Energy tax would push up gas prices, BG warns

BG, the gas pipeline and exploration arm of the former British Gas, hit out at the Government's new energy tax yesterday, warning that it would mean a 30-40 per cent increase in gas prices and undermine the competitiveness of UK manufacturing industry.

The company also disclosed that its pipeline division, Transco, is increasing its workforce for the first time in three years as profits rise strongly.

BG said that the pounds 1.8bn energy tax, due to take effect in 2001, was "a blunt and inefficient instrument for tackling climate change" which would be complex to administer and would discriminate against manufacturing. It estimates that the levy could reduce industrial gas demand by up to 8 per cent.

Philip Hampton, BG's finance director, added: "Our concern is that the levy will impose significant extra costs on energy consumers while still not hitting the Government's environmental targets."

He also pointed out that the tax would result in a bigger increase in gas prices than in coal prices, even though gas is the cleaner fuel to burn.

Mr Hampton was speaking as BG reported a 13 per cent rise in pre-tax profits to pounds 591m for the first quarter. The increase was driven by cost- cutting at Transco and colder weather. The shares rose 28.5p to 382.5p.

Transco's operating profits in the three months to the end of March - always BG's strongest quarter - rose by pounds 86m to pounds 551m.

Transco has axed 2,500 jobs since 1997 but yesterday it disclosed that the workforce rose by 98 in the first quarter to reach just over 14,000.

The company is comfortably beating its regulatory return of 7 per cent, achieving 9 per cent in 1998-99. However, BG said that profits in its storage business had slumped by pounds 13m to pounds 2m because of the tough regulatory regime.

BG confirmed it remains on course to hand back about pounds 1.5bn to shareholders this year in addition to the pounds 1.25bn returned previously.