Source: IPPR (Institute for Public Policy Research)
The cost of an average energy bill has risen dramatically in recent years: from £605 in 2004 to £1,060 in 2010 (CCC 2011b). Higher energy bills were a key factor in the increase in inflation in 2010/11 and are contributing to the squeeze in living standards faced by many families in the UK.
There has been a vigorous debate about the cause of these price rises, in particular the contribution that has been made by environmental and social policies.1 Evidence shows that the rises were mainly due to increases in the wholesale cost of gas (DECC 2011a). The government’s independent advisers, the Committee on Climate Change (CCC), calculated that the wholesale cost of gas added £290 to the average energy bill between 2004 and 2010, compared with £75 for environmental and social policies (CCC 2011b).
The level of profits made by energy supply companies has also been the focus of scrutiny. The energy supply market in the UK was opened to competition in the late 1980s. But there are a number of reasons for thinking that competition in the energy supply market is not in good health.
This report sets out to establish what impact a lack of competition in the energy supply market is having on consumers’ energy bills. In or der to answer this question we estimate the cost to energy companies of supplying households with gas and electricity. We do this through extensive analysis of data published by the energy markets regulator, energy companies and industry associations, among other sources.
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