Oil and gas tax hike rethink urged

The Government was today urged to rethink its oil and gas tax hike amid concerns that the move could hasten the demise of UK production.

Energy company Centrica warned that it may shut down one of its major gas fields permanently because of the tax hike, while industry body Oil & Gas UK said North Sea oil platforms could be taken out of service prematurely because of fears over the cost of decommissioning them.

Centrica, which owns British Gas, has warned that it may not reopen one of three fields in Morecambe Bay which it is closing for maintenance, after Chancellor George Osborne increased the supplementary tax on oil and gas production from 20% to 32% in this year's Budget.

The group warned that UK oil and gas producers now faced some of the highest taxes in the world, making profits on the sites marginal.

The tax increase, which will raise the Chancellor an additional £1.8 billion, is particularly significant for mature fields, as profits on these will be taxed at 81%.

Centrica has closed the Morecambe Bay North and Rivers gas fields for about four weeks' planned maintenance.

The South Morecambe field has also been shut for an unspecified period of work, and it is this field which may not be reopened.

Instead, Centrica said it may look to buy gas for its customers on the wholesale markets, which could work out cheaper than re-starting the field.

A Centrica spokesman said: "Following the increase in supplementary corporation tax in the Budget, UK oil and gas producing fields are now subject to some of the highest levels of tax in the world - our South Morecambe field is now taxed at 81%.

"At these higher tax rates, Morecambe's profitability can be marginal.

"Accordingly, we may choose to buy gas for our customers in the wholesale markets in preference to restarting the field after planned maintenance."

Morecambe Bay produces around 6% of the UK's annual gas requirements, and 12% of residential gas demand.

The company uses the field to ensure the UK has gas when it needs it, such as during the winter, when imported gas is very expensive.

Meanwhile, Oil & Gas UK warned that North Sea oil platforms could be taken out of service prematurely because of fears over how much it will cost the industry to decommission them.

Decommissioning the platforms costs companies around £29 billion, but they have previously been able to re-claim some of the cost as tax relief.

However, firms will not be able to claim back the recent increase in the supplementary tax against these decommissioning costs.

Malcolm Webb, chief executive of UK Oil & Gas, said oil companies may begin to decommission their platforms sooner than previously planned in case tax relief falls further.

Mr Webb, who is due to appear before the Treasury Select Committee this week, added that companies feared that there could be a repeat of the windfall tax, given the level of profits they are making from surging oil prices.

He told the Times newspaper: "There must be a danger that the uncertainty as to what's going to be covered by this relief may persuade some people to decommission rigs now."

Shadow chancellor Ed Balls said: "It's becoming increasingly clear that the Government completely failed to think through their tax raid on the North Sea.

"The consequence of this rushed and botched decision is that companies are reconsidering their future in Britain and we risk losing jobs and investment as well as secure energy supplies as a result.

"By rushing this decision, failing to consult and failing to consider the consequences, George Osborne has put short-term politics above the long-term economic interests of Scotland and the UK."