British Gas Owner Slams Ed Miliband 'Not Credible' Price Freeze

Labour leader Ed Miliband takes part in a question and answer session during the the annual Hugo Young lecture at Kings Place, London.
Labour leader Ed Miliband takes part in a question and answer session during the the annual Hugo Young lecture at Kings Place, London.
Anthony Devlin/PA Wire

Ed Miliband's pledge to freeze energy prices if Labour wins the next election is "not a credible solution" for ensuring low bills, the head of British Gas owner Centrica has warned.

Centrica chief executive Sam Laidlaw launched his attack as the company revealed a £571 million profits haul from its residential energy arm for 2013, just months after hiking gas and electricity prices.

Laidlaw said: "We firmly believe that any form of price control in a competitive market is not the answer and is not in the best interests of customers, and this has been clearly demonstrated by experience in other markets.

"Such proposals create both short-term uncertainty for all energy suppliers and longer-term additional costs for customers," he added.

Centrica's latest profits mark a 6% drop on the £606 million the year before, but it is unlikely to calm public anger over rising energy costs.

Centrica said British Gas shed 2% of residential customer accounts in 2013 to 15.3 million as households switched to other suppliers following its move to increase tariffs by 9.2% on average from November as part of a round of painful winter bill rises across the industry.

It added that another 100,000 had quit the group so far this year, but customer switching was now "stabilising" after it scaled back its price rise by 3.2% following a shake-up of the Government's so-called green levies on bills. Across the group, operating profits were 2% lower at £2.7 billion last year.

The group's shares have plunged by more than a fifth since autumn following Labour's price freeze pledge, with the stock driven down further after Energy Secretary Ed Davey recently called for a full-scale investigation into the energy market that could see British Gas broken up.

In a letter, Davey urged competition authorities to "think radically" as they consider whether to launch a probe.

Centrica's results showed that higher wholesale prices and unseasonally warm weather at the end of last year saw British Gas suffer an 18% slump in operating profit in the final six months of 2013, which offset a better start to the year.

Centrica said it "can't make promises" over prices for the year ahead, but added it would look to keep prices "as low as we can for as long as we can".

It said this year's milder winter weather was likely to see bills come down by 9% or 10% as households have not had to crank up the heating.

British Gas said it was "confident we can go back to customer growth" after the exodus since November, helped by the recent launch of new fixed price deals.

It revealed profit margins for its gas business stood at 8.9% in 2013 - far higher than the 0.8% electricity margin.

Davey recently raised concerns over the group's dominance in the gas supply market, querying why its margins were several times higher than for electricity, and claiming consumers could save £40 a year if they were brought in line.

But outgoing finance director Nick Luff, who recently announced plans to leave the group this year, denied it was taking advantage of its market leading position.

He said: "Scale does give us an advantage in terms of costs, which means we can offer good service and prices to our customers, but it doesn't give us an advantage that means other suppliers can't compete with us."

The group remained tight-lipped on reports that it was lining up candidates to replace Laidlaw at the helm.

While he has not officially confirmed departure plans, it is widely believed he is preparing to call time after nearly eight years at the group.

Luff said: "Naturally the chairman is looking at long-term succession, but there's nothing to say at this stage."

Rick Haythornthwaite took over last month as chairman, replacing Sir Roger Carr, who left after nine years in the job.

The group is still searching for a replacement for Mr Luff, who announced plans to leave last month.

Laidlaw said it was "much too early to say" if prices would go up or down this year but insisted the company would lower prices "if we see an opportunity".

He told BBC Radio 4's Today programme that companies such as British Gas "fulfil an essential role in bringing gas to Britain".

Asked if he was overpaid, he replied: "The reality about executive compensation is that it is high. I have said I will give my bonus away to charity.

"I do believe that people who do a good job ought to be appropriately rewarded, particularly a very important job for the country in terms of bringing gas to Britain, in terms of investing in new sources of gas supply, investing in new power stations. These are jobs that are important for society and deserve to be rewarded.

"Like any business, you have to attract the necessary talent and this is a competitive market place and clearly, obviously, a lot of the politics doesn't make this more attractive as a place to work, so we need to obviously reward people appropriately."