North Sea Oil and Gas Industry

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The Secretary of State for Scotland (Mrs. Helen Liddell): I am quite surprised that we are having yet another debate on the energy industry at the behest of the Scottish National Party. It leads me to conclude that as we had a debate last year on North sea oil and gas—

Mr. Salmond: Who chose the subject last year?

Mrs. Liddell: The hon. Gentleman is now denying that the Scottish National Party chose oil and gas as a subject for the debate. I thought that this was an SNP Opposition day. We had a further debate on energy policy a few months ago. I can only conclude that the SNP has only one string to its bow. From the 1970s, the party has gone back to oil and gas repeatedly.

The hon. Member for Banff and Buchan (Mr. Salmond) began his remarks with an attack on the Financial Secretary. I find that quite peculiar, given that only a week ago today, his party leader made the point to SNP Members that they must stop whingeing for Scotland. At last, the SNP leader has listened to what our party has said about whingeing for Scotland.

Mr. Salmond: Why is that whingeing?

Mrs. Liddell: The hon. Gentleman—as always from a sedentary position—asks why that is whingeing. He whinges about the performance of the economy, and manages to completely forget the fact that, in his constituency, the actions of the Government have led to a reduction in unemployment of 48 per cent., extra help for 2,795 businesses, and benefit from the working families tax credit for 1,547 families. Real people in Banff and Buchan are benefiting from the policies of this Government and he does not want to acknowledge that.

I listened with great interest to the hon. Gentleman's speech, which was great coming from someone who has built his career on tax and spend. He is the man who asked for a ''penny for Scotland'' and said that ''if you tax the people, the people will respond'', but now we know it is only the people who have to be taxed. The hon. Gentleman's speech would have given great credit to J.R. Ewing because it was in favour of big oil. I have a great degree of respect for the oil industry, but I also recognise that it is a

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profitable and successful industry. Taxation that is levied against it should be fair to all of the economy. There should be no favoured classes in the economy.

Mr. Salmond: Will the Secretary of State give way?

Mrs. Liddell: No, not at the moment. Issues must be confronted in relation to the future of the oil and gas industry, not least of which is the maturity of the North sea. We have discussed that on several occasions in this Committee. The work that has been done with Pilot was of critical importance to ensuring that we maintain an oil and gas industry in the future.

Since the review of taxation undertaken in 1998, the industry has recognised that the Chancellor has always kept open the option of reviewing the taxation structure in the oil and gas industry. In 1998, shortly after the review commenced, it was pretty clear that the bottom was falling out of oil prices. The price of oil went down to $10 a barrel. The Government responded, and the oil price has since gone up more than $30 dollars a barrel. It is now fluctuating around $25 dollars a barrel. Should not the British people benefit from the profits that are accrued from that?

Sir Robert Smith: Will the Secretary of State explain why that is not related to the price of oil? If the price of oil falls again, companies still have to pay the tax. Is she suggesting that they have to guess when the Chancellor is next going to change his mind on investment?

Mrs. Liddell: That is a pretty puny statement from the hon. Gentleman. He usually makes quite coherent speeches on the oil and gas industry. The Chancellor has a right to review the fiscal regime across the board for all industries. In 1998, two areas of taxation were considered; petroleum revenue tax and a supplemental charge on the oil companies' profits. The oil industry knew that those were under review and campaigned vociferously against a petroleum revenue tax. My hon. Friend the Minister for Industry and Energy, the chair of Pilot, and I have been lobbied formally and informally on that matter.

My right hon. Friend the Chancellor made it absolutely clear that he would rule nothing out. Chancellors do not rule anything out in advance of their Budgets. The measure that he has taken on the supplemental tax—which, as the hon. Member for Banff and Buchan completely forgot to mention is linked to first-year allowances to encourage exploration and development, with the abolition of royalties—is a balanced proposal aimed at ensuring that the maximum possible revenue comes back for the good of the British people. Why did my right hon. Friend the Chancellor conclude that he wished to maximise revenues? He did so to put money into the health service and to ensure that every member of the population benefited from a health service fit for the 21st century.

Mr. Salmond: Will the Secretary of State give way?

Mrs. Liddell: The hon. Member for Banff and Buchan seeks to intervene on me, although I did not seek to intervene on him at all. The last time the hon. Gentleman addressed this Committee, he spoke for 40 minutes, which meant that no Back Benchers could

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intervene at all but, on this occasion, I will give way to him.

Mr. Salmond: On the subject of long speeches, the Secretary of State should look at her own record.

I think that she prepared her comments earlier. I did not argue that there should not be taxation changes for the North sea. I made suggestions about how to minimise the impact on jobs and investment. I have two straight questions. Was there consultation on Pilot before the changes were announced? What is the Secretary of State's assessment of the impact of those changes, and will she publish that assessment?

Mrs. Liddell: My assessment of the jobs impact is that if we link the supplemental tax on profits to the first-year allowances and the abolition of royalties, we should minimise impact on our jobs. I am not going to put figures on that. Frankly, the hon. Gentleman has based his entire economic policy on North sea oil and gas. We are discussing an industry subject to fluctuations that relate to fluctuations in the global economy. I am not going to get involved in that, but we have created a fiscal regime, not just for the North sea but for the entire economy, that means that business has the most favourable taxation regime and business climate that it is had for many a long year in this country, and one that is much better than in other parts of the world.

Mr. Salmond rose—

Mrs. Liddell: The hon. Gentleman asked if there was consultation in Pilot. Yes, there was.

My hon. Friend the Minister for Industry and Energy will be winding up later, and I hope that at that point he will draw the Committee's attention to some of the positive developments that the hon. Member for Banff and Buchan managed to overlook. Only a few weeks ago, the announcement came that Foster Wheeler had been awarded a £60 million contract to build the onshore gas processing facilities at St. Fergus, which the hon. Gentleman mentioned, for Shell UK's Goldeneye development. That is very good news for Scotland, for the UK and for the oil industry. It will create more than 400 new jobs in Scotland and, more widely in the United Kingdom, up to 300 construction jobs—[Interruption.] I notice that whenever we are talking about good news, some hon. Members cannot bear to listen. All they want is decline and failure; they are whingeing for Scotland.

There will be 400 new jobs in Scotland and others more widely in the UK. There will be 300 construction jobs, 70 specialist posts at Foster Wheeler in Glasgow, permanent jobs created at St. Fergus and jobs secured at the Fife NGL plant as Mossmorran. There are other success stories. The Buzzard field is larger than was originally thought, with 300 million barrels of oil; an understatement of around 100 million barrels of oil. Clair field has been talked about by this Committee for as long as I have been a member of it. The £650 million proposed development there will make another significant contribution. Enterprise Oil proposes to develop the Howe field, while Veba aims to develop the Clapham field. On the gas condensates side, the Atlantic and Cromarty fields are going ahead, which all adds to the economy.

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That shows how much the UK oil and gas industry contributes to the UK economy; it should not be used as a political football by Opposition Members. During 2001, export figures for the oil and gas industry were even better than we anticipated when this Committee previously discussed the industry. Oil exports reached more than £6 billion and exports of gas hydrocarbons increased by 93 per cent. to £143 million.

The hon. Member for Banff and Buchan always fails to talk about the extent to which the skills and expertise of the oil and gas industry are now exportable. The export of professional services from the industry accounted for a further £670 million.

Mr. Salmond: Will the Secretary of State give way?

Mrs. Liddell: No. I intend to make progress because I have a number of Back Benchers behind me; the hon. Gentleman does not.

During the next five critical years we must be certain that the industry can build on its strengths, develop new and innovative technologies and strengthen collaboration throughout the industry.

The hon. Member for Banff and Buchan referred to Pilot, which is a great success because it is collaborative. Instead of looking at the world through the prism of the SNP, Pilot looks at the oil and gas industry in reality and the challenges that it will face. I said that the hon. Gentleman had a myopic view of what is happening in the oil and gas industry. It has been recognised over the years that a number of the oil majors have been sitting on fallow field. A number of independent companies have expressed an interest in those fallow fields and when I was an Energy Minister I encouraged them to open up those fields for redevelopment. I recognise the significant targets that Pilot has met. Its target of producing 3 million barrels of oil equivalent in 2010, CAPEX investment maintained at £3 billion a year by 2010, and a 50 per cent. increase in the value of industry-related exports by 2005 are all on target, but there is still much to be done.

On the United Kingdom continental shelf today, there are some 250 fallow fields and 200 unused licences. The hon. Member for Banff and Buchan was happy to talk about licences when referring to the 20th round, but less happy to talk about the fact that there are so many unused licences. A DTI search showed that those fields could play an important part in meeting the ambitious investment target of £3 billion each year. While the oil price remains buoyant, the prospect of developing those fields must increase, and that is where the Chancellor's additional assistance and first-year allowances are particularly valuable. The hon. Member for Banff and Buchan does not recognise that, but perhaps his hon. Friend who will wind up the debate will be gracious enough to acknowledge the work that the Chancellor has done in that respect.

The Government's determination to ensure that those licences should be in the hands of companies that want to develop them is undiminished. Hundreds of fallow fields and unused licences are a luxury that this country can no longer afford. The UK's licensing regime has been generous. We have traditionally given

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operators a lot of time and flexibility to determine the pace of development, but in the present life cycle of the UK continental shelf—it is a mature regime—we are entitled to ask for firm plans or alterative proposals.

The hon. Gentleman referred to the oil industry being concerned about changes in taxation. The Chancellor made it clear in the Budget that his intention is to put the fiscal regime on a sustainable, long-term basis to reduce uncertainty and provide further investment. The hon. Gentleman says that he wants one industry to be favoured above another. The UK regime is one of the most competitive in the world and the Budget measures help to achieve that. The reform that has been introduced ensures that companies that are making profits from the exploitation of our natural resources pay a fair share of the taxes.

The hon. Member for Banff and Buchan dismisses the 100 per cent. first-year allowance for capital expenditure in the North sea. It is something that the industry has much relished. Roll-over relief was introduced two years ago. The industry has asked for the abolition of royalties—the process of consultation is now beginning on that—but it is all about fair shares. The Chancellor's Budget is aimed at fairness, as well as at encouraging long-term investment. Let us not forget that the oil industry also benefits from the changed corporation tax regime and the other fiscal measures introduced by the Chancellor.

As my right hon. Friend the Financial Secretary has said, the typical government tax as a proportion of pre-tax net present value is only 35 per cent. in the UK at present. It will rise to 40 per cent. after the proposed changes. The Scottish nationalists are always happy to refer to Norway as a shining example of a small nation. The tax there is 85 per cent., in the Gulf of Mexico it is 66 per cent. and in Canada, it is 70 per cent.

We have put in place a framework for a modernised taxation regime for North sea oil, which will help to promote the long-term future of the North sea oil industry and bring benefits to the economy. In doing so, it will, more particularly, help to create the kind of society in the 21st century that the Chancellor set out in his Budget speech. It is about fairness and stability and about ensuring that those who contribute most to the economy—the general population of the United Kingdom—benefit from one of our most profitable industries. There are no special categories; as the hon. Member for Banff and Buchan would want, there is fairness across the board. I believe that the Chancellor has achieved that for the oil and gas industry.

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Prepared 8 May 2002