Examination of Witnesses (Questions 200-219)
MS JUDITH
KNOTT, MS
JO WAKEMAN
AND MR
EDWARD ZAMBONI
31 OCTOBER 2006
Q200 Mr McGovern: In the meetings
and dialogue that you have had with the industry do you have an
opinion as to whether or not that remains their view, that the
UK has acquired this international reputation for fiscal instability,
or have they now moved on as a result of the dialogue?
Ms Wakeman: It is difficult for
me to comment on quite what their view would be. Clearly, I have
seen the evidence that the UKOOA officials gave to yourselves
in which they said that, and any change in the tax rate I would
expect would lead them to feel that there was some fiscal instability,
but beyond that I would not like to comment.
Q201 Ms Clark: Just following on
from that, when we heard from BP they suggested that a more stable
fiscal regime might help to promote maximising production from
the UK Continental Shelf. It now seems very clear that there has
been a commitment that there will be no further tax increases
during the lifetime of this Parliament. Presumably it is the case
that that counters most of the complaints that the industry made
to us.
Ms Wakeman: I have heard comment
from industry that, given the length of time for which they make
investments, say, a discovery that is made now may not be in production
by the end of the life of this Parliament because they typically
take some two to five years to get the oil and gas on stream,
they may still consider that the Chancellor has not given them
sufficient commitment or a long enough commitment to stability
but, as I say, clearly the current Government is unable to make
a meaningful commitment beyond the end of this Parliament.
Mr Walker: I do not think any Government
would make a commitment beyond the end of a Parliament anyway,
would it?
Q202 Mr Davidson: Was it not also
the case though that the oil industry wanted stability in the
sense of a guarantee of no increase in taxation over the life
of the Government or longer, but in fact they were in favour of
instability should the price of oil fall in order that the Government
would be able to change the taxation burden downwards should the
economic situation justify it, so they were in favour of instability
when it suited them and stability when it suited them, which is
an entirely consistent position?
Ms Knott: I see the point you
are making. I think we would not want to comment on that.
Q203 Mr MacNeil: I would like to
bring your attention to the evidence UKOOA gave this Committee
on 20 June in Aberdeen where they were talking about the PILOT
initiative that they were working on with the Department of Trade
and Industry, but Malcolm Webb, the Chief Executive of UKOOA,
said, "...it seemed to me that what the Treasury did was
somewhat inconsistent with the PILOT vision, and the PILOT vision
is quite clear: it is to maximise recovery from this basin in
the national interest...", and UKOOA would say that the infrastructure
of the North Sea has got a certain lifespan and that the tax rise
that the Chancellor made, for obvious deficit reasons, was endangering
that.
Ms Knott: I think we would agree
that the Government objective, as the PILOT objective, is to maximise
economic recovery from the North Sea. The change that was made
last year was made because of the increase in the medium term
outlook for prices for oil to rebalance between oil producers
and the UK taxpayer, given the fact that the oil companies were
making very high economic rents from what is a national resource.
Q204 Mr MacNeil: But do you not see
that there is pressure for the Chancellor—he will not be
the Chancellor in 20 or 30 years' time—to take as much money
as he can at the moment, which may endanger the overall take over
a period of 20 or 30 years?
Ms Knott: Based on the analysis
we did we felt that there would not be an impact on investment
and we do not see there being an impact on the maximisation of
economic recovery from the tax change that was made.
Q205 Mr MacNeil: Do you think what
you are saying chimes with what UKOOA has told this Committee?
Ms Knott: UKOOA may have a different
view of that, but certainly our view would be that it does not
damage investment and hence would not have an impact on that objective,
which we share with PILOT and with the oil industry, of maximising
economic recovery.
Q206 Ms Clark: In their evidence
to us the UK Offshore Operators Association stated that maximising
the economic recovery of UK oil and gas reserves is currently
hindered by too much red tape from both Westminster and Brussels.
Would you like to comment on that but also could you let us know
of any plans there are to reduce or remove any unnecessary bureaucracy
in the system?
Ms Knott: Were they specifically
talking about tax bureaucracy?
Q207 Ms Clark: I think they were
making a general point. Obviously, if you could answer from your
perspective in terms of the areas that you had contact with that
would be helpful.
Ms Knott: Certainly, generally
I would say on red tape that we have been doing a lot of work
in Treasury and within HMRC to look at the general issue of red
tape on business in the tax system. KPMG did a study recently
for HMRC on the administrative burdens of the tax system and the
figures that came out of that we thought were pretty favourable.
This is overall, not just for the oil industry, but the overall
burden on business of the tax system is 0.41% of GDP, and that
compares with 0.57% in Denmark and 0.82% in the Netherlands. Those
are the two countries which use that method of calculating it.
We are having a lot of work at the moment. We have got an Administrative
Burden Advisory Board which is working with HMRC and Treasury
to look at ways in which we can reduce the burden. In terms of
specific issues on the oil industry Jo may have more that she
can say on that.
Ms Wakeman: All I would comment
is that colleagues in HMRC, in the Large Business Service Oil
and Gas office, have worked closely over a number of years with
industry representatives to try and find ways to reduce the regulatory
burden through the tax system and to identify ways that will meet
the Government's need for compliance and comfort, et cetera, but
yet find a way for industry to improve their ways of working with
Government through the regulatory process.
Ms Knott: The other point I would
make is that currently HMRC are carrying out a review which is
called the Varney Review and was announced at the Budget. Sir
David Varney is reviewing the administration links between large
business and HMRC, hoping to improve their effectiveness, trying
to ensure world-class tax administration for large businesses,
and the oil and gas companies, the majority of which fall into
the large business category, would be very much involved in that
as well.
Q208 Ms Clark: What are the timescales?
You have mentioned the Advisory Board and the Varney Review.
Ms Knott: The Varney Review, which
is really looking at the way that large business interact with
HMRC and trying to make that more effective and responsive, is
reporting at the Pre-Budget Report stage which will be later this
year. In terms of the Administrative Burden Advisory Board, the
targets generally for HMRC are to reduce over the next five years
the administrative burdens imposed on business by the tax system,
and to reduce the time spent filling in forms and returns by at
least 10% and the time spent on audit and inspections by 15%,
so they are very clear targets over the next five years.
Q209 Mr MacNeil: Can I just return
to the PILOT initiative? Again, UKOOA said that they were working
in a situation of joined-up government before this tax rise came
from the Treasury. You have said that there would be no detrimental
effects of this tax rise on the North Sea. Has that been corroborated
by any source other than the Treasury?
Mr Zamboni: I believe there may
be a submission to you from Professor Alex Kemp of the University
of Aberdeen. [2]He
produced an estimate of some possible effects. I am not suggesting
that we would agree with all the aspects of his methodology or
necessarily with all of the results, but there are one or two
figures which he mentions which may be worth reflecting on for
comparison. One is that up to 2030 he suggests that there could
be a negative impact on investment of one billion pounds, which
is on average £40 million per annum. Now, £40 million
is less than 1% of the current annual investment spend, so clearly
in the greater scheme of things it is not a very substantial amount.
Q210 Mr Walker: What is the current
annual investment spend?
Mr Zamboni: It is expected to
be about £5 billion this year. In the greater scheme of things
that is not really a very material change to the activity on which
future capacity depends. As I say, we have reservations with some
parts of his study but at least that is something which gives
some objective comparison with our own findings.
Q211 Mr MacNeil: So are you saying
that Professor Kemp has given a clean bill of health to the Treasury's
tax arrangements?
Mr Zamboni: I think that is going
slightly further than what I said but I do not think the findings
are really miles away.
Q212 Mr Davidson: Just on this point
of red tape, has the industry produced a shopping list of red
tape that it wants to see struck down? When we spoke to them they
were clearly against red tape in general but they were a bit short
on specifics. I am remembering, of course, that certainly in my
constituency and I think in a lot of other constituencies if it
were not for red tape small boys might still be climbing chimneys
because red tape stops them being employed in that way. Has the
industry produced specifics?
Ms Knott: I have been involved
in quite a lot of the dialogue with the oil industry over recent
months and we have focused on a lot of issues but red tape has
not really featured in that to a great extent at all. It has been
more about the structure of the regime rather than red tape.
Ms Wakeman: Certainly discussions
have been focused on fiscal issues and the fiscal regime. I might
expect that issues that industry had about regulation, both within
the UK and, as you mentioned, with Brussels as well, might more
likely be directed to colleagues at the Department of Trade and
Industry.
Q213 Chairman: Last June the Trade
and Industry Committee in their report on Fuel Prices[3]
were critical of UKOOA members for their perceived reluctance
to contribute to the easing of fuel poverty. The Committee in
effect said that if UKOOA did not hand over at least some money
voluntarily they would quite understand if the Chancellor took
it by force. Could the latest tax increases be seen as a way of
countering the industry's unhelpful attitude?
Ms Knott: I would say it is not
specifically to do that but one of the things that was done at
PBR was that certain money was allocated to alleviate fuel poverty
and also to go towards pensioners' winter fuel payments.
Q214 Mr Walker: Would it be your
experience that companies on the whole do not hand over money
voluntarily to the Chancellor?
Ms Wakeman: They have not come
with—
Ms Knott: If they did it would
not be tax.
Q215 Chairman: Would you say that
if the industry is making huge sums of money, especially when
the prices are $60 a barrel, it should be generous to the most
vulnerable people who are helped to cover fuel prices?
Ms Knott: I really would not want
to comment. Our expertise is on tax which is of its nature not
a voluntary imposition.
Q216 Mr MacNeil: Since this tax increase
by the Chancellor have the winter fuel payments increased?
Ms Knott: Certainly there were
continuing winter fuel payments. I am not an expert on fuel poverty,
I am afraid, so it would be going rather outside my area of expertise.
Q217 Chairman: Thank you. That concludes
our questions. May I thank you for your evidence today. Before
I declare the meeting closed would you like to say anything on
any issue which we have not covered in our questions?
Ms Knott: No, I think that is
fine. We will liaise with your Clerk on the note that you requested
on the timetable.
Chairman: That has been extremely helpful
for when we compile our report. Thank you very much.
2 See Ev 40. Back
3
See Q81. Back
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