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Big six energy suppliers grilled by MPs

Customers get their say as MPs grill the UK’s largest energy suppliers

Representatives of the big six energy suppliers have been grilled by MPs over the prices they are charging customers for gas and electricity and the profit margins they are enjoying.

British Gas, EDF, E.ON, npower, Scottish Power and SSE all sent representatives to appear before a Commons Energy Select Committee, which intensely questioned them on matters relating to the amount they are profiting at the expense of UK consumers.

According to Labour MP Ian Lavery, the average person is losing patience with seeing energy bills rise while also hearing about energy companies making substantial profits.

“People who pay their taxes unquestioningly are sick and tired of seeing hugely profitable companies use every trick in the book to get out of contributing their fair share,” he commented.

“Hard-pressed people struggling with sky-high energy bills will be absolutely astonished that an energy company which makes hundreds of millions in profits doesn’t appear to be paying its fair share in tax.”

Balancing act

Mr Lavery was referring to npower, which was grilled by MPs after the revelation that it has not paid corporation tax for three years, but the supplier was quick to point out that its contribution to the nation’s energy security has been the reason behind this.

“This is in no way tax avoidance, and all of our business is taxable in the UK. We’ve not paid corporation tax because we’ve been investing hundreds of millions to keep the UK’s lights on,” a statement from npower said.

Paul Massara, chief executive of RWE npower, went on to note that the big six had only earned around four per cent margins on average over the past four years, with npower investing approximately £5 billion in new UK gas-fired stations and other projects, which made it eligible for tax relief.

The attention of the committee was also focused on Alistair Phillips-Davies, deputy chief executive of SSE, after it was revealed that only 400 of the 23,000 customers who were mis-sold energy deals by his company had so far been compensated.

Pre-emptive action

Earlier this month, the energy industry regulator Ofgem fined SSE £10.5 million, which led to the energy supplier putting aside aside £5 million to compensate those affected.

However, Tim Yeo, chairman of the Energy Select Committee, claimed that Mr Phillips-Davies could and should have taken action to prevent sales staff sticking to misleading scripts.

“I don’t think [the energy suppliers] grasp the extent of public disgust towards them,” Mr Yeo commented.

“Any consumer watching the proceedings today will not feel those companies have learned their lessons yet,” he added.

Caroline Flint, the shadow energy secretary who approached companies to establish their profit margins, tax contributions and other financial affairs, was keen to add a sense of perspective.

“Many of these companies are investing heavily in new generation, which I welcome, and which will enable them to legitimately claim capital allowances to offset against their tax liabilities,” she explained.

“Nonetheless, I was surprised and concerned to learn that out of Britain’s six energy companies, three have effective tax rates significantly less than would be expected, and one appears to have paid no corporation tax at all.

Two sides to the story

The big six were recently accused of “cold-blooded profiteering” at the expense of the public, but energy suppliers are now keen to stress that there are two sides to every story.

British Gas owner Centrica paid £651 million in corporation tax in 2011 on adjusted operating profits of £2 billion, and has also invested significantly in new infrastructure, while E.ON says it paid more tax than it made in profit between 2007 and 2011, almost £6 billion.

EDF Energy also invested £1.3 billion last year, which is more than its operating profit of £801 million, and suggests that energy companies’ main challenge in the months ahead may be to educate the public on the amount they are contributing to the economy and consumers, and steer the conversation away from how their changes are impacting energy bills.

Mr Yeo concluded: “They can’t get away from the concern that they are manipulating these businesses in order to conceal their margins from the consumer. We need more transparency if they are going to win public confidence.”