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Mr. Doran: No, I have given way quite a lot, and other Members want to speak.
In summary, the amendments are simply a spoiling tactic. It was necessary to change the taxation position. The Chancellor delayed the changes from 1997, and, in my view, the industry should have been aware that they were coming. It was not difficult to see them coming, and it should not have been difficult to plan for them. The North sea has a very adaptable and innovative industry, and it will adapt to this situation. I accept that it would have preferred the tax changes not to be made, but many companies will benefit.
The long-term future of the North sea will not be damaged by the changes; indeed, I believe that we will see increased investment, particularly in the enhanced recovery techniques in existing fields because of the full capital reliefs, and in new projects. There is every incentive to make those investments, and there is nothing to stop oil companies investing in the North sea as opposed to in any other oil regime in the world.
I want to raise with my hon. Friend the Minister an issue arising from the proposed tax changes. I have received a letter from Kerr McGee North Sea, a company based in Aberdeen. It raises an issue that no other company has raised, and I would appreciate hearing my hon. Friend's views on it. Kerr McGee suggests that one of the consequences of the tax changes will be that the supplementary charge will not be creditable against US taxes. Kerr McGee is an American company, and it is concerned about double taxation. That would be a worry, and I hope that my hon. Friend will be able to reassure me that that would not be the position.
Chris Grayling (Epsom and Ewell): It is not often that I find myself putting my name alongside that of the leader of the Scottish nationalists on an early-day motion. Early-day motion 1237 states:
[That this House notes that the North Sea oil and gas industry supports six per cent. of the Scottish workforce and as such is vital to the Scottish economy; recognises that Scotland is competing against other potential investments around the world, acknowledges a marked 55 per cent. decline in exploration and appraisal
since 1996; expresses its concern that the Chancellor announced a 10 per cent. supplementary charge on North Sea profits without any public economic impact assessment or formal industry consultation further notes that it contradicts the Chancellor's own policy of consultation for the Government to usher in changes to policies without public consultation; and calls on the Government to delay any changes to the fiscal regime until a full economic impact assessment can be conducted which looks at the current and future likely effects of a tax increase on employment, exploration and appraisal, and utilisation of UK pipeline infrastructure related to the North Sea.]The motion was signed by Scottish nationalists, by Conservatives north and south of the border, and by representatives of Wales and Northern Ireland. It emphasises our concern about the impact of this measure on the oil industry in Scotland. This is not, however, an issue only about the oil industry in Scotland, or industry in Scotland. It is an issue for the entire United Kingdom. This is a fundamental, strategic industry for the whole United Kingdom, and if it suffers as a result of an ill-thought-out tax change, we will all suffer.
This measure is just another example of a lack of understanding in the Budget of the financial impact of tax increases on business. We have talked a great deal about the impact of the increase in employers' national insurance contributions. This is another example of money being taken out of business. There is no way credibly to argue that removing hundreds of millions of pounds from an industry will benefit it. That does not add up. If we take money away from somebody, they will have less money, not more.
Scotland can ill afford a drop in manufacturing investment or a drop in support for manufacturing industry at this time. At Scottish questions last week, we heard that employment in manufacturing industry in Scotland was at a low level of 281,000. There is no way in which taking this money out of Scottish manufacturing will increase that figure rather than reduce it. The Treasury Minister, who is not in his seat at the moment, argued earlier that the industry was positive about the steps being taken. I pinched myself when I heard that.
I have picked up some of the feedback that the industry has given since these measures were announced in the Budget. Let us start with the UK Offshore Operators Association, the trade association of the offshore oil and gas industry:
- "UKOOA is surprised and concerned at the decision to introduce a 10 per cent. supplementary charge on North Sea profits."
- "fears that this could undermine investor confidence in the long-term viability of the North Sea, the very thing that the Industry has been working with Government, through PILOT, to achieve."
Lord Browne, chief executive of BP, said:
- "Taken together, those steps are likely to reduce investment and to hasten the decline of production. Their direct impact will be compounded by the fact that a change made in this way reduces confidence in the stability of the regime going forward and imposes an added element of risk on all future decisions."
On investment, Wood Mackenzie, the acknowledged industry leaders in the financial services sector, said:
- "Overall, Brown's adjustments will be a blow to new UKCS entrants who have been acquiring assets unattractive to the major companies, thereby breathing new life into the North Sea. With some more marginal fields failing to be economic when taxed at 40%, several of which would have been developed, or had their life extended, could now be mothballed."
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There will also be an impact on suppliers—the manufacturing businesses in Scotland that produce equipment to support the oil industry. How can the removal of hundreds of millions of pounds from the industry make it more likely that those businesses will expand rather than contract? How can it make it more likely that oil companies will buy additional equipment, rather than making cuts when it comes to investment decisions?
Sir Robert Smith: May I reinforce a point that the hon. Gentleman made earlier? We should bear in mind that this change will affect not just manufacturing industry in Scotland but constituencies throughout the United Kingdom. There are businesses well away from the North sea that start the supply chain. It is the money invested in the North sea that pulls in their products. Many Members who do not think the oil industry is important to them will find that it is.
Chris Grayling: I share the hon. Gentleman's concern. My constituency, Epsom and Ewell, is quite a long way from Scotland, but I view this as very much a United Kingdom issue. As the hon. Gentleman says, there are firms throughout the country—consultancies, design companies, technology companies and manufacturing organisations—whose business will inevitably decline because the industry has less money to spend, because the Treasury has taken it. There is no other way of looking at this tax change.
Mr. Tom Harris (Glasgow, Cathcart): IHS Energy Group Consultants has produced a table showing the tax take from oil in different countries, based on certain criteria. It is 88 per cent. in Norway, 70 per cent. in Canada, 75 per cent. in Australia, 80 per cent. in Angola, 65 per cent. in Brazil and 66 per cent. in the United States. The British figure has risen from 35 per cent. to 40 per cent.
Chris Grayling: The hon. Gentleman can quote all the figures he likes, but the fact remains that if £600 million is taken from an industry it has less to spend. That is basic 2 plus 2 arithmetic. Inevitably, companies operating in the North sea will have less money to spend on people, equipment, new designs, new investment and new
exploration. It stands to reason. There is no escaping that reality. Moreover, our balance of payments will be affected.
Mr. Flight: The crucial point is that the marginal tax rate, which relates to new investment, will rise to about 75 per cent. The overall impact on the industry depends on that marginal rate.
Chris Grayling: That point speaks for itself.
Exports are bound to be affected. One of the problems experienced by many of our manufacturing firms results from the weakness of the euro in particular, which has led to a substantial imbalance in the currency markets and has put our manufacturers at a significant disadvantage. Every additional step taken by Government that worsens the financial position of domestic manufacturers is likely to result in equipment being bought from overseas. The firms that are investing will decide that they can save money by going to other countries—and they will have to save money, because they will have less disposable cash following the tax increase.
The consequence of all that is inescapable: there will be a cost to jobs. There is no way in which it will not feed through to the jobs market. The chief executive of the Aberdeen and Grampian chamber of commerce, in the constituency of the hon. Member for Aberdeen, Central (Mr. Doran), has said:
- "There is no doubt that there will be a knock on effect on jobs. These changes will not just affect the oil majors but the countless small businesses operating in the supply chain."
The measure will affect jobs and the industry, and damage the Scottish economy. It is badly thought out and badly timed, and it deserves to be opposed.
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