North Sea Oil and Gas Industry

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John Thurso (Caithness, Sutherland and Easter Ross): On behalf of all members of the Committee I thank the Financial Secretary for that statement. I also thank him personally for having sent me a copy of it in advance.

The economy is clearly one of the most central issues that are reserved. Therefore, it is of particular interest that the Committee should deliberate this first statement following the Budget. There is no doubt that it was a complex Budget: it contained a great deal of detail and many changes, some more expected than others. My one wish for future Budgets is that they might be a little simpler and that the whole tax system might become less complex for our citizens to understand.

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A clear central theme, which has been articulated this morning, was evident, however. Only substantial investment will put our public services right, after 18 years of appalling mismanagement by the Tory party. I welcome the fact that the Government have come to that realisation, albeit a little late in the day. Another key fact that the Budget clearly recognised is that the levels of investment necessary to bring our public services up from the nadir to which they fell a decade ago can be achieved only by raising further funds—in other words, by raising tax. Again, I welcome the fact that the Government, albeit a year after fighting an election on a somewhat different platform, have come to the House and the country, recognising the need for investment and the need to raise taxation to achieve those ends.

On its own, investment in public services is not a magic wand or a panacea that will automatically put things right. However, it is absolutely clear that it is impossible to achieve the results that I believe all hon. Members want for the public services without sufficient resources and investment. It is reassuring to see what has been achieved in Scotland, where the Executive have been able to put more resources into such things as health spending. There are fewer people on the waiting lists, shorter waiting times and more operations. We have clearly demonstrated that results can be achieved if investment is made.

I am disappointed in some aspects of the Budget, not surprisingly. The method chosen to raise the bulk of the funds—

The Chairman: I remind the hon. Gentleman that this is not a debate but a statement. I am sure that there is a question somewhere in his contribution.

John Thurso: Thank you, Mr. Hood. I was about to commence the questions.

May I ask the Financial Secretary why the Government chose to avoid a straightforward form of taxation through income tax or progressive taxation through raising national insurance on employees by taking away the upper limit and chose instead a tax on jobs through raising employers' contributions? May I also ask him why, having consulted so widely with the oil and gas industry such a short time ago on many issues, the one area that was not consulted on was included in the Budget? I am sure that that will come up in the debate. How can there be certainty in investment in such a major Scottish industry if taxation is introduced in that way?

I compliment the right hon. Gentleman on the moves on VAT for small businesses. Clearly, that is immensely helpful. However, I wish that he had done something similar for private individuals by raising the tax barrier, which would have given the opportunity to take more people out of taxation. Finally, the Liberal Democrats certainly welcome the broad thrust of the Budget and what has been done. It is better late than never, but would the right hon. Gentleman ensure that the money goes quickly to the services that need it?

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Mr. Boateng: I thank the hon. Gentleman for the balanced and measured way in which he cast the preamble to his questions.

In relation to that preamble, he will recognise that the whole nation has an interest in public investment. The important thing is to make sure that the investment is accompanied by reform, and to ensure that it takes place within the context of a commitment to continuing growth and creating a climate of enterprise. Therefore, my right hon. Friend the Chancellor had to get the balance right in the decisions that he was called upon to make in the course of casting his Budget. We believe that he did get it right, and I am glad that there is at least a measure of agreement between us on that.

Where we differ on national insurance contributions, I would say that we made a clear commitment not to raise basic or top rates of income tax and we went to the electorate on that basis. We similarly made a clear commitment to public investment. It was our view that the best way of achieving the latter objective in the context of the former commitment was to raise national insurance contributions for employers and employees. We do not regard it as—and it is not—a tax on jobs.

It is important to consider the budget overall. Other measures promote jobs and make work pay, such as the cuts in corporation tax and the boost for work for the low paid as a result of the working tax credit. It is farcical to think that anything done in relation to national insurance contributions undermines that. Such econometric studies as there are do not indicate that there will be the job losses that the hon. Gentleman's question implied in relation to a rise of that nature.

On North sea oil taxation, if the hon. Gentleman considers the basis on which we approached the industry, he will know that our determination has always been to strike the right balance between promoting investment and taking an adequate share of profits from what is a national resource. Many hon. Members from all parties will have laboured on North sea oil taxation during previous Finance Bills. It is always a question of seeking a balance. We must recognise the need to attract new investment, issues of environmental cost and that oil is a national resource from which the people of England, Scotland, Wales and Northern Ireland are entitled to gain some benefit. I hear mutterings from the Front Bench opposite, but the response of the industry is that that is not likely to impact on investment in the industry.

There are still real profits to be made from investment in North sea oil. When one considers the tax take on North sea oil, Government tax take as a proportion of pre-tax NPV is typically only 35 per cent. in the United Kingdom, rising to 40 per cent. after the proposed changes. Let us compare that to Norway where it is 88 per cent., the US Gulf of Mexico 66 per cent., Canada 70 per cent., Australia 75 per cent., Angola 80 per cent. and Brazil 65 per cent. It really is not on to suggest that any action that we have taken in the Budget undermines North sea oil investment in any way or the profitability and gain to

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be derived by the whole community from the extraction of oil from the North sea.

Mr. Brian H. Donohoe (Cunninghame, South): I know that my right hon. Friend is a modest man. He did not make any mention of the strip stamp tax. [Hon. Members: ''Yes, he did.''] Well, I did not hear it. As secretary of the all-party group on Scotch whisky, I thank the Minister for meeting us and taking a decision—he not only listened, but acted. However, where do we stand now? What consultations will there be relating to an alternative to the strip stamp tax?

Mr. Boateng: I am grateful to the all-party committee, which made a forceful and powerful representation on behalf of the industry. I am also grateful to the industry for the care that it took in its submissions to the Treasury, and for the commitment that it has shown to ensuring that we act together against fraud. Our discussions are ongoing, and the industry has an important contribution to make to ensure that those who seek to undermine the industry through fraud fail in their objective. I shall keep him, the all-party committee and the House informed of progress in that area.

Pete Wishart (North Tayside): I, too, welcome the Minister to a part of Westminster that is forever Scotland. Would he describe the Budget as a penny for health and a penny for Britain? If so, he should explain that although we have the greatest health need in Scotland, because of the Barnett convergence, we will receive the smallest increase in health expenditure. If everything is so rosy in the new Labour garden, why must the Scottish Executive up in Edinburgh ask the Minister for everything? Today, we have learnt that the number of Scottish firms going into liquidation has soared by more than 40 per cent.—[Interruption.]

The Chairman: Order. Hon. Members should know better than to heckle when an hon. Member is asking a question.

Pete Wishart: I shall repeat that because the Minister may want to reply: the number of Scottish firms going into liquidation soared by more than 40 per cent. in the first three months of the year. I should like to know why the Minister thinks that that has happened if everything is so rosy in Scotland.

Mr. Boateng: Scotland spends more on health than any other constituent part of the United Kingdom as a result of decisions taken by the Executive. The Budget will make yet more resource available to the Executive for it to determine how best to spend it in the interests of the people Scotland, which must be right.

Business liquidations are always a matter of regret. However, it is true to say that Scotland has a remarkable record of business start-ups, which is largely due to the way in which the macro-economic and micro-economic policies of my right hon. Friend the Chancellor have created a climate in which the United Kingdom is good place to do business in, and in which people who have ideas and seek to create new enterprises feel supported. The Scottish Executive and the business community in Scotland have more than risen to the challenge. They are creating new businesses and new jobs, and they deserve congratulations from us all. A little less whingeing

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and talking down of Scotland's achievements would come in useful.

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