by Atul Hatwal

Ofgem research contradicts government claims that costs will not be passed onto consumers

As George Osborne and Danny Alexander struggled to deny that increased taxes on North Sea oil would simply be passed on to consumers on petrol forecourts, it emerged that these taxes would also hit hard-pressed households’ energy bills.

Wholesale costs faced by the big household energy suppliers, who are involved in energy exploration and production in the North Sea, are set to rise when these new taxes are levied.

New research released by Ofgem this week revealed how these increased costs will feed through into household energy bills.

The report, entitled “Do Energy Bills Respond Faster To Rising Costs Than Falling Costs“, was sneaked out on Monday. It details how energy suppliers don’t just pass on an increase in the wholesale costs of energy, they hike customer bills by almost 10% more than the original cost increase.

Applying Ofgem’s analysis to the changes announced in the budget, all households that use energy from the major suppliers facing higher oil and gas taxes will be hit, regardless of whether they benefit from the cut in fuel duty.

The result will be millions of non-drivers subsidising motorists’ petrol costs through their energy bills, raising new questions about David Cameron’s claim that this would be the “greenest government ever”.

Even worse, Ofgem’s analysis shows that when energy suppliers’ wholesale costs decrease, they don’t pass on the full benefit to consumers. Instead, they pocket over 60% of the difference, leaving prices much higher than before the initial increase.

This means that the fuel stabiliser is likely to permanently ratchet up energy prices for consumers. (more…)