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Mr. Salmond: I did not quote the hon. Member for Aberdeen, South (Miss Begg) to play with words or twist phrases. The quote was from the proceedings of the Scottish Grand Committee in March 2001. It matched the general understanding that the idea of an unannounced tax change, made without consulting the industry, had been seen off. The oil industry was not labouring under an illusion; it had not simply forgotten about the change. The belief that no such change would be made was widely shared throughout the industry and among Members of Parliament, including the hon. Member for Aberdeen, South.
I well remember the Scottish Grand Committee last year. The debate was optimistic. Perhaps the hon. Member for Aberdeen, Central (Mr. Doran) also remembers it. I could quote other passages from it. However, the theme that the industry would advance from a base of stability because the Chancellor had abandoned the idea of a sharp change in the tax regime was shared by all Committee members.
The industry did not sleepwalk into a tax change. The shock of it is therefore all the greater. I do not oppose changes to the fiscal regime. The Government are entitled, in the public interest, to change a fiscal regime if they choose. However, there are two absolute requirements for such a change to be in the public interest. The first is consultation. That is especially true of the industry, with which a framework of consultation has been established. In all conscience, one cannot establish a PILOT initiative based on consultation to extract more, necessary investment in the industry, yet proceed with an unexpected tax change without consulting the institution that was set up to deal with such matters.
I am open to contradiction from the Financial Secretary, but I believe that not only was the tax change not discussed with the industry through PILOT, but that there was no prior discussion with the Minister for Energy or the Secretary of State for Scotland. I believe that they found out about the tax change only a short time before the rest of usprobably on the morning of the Budget. If the Financial Secretary does not agree, perhaps she can tell us when Treasury Ministers consulted the Secretary of State for Scotlandwho had a huge interest in the matter because of the employment implications of the changeand the Minister for Energy and Constructionwho is responsible for general oil policyabout the tax change. I believe that they were not in a position to anticipate events. I base that strong belief on watching their reaction at the time. [Interruption.] The hon. Member for West Aberdeenshire and Kincardine (Sir Robert Smith) agrees with that. He was also present and he, too, saw their reactions.
The second requirement is minimising the impact on jobs and investment. It is in the public interest to minimise the effect on jobs. Minimising the impact on investment is in the long-term interests of the Treasury, let alone the rest of us. It is vital that the North sea oil show is kept on the road through investment. With the right approach to fiscal policy and the industry, we are only halfway through the North sea oil and gas story. It is reasonable to assume that there is as much to be extracted in future as in the past 30 years. Deciding that now is the time for a short-term, smash-and-grab raid to maximise revenue in the next few years is a fundamental error, not only for the public interest but for the Treasury and economic interest.
In previous debates in the Chamber and in Committee, the Financial Secretary outlined the model that she had followed, probably without sharing it with her colleagues in the Department of Trade and Industry. The model was based on the change being good for the industry. Indeed, she claimed that it would be a boost for the industry. However, on the previous day, in the Scottish Grand Committee, the Secretary of State for Scotland said that the Government were trying to minimise the impact on jobs. If the Treasury had shared the wonderful news of a boost for the industry, why was the Secretary of State trying to minimise its impact? The Secretary of State for Scotland was simply acknowledging the reality that the overall impact of a tax change that means, in five or six years, taking £1 billion out of the industry, will be negative, regardless of the skill with which the effects are distributed.
We are simply debating the extent of the negative impact. Will it mean the loss of 50,000 jobs, as the United Kingdom Offshore Operators Association suggested, or less, as other sources have predicted? The Government
Earlier, I said that there were arguments for the Government changing oil taxation, but with consultation. Key issues must be tackled. The hon. Member for Waveney (Mr. Blizzard) raised one: the well-rehearsed question of financing charges and the way in which a new entrant, who will not qualify for the full capital allowance relief, can be protected. How will such a company be protected so that it can exploit opportunities? Bringing in new, smaller operators to exploit and increase the overall extraction from the North sea is meant to be Government policy. That matter has not been properly tackled.
I was pleased to read in today's edition of The Press & Journal that the hon. Member for Aberdeen, Central acknowledges exploration drilling as a serious concern. That has been a theme of every speech that I have made about the matter in the past few weeks. Any reasonable Government would be worried about the downturn in drilling activity in the North sea in the past few years. In 1996 there were 112 exploration and appraisal wells; last year the figure was 51.
Exploration is largely financed from cash flow. It is therefore difficult to conceive that the measure will do anything other than further depress an already declining statistic. Now would be the moment to introduce a further uplift for exploration and probably appraisal drilling. There are mechanisms and means to do that. I suggested such a method in an amendment. However, for technical reasons, the proposal might be considered a subsidy, and the amendment was not selected. However, providing an uplift can and should be done. If exploration drilling continues to decline at the same rate, we will mortgage the future of a possible further 50 years of substantial oil and gas activity to gain an extra few billion pounds to add to the £160 billionmore than £30,000 for every man, woman and child in Scotlandthat successive Chancellors have already extracted from the North sea.
It would be common sense for the Financial Secretary to answer the points about financing charges and the impact of the tax change on exploration drilling. She should also answer the genuine worries about the provision, which has not been thought through, has caught the industry by surprise, is likely to have a huge impact on jobs and investment, and will mortgage the future of an enormous industry that is responsible for a huge amount of overall capital investment in the United Kingdom. It will sacrifice jobs in Scotland and elsewhere for short-term gain by the Chancellor of the Exchequer.
The accusation that was always levelled at people who had doubts about the approach to the industry was not just about individual tax rises, because they could sometimes be justified, given the shape of the industry, the price of oil and the windfall profits being made. It involved the underlying assumptionin relation to many of the moves and manoeuvres taking placeby the Treasury and the then Department of Energy that North sea oil and gas was a short-term story and that it would be there for 10, 15 or 20 years, then it would all be over bar the shouting. Many of the tax changes of that period and later were predicated on that short-term assumption.
Many people in the industry believedas did the hon. Member for Aberdeen, South and Ithat over the last few years there had been a realisation, through the PILOT initiative and other schemes, that this was a long-term game, worth playing over the long term because there was huge potential for maximising jobs and investment over the next few generations. More than anything else, this foolish tax change has damaged the credibility of the notion that, at last, some long-term thinking and planning was going into the industry, to maximise the benefits over a long period of time.
This is not a matter of passing an amendment or getting a tax measure into a Finance Bill, although I know that the Minister will be focusing on that at the moment. This is much more than that. It is about the future of the whole industry and about the jobs of many of our constituents.