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Taxing times: are energy bill hikes benefiting the economy?

Energy companies may not have the best relationship with consumers, but could they be benefiting the wider economy?

Gas flame burningAfter the Big Six energy companies all raised their fuel prices in recent months, many fingers were pointed at the fact that the organisations were benefiting to the tune of billions, while consumers were losing out.

However, ahead of the publication of its 2012 profit report, the Telegraph reports that British Gas parent company Centrica has taken the unusual step of pointing out just how much it is benefiting the UK economy.

As the largest supplier of gas to domestic customers in the UK, it is arguably a prime target for finger-pointing, but any accusations that the organisation is profiting at the UK’s expense must be balanced against the benefits that the utility company provides.

That will be the key message delivered by Chris Weston, who was last week unveiled as the man to take the reigns from the outgoing British Gas managing director Neil Bentley, who is set to step down after six years in charge.

Pre-emptive move

The move is a pre-emptive one from Centrica, which is forecast to report full-year profits of £2.77 billion next Wednesday (February 27th), marking a 15% rise on the year before.

Profits from its UK residential supply arm are estimated to increase by 10% to reach nearly £600 million at a time when more households than ever are being plunged into fuel poverty.

This situation – which occurs when more than 10% of household income is used to pay energy bills – is one that has received much media coverage over the winter, and Centrica is clearly fully aware, with the company taking steps to quell any potential resentment before it is fully vented by compiling a study to accompany its profit announcement.

Ahead of the profit report, the company will point out the major contribution it makes to the UK economy, particularly in the form of the tax it pays.

British GasFor the greater good

Last year, British Gas’ parent company was one of the biggest contributors to the Treasury, plunging more than £800 million into the nation’s coffers, to be used at the government’s discretion.

Furthermore, as the company points out, the rollout of services across the UK necessitates people to carry out the work – and its employee base stands at almost 33,000, which is more than 0.1% of the nation’s entire workforce.

Although its profits have risen, Centrica notes that its tax bill has increased at the same time. The £800 million paid last year is an increase on the £763 paid the previous year, while its total 2012 tax bill of £1.1 billion is far higher than the £891 billion paid in 2011.

As well as the number of people it employs, Centrica also intends to highlight that there are thousands more whose jobs are dependent on the company’s UK operations.

Balancing act

Despite a reduction in operating profits, Centrica intends to highlight that its profit margin remains at around 5%; an announcement it hopes will help to deflect the backlash expected from British Gas customers who were subject to a 6% energy bill hike last November.

British Gas’ expected revenue rise will mean it is the latest of the Big Six to announce profit hikes, after French-owned EDF revealed last week that it saw underlying profits increase by 7.5% in 2012, while ScottishPower’s Spanish parent company Iberdrola also reported a net profit rise of 1.3 per cent to €2.84 billion (£2.4 billion).

The backlash from consumers following the announcement could lead the other Big Six suppliers to adopt the Centrica approach of offsetting profit statements with studies detailing the way in which their operations benefit the economy and the nation’s workforce.

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