Any other business

Why Centrica is right to restore its dividend

6 August 2022

9:00 AM

6 August 2022

9:00 AM

‘What’s worse, they’re paying the profits to shareholders,’ said a grey-haired woman ahead of me in the Co-op queue. ‘Bloody shareholders,’ her friend of similar age and class spat back. I guessed they were talking about Centrica, parent of British Gas, which at a time when domestic energy bills are rising 23 times faster than wages (as Frances O’Grady of the TUC puts it) has announced half-year operating profits of £1.3 billion, up from £262 million last year – and the restoration of a penny-per-share interim dividend after a three-year gap.

Both ladies looked likely to be beneficiaries of pensions nourished by dividends from the likes of Centrica, Shell and BP. But I resisted the temptation to interrupt them by quoting Centrica boss Chris O’Shea, who has said ‘You’ve got to restore [the dividend] at some point, you’ve got to give people a return – and I think our shareholders have been very, very patient’, while also acknowledging that ‘it’s difficult to see the word profits or dividends… when people are having a tough time’.

He’s right both ways. But this column has stood up often for the principle of dividends as a rightful regular reward for investors who risk their capital – rather than an unearned bonus for the already rich, as anti-capitalists claim. Dividend streams are particularly relevant to investors in utilities and banks that are unlikely to provide decent returns through share-price performance but which need a stable long-term shareholder base. So O’Shea is correct to assert the principle with his token penny payout. But he still needs to offer the ladies in the Co-op an explanation as to why his fortuitously fat ‘upstream’ profits driven by world oil and gas prices can’t be deployed to ease the pain of his downstream domestic customers.

Mystery pricing

My call to shame inflationary price-hike opportunists produced a bumper mailbag. Your complaints of inexplicable rises ranged from home-insurance premiums to Lord’s Test tickets, Cornish lobsters and Sainsbury’s multipack loo rolls. As to my spotlight on car-hire costs, one reader who paid £600 for an SUV in Wales last year was quoted £1,589 for the same model this year.


But the most puzzled respondents were those whose electricity suppliers, such as Bulb and Scottish Power, claim to use only renewable sources yet charge tariffs inflated by the spike in gas prices. Bulb (which went bust last year but looks likely to be acquired, on a cushion of state subsidy, by Octopus Energy) has the excuse that it buys all its power in a wholesale market where there’s only one price, driven by the dominance of gas which accounts for 41 per cent of UK generation: there’s no separate pricing for renewables. Scottish Power, on the other hand, says its product is ‘100 per cent green… made by our UK windfarms’. If that’s so, why can’t it set its own tariff, disconnected from gas? This mystery drove one reader to church on Sunday to ask ‘God’s local representative’ when and why the Almighty decided to mark up the costs of ‘wind, water and sunshine’.

High-risk insurance

The resumption of Ukrainian grain shipments with Monday’s sailing of the Razoni from Odessa, bound for Beirut, is good news if it averts food crises in Lebanon, Libya and other places that have been starved of supply. If ships get through regularly and unscathed, it may take the edge off food-price inflation more generally. And it’s an opportunity for London to reassert its leadership in global shipping insurance.

So I’m pleased to see a group of Lloyd’s insurers, led by Ascot with the giant broker Marsh, offering a $50 million facility to cover the grain against damage or loss by Russian attacks. Premiums will be hefty but that’s how high-risk insurance works.

It’s the sort of proposition the late Ian Posgate, ‘Goldfinger’ of Lloyd’s in the 1970s and 1980s, might have relished. He once told me how he made big money during the Vietnam war offering super-expensive cover for cargo ships in the Mekong delta, only realising later that the river in the rainy season was three miles wide, so shipping in the middle was perfectly safe from Vietcong bazookas.

The Black Sea right now looks much more dangerous. But let’s hope the insurers reap handsome profits, because that can only happen if claims are very low.

When summer ends

Lunching on the panoramic terrace of L’Esplanade at Domme, high above the river Dordogne, I sense something missing: tourists. On a peak-season Saturday, this lovely clifftop bastide is as quiet as in February. Locals say fuel costs have deterred the usual cortège of Dutch and Belgian camper-vans and there’s barely a British car to be seen. But broader statistics say otherwise. Thanks in large part to revived tourism across France, Italy and Spain – in turn boosted by the weaker euro – Eurozone second-quarter growth was plus 0.7 per cent, compared with minus 0.9 in the US and a flat UK figure expected next week.

‘But what happens when the summer ends?’ asks a French economist in the FT. There, and here, the answer – familiar to Game of Thrones fans but unspoken by real-life political leaders – is that winter is coming. A fractious autumn will turn to a season of cold homes, mounting debts, bankruptcies, strikes, failing public services and bitterness between neighbours, locally and geopolitically. I can’t overstate how nasty I fear it’s going to be – the worst since 1973. All the more reason to seize August’s pleasures while we can: sharing the Lionesses’ joy, paddling in the sea, lunching on sunlit terraces.

Back to L’Esplanade: yet to embrace my sub-£30 prix-fixe gospel, it falls more in the arm-and-a-leg category. But its magnificent cheese trolley, as though teleported from happier times, brought tears to my eyes.

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