North Sea Oil and Gas Industry

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Mr. Peter Duncan (Galloway and Upper Nithsdale): It gives me pleasure to respond to the debate on behalf of Her Majesty's official Opposition. I also thank the Scottish National party for vacating my Benches to allow me more space to spread out.

I want to draw attention to the complacent remarks made by the Financial Secretary. He needs to be aware that the oil and gas industry is an irreplaceable part of the United Kingdom's economy. In 2001, investment in exploration and field developments for all of the UK continental shelf amounted to £4 billion. That figure is incredible, especially when we consider that it accounts for 15 per cent. of all industrial investment for the UK in that year. More than 264,000 jobs in the UK depend on that investment continuing. Those and many more jobs have faced the uncertainties of day-to-day fluctuations in price with an eye on the long term, in which the most successful and sustainable investment is surely based. It has not been mentioned, but the industry is vital to many millions of UK shareholders who have built their pensions and savings on multinational oil investments, often based in Scotland.

The industry has formed a key part of the performance and innovation unit's energy review, published shortly after the Grand Committee

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meeting in February. The Government have rightly set their sights on a balanced energy policy for the future. However, that will depend significantly on the continuing supplies of oil and gas from the North sea. Given the time scales involved in nuclear construction, natural gas supplies will have to bear the brunt of our commitment to our key Kyoto targets.

In the response to the energy review, James May, the director general of the United Kingdom Offshore Operators Association, said:

    ''Diversity of supply at competitive prices is fundamental to achieving security of supply. North Sea oil and gas have a major role in maintaining that diversity, as well as bringing other substantial benefits to the UK in terms of Treasury revenues, jobs and the development and export of new technologies and skills.''

It is worth considering how the Government believe that the provisions in this year's Finance Bill will contribute—or not—towards maximizing the benefits to which Mr. May alludes.

The submissions by the UKOOA and Amerada Hess pointed out the critical part in the industry's development played by fiscal stability. The industry awaited the Budget statement on 17 April with some optimism. It had been subjected to that most dreadful of experiences, a Government charm offensive. The Treasury made clear its belief that the industry would be best left to develop alone. The Chancellor stated, in his pre-Budget report of 2000:

    ''I can tell the House that I am determined not to make short-term decisions based on short-term factors. The key issue is the level of long-term investment in the North sea. This will be the approach that will guide Budget decisions in future''.—[Official Report, 8 November 2000; Vol. 356, c. 317.]

That is another Labour promise broken to industry in Scotland. Make no mistake, the decision to raise an extra 10 per cent. tax on UK oil production has sent all the wrong messages to the UK oil and gas sector. The tax rate, now at 40 per cent., will mean that this most multi-national of industries will have more reason than ever to look outside the UKCS for its development expenditure.

Even the manner of the change suggests the importance with which the Chancellor and the Financial Secretary regard the income from upstream taxation. They view it as a cash cow—a revenue stream—to be milked for all that it is worth at a moment's notice. Given the importance of fiscal stability, to inflict that tax hike at nine hours' notice was truly astonishing, and has been roundly condemned. The Chancellor has shown himself to be consummately skilled at one thing; picking victims for his tax hikes. This follows the example of his daylight robbery on the pensions industry, with the abolition of dividend tax credits. Like that change, the tax on oil production could have a devastating effect on its industry.

According to Wood Mackenzie, the first increase in taxation in the industry for 20 years marks a watershed. It projects that the average Government take on remaining production has increased overnight from 40.1 per cent. to 46.5 per cent. The stock market—which, I understand, is not a priority for Labour Members—reacted with understandable horror. BP and Shell shares fell by 1.5 per cent.

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immediately and Amanda Harvie, chief executive of the Aberdeen and Grampian chamber of commerce, made it clear that there would be a effect on jobs. The hon. Member for West Aberdeenshire and Kincardine may verify what the chief executive said, after his meeting with her. She said:

    ''These changes will not just affect the major oil players, but the countless small businesses operating in the supply chain.''

Members of the Committee will be aware that small businesses that operate on tight margins and in labour-intensive support services will already be flinching at the prospect of the Chancellor's increase in national insurance contributions. The effect on the sector could be much worse should the oil price fall; indeed, any significant downward movement could end in a grinding halt to marginal investment. The proposal will serve only one purpose; to ensure that less of our remaining reserves will be exploited. Only Venezuela and Argentina have increased oil production costs in the past 10 years. Our ambition should be much greater than that for Scotland's oil and gas industry.

During recent debates, in press comments and in today's debate, Liberal Democrats have expressed understandable indignation about the changes. They have lambasted the Government for their attack on the oil & gas sector. The hon. Members for Orkney and Shetland (Mr. Carmichael), for Gordon (Malcolm Bruce) and for West Aberdeenshire and Kincardine have, rightly, been vocal in their criticism. It was with some regret, therefore—although it came as no surprise—that I failed to locate those hon. Members when I looked around the No Lobby when voting against the Finance Bill on Second Reading. I voted against it, among other reasons, because of its assault on Scotland's oil industry. With typical Liberal duplicity, they contrived to vote in support of the same proposals that they had sought to denigrate. I shall leave it to the electors of north-east Scotland to pass their verdict in due course.

Sir Robert Smith: I think that the hon. Gentleman, as a new Member, may not understand the workings of Parliament. A Second Reading vote simply allows the Bill to go on to its Committee stage. On the Floor of the House, we shall consider amendments that we have tabled to change the proposals and support other amendments to that effect. We want to change that clause of the Finance Bill and, indeed, prevent it from coming into force. The hon. Gentleman should recognise that it is the Government who are the problem, and that it would be better if we united to speak up for our constituents and targeted our guns on the Government rather than squabbling in this way.

Mr. Duncan: When I arrived in the House as a new Member, I understood that voting for a Bill on Second Reading showed one's support for it in principle. I would have thought that it presented hon. Members with a sincere constituency interest with an opportunity to stand up for those constituents and make their point clear.

The Government sought to placate public opinion by talk of abolishing the royalty tax. The industry is not fooled and will be the worse for it. First, the proposal is only to consult on abolition of the tax. We look forward to the Minister telling us when that

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might happen, but we know from painful past experience that such a proposal often equates to a kick into the long grass from new Labour. We remember the consultation that did not happen before the changes that we are discussing were made in the Finance Bill. In any case, the net effect of the two changes, should they both be implemented, will still be a net additional cost on future investment. Future investment must be encouraged, and that has been sacrificed in this Budget proposal.

The Committee must serve a purpose. In this case, it must send a clear message to the Government that they have failed, and are failing, the North sea oil and gas industry.

The Chairman: I call Mr. Stewart. You have two minutes.

12.29 pm

Mr. David Stewart (Inverness, East, Nairn and Lochaber): Thank you, Mr. Hood. I am glad to take the opportunity to speak, even if only briefly—my 15-minute speech will now be cut down to two minutes.

I congratulate the Scottish National party on securing a debate on the future of the oil and gas industry. I make no apologies for talking about the important issue of oil fabrication, which is an important industry that employs engineers, welders, scaffolders and others. Over the years, they have contributed to building oil platforms and floating production vessels, especially in my constituency in Ardersier, which in its time had the largest oil fabrication yard in the United Kingdom.

My message, in 45 seconds, is that we should not forget the importance of the oil fabrication industry. I should like the oil companies to set up a Scottish contingency fund, which could be used in sectors where there has been devastation—in Ardersier, for example. We should decommission the 1,000 acre site, and consider retraining staff and entering new markets.

The second issue, which I shall cover in my remaining 30 seconds, concerns the future of the Goldeneye contract and other important contracts for the industry. We must fight for the industry. After all, there have been some positive developments. For example, when my right hon. Friend the Secretary of State was Minister for Energy, she licensed the white zone—the deep water that stretches to the Faroe islands.

We may consider the case, too, of the BP Clair platform—both the jacket and the topside. One hopes that it will go to Nigg, in the constituency of my hon. Friend the Member for Caithness, Sutherland and Easter Ross (John Thurso), which is an important part of the Highlands. We should consider the track record. The design work for Clair has gone to the United States, the installation work to Italy and the accommodation to Norway. In the last two seconds of my speech, I make this simple plea: build the platform in Britain. Even better, build it in the very efficient yard that we have in the Highlands.

12.31 pm

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