Oil and Gas Industry

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Mr. Malcolm Bruce (Gordon): It is 30 years ago this year that, as a young research and information officer for the North East Scotland Development Authority, I first came into contact with the North sea oil and gas industry. At that time, the discovery of the Forties field had not been announced, although the first successful well had been tested and reported.

As has been pointed out a number of times, people tried to work out how important the industry would be and how long it would last. Because of the emerging oil crisis, there was a mad scramble to extract the oil as quickly as possible. Indeed, between the two general elections in 1974, the right hon. Member for Old Bexley and Sidcup (Sir E. Heath), who was Prime Minister before the February election, visited me in my Aberdeen office to discuss the implications of developments in the North sea. After briefing him, I said, ``Mr. Heath, I wonder whether, had you come here 12 months ago, you might still be Prime Minister.'' I said that because he had totally failed to understand the significance of what was happening.

In 1972, I received a telephone call from the private secretary of the then Secretary of State for Trade and Industry. He said, ``This afternoon, the Secretary of State must answer a question in the House on the number of oil and gas rigs operating in the North sea, the number of supply boats and the number of people employed.'' I asked why he was telling me this, and he replied, ``Because the Department does not have that information but we've been told that you might.'' I was indeed able to provide the information, but I also pointed out that, given that his Department had issued the licences, it was somewhat surprising that it had failed to find out what people were doing with them.

On realising the scale of what was happening in the North sea, many of us tried to get that message across. I agree entirely with the hon. Member for Banff and Buchan (Mr. Salmond): it was indeed difficult to persuade people that the industry might last 20 or 30 years, let alone 60 years or more. In fact, we have yet to yield half—or perhaps a third, who can say?—of the oil that new discoveries and enhanced recovery techniques are likely to produce. That is the stage that this mature industry has reached.

I was interested by what the hon. Member for Banff and Buchan said about a fund. Such an idea is not new, but he was right to report what Norway has done in different circumstances. In fact, there was much discussion about that idea in the 1970s. As the then Scottish Liberal party spokesman on oil and gas, I was instrumental in proposing the use of an oil development fund separate from general taxation. Indeed, the proposal was included in our manifesto commitments. I remember Sam Brittan saying that such revenue might be put into tradable bonds instead of a fund, giving every member of society a stake from which they could benefit, and which they could use as they saw fit. That would have been a good idea. It could have produced an unexpected windfall for funding projects that otherwise could not be undertaken.

The problem is that the revenue has become part of mainstream taxation, so if we forgo it the money has to be found from somewhere else. Forgoing the current projected revenue from the North sea would be the equivalent of about 2p on the standard rate of income tax across the UK. If it were Scotland alone, it would be more like 15p or 20p. It is not necessarily a bad idea, but it must be funded from somewhere else within the revenue stream.

The Government have been congratulated on all sides—and deservedly so—for the partnership that was developed through Pilot. If there were a Conservative Member on the Committee, I like to believe that there would still be all-party consensus on that. It was exactly the sort of partnership that was required. Credit should be given where it is due, even though it came out of a negative review in the first part of the Parliament. Lessons have, however, been learned, and we should give credit for that, too.

My colleagues and I strenuously advised the Government against that taxation review. There may be a case for reviewing taxation periodically. It is important to remind the industry that, virtually every year for 18 years, the Conservative Government changed the tax without consultation or any consideration of the often damaging implications.

Two factors have produced an undesirably low level of exploration. The first was the responsibility of the previous Conservative Government. Tax concessions on exploration had been abused, not by all operators, but especially by one large oil company. The case for review was not the main point at issue. An abrupt withdrawal—without any warning or consultation—of the allowance that had been built into the industry's programmes led to an immediate and sharp collapse of forward exploration. We have never returned to the level of exploration that pre-dated those circumstances.

That withdrawal, combined with the second factor, the collapse of the price of oil, resulted in a level of exploration in 1999 that was the lowest in the 30 years of my involvement—and it only marginally picked up in 2000. We hope that confidence in a reasonably stable oil price—UKOOA is less confident than others—will improve the position. The Government should assess whether more should be done to stimulate and encourage further exploration. They should at least clarify what level of exploration the industry should try to achieve and establish whether it requires an incentive or just a programming agreement. The industry's future is, after all, based on exploration.

The other crucial issue is skills. The problem is becoming acute for an industry that is mature in more senses than one. The industry has been around for more than a generation, and many people working in it are at the end of the generation that entered during the initial rapid expansion, and are now close to retirement. It is not clear that replacement skills are entering the system as quickly as required.

Mrs. Liddell: The hon. Gentleman makes a valid point. The national training organisation set up to assist the oil and gas industry is focusing on that issue. He may also be interested to hear about a new internet portal, which acts as an on-line recruitment vehicle. Available jobs are posted on-line and people can apply for them. The appropriate skill levels are specified to encourage new entrants into the industry for the long term.

Mr. Bruce: That is helpful, but for that to be successful, the skills must have been developed. The image of the industry, which is not always as attractive as it should be, is a problem. People in contact with it recognise what an exciting and stimulating industry—very much at the frontiers of new technology—it is. Young people should be encouraged to view it as a clean, exciting and attractive industry with a secure future, even though, like all industries, it has its ups and downs.

Many of my self-employed constituents working in the oil and gas industry have made representations against the Government's IR35 changes. I agree with my hon. Friend the Member for West Aberdeenshire and Kincardine that when those changes bite they may have a negative effect and, if people leave jobs, they will not bring in the revenue that the Government hope. My constituents have pointed out that the changes would make it even more difficult to train replacements who might take over their business. I urge the Government to consider whether such warnings are accurate, and if they are, to implement initiatives to draw people into the industry.

The Government have a new deal initiative for the long-term unemployed, which I hoped that they would pilot in Aberdeen, but Glasgow and Edinburgh were selected. One or two people in my constituency have been blacklisted by the industry and, despite their skills and qualifications, have never been able to work. At a time when there are skills shortages, it is disgraceful that a way has not been found of re-establishing such people in work. There are skilled engineers who, because of age or circumstances, have been unemployed for two years, even though they have made hundreds of applications and attended many interviews. It is utterly ridiculous that existing skills are not fully used. I hope that in future it will be possible to match skills and jobs.

I have one more point to raise with the Minister about a matter that worries us. For the moment, the problem has resolved itself because it was the interconnector differential between gas prices and oil prices that caused a depression. Although the situation is now more encouraging, an awful lot of combined heat and power investment was knocked on the head in that period.

In my constituency in the north-east, paper mills have made good investments in combined heat and power systems—I speak as a vice president of the Combined Heat and Power Association—as it is important that gas is used in the most efficient, productive and environmentally friendly way. I hope that the Government will ensure a continuous investment in efficient ways of using gas that will avoid sharp downturns and the loss of the momentum for combined heat and power, which happened for two years.

This has been a good and important debate. The Government's partnership with the industry is constructive, and as long as they remain open to and act on constructive suggestions from all quarters, inside and outside the industry, and from those of us in Scotland who have connections with the industry, it has a great future and will contribute substantially to the economy of Scotland and the United Kingdom for a long time to come.

12.47 pm

The Minister of State, Scotland Office (Mr. George Foulkes): I am sure that I speak for all members of the Committee in thanking you, Mr. Maxton, for your usual skilled chairmanship, which we should miss if, for any reason, which I shall certainly not mention, you were no longer to do this job.

As the hon. Member for Gordon rightly said, this has been a good debate, and also a good-natured debate—[Hon. Members: It is not over yet.] It is not going to change now, in spite of the temptation.

I shall deal with as many points raised during the debate as possible rather than making a prepared speech. I particularly appreciated the positive contributions from the two Liberal Democrat Members and, I must confess, the unusually positive speech from the hon. Member for Banff and Buchan. It is the new, statesmanlike approach that we all find rather strange; no doubt he is getting back to Westminster practices in preparation for continuing here.

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Prepared 28 March 2001