Decline in energy cap is welcome but may be cold comfort

Analysts at consultancy group Cornwall Insight are currently predicting a further 10% cut in July, so the short-term trend is certainly positive. However, as I pointed out in my second Business Voices column of the month, no one should be under the misapprehension the UK’s broken retail energy market has suddenly returned to functional health.

It is easy to rail against Ofgem but the reality is the energy regulator can only operate within the rules set down by government, which include the introduction of the price cap in 2019. While it sounds like something that should be keeping bills under control, the energy price cap was never designed to make gas and electricity affordable, nor offer any specific protection to those in danger of falling into fuel poverty.

READ MORE: Falling prices are a mere fig leaf for power policy failures

After all, the price cap is the same for all households regardless of income.

Its core raison d’etre was to protect households that hadn’t secured a fixed price contract from being gouged on a supplier’s basic variable default energy tariff. This protection is only in terms of paying a “fair” retail market price, with bills rising or falling in line with suppliers’ costs, which are mainly driven by the price of gas on the wholesale market.

There has been a marked decline in the number of those fixed price contracts on offer since the start of the energy crisis, leaving consumers hopelessly hunting for competitive deals to cut their bills. The systematic market overhaul that is desperately needed will require legislative action but, despite repeated assurances that government consultations are “active”, we are now nearing the end of the second winter of this energy crisis with no substantive progress
in evidence.

READ MORE: Who will shed a tear as Scottish Gas slides into losses?

Sticking on the topic of energy, British Gas posted a 10-fold increase in profits for 2023 after Ofgem relaxed restrictions on how much money suppliers can make from their customers.

The retail supply business, which is owned by Centrica and trades in this country as Scottish Gas, saw operating profits surge to £751 million from £75m after the regulator increased the amount of profit suppliers can claim to make up for costs incurred during in the initial stage of the energy crisis which started in the autumn of 2021.

Centrica said approximately £500m of the hike in profits was a “direct result of the changes Ofgem introduced to allow the recovery of prior period costs through the default price cap”. However, British Gas returned to a loss-making position in the second half of last year. Overall Centrica made a pre-tax profit of £2.8 billion in 2023, down 17% from 2022, with chief executive Chris O’Shea cautioning that profits are likely to fall further in 2024 as lower commodity prices and reduced volatility suppress earnings.

Euan Sutherland will take the helm at AG Barr on May 1 (Image: .)

Elsewhere on the Scottish business scene, soft drinks maker AG Barr has named its new chief executive and confirmed the departure date for the outgoing Roger White, who is retiring after more than two decades at the helm.

Former Superdry and Co-op boss Euan Sutherland will take over from May 1 at the Cumbernauld-based company, which owns Irn-Bru and a number of other brands such as Rubicon, Funkin and Boost.

White will step down from the board of directors at the end of April but “remain available” until the end of July to support a smooth leadership transition.

Meanwhile, Glasgow-based Alba Bank announced the immediate departure of chief executive Rod Ashley after six years in the post.

Mr Ashley had been with Alba – Scotland’s first new bank since Edinburgh’s Hampden & Co launched in 2015 – since Alba’s inception in 2017. Alba’s chief commercial officer, Jonathan Thompson, has assumed the post of interim CEO.