Finance Bill

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Mr. Michael Jack (Fylde): In the intervening period since the previous time we gathered in this Room, I managed to obtain some official Government figures on the size of the investment that underpins our discussions on this part of the Bill. It is a great sadness that the Treasury cannot be as open with public information as the Department of Trade and Industry is. The DTI carries out an annual survey of investment in offshore oil. The survey results for 2001 make very interesting reading, because they show the fragility of the forward investment position in the oil and gas industry. That is why Opposition Members have made the points that they have. For the record, I would like to share the information with the Financial Secretary in the spirit of transparency and openness and perhaps explore with her whether the Treasury's figures match up with those of the DTI. It would be very interesting to know whether, in the world of joined-up government, they have the same view.

For what I might call the firm area of oil and gas exploration—so-called sanctioned fields, which are defined as fields in production or under development— including sanctioned incremental investment, the sums are £2.3 billion for 2002, £1.3 billion for 2003, £800 million for 2004, £600 million for 2005 and £200 million for 2006. The point has been made that, although at present there may be a good level of activity relative to the maturity of our continental shelf fields, it is clear that forward decisions for the years from 2004 onwards are very much in the pending tray.

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If we consider the next category, which is probable fields—fields that are likely to move forward during the next four to five years—we find a much thinner picture, in the same way. The figures are £1.8 billion for 2002, £2.5 billion for 2003—an increase, but it is steadily downhill after that—£1.8 billion, £700 million and £400 million. Given the dearth of agreed investment, it would be surprising if the measures that we have been discussing did not substantially affect forward investment prospects.

I would be very interested to hear why the Financial Secretary believes in the robustness of her view against the real-world background in which the actual levels of committed investment rapidly tail off from 2004 onwards and in which the Government's proposals will bite. That is why we in the Opposition are asking for some mitigation.

Mr. Flight: Is not it the case that the DTI-sponsored Palec cogency studies broadly found that 32 jobs are lost for each £1 million decrease in investment? Therefore, central to our argument is the issue not just of investment forecast but of the effect on jobs.

Mr. Jack: My hon. Friend has been carrying out parallel research, and I am delighted that he has augmented the line that I have been putting forward. I shall not rehearse all the figures, but if one considers parallel aspects of North sea investment that might not necessarily be affected by the measure, one finds a similar lack of absolute forward commitment the further on they go. [Interruption.] The Minister's body language is always instructive—she is shaking her head as if to say, ''Well, you ought to know.'' That is true, but we are talking about the difference between absolute and committed investment and investment which, if the level of activity presently being enjoyed on the continental shelf is to be sustained, will have rapidly to increase above the amount that has already been committed.

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That is the point—the rate of return will be the main problem, particularly for those fields that do not have a profitable cash flow at the end of the first year to absorb the full effect of the 100 per cent. write-off. That type of field is likely to be the first to perish in terms of the investment decision-making process. Sadly, the Minister will not discuss how she has reached her conclusions. How are we to know whether her arguments are robust? The figures are telling and they underpin some of the arguments made by my hon. Friends on the Front Bench in support of their amendments.

Mr. Mark Hoban (Fareham): I had not intended to speak in the debate on the amendments to the clause on oil taxation, as it is not an area with which I am particularly familiar. However, the cases that we have heard put on the impact of this change in taxation on the oil industry have been polar opposites. The hon. Member for Glasgow, Cathcart suggested in his customary style that the business community is crying wolf over this matter. He was ably supported in that case by the Minister. Conservative Members have

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taken an alternative view—that the changes will have a negative impact on the oil industry and could lead to a considerable loss of jobs and investment.

It is important that we continue to monitor the impact on investment and jobs of the changes in oil tax. The amendment tabled by my hon. Friend the Member for Arundel and South Downs, which seek to provide for a report on the impact of this measure on revenues, is important and we should all support it. The oil fields of the North sea are an important asset that should be exploited fully in the country's interests, not purely in the economic interests of the country but in the interest of those who work in the North sea.

I declare an interest, in that my brother-in-law is a deep-sea diver working in the oil sector. I am acutely aware, based on his patterns of employment, of how fragile the investment in oil fields is, as my right hon. Friend the Member for Fylde (Mr. Jack) said. When the economics are good, my brother-in-law's services are in great demand both in the North sea and elsewhere; when the economics are bad, he has—to use a phrase of a former Member of this House—more time to spend with his family.

For my brother-in-law's sake and for the sake of all those who work in the sector, it is important that the Government continue to monitor closely the impact of this legislation. The Government would be failing in their duty to ensure that the oil fields of the North sea are fully exploited if they refuse to support the amendment.

The Financial Secretary to the Treasury (Ruth Kelly): The contributions on the clause have been full and well informed, and I found those of my hon. Friends particularly interesting. I enjoyed the remarks of the hon. Member for Arundel and South Downs and the way that they put the clause in the context of the Chancellor's Budget statements, which set out clearly his intention to raise a fair share of revenue for the nation from North sea oil while encouraging long-term investment and not basing any policy on short-term changes. That is exactly what we have tried to do with this package of measures.

The amendment, as I understand it, is designed to require the Treasury to issue a report on the clause's net monetary effect on companies. The clause will have a 100 per cent. positive impact on companies' cash flow, so perhaps the Opposition did not mean precisely what they put down in the amendment. Perhaps they were talking about the impact of the total package on the net monetary value, which we have already debated at length on the Floor of the House.

Mr. Flight: The amendment refers to

    ''sections 90 to 92 of this Act''

as well as to the clause, so it is clear.

Ruth Kelly: I thank the hon. Gentleman for clarifying that point, but we debated the subject at length on the Floor of the House. The package of measures will have a positive net monetary effect for the nation as a whole. That is its intention.

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The hon. Gentleman questioned whether the North sea had the capacity to deliver a fairer share of revenue to the Exchequer while maintaining activity and investment incentives. Again, I think that I went through the subject in detail on the Floor of the House. As I said then, following the tax changes made by the Conservative Government in 1993 and the abolition of petroleum revenue tax, the rate of return in the oil industry rose from 10.5 to 34 per cent. last year. By comparison, other non-financial industries made an average rate of return of 11 per cent. last year. Some might try to argue that that difference was due to the high oil price, but that is not the case.

Mr. Jack: Will the Financial Secretary give way?

Ruth Kelly: I will if the right hon. Gentleman lets me make my point. The rate of return for the North sea was higher than that of other industries in each of the past nine years, even in 1998 when the oil price fell sharply.

Mr. Jack: For the sake of clarity, will the Financial Secretary tell me how the rate of return was calculated and who calculated it?

Ruth Kelly: The right hon. Gentleman knows full well that I set out on the Floor of the House the precise assessment criteria and appraisal methods that we used to reach our conclusions on rates of return. I shall not repeat that today. I do not accept the accusation that 50,000 jobs are under threat and that activity will fall as a result of the Budget changes--an accusation that the oil industry is making and that the hon. Member for Arundel and South Downs has repeated today.

I am talking about the impact of the Budget changes on investment activity and jobs, not about whatever else in the external environment may affect the oil industry. I would be completely foolhardy if I were to make an individual forecast of what is likely to happen in relation to that.

Mr. Flight: The rates of return issue is central to the ability to pay tax. While we can debate the historic rate of return, the crucial issue is not the history but the future. The hon. Member for Dundee, East mentioned the change in the North sea from large companies to small ones. Given that change and the increasing marginality of fields to be developed, the relevant issue is what the future rate of return will be to sustain the additional taxation. The Financial Secretary says that it is not her job to calculate that, but in a way that is exactly what the Government must do when considering the pluses and minuses of such tax changes.

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