British Gas tries to defuse profits anger

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British Gas today revealed profits at its residential arm surged five-fold to £571 million last year.

The news comes just weeks after the Centrica-owned provider hit around 13 million customers with double-digit energy bill hikes.

The British Gas operating profits surge contributed to a 40-per-cent leap in group-wide earnings, at £1.95 billion last year, according to Centrica.

Centrica said its record profits haul followed a "year of two halves" for its residential business.

The last six months of the year fell far short of the £533 million seen in the first half amid soaring wholesale costs, it said.

The firm defended it decision to increase British Gas bills by an average of 15 per cent last month, saying the division would be loss-making by now if it had not made the move.

But consumer groups reacted angrily to news of today's bumper figures.

Adam Scorer, energywatch director of campaigns, said: "No-one is going to argue that energy companies don't need to make a profit. However, British Gas customers will want to tear their hair out when they hear the scale of these profits and compare them with their own rising bills."

He added: "It is perfectly true that there is volatility in wholesale energy markets. But it seems equally true that such volatility hits consumers not shareholders. Consumers will feel justified in claiming that they are being taken for a very rough ride by energy companies."

The GMB Union complained that while Centrica was making huge profits, the company was consulting over the closure of its final salary pension scheme for British Gas staff and replacing it with a money purchase scheme which pays lower benefits.

The union's national officer Gary Smith said: "At the same time that British Gas is fleecing its customers and making record profits it has the temerity to propose to cut the pension benefits of its staff. This is greed gone mad which we will oppose.

"It is about time a full inquiry was conducted into the operation of the energy market.

"The average person in the street does not understand how it is that companies like Centrica can announce record profits while they are faced with crippling bills. Neither will they understand why the pension benefits of the workforce have to be cut."

The GMB said that the Government's policy of relying on market forces for fuel was in "tatters" and was delivering the highest energy prices in Europe.

Centrica said the 501 per cent increase in profits at its British Gas residential arm - up from £95 million in 2006 - came as it cut costs by £139 million last year.

The group trimmed its British Gas residential workforce by 2,000 last year and said up to another 1,000 roles will go in 2008 as it looks to save a further £60 million.

The jobs reduction will largely hit its call centre operations, but Centrica stressed it hoped to achieve all of the decrease by staff turnover and not redundancies.

Other areas of the group are growing in staff numbers, such as its installation and servicing arm, British Gas Services, it added.

The Services operation saw operating profits rise by 48 per cent to £151 million while Centrica's Storage business posted a record £240 million in profits, up from £228 million in 2006.

Centrica confirmed that it had clawed back the one million customers that it lost in 2006, with last year's two cuts in energy prices and a customer services drive boosting numbers back up to 16 million.

It said it was too early to give any details on customer "churn" - those leaving the group - since the latest bill increase.

British Gas last month became the third major supplier to increase tariffs, after npower and French-owned EDF.

It has since been followed by similar rises from E.ON and Scottish Power.

British Gas claimed on making the decision that wholesale costs had risen by 51 per cent for gas and 61 per cent for electricity.

But consumer groups have accused suppliers of being slow to pass on cuts and quick to pass on rises.

British Gas was the first to cut prices last year after seeing wholesale costs come down.

The reductions were not introduced until more than a month after the announcement, while this year's increase came into effect immediately, leaving customers with little option but to pay the higher price.

Scottish & Southern Energy, meanwhile, has pledged to freeze its prices until at least next month.