The
Exchequer Secretary to the Treasury (Angela Eagle): The
hon. Lady is right to identify some of the issues that inevitably occur
as oilfields mature. Some of the fields that we are talking about are
more than 40 years old. The UK continental shelf contains
many mature fields in one of the harshest environments in the world. It
is an engineering marvel that they are exploited, which makes capital
investment costly in comparison with fields in other parts of the world
that have potential for exploitation. As the fields have matured, a
series of specialist companies has emerged that have particular
expertise in squeezing out the last drops of oil. As the big boys move
on to more easily exploited fields, we have a more dynamic situation
with the ownership of fields on the UKCS.
All the
clauses that we are discussing today recognise that we are in a more
dynamic situation, and begin to change the tax and capital allowances
regimes that occur in the UK ring-fence trade on the continental shelf
to reflect that reality. These are the first clauses to do that in
relation to decommissioning. They seek to facilitate the switching of
assets from large oil companies, which are off exploring new fields, to
specialists who have a particular expertise that they continue to
develop and who can profit from the more marginal bits of fields that
have already been developed. That is the background to all the clauses,
and it will help if hon. Members keep it in mind as we consider
them. The
clauses provide for relief from petroleum revenue tax—I shall
try to pronounce the term, after my lunch, Sir Nicholas, which did not
include a haircut—where an ex-participator in an oilfield is
required to meet all or part of the decommissioning costs of the field
owing to a default by an existing participator in respect of their
decommissioning obligations. As the hon. Lady knows, when an oilfield
comes to the end of its productive life, those companies that are
licensed by the Department for Business, Enterprise and Regulatory
Reform to extract oil from a field are also responsible for the costs
of decommissioning that field. If a licensee defaults on their
decommissioning obligations, DBERR can require former licensees to meet
the costs. Under the current petroleum revenue tax legislation, no PRT
relief is available for a company if it is no longer a participator,
because it has no licensed interest in the field.
Providing
relief for ex-participators in default situations ensures that such
companies are not unfairly penalised by the actions of other companies,
which they perhaps sold their interest on to, but whose subsequent
actions are clearly, by definition, beyond their control. The clauses
therefore extend the definition of participator
to include former participators in default circumstances, ensuring that
they, too, have access to the appropriate PRT relief for the
decommissioning costs that they have to
meet. In addition,
if the former participators are subsequently reimbursed by the
participator for all or part of the payment that they have had to make,
such amounts received are also brought into account for PRT purposes.
That mirrors current legislation applying to existing participators in
default circumstances when payments are relieved and reimbursed once
they are taxed. The oil industry, as the hon. Lady was gracious enough
to accept, has welcomed the proposal as removing an anomaly that
impacted on asset trade and led to tax-motivated behaviour in which
companies held on to a licence interest solely to ensure that petroleum
revenue tax relief remained available should a future participator
default. It was not a particularly sensible situation. The
Government’s new clause, to which I shall refer briefly as a
technical clause that is consequential to the changes being introduced
in the legislation, amends two sections of the Finance Act 1991, which
apply the PRT provisions in order to ring-fence corporation tax and
ensure that there is an effective read-over.
The hon.
Lady asked some questions to which I hope I shall be able to give some
answers. She asserted that investment had dropped by £1 billion
in real terms in one year. In 2007, capital investment went down by
£1 billion, but she did not say that operating expenditure went
up by £500 million, or that exploration expenditure, which
relates to today’s observations about the future potential of
the UK’s continental shelf, also went up by £500 million.
So, overall, investment is constant at £12.4
billion.
Justine
Greening: We just need to be careful that we do not become
complacent—that because we see spend continuing to hold up, we
do not assume that the actual investment is the same. The industry says
that because cost pressures are growing, although spend is holding up,
what it will buy is not. Therefore, whatever the figures say, in
reality there is a real-terms reduction in
investment.
Angela
Eagle: I assure the hon. Lady that we are not complacent
at all. We understand the competitive position that the oil industry is
in and the resource and technical constraints on the global industry.
That is why we are in constant discussion and communication with the
oil industry—so that we can both understand what motivates its
behaviour and see what we can do to maximise production from the UK
continental shelf. I hope that she is under no illusions. We are not
complacent about that issue at all.
The hon.
Lady mentioned that production has been consistently below that which
has been forecast, but that tends to be the pattern with oil companies:
they tend to over-forecast and produce less. On clause 99, she asked
what “all reasonable steps” might mean. In the
circumstances, we would expect companies to take the normal steps that
fellow participants would be required to take in any dispute to ensure
that all reasonable due processes had been used. That would resolve the
issue of “all reasonable
steps”. I
agree that June 2008 seems an odd date. The reason for it is simply
that that is the last day of the current chargeable period. The next
chargeable period starts the
day after, so there is a great deal of logic even if it is not
discernable to those who do not know when chargeable periods begin and
end. 1.30
pm The
hon. Lady also talked about the next steps on petroleum revenue tax
following the consultation document. Consultations are ongoing on some
issues, one of which is the future of petroleum revenue tax. The
current round of consultations finishes at the end of June like the
chargeable period, although I am sure that that is a complete
coincidence. The Government will consider the industry’s
suggestions and proposals and if necessary will discuss the matter
further with the industry to ensure that we have a fiscal regime that
fully supports the Government’s stated objective of maximising
the economic recovery of the UK’s oil and gas
reserves.
Justine
Greening: Does the Treasury expect to be in a position to
come out with some stated outcomes from the latest discussion before
the pre-Budget report? I understand that the consultation will reach a
gateway point at the end of June, but how long will the industry be
waiting before it gets some resolution about what are fundamental
issues for
it?
Angela
Eagle: The future of petroleum revenue tax is a
fundamental issue for oil companies, but it is also fundamental for UK
taxpayers. It is quite right, given that the UK owns the gas and oil
reserves, that we should ensure that there is a reasonable return for
their exploitation, especially if super-profits are made. That is why
the petroleum revenue tax was legislated for in the first place. The
balance that we are trying to strike through our ongoing consultations
with the oil and gas industry is between having a reasonable taxpayer
return on important UK assets and ensuring that we can enable and
facilitate their exploitation rather than see them left in the
ground. Mr.
Mark Field (Cities of London and Westminster) (Con): While
along with any sensible person I accept what the Exchequer Secretary is
saying about the importance of this asset, the concern that my party
and the Scottish National party have is that all too often with oil and
gas reserves, the Government have had a rather precipitate and
uncertain approach, which is a barrier to longer-term investment in
this area. I appreciate that that may also be true of Governments
before 1997. It is all too easy to point the finger, as the Government
do, at the super-profits of oil companies, but a significant proportion
of the increased petrol prices that affect each and every one of our
constituents goes directly into the hands of HMRC. That is the biggest
beneficiary of such
super-profits.
Angela
Eagle: The hon. Gentleman has described the exact balance
that I said Governments have had to strike since the discovery of oil
and gas reserves on the UK continental shelf. That period included
Governments of at least two colours and persuasions that I can think
of. That balance must always be examined. It would be less than
sensible to create a circumstance where taxation rates were seen as so
high and so difficult for the industry to operate under economically in
what is a global market with limited amounts of kit, machinery
and engineers, that the oil stayed in the ground. At the same time, our
constituents would not thank us if we instigated a regime that did not
give a proper and fair return for what is a UK asset. That is the
balance that all Governments have had to strike as the UK continental
shelf and its assets have been exploited both for profit by those oil
companies with the expertise and for return for this
country. Mr.
David Gauke (South-West Hertfordshire) (Con): The
Exchequer Secretary makes a good point about the need to achieve a
balance. I think that she agreed with the point about uncertainty made
by my hon. Friend the Member for Cities of London and Westminster. What
views does she have on the implications of a windfall tax on oil
exploration companies? Does she think that that would have a damaging
effect on
certainty?
Angela
Eagle: I cannot see any reference to a windfall tax in the
clauses. Therefore, I will not be tempted down that very interesting
path of speculation. Given the explanations that I have given the hon.
Member for Putney, I hope that she will accept that clauses 98, 99 and
100 are drafted to facilitate the changes in structure in the oil
industry. Hopefully, they will bring about a win-win situation for both
the UK Government and the oil industry itself. However, I can see that
she is about to leap to her feet.
The
Chairman: I call Justine Greening for a brief
intervention.
Justine
Greening: I am going to briefly ask the Minister to
give us a date for when the Government will have finished their
deliberations on the consultation paper. I notice that she did not give
any time lines. Whether it is a year or six months, it would be helpful
for us to know the process that the Treasury is going through and when
it expects to get to the end of
it.
Angela
Eagle: I apologise. I got dragged off to discuss with the
Opposition how one taxes oil assets in general and I got distracted
from the point that I was asked to talk about. We are in consultation
with the oil industry, and we expect those consultations to continue.
The date for the end of this particular round is 20 June. If
interesting points are made or if evidence is given to us after that
date, we will consider them. There is a pre-Budget report process in
which we can come up with some other results from the consultation.
There is also a subsequent Budget process. I do not see this engagement
with the industry coming to an end for ever in June; it is ongoing. It
is in both its interests and ours to keep the dialogue going to
understand the structures of the industry and how it is changing. We
also need to know what impact our tax regime is having on its
decisions, particularly globally, to put investment into the UK
continental shelf. We will keep searching for the right balance in
those issues to maximise the production from the UK continental shelf
for both the industry’s benefit and profit and ours. I hope that
that satisfies the hon. Lady.
I hope that
hon. Members will accept that these changes are wholly beneficial and
have been widely welcomed by the industry, and that they will vote to
get clause 98 and the whole group of clauses, including technical new
clause 7, into the
Bill. Question
put and agreed
to. Clause
98 ordered to stand part of the
Bill. Clauses
99 and 100 ordered to stand part of the
Bill.
Clause
101Returns
of relevant sales of
oil Question
proposed, That the clause stand part of the
Bill.
Justine
Greening: Briefly, the Conservatives welcome the clause.
As I said, we want the North sea oil tax regime to have simplification
embedded into it, and the clause aims to do that because, under it,
only the returns of relevant sales of oil will need to be submitted to
the Treasury. As I understand it, companies that used to have to report
sales of all oil to HMRC will now have only to report sales of certain
categories of oil, specifically category 2. The measure is welcome, and
I hope that the Treasury continues to work with the industry to tackle
burdensome and unnecessary paperwork and regulation, as clause 101 will
do, and to find more opportunities for such action. In the meantime,
the Conservatives support the
measure. Question
put and agreed to.
Clause
101 ordered to stand part of the Bill.
Clause
102 ordered to stand part f the
Bill. Schedule
33 agreed to.
The
Chairman: We can gallop through these quite quickly, and
Opposition spokesmen need to be well and truly on the
ball.
Clause
103Capital
allowances: plant and machinery for use in ring fence
trade Question
proposed, That the clause stand part of the
Bill.
Justine
Greening: Sometimes, shuffling one’s papers takes
longer than a tenth of a second, even if I only intend to make brief
comments, but I am pleased that I have caught your eye, Sir Nicholas,
and that I can make such comments on clause 103.
Again, we
welcome the clause, which is about expenditure on long-life assets and
decommissioning. Without a banding, assets involved in mid-life
decommissioning within the ring fence will now be treated the same as
all plant and machinery in the ring fence. Those assets will now get
100 per cent. first-year allowances for corporation tax, rather than 24
per cent. as they did previously.
We welcome
the clause because we hope it will address to some extent our concerns
on encouraging investment. We feel that the measure will take us in the
right direction, and that the Bill, as far as North sea oil is
concerned, will encourage badly-needed inward investment—the
long-term investment trend seems to be downward at the
moment.
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