Comment: Centrica’s price promise creates a warm glow

Martin Flanagan
Martin Flanagan
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MARKETS regard anything that cuts corporate costs as a reason to send company shares upwards as it means more on the bottom line. Even job cuts get a cheer.

Human pain, yes, but the City sees a buck as big as a bedspread.

Conversely, some analysts were disappointed yesterday when Scottish Gas-owning Centrica wrongfooted everyone with concern for its economically-pressured customers.

The company, which operates as British Gas south of the Border, said it had pulled in so much money from hard-pressed householders during an exceptionally cold winter that it was freezing prices for the foreseeable 
future.

It certainly did benefit from a winter windfall. Average residential gas consumption was nearly a fifth higher in the first four months of 2013 than a year earlier. Thus, spring energy bills are likely to be noticeably higher than normal.

So giving consumers some respite from further price rises “for as long as possible”, is therefore welcome news.

But the City’s vague apprehension is well-grounded. Analysts have become accustomed to British/Scottish Gas being the cash cow that provides reassuring, and arguably captive, customer ballast to Centrica’s other operations, from North America to energy production.

And a key part of this ace in the hole as it relates to Centrica’s financial performance is the group’s ability to periodically hit consumers with big price rises.

First the shock hike, then outrage, consumer group soundbites, one day’s bad headlines, the dog barks and the caravan moves on.

For instance, with diabolically-opportune timing, the energy giant hiked its prices by 6 per cent in 
December, a little before the extended cold snap.

Centrica, a long-term lightning rod for consumer protest and political bandwagons, has by its latest largesse got some positive PR against the backdrop of what was expected to be a stormy shareholder AGM yesterday.

Its decision is right. Five Centrica bosses controversially received a total of £16.4 million in pay and bonuses as British Gas made profits of £606m last year, equivalent to nearly £50 per household. This came amid the surge in gas prices for its customers.

Yesterday’s acknowledgement that more than fine words for consumers was needed is enlightened self-interest on the company’s part. Let’s hope some of Centrica’s peers follow suit.

Young’s business antennae out of touch

Mayday. Political radar lost overboard. First, David Cameron’s business adviser Lord Young (a favourite of Lady Thatcher in her “no such thing as society” pomp) puts his foot in it by claiming recession is a good time to start a business as profits are easier with lower labour costs.

Now Young looks out of touch because he has claimed it is also easier than ever to start a business because entrepreneurs have internet communication with all those potential customers right from the off.

Perhaps the dotcom bust of the early noughties has faded from the bow-tie wearing peer’s memory. Or that there are many dollar-less digital businesses.

It does raise echoes of Tory grandee prime minister Harold MacMillan in the grey 1950s telling the electorate: “You have never had it so good.”

Young’s business antennae are similarly askew.