Lots of hot air over gas and electricity price rises
Thursday, July 31, 2008
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The newspapers are full of analysis and response to the significant increase in consumer gas prices announced by yesterday, followed swiftly by news that British Gas owner Centrica has just made a half-year profit of almost £1 billion…
The negative reaction to British Gas’s actions and the anger over Centrica’s profit announcement today will inevitably cloud the judgement of readers.
However, it is worth pointing out a couple of facts which help tell the “other side” of the story:
- Centrica’s half-year profits are DOWN by 20% compared with last year
- Profits from British Gas Residential (Centrica’s UK household supply business) fell 69% to £166 million from £533 million in 2007.
- Centrica pays tax of approximately 58% on its UK profits and 75% on profits made from the extraction of gas from its own gas fields.
The gas and electricity price rises announced by British Gas have come at an interesting time. If I were the Board, I’d certainly do it this week - when many consumers are on holiday and many are out of the country!
It is a story that will be well worth following over the next few months. The impact of rising energy prices on retail & consumer price inflation may feed into wage demands (particularly the public sector). We are already seeing demands for “windfall taxes” on the profits of energy-related businesses.
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