Centrica blames tax for Morecambe Bay closure

The backlash against the Chancellor's decision to impose higher taxes on energy firms continued yesterday after Centrica decided not to recommence production at a major gas field, citing the heavy tax burden.

The owner of British Gas said it had completed the planned maintenance on its South Morecambe gas field, but that it now expected it to "operate on a more intermittent basis".

"Decisions on when to run the field are made on a commercial basis, taking into account market factors, operating costs and earnings," a Centrica spokesman said.

"We welcome the ongoing dialogue the Government is having with industry around the damaging impact the increased tax levels have on North Sea gas security and investment. However, the increase in supplementary corporation tax means the South field is now taxed at 81 per cent. At this level of tax, profitability of Morecambe South field can be marginal."

Underscoring the impact of the tax, Centrica said that it would continue to monitor the situation, but that "if it makes more economic sense to buy gas for our customers in the wholesale market, we would limit South field production."

The field is one of the country's largest, and can produce around nine million cubic metres of gas a day. That equates to around 6 per cent of the country's annual gas requirements, or up to 12 per cent of residential gas demand, according to the company. Centrica said higher taxes affected "the trigger levels at which point we shut production and purchase gas from other sources". In other words, production at the field would only make sense if gas prices rose by more than would have been necessary before the tax increase.

Crucially, while much of the debate over the higher supplementary charge has so far focused on the potential impact on future investment, the news on South Morecambe puts the focus on current production.

Last month, Centrica's share price touched a nine-month low after it warned investors that the higher taxes meant its earnings would grow at a "more modest rate" than previously anticipated. The company added that it "no longer" expected to "maintain the previously projected high levels of investment in the UK".

The wider industry has also warned about the impact of George Osborne's surprise decision to raise the supplementary charge against the backdrop of rising oil prices at the time of the Budget in March.

Giving evidence before Parliament's Energy and Climate Change Committee last month, Malcolm Webb, the chief executive of the industry body Oil & Gas UK, said the move was "very, very damaging for investor confidence". Speaking after the session, Mr Webb said: "Our primary message... was that this increasingly mature sector needs careful handling.

"It cannot take shocks such as the recent tax hit... these reduce the UK's relative attractiveness for investors, who will now look to rival opportunities overseas, where their capital will earn better returns."

Start your day with The Independent, sign up for daily news emails
ebooksAn unforgettable anthology of contemporary reportage
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Digital Optimisation Executive - Marketing

£30000 - £35000 per annum: Recruitment Genius: The UK's fastest growing, multi...

Recruitment Genius: Financial Reporting Manager

£70000 - £90000 per annum: Recruitment Genius: A Financial Reporting Manager i...

Recruitment Genius: Payments Operations Assistant

£23000 - £25000 per annum: Recruitment Genius: They win lots of awards for the...

Recruitment Genius: Telephone Debt Negotiator

£13500 - £20000 per annum: Recruitment Genius: This nationwide enforcement com...

Day In a Page

Sepp Blatter resignation: The beginning of Fifa's long road to reform?

Does Blatter's departure mean Fifa will automatically clean up its act?

Don't bet on it, says Tom Peck
Charles Kennedy: The baby of the House who grew into a Lib Dem giant

The baby of the House who grew into a Lib Dem giant

Charles Kennedy was consistently a man of the centre-left, dedicated to social justice, but was also a champion of liberty and an opponent of the nanny-state, says Baroness Williams
Syria civil war: The harrowing testament of a five-year-old victim of this endless conflict

The harrowing testament of a five-year-old victim of Syria's endless civil war

Sahar Qanbar lost her mother and brother as civilians and government soldiers fought side by side after being surrounded by brutal Islamist fighters. Robert Fisk visited her
The future of songwriting: How streaming is changing everything we know about making music

The future of songwriting

How streaming is changing everything we know about making music
William Shemin and Henry Johnson: Jewish and black soldiers receive World War I Medal of Honor amid claims of discrimination

Recognition at long last

Jewish and black soldiers who fought in WWI finally receive medals after claims of discrimination
Beating obesity: The new pacemaker which helps over-eaters

Beating obesity

The new pacemaker which helps over-eaters
9 best women's festival waterproofs

Ready for rain: 9 best women's festival waterproofs

These are the macs to keep your denim dry and your hair frizz-free(ish)
Cycling World Hour Record: Nervous Sir Bradley Wiggins ready for pain as he prepares to go distance

Wiggins worried

Nervous Sir Bradley ready for pain as he prepares to attempt cycling's World Hour Record
Liverpool close in on Milner signing

Liverpool close in on Milner signing

Reds baulk at Christian Benteke £32.5m release clause
On your feet! Spending at least two hours a day standing reduces the risk of heart attacks, cancer and diabetes, according to new research

On your feet!

Spending half the day standing 'reduces risk of heart attacks and cancer'
With scores of surgeries closing, what hope is there for the David Cameron's promise of 5,000 more GPs and a 24/7 NHS?

The big NHS question

Why are there so few new GPs when so many want to study medicine?
Big knickers are back: Thongs ain't what they used to be

Thongs ain't what they used to be

Big knickers are back
Thurston Moore interview

Thurston Moore interview

On living in London, Sonic Youth and musical memoirs
In full bloom

In full bloom

Floral print womenswear
From leading man to Elephant Man, Bradley Cooper is terrific

From leading man to Elephant Man

Bradley Cooper is terrific