Tax On UK Gas Production

Centrica is a multinational energy company that produces and sells more natural gas in the United Kingdom than any other energy company. Like all multinational companies it does not like paying tax, a feature that it shares with almost everyone on this planet. Most of us dislike paying tax, not because we feel that we should not contribute to the greater good of our society or pay for services that we and others use, but because we have a feeling, frequently supported by evidence, that governments waste much of the money that taxpayers provide. I suspect Centrica shares none of these feelings; for them tax is simply an expense that limits profits. 

Centrica has three gas wells in Morecambe Bay, in the North West of England. As summer approaches, when gas demand is low, Centrica will close the three Morecambe wells in order to carry out important maintenance work. This is a normal and routine closure; gas fields have to be maintained.

However Centrica has used the closure as an opportunity to warn that it might not re-open one of the three wells, because it says that the supplementary tax that was imposed on oil and gas production in the recent budget (an additional 12% raised the overall tax on oil and gas production in the UK to 32%) threatens the profitability of the South Morecambe gas well.

The industry met the Chancellor of the Exchequer (the UK’s finance and tax minister) last month to make representations about the tax. They were privileged to be able to meet him; most industries businesses or ordinary people will never have the opportunity to meet with the Chancellor of the Exchequer to make representations about taxes that affect us and our businesses. They made their representations, the Chancellor did not agree and the tax stands and so the gas well closes.

That means that the nation will have to important more natural gas and the Treasury will lose the tax that they would have got on the gas production of that well – the basic 20% tax as well as the 12% supplement. However, as the other wells will remain in production I doubt if the Exchequer will lose by the decision to impose the extra 12% tax on oil and gas production.

Importing more gas means that we shall as a nation become less energy independent, although not my much. The gas in the South Morecombe well will still remain, ready to be extracted another day when Centrica finds its extraction to make commercial sense in the light of the prices and taxes that prevail.

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