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Controversy over high energy prices as British Gas profits double

Published 30/07/2015

There is speculation that the British Gas owner will cut up to 2,000 posts
There is speculation that the British Gas owner will cut up to 2,000 posts

Controversy over high energy prices has been reignited when British Gas announced it had doubled profits in the first half of the year, as its parent firm announced thousands of job losses.

Centrica said 6,000 posts would be cut across the group, around 10% of its workforce, although 2,000 new jobs will be created so the net loss will be 4,000.

The cuts follow a strategic review which is aimed at delivering savings of £750 million over five years.

British Gas profits were £528 million for the first half of the year, more than it made in the whole of 2014, even though it cut prices by 5% earlier this year.

Not all the job cuts will be in the UK, while around half are expected to be through redundancies.

British Gas 's operating profit was up by 44%, according to interim first half results from the group, which was larger than expected.

The company said this was because of a colder year compared to 2014, with consumption up by 11%.

Centrica's group adjusted operating profits fell 3% to £1 billion.

Which? executive director, Richard Lloyd said: "While it's good to see the new commitment from Centrica to focus on serving customers, with British Gas profits high and wholesale prices low, customers will no doubt wonder why cuts to their bills haven't gone further, and haven't included electricity.

"The Competition and Markets Authority (CMA) has confirmed that household bills should be lower if the energy market was truly competitive. Following the CMA's blistering assessment of this sector, we expect big suppliers to pass on falling costs to their customers quickly and fairly."

Ann Robinson, director of consumer policy at uSwitch.com, said: "The news that British Gas is predicting a surge in profits will be a hard pill to swallow for its customers, especially as so many went cold last winter to cope with sky-high bills.

"Wholesale prices, which make up around half of energy bills, have plunged to their lowest level in five years.

"Although British Gas is the only big six supplier to reduce gas prices twice this year, the fact remains that the combined cuts will lower its average dual fuel bill by just 6%."

Gary Smith, national officer of the GMB union, said: "This will be a day of deep concern across British Gas.

"What we do take from this announcement is a focus on the long term and investment in customer service which gives us room for optimism over front-line jobs.

"This year there are over 1,200 jobs being created for smart metering installers and in repairing and installing appliances.

"Theses are real jobs, skilled jobs and they are being filled by ex military personnel, a lot of women and of course young people."

About 5,000 of the job losses will be in the UK, but Centrica chief executive Iain Conn said employees will be consulted first before any more details will be given.

He conceded there had been a "big jump" in profits at British Gas as the company benefited from colder weather in the first half of the year.

But Mr Conn added it would be a year of "two halves", predicting it would be "very tough" to make profits for the next six months.

A two stage, 10% reduction in prices will save customers an average of £72 this year, having a "significant" impact on full-year profits, he said.

Mr Conn said profit per customer is expected be between £40 and £65, similar to recent years.

He also announced that Centrica would be "exiting" the wind farm business by 2017. It currently runs two large wind farms.

"We will be concentrating on being a customer focused business. Our principle job is to satisfy the changing needs of our customers. There will be a re-allocation of resources to customer facing."

Most of the job losses, from Centrica's workforce of 37,500, will be achieved by 2017.

"Clearly we don't take decisions like this lightly. We will treat people in the right way."

The company revealed it had lost 45,000 residential customers in the first half of the year, down from the quarter of a million it lost in recent years.

Centrica is scaling back on its energy and production (E&P) arm, cutting spending in this area by £1.5 billion over the next five years.

It will focus on the North Sea and east Irish Sea but is reviewing operations in Trinidad and Tobago and has decided that its Canadian business is now "non-core" and it will "seek ways to maximise value" from it.

Meanwhile, nuclear power generation is seen as a "limited" part of Centrica's strategy and will instead be viewed purely as a financial investment.

Elsewhere, the group is pouring £1.5 billion into other areas such as energy supply and services over the next five years as part of the review.

Mr Conn said: "We see our customer-facing businesses as a real source of competitive advantage given our distinctive position and capabilities, and these businesses will be our focus areas for growth.

"Alongside this, we will look to reduce the size of the more capital intensive E&P and power businesses."

Today's update comes after the CMA said British households were overpaying suppliers for their energy by around £1.2 billion a year and failing to switch to get the best deals.

The regulator said it is considering seeing a maximum price limit for standard variable rate tariffs, which could see prices cut or frozen for around 70% of customers with the Big Six providers including British Gas.

Mr Conn said Centrica has "questions and concerns" over the CMA's findings.

Shares fell 3%.

Unite officer Paresh Patel said: "The very healthy profits at British Gas for the first half of 2015 should be directed at maintaining employment and further reducing the bills to the hard-pressed consumer, rather than going into the pockets of institutional shareholders.

"Unite is insisting that any compulsory job losses should be kept to a minimum and that a reduction of the workforce should be made either through natural wastage or voluntary means.

"The job losses are unnecessary and driven by the pursuit of excessive profits.

"Unite members are outraged by the way the company has made this announcement through the media, with many employees finding out about the decision on their way to work - this is no way to treat a dedicated workforce in the 21st century.

"Unite has requested an urgent meeting with senior executives to understand in more detail the impact of their latest decision on the workforce.

"This is yet another devastating blow for both those directly employed and people working within the supply chain for Centrica, which is leading to skilled workers leaving the industry."

Unison general secretary Dave Prentis said: "The huge job cuts announcement at Centrica is a major blow for workers and raises questions about the potential impact on customer service. The announcement came as a shock and as yet workers have been left in the dark over the future of their jobs.

"Workers are really shaken by the news and we are calling on Centrica to fully engage with staff and the unions.

"Unison will do everything in its power to protect its members and fight any compulsory redundancies."

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