The boss of Centrica has renewed calls for a "social tariff" to assist struggling households with their energy bills after its British Gas subsidiary posted a 10-fold increase in profits thanks to a relaxation of restrictions by the industry regulator.
Operating profits at British Gas, which trades as Scottish Gas in this country, surged to £751 million during the year to the end of December, up from £75m in 2022. Centrica said approximately £500m of the hike in profits was a "direct result of the changes Ofgem introduced to allow the recovery of prior period costs through the default price cap".
The regulator raised the energy price cap to allow suppliers to recoup some of the costs of having to sell energy below wholesale prices. Suppliers were forced to protect households from a spike in prices, which rose as a result of the Covid-19 lockdowns and Russia’s invasion of Ukraine, causing dozens of companies to fail.
READ MORE: Who will shed a tear as Scottish Gas slides into losses?
However, the regulatory boost was mitigated by a sharp increase in bad debts from those struggling to pay sky-high utility bills, coupled with lower average consumption and higher operating costs. Because of these headwinds, British Gas was loss-making in the second half of last year after the buoyant start to 2023.
"Without this [change to the default price cap], profit would have been less than half the reported number," Centrica said. "British Gas Energy was loss-making in the second half and profit is down from the £969m reported at interims."
Overall Centrica made a pre-tax profit of £2.8 billion in 2023, down 17% from the £3.3bn posted in the previous year. Chief executive Chris O'Shea said profits are likely to fall further in 2024 as lower commodity prices and reduced volatility suppress earnings.
Mr O’Shea said a special tariff for the worst off would be “the best thing we can do for consumers”.
READ MORE: Cost of living: British Gas owner gets 900% profit jump
“The poorest in society are really struggling but it’s not just the energy," he said. "It’s energy, it’s rent, it’s mortgages, it’s food and all manner of costs.
“What I’m focused on is how do we fix this in energy and that’s why we need a social tariff, that’s why we need the standing charge to disappear.
“I think that’s the best thing we can do for consumers. That will reduce the cost for the poorest in society, the people that are really, really struggling.”
Centrica's retail business recorded an 82% hike in bad debts across its 10 million strong customer base, but nevertheless the group increased its full year dividend by a third to 4p per share. Mr O'Shea defended the move, which is worth £144m to its shareholders.
“I said this before and I want to take this opportunity to say it again: to be sustainable you must make a profit," he said.
READ MORE: Scottish Gas recruits 350 staff to help struggling customers
"Which is super important because every consumer in the UK is paying £88 for the failure of other energy suppliers in the last few years. If more companies fail, these costs go on to customer bills.”
The sharp increase in profits at British Gas has prompted a backlash from Unite, with the union calling for the company to be nationalised.
“Centrica is still raking in astonishingly high profits off the back of exorbitant energy bills that are nearly double what they were three years ago," Unite general secretary Sharon Graham said.
“There is no point beating around the bush: the only way to stop households and businesses being ripped off by the profiteers in our energy supply chain is public ownership. It is an absolutely affordable option that would protect the national interest. Our politicians need to decide whose side they are on and make the right choices.”
In November Scottish Gas announced that it would be hiring an additional 350 people at its call centre in Edinburgh to assist customers struggling with their energy bills through the winter. The announcement was part of a wider recruitment drive by Centrica to add more than 700 people across sites in Edinburgh, Leeds, Cardiff, Stockport and Leicester.
Shares in Centrica closed yesterday's trading 1.8p higher at 136.2p.
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