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Another Bite to the Credit Crunch

Aug 5, 2008
British Gas. The very name can elicit mixed emotions in customers up and down the land. Unsurprisingly, the company has once again excelled in alienating themselves from their customers.

The latest financial reports, published by owners Centrica, detail that six monthly profits stand at a figure of just GBP992 million, down on the same period last year when profits stood at nearly GBP1.23 billion. For any company the size of Centrica this, of course, represents a significant drop. Equally as obvious is the fact that British Gas will be looking to correct this shortfall. The solution? Raise the cost of gas by a record 35% and electricity costs by 9%, both with immediate effect.

As the UK's biggest energy supplier - providing gas and electricity for over 15 million homes - the widespread impact of the rising prices is certain to have a negative effect upon its reputation; this from a company whose customer relations have been somewhat strained for months.

Such an unprecedented rise in gas prices may well make up the difference in profits, but at a time when certain sectors of employees are being told that take-home pay over the next 12 months will essentially be put on hold, the expectation that customers of British Gas will foot the cost for this loss is startling in the least.

Yes the credit crunch is continuing to hurt companies and individuals everywhere, yet for those on low wages, the unemployed and the elderly all to manage annual gas and electricity bills exceeding GBP1,000 is incredulous. What's more, how can a 35% price rise be a fair compensation for a 20% drop in profits?

Those with only a rudimentary knowledge of finance can see that the figures don't quite add up. Of course there are rising oil costs and wholesale gas costs which need to be taken into account for the gas providers. Then of course there are the dividends for shareholders who may have sunk the entirety of their savings into a reputable company. But a difference of 15%? These factors may well only be the tip of the iceberg, but even still.

In defense of British Gas, they are not alone in pumping up their prices. News of their price hike came just days after EDF Energy increased gas tariffs by 22% and electricity by 17%. For customers everywhere, the bite of the credit crunch may well only be outweighed by the bite of the winter cold.

Talk to people on the street and there seems to be a consensus that, come the winter, the central heating will be switched off and extra jumpers will make an appearance to fight off the seasonal chill. Should that be the case and more and more of us limit our gas usage to a bare minimum, surely next year's profits for Centrica will dwindle. Any guesses to the probable solution?

Interesting to think then that, although it is 2008, millions of people in Great Britain will be reduced to huddling around a single heat source like our caveman ancestors.

Still, perhaps global warming will keep us all warm!
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