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Ruth Kelly: I do not think that, in response to some of these debates, I could have been more open and transparent than I have been this evening. I should like to concentrate on the amendments on financing costs, which we have not had an opportunity to discuss so far tonight, rather than to reopen previous debates, which I covered in substantial detail earlier this evening. However, perhaps I should start by answering the point about pipelines made by the hon. Member for Banff and Buchan (Mr. Salmond), who speaks for the Scottish National party.
I freely admit that different pipelines have different tax treatments. That is due to changes made by the previous Conservative Government. I admit that the FLAGS pipeline is taxed at a higher rate, but full tax relief is
available on the cost of its construction—also at a higher rate. The comparisons are not simple; these are complicated reforms.
Ruth Kelly: I do not want to reopen previous debates; I have clearly made the case for the changes before us tonight. I should like to turn to the amendment on financing costs and consider whether such costs should be taken into account in calculating the profits base for the supplementary charge. If we were to take account of those costs, it would allow companies to manipulate their borrowing to minimise the effect of the charge. [Interruption.] There is some scepticism among those on the Liberal Democrat Front Bench, but I put it to the hon. Member for West Aberdeenshire and Kincardine (Sir Robert Smith) and other hon. Members that oil companies have access to sophisticated tax planning advice.
One need not be a tax planner to realise that financing costs have to be disallowed if the supplementary charge is to work effectively; otherwise it would clearly be in companies' interests to arrange their affairs so that all their North sea activities were funded by borrowing, for which they could claim relief against a 40 per cent. tax rate, while their other activities—taxed at 30 per cent.—were funded by capital. I shall expand on those comments as I progress.
If we allowed financing costs to reduce the profits subject to the supplementary charge we would have to increase the rate of the charge to ensure that the nation received a fair share of the economic rent derived from the North sea. I cannot say what that increased rate might be; it would depend on how far individual companies were able or chose to arrange their affairs to reduce the impact of a 10 per cent. rate. Clearly, however, raising the rate would penalise those companies without the scope to manipulate their borrowings. A complete disallowance of financing costs for the supplementary charge is much fairer.
I understand the points made by the hon. Member for Gordon (Malcolm Bruce), my hon. Friend the Member for Waveney (Mr. Blizzard) and the hon. Member for Banff and Buchan that debt relief for financing costs might be more of a burden for some smaller companies. An effective measure is needed, however, to prevent erosion of the tax base. It would not be feasible for us to try to differentiate one type of company from another. We are trying to simplify the oil taxation regime.
Ruth Kelly: I shall continue my argument for a moment.
Companies will still be able to offset 75 per cent. of their North sea borrowing against tax, and with the 100 per cent. tax relief for capital expenditure, the package should still encourage investment by small and large companies.
Some people who are concerned about this issue have suggested alternatives. One is to try to apportion all the financing costs of a group between North sea and non-North sea activities rather than deny costs altogether.
There would not be a case, however, to apportion those costs purely for the supplementary charge and not for corporation tax generally. It has not been suggested to me or my colleagues that companies would want such a rule to apportion financing costs.
Mr. Flight: One aspect that I raised was that, in order for the supplementary charge, should it go ahead, to count for double taxation relief, it would be necessary to allow financing costs. It would be a disaster if it were not allowable, particularly for United States companies. As a practical matter, therefore, the Government may be forced to use a regime that permits financing costs to be deductible in some way.
Ruth Kelly: I said earlier in the debate that we listened to the industry and whether it had concerns about the double taxation treaty and the interpretation of it by our treaty partners. We remain committed to listening to those concerns. If there are real issues, we shall take them up with the United States authorities, or, if more general concerns are expressed, we shall deal with it in other ways. I would not want to rule that out altogether. We have opted, however, for simplicity and for a measure that will avoid tax evasion. What we have done is fair and simple. I have not yet heard a real call from the industry for an alternative. If I do, however, I shall listen to it. We must introduce an effective and simple regime for the future, which will generate investment, have a positive impact on jobs and raise a fair share of revenue for the future.
Sir Robert Smith: Will the Economic Secretary make sure that her colleagues who are no longer in the Chamber, but who were earlier praying in aid the fact that the changes would benefit smaller companies the most, read what she has said? As financing charges are being excluded, the smaller companies, which rely on borrowing, will suffer more under this part of the clause.
Ruth Kelly: I do not accept that. Although I accept that small companies may have a particular issue with financing costs, I do not accept that the Budget is in any way less good for small companies than it is for larger companies. The hon. Gentleman must also take into account all the other changes for small companies that we have introduced in the Budget, including the reduction in the corporation tax rate.
Overall, small companies will not be particularly disadvantaged by the change. However, I have been open with the Committee and said that there may be issues involved. If the industry has concerns, we will listen to them. We are committed to working with the industry to get the supplementary charge recognised under double taxation treaties. If there are concerns, we will act on them if possible.
Mr. Salmond: I think that the Economic Secretary has now conceded the point on differential taxation for pipelines. She may blame the Tories for the outrageous 70 per cent. tax on FLAGS at St. Fergus, but the differential between Bacton and Zeebrugge is created by this Budget. Now that it has been drawn to her attention, will she, in the interests of fairness and creating a level
playing field, undertake to do something about not just the Bacton-Zeebrugge differential but the tax on tariff income going through the FLAGS line at St. Fergus?
Ruth Kelly: I have dealt in detail with the specific point that the hon. Gentleman raises. If he wishes to raise other issues with me, I can deal with them in writing.
I think that I have made the point fairly. We need to raise a fair share of revenue from North sea oil and introduce a system of taxation that is simple, transparent and will promote investment and jobs over the longer term.
Malcolm Bruce: I am grateful that the Economic Secretary has acknowledged that there is a problem that she is willing to address. However, I am disappointed by the way in which she dismisses a real and serious concern that will materially affect small companies.
I make no apology for using the UKOOA brief in this context, but we are told that 70 per cent. of a project's development funding could come from debt finance. To make no allowance for that would clearly have a devastating effect on some projects. Indeed, it would make them completely non-viable or, at least, non-viable for those companies that have to finance the projects in that way. In those circumstances, it is strange that the Economic Secretary regards her proposals as fair. They are fair for the large companies that can finance the projects from equity finance.
I accept the Economic Secretary's remarks that there is a worry that companies will change their method of financing to qualify for the tax relief. However, if the Oil Taxation Office has the power—on the basis of the detailed analysis that she gave in the previous debate, the Treasury claims to understand how oilfield financing operates—it should be possible to reach a conclusion that would allow at least some of the costs to be calculated.
Although I welcome the fact that the Economic Secretary has acknowledged that there might be a problem and that, if the industry can persuade her, the Government might adjust the scheme, the fact that she is not minded to do so means that the amendment is necessary. I ask the Committee to support it.
Question put, That the amendment be made:—
The Committee divided: Ayes 160, Noes 276.
AYES
Ainsworth, Peter (E Surrey)
Ancram, Rt Hon Michael
Atkinson, David (Bour'mth E)
Atkinson, Peter (Hexham)
Bacon, Richard
Baldry, Tony
Barker, Gregory
Baron, John
Barrett, John
Beggs, Roy
Bellingham, Henry
Bercow, John
Blunt, Crispin
Boswell, Tim
Brady, Graham
Brazier, Julian
Breed, Colin
Browning, Mrs Angela
Bruce, Malcolm
Burns, Simon
Burnside, David
Burt, Alistair
Butterfill, John
Calton, Mrs Patsy
Cameron, David
Cash, William
Chapman, Sir Sydney
(Chipping Barnet)
Chidgey, David
Chope, Christopher
Clifton–Brown, Geoffrey
Cormack, Sir Patrick
Curry, Rt Hon David
Davey, Edward (Kingston)
Davies, Quentin (Grantham)
Djanogly, Jonathan
Dodds, Nigel
Doughty, Sue
Duncan, Peter (Galloway)
Ewing, Annabelle
Fabricant, Michael
Fallon, Michael
Field, Mark (Cities of London)
Flight, Howard
Flook, Adrian
Forth, Rt Hon Eric
Foster, Don (Bath)
Fox, Dr Liam
Francois, Mark
Gibb, Nick
Gillan, Mrs Cheryl
Gray, James
Grayling, Chris
Green, Damian (Ashford)
Green, Matthew (Ludlow)
Grieve, Dominic
Hague, Rt Hon William
Hammond, Philip
Harris, Dr Evan (Oxford W)
Hawkins, Nick
Hayes, John
Heald, Oliver
Heath, David
Heathcoat–Amory, Rt Hon David
Hendry, Charles
Hoban, Mark
Holmes, Paul
Horam, John
Howard, Rt Hon Michael
Howarth, Gerald (Aldershot)
Hughes, Simon (Southwark N)
Hunter, Andrew
Jack, Rt Hon Michael
Jenkin, Bernard
Johnson, Boris (Henley)
Keetch, Paul
Key, Robert
Laing, Mrs Eleanor
Lamb, Norman
Lansley, Andrew
Laws, David
Leigh, Edward
Letwin, Oliver
Lewis, Dr Julian (New Forest E)
Liddell–Grainger, Ian
Lilley, Rt Hon Peter
Llwyd, Elfyn
Loughton, Tim
Luff, Peter
McIntosh, Miss Anne
MacKay, Rt Hon Andrew
McLoughlin, Patrick
Malins, Humfrey
Maples, John
Marsden, Paul (Shrewsbury)
Mates, Michael
Mawhinney, Rt Hon Sir Brian
May, Mrs Theresa
Mercer, Patrick
Mitchell, Andrew (Sutton Coldfield)
Moore, Michael
Moss, Malcolm
Murrison, Dr Andrew
O'Brien, Stephen (Eddisbury)
Öpik, Lembit
Osborne, George (Tatton)
Page, Richard
Paice, James
Paterson, Owen
Price, Adam
Prisk, Mark
Pugh, Dr John
Randall, John
Reid, Alan (Argyll & Bute)
Robathan, Andrew
Robertson, Angus (Moray)
Robertson, Hugh (Faversham)
Robertson, Laurence (Tewk'b'ry)
Robinson, Peter (Belfast E)
Rosindell, Andrew
Ruffley, David
Russell, Bob (Colchester)
Salmond, Alex
Sayeed, Jonathan
Shephard, Rt Hon Mrs Gillian
Simmonds, Mark
Simpson, Keith (Mid–Norfolk)
Smith, Sir Robert (W Ab'd'ns)
Soames, Nicholas
Spicer, Sir Michael
Spink, Bob
Stanley, Rt Hon Sir John
Streeter, Gary
Stunell, Andrew
Swayne, Desmond
Swire, Hugo
Syms, Robert
Tapsell, Sir Peter
Taylor, John (Solihull)
Taylor, Matthew (Truro)
Thomas, Simon (Ceredigion)
Trend, Michael
Turner, Andrew (Isle of Wight)
Tyrie, Andrew
Viggers, Peter
Walter, Robert
Waterson, Nigel
Watkinson, Angela
Weir, Michael
Whittingdale, John
Wiggin, Bill
Wilkinson, John
Willetts, David
Williams, Hywel (Caernarfon)
Willis, Phil
Wilshire, David
Winterton, Mrs Ann (Congleton)
Wishart, Pete
Yeo, Tim
Young, Rt Hon Sir George
Younger–Ross, Richard
Tellers for the Ayes:
Mr. Adrian Sanders and
Mrs. Annette L. Brooke.
NOES
Ainger, Nick
Ainsworth, Bob (Cov'try NE)
Alexander, Douglas
Allen, Graham
Anderson, Rt Hon Donald
(Swansea E)
Armstrong, Rt Hon Ms Hilary
Atkins, Charlotte
Austin, John
Bailey, Adrian
Banks, Tony
Barnes, Harry
Barron, Kevin
Beard, Nigel
Bell, Stuart
Bennett, Andrew
Berry, Roger
Best, Harold
Betts, Clive
Blackman, Liz
Blizzard, Bob
Boateng, Rt Hon Paul
Borrow, David
Bradley, Rt Hon Keith (Withington)
Bradshaw, Ben
Brennan, Kevin
Brown, Rt Hon Nicholas
(Newcastle E & Wallsend)
Bryant, Chris
Buck, Ms Karen
Burden, Richard
Burgon, Colin
Burnham, Andy
Caborn, Rt Hon Richard
Cairns, David
Campbell, Alan (Tynemouth)
Campbell, Mrs Anne (C'bridge)
Caplin, Ivor
Casale, Roger
Challen, Colin
Clapham, Michael
Clark, Mrs Helen (Peterborough)
Clark, Paul (Gillingham)
Clarke, Rt Hon Tom (Coatbridge)
Clarke, Tony (Northampton S)
Clwyd, Ann
Coaker, Vernon
Coffey, Ms Ann
Coleman, Iain
Connarty, Michael
Cook, Rt Hon Robin (Livingston)
Cooper, Yvette
Corbyn, Jeremy
Corston, Jean
Cousins, Jim
Cranston, Ross
Crausby, David
Cruddas, Jon
Cryer, John (Hornchurch)
Cunningham, Jim (Cov'try S)
Curtis–Thomas, Mrs Claire
Dalyell, Tam
Darling, Rt Hon Alistair
Davey, Valerie (Bristol W)
David, Wayne
Davidson, Ian
Davies, Rt Hon Denzil (Llanelli)
Davies, Geraint (Croydon C)
Davis, Rt Hon Terry
(B'ham Hodge H)
Dean, Mrs Janet
Dhanda, Parmjit
Dismore, Andrew
Dobbin, Jim
Donohoe, Brian H
Dowd, Jim
Drew, David
Drown, Ms Julia
Eagle, Angela (Wallasey)
Eagle, Maria (L'pool Garston)
Edwards, Huw
Efford, Clive
Ellman, Mrs Louise
Ennis, Jeff
Farrelly, Paul
Field, Rt Hon Frank (Birkenhead)
Fisher, Mark
Fitzpatrick, Jim
Fitzsimons, Mrs Lorna
Flint, Caroline
Flynn, Paul
Follett, Barbara
Foster, Michael (Worcester)
Foster, Michael Jabez (Hastings)
Foulkes, George
Gapes, Mike
Gerrard, Neil
Gilroy, Linda
Goggins, Paul
Griffiths, Jane (Reading E)
Griffiths, Nigel (Edinburgh S)
Grogan, John
Hain, Rt Hon Peter
Hall, Mike (Weaver Vale)
Hanson, David
Harris, Tom (Glasgow Cathcart)
Havard, Dai
Henderson, Doug (Newcastle N)
Henderson, Ivan (Harwich)
Hendrick, Mark
Hepburn, Stephen
Hewitt, Rt Hon Ms Patricia
Heyes, David
Hill, Keith
Hinchliffe, David
Hoey, Kate
Hood, Jimmy
Hoon, Rt Hon Geoffrey
Hope, Phil
Hopkins, Kelvin
Howarth, Rt Hon Alan (Newport E)
Howarth, George (Knowsley N)
Hoyle, Lindsay
Hughes, Kevin (Doncaster N)
Hurst, Alan
Hutton, Rt Hon John
Iddon, Dr Brian
Illsley, Eric
Irranca–Davies, Huw
Jackson, Helen (Hillsborough)
Jamieson, David
Jenkins, Brian
Jones, Helen (Warrington N)
Jones, Jon Owen (Cardiff C)
Jones, Kevan (N Durham)
Jones, Lynne (Selly Oak)
Joyce, Eric
Kaufman, Rt Hon Gerald
Keeble, Ms Sally
Kelly, Ruth
Kemp, Fraser
Khabra, Piara S
Kidney, David
King, Ms Oona (Bethnal Green)
Knight, Jim (S Dorset)
Kumar, Dr Ashok
Ladyman, Dr Stephen
Lammy, David
Lawrence, Mrs Jackie
Laxton, Bob
Lazarowicz, Mark
Lepper, David
Leslie, Christopher
Levitt, Tom
Linton, Martin
Lloyd, Tony
Love, Andrew
McAvoy, Thomas
McCabe, Stephen
McDonagh, Siobhain
MacDonald, Calum
McDonnell, John
MacDougall, John
McFall, John
McGuire, Mrs Anne
McIsaac, Shona
McKechin, Ann
Mackinlay, Andrew
McNamara, Kevin
Mactaggart, Fiona
McWalter, Tony
McWilliam, John
Mahon, Mrs Alice
Mallaber, Judy
Mandelson, Rt Hon Peter
Marsden, Gordon (Blackpool S)
Marshall, David (Shettleston)
Marshall, Jim (Leicester S)
Marshall–Andrews, Robert
Martlew, Eric
Meale, Alan
Merron, Gillian
Michael, Rt Hon Alun
Miliband, David
Miller, Andrew
Mitchell, Austin (Gt Grimsby)
Moffatt, Laura
Mole, Chris
Moonie, Dr Lewis
Moran, Margaret
Mountford, Kali
Mullin, Chris
Murphy, Jim (Eastwood)
Norris, Dan
O'Brien, Bill (Normanton)
O'Brien, Mike (N Warks)
O'Hara, Edward
Olner, Bill
O'Neill, Martin
Palmer, Dr Nick
Pearson, Ian
Picking, Anne
Pickthall, Colin
Pike, Peter
Plaskitt, James
Pond, Chris
Pound, Stephen
Prentice, Ms Bridget (Lewisham E)
Prentice, Gordon (Pendle)
Prosser, Gwyn
Purchase, Ken
Purnell, James
Quinn, Lawrie
Rammell, Bill
Rapson, Syd
Reed, Andy (Loughborough)
Reid, Rt Hon Dr John (Hamilton N)
Robertson, John
(Glasgow Anniesland)
Roche, Mrs Barbara
Rooney, Terry
Ross, Ernie
Roy, Frank
Russell, Ms Christine (Chester)
Ryan, Joan
Salter, Martin
Sawford, Phil
Sedgemore, Brian
Sheridan, Jim
Simpson, Alan (Nottingham S)
Singh, Marsha
Skinner, Dennis
Smith, Rt Hon Andrew (Oxford E)
Smith, Angela (Basildon)
Smith, Rt Hon Chris (Islington S)
Smith, Jacqui (Redditch)
Smith, John (Glamorgan)
Smith, Llew (Blaenau Gwent)
Soley, Clive
Southworth, Helen
Spellar, Rt Hon John
Squire, Rachel
Steinberg, Gerry
Stevenson, George
Stinchcombe, Paul
Stoate, Dr Howard
Strang, Rt Hon Dr Gavin
Stringer, Graham
Sutcliffe, Gerry
Taylor, Rt Hon Ann (Dewsbury)
Taylor, Ms Dari (Stockton S)
Taylor, David (NW Leics)
Thomas, Gareth R (Harrow W)
Timms, Stephen
Todd, Mark
Touhig, Don
Trickett, Jon
Turner, Dennis (Wolverh'ton SE)
Turner, Dr Desmond (Kemptown)
Turner, Neil (Wigan)
Twigg, Derek (Halton)
Twigg, Stephen (Enfield)
Tynan, Bill
Vis, Dr Rudi
Walley, Ms Joan
Ward, Ms Claire
Watson, Tom
White, Brian
Whitehead, Dr Alan
Wills, Michael
Wilson, Brian
Winnick, David
Winterton, Ms Rosie (Doncaster C)
Woodward, Shaun
Woolas, Phil
Wray, James
Wright, Anthony D (Gt Yarmouth)
Wright, David (Telford)
Wright, Tony (Cannock)
Wyatt, Derek
Tellers for the Noes:
Mr. Tony McNulty and
Mr. John Heppell.
Question accordingly negatived.
Amendment proposed: No. 33, page 65, line 17, at end add—
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