British Gas owner says energy bosses should face ‘fit and proper’ test as consumers face £2bn crisis bill
The head of British Gas owner Centrica has called for a “fit and proper” test for executives running energy firms after a series of insolvencies prompted by high gas price crisis that are set to leave consumers with a £2bn bill.
Chris O’Shea, chief executive of the energy giant, called for changes to ensure that it never happens again.
The spike in wholesale gas prices has seen 12 smaller suppliers collapse since the start of September alone, affecting nearly two million customers.
British Gas is the UK’s biggest energy supplier
The volatile situation this week prompted Centrica to postpone an investor event scheduled for November, citing the “unprecedented commodity price environment”.
Mr O’Shea told Sky News: “Around one third of suppliers in the market have gone out of business this year so far.
“It’s incredibly distressing for consumers and there’s a huge cost to that.
“We have to make sure this doesn’t happen again.”
Some have pinned the blame on smaller firms’ business models – which might see them buy energy at volatile “spot” prices rather than smoothing out costs by purchasing contracts for future delivery.
The surge in wholesale gas prices to record levels catches out such companies because they have to buy the expensive gas only to sell it to customers who are contracted to pay a cheaper rate.
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British Gas – Britain’s biggest supplier – and other large rivals are picking up the pieces under industry rules which sees regulator Ofgem select one of them to take on customers of each of those companies that cease trading.
Shortfalls in the money needed to pay for their energy will be met by an industry-wide levy, ultimately paid for by all household customers.
Mr O’Shea told Sky’s Ian King Live the sum was already estimated at £2bn.
He said he could not give an estimate for how many more suppliers would go out of business but said those that had not hedged or maintained customer deposits would “find it very hard to survive this winter”.
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Mr O’Shea said that in cases when account deposits made by customers to collapsed suppliers have already been spent they have to be “made good” by the bigger companies such as British Gas that pick the customers up.
Those companies also have to buy the gas and electricity the companies need on the wholesale market.
“The cost over the winter alone for each customer is around £700,” he said.
“The customer credit balances that have been spent by these customers that have gone under is £400m.
Customers of collapsed suppliers are being transferred to larger companies to ensure they continue to receiver power and energy
“There’s about two-and-a-half million customers, who each attract a cost of £700, so already the cost of this over £2bn.”
The money is recovered by Centrica and others through a two-year levy spread across every energy customer’s bill, Mr O’Shea said.
He added: “I think it’s incumbent on the regulator to make sure that every company in our sector can deliver on the promises they make to customers.
“It’s very, very simple and we have to make sure this never happens again.
“There’s a number of ways that you can do that.
“You can either hedge – you can lock in the price in the market – or you can make sure that you’ve got enough money if you don’t hedge so when prices rise that you can make good on that commitment.”
Mr O’Shea brushed off the idea that things would have been better if energy companies were in public hands, suggesting that the current issues did not turn on the question of whether the sector was privatised or nationalised.
“What today’s issues show is that the sector has to be properly regulated,” he said.
“We have to make sure that those people that run energy companies have to pass a fit and proper persons test like you do if you’re in the banking or financial services business.”
Rachel Reeves has said she is determined to “defy” forecasts that suggest she will face a multibillion-pound black hole in next month’s budget.
Writing in The Guardian, the chancellor argued the “foundations of Britain’s economy remain strong” – and rejected claims the country is in a permanent state of decline.
Reports have suggested the Office for Budget Responsibility is expected to downgrade its productivity growth forecast by about 0.3 percentage points.
Rachel Reeves. PA file pic
That means the Treasury will take in less tax than expected over the coming years – and this could leave a gap of up to £40bn in the country’s finances.
Ms Reeves wrote she would not “pre-empt” these forecasts, and her job “is not to relitigate the past or let past mistakes determine our future”.
“I am determined that we don’t simply accept the forecasts, but we defy them, as we already have this year. To do so means taking necessary choices today, including at the budget next month,” the chancellor added.
She also pointed to five interest rate cuts, three trade deals with major economies and wages outpacing inflation as evidence Labour has made progress since the election.
Speculation is growing that Ms Reeves may break a key manifesto pledge by raising income tax or national insurance during the budget on 26 November.
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Chancellor faces tough budget choices
Although her article didn’t address this, she admitted “our country and our economy continue to face challenges”.
Her opinion piece said: “The decisions I will take at the budget don’t come for free, and they are not easy – but they are the right, fair and necessary choices.”
Yesterday, Sky’s deputy political editor Sam Coates reported that Ms Reeves is unlikely to raise the basic rates of income tax or national insurance, to avoid breaking a promise to protect “working people” in the budget.
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Tax hikes possible, Reeves tells Sky News
Sky News has also obtained an internal definition of “working people” used by the Treasury, which relates to Britons who earn less than £45,000 a year.
This, in theory, means those on higher salaries could be the ones to face a squeeze in the budget – with the Treasury stating that it does not comment on tax measures.
Read more: The taxes Reeves could raise
In other developments, some top economists have warned Ms Reeves that increasing income tax or reducing public spending is her only option for balancing the books.
Experts from the Institute for Fiscal Studies have cautioned the chancellor against opting to hike alternative taxes instead, telling The Independent this would “cause unnecessary amounts of economic damage”.
Although such an approach would help the chancellor avoid breaking Labour’s manifesto pledge, it is feared a series of smaller changes would make the tax system “ever more complicated and less efficient”.
KitKats, Gaviscon, toothpaste, and even Freddo have all fallen victim to shrinkflation, consumer group Which? has found.
As families struggle with the cost of a trip to the supermarket, a survey of shoppers revealed how many products are getting smaller – while others are being downgraded with cheaper ingredients.
Among the examples are:
• Aquafresh complete care original toothpaste – from £1.30 for 100ml to £2 for 75ml at Tesco, Sainsbury’s and Ocado
• Gaviscon heartburn and indigestion liquid – from £14 for 600ml to £14 for 500ml at Sainsbury’s
• Sainsbury’s Scottish oats – from £1.25 for 1kg to £2.10 for 500g
• KitKat two-finger multipacks – from £3.60 for 21 bars to £5.50 for 18 bars at Ocado
• Quality Street tubs – from £6 for 600g to £7 for 550g at Morrisons
• Freddo multipacks – from £1.40 for five bars to £1.40 for four bars at Morrisons, Ocado and Tesco
Which? also received reports of popular treats missing key ingredients, as manufacturers seek to cut costs.
The amount of cocoa butter in white KitKats has fallen below 20%, meaning they can no longer actually be sold as white chocolate.
It comes after Penguin and Club bars lost their legal status as a chocolate biscuit, as they now contain more palm oil and shea oil than cocoa – as reported in the Sky News Money blog.
Which? retail editor Reena Sewraz called on supermarkets to be “more upfront” about price changes to help households “already under immense financial pressure” get better value.
While keeping track of the size and weight of products can be tricky, Which? has two top tips for detecting shrinkflation.
The first is to be wary of familiar products labelled as “new” – because the only thing that’s new may end up being the smaller size.
Meanwhile, the second is to pay attention to how much an item costs per 100g or 100ml, as this can be an easy way of finding out when prices change.
What have the companies said?
A spokeswoman for Mondelez International, which makes Cadbury products, said any change to product sizes are a “last resort”, but it’s facing “significantly higher input costs across our supply chain” – including for energy.
A Nestle spokesman said it was seeing “significant increases in the cost of coffee”, and some “adjustments” were occasionally needed “to maintain the same high quality and delicious taste that consumers know and love”.
“Retail pricing is always at the discretion of individual retailers,” they added.
A spokesman for the Food and Drink Federation also pointed to government policy, notably national insurance increases for employers and a new packaging tax.
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Fresh food prices on the rise
The Which? report comes as latest figures showed fresh food costs 4.3% more than it did a year ago.
The increase in October, reported by the British Retail Consortium (BRC) and market researchers NIQ, was up on the 4.1% year-on-year rise in September.
Overall food inflation was down slightly, though, to 3.7% from last month’s 4.2%.
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There has also been a slowdown in overall shop price inflation, which the BRC said was down to “fierce competition among retailers” ahead of Black Friday sales.
The annual shopping extravaganza will this year arrive in the same week as the chancellor’s budget, which is set for Wednesday 26 November.
BRC chief executive Helen Dickinson called on Rachel Reeves to help “relieve some pressures” keeping prices high, with the national insurance rise in last year’s budget having “directly contributed to rising inflation”.
“Adding further taxes on retail businesses would inevitably keep inflation higher for longer,” Ms Dickinson warned.
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