British Gas warns of higher bills and more job cuts

British Gas warned its customers to expect further price rises in the new year and staff to expect more job cuts after the fresh surge in wholesale gas prices.

Domestic gas and electricity bills are expected to rise by roughly the same amount as they did in September when British Gas lifted its prices by 14.2 per cent.

At the same time, Centrica, the parent company of British Gas, served notice of hundreds more job cuts next year on top of the 2,000 redundancies announced in July. The company said it expected to reduce costs by £180m by 2007 compared with an original target of £150m. The shares rose 5p to 243.5p.

Consumer groups reacted angrily to the fresh round of price rises, which are likely to prompt rival energy suppliers to follow suit. Energywatch warned "even more pain" awaited consumers and urged suppliers to protect vulnerable households.

The energy website uSwitch. com calculated that the average energy bill for consumers who had never switched supplier from British Gas would rise to about £1,000 next year.

British Gas blamed the prospect of further price rises on the 40 per cent increase in wholesale gas costs since September. Wholesale costs make up about half of a domestic bill.

The company is not passing on the full impact of the rise in wholesale prices, meaning its residential energy business is likely to record a loss of about £70m in the second half of the year. In the first six months it made a profit of £165m. The operating margin in its domestic energy business will fall from 4.1 per cent in 2004 to 1.6 per cent this year.

Despite September's price rise, British Gas has slowed the exodus of customers dramatically. In the second half of this year it expects a net customer loss of about 160,000 compared with 764,000 in the same period last year, taking its customer numbers down to 17 million.

Centrica is continuing talks over the sale of its telecoms business Onetel to Carphone Warehouse, the only bidder when it was put on sale this year. It also said the extra tax on North Sea operators announced in the pre-Budget report would cost it £80m.

The headhunters Spencer Stuart have drawn up a shortlist of potential replacements for Centrica's chief executive Sir Roy Gardner and have begun interviews. Sir Roy is taking over as chairman of the crisis-ridden catering company Compass and hopes to leave Centrica in the first quarter of next year.