Soaring tax bill leads Centrica to cut back on UK investment

Centrica warned yesterday that the Government's surprise extra tax on North Sea oil and gas would hit profit growth this year and cause the company to scale back investment.

The British Gas owner also warned that households could again be facing increases in energy bills after a 25 per cent rise in the wholesale price of gas and power for next winter. The company, which has about 16 million energy accounts, raised bills by 7 per cent last winter. It said it had yet to decide whether it would increase tariffs.

In a trading statement, Centrica said a mix of higher profits and the increased tax rate on UK oil and gas production would push its tax bill up by £300m this year and that its effective tax rate would be about 45 per cent.

"We continue to expect growth in our 2011 group earnings but at a more modest rate than anticipated at the time of our results announcement as upstream profits have become more highly taxed," the company said

The group had planned to spend half its £1.5bn capital expenditure budget for this year on UK upstream activities. But Centrica said yesterday: "With the resultant reduced cashflow and increased fiscal uncertainty, we no longer expect to maintain the previously projected high levels of investment in the UK."

The news sent Centrica's shares down 12p, or 3.8 per cent, to 303.5p.

In his March Budget, the Chancellor announced a shock windfall tax on North Sea oil and gas by increasing the charge on producers to 32 per cent from 20 per cent to pay for a cut of 1p a litre in petrol duty.

Centrica listed a set of tough trading conditions, including lower residential gas use during the warm April, increased competition and tight household budgets.

Gas and oil production were strong in the first quarter of the year and increased wholesale prices will boost operating profit at the company's upstream operations.

However, the Budget measure will offset the benefits of higher prices by increasing the tax rate on some Centrica fields to 81 per cent.

Weaker demand in the UK led to a 40 per cent reduction in generation from Centrica's power plants and prompted the short-term closure of four of the plants, or 20 per cent of capacity. The company has also warned the tax hike could mean that one of three fields in Morecambe Bay may not reopen following maintenance.

The Chancellor's decision to tax North Sea producers £2bn to ease the pressure on motorists produced an industry-wide outcry and claims that some of the North Sea's most mature fields would be closed.

Justine Greening, the economic secretary to the Treasury, last week admitted higher taxes would have an impact on UK investments. She said the Government would work with the industry to limit the impact on marginal North Sea fields.

Killik & Co analysts said that despite uncertainty over the near-term outlook for earnings, the company was performing solidly. "We believe Centrica is the best placed across the peer group and is likely to continue to take [residential] market share."

Suggested Topics
Start your day with The Independent, sign up for daily news emails
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

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

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Sales Assistant / Buyer

£15000 - £17000 per annum: Recruitment Genius: This company offers a range of ...

Recruitment Genius: Customer Service Advisor

£15000 - £16000 per annum: Recruitment Genius: Customer Service Advisors are r...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £45K: SThree: SThree were established in 1986....

Recruitment Genius: Compliance Manager

£40000 - £60000 per annum: Recruitment Genius: A Compliance Manager is require...

Day In a Page

Is this the future of flying: battery-powered planes made of plastic, and without flight decks?

Is this the future of flying?

Battery-powered planes made of plastic, and without flight decks
Isis are barbarians – but the Caliphate is a dream at the heart of all Muslim traditions

Isis are barbarians

but the Caliphate is an ancient Muslim ideal
The Brink's-Mat curse strikes again: three tons of stolen gold that brought only grief

Curse of Brink's Mat strikes again

Death of John 'Goldfinger' Palmer the latest killing related to 1983 heist
Greece debt crisis: 'The ministers talk to us about miracles' – why Greeks are cynical ahead of the bailout referendum

'The ministers talk to us about miracles'

Why Greeks are cynical ahead of the bailout referendum
Call of the wild: How science is learning to decode the way animals communicate

Call of the wild

How science is learning to decode the way animals communicate
Greece debt crisis: What happened to democracy when it’s a case of 'Vote Yes or else'?

'The economic collapse has happened. What is at risk now is democracy...'

If it doesn’t work in Europe, how is it supposed to work in India or the Middle East, asks Robert Fisk
The science of swearing: What lies behind the use of four-letter words?

The science of swearing

What lies behind the use of four-letter words?
The Real Stories of Migrant Britain: Clive fled from Zimbabwe - now it won't have him back

The Real Stories of Migrant Britain

Clive fled from Zimbabwe - now it won’t have him back
Africa on the menu: Three foodie friends want to popularise dishes from the continent

Africa on the menu

Three foodie friends want to popularise dishes from the hot new continent
Donna Karan is stepping down after 30 years - so who will fill the DKNY creator's boots?

Who will fill Donna Karan's boots?

The designer is stepping down as Chief Designer of DKNY after 30 years. Alexander Fury looks back at the career of 'America's Chanel'
10 best statement lightbulbs

10 best statement lightbulbs

Dare to bare with some out-of-the-ordinary illumination
Wimbledon 2015: Heather Watson - 'I had Serena's poster on my wall – now I'm playing her'

Heather Watson: 'I had Serena's poster on my wall – now I'm playing her'

Briton pumped up for dream meeting with world No 1
Wimbledon 2015: Nick Bollettieri - It's time for big John Isner to produce the goods to go with his thumping serve

Nick Bollettieri's Wimbledon Files

It's time for big John Isner to produce the goods to go with his thumping serve
Dustin Brown: Who is the tennis player who knocked Rafael Nadal out of Wimbeldon 2015?

Dustin Brown

Who is the German player that knocked Nadal out of Wimbeldon 2015?
Ashes 2015: Damien Martyn - 'England are fired up again, just like in 2005...'

Damien Martyn: 'England are fired up again, just like in 2005...'

Australian veteran of that Ashes series, believes the hosts' may become unstoppable if they win the first Test