Mr. Davey: Is the Financial Secretary really telling the Committee that she believes that taking £8 billion out of an industry over eight years will not have a negative impact on investment? Is she really asking us to believe that?
Ruth Kelly: If the hon. Gentleman studies the speeches that were made in the House, he might convince himself that the measures have been designed so carefully that although they will clearly extract value from existing, more profitable fields, they will also increase the post-tax rate of return for investment in new marginal projects. Although that will have a cash-flow effect on companies, it will lead to greater investment and development. However, I do not want to rehearse arguments in Committee that we have already had in great detail in the House.
Mr. Iain Luke (Dundee, East): Does my hon. Friend the Financial Secretary agree with me, and indeed with the Royal Bank of Scotland, that although the big corporate players may take corporate decisions that shift activity away, recent job losses show that activity is already being shifted away? The job losses were not a direct effect of the Government's proposals, but a function of previous corporate decisions about the market being taken up if there were a move by smaller, leaner companies that could invest profitably.
Ruth Kelly: I thank my hon. Friend for his intervention. It is right to point out in Committee that the industry had already forecast before the Budget that there would be an impact on jobs and activity over the coming years. We have to isolate that effect from the Budget measures, which will have a positive impact on both marginal investment decisions and jobs and activity in the future. Those two forces will clearly play out in due course.
I am of course aware of some of the comment on those issues, but I should like to point to Tony Wood, senior economist at the Royal Bank of Scotland, who said:
Ann McKechin (Glasgow, Maryhill): May I congratulate the Financial Secretary on her promotion? Does she agree that, had there been such a catastrophic effect on the industry as a result of the decision, we would have seen a marked drop in the
Column Number: 279share prices of the companies concerned? In fact, there was no sizeable or noticeable impact whatever in connection with the dividend prices of the major oil companies that operate in the North sea.
Ruth Kelly: I thank my hon. Friend for her kind remarks and her informed contribution, which builds on remarks that she made earlier. It is the case that there has not been a significant impact on the share prices of oil companies. We should interpret that in a positive fashion.
Mr. Davey: Prior to the intervention by the hon. Member for Glasgow, Maryhill (Ann McKechin), the Financial Secretary warned the Committee and the industry that they should not make panicky statements and suggested that people should avoid scaremongering. Does she not realise that the greatest damage has been done by the Government? Having been in consultation with the industry through the pilot project, and having built up a degree of trust, the Government have suddenly changed the tax regime and created a fear that there will be future instability because the industry can no longer trust the Government's word. Surely that is the greatest long-term damage that has been done to the British North sea oil industry.
Ruth Kelly: I do not accept the hon. Gentleman's charge in any way whatever. We are committed to working with the oil industry, and to encouraging new investment, new exploration and development in the North sea. The proposals will make new investment more economic for oil companies, while extracting a fairer share of revenue for the taxpayer. The hon. Gentleman accuses us of inconsistency in the matter. I refer him to the statement in the pre-Budget report of 2000 when the Chancellor said:
Mr. Davey: The Financial Secretary says that the industry knew that there were going to be changes. Is she telling the Committee that the Government actually consulted the industry on such a tax change?
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Ruth Kelly: I am saying that the Chancellor set out very clearly in his Budget statement the approach that we were going to take to the North sea fiscal regime. What we have done is completely consistent with what was said at the time. Of course, no industry likes paying more tax, and I am not for a minute going to suggest that North sea oil companies are jumping up and down saying ''Thank goodness! The Chancellor has finally decided to force us to contribute more revenue to the Exchequer.'' However, I am saying that what we have done in the Budget is totally consistent with the approach set out in previous years. Any objective assessment of the situation that the oil companies might have chosen to consult would have suggested to them that more tax was going to be raised from the industry. We have designed the tax measures in such a way as to have a positive impact on the economy and the outcome is an important, significant and positive one for jobs and activity.
Mr. Jack: The Financial Secretary has outlined the care with which the measure was considered. Will she therefore share with the Committee the Treasury's estimate prior to the Budget for North sea investment over the next eight years? Can she also tell us the figure that she is working on post-Budget?
Ruth Kelly: As the right hon. Gentleman well knows, we do not give, in aggregate or individual terms, forecasts of that detail. Particularly for North sea oil companies, it is straightforward to draw individual conclusions from aggregate data. For reasons of commercial confidentiality, we cannot share that with the Committee. As he knows, I set out in the House the criteria that were used to consider the matter.
I should turn to the specifics of the amendment, rather than rehearse recent arguments on the Floor of the House. The group of amendments with the chargeable periods commencing on or after 1 January 2003 provides an increased rate of writing-down allowance at 50 per cent., instead of the current 25 per cent. for expenditure already incurred by companies. I urge the Committee to reject the amendments.
I note that the hon. Member for Kingston and Surbiton said that it would not cost the Government much to accept the amendment, but the Revenue estimates that it would cost us up to £1 billion over the next two years, and that it would do nothing to increase investment in the North sea. The money incurred would be a pure deadweight cost and would mean a transfer of a substantial sum of money from the taxpayer to an industry that has already made good returns from the North sea recently and will continue to do so when the Bill's changes are introduced.
To accept the amendment would be neither sensible nor necessary. Our Budget changes have been carefully analysed and we have assessed their effects on all project categories, including future ones. We know of not one single project that would be made uneconomic by the Budget changes.
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Mr. Jack: In giving us a figure for the cost of the amendment, can the Financial Secretary share with us the basis of that calculation? How much investment would the amendment give relief to?
Ruth Kelly: I made it clear that the amendment is backward-looking and will do nothing to stimulate new investment, which is why we resist it. We have produced a system with a sensible marginal rate of tax on profits from a natural resource, and which has maximum incentives for investment. It is a principled and sustainable regime that is far more likely than the outgoing one to be durable of cycles.
Mr. John Burnett (Torridge and West Devon): I congratulate the Financial Secretary on her appointment.
I apologise for not being here for much of today's debate. Furthermore, I have not given the provisions detailed study. However, I should like to raise a common-sense point that may have been covered on the Floor of the House or in Committee. Is the new 100 per cent. allowance flexible? We all know that the up-front costs of investment are high, and that profits are slow in coming, so can the Financial Secretary confirm that any unused allowance can be carried forward until the allowance is completely exhausted?
Ruth Kelly: I am extremely pleased that I gave way to the hon. Gentleman because he made an interesting and considered point. I am happy to be able to say that the answer is a definitive yes. If the allowance is unused when, for example, a new entry comes into play and it makes losses in the first year, the allowance can be carried forward and the full allowance can be taken up in due course. Taken as a whole, the regime that we have created will encourage investment, activity and job creation. This package is good for the economy. Our regime will be better for the industry and the country, and I therefore encourage the Committee to reject the amendments.
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