British Gas profits soar by 889% (but not for the reason you might think)

The parent company of British Gas has revealed half-year profits for its UK household supply arm are up by almost 900%.

Centrica said that underlying earnings at British Gas rose to £969m compared to the £98m achieved a year earlier.

It said the bulk of the growth, however, was not down to any trading windfall from high energy prices but a reduction in debt-related costs.

Energy regulator Ofgem’s price cap provides an allowance to account for debt on energy bills that cannot be recovered by suppliers and is ultimately written off.

Centrica said this meant that some £500m was brought in under the scheme during the first six months of the year.

It helped the group propose a jump, by a third, in its interim dividend.

Centrica shares rose by more than 4%.

It reported adjusted operating profits of £2.1bn – up from the £1.3bn booked in the same period last year.

That was despite a £250m hit from wholesale energy losses on household bills due to curbs on what suppliers are able to charge.

Energy firms saw their profit margins hit last year when wholesale prices surged in the wake of Russia’s invasion of Ukraine.

The energy price cap remains £1,000 above its pre-pandemic average, despite oil and natural gas costs easing significantly.

The current level includes a premium that allows suppliers to recoup some of last year’s losses in order to prevent a potential new wave of supplier failures.

It is predicted by industry experts to remain around the £2,000 a year average for the coming winter months, maintaining pressure on household budgets in the evolving cost of living squeeze.

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A spokesperson for Ofgem said: “After four years of loss making, the energy retail sector is expected to return to profit this year.

“The profits we’ll see in the energy retail sector for the first half of this year are a one off as suppliers recoup some of the genuine and significant costs and losses they incurred over recent years due to COVID and the Russian invasion of Ukraine.

“We expect profit levels to fall back significantly moving forward to the reasonable and modest levels allowed for in the price cap.”

But Simon Francis, co-ordinator of the End Fuel Poverty Coalition, said of the British Gas earnings: “These profits are a further sign of Britain’s broken energy system.

“At a time when household energy debt is spiralling to record levels and energy bills remain double what they were just a few years ago, the profits posted will be greeted with disbelief by those struggling through the crisis.”