This is a big and important gas field; according to Centrica, it’s capable of producing about one-eighth of the UK’s annual residential demand. But the company says that as a result of the windfall tax on energy companies announced in the March budget, the field is now taxed at 81% - which means its profitability ‘can be marginal’. In other words, extracting gas from there – as opposed to buying it in – no longer makes any economic or commercial sense. So from now on, it intends to operate the field ‘on a more intermittent basis’, i.e. if/ when the sums add up.
If this is true for Centrica, it’s presumably also true for various other UK production sites. And that’s bad news for the Government, for all sorts of reasons. For a start, rather than boosting the Treasury’s tax coffers, it might end up depleting them – since the Exchequer clearly won’t get any income at all from mothballed projects. Then there’s the issue of energy security: presumably the Government won’t love the idea of us importing all our gas from Russia et al, rather than producing it here in the UK. But you can understand why big energy companies might think twice about investing in the UK when the Government can arbitrarily swoop in and confiscate a chunk of their profits without any warning.
On paper, using energy firms’ fat profits (which have been boosted by the oil price) to make life easier for motorists probably seemed like a great idea. But the danger of sudden policy changes like this is not only that they make investors nervous; it’s also that it’s hard to plan for and avoid all the possible unintended consequences – which even a seemingly benign and straightforward policy will inevitably have. Incidents like this reinforce the sense that this idea just hasn’t been properly thought through.