British Gas plans price cuts in the South-west

British Gas is considering slashing prices later this year for hundreds of thousands of domestic customers in the South-west of England, in an attempt to fend off competition from rival independent suppliers.

The cuts, which would be made in Devon, Cornwall and Somerset where trials of residential competition are under way, would mean customers would enjoy lower bills from British Gas than elsewhere in Britain.

Roy Gardner, the chief executive designate of British Gas Energy, the gas supply business which is soon to be hived off, said yesterday: "We have a whole range of pricing options that we are currently considering." Full domestic competition is not planned for the whole of the UK until 1998, with further trials in the South of England starting in the new year.

British Gas said its licence with the watchdog, Ofgas, prevented such price adjustments until competition had been "deemed" to have been "established," though the precise meaning of this phrase was unclear.

Mr Gardner said in his view this could happen in the South-west by November, when the trial would have been in progress for six months. Out of 500,000 households involved, around 75,000 customers, or 15 per cent, have switched to rival companies. Independent firms have offered price discounts of up to 25 per cent to tempt potential customers.

Separately, Mr Gardner gave an ambitious commitment to "solve" British Gas's customer service problems by the end of the year. At the group's results, announced yesterday, it emerged that it had spent pounds 40m in the first six months of the year trying to sort out the difficulties.

Ian Powe, the director of the Gas Consumers Council, was sceptical that the commitment could be met. Complaints rose by 30 per cent in the first seven months of the year to 26,164. In July they were up by 170 per cent, partly because of teething problems with British Gas's new national computer system.

"I would be very impressed if they achieve this and I certainly wouldn't bet on it. You just can't wave a magic wand and get trained people," Mr Powe explained.

It was disclosed that 5,500 staff took voluntary redundancy between January and June, costing the company pounds 380m, an average of more than pounds 69,000 for each employee. However, these costs had already been written off in a previous restructuring provision.

"More people have volunteered to leave the company than we had anticipated and have left faster than expected," said the finance director, Philip Hampton. Yet British Gas had to take on 1,200 temporary staff to help deal with the deluge of telephone complaints.

Pre-tax profits in the first half of the year, on a current cost basis, fell by 11.5 per cent to pounds 705m. The boost from last winter's cold weather was wiped out by losses on long-term take-or-pay contracts to buy gas at well above the current market price. This helped to push the industrial gas division pounds 180m into the red, with losses of pounds 400m expected by the end of the year.

Richard Giordano, the chairman, said he was hopeful the first "two or three" take-or-pay contracts could be renegotiated soon, but admitted progress had been "painstakingly slow".

The interim dividend was held at 6.4p, with Mr Giordano blaming the continuing uncertainty over the Ofgas price controls proposed for the pipeline business, TransCo. He said no decision had been made about whether to refer the dispute to the Monopolies and Mergers Commission.

British Gas shares gained 0.5p to 199.5p.