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Sir Robert Smith (West Aberdeenshire and Kincardine): There is a fatal flaw in the logic of that argument. It implies that the hon. Gentleman has a crystal ball that tells him that we will have a sustained period of high oil prices. We are not considering a price-sensitive profit tax.
Mr. Doran: I do not accept that. The industry was going through severe difficulties; many jobs had been shed, and it was unable to cope with the changes in the review. With many colleagues from all parties, I argued and lobbied strongly. I am clear about the reason why the Chancellor dropped the review in 1998 and decided not to press ahead. I am clear about it not only because of private discussions with the Ministers who undertook the review but because of the public statements that were made at the time. A sustained period of low oil prices was an inappropriate time to introduce any substantial tax changes to North sea oil.
I shall not bore the House with figures; the Secretary of State for Scotland read them out in the Scottish Grand Committee yesterday, but the past three years have been a period of sustained high oil prices. The industry can therefore cope with changes.
Mr. Salmond: To refresh the hon. Gentleman's memory, in 1997 the Chancellor announced that he would review oil taxation. I have a copy of the press notice, which stated that a consultative document would be issued and that people would have plenty of time to comment on it. If, after consultation in 1997, it was decided not to alter the taxation, why was no consultation document issued this time to allow the hon. Gentleman's amazing lobbying powers to come back into play? Where was the consultation?
Mr. Doran: The hon. Gentleman should hear me out. The brand new Government issued a consultation document; it was a different time in the industry. I am trying to make the point that the change this year should not have come as a surprise to the oil industry. It employs some of the most sophisticated lobbying techniques of any industry in this country. All of us who have an interest in the oil industry have been subjected to that lobbying. Its lobbying of Ministers is even more intense; we know its effectiveness. The signals were there for those who chose to look. Not least were the Chancellor's declared intention in 1997, the new circumstances that have pertained for three years, and a position whereby the returns on capital in the North sea were as high as 34 per cent. That is higher than in almost any other United Kingdom industry. The change should not therefore have surprised the oil industry.
Mr. Doran: The hon. Member for West Aberdeenshire and Kincardine (Sir Robert Smith) asked from a sedentary position whether I admitted that the change was a surprise. Of course I admit that because, as I said earlier, I believe that the oil industry fell asleep. The people who should have been in contact should have known about the change and the industry should have been prepared.
My hon. Friend the Member for Glasgow, Maryhill (Ann McKechin) made an important point. The oil analysts do not necessarily mirror the views that have been expressed by some of the oil companies. It is no surprise that the industry opposes an increase in taxation. I would not have expected any less than its campaign. However, all the focus is on the 10 per cent. increase; the Opposition happily ignore the other side of the equation.
There has been a shift in taxation focus to profits. That will be effected when royalties are abolished, which I hope will happen soon. The 100 per cent. capital relief will change significantly the way in which work is done in the North sea. It will allow companies to get a return on their invested capital much more quickly.
The hon. Member for Banff and Buchan made a point about exploration and appraisal. We are not a million miles apart on that; perhaps our interpretation of the current position differs. There is a strong argument that the oil industry is being encouraged to focus on marginal drilling and enhancing existing fields. There is not a huge amount of activity. Buzzard field is an exception; much
In addition, we have seen a number of new companies coming into the fieldthe Talismans of this world, and companies such as Kerr McGee. Kerr McGee has been there for a long time, but it is one of the companies now operating in the older fields and building up a portfolio of assets in the smaller fieldsthe fields that the larger companies, such as the BPs and Shells of this world, will not touch because the returns on investment are not adequate.
The profile of the North sea is changing, and this Budget will accelerate that. Smaller companies such as Talisman are welcoming it, now that they have had a chance to look at it. They are welcoming the change in focus.
Mr. Doran: No, I cannot, because every field has its own individual profile. I, and some of the analysts I have spoken to, expect to see a change in the way money is spent in the North sea. There will be a much longer lead-in time before construction starts and money is spent on the kit that is necessary. Expenditure on that kit will be concentrated in a 12-month period so that returns can be made much more quickly.
Mr. Doran: That is what the analysts tell me. They believe that one of the consequences of the Budget will be a change in the investment profile of the North sea. That is good news for the North sea, and it is certainly good news for employment.
When the 1993 Budget came into effect, there were about 19,000 people working in the offshore oil and gas industry, on the drilling rigs, the stand-by vessels, and so on. The number fell to 17,000, which is where some people expected it to remain. The figure today is nearly 25,000, which is a sign of the change in the industry.
We all cried doom about the tax changes in 1993, but many other factors are at play in North sea investment. Tax clearly plays a part. Despite all the doom and gloom merchants, the fact remains that the North sea will still be the lowest-taxed area of any oil province anywhere in the world.
Mr. Salmond: I am finding it quite difficult to understand the hon. Gentleman's position. Earlier, I suggested that he had said in the papers that this was a boost for the industry. My recollection is that the hon. Gentleman denied that. I have now found the quotation that I was looking for. The Aberdeen Evening Express of 18 April stated that
'It should encourage development of smaller fields, especially by smaller companies,' he forecast."
Mr. Doran: I may have to accuse the hon. Gentleman of ignoring the second part of the Budget, which provides 100 per cent. capital relief. The quote that gave relates to that relief. It is a direct quote and I accept it. I am proud to repeat it here today. That capital relief will be a boost. The overall picture for many companies in the North sea will show an improved financial position. Yes, there will be losers, and they will, generally, be those with existing installations. The effect will be spread across a fairly wide field and, on the basis of all the companies' returns over the past three years, I believe that they can well afford to pay the tax, so I make no apologies for the comments that I made.