David Prosser: Profits, not principles, every time

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The Independent Online

The managing director of British Gas, Mark Clare, made a good fist of defending Centrica's £1.5bn profits on Thursday. But I thought one of his remarks was telling. Clare said that while the company's first priority was to serve customers, he had to consider the interests of shareholders, too.

This comment goes to the heart of the argument about whether British Gas should have raised customers' bills by 22 per cent when its parent company was making such huge profits. Customers and shareholders do not always have the same interests - sometimes, one lot loses out at the expense of the other, and it's rarely the latter group.

No doubt many people find Centrica's profits distasteful. But the company has done nothing illegal. It is being attacked for just doing its best for its owners.

The same principle applies to the banks. Last Saturday, I warned a new savings account from Barclays was a poor deal. On Monday, the bank announced that it made profits of £5.3bn last year. Later in the week, Nottingham University revealed that banks have shut 20 per cent of their branches over the past 10 years, with poorer areas of the country hit especially hard.

This is how capitalism works. Large companies such as Centrica and Barclays aim to make as much money as possible. Naturally, they don't want to upset customers so that they all jump ship, but the basic priority is to screw every last penny from the people most likely to buy their products and services.

You don't have to be an unreconstructed socialist to dislike this idea. But there's no point complaining that fat profits are unfair - such concepts are nothing to do with the realities of the free market.

There was a time when we could have prevented British Gas from behaving in this way. Before the company was privatised, the energy minister could have stopped it raising prices. And while Barclays was never state-owned, the banking sector has been utterly deregulated over the past 20 years.

The philosophy of capitalism is that competition should ensure customers always get the best possible deal. But somehow, it hasn't worked out that way. British Gas may lose customers over the coming months, but its competitors are no more averse to price increases. Barclays, meanwhile, knows its major banking rivals operate very similar business models.

It's worth remembering that shareholders aren't all City fat cats. Britain's largest companies are mostly owned by insurers and pension funds, which invest on behalf of millions of savers. For anyone with a private pension or a stock market ISA, say, these mega profits are probably good news.

But it's an unhappy coincidence that the people most disadvantaged by high energy bills and those most likely to suffer from financial exclusion are also the group least likely to have savings or pension plans. In this free market, if you're on a low or fixed income, you're on your own.

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