Energy suppliers’ profits are as much as five times higher than they should be, the head of an inquiry into the sector has said.
Roger Witcomb, who led the Competition and Markets Authority’s two-year investigation into the UK’s energy industry, has suggested that suppliers’ profits are far too high given their limited role in metering and billing customers.
He told the Sunday Telegraph that it was appropriate for suppliers to make only £12.50 on a £1,000 gas bill – equivalent to a profit margin of 1.25% compared with the 7% enjoyed by British Gas’s household supply business last year.
“All they are actually doing – and I shall get into trouble for this – is metering and billing. They are not making the stuff,” Witcomb said.
British Gas and other major energy suppliers argue that a 5% margin is appropriate but Witcomb said there was room for a further drop in profits if the CMA’s recommendations to improve the market were successful.
Witcomb’s analysis was not included in a report published last month by the CMA in which it argued that 30 new measures, including a database to enable rival suppliers to contact customers, would reduce bills by helping to open up the market to greater competition.
The report argued that energy suppliers were able to exploit customers who did not seek out the best deals to charge prices “materially above” the level necessary.
But the watchdog decided not to impose a limit on the prices suppliers could charge, except a temporary cap on pre-payment meter charges.
Critics said more radical measures should have been considered with even Martin Cave, a CMA panel member, arguing that a wider price cap should have been imposed.
