatised, there were only a handful of them, and people weren't used to the idea that they could switch provider to save money.

'Since then, other costs have been added in to gas and electricity bills: subsidies for renewable energy, the cost of the smart meter roll-out, energy efficiency grants, the cost of replacing ageing power stations and making sure the lights stay on, and policies which help people who struggle to afford their energy bills.

'This may sound like a lot, but there's a fail-safe weapon which consumers can use if they're fed up of paying sky-high prices: switching. 

'Locking in a cheap fixed deal could save you almost £400 at the moment, compared to sticking on an expensive standard tariffs. 

'So while you may not be able to control everything that makes up the cost of your bill, you can be sure you're never paying more than you need to by shopping around.'

BEST ENERGY BUYS
Supplier Plan name Average price (£) Tariff type Green? Exit fee (£)
Outfox the Market One Variable 6.0 846 variable Y 0
Green Oak 867 variable Y 0
Orbit Energy Beat the Price Cap Extra Jul19 873 variable N 0
Avro Energy Simple and SuperSave 891 fixed N 0
Nabuh Energy Zara Tariff (12 Month Fixed) 900 fixed N 0
Breeze Energy Breeze Fixed Sunshine Saver 2019 v3 920 fixed N 40
Yorkshire Energy Green Gazelle - Fixed 30th Sept 2020 922 fixed Y 60
Igloo Energy IGLOO PIONEER 932 variable N 0
Lumo Online Fixed v29 945 fixed N 60
EDF Energy Simply Online 1 year Fix Sep20v2 949 fixed N 70
Source: uSwitch (all prices correct as of 13 August 2019)     
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