|Previous Section||Index||Home Page|
We do not expect the Government to abandon their proposals, although we can vote on that issue as well. The amendments invite the Government to wait for a year, consult in the light of their proposals, and before implementing them, establish on a field-by-field basis whether offsets can be found to minimise, reduce or preferably eliminate the potentially damaging effects. That seems to us a constructive engagement. I suggest to the Economic Secretary that that would also genuinely restore some of the confidence that has been lost. When I made that point before, she shook her head, but the Treasury needs to recognise that it has seriously damaged a relationship built over many years, in which the industry and the Government had a degree of confidence that they understood each other. The industry now feels that the Government do not understand, and that they are not prepared to accept what the industry regards not as special pleading, but as a genuine argument about how best to retain enough money to maintain investment, thereby maintaining the long-term future in the North sea that we want.
Professor Alec Kemp has said that, if these tax changes are implemented, the Government would yield an extra £3.7 billion from the North sea, even if the oil price fell to $15. In fact, I think he is wrong, because he is working on a flat-line presumption. Most people in the industry say that, if the oil price fell to $15 under such a regime, activity would drop, and so would revenue.
That brings me back to another somewhat ill-judged intervention by the Financial Secretary during yesterday's Scottish Grand Committee. He alluded to the whisky industry, and boasted that, for the fifth Budget in a row, there has been no increase in spirit duty. He suggested that that is a fine achievement, and given that I have several distilleries in my constituency, I have some sympathy for that view. However, what the Financial Secretary did not say was that the last time a Chancellorthe right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke)increased such duty, he got less revenue the following year, because the increase had a negative impact.
We need an impact study, and the hon. Member for Banff and Buchan might also want such an assessment to point out the possible range of revenue implications for the Treasury. The forecast returns might be rather less than anticipated, because of the downward effect on activity.
Although the Economic Secretary is perfectly capable of making a robust defence of the Government's position, without qualification, I urge her not to do so. Instead, I urge her to accept the genuine worries that the tax could have on long-term planning, development and investment in the North sea. I urge her to listen to those of us who have monitored the industry for many yearsin my case, I have been close to the industry for 30 years. On every occasion that I have specifically lobbied against changes that I perceive to be damaging, I have been proved right and the Government of the day have been proved wrong. Therefore, the Government might have to act the wrong way round: to take a decision and then consult is sometimes better than taking a decision and then ignoring the evidence.
Ann McKechin: In today's debate, it is essential that we have regard to the context of the current state of the oil and gas industry, both nationally and internationally. It has not been a focus of the debate, but oil and gas are finite and valuable resources and they should be viewed as national resources for the benefit of a nation's citizens rather than just an industrial commodity. The UK is no different in seeking to maximise the benefit of those resources while at the same time encouraging investment and growth.
As my hon. Friend the Member for Glasgow, Cathcart (Mr. Harris) pointed out, the UK tax regime is favourable for the industry. For example, Norway, which operates adjoining fields in the North sea, has a tax take-up return of 88 per cent., so the increase to 40 per cent in the UK is more than reasonable. It should also be borne in mind that oil and gas producers have benefited in the Government's recent Budgets from a reduction in corporation tax, low interest rates and the introduction two years ago of roll-over relief. We must view this proposal in the general context of taxation in the past few years.
Much of our oil exploitation is carried out by some of the largest multinational companies in the world. BP alone produces 20 per cent. of our oil and gas. Given the huge wealth of those multinationalsbigger than the gross domestic product of many nationsit is perfectly fair and equitable for their tax burden to include a contribution to the health of the citizens whose natural resources they exploit to considerable profit.
Ann McKechin: The hon. Gentleman shows precisely why the tax increase will not have a substantial impact on BP's profitability or investment policy, as has been argued this afternoon. BP's decisions will have more to do with the return that it gets from its investments, the existing investments in the field and the security of supply, which contrasts with some other parts of the globeas the hon. Gentleman is well aware.
As I have said, it is reasonable for tax policy to require oil and gas companies to contribute to the health of citizens. Let us not forget that with the worldwide increase in oil prices in recent years the profit levels from North sea exploitation have remained very high. Currently the UK continental shelf makes significantly higher profits than the rest of UK industry, with a pre-tax rate of return of 34.3 per cent. last year against a UK average of 12.2 per cent. Perhaps that is one of the reasons why in the last year BP has sought to justify an increase in the basic salary of its chief executive, Lord Browne, of 58 per cent., taking his salary to a staggering £3 million a year. Added to that, he has been awarded further benefits that bring his package up to £6.2 million. No sooner had Lord Browne secured his increase than the new executive chairman of Shell won an 82 per cent. pay rise, although that only took his salary to a very modest £1.59 million.
Mr. Bob Blizzard (Waveney): In view of my hon. Friend's argument, does she agree that it might be a better idea to tax Lord Browne, rather than an industry in a way that might cause problems with jobs?
The reaction of the oil companies is all too predictable. Their financial advisers were preparing detailed reports last autumn about the effect of this tax, so it is naive to say that they did not predict it. They were aware as far back as 1998 that the Government's review of the North sea fiscal scheme concluded that aspects were unsatisfactory and that one of the two main reforms identified was a supplementary charge on North sea profits. Given the rapid increase in profits in the past three years, the use of such an option should not have come as a total shock. The oil industry is cyclical in nature and is currently enjoying a boom time that gives support to the argument for higher taxationindeed, one which was advanced by the hon. Member for Banff and Buchan (Mr. Salmond) in earlier years. For the major companies such as BP and Shell, the UK only accounts for a small amount of their global tradeas the hon. Member for Gordon (Malcolm Bruce) pointed outand the lack of reaction in the stock market to the Budget announcements is, I believe, a good signal of how little the changes will affect those companies' profitability.
At the same time the Government are well aware of the need to preserve investment and employment. The PILOT initiative has been working successfully to maximise the potential of what are now mature fields in the industryespecially in fallow fieldsand to retain our skills base. More than 70 licence holders are currently active on the UK continental shelf, whichaccording to the industry's
Encouraging new companies is likely to be the way forward in the new market emerging in the mature fields. That is why I welcome the Government's decision to provide a 100 per cent. first-year allowance for capital expenditure.
The new tax regime will certainly have both winners and losers. New investors will benefit the most, and in some cases their tax burden will be less. The relative newcomer Venture Productions was quoted in The Scotsman of 18 April as welcoming the proposal, and said that it would provide short-term tax relief that would help development.
The Government's proposals are sensible and well balanced. They will give us the necessary income to invest in our public services. At the same time, they will encourage investment in this important industrial sector.