British Gas urged to cut prices

British Gas is under increasing pressure to lower gas and electricity profits after posting a big rise in profits when it announced its interim results today.

Centrica, the owner of British Gas has announced that the UK residential arm of its business has increased its profits by 23 per cent to £345 million, up from £280 million last year.

Overall, Centrica has announced a 15 per cent rise in adjusted profits to £1.45 billion on its entire business.

Audrey Gallacher, Director of Energy at Consumer Focus, said: "Hard pressed consumers will be shocked to see such a big rise in profits when British Gas has been warning of the need for price increases.

"The disconnection between profits and prices risks deepening consumer distrust over energy bills. Wholesale prices rose slightly at the start of the year but have fallen and are now a long way from their peak."

The big increase in British Gas profits comes during a time when its customer base, UK households is undergoing the biggest squeeze on disposable income for more than 50 years. Earlier this year, uSwitch estimated that 5.5 million UK households are classified as being in fuel poverty.

Ann Robinson, Director of Consumer Policy at uSwitch.com, says: "These soaring profits show that British Gas could and should cut its prices ahead of winter. This would go some way to acknowledging the pressure customers are under as they struggle to afford their household bills.”

Centrica counter this argument by saying that they are investing the profits they make back into the business. When the company announced reduced full-year profits for 2011 in February, Centrica chief, Sam Laidlaw, pointed out that for every £1 of profit earnt, £1.80 was being re-invested to help secure future energy supplies.

The company said the profit increase in the first six months of this year was in part down to the cooler weather between April and June that saw households keep the heating on for longer.

However, Audrey Gallacher said: "Customers need guarantees that falls in wholesale prices will be passed on as fairly and quickly as rises in wholesale prices." 

British Gas raised the cost of its gas prices by 18 per cent in August 2011 and the cost of its electricity increased by 16 per cent at the same time. The company subsequently cut the cost of electricity by five per cent in January.

In May, Centrica issued a warning to its 16 million UK residential customers who get there gas or electricity from British Gas, saying that it expected wholesale costs to rise by 15 per cent adding an extra £50 to their next winter fuel bill.

The cost of gas and electricity has doubled over the past seven years from an annual cost of around £650 in 2005, up to an average of £1,300 in 2012.

Centrica chief executive, Sam Laidlaw said: “Centrica has performed well in the first half of 2012 despite challenging market conditions, although the increase in earnings must be placed in the context of unusually low levels of consumption and profits in the UK in the first half of 2011.”

However, Ann Robinson called on British Gas to cut prices and deliver an “olive branch” to UK residential customers.

She said: “As Britain’s largest supplier, if British Gas cuts its prices other suppliers will be under pressure to follow suit.

“A second wave of price cuts this year will not only help customers to better afford their bills, but would also be an olive branch signalling the industry’s true commitment to rebuilding trust and confidence with its customers.”

Read more: A step-by-step guide to finding the best energy deal