2008: When I first got concerned with the gas bills I was receiving, the first thing I looked at was reducing the temperature of the hot water being supplied to taps around the house. It was way too hot and I'd never really looked at the reason why although I knew it was well insulated as I had done that job a few years ago.
Looking at the thermostat, shown on the left, I thought this was going to be such as easy job - all I had to do was to turn the temperature down to 60 degrees Celsius using screwdriver. Easy!

All seemed well until the next day when I discovered that the hot water had not turned on the next morning. A faulty thermostat I thought so I'll nip down to the local plumbing shop and buy a new one - which i did.
After I had installed it and set the temperature to 60 degrees Celsius again I though all was well until the next morning when the hot water still refused to come on again!

After a few days of fiddling thinking it way be an electrical problem or the thermostat was in the wrong height on the hot water tank I was beginning to tear my hair out. Then a light went on and I discovered why.

As can be seen in the photo on the left, both mechanical thermostats used a bi-metal strip to detect the temperature of the water in the tank to turn the heating on and off.

Unfortunately, this type of control has a high hysteresis meaning that the temperature the switch closes is not same as when the switch opens. In my case, the switch opened at 60 degrees but closed at a much lower temperature.
As I had lagged the hot water tank so well, the water had not cooled enough over night to open the bi-metal switch in the thermostat! This would only be a problem if you are trying to get the water temperature as low as to be safe and reduce the costs of heating water. The new thermostat was just as bad as the old 1960s model.

The solution to this was to install an electronic hot water tank thermostat that would have a much lower hysteresis and provide better control of water temperature. I installed a Potterton PTT2 Electronic Cylinder Thermostat, set it to 60 degrees Celsius and it has worked like a dream since in spite of my good hot water tank lagging.

I reduced my gas usage by up to 5 Kw/hours a day by changing the thermostat so it was finally worth all the frustration. What I find interesting is that this musty be a problem for many households other than me but I do not find any instance of questions being asked about it anywhere on the Internet after many Google searches. Looks like that I'm treading new ground yet again.

Winter 2011: Until recently I had the hot water heating turned on twice a day but it seemed rather silly to let hot water sit in the tank cooling and unused over night so we turned the evening cycle off this saving several more Kw/hours a day. If we do run out of water we just use the button on the thermostat to turn the hot water heating on for an hour.