British Gas is to cut gas prices by 5% for the second time this year – but even after that, its standard tariffs will cost on average £250/year more than the cheapest.

The Big Six supplier says the price cut – which comes in on 27 August – will reduce the bills of 6.9 million of its customers by an average of £35/year. But customers can save far more by switching now to a cheaper deal. Join our free Cheap Energy Club to find the cheapest tariff for you.

The price cut will apply to all customers on British Gas's standard gas tariff – including those on a prepayment meter and dual fuel customers, though there's no change to electricity prices. Those on British Gas's Fix & Fall tariffs, which are guaranteed to prevent price rises but unlike traditional fixes do benefit from price cuts, will also benefit from the cut.

However the price cut won't apply to customers on British Gas' fixed tariffs (Fix and Reward, and Fixed Price August 2016).

(MSE update 10.46am, 16 July: British Gas told us yesterday that the gas cut would not apply to Sainsbury's Energy customers. However, Sainsbury's has this morning got in touch to say that it does apply to its standard tariff customers only – it does not have a similar tariff to British Gas's Fix & Fall tariff).

It says it is able to cut gas prices based on "lower projected total costs for 2015 and 2016".

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Martin Lewis, founder and editor of MoneySavingExpert.com explains in the video below who's affected by the price cut and how you can save even more money by switching. (Martin says in the video that the average British Gas user on a standard tariff, who pays by direct debit will pay £1,130 after the price cut, however our full analysis now shows the figure should be £1,120.)

Martin Lewis says: "All price cuts are welcome, even if they're just 5% on gas only. Yet the true revelation of this announcement is that it shines a light on the fact that most households in the UK are massively overpaying for their energy.

"While British Gas is cutting its standard price for someone on typical usage to £1,123 per year, you could shift to a new deal and save on average £250 a year more. And, as British Gas's price cut doesn't hit until 27 August, if you start a switch today, you'll probably be on your new tariff before it comes into effect.

"In fact even if you don't want to switch company, if you switched to Sainsbury's Energy (which is just British Gas under another name) you could cut your price to £930/year.

"The real concern is that people will see this as a message that 'everything's fine, my provider has cut prices, things are going to get better' – no, this is wrong, only switchers get the cheapest prices. Last week the CMA found that 70% of people are languishing on pricey standard tariffs. So do a comparison and see how much you are overpaying.

"Wholesale prices have come down by about 30% since the start of 2014, and the prices of the cheapest switchers' deals have dropped over 10%, yet this is only a trivial cut.

"As the big six are like sheep, expect the rest to follow with these small cuts. However I doubt we'll see the big cuts that the drop in wholesale prices warrants."

British Gas to cut gas prices by 5% - but you can save much more by switching
British Gas to cut gas prices by 5%

Second time this year British Gas has shaved gas prices

This is the second time in six months that British Gas has cut gas prices. In January it shaved an average of £37 off the average annual energy bill – see the British Gas and Sainsbury's Energy to cut gas prices by 5% MSE news story.

This time round it says the gas cut will reduce typical annual customer bills by an average of £35, taking them from £1,204 to £1,169, based on an average of all payment types and regions. It says the two price cuts mean customers have saved an average of £72/year since the beginning of 2015.

Our calculations, based on the average dual fuel tariff paid by direct debit – which is the cheapest way to pay – equate the latest price cut to an average £33/year saving, taking bills from £1,156/year to £1,123/year from 27 August.

In comparison, the cheapest tariff currently available is an average £870/year from GB Energy, although it's variable, not fixed, so it could rise.

Mark Hodges, managing director of British Gas, says: "British Gas is committed to offering competitively priced products, and the price cut we're announcing today demonstrates that. It's the second price reduction from British Gas this year, bringing bills down by an annual average of £72.

"There are a range of costs that make up energy bills, some decreasing and others increasing. This reduction reflects our lower projected total costs for 2015 and 2016 and we're pleased that customers will see the benefits in their gas bills ahead of next winter.

"We will also continue to help our customers understand and control their bills by leading the national drive to install smart meters, and by developing innovative products that offer them the latest technology to manage their energy usage."