Cost of living crisis: anger as energy firms record profits – The New Statesman

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Centrica and Shell have announced more record profits and share buy-backs as energy bills become unaffordable.
By Emma Haslett
The privatisation of British Gas was supposed to be a great equaliser: in 1986, the British government released its “Tell Sid” ad campaign, in which various moustached men (and one old dear) reminded each other how easy it was to buy shares in the company. Two million people took advantage of the offering, buying up 64 per cent of the company. Today, 36 years later, British Gas – now called Centrica – has reported that its profits quintupled in the first six months of 2022, and that it is reinstating its dividend for the first time since 2020. 
For Sid and his ilk, that should be a silver lining, given that the British public could be hit with a £1,200 rise in energy prices this October, according to Cornwall Insight, taking the typical dual-fuel bill up to an estimated £3,244 a year. Unfortunately it’s unlikely Sid will benefit much because, even for those people who do own shares through pension funds or asset managers, they don’t own very much.
These days, small investors own just 12.8 per cent of the company. The lion’s share, about 83 per cent, is owned by institutional investors. Adrienne Buller, the director of research at the think tank Common Wealth, said these investors are most likely to be foreign institutions.
“Over the past 20, 30 years… UK pension funds went from holding one in every three shares to less than one in 25,” she explained. “Collectively, that amounts to about 6 per cent of the average UK company, whereas foreign overseas investors have about 55 per cent of the total.”
As a result, very few of us are likely to make much from Centrica’s generosity. “The actual impact of dividends or share buy-backs to the average pensioner would basically not be noticed at all,” she said. The only investors who will see rewards from the energy crisis are people who are already very wealthy. 
It is worth noting which part of Centrica is currently making all that money. Most of Centrica’s profits come from its “upstream” operations – the part of the business that extracts oil and gas, largely from the North Sea, and sells it on.
Income at its supply arm (British Gas, the part that charges customers their increasingly unpleasant bills) actually fell in the first six months of this year, with adjusted operating profits dropping 43 per cent to £98m. This is thanks largely to the fact that it was forced by the government to mop up millions of customers from the 31 suppliers that have failed since the beginning of 2021, and buy energy at record prices to supply them.
But let’s not confuse these reduced profits with a good deed. It’s more of an investment because it brings back all the people who left British Gas after the energy regulator, Ofgem, began encouraging small energy suppliers to enter the market in 2010. In the long term, the company’s status as a Supplier of Last Resort means the taxpayer is subsidising its acquisition of hundreds of thousands of new customers, potentially at a price of its choosing.
Buller pointed out that the whole point of introducing competition was to keep prices down, but “increasingly, it is becoming a less and less competitive marketplace”.
It wasn’t just Centrica that revealed massive profits yesterday – Shell announced its second consecutive quarter of record profits, plus a £6.1bn share buy-back, money that will be going directly to shareholders, of which 38 per cent are small investors. Ben van Beurden, Shell’s chief executive, insisted on CNBC that the profits were “a result of a lot of hard work”.
That may be the case but even he has to admit that, with energy companies profiting billions while people are struggling to heat their homes, the optics aren’t great.
Buller suggested that in the short term, ramping up the windfall tax on energy companies that was introduced in May may be the best way to prevent profiteering from energy companies. “A windfall tax on the oil and gas companies, anyone who’s a producer, does make a lot of sense as an interim solution.”
She continued: “The version of a tax that we’ve seen had problems, including that capital expenditure in new oil-generating assets in the North Sea, for example, were included as a way to write down that tax burden. The UK exports a huge amount of our gas, and that increased in the midst of this price crisis because they would just sell to the highest bidder. 
“That’s not an energy system that’s oriented around people and around providing what should be considered a fundamental right to something that we all need to just survive.”
Van Beurden seemed sceptical of his company’s ability to help the situation, however. As he told the Sun’s Ashley Armstrong yesterday: “We cannot perform miracles. It is what it is.” 
[See also: Tory members are taking an enormous gamble by backing Liz Truss]


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