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Osborne's tax on gas fields 'will mean price rises for consumers'

Consumers face higher gas bills if investment is slashed in Britain's natural gas fields as the result of an increasingly bitter dispute between producers and the Treasury over a tax rise, a leading industry body said yesterday.

Oil & Gas UK said a 12 per cent rise in the duty paid on oil and gas production imposed by the Chancellor, George Osborne, in his Budget in March was having a chilling effect on the willingness of the industry to invest and warned that companies may rush to decommission existing platforms because of uncertainty over the tax regime. The warning came after Centrica, the owner of British Gas, said it might shut down gas production at one of its largest fields after routine maintenance because the tax hike meant it would pay 81 per cent of any profits from the facility to the Treasury and its profitability had become "marginal".

The company, which said it will make a final decision this summer on whether to continue production at its South Morecambe field, warned it was at a point where buying imported gas on the open market could be cheaper than running its UK facility.

Mike Tholen, economics director of UK Oil & Gas, said: "Gas produced in Britain is one of the cheapest supply sources for the UK by virtue of its proximity. If those sources are going to be less productive and there is less investment to renew those supplies then it makes this cheaper gas less available. Consumers will then pay more."

Mr Osborne has refused to back down on the tax increase, which will raise an additional £1.8bn for the Exchequer, despite criticism that it will dampen the appetite of companies from Chevron to Norway's Statoil to invest in Britain's remaining gas and oil supplies.

In a statement, Centrica said:"UK oil and gas producing fields are now subject to some of the highestlevels of tax in the world. Our South Morecambe field is now taxed at 81per cent. At these higher tax rates, Morecambe's profitability can bemarginal. Accordingly, we may choose to buy gas... on the wholesale markets, which could work out cheaper than restarting the field."