Centrica warns tax rise to hurt profits

Centrica warned that rising taxes on North Sea oil and gas production would erode profit growth this year and prompt it to scale back investments.

In March, the Government unexpectedly raised a supplementary tax charge on North Sea oil and gas producers to 32 per cent from 20 per cent to help lower fuel duty for motorists.

The company said in a statement: “We continue to expect growth in our 2011 group earnings but at a more modest rate than anticipated at the time of our last results announcement as upstream profits have become more highly taxed.”

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The company, which planned to spend about half its £1.5bn 2011 capital expenditure budget on UK upstream, no longer expects to maintain those “high levels of investment” in the UK.

Centrica said a week ago it may shut one of its gas fields as the tax rise made it unprofitable to run.

Yesterday the company said the higher tax rates would lead to reduced cash flow and higher fiscal uncertainty.

The group expects an effective tax rate of about 45 per cent for 2011 – an increase of nearly £300m in the tax charge over last year – and sees “significant” one-off deferred tax charges due to the increase in upstream tax rates.

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Centrica, which owns the UK’s biggest household energy supplier British Gas, said the number of residential energy accounts on supply has grown to about 16 million, slightly above the level reached at the end of 2010.