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Mr. Luke: I rise, as I did in Committee, to make a contribution to this debate. I say to the hon. Member for Arundel and South Downs (Mr. Flight) that I am one of those Scotsmen who is happy to stand up and defend the implementation of the 10 per cent. supplement proposed in the Budget. I take my daily dose of Irn Bru, so I might not be as soft as some of the more feeble Scots in the House.
Contrary to what has been trailed through the press by some of the major companies, I do not believe that the current changes have had any effect on jobs in the North sea oil industry to date; nor, perhaps, will they in the near future.
Chris Grayling: Surely the hon. Gentleman does not believe that the kind of business changes that would inevitably lead to job cuts would have taken place in the eight weeks since the Budget. The impact of these measures will be long term, and they will result in fewer jobs and a lack of investment in the years ahead, not just in the short term.
Mr. Luke: I am happy to come back to the hon. Gentleman on that, because that was exactly the point I was making. People in the press and in multinational companies are already talking about job losses. Indeed, an hon. Member remarked in Committee that he had heard
from another hon. Member that there had already been job losses because of these changes. I accept the point made by the hon. Member for Epsom and Ewell (Chris Grayling), but I do not believe that that is the case or that it will be the case in the short and medium term.As many hon. Members have already said, we need to ensure that the future of the oil industry is safeguarded. We have to do that against the changing scenario in the North sea, in which different types of company are becoming involved in exploration and in the production of oil. The hon. Gentleman makes a worthwhile point, along the lines of other points that I shall make in my speech.
I do not believe—as was suggested by the hon. Member for Arundel and South Downs—that we are attacking the integrity of the tax regime. This is the first major change in tax to be introduced in this area in the last five years. Although it has been talked about as a short-term smash and grab, I believe that the Government's proposals will create a pool of revenue that hon. Members across the House have argued should have been put in place a long time ago. There has been constant talk of a windfall tax, to make sure that the massive profits made over many years were taken into account and used for the benefit of the taxpayer.
Mr. Flight: The hon. Member for Aberdeen, Central (Mr. Doran) referred to the last major change, introduced in 1993, when the Minister responsible was, I think, my right hon. Friend the Member for Fylde (Mr. Jack), who served on our Committee. This can be checked with my right hon. Friend directly, but I believe that those changes, though significant, did not have a retroactive impact on the new fields that had previously been invested in; they were changes for the future. There was, therefore, a major difference between what happened in 1993 and the changes that are now being proposed.
Mr. Luke: I take the hon. Gentleman's point. He has made many illuminating points during this debate. I was trying to suggest that this measure does not represent an attack on the integrity of the tax regime. If the change in 1993 was the last major change to the North sea oil tax regime, one tax change nine years later is not a big change. We are setting up a scenario which we hope the companies and organisations involved in the North sea will be able to live with and adapt to in the future.
Sir Robert Smith: The hon. Gentleman has to accept that a dangerous signal is being sent—not just to the oil and gas industries, but to others such as the biotechnology industry—about the integrity of the tax system. The oil and gas industries feel that they were lured, through the operation of the PILOT scheme, into making major investments last year, and that they are now being hit by a tax that they cannot escape. They feel trapped by it, because they were lured into making investments in the first place. Had they steered clear of the United Kingdom, they would not have been hit by these taxes.
Mr. Luke: Many large multinational oil companies have already taken the decision to move out of the North sea. That is part of a corporate plan, given the maturity of the oilfields there. The issue is how we encourage the smaller companies to break in and take on the mantle of the large multinationals. Given that those smaller
companies are not arguing against the changes in the supplementary charges—or at least, not shouting as loudly about them as others—I believe that they will see the opportunities available.There have been recent examples of small companies taking on that mantle, and making finds left in parcels of the North sea left by the multinationals, such as the Buzzard field. The large reserve of oil discovered there—1.1 billion barrels has been proposed—was obviously one that the multinationals had walked away from, leaving the smaller companies to carry out the exploration and make the connection with those reserves.
Changes in the companies working in North sea oil involve the bigger companies—because of their corporate nature—planning to move their corporate investment to other, more profitable, less difficult, lower-cost investment options, because of the nature of oil production. The hon. Member for Gordon (Malcolm Bruce) said that it was not difficult for those companies to do so. My response is that it is inevitable that they will do so, given the maturity of the field and their own corporate plans.
We need to ensure that we create the conditions to encourage newer, leaner companies that are more innovative, enterprising and cost-effective, and more willing to take risks, to take up these opportunities and to become more fully involved in this area. There is a history of 20 or so newer, smaller companies becoming involved in the North sea, making finds and carrying on the tradition of employment and production that the big companies started.
That activity has been mirrored in other fields. There has been evidence of that kind of change in the gulf of Mexico, and there are indications that the trend will continue. Last week, a bumper find was announced in the Buzzard field. That had recently been abandoned by one of the bigger multinationals, which moved on to more profitable fields, given the higher costs that such companies carry, and was explored by a smaller company. The potential of 1.1 billion barrels of good oil over the next 10 to 15 years was an opportunity spurned by bigger companies taking easier options elsewhere.
The hon. Member for Banff and Buchan (Mr. Salmond) mentioned that we are only halfway through the life of North sea oil. I believe that there will be more finds like the one that I described. A common theme of hon. Members' contributions is the need for the Government to ensure that all the areas that need to be investigated are investigated, in view of the number of jobs and livelihoods that depend on the industry. Much useful information has been provided by UKOOA—the United Kingdom Offshore Operators Association—including a recent update on employment. Because of history and the traditional view of Dundee's role in the economy, my area spurned many chances to be involved early on in North sea oil, but many people in Dundee are nevertheless involved in servicing the rigs and in innovative engineering to provide access to the difficult fields.
We must allow smaller companies to become involved. Like many hon. Members, I have had discussions with the industry. The big fear is that companies that hope to become more involved in exploration will not be able to do so because of the costs. In a recent article in Scotland on Sunday, the American head of a European investment company was quoted as saying that there was great
potential for smaller companies to become involved in the North sea. The problem was the financing cost. Like many other hon. Members, I believe that the Government should consider offsetting the financing costs against the supplementary increases, to provide more impetus for companies to become involved. That possibility was raised in the newspaper article, which was supplied to my hon. Friend the Economic Secretary at the time.The Government must provide incentives to ensure that the interests of North sea oil and employment there are maintained, and that investment and production are stimulated. Although I believe that the Chancellor is justified in his revenue-raising initiatives, he should not jeopardise the good work undertaken—I have been involved in several discussions through the all-party oil and gas group—by the Department of Trade and Industry and its work with the industry. The PILOT programme was a means of encouraging future exploration, and I hope that that work is not wasted.
I congratulate my hon. Friend the Member for Waveney (Mr. Blizzard) who, is in his role in the all-party group, has been discussing with the Minister the future role of the group, and asking questions about the tax issue. I hope that we can get together to make sure that the work of PILOT is progressed. At the next meeting of the group, we will consider the way ahead for PILOT. That is a discussion topic that deserves to be taken further.
Hon. Members in all parts of the House have urged the Government to confirm that they are taking seriously the need to nurture the industry by ensuring that the issue of the abolition of royalties is moved up the agenda. I hope that they will soon announce the date on which deliberations will begin and when the abolition of royalties will come about. That would send a clear signal that the Government want to engage with the industry on a joint agenda.
The situation in the North sea is changing, and the Government should be monitoring it. There is a movement away from the larger multinationals being involved—they are being replaced by smaller, more investment-oriented companies. As someone who comes from a city that used to be known as Juteopolis—in other words, a one-industry city—I and the other citizens of Dundee know the problems and the despair that ensue when an industry disappears. It is inevitable that North sea oil will eventually be exhausted. We must encourage smaller companies that want to make the investment to start planning the future for energy and energy renewals in the UK.
In Committee, the Government gave a commitment to listen, to take comments on board and to respond positively. I look forward to the Minister's reply. I hope that the Government will make it a top priority in our economic agenda to prolong the life of the North sea industry and the livelihoods connected with it.
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