British Gas to cut bills as customers exit in droves

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The Independent Online

British Gas unveiled plans to cut gas and electricity bills for the first time in six years yesterday, as it conceded it had haemorrhaged almost 1 million customers over the past 12 months due to its uncompetitive prices.

The news came as its parent company Centrica revealed it also plans to lay off more than 1,300 jobs over the coming months as part of a restructuring initiative, which will cost the company a one-off charge of £300m.

However, the group said its earnings per share before exceptional items was set to come in ahead of expectations for the full year, while its residential energy division is on track to return to profit for the second half of 2006.

Gas bills have risen by more than 70 per cent over the past three years, yet British Gas has consistently been more expensive than its competitors. According to uSwitch.com, the comparison website, British Gas is on average 12 per cent more expensive than any of the other big-six energy providers for gas, and 13 per cent more expensive for electricity.

Centrica said it would now be able to cut bills in March, after recent falls in gas and oil prices. Average wholesale prices for gas have fallen by around 40 per cent since July as new pipelines have come on stream to deliver gas to the UK. Oil prices have fallen more than 20 per cent since peaking at more than $78 a barrel in July.

Sam Laidlaw, Centrica's chief executive, said: "We are very conscious that the prices our customers pay are directly impacted by the volatile gas wholesale markets. The extra gas flowing through new pipelines to the UK, underpinned by our long-term contracts, has led to falling wholesale market prices. As a result, we will cut customer prices in the spring, with the exact amount to be decided once we have complete clarity of winter gas costs. I'm sure this will be welcome news for millions of our customers."

But Mark Wiltsher, a spokesman for the energy regulator, Ofgem, said: "Our message to British Gas customers is you don't have to wait until the spring to see cheaper energy bills. Our research shows people can save £100 a year by switching to a different provider now - and can start making the most of the savings at the time of year when households spend most on their energy."

Ann Robinson, the director of consumer policy at uSwitch.com, said she hoped to see significant price cuts when British Gas announces its new pricing in the spring. "It's time for British Gas to stop using consumers to beef up profits for shareholders," she said. "We want to see British Gas reducing customer bills in the new year with a double-digit decrease, bringing costs in line with the 43 per cent fall in wholesale gas prices we have seen in 2006."

The group also said it plans to create an extra 500 positions in its customer services division over the coming year. It conceded that its shift to a new IT platform had harmed customer service over the past year, and intends to remedy this in 2007. The group played down the mass exodus of customers over the past year, claiming the industry had seen particularly high levels of churn.

"The business performance is improving, but we need to continue to drive cost reductions and improve customer service to ensure we are able to compete effectively in a tough market," said Mr Laidlaw. "We have sharpened our operational focus on these issues, and will maintain our leading position in securing new flexible sources of gas for the UK."

Shares in the company fell 2.75p to 340.5p.

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