Vast energy company profits amid cost-of-living crisis cannot be justified – Scotsman comment

Many people will feel that some big companies are doing very nicely out of their suffering

Given the ongoing cost-of-living crisis and warnings that gas and electricity bills may rise once again this winter, it is understandable that many people will be outraged by the bumper profits being reported by energy companies. The news that vast sums are being made in part because the UK industry regulator changed the rules to boost firms’ earnings will likely further enrage people struggling to make ends meet, particularly the retailers, publicans and others going out of business because of rising costs.

British Gas reported record profits of £969 million in the first six months of 2023, while its parent company, Centrica, made £2.08 billion. French state-owned company EDF made about £2bn and Scottish Power, owned by Spain’s Iberdrola, reported a profit of some £576m, again both just for the first half of the year. Further up the energy supply chain, Shell made £3.9bn in just the second quarter of the year.

The figures come amid allegations of profiteering by petrol station chains and supermarkets, with the UK having the highest rate of food price inflation in western Europe in the year to May. The feeling that many ordinary people will have is that some big companies are doing very nicely out of their suffering.

The decision by energy regulator Ofgem to allow companies to charge their customers extra in order to recoup money lost during the energy crisis and Covid pandemic may not have been wrong in principle. It is a simple fact of life that there needs to be scope for these companies to make money so that, for example, they are able to invest in the transition to renewables and net-zero.

However, given the changes added a massive £500 million to British Gas’s profits, it seems clear that Ofgem was far too generous. In such a crisis, it is important to share the pain in an equitable manner. Failure to do so risks creating widespread resentment at the apparent injustice. And, more importantly, high energy costs have a damaging and inflationary effect on the economy as a whole.

As ever, there is a balance to be struck and Ofgem has got this badly wrong.