The shamelessness of the energy companies shows why we need a price freeze

British Gas's suggestion that households should simply use less energy is blackly humorous. But customers won't see the funny side.

Following last week’s announcement that SSE, the biggest supplier of energy to Welsh households, is to increase prices by 8.2%, yesterday came the announcement that Britain’s second biggest supplier, Centrica (AKA British Gas) is to follow suit with a 9.2% hike. Though customers will not see the funny side, the press release from British Gas, defending its decision, is a blackly humorous read. It begins with an acknowledgement that Ed Miliband is right: "the cost of living is rising faster than incomes". Then there’s a passage of hand-wringing regret that despite these tough times for customers, our bills have to go up by almost 10% to maintain their profitability. Before, finally, in a statement almost beyond parody, the company’s managing director, Ian Peters, reassures us: "A price rise doesn’t necessarily mean energy bills have to go up too. The amount you pay depends not just on the price, but on how much gas and electricity you use."
 
And he’s right, of course. You could just not turn on the boiler or the cooker and save a fortune. Why didn’t we think of that earlier? It would certainly make life easier for David Cameron, who, having so spectacularly failed to stand up to the energy companies in the interests of ordinary families, looks like a man who would give anything to make the problem go away.
 
Since I was having such fun reading the press release, I thought I’d take a look the Annual Accounts and Report for British Gas’s parent company, Centrica, to see if they were as much of a laugh. I was not disappointed.
 
Sam Laidlaw, the group’s chief executive, concludes his introductory remarks with the cool observation that "Centrica has a robust balance sheet and generates strong cashflows". He’s not kidding. British Gas – the bit putting up their prices today – made a post-tax profit of £1.09bn last year, up from the £1.01bn it made in 2011, though not as much as the £1.22bn it made in 2010. Within that consistent £1bn-plus profit, the sales to residential customers have been looking good too: up to £606m from the £544m posted in 2011.
 
The bit of the company generating the energy to sell to British Gas (i.e. itself) is called Centrica Energy, and its numbers are even better. In 2012, the energy generation arm made a post-tax profit of £1.2bn, £200m better than the year before and £500m better than 2009, the last year a Labour government was in charge. Little wonder the smiles are so broad on the faces of the board members’ pen-pictures, when share prices have risen by a third since May 2010 and top managers’ salaries with them: Mr Laidlaw’s total remuneration was almost £5m in 2012, his understrapper at British Gas making do with £3m.
 
What the accounts don’t tell us, of course, is the real amount it costs Centrica to generate the energy which it then sells on to British Gas at the going market rate – a market rate that itself reflects the wholesale prices set by the big six companies. It’s a circular process - in which the only real loser appears to be the paying customer at the end of the pipeline or the power cable, watching nervously as the wheel spins ever faster in the black-box under the stairs. Labour can’t stop the wheel turning, but we can freeze the price of each revolution and therefore your overall bill. And we will.
The entrance to Leicester's British Gas Centre. Photograph: Getty Images.

Owen Smith is a Labour leadership candidate and MP for Pontypridd. 

Getty Images.
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Martin Sorrell: I support a second EU referendum

If the economy is not in great shape after two years, public opinion on Brexit could yet shift, says the WPP head.

On Labour’s weakness, if you take the market economy analogy, if you don’t have vigorous competitors you have a monopoly. That’s not good for prices and certainly not for competition. It breeds inefficiency, apathy, complacency, even arrogance. That applies to politics too.

A new party? Maybe, but Tom Friedman has a view that parties have outlived their purpose and with the changes that have taken place through globalisation, and will do through automation, what’s necessary is for parties not to realign but for new organisations and new structures to be developed.

Britain leaving the EU with no deal is a strong possibility. A lot of observers believe that will be the case, that it’s too complex a thing to work out within two years. To extend it beyond two years you need 27 states to approve.

The other thing one has to bear in mind is what’s going to happen to the EU over the next two years. There’s the French event to come, the German event and the possibility of an Italian event: an election or a referendum. If Le Pen was to win or if Merkel couldn’t form a government or if the Renzi and Berlusconi coalition lost out to Cinque Stelle, it might be a very different story. I think the EU could absorb a Portuguese exit or a Greek exit, or maybe even both of them exiting, I don’t think either the euro or the EU could withstand an Italian exit, which if Cinque Stelle was in control you might well see.

Whatever you think the long-term result would be, and I think the UK would grow faster inside than outside, even if Britain were to be faster outside, to get to that point is going to take a long time. The odds are there will be a period of disruption over the next two years and beyond. If we have a hard exit, which I think is the most likely outcome, it could be quite unpleasant in the short to medium term.

Personally, I do support a second referendum. Richard Branson says so, Tony Blair says so. I think the odds are diminishing all the time and with the triggering of Article 50 it will take another lurch down. But if things don’t get well over the two years, if the economy is not in great shape, maybe there will be a Brexit check at the end.

Martin Sorrell is the chairman and chief executive of WPP.

As told to George Eaton.

This article first appeared in the 30 March 2017 issue of the New Statesman, Wanted: an opposition