Gas

Ian Peters, chief operating officer, British Gas

Guardian Weekend: Last August, British Gas raised electricity prices by 16% and gas by 18%. In January, you cut electricity by 5%, but kept gas on hold. Given that the price has fallen significantly and many of your rivals have cut prices, why is your gas so expensive?

IP: Let me start by explaining what makes a typical gas bill. Around 56% is wholesale commodity costs. About 21% is transportation. About 10% is government obligation and taxes. So about 85% of the total components of the bill are outside our control. Then there is 8%, which is our operating costs. And about 5% is our profit margin.

Generally, we import about half of our gas, and we're competing on an open market. Last year was particularly unusual. We had Fukushima, which forced Japan to turn their nuclear plants off and start importing gas. We saw demand rise as the Germans and Italians backed out of nuclear. And the trend on wholesale gas is for demand to rise, as emerging economies switch from coal. We buy gas in a number of ways: a week ahead, a month ahead, anything up to two or three years ahead. We do that to smooth out volatility in our prices. So prices reflect what's going on in the market, but also how we bought the gas.

So, to answer your question: in January, the price dropped, but we'd effectively bought all that gas, so we weren't able to pass that on to customers.

GW: If that's the case, how come npower, EDF and Scottish & Southern managed to cut prices?

IP: We have very different businesses. We have around twice the number of gas customers.

GW: Other companies have committed to buying less gas in advance to keep prices down, but you haven't made that commitment.

IP: The markets are not a one-way bet … if the price goes up, their customers will potentially suffer from that.

GW: The criticism of the way you do it, though, is that you put up prices when there are market rises, but you don't cut them when they fall.

IP: Ofgem has not been able to produce any conclusive evidence to back up that assertion.

GW: One other criticism is that when Ofgem asked you to make tariffs more straightforward, you did, but in the process you snuck in a little price rise for the cheapest deal. Is that correct?

IP: I'm not aware we've increased prices.

GW: I have the report here – the headline says, "British Gas promises to simplify bills and tariffs (but puts cheapest tariff up in process)".

IP: Ah, I know what that relates to. We acted to simplify our range of tariffs. There was criticism about some of our competitors having very cheap online offers to entice new customers, and customers have effectively bill shock when [the offer] runs out. We withdrew those very cheap online offers. It wasn't an increase, we just withdrew the tariffs that were being criticised.

GW: Centrica, the company that owns British Gas, made a pre-tax profit of £2.4bn. Sam Laidlaw, its CEO, earned £2m and 250K into his pension pot, with extra shares worth £2m. British Gas itself made £550m profit. MD Phil Bentley had a salary of £1.3m, with share gains of £2.7m. Compare that with a recent study from Age UK that found 2 million elderly people had to move into one room or go to bed early in winter to keep energy costs down. And a quarter of all UK households fell into fuel poverty over steep increases in bills. You can see why people are annoyed, can't you?

IP: Executive remuneration is clearly an issue generally. We have responsibility for half the homes in Britain, we look after 35,000 people to keep them in jobs. Remuneration is assessed by independent remuneration committees. It's for them to decide what's fair and reasonable. But these are responsible jobs.

Water



Le Gavroche, David Galetti, head sommelier

GW: I understand that Le Gavroche stocks Speyside Glenlivet?

LG: Yes, still and sparkling.

GW: How much is it priced at in the restaurant?

LG: Do you mean on the table? It depends. At lunchtime, we have a set menu that includes water and a bottle of wine, so people don't pay for them. At dinner, it's £3 a bottle.

GW: Given that you can buy it from Ocado for £1 a bottle, why has Le Gavroche decided on £3?

Why does water cost so much in restaurants? Photograph: Alamy

LG: Ohhh, it's er… how it's, well, how can… It's… how can I say that? I don't know, it's quite delicate to give a specific reason as to why it is that price. I don't even know if there is a certain level that is correct. Some restaurant prices are £5 to £6 a bottle, which is overpriced. Well, in the other way, £3 is not cheap, but in certain places, you've got a certain level of standing. And I believe it is where the difference is coming from.

GW: Is that the only water you stock?

LG: No, we do Evian. It's 50p more. The cost for Evian is much more because it's coming from France. The Badoit is the same. And after, we have Chateldon at £5 a bottle. It's delicious. If you take for the wine the top cru, for a sparkling water it would be the same. It's extremely expensive for a water.

GW: How's that justified?

LG: It will be based on the rarity of the product. They don't export it to the UK any more. The spring is getting smaller and smaller, so that's why they have cut back in Europe. It's sold now only in France. We had the chance to ship some over, but the cost of that is extremely high.

GW: How much do you pay per bottle, presumably to £5 a bottle?

LG: Off the top of my head, £1.50.

GW: So you mark it up by £3.50?

LG: Yup.

GW: Do you feel that the price is justified because there is the option of free water?

LG: Yeah, well, we don't force people, because we provide filtered water. I have to say, compared with some other waters, it can be very similar.NJ: And how much do you pay for the Glenlivet when you buy it in?

LG: Er, I don't know....

GW: Less than £1 would you say?

LG: I believe so yes. It's in the country so it shouldn't exceed that.

GW: Thank you You were incredibly helpful. And you are the head sommelier?

LG: Yes.

GW: What's your name?

LG: David Galetti.

Face cream

Rachel Simmonds, skincare training manager, La Prairie, whose Cellular Platinum Cream costs £656 for 50ml

RS: The high cost is because of the platinum colloidal water we use. It is magnetically charged particles of platinum, so it has an impact on the electrical balance of the skin. It helps to realign the water molecules so you have a better receptivity to nutrients. But it also stops vital hydration from being lost.

GW: Does the cost reflect the research that has gone into that? Or the cost of producing it?

RS: A bit of both. Every ounce of platinum has a higher cost than every other metal.

GW: How much platinum do you use in the cream?

RS: I can't tell you the exact amount unfortunately.

GW: Has it been scientifically tested?

RS: Yes, in the laboratory in Switzerland and on human volunteers. We don't publish the results.

GW: Dermatologists say precious metals can have beneficial effects, but not in the tiny quantities used in these creams.

Face creams can cost £656. Photograph: /Getty Images

RS: Because of the magnetic charge each particle contains, it's symmetrical within the product and the way those tiny particles – they're submicrons, so they're really, really tiny – that's how it spreads evenly on the skin, and that's why it is able to shift water molecules and change the electrical balance.

GW: So it's not penetrating the skin, more having an effect on the surface?

RS: Yes, it's as simple as opposites attract, because the positive charge of the water molecules in the skin stand up on the right end because they're attracted to the product, and that's how you get your protective buffer zone back intact. Platinum is also classed as a super-antioxidant.

GW: So would there be a lasting effect?

RS: Yes. You've got better hydration, it also stops the environment getting into the skin.

GW: But if you don't publish your scientific research, it's hard to prove or disprove any of that?

RS: Yes, it's one of those things. We launched Platinum in 2009, in the recession, but our customers felt confident it was going to be the best technology and it still does amazingly well for us.

GW: How long would a 50ml pot last?

RS: If you're using a pea-sized amount morning and evening, it should last three months.

GW: How much of the price is down to packaging?

RS: We sell this as "the skincare masterpiece of the decade", so it had to be presented in a way that reflected that. The applicator is in the chemical symbol of platinum – so you have the sun, which is the gold, and the moon, which is the silver, then there is a Swarovski crystal in the moon – but the focus is paying for the colloidal platinum.

GW: For £656 you could buy a course of injected fillers, so why should someone buy this instead?

RS: La Prairie has always been known as the last resort before cosmetic procedures. And not everybody wants something invasive. Likewise, we have customers who have cosmetic work, and use La Prairie between treatments. But all our products work deep within the skin. Not only the colloidal platinum, but other ingredients like peptides and carnosine, which helps to restructure the dermal matrix, smooth out wrinkles, so it's the same effect you'd have injecting hyaluronic acid.

GW: Looking at the progression of La Prairie face creams over the years, from caviar to gold to platinum, aren't you just putting tiny amounts of expensive ingredients into creams to justify a very high price?

RS: It is a luxurious, pioneering brand, but it's all about the scientific innovation, so it's not just about expensive ingredients. It's about how they work.

GW: Do you think any face cream is worth £656?

RS: I honestly do. Inevitably, it is going to be for the privileged few, but we do have the 30ml size, around £450, so there's a lower price point.

GW: So you'd say, if you can afford it, buy this rather than 50ml of Olay Total Effects for £8?

RS: I mean it's not to say that not any other product is good, it's just that if you want the very best that money can buy, La Prairie always offers that.

GW: In your material you say, "the rarest metal on earth is impervious to time. Shouldn't you be too?" But everyone ages, so it seems a bit of an unfair claim.?

RS: Yeah, I mean La Prairie scientists have always said that out of 100% why you age, 20% is chronological ageing, and down to your genes, which leaves a whole 80% down to extringic ageing, which is what we do to ourselves. So there's a lot you can do to prevent that accelerated ageing: protect the skin, wear an SPF, use ingredients that protect against free radicals and environmental attacks - and look after yourself internally as well. The way they word it in there - that's the science behind the meaning.

GW: How long would I see the effect for after stopping use?

RS: It's hard to say because everyone's skin cells turn over and renew every 28 days roughly. If you stop using it, the benefits will continue for a certain period but that will vary from one person to another depending on their renewal cycle. But skincare is like diet and exercise, you do need to maintain it, otherwise it's not going to work forever.

Train fares

Richard Gibson, head of communications, CrossCountry

GW: I tried to book a CrossCountry train journey from St Austell to Macclesfield. The only available ticket was £147.50, eight weeks ahead. Train companies boast about low advance fares – the trade-off for pricey walk-on fares. What's going on?

RG: Not all journeys have an advance fare. We set the fare between St Austell and Birmingham, so we can offer an allocation of advance fares for that part of the journey. But Birmingham to Macclesfield is set by another operator.

GW: But both segments of the journey are aboard CrossCountry trains.

RG: The way fares are set, we cannot provide allocation of advance fares on the second part.

GW: Why?

RG: Because that is the way the system is set.

GW: Who sets the system?

RG: The Association of Train Operating Companies (Atoc). They would be quite happy to explain the national fare structure.

Train companies boast about cheap advanced fares. Photograph: /Getty Images

GW: I then booked the two parts of my journey separately on your website. I bought one ticket from St Austell to Birmingham, and one from Birmingham to Macclesfield, on the same CrossCountry trains I'd been quoted £147.50 for. The new price was £65. That's £80 cheaper.

RG: Yeah.

GW: How can you justify that?

RG: If you choose to buy multiple tickets for a simple journey, you may find it's considerably cheaper. But you're not getting the guarantee of the service all the way through. If your train from A to B was delayed, and you missed the train from B to C, you'd have to buy a new ticket.

GW: Do you think that's a fair way to treat your customers?

RG: This is the industry system and you'd need to contact Atoc.

GW: Do you think it's fair that one person could pay £147.50, but another could split the tickets and pay £65 for the same journey on the same trains?

RG: I think the fare of £147.50, at less than 50p per mile, is a fair price for the 300-mile journey.

GW: But in the end I paid just £65!

RG: I think that £147.50 to travel from St Austell to Macclesfield is a fair price for the journey.

GW: You keep telling me it's fair, but when people read this they're going to say: it's absurd and you're ignoring my question. Why can't CrossCountry write on their ticket site, "It may be cheaper to book your journeys separately."

RG: Because not every customer wishes to do what you've tried to do.

GW: Not every customer wishes to save money? It is a hassle, but you should still tell them. Why won't you?

RG: Because that would be confusing to customers.

GW: I think customers would like to save money.

RG: I think we disagree on what we think our customers would prefer.

GW: In an ideal world, would the fare system be different?

RG: I have no idea what an ideal world would look like, I'm afraid.

GW: Do you think CrossCountry should be transparent about the fact they can't control all of their ticket prices?

RG: I don't think it would be useful for customers to put a section on our website to explain how the fare system works. I think it's providing a level of complication.

GW: I think the customers are grown up enough to understand it.

RG: I tell you what, I will pass your suggestion on to the revenue team and the commercial director to see if they are able to do anything with it.

GW: Please do.

Stamps

James Eadie, Royal Mail spokesman

GW: Why are first-class stamps going up by 30% to 60p?

JE: I think most of the questions you are asking are covered in the press release.

GW: I know Royal Mail have said they are being forced to put up the price because they have to ensure a universal service. It appears the government is going to allow 90% of the Royal Mail to be privatised by 2014. Are Royal Mail putting up prices to make Royal Mail more desirable?

A 30% rise for a first-class stamp - why so much? Photograph: Alamy

JE: Any issues of future ownership are a matter for the government. Mail volume is in decline – it has fallen by 25% since 2006. And over the last four years we've lost around £1bn of our core letters, so price rises are needed now.

GW: But a 30% rise for first-class and a staggering 39% on second-class stamps. Why so much?

JE: Ofcom itself has said the Royal Mail's financial position has put the viability of the service at severe risk. It recognised that material price increases were needed.

GW: Did Ofcom specify that it needed to be a 30% rise on first-class stamps and a 39% rise on second?

JE: In their decision document, they set a cap of the price of second-class stamps at 55p.

GW: Surely Royal Mail must be concerned that, in bringing up the price so spectacularly, they are going to lose customers? Why would I spend 60p when an email is free?

JE: We know how hard it is for households and businesses. We thought very carefully about this, but regretfully we have no option.

Jeans

Lucy Pinter, Superfine Jeans

LP: Our jeans are at the high end. There's a good reason for that. We have personalised zips, and each has a different colour from the wash. We have pocket linings, which we personalise and print ourselves, whereas most other brands just use a basic calico. And everything is made in Italy.

GW: The low-rise legging-style jeans, for example, are £260 on net-a-porter.com? I think you're right. I think people look at £260 and think yikes that is a lot. Could you talk me through how you cost it?

LP: It's funny you should call now, because we're working on pricing – our spring/summer prices were the highest we've ever had. Our autumn/winter prices are a great deal better.

GW: A pair of Moto jeans from Topshop cost £38.

A pair of jeans can cost £260. Photograph: /Alamy

LP: I don't know how they do that. Obviously they manufacture in massive bulk, and when you do that, your price comes down dramatically. My label is relatively small, so we are working with a maximum of perhaps 1,000 on a run. And I also imagine they are doing it in some place in China. In my old factory, I knew the people sewing my jeans. One season we went to China; that season was a disaster for us because the quality was bad.

GW: What was the difference?

LP: They fell apart. The fit wasn't as good.

GW: Have you thought of doing a cheaper line?

LP: I considered it, but people see it as a high-end label and don't want a cheap Superfine jean.

GW: Would you say in some part people are paying for the label?

LP: Bear in mind what it takes to make a pair of trousers from the cut to the sew: sometimes five different processes. You're not paying for the label, you're paying for the "made in Italy": the fabric, the wash, the treatment and the dye, all being done in Italy.

GW: So, do you make a profit?

LP: Yes, but I'm under licence, so I take a royalty from my label and they run the business, so it might be more a question for them. But I imagine there is one because we're still going.

Photographs: Getty Images (3); Alamy (3)