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Mr. Doran: The figures that I quoted in yesterday's Scottish Grand Committee debate, which were published by Professor Alec Kemp three or four years ago, show a one in 14 success rate. I accept the hon. Gentleman's point that exploration has reduced. That is partly because the industry has become much more focused. It is not prepared to take the risks that it took in the early 1990s.
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Mr. Salmond: I hardly think that that supports the argument that the hon. Gentleman has been pursuing in the press in the north-east of Scotland, which is that the measure is somehow a boost to the industry. If he believes, as he seems to, that the discovery rate is very poor, surely that would be a reason for him to argue against his Front Benchers. In fact, the discovery rate is high. I got these figures from Professor Alec Kemp on Monday, which postdates the hon. Gentleman's information. I shall make a copy available to him. The success rates since 1996 have been 17 per cent., 18 per cent., 17 per cent., 38 per cent., 23 per cent. and, for last year, 25 per cent. Those are good success rates.
Obviously, they are not the same as they were 20 years ago—one would not expect that—but for a mature province they are excellent.We know from the figures that the number of exploration and appraisal wells is down—there has been a sharp reduction. We know—even the Government will concede this, whatever they say about individual field projections in economics—that such aspects of oilfield financing are financed out of cashflow. Unless there is an offsetting measure in the taxation regime, the measure will result in a further decline in exploration and appraisal drilling, and hence a further decline in employment in the North sea.
The purpose of amendment No. 33—
Mr. Doran: Before the hon. Gentleman moves off the subject, I have the same figures from Professor Kemp. I want to make two points. First, I have never once said publicly that the tax change will be a boost to the North sea, so I hope that he will not continue to say that.
Secondly, the point that I was trying to make earlier, which is made forcefully by Professor Kemp in his presentation and analysis of the figures, is that the oil industry has become much more risk-averse. That has nothing to do with this tax change: it is a direct consequence of the tax changes made in 1993, which Conservative Front-Bench Members seem to have forgotten. Nowadays, most drilling is satellite drilling around existing fields, rather than the wider exploration that used to take place in the early years of the oil industry. That change has nothing at all to do with, and is unlikely to be affected by, this tax change.
Mr. Salmond: On the hon. Gentleman's first point, I saw a quote from him in The Press and Journal, a notable paper in north-east Scotland, which seemed to suggest that he regarded this—[Interruption.] I shall do this for the hon. Gentleman. I dare say that he intends to speak in the debate, and I shall arrange to have the quote available by the time he does so. We can then test whether he has been misrepresented by The Press and Journal. I doubt that.
At the very least, the hon. Gentleman has given the impression that these tax changes are nothing much to worry about. Perhaps he will concede that point. He is not responding. Perhaps we are making progress, and the force of our arguments over the past few days are finally convincing him that some of his constituents may have something substantial to worry about owing to the changes made in the Budget. That may be belated, but better that one sinner repenteth by recognising that the Budget might damage employment prospects in his and my constituencies, and in those of many other hon. Members. If the hon. Gentleman accepts the force of that argument, I hope that his vote will follow his conscience. Hon. Members may think that unlikely, but it happens occasionally, although it is almost as rare as catching a Minister telling the truth. Such things may not happen often these days but are none the less welcome when they do.
I have never argued that it is not the Government's right to make a tax change or that it is impossible to make such a change and not damage activity. There is an argument that producing fields in which the capital outlay
took place a considerable time ago are making substantial and healthy profits. However, if the Government are to make such a tax change, it should be accompanied by three things. First, there should be proper consultation and proper notice, as the Government have promised us in relation to other tax changes over the past few years. Secondly, we should have an analysis to show the impact on jobs and investment, so that we can all identify how many of our constituents will be at risk and whether the "minimal" figure is 500 or 5,000.The third factor is the most crucial, and I want to put to the Minister some of the points that I put to Ministers in the Grand Committee yesterday. Even within the framework of this tax change, it is possible to introduce other changes that would boost investment—for example, through a further uplift for exploration and appraisal drilling. That used to be done through petroleum revenue tax. That was a very high tax, but it did not damage activity because there was an encouraging and substantial uplift to allow for exploration and appraisal drilling. Many companies, even when they were facing a high tax regime, decided to keep on drilling because it was tax efficient. It would be helpful to have an uplift for exploration and appraisal drilling.
Jim Sheridan (West Renfrewshire): The hon. Gentleman suggests that before introducing tax increases we should have analysis and consultation. Perhaps that should start within his own party, because, as he will know, the fundamentalist wing of the Scottish National party argues consistently for increased taxes on oil in an independent Scotland. How does he square that circle?
Mr. Salmond: SNP policy is clear. I have articulated it many times, as has the oil spokesperson. In a past life, the hon. Gentleman was councillor in a robust local authority in Scotland, and perhaps he carries some of those battles with him into the House of Commons. SNP policy is clearly spelled out in documents, and if he cares to look at them and restate his argument, I will respond to it. Other than that, I shall leave him to his historic battles in council chambers around Scotland.
It is possible to introduce other substantial changes to try to boost investment. I mentioned exploration and appraisal drilling and a further uplift. It might be possible to do something about field financing. Because the change will affect cash flow, in future more fields will be financed by specific field financing from financial institutions. The Liberals have tabled an amendment, which they may or may not wish to press to a vote, although I am not sure whether it would achieve what they want it to achieve. There is potential to relieve interest payments on field financing that will encourage the financing of field economics.
Conservative Members talked about the abolition of royalties. It would make a great deal more sense to abolish royalties for companies that are pursuing incremental investment in these fields. In other words, instead of people getting something for nothing, they should get something for something.
This is a substantial tax change. It is impossible to take £1 billion out of an industry without having a major impact on jobs and investment. If the Treasury gave more thought to the matter, it would be possible to make consequent changes that would encourage investment,
drilling and exploration in field development, thereby sustaining jobs in the North sea. In the long term, that would be a good deal for the Treasury. The oil revenue outlook is bright for the next six years, but I understand that the Chancellor believes that he will be in power for generations to come. In generations to come, the amount of oil revenue that comes from the North sea will be decided by the exploration and appraisal drilling that takes place now. So even in the Chancellor's self-interest, there is a substantial argument for making those changes and ensuring that we keep the show on the road.Above all, the people of Scotland, having seen so much flow for so long from the Scottish sector of the North sea to the London Treasury, are entitled to ask Treasury Ministers to produce an analysis of the impact on jobs and investment of this tax change. If that is not produced, and no further changes are made to boost exploration, appraisal and field development, Treasury Ministers, led by a Chancellor who represents a Scottish constituency, will stand accused of sacrificing Scottish jobs for a smash-and-grab raid to fill Treasury coffers.
Mr. Doran: As the hon. Member for Banff and Buchan (Mr. Salmond) made clear, we had a vigorous debate yesterday in the Scottish Grand Committee, and I do not intend to repeat the points made there. He has made some substantial points, and I shall try to deal with some of them.
It is important to examine the amendments tabled by the Conservatives and the SNP. They would delay the tax for a year, and I understand the reasons for that. However, I was not clear from the speech of the hon. Member for Arundel and South Downs (Mr. Flight) whether the amendment was a probing amendment or a serious attempt to delay the tax. The latter entails serious dangers.
It is important to focus on a point that several hon. Members will raise today and that was made yesterday in the Scottish Grand Committee—the lack of warning that the oil industry received. I deliberately raised the 1993 Budget with the hon. Member for Arundel and South Downs because there was no warning of the tax changes that the then Chancellor announced. The industry suspected that some of the larger, more substantial companies had an inkling of the changes. It was even suggested that they had actively promoted them. However, one of their effects was removing petroleum revenue tax. That had direct consequences for the reliefs that were available to the industry for exploration and appraisal. The hon. Member for Banff and Buchan made that point. It is important, because that is when the difficulties in exploration and appraisal started. The industry has been contracting its efforts on that ever since.
In 1993, it was clear that substantial parts of the oil industry had no inkling of what was about to happen. I would argue strongly that the position has changed dramatically. In 1997, the new Chancellor announced that he would review oil taxation and he set out the terms for the review. As the hon. Member for Banff and Buchan made clear, I perceive the oil industry as extremely important in my constituency. It accounts for 6 per cent. of Scottish employment, but a much higher proportion in the north-east of Scotland where most of it is based. It is an important employer in my constituency.
The industry was well warned about the review. Like many other hon. Members, I lobbied strongly against it and any change in the taxation regime. I believed that that was important for one specific reason: to have a sustained period of low oil prices. There was a major problem, and I therefore believed that it was inappropriate to review the taxation at that time.
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