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For example, a typical investment project to extend production in an older field that is paying petroleum revenue tax yielding a pre-tax rate of return of 20 per cent. has until now offered the investor a rate of only about 15 per cent. after tax. In future, thanks to the first-year tax allowance, the rate of return will be 20 per cent. after tax, the same as the pre-tax rate. If in future we decide to abolish royalty, that will have an additional impact on investment. We are committed to abolition, subject to consultation on the timing.

Members on both sides of the Committee mentioned the important and constructive work done by PILOT with the industry. That work is indeed very helpful. Much of it has focused on encouraging investment, and it has informed our approach to tax reform. We share the industry's desire to maximise the economic benefit to the United Kingdom of its oil and gas reserves, and provide incentives for the industry. We have learned from the work with PILOT that none of the tax changes will undermine that co-operation. We look forward to the furthering of PILOT's valuable Government-industry initiatives.

Members on both sides of the Committee also mentioned consultation. In 1998, during the last Parliament, the Government proposed to consult on the choice between two options for tax reform—the extension of petroleum revenue tax and a supplementary charge on profits. That made sense at the time, but in due course, in an environment of low oil prices, it no longer made sense to proceed with any change. Four years on, the proposal to reintroduce PRT is unrealistic. It would require companies to rebuild records on income and expenditure in all fields that had come onstream since 1993. Given that oil companies may have changed hands, that would be administratively very difficult—a bureaucratic nightmare.

9 May 2002 : Column 366

As far as I know, no one in the industry has called for the reintroduction of PRT. We have opted for a simple, streamlined tax reform that promotes investment over the long term. We will of course continue to work with and listen to the industry as we implement the changes, and, as I have said, we are consulting on the timing of the abolition of royalty.

No speaker so far has given a single example of an economic project that would be prevented from proceeding as a result of these changes. As I explained, that is because the upfront costs of projects to investors will be significantly reduced by the new tax relief, and marginal projects will be encouraged.

The new tax regime is right. It is firmly based on sound analysis. There is no point in delaying its introduction. I urge the Committee to reject the amendments.

Mr. Flight: I shall not detain the Committee for long. We have had an excellent debate, in which Members on both sides—particularly those who know the industry—have presented their arguments extremely well.

I congratulate the Economic Secretary on responding to a number of points in some detail, although I do not think she fully answered the basic question about why the tax measures proposed in their net form would, allegedly, encourage investment rather than—as the industry claims—reducing it. It is ridiculous to argue that an extra £6 billion in tax will be good for, and welcomed by, an industry, and will enable it to increase its activities.

As for the fundamental issue of consultation, if the Government have such a good case to sell—unfortunately the Economic Secretary could not make it available to Members, for various reasons—there is all the more justification for our amendment. The Government should sit down with the industry, and persuade it that what is being done is reasonable and will not damage it.

The point about PILOT sums it up. I think the Economic Secretary deliberately misunderstood what I said. People were enticed by PILOT into committing themselves to new fields—twice as many as in the previous year—on the understanding that the tax regime would remain stable. However, no sooner have they committed than a third increase in tax is imposed on the fruits of those investments. Of course they feel that the provision is retroactive; they feel that the Government have deliberately set them up. It is not surprising, therefore, that a strong feeling of ill will exists.

The amendment would ensure the future of the industry and we want to press it to a vote. If the Government's case is correct, it is right that the industry should be able to consult properly.

Question put, That the amendment be made:—

The Committee divided: Ayes 163, Noes 281.

Division No. 229
[6.5 pm


Ainsworth, Peter (E Surrey)
Ancram, Rt Hon Michael
Atkinson, David (Bour'mth E)
Atkinson, Peter (Hexham)
Bacon, Richard
Baldry, Tony
Barker, Gregory
Baron, John
Barrett, John
Beggs, Roy
Bellingham, Henry
Bercow, John
Beresford, Sir Paul
Blunt, Crispin
Boswell, Tim
Brady, Graham
Brake, Tom
Brazier, Julian
Brooke, Mrs Annette L
Browning, Mrs Angela
Bruce, Malcolm
Burns, Simon
Burnside, David
Butterfill, John
Calton, Mrs Patsy
Cameron, David
Carmichael, Alistair
Cash, William
Chapman, Sir Sydney
(Chipping Barnet)
Chidgey, David
Chope, Christopher
Clappison, James
Clifton–Brown, Geoffrey
Cormack, Sir Patrick
Curry, Rt Hon David
Davey, Edward (Kingston)
Djanogly, Jonathan
Dodds, Nigel
Doughty, Sue
Duncan, Peter (Galloway)
Ewing, Annabelle
Fabricant, Michael
Fallon, Michael
Field, Mark (Cities of London)
Flight, Howard
Flook, Adrian
Forth, Rt Hon Eric
Foster, Don (Bath)
Fox, Dr Liam
Francois, Mark
Gibb, Nick
Gillan, Mrs Cheryl
Gray, James
Grayling, Chris
Green, Damian (Ashford)
Green, Matthew (Ludlow)
Grieve, Dominic
Hague, Rt Hon William
Hammond, Philip
Harris, Dr Evan (Oxford W)
Hawkins, Nick
Hayes, John
Heald, Oliver
Heath, David
Heathcoat–Amory, Rt Hon David
Hendry, Charles
Hoban, Mark
Holmes, Paul
Horam, John
Howard, Rt Hon Michael
Howarth, Gerald (Aldershot)
Hughes, Simon (Southwark N)
Hunter, Andrew
Jack, Rt Hon Michael
Jenkin, Bernard
Johnson, Boris (Henley)
Keetch, Paul
Key, Robert
Kirkbride, Miss Julie
Laing, Mrs Eleanor
Lamb, Norman
Lansley, Andrew
Laws, David
Leigh, Edward
Letwin, Oliver
Lewis, Dr Julian (New Forest E)
Liddell–Grainger, Ian
Lidington, David
Lilley, Rt Hon Peter
Llwyd, Elfyn
Loughton, Tim
Luff, Peter
McIntosh, Miss Anne
MacKay, Rt Hon Andrew
Maclean, Rt Hon David
McLoughlin, Patrick
Malins, Humfrey
Maples, John
Marsden, Paul (Shrewsbury)
Mates, Michael
Mawhinney, Rt Hon Sir Brian
May, Mrs Theresa
Mercer, Patrick
Mitchell, Andrew (Sutton Coldfield)
Moore, Michael
Moss, Malcolm
Murrison, Dr Andrew
Öpik, Lembit
Page, Richard
Paice, James
Paterson, Owen
Price, Adam
Prisk, Mark
Pugh, Dr John
Randall, John
Reid, Alan (Argyll & Bute)
Robathan, Andrew
Robertson, Angus (Moray)
Robertson, Hugh (Faversham)
Robinson, Peter (Belfast E)
Rosindell, Andrew
Ruffley, David
Russell, Bob (Colchester)
Salmond, Alex
Sanders, Adrian
Sayeed, Jonathan
Selous, Andrew
Shephard, Rt Hon Mrs Gillian
Simmonds, Mark
Simpson, Keith (Mid–Norfolk)
Smith, Sir Robert (W Ab'd'ns)
Soames, Nicholas
Spicer, Sir Michael
Spink, Bob
Stanley, Rt Hon Sir John
Streeter, Gary
Stunell, Andrew
Swayne, Desmond
Swire, Hugo
Syms, Robert
Tapsell, Sir Peter
Taylor, John (Solihull)
Thomas, Simon (Ceredigion)
Trend, Michael
Turner, Andrew (Isle of Wight)
Tyrie, Andrew
Viggers, Peter
Walter, Robert
Waterson, Nigel
Watkinson, Angela
Weir, Michael
Whittingdale, John
Wiggin, Bill
Wilkinson, John
Willetts, David
Williams, Hywel (Caernarfon)
Willis, Phil
Wilshire, David
Winterton, Mrs Ann (Congleton)
Wishart, Pete
Yeo, Tim
Young, Rt Hon Sir George
Younger–Ross, Richard

Tellers for the Ayes:

Mr. Stephen O'Brien and
Mr. Laurence Robertson.


Ainger, Nick
Ainsworth, Bob (Cov'try NE)
Alexander, Douglas
Allen, Graham
Anderson, Rt Hon Donald
(Swansea E)
Armstrong, Rt Hon Ms Hilary
Atkins, Charlotte
Austin, John
Bailey, Adrian
Baird, Vera
Banks, Tony
Barnes, Harry
Barron, Kevin
Beard, Nigel
Beckett, Rt Hon Margaret
Bell, Stuart
Bennett, Andrew
Berry, Roger
Betts, Clive
Blackman, Liz
Blizzard, Bob
Boateng, Rt Hon Paul
Borrow, David
Bradley, Rt Hon Keith (Withington)
Bradshaw, Ben
Brennan, Kevin
Brown, Rt Hon Nicholas
(Newcastle E & Wallsend)
Bryant, Chris
Buck, Ms Karen
Burden, Richard
Burgon, Colin
Burnham, Andy
Caborn, Rt Hon Richard
Cairns, David
Campbell, Alan (Tynemouth)
Caplin, Ivor
Casale, Roger
Challen, Colin
Clapham, Michael
Clark, Mrs Helen (Peterborough)
Clark, Paul (Gillingham)
Clarke, Rt Hon Tom (Coatbridge)
Clarke, Tony (Northampton S)
Clwyd, Ann
Coaker, Vernon
Coffey, Ms Ann
Cohen, Harry
Coleman, Iain
Connarty, Michael
Cook, Rt Hon Robin (Livingston)
Cooper, Yvette
Corbyn, Jeremy
Corston, Jean
Cousins, Jim
Cranston, Ross
Crausby, David
Cruddas, Jon
Cryer, John (Hornchurch)
Cunningham, Jim (Cov'try S)
Curtis–Thomas, Mrs Claire
Dalyell, Tam
Darling, Rt Hon Alistair
Davey, Valerie (Bristol W)
David, Wayne
Davidson, Ian
Davies, Rt Hon Denzil (Llanelli)
Davies, Geraint (Croydon C)
Davis, Rt Hon Terry
(B'ham Hodge H)
Dean, Mrs Janet
Dhanda, Parmjit
Dismore, Andrew
Dobbin, Jim
Donohoe, Brian H
Doran, Frank
Dowd, Jim
Drew, David
Drown, Ms Julia
Eagle, Angela (Wallasey)
Eagle, Maria (L'pool Garston)
Edwards, Huw
Efford, Clive
Ellman, Mrs Louise
Ennis, Jeff
Farrelly, Paul
Field, Rt Hon Frank (Birkenhead)
Fisher, Mark
Fitzpatrick, Jim
Fitzsimons, Mrs Lorna
Flint, Caroline
Flynn, Paul
Follett, Barbara
Foster, Michael (Worcester)
Foster, Michael Jabez (Hastings)
Foulkes, George
Gapes, Mike
Gardiner, Barry
Gerrard, Neil
Gilroy, Linda
Goggins, Paul
Griffiths, Jane (Reading E)
Griffiths, Nigel (Edinburgh S)
Grogan, John
Hain, Rt Hon Peter
Hall, Mike (Weaver Vale)
Hanson, David
Harris, Tom (Glasgow Cathcart)
Havard, Dai
Henderson, Doug (Newcastle N)
Henderson, Ivan (Harwich)
Hendrick, Mark
Hepburn, Stephen
Heyes, David
Hill, Keith
Hinchliffe, David
Hoey, Kate
Hood, Jimmy
Hoon, Rt Hon Geoffrey
Hope, Phil
Hopkins, Kelvin
Howarth, Rt Hon Alan (Newport E)
Howarth, George (Knowsley N)
Hoyle, Lindsay
Hughes, Kevin (Doncaster N)
Hurst, Alan
Hutton, Rt Hon John
Iddon, Dr Brian
Illsley, Eric
Irranca–Davies, Huw
Jackson, Helen (Hillsborough)
Jamieson, David
Jenkins, Brian
Johnson, Alan (Hull W & Hessle)
Jones, Helen (Warrington N)
Jones, Jon Owen (Cardiff C)
Jones, Kevan (N Durham)
Jones, Lynne (Selly Oak)
Joyce, Eric
Kaufman, Rt Hon Gerald
Keeble, Ms Sally
Kelly, Ruth
Kemp, Fraser
Khabra, Piara S
Kidney, David
King, Ms Oona (Bethnal Green)
Knight, Jim (S Dorset)
Kumar, Dr Ashok
Ladyman, Dr Stephen
Lammy, David
Lawrence, Mrs Jackie
Laxton, Bob
Lazarowicz, Mark
Lepper, David
Leslie, Christopher
Levitt, Tom
Lewis, Terry (Worsley)
Linton, Martin
Lloyd, Tony
Love, Andrew
Lucas, Ian
McAvoy, Thomas
McCabe, Stephen
McDonagh, Siobhain
MacDonald, Calum
McDonnell, John
MacDougall, John
McFall, John
McGuire, Mrs Anne
McIsaac, Shona
McKechin, Ann
Mackinlay, Andrew
McNamara, Kevin
Mactaggart, Fiona
McWalter, Tony
McWilliam, John
Mahon, Mrs Alice
Mallaber, Judy
Mandelson, Rt Hon Peter
Marsden, Gordon (Blackpool S)
Marshall, David (Shettleston)
Marshall, Jim (Leicester S)
Marshall–Andrews, Robert
Martlew, Eric
Meale, Alan
Merron, Gillian
Michael, Rt Hon Alun
Miliband, David
Miller, Andrew
Mitchell, Austin (Gt Grimsby)
Moffatt, Laura
Mole, Chris
Moran, Margaret
Morris, Rt Hon Estelle
Mountford, Kali
Mullin, Chris
Murphy, Jim (Eastwood)
Norris, Dan
O'Brien, Bill (Normanton)
O'Brien, Mike (N Warks)
O'Hara, Edward
Olner, Bill
O'Neill, Martin
Palmer, Dr Nick
Pearson, Ian
Picking, Anne
Pickthall, Colin
Pike, Peter
Plaskitt, James
Pond, Chris
Pound, Stephen
Prentice, Ms Bridget (Lewisham E)
Prentice, Gordon (Pendle)
Prosser, Gwyn
Purchase, Ken
Purnell, James
Quinn, Lawrie
Rammell, Bill
Rapson, Syd
Reed, Andy (Loughborough)
Reid, Rt Hon Dr John (Hamilton N)
Robertson, John
(Glasgow Anniesland)
Roche, Mrs Barbara
Rooney, Terry
Ross, Ernie
Roy, Frank
Ruddock, Joan
Russell, Ms Christine (Chester)
Ryan, Joan
Salter, Martin
Sawford, Phil
Sedgemore, Brian
Sheridan, Jim
Simpson, Alan (Nottingham S)
Singh, Marsha
Skinner, Dennis
Smith, Rt Hon Andrew (Oxford E)
Smith, Angela (Basildon)
Smith, Rt Hon Chris (Islington S)
Smith, Jacqui (Redditch)
Smith, John (Glamorgan)
Smith, Llew (Blaenau Gwent)
Soley, Clive
Southworth, Helen
Squire, Rachel
Steinberg, Gerry
Stevenson, George
Stinchcombe, Paul
Stoate, Dr Howard
Strang, Rt Hon Dr Gavin
Stringer, Graham
Sutcliffe, Gerry
Taylor, Rt Hon Ann (Dewsbury)
Taylor, Ms Dari (Stockton S)
Taylor, David (NW Leics)
Thomas, Gareth (Clwyd W)
Thomas, Gareth R (Harrow W)
Timms, Stephen
Todd, Mark
Touhig, Don
Trickett, Jon
Turner, Dennis (Wolverh'ton SE)
Turner, Dr Desmond (Kemptown)
Turner, Neil (Wigan)
Twigg, Derek (Halton)
Twigg, Stephen (Enfield)
Tynan, Bill
Vis, Dr Rudi
Walley, Ms Joan
Ward, Ms Claire
Watson, Tom
White, Brian
Wills, Michael
Wilson, Brian
Winnick, David
Winterton, Ms Rosie (Doncaster C)
Woodward, Shaun
Woolas, Phil
Wray, James
Wright, Anthony D (Gt Yarmouth)
Wright, David (Telford)
Wright, Tony (Cannock)
Wyatt, Derek

Tellers for the Noes:

Mr. Tony McNulty and
Mr. John Heppell.

Question accordingly negatived.

9 May 2002 : Column 369

9 May 2002 : Column 370

6.15 pm

Mr. Flight: The next amendment due for discussion, Mr. Gale, was to be amendment No. 3. However, given the amount of time that the Committee spent on the previous group of amendments, we do not want to put amendment No. 3 to the vote. It was designed as an alternative to the previous amendment, and would have halved the rate of the tax. It would have provided an opportunity to establish the correctness of the Opposition's argument that there is a risk to investment, especially given the outlook for oil prices and the nature of the UK industry. As we will have a chance to vote on other amendments, and on whether the clause should stand part of the Bill, I shall not move amendment No. 3.

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