In the News

Business Objectives - Will British Gas cap profits to cut energy bills?

Graham Watson

11th September 2022

This news from British Gas might prompt classroom debate about the theory of the firm, and the objectives of a business.

Traditionally, we see firms as profit maximisers, but this article implies that Centrica is looking to cap its profits.

You might think about why a company would want to do this. Could it actually be a profit maximising strategy, in as much as it might persuade the government not to intervene in the market, meaning that long-term profits are higher than they would otherwise have been?

Or is it simply an example of a firm demonstrating its commitment to corporate social responsibility, in taking the interests of a wide range of stakeholders into account.

The energy crisis has seen gas prices skyrocket, and as a result there has been much discussion of the implications of this for the behaviour of economic agents.

One response is to incentivise people to insulate their homes - however, the Institute for Government's research argues that more needs to be done to encourage this.

However, it isn't straightforward, given the relatively old nature of the UK's housing stock and the prospect of gas prices remaining high; that said, it seems as though there would be decent, and almost immediate returns to such a policy.

Read more on this aspect of the energy crisis

Graham Watson

Graham Watson has taught Economics for over twenty years. He contributes to tutor2u, reads voraciously and is interested in all aspects of Teaching and Learning.

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