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Mr. Salmond: May I draw the right hon. Gentleman's attention away from the Economic Secretary's body language for a second? Is he aware that the Wood Mackenzie analysis shows that, after the fifth year, the full-year effect, once it has worked through at the current oil price, will be more than £1 billion a year?

Mr. Jack: The hon. Gentleman, who speaks with great authority and knowledge on this subject, makes a very important additional point.

One very interesting thing is the number of different measures that can be used to determine rates of return. I should like to ask the Economic Secretary why the Chief Secretary used a net present value calculation based on a 10 per cent. discount rate when he wrote to me and other hon. Members, whereas the Paymaster General chose an altogether different calculation based on an IHS Energy Group analysis using a 12.5 per cent discount rate to justify her position on Second Reading.

Interestingly, in justifying taxation regimes for different oilfields, the Inland Revenue uses the very same analysis as that used by the Paymaster General on Second Reading. However, if I understand the analysis correctly, the Inland Revenue advised the United Kingdom Offshore Operators Association that the marginal tax rate in the United Kingdom would be 73.75 per cent. under the current proposals, but that, in fact, for places such as the Gulf of Mexico and Angola deep-water fields the respective rate

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would be at 60 per cent. and 71 per cent. Those figures are relevant because they illustrate the fact that we are talking about an international and dynamic oil investment regime, which the proposals could well disrupt in the long term.

I also support the amendments that argue that this measure be postponed because of certain accounting impacts. Again, I should be grateful to the Economic Secretary if she would comment on those effects. Obviously, the first amount of the current tax charge would affect profitability, as has been said, on the 10 per cent. supplementary rate, but I am interested to know whether the Treasury has taken into account the balance sheet effect of the fact that deferred taxes will have to be revalued. That will obviously affect the profitability and future position of many companies.

I should be interested to know whether the Economic Secretary thinks that those accounting implications will affect the ability of those companies to raise funds for their future investment plans. The Government do not seem to have fully considered the effect of those implications. It is easy to cry foul when any extra increase is imposed, but, in the light of the arguments adduced so far, it is up to the Treasury meticulously to argue a case for imposing extra taxation on the industry against the background of the critical appraisal that has been made so far in the debate.

Mr. Blizzard: There can be no doubt that the key issue is what effect these oil and gas tax changes, especially the one proposed in clause 90, will have on investment. Investment is all about the future; we cannot have such a good future if we invest less. I, too, should like to know what assessment of the tax changes' impact on investment leads the Treasury to conclude that the changes represent the right balance between the nation's taking the proper share of its asset, which we would want to do, and securing and stimulating investment for the future.

What assumptions has the Treasury made about the impact on investment in the figures that it has produced so far? For example, we have all seen the Red Book figures for the net tax take from the industry to the public purse in the forthcoming years. Do those figures assume the same level of investment as that assumed before the tax changes were proposed, or do they assume a reduced level of investment? Has the Treasury discounted the figures in the light of that? That important issue needs to be clarified.

5.15 pm

Many hon. Members have referred to the work carried out by Professor Kemp. The interesting aspect of Professor Kemp's work is that, while the Red Book looks only at the years up to 2006, Professor Kemp looks beyond that. He comes out with some staggering figures of up to £1 billion a year. Altogether, between now and 2010, Professor Kemp says that the net tax take from the industry will be £6 billion. Does the Treasury really believe that we can take £6 billion out of the industry and avoid having an adverse effect on it? I find that difficult to believe, as there will be less money available to invest. That must have an impact on where multinational companies direct their investments around the world.

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Whatever we think of oil companies, they do direct money around the world, and we must face that real-world situation and act accordingly.

Mr. Doran: All the assumptions made by the Opposition, which my hon. Friend may also be making, are that, somehow, North sea money is ring-fenced. In fact, profits from the North sea do not stay in the North sea—they go to Dallas, Houston, San Francisco or wherever the company's headquarters are. Exactly the same factor applies to investment decisions: they are made on the basis of the attractiveness of the regime and the likely return. We must not operate on the basis that £6 billion is coming out of the industry, because it is not. There will be an impact on the attractiveness of the area, but not to the degree suggested by my hon. Friend.

Mr. Blizzard: I thank my hon. Friend. I was not making that assumption—quite the reverse. I was saying that a managing director of the part of an international company that resides in this country must argue, whether in Houston or elsewhere in the world, as to what slice of the global investment will come to this country each year. I have a letter from a managing director of an international company with a portfolio here—I shall not name the individual—who says, when making that case at the company's worldwide headquarters, that

The fact that the money is not ring-fenced is part of the difficulty.

Another point is the signal that is sent out. As the oil price cannot be predicted, it is necessary for as many of the other factors as possible to be stable. If we have a tax regime that can change around rapidly, that will be taken into account by an industry with very long-term investment.

Mr. Salmond: It is not possible to ring-fence investment in an international market, but investment can be locked in if consequential tax changes are made. So far in this debate, exploration, appraisal and additional uplift, financing charges for field development, more tax relief and more uplift for incremental development have all been mentioned. All those measures should be included in the Treasury's analysis—which we do not have—of the impact of possible changes. Those suggestions do not even seem to have been considered.

Mr. Blizzard: I agree in the sense that the key to the future is the amount of exploration and development that can be stimulated at any one time. If that dries up, the future looks bleak. It is therefore important to send out the signals that will encourage more of that activity, not less.

To return to the Red Book figures, they are lower than those that Professor Kemp predicts for the immediate years up to 2006. I therefore wonder, again, whether the Treasury has done some discounting. Has it estimated what can safely be taken out of the industry without damaging investment? If so, as we reach those years, if the tax revenue is greater than the Red Book predicts, will it be prepared to adjust that tax, for example, by reconsidering whether financing charges should be made

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deductible on a 10 per cent. basis? At the moment, the proposal is that they should not. I would like an answer to that.

Other impact assessments should be considered. What will be the impact on the 20th licensing round? What will be the impact on the PILOT targets? Those targets are Government policy, because they have been agreed between the Government and the industry. However, I have seen nothing about them. What will be the impact on the PILOT organisation itself? I have a letter from someone who writes:

That will be the reaction of a number of people.

What will be the impact on the amount of indigenous energy resources that are recovered in future years? Are we accelerating to the point at which we shall have to start importing oil and gas? Have we considered the effect on the balance of payments if that day is hastened forward?

I wish to make a point that is relevant to amendments Nos. 2 and 22. One of the perceived unfairnesses with the changes relates to people who have made recent investments as a result of the collaborative PILOT atmosphere in which the Government encouraged people to invest in fields in which they might not otherwise have invested. Those people will not now receive the benefit of the 100 per cent. capital allowances, but they will pay the tax from 17 April. They did what we asked them to do and put their toe into the water. I am afraid that their toe is probably feeling a bit hot at the moment. Will the Treasury consider some form of transitional arrangements for companies that have done what we asked them to do? We could either give them exemption for a period or apply some of the 100 per cent. allowances retrospectively. That would be playing fair with people who have done the right thing.

I also feel for those companies that have shown commitment to the UK by having a large percentage of their portfolios here. They will be hit much harder than the companies that my hon. Friend the Member for Aberdeen, Central (Mr. Doran) mentioned, which have large portfolios around the world. We must be careful that we do not punish those who have shown the greatest commitment to the country by investing in the UK continental shelf.

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