Mr. Mark Field (Cities of London and Westminster): A distinction should be drawn between individual taxpayers and the oil industry on two grounds; first, the substantial effect that this will have on the oil industry, and secondly, and perhaps more importantly, the fact that the oil industry wasso we are toldkept as an integral part of this entire process, because it was part and parcel of the industry
Column Number: 285consultation that allegedly took place prior to this happening. However, as we all know, the oil industry has been surprised by the recommendations.
Therefore, there is a fundamental difference between the adjustment that an individual taxpayer makes and that which is being imposed on the oil industry as a result of these measures.
Ruth Kelly: As I explained to the Committee, I do not expect an industry to rejoice when additional tax is imposed on it; it would be extraordinary if it did. However, for reasons that I have explained, I do not think that this sort of change to the fiscal regime cannot have been anticipated.
Mr. Flight rose
Ruth Kelly: I give way, although I wish to make progress.
Mr. Flight: Is it not the case that, when my right hon. Friend the Member for Fylde was a Minister and changes were made to oil taxation, they did not apply to revenue flows from investments that had already been made? These measures are understandably seen as newly retroactive because, due to the huge amount of capital investment in the industry, the precedent with regard to the oil industry has been not to apply them to projects that are already in hand. As the Minister knows after being encouraged by Pilot, the industry feels that it has been cheated by the Government and sucked in to make investments and commit capital. A 33 per cent. increase in taxation has been applied on those committed investments. On past precedent, that is in bad faith.
Ruth Kelly: I am grateful that the hon. Gentleman made clearfor the sake of both myself and the Committeethe difference that he understands between retrospection and retroactivity in this case. However, as I have spelled out, and perhaps laboured, the purpose of the tax changes is to encourage new investment and the development of marginal fields. Of course, previously profitable fields, many of which incurred investment at a time when the rates and the amount that was expected to be paid to the Revenue were much higher than today, will have to pay more. That is part of the package's purpose. We are interested in encouraging investment while securing a fair share of revenue for the Treasury.
Mr. Chope rose
Ruth Kelly: Perhaps the hon. Gentleman will let me make progress to deal with the point on leasing raised by the hon. Member for Kingston and Surbiton.
Lessors will not pay the supplementary charges on their profits even if they are leasing assets in the ring-fenced area. Therefore, extending the scheme to lessors who are outside the charge would give relief in circumstances in which there is no reason for that.
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Mr. Burnett: I am sorry to have sparked an esoteric sub-debate. Can the Minister make it clear whether a lessor leasing for the purposes provided for in the Bill will receive the 100 per cent. allowance so that that tax benefit can be passed in due course to the lessee in whole or in part?
Ruth Kelly: I should like to make it clear to the Committee that the normal 25 per cent. allowances available to lessors that already assist lessee companies that are not paying tax will continue under the new regime. Investment in the North sea currently totals more than £3 billion a year. Only a tiny part of that investment is leased assets. We believe that that reflects the specific nature of the oil industry, which is generally quite profitable and may rely on equity finance to fund its investment. Of course, we will monitor closely the operation of the regime to ensure that there is no distortion in the system.
I heard what hon. Members said about this, but we believe that the current operation of the regime and the 25 per cent. allowance is sufficient.
Mr. Chope: The Minister said that the amendment would cost £1 billion a year. Will she tell the Committee the cost to the Exchequer of the present proposals in the clause?
Ruth Kelly: The cost of the proposals and forecasts of tax receipts are clearly shown in the Red Book. I have set out the way in which we undertook the assessment in great detail. The pure dead-weight cost of the hon. Gentleman's proposals would be £1 billion, which is why I urge hon. Members to reject the amendment.
Mr. Chope: We have had a very disappointing response from the Minister. Let us deal with costs. She said that the amendment would cost £1 billion and that we know the cost of the clause to the Exchequer, but we do not. We know only what is in the Red Book: the net increase in yield to the Exchequer of the measures that relate to the North sea oil regime.
I am asking a perfectly reasonable question: what will the cost be to the Exchequer of the first-year allowances that are set out in the clause? The Minister is stonewalling and refusing to respond. Much as we congratulate her on her well-deserved elevation and promotion, I must say that, in light of what she has said during this debate, many people in the oil industry will regret the fact that her portfolio will not be transferred to the Economic Secretary, who has just arrived on the Front Bench.
Ruth Kelly: For the record, perhaps I may set out the cost of the measure. In 2002-03, it will cost £400 million; in 2003-04, £650 million; and in 2004-05, £500 million. Perhaps that will satisfy the hon. Gentleman that I am taking this issue seriously.
It being One o'clock, The Chairman adjourned the Committee without Question put, pursuant to the Standing Order.
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Benton, Mr. Joe (Chairman)
Cunningham, Mr. Jim
Davey, Mr. Edward
Field, Mr. Mark
Harris, Mr. Tom
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