“the last minute and precipitate change in Oil tax rates for an industry that is particularly dependent on long-term planning seems wrong”.
The threshold chosen by the Government may also be a problem for stability. The average oil price in 2008 was $100 a barrel, but in 2009 it was $60 a barrel and in 2010 it was $80 a barrel. If prices carry on fluctuating above and below the $75-a-barrel mark, as they have over the past three years, the uncertainty about the tax rate and whether companies will be caught by it could drive more investment away from the UK.
Had the Economic Secretary consulted the industry before the Budget, it might have reminded her that the supplementary charge applies to gas as well as oil. Gas prices are on the rise, but at less than 60p a therm they are still significantly below the Government’s $75 a barrel trigger price on an equivalent basis. In the UK, gas prices are less closely correlated with oil prices than in other jurisdictions, where there are often still contractual links between the two. Whereas oil prices are set by the global market, gas prices are more localised. Graham Parker of the Office for Budget Responsibility told the Treasury Committee quite recently that gas prices were “quite variable” so even if the Government think they have chosen the right level for oil, they might have set the balance wrongly for the gas sector. That could be disastrous given that gas accounts for 46% of the North sea industry’s production.
Mr Kevan Jones: Does my hon. Friend find it remarkable that such a decision should have been taken in such haste that the Treasury did not realise that that issue relating to the difference between oil and gas prices would arise?
3 May 2011 : Column 598
Kerry McCarthy: Certainly, when I met Oil & Gas UK, it was very surprised and seemed to be of the view that the Treasury had forgotten that gas would be affected by the measures. The policy is very much back-of-a-fag-packet stuff. It seems that, in a knee-jerk reaction to the rise in public concern about petrol prices, the Government felt they had to act on that front, and so had to came up in haste with some sort of mechanism to raise revenue to fund the 1p cut in fuel duty. The effect on gas is an important issue, and the cost could end up being passed on to ordinary people in their gas bills, either because the increase itself is passed on to consumers or because UK gas production drops, meaning that we have to import more gas from abroad.
Had the Minister consulted the industry prior to announcing the measure in March, it might also have reminded her that when the previous Government increased North sea taxation, they introduced measures to promote investment alongside that change. When we introduced the supplementary charge in 2002, we also introduced a 100% first-year allowance for capital expenditure in the North sea. That not only provided a buffer for companies to make the transition to the new regime but encouraged investment in UK oil and gas fields. When, in 2005, we increased North sea taxation again, we allowed further flexibility on the capital allowance. To maintain the stability of the tax system, we also gave a commitment not to increase the tax again in that Parliament. I wonder whether the Minister can echo that commitment today.
It was right to increase taxation on oil and gas at a time of windfall profits, and now is also such a time, but we were conscious of the need to create stability for the industry and to maintain investment for the future. If this Government had thought their changes through, they could have taken a similar approach, but instead the effects of their hasty and ill thought out decision are already being felt. We have heard the reports about disinvestment in the industry. Centrica, as my hon. Friend the Member for Denton and Reddish (Andrew Gwynne) has mentioned, has hinted that it might decide not to reopen its Morecambe Bay field, which produced 6% of the UK’s annual gas requirement. I wonder what the Minister’s former colleagues have to say about that. Statoil has suspended $10 billion-worth of investment in the Mariner and Bressay oilfields, which together hold reserves of 640 million barrels of oil. Research from Aberdeen university has gone further, suggesting that over the next three decades the Government’s tax change could slash oil and gas investment in the UK by £30 billion. Production could be reduced by up to a quarter, leaving the UK more reliant on imported oil and gas.
This debate is not just about the profits of oil and gas producers. The oil and gas industry directly and indirectly supports 440,000 jobs in the UK. There are reports that at least 40,000 of those jobs are at risk because of the Government’s action, at a time when 2.5 million are unemployed, including an increasing number of people who have been out of work for longer than a year. The Government have a responsibility to act with extreme caution before putting those jobs at risk.
Mr Kevan Jones:
Does my hon. Friend agree that many people in the north-east who were previously made redundant from shipbuilding yards, for example, travel regularly throughout the UK and internationally
3 May 2011 : Column 599
to work in the oil and gas industry? Surely the Government’s proposals will affect those people, who have come to rely on home-based employment and travelling overseas, in some cases long distances, to support their families?
Kerry McCarthy: My hon. Friend makes an important point. The jobs being lost are in areas where there is little other employment. As he says, people in the area he represents have been affected by the decline in other traditional industries under the last Conservative Government. Now they are being hit by a double whammy with their jobs in the oil and gas sector being put at risk.
Dame Anne Begg: Does my hon. Friend agree that the best way to deal with the deficit is to grow the economy? The industry was growing and investing, but that growth and investment could be put at risk as a result of the measures.
Kerry McCarthy: Precisely. We come back to that time and again with this Government. They are looking at the very short term for quick revenue gain or political gain, not taking a longer-term approach. The point should not have to be made that if the Government want to encourage growth in the private sector, which they are always talking about, they need to encourage investment and have the right economic climate for that investment to take place. If the tax regime is not stable, that is put in jeopardy.
I accept that it may not be possible for the Government to consult widely on every tax policy. There is a balance to be struck between robust scrutiny and consultation and the Government’s freedom to act when necessary in the national interest, and consultation may flag up to certain companies that they ought to engage in tax avoidance measures, but in this case, the Government not only ditched their brand new tax policy framework, but went back on specific assurances to the oil industry.
The previous Government had formed a good working relationship with the industry, which may now be damaged. After a meeting in 2008 between the then Prime Minister and Chancellor and the oil and gas industry, the Government consulted with the industry to develop a package of new measures to revitalise investment in UK oil and gas reserves. Those were announced in the 2009 Budget and included the new field allowances and other incentives for companies to invest in the UK’s smaller and more difficult fields. Such close working together is vital to the stability of the tax system for North sea oil and gas. Unfortunately, it will become more difficult if the Government cannot restore trust with the industry.
Although it sounds hard to believe, as I said earlier, last year the Government created new golden rules for themselves to make tax policy more predictable, more stable, and more transparent. We can only conclude that the Government have ditched those rules altogether, just a year after taking office, because we cannot see how Treasury Ministers are
“committed to providing clarity and certainty on the future direction of tax policy.”
The industry body for the UK oil and gas industry agrees with us, saying that the measure has damaged the industry’s confidence and trust in the tax regime. I
3 May 2011 : Column 600
cannot see either how the Treasury still believes, as it said last year, without a hint of irony, that consultation is
“an integral feature of all policy making”,
“helps ensure that changes are well targeted and without unintended consequences, and that legislation is right first time.”
What happened to that statement of intent from the Government? Clause 7 is a perfect example of a policy for which there was no consultation. As a result, it is poorly targeted, has potentially serious unintended consequences for the industry, and is certainly not a policy that they got “right first time”, and all because the Government did not consult on their decision.
1 am
The Government also called specifically for tax stability for the oil and gas industry. In the last Budget, their only message to industry was that they recognised the importance of a stable and fair UK oil and gas tax regime that provides certainty for business. In 2009, the then shadow Chancellor even told the industry in Aberdeen that he would fix the oil and gas tax regime for the lifetime of the remaining reserves in the North sea. After all those fine words, why have the Government ended up hitting the panic button on oil and gas? Were they scrambling for a quick response on fuel tax after their last idea failed to stand up to scrutiny?
Before the election, the Conservative party told voters that it would consult on a fair fuel stabiliser. It said that it would ensure that families, businesses and the whole British economy were less exposed to a volatile oil market. The Prime Minister was very clear about how that would work:
“Our plan is to say when the petrol price goes up the tax should come down. Sadly that means when the price goes down the tax would have to go up but at least it would give you certainty as you go about your lives.”
“help with the cost of living by trying to give you a flatter and more constant rate for filling up your car.”
The then shadow Chancellor was also very clear that that would be delivered in the Government’s first Budget.
Mr Kevan Jones: The Economic Secretary said in her winding-up speech on the last group of amendments that the result of the Government’s policy on fuel duty has led across the board to a 0.8p reduction in the price of fuel at the pumps. Is that really a price worth paying for the effect it will have on the oil and gas industry?
Kerry McCarthy: The Economic Secretary said that it had led to a drop of 0.8p at the pumps between 23 March and 28 March, which seems very selective. It is clear now that petrol prices at the pumps have gone up and that the Government have gained very little from their approach.
In the run-up to the general election, both the current Chancellor and the current Prime Minister were clear that they would deliver on a fuel duty stabiliser. Voters were led to believe that the Government could and would act on that. However, in March, as we approached the Government’s second Budget, the Opposition pointed out that the fair fuel stabiliser was still nowhere to be seen. Even with fuel prices rising above £6 a gallon, due
3 May 2011 : Column 601
to the rising price of oil—the very situation that a stabiliser was meant to help with—the Government had still been unable or unwilling to act. That was because their original plans would never have worked.
The Conservative party had believed that rising oil prices led to higher tax revenues for the Government, which could then be shared with motorists. It turned out that, just like the proposals we see in the Bill, they had been poorly thought through. They were told that they were wrong not only by Labour Members, but by the Institute for Fiscal Studies, which stated that
“the claim that the Treasury receives a windfall gain when oil prices rise that it can “share” with motorists is incorrect.”
They were told that they were wrong by the chair of the Office for Budget Responsibility, Robert Chote, who said it
“would be likely to make the public finances less stable rather than more stable.”
They were even told that they were wrong by the current Secretary of State for Business, Innovation and Skills, who said before the election that the fair fuel stabiliser would be
“unbelievably complicated and unpredictable.”
Justine Greening: The hon. Lady is providing a critique of our policy, but her party has just decided not to oppose our fuel duty reduction, which, compared with what they proposed for the public finances, represents a difference of approximately 6p per litre. How does she propose to pay for the change in fuel duty that she has just not voted against?
Kerry McCarthy: The Minister is trying to return to the topic we debated in the previous group, so perhaps she should have been a little quicker and thought up her intervention then. I am talking now about stability in fuel prices and the empty promises the Government made to the electorate in the run-up to the election that they would be able to do something to stabilise fuel prices at the petrol pumps.
Representatives of the oil and gas industry tell us that as recently as February the Government were giving assurances that they wanted to keep the North sea tax regime stable, as they had said in their previous Budget, but between February and April they very swiftly changed their mind. Perhaps the Minister can tell us why? What caused the Government to have such an urgent rethink on the fair fuel stabiliser? Many of us suspect that the increased scrutiny that the Opposition brought to bear on the Government’s policy might have prompted them belatedly into action—action they would have realised much sooner was needed if they had only done their homework and listened to what people were trying to tell them.
Inevitably, given the panicked way in which it was put together, the Government’s new version of the fair fuel stabiliser is equally as half-baked as the proposal put forward before the election. As a result, potentially tens of thousands of jobs, as well as billions of pounds worth of investment, are at risk, and the Government have broken their commitment to stable, consultative tax policy making.
Andrew Gwynne:
My hon. Friend is making a superb case about the short-termism of the Government’s approach. Is she not absolutely right to point out that,
3 May 2011 : Column 602
in a short-term fix on gas and oil, this discredited Government are going to risk jobs, industry and investment in this country?
Kerry McCarthy: Again, that is a very good intervention by my hon. Friend. The industry needs stability and long-term investment, because we cannot dig an oil well or develop an oilfield overnight, yet the Government are creating uncertainty that will send investors off to other countries where the tax regime is more stable.
The Government have also completely damaged the trust between themselves and the industry, and that is why we have tabled our amendment. We simply call on the Government to do what they said they would do before making major tax changes: carry out a proper assessment of the impact, so that we can scrutinise it and have transparency. The Government were right to look towards North sea oil and gas to ensure that the burden of taxation was fairly spread, but without stability tens of thousands of jobs could be at risk. For the Opposition, that is not a price worth paying for short-term political gain.
Stewart Hosie: The right hon. Member for Gordon (Malcolm Bruce) said in his opening remarks that the Government wanted the UK to be seen to be open for business. That is a very good objective, but the problem is that an 81% marginal rate of tax on anything, and the instability caused by a shock 60% increase, puts at risk their stated aim of promoting the UK in that way.
The right hon. Gentleman made the point about investment, and investment levels are unchanged generally, but there is now less focus on frontier developments than on investment in the mature North sea, and that is a huge concern. The 60% rise in the supplementary charge that was created, it is told, by the Chief Secretary to the Treasury—whom I see leaving the Chamber barely at the start of the debate—was the most damaging thing that the Government did in the Budget.
The Government will take £2 billion a year extra in tax from the sector, on top of the £4 billion windfall that they got last year, to which the right hon. Member for Gordon referred, and on top of the windfall that they will get this year—2011-12—over the 2010 forecast. All that runs counter to the Chancellor’s stated objectives of tax stability, delivering a growth agenda and production here in lieu of imports.
Let us remember that when that bombshell was announced, leading industry members reportedly met in a state of disbelief about the Government’s plans. There were immediate reports about the threat to some 40,000 jobs. Statoil immediately announced the suspension of the Mariner and, possibly, Bressay investments, and it was argued that a slowdown in North sea activity would increase the UK’s reliance on imported oil and gas, with the consequence of an even higher balance of payments deficit and the corresponding impact of a suppression of GDP growth.
On tax receipts, Alan Booth, the chief executive of EnCore Oil, rightly said:
“Undeveloped and undiscovered oil and gas pays no taxes,”
and it got worse, of course, because Valiant immediately announced that it was not going to invest in its £100 million project, saying that it was
“no longer viable because of the surprise Budget move.”
3 May 2011 : Column 603
Chevron warned that there would be “unintended consequences”, and let us remember that Oil & Gas UK was very clear when it said that the measure had
“shaken investor confidence to the core.”
The right hon. Member for Gordon said at one stage that Ministers had robustly defended their position. I do not believe that they have. When these fears and concerns were put to the Chancellor, a Treasury spokeswoman said:
“Mr Osborne did not expect investment to be damaged.”
That is not a robust defence of a position; it is intransigence and a failure to understand the consequences of the actions that the Government had undertaken.
There are other consequences. Jim Hannon from Hannon Westwood, the drilling analysts, said that 30,000 people could lose their jobs if exploration activity dropped by merely 15%. The detailed work by Professor Alex Kemp—I will not go through it in detail but it is well worth everybody in the House reading it—has warned that up to 2 billion barrels of oil and the equivalent amount of gas could be left in the North sea, untaxed and unused. Derek Leith from Ernst and Young has warned of projects being delayed and cancelled, saying that the Statoil decision was
“only the tip of the iceberg…There are a lot of companies that will not pursue projects but will not go public about it.”
Mr Kevan Jones: Does the hon. Gentleman agree with the point made by my right hon. Friend the Member for Croydon North (Malcolm Wicks) about the national security implications of this? At a time when other mature oilfields around the world have investment going in to extract the last bits of oil, leaving large reserves of untapped oil in mature fields is not only financially incompetent but dangerous in terms of national security.
Stewart Hosie: In terms of energy security it is very foolish indeed.
This is about not only the increase in the supplementary charge but restricting access to decommissioning tax relief, and that could accelerate the decommissioning of essential infrastructure. Had these ludicrous plans been in place in the past, the Forties field might not have been passed on to provide a decade or more of additional oil. Had the infrastructure which will now be decommissioned more quickly been decommissioned at that speed in the past, the new entrants, the new technology, the sideways drilling and the ability not to take 30%, 40% or 50% of a well would not exist. Once the wells are capped and the infrastructure is gone, it is gone for good.
As well as energy security, there is the question of the future of carbon capture and storage. The last Government failed to make a decision quickly enough on the Peterhead CCS scheme, which was going to use the decommissioned Miller plumbing to pump the carbon dioxide into holes in the ground. If we restrict access to decommissioning relief, we risk being unable to use that plumbing and infrastructure not only for oil extraction but for other purposes.
The hon. Member for Bristol East (Kerry McCarthy) referred to investments in the UK continental shelf falling by 24% overnight at the time of the decision. The
3 May 2011 : Column 604
scale of the impact was also explained in the recent research by Professor Alex Kemp in which he revealed that the tax increase could reduce UK oil and gas investment by up to £30 billion and production by up to a quarter over the next three decades. For last week’s Second Reading debate, we had additional information from Centrica that provided a detailed assessment of the problem in relation to gas. It said that the annual cost to the UK economy could be up to £8 billion per annum by 2013, that the decision could influence investor sentiment in other sectors, and that up to £100 billion of energy investments and associated jobs could be put at risk. That would be catastrophic if even a fraction of it came true. The UK needs sustained and sustainable above-trend growth, and we will not get it if we undermine the main investing industry in the UK. That would be incredibly stupid.
As I said on Second Reading, we should listen to Oil & Gas UK, Statoil, Valiant, EnCore, Chevron, Hannon Westwood, Professor Kemp, Ernst and Young, and Centrica. Those warnings did not start the day after the Budget and then stop; they kept on coming. It is inconceivable that all those major players and analysts in the sector are wrong, and that the Chancellor and the Chief Secretary, uniquely, are right. That is almost impossible to believe. Of course the warnings have not stopped.
1.15 am
Members have mentioned Centrica and the Morecambe bay possibilities. Let us look at the short statement from Centrica:
“Following the increase in the Budget, UK oil and gas producing fields are subject to some of the highest levels of tax in the world—our South Morecambe field is now taxed at 81 per cent. At these higher tax rates, Morecambe’s profitability can be marginal.”
That is particularly true if gas falls below 60p a therm. The statement continues:
“Accordingly, we may choose to buy gas for our customers in the wholesale markets in preference to restarting the field”.
It is extraordinary that we have decisions in a Budget that will lead to the importing of oil, possibly from insecure sources and at greater cost, and will also undermine investment and jobs here when it is not necessary to do so.
Andrew Gwynne: The hon. Gentleman has made a superb point about the Morecambe Bay gas field. Is it not crazy economics that that investment will be lost to north-west England, which has some of the most deprived communities in the United Kingdom? We need to nurture the investment in the Morecambe bay gas field, not drive it away and import gas from abroad.
Stewart Hosie: I could not agree more. This is not just about Scotland, but about the entire UK continental shelf and the 440,000 people who are employed throughout the UK, including in East Anglia, off the north-west coast and elsewhere.
As I said—this is important—the warnings did not end a day or two after the Budget; they kept on coming. The most comprehensive analysis of the problem is in the 2011 international annual energy survey, which will be launched at the offshore technology conference in Houston, Texas this weekend. It is conducted by Maxwell
3 May 2011 : Column 605
Drummond, the industry employment specialist, which covers 100 international directors from all energy sectors. It says:
“the Coalition Government’s ‘supplementary charge’ on oil and gas production, projected to add an extra £2 billion to Treasury coffers, significantly and immediately impacted on global perceptions of the already challenging North Sea environment.”
If the international energy markets are warning of significant and immediate impacts, if there is a threat to tens of thousands of jobs, and if there is a threat to tens of billions of pounds of investment, the decision is clearly wrong.
Dame Anne Begg: Does the hon. Gentleman agree that because the UK continental shelf is now a mature province, many of the decisions on investment in the province are no longer taken in Scotland or London, but in Houston, Calgary or elsewhere in the world, and that the international perception of the tax regime is therefore crucial when such decisions are being made?
Stewart Hosie: That is absolutely right. I said when I intervened on the right hon. Member for Gordon that of course taxation needs to be sensitive to profitability, but that Ministers also need to understand that investment decisions are sensitive to tax and other costs. Although the field is mature, some of it is unexplored. If the perception is that it is expensive and that there is tax instability—which has been said—we will lose the ability not only to continue work in some of the mature fields, but to explore as yet untapped reserves, albeit in a mature sector.
As I have said, this is the most damaging measure in the Budget for economic growth. Although I respect the attempts to amend it and the tabling of amendments for the Government to discuss, we think that it is so damaging that we hope Mr Hoyle will be able to call on hon. Members from across the Committee to resist clause 7 very vigorously indeed.
Sir Robert Smith (West Aberdeenshire and Kincardine) (LD): I remind the Committee of my entry in the Register of Members’ Financial Interests as a shareholder in Shell, and of my wider interests in the oil and gas industry.
The oil and gas in the North sea belongs to the nation, but unless we have a regime that attracts experts with the finance and knowledge we need, we will not benefit from it. One of the amendments before us would restrict the tax raid to a year, to ensure that the Government and industry can engage in constructive dialogue that will encourage investment. It is important to restore confidence in the tax regime. Following previous supplemental changes, Governments had to work very hard to restore confidence and bring back investment, with field allowances and other incentives. They engaged with the industry and provided assurances that once the tax change had been made at the beginning of a Parliament, it would not be revisited until the next election. There is scope for restoring confidence, but some hard work will have to be done.
The Government need to address some of the arguments that are being made, particularly the one advanced by my right hon. Friend the Member for Gordon (Malcolm Bruce) about what individual investors are getting for their investment. It has been put to me that people made a decision to invest last June, but now the price of
3 May 2011 : Column 606
oil is $125 a barrel. If they decided to invest and then hedged for this year at $88, they are not getting $125, because the hedge fund is getting the profit. I do not see a tax being brought in on hedge funds; instead, it is being imposed on the people on the ground doing the hard work, on the skilled labour and on the knowledge and risk-taking.
When we talk about windfalls, we have to be slightly careful in the case of an industry with a fluctuating commodity price. When the price goes up it makes more profit and when the price goes down it makes less, but Governments tend not to say, “We’re a bit concerned that the price has fallen, so we’re going to cut the tax.” If there is a one-way ratchet, that causes uncertainty and concern in the minds of investors.
Amendment 13 suggests that if there is a desire to have a profit-related tax that varies with the price of oil, there should be some predictability to it. The hon. Member for Aberdeen South (Dame Anne Begg) said that it would cause complication, but that complication could be factored into new financial modelling. If there were a variable rate of profits tax, any company making an investment decision could factor that in and know where they stood in the fiscal regime.
It has been put to us that other countries, such as Norway, have different fiscal regimes for investment. However, Norway has had a stable long-term fiscal regime with very little change, and it has also had the attraction of less mature, bigger finds with more upside for investors. It is important to understand the confidence element.
The Energy and Climate Change Committee has seen evidence on the wider future of our electricity and gas network. This country wants to attract £200 billion of investment in its energy infrastructure, but if investors are being asked to build a massive offshore wind farm that will bring in more profits if the price of carbon goes the way they are betting, they will look across and see what has happened to the oil industry. They will not want the Treasury to come along and say, “Electricity bills are rising, so we’re going to put a windfall tax on the offshore wind farm,” which would undermine that investment decision. There is a read-across from gas and oil to wider investment in energy and big infrastructure projects in this country.
This is not just a constituency matter for my right hon. Friend the Member for Gordon and myself, who have many constituents who work in the industry, have jobs related to it or are economically affected by it. As has been said, it also affects East Anglia, Morecambe bay and other areas. The supply chain permeates the whole of the UK economy.
Mr Kevan Jones: I congratulate the hon. Gentleman on standing up for his constituents; he is doing the right thing. Does he not find it remarkable that there are no Conservative Members in the Chamber from Morecambe bay or other areas that rely on the oil and gas industry, to speak up for that industry tonight?
Sir Robert Smith:
Those hon. Members may have chosen to speak in other ways; they can raise matters with Ministers directly or in correspondence. There are all sorts of ways of trying to influence Ministers. I am using probing amendments and this debate to try to do so. If I may say so, it is rather sad that the Committee
3 May 2011 : Column 607
has chosen to focus on such a major industry for the UK economy at 1.30 am, but—
[
Interruption.
]
Well, the House collectively chose that time.
I want to make two final points on the instability and uncertainty caused by such upheavals. Statoil is reviewing its investment. That does not mean that it will not go ahead at all or that some of the investment might be done differently, but in the reviewing time, Statoil’s supply chain will no longer have the ability to deliver. The supply chain does not have the cash flow to sit around waiting for Statoil’s review without affecting its employment, recruitment and subcontracting. The skills base that has built up has huge export potential and earns a lot of money for the country through exports to other oil and gas provinces, but the Government need to understand that that base needs a stable home environment to ensure that we anchor as much of those profits in the UK as possible.
Finally, I want to reinforce how crucial the mature fields are in unlocking future investment. Many of the investments being attracted today are much smaller than before, and they would not stand up if they did not tie back to one of the big platforms that still operate in the North sea. That is why I was somewhat concerned by some of the Treasury’s evidence to the Energy and Climate Change Committee. The Treasury said that petroleum revenue tax fields were now just cash-making fields, so they did not need any more investment—but the very age of those fields means that they do need investment. The Health and Safety Executive is very keen to keep a close eye on those fields: because of their age, the safety of their infrastructure is crucial. Moreover, investment could be vital in ensuring that that hub remains to unlock any smaller fields around the North sea.
Another uncertainty is introduced by clause 7 because of its relationship with the clause on decommissioning. In the Public Bill Committee the Government must address that new uncertainty, which builds on the uncertainty caused by clause 7.
I urge the Government to respond constructively and positively to the industry’s desire for an investment climate in which it can take all the risks on geology, weather, technology and the future of the commodity market, in the knowledge that a Government who see its long-term importance to the economy, and who therefore recognise the need to restore confidence in a stable fiscal regime, are behind it.
Helen Goodman: It is a great pleasure to take part in this debate and to follow the hon. Member for West Aberdeenshire and Kincardine (Sir Robert Smith), who made such a reasonable, well informed speech.
One question that has remained unanswered tonight is why the Government chose such a complex route rather than a much simpler windfall tax. Everyone understands that when the Government are looking for sources of funds, they will look at particularly profitable industries. However, the structure they have chosen means that investment in, and the future of, the industry have been brought into question. A far simpler structure would have raised the money without risking future work in the North sea oil and gas sector.
3 May 2011 : Column 608
The Red Book is peculiarly unclear. The supplementary charge was raised from 20% to 32%, but the Red Book states:
“As part of the fair fuel stabiliser, if in future years the oil price falls below a set trigger price on a sustained basis, the Government commits to reduce the Supplementary Charge back towards 20 per cent on a staged and affordable basis while prices remain low.”
However, the meaning of a “sustained basis” for a fall in prices and of a “staged and affordable basis” is not set out in the Bill.
1.30 am
It is particularly important that Ministers explain why they chose an oil price of $75 per barrel. It would really help the Committee to know what the Government’s forecast is for oil prices. They say in the Red Book that oil prices are extremely volatile, which of course is true, but what model are they using for forecasting? Twenty eight years ago, I was a junior official in Her Majesty’s Treasury, and I worked on something called the POP forecast. The POP forecast was not about lemonade, but about the prospects for oil prices in the long term. This model looked at the back-stop price for oil—in other words, the cost of making oil from coal—and at the time we estimated it would be $60 per barrel. What underlying model do the Government use for forecasting oil prices now? Are they looking at the cost of getting oil from shale? Are they looking at the cost of getting good-quality oil from, for example, Orimulsion? What is their model for forecasting oil prices?
As is evident to everybody who has attended debates in the Chamber for the past six months, the situation in the middle east and north Africa is particularly unstable, yet despite the current instability in the oil price the forecasts for revenue in the Red Book show a pretty constant level of revenue over the five-year period. Are the Government assuming that the level of oil prices will be constant over this five-year period? That seems to be an incredible assumption.
Andrew Gwynne: It is excellent that my hon. Friend is bringing her Treasury expertise to this debate. She is adding greatly to the discussion. Does she agree that one of the motives for the Government’s tax raid on the oil and gas industry is that they view it as the goose that laid the golden egg?
Helen Goodman: I defer to my hon. Friend’s knowledge of poultry-keeping. However, I agree that that is the problem that we face with the Government at the moment. Their approach simply is not serious; it is trivial.
Mr Kevan Jones: Does my hon. Friend not think it incredible that the Treasury officials whom she worked alongside for many years did not work out that there was a difference between oil and gas prices? Does she also not think it remarkable that the Minister, who is a former employee of Centrica and British Gas, did not highlight that problem either?
Helen Goodman:
That is absolutely right. It is extremely worrying for the gas industry that the tax is being linked to fluctuations in oil prices, yet gas prices might not only vary from oil prices, but possibly even be going in a different direction. This is an extraordinary approach
3 May 2011 : Column 609
to take to the taxation of one of our major industries. I hope to hear from Ministers about how they are forecasting oil prices over the period in the Red Book.
Returning to the issue of complexity and why the Government chose such a complex structure, we have to ask ourselves whether they completely misunderstood the debates in the previous Parliament on stabilisers. The Scottish National party and the Liberal Democrats proposed stabilisers on petrol taxation, but that seems to have been translated into the wholesale market. The situation now is not that stability is being provided for the consumer, which was the original objective of a stabiliser, but that the Government are able to hedge their tax revenues, which is a completely different proposition altogether. I hope that in responding to the debate the Minister will be able to explain what a sustainable oil price reduction means, because it is certainly not clear from what we have seen so far.
The other thing that was said at the time of the Budget was that the detail would be agreed with the industry and motoring organisations. I hope that we will get a report from the Minister on what discussions and agreements have been achieved. The initial press reports of her meetings with the industry were very alarming indeed. It sounded as though the industry was furious with what had happened and that Ministers did not have a proper answer to its serious concerns. It would be nice to know whether the negotiations have developed, although it seems from what we have read even today in the newspapers and on the web that they have so far not been fruitful. It would also seem that the Government, in their headlong rush, are not taking account of the fact that further evidence has yet to be given to the Select Committee on Energy and Climate Change. Indeed, that evidence is to be given only tomorrow, yet the Government are ploughing ahead, mindless of what the industry is telling them.
It is particularly worrying that, as my hon. Friend the Member for Denton and Reddish (Andrew Gwynne) has pointed out, Centrica is saying that it might not open up the Morecambe Bay field after the annual shutdown to perform the usual maintenance functions this year. The Morecambe Bay field has been in operation for, I suppose, some 40 years—I think it was the first gas field from which we got natural gas in this country. The Minister is too young to remember the huge investments made in the 1960s to move from town gas to natural gas. Huge investments were made in this country to secure those gas supplies, and yet at the stroke of a pen, this Government are putting them at risk.
When the Government say that they want to rebalance the economy, we have to ask whether they even know that means. I understood rebalancing the economy to mean having fewer resources in financial services and more resources in other sectors.
Mr Kevan Jones: The argument made strongly by the Government is that the north-east economy should rebalance itself away from the public sector and towards the private sector. Does my hon. Friend share the alarm felt by the 380 firms that directly rely on the oil and gas industry in the region about the effect that the Government’s proposals will have on employment in those companies?
Helen Goodman:
Of course. I am extremely concerned, as my hon. Friend and neighbour is, about the impact that the proposals will have on the economy of the
3 May 2011 : Column 610
north-east, and it will not be just a short-term impact, but a long-term impact. When we get investment in the oil and gas industry, we are getting investment in an industry at the cutting edge of technology. There have been many other positive spin-offs from the investments that the oil and gas sector has made.
Andrew Gwynne: That is precisely the point. The jobs in a lot of the support industries for the gas and oil industry are high-skill, high-tech and pretty well-paid jobs. Once we lose those skills in areas such as the north-west and north-east of England, they are gone for good. We need to support those industries, as well as the wider oil and gas industry.
Helen Goodman: That is absolutely right. The investment that the Labour Government tried to encourage in completely new energy industries such as the offshore wind industry used very similar skills. It is important to have a critical mass in these industries, and the achievement of that is now being put at risk.
It is not at all clear what the Government mean by rebalancing the economy. Our debate earlier this evening revealed a bizarre situation in which taxes on the financial sector are not tough enough, while taxes on the primary sector are over-strong. That is simply not going to take us down the route that we all want to go down.
Dr Thérèse Coffey (Suffolk Coastal) (Con): I do not know when the hon. Lady first came to the House, but she will recall that when the Labour Government first came to power, they imposed a windfall tax that punished the utility companies for their success. Now, this Government are trying to redress the balance, while recognising that oil prices are at an all-time high and that profits are being made simply through speculation. I am afraid that the hon. Lady is simply talking to the Westminster bubble. She should be thinking about how we can make a real difference to this country, rather than continuing to talk through the night.
Helen Goodman: I do not accept the hon. Lady’s analysis. Unnecessary complexity is one of the problems. A positive aspect of the amendments tabled by the right hon. Member for Gordon (Malcolm Bruce) is the improvement in transparency, stability and predictability that would ensue from them. Those things would simply not ensue from the Chancellor of the Exchequer’s proposals.
Mr Anderson: Does my hon. Friend agree that one of the differences between what is happening now and what happened in 1997 is that, in 1997, the Labour party went to the country to ask for a mandate to put in place a windfall tax on the energy companies, and that the people of this country voted for that?
Helen Goodman: That is a powerful point. What happened then contrasts with the total lack of consultation by this Government.
Mr Graham Stuart: The hon. Lady mentioned the Government’s policy on rebalancing the economy. One of the most important elements is to reverse the disastrous loss of employment in manufacturing under the Labour Government. More than 1.5 million jobs were lost and—
3 May 2011 : Column 611
The Chairman of Ways and Means: Order. We are straying from the amendments if we start talking about job losses. Let us try to keep as close as we can to the amendments before us.
Helen Goodman: I entirely accept your guidance, Mr Hoyle.
There is obviously a supply chain for the oil and gas sector. Equally obviously, if we damage the financial viability of the oil and gas companies, there will be an impact further down the supply chain. It is worrying that the industry is predicting that 40,000 jobs will be lost. Those are 40,000 jobs that we can ill afford to lose at this time. This is absolutely typical of the measures being taken by the Government that, across the board, are not being thought through. The statement by Statoil that it is going to put on hold a $10 billion investment is very worrying.
We also need to pay attention to the fact that the North sea province is different. It is not only a mature province—we all understand what that means—but it is in a very competitive arena. The Government do not appear to understand what being in a competitive arena means, or that those companies have a choice about where they invest.
David Mowat (Warrington South) (Con): At the current price of $120 a barrel, the average return on capital employed for a medium-sized field is roughly 40%. Do Labour Members think it right that oil companies should be making 40%?
Helen Goodman: I do not have the precise figure at the back of my mind and I am not going to pluck out of the air a particular number, which would be to behave as foolishly as Ministers. It is obviously necessary to look at the returns across similar fields in other countries and to consult the industry on the implications. I am sure that that will not have satisfied the hon. Gentleman, but I am afraid that it is my view.
1.45 am
What we are talking about here is a broken promise. We have had broken promises on taxes and broken promises on the North sea. A further question for Ministers is whether they can be confident that when they impose these taxes, they will not simply be passed back to consumers through higher petrol prices. It would be interesting to hear Ministers’ analysis of that.
David Mowat: The point about petrol prices has often been raised. The hon. Lady has mentioned both Centrica and Statoil. Does she believe that these are major petrol suppliers in the UK?
Helen Goodman: No, Centrica is a gas company. Oil companies, even if they do not have petrol companies within them in the UK, are selling their oil and gas to people who are delivering in the retail market. I would have thought that the hon. Gentleman understood that if something is being done with prices and taxes in one part of the market, it could have an impact on the prices charged in another part of the market. That was my point.
Let me deal now with the drafting of the Bill. Will the Minister explain why the $75 a barrel limit is not specifically mentioned in clause 7? As already mentioned, if we are to make any sense of what is going on here, we
3 May 2011 : Column 612
will need to look at clauses 61 through to 64 and at schedule 15 alongside clause 7. I would like to pay tribute to Rob Marris, the former Member for Wolverhampton, South West who always enjoined us to read the explanatory notes. The explanatory notes on clause 61, which deals with decommissioning, are particularly interesting. Has the Treasury or Revenue done any analysis of the impact on the environment of the changes to the rate of decommissioning relief?
The amendments in the group are also interesting. As I have said, the amendments tabled by Liberal Democrat Members are clearly aimed at improving stability, predictability and transparency. The amendments tabled by my hon. Friend the Member for Bristol East (Kerry McCarthy) are designed to review and understand the situation better. The most interesting amendment before us, however, is amendment 11, tabled by the Chancellor of the Exchequer. It is designed to insert the following provision into clause 7:
“But if the basis of apportionment in subsection (4)(b) would work unjustly or unreasonably in the company’s case, the company may elect for its profits to be apportioned on another basis that is just and reasonable and specified in the election.”
This is the most extraordinary amendment that I have seen in six years as a Member of Parliament. It seems that every company can say to Her Majesty’s Revenue and Customs, “The impact on another company might be ABC, but in our case it would be XYZ.” Every company will be allowed to negotiate not simply the interpretation of the tax code, but its own tax code.
Mr Kevan Jones: Obviously many other taxpayers would like to be able to negotiate their tax codes with the Inland Revenue, but I am sure that the opportunity will not be open to them. Where will this leave the amount of revenue that the Government will supposedly raise to pay for the reduction in petrol duty?
Helen Goodman: My hon. Friend has hit the nail on the head. This opens a huge hole in front of the Minister’s revenue forecast. There is total uncertainty. Every company will be able to turn up and renegotiate its own tax regime, which is ludicrous. How far will this be taken? Will it be a general principle established in the tax code for the purposes of all corporation tax, or personal tax? I hope that the Minister has a very good explanation for what is going on.
Let me return to the underlying worry that has been exposed in tonight’s debate—that the Government simply have not taken account of the importance of energy security. Everyone knows that the energy market is under a number of different pressures. On the one hand, we must have a market that is environmentally sensitive and reduces our carbon footprint; on the other hand, we must have prices that are affordable for people in this country and that tackle fuel poverty. We must also have security of supply in a world that is particularly uncertain at this time. Wars are taking place in north Africa and there is conflict in the middle east, and it is at this moment that the Government have chosen to impose taxes that are so insensitive that they put the North sea oil and gas regime at risk.
Mr Anderson:
I want to speak in support of amendment 10, but first I want to say something about the speech of the right hon. Member for Gordon (Malcolm Bruce). I
3 May 2011 : Column 613
am pleased that he has returned to the Chamber, because I was very interested in what he had to say. Most of those who have spoken in the debate on these amendments have done so on the basis of a degree of experience, which was not the case in earlier debates.
I wonder whether the case made by the right hon. Gentleman was made to the Government before the Budget. It appears from what was said by him and by the hon. Member for Dundee East (Stewart Hosie) that the industry has been saying to the Government for some time, “If you are going to do this, please talk to us and please make sure that we get it right.” The industry does not want to end up with the circumstances described by my hon. Friend the Member for Bishop Auckland (Helen Goodman), in which anyone could do whatever they want whenever they want.
If that information was shared with the Chancellor before he made his statement on 23 March, it would seem from what was said by the hon. Member for Dundee East (Stewart Hosie) about why he had ignored the voices of experienced people such as the right hon. Member for Gordon and those in the industry that the only thing that matches the Chancellor’s arrogance is his ignorance. Clearly he has decided to say, “I know better. I will impose this on the industry and on this country.”
This is not just about places such as Aberdeen and the north-west, because a huge amount of work is going on across the whole of Tyneside and the north-east of England. Some of the most advanced technical work anywhere in this country is being done there in very small factory units by very skilled men and women who are doing a great job. Shipyards have reinvented themselves after the closure programme of the 1980s and are building exploratory rigs and doing work that is vital to maintaining the skills base and developing the new work that we want to do. That will be development for not only the oil industry, but the offshore wind industry.
Mr Kevan Jones: A large number of individuals, many of whom live in my constituency and that of my hon. Friend, worked in former shipyards and heavy engineering firms in the north-east and now travel to Scotland and other areas where the UK oil and gas industry is based. They have very good jobs and choose still to live in the north-east. Does he agree that they are an important part of the wages that go into the north-east economy?
Mr Anderson: My hon. Friend is absolutely right. These people are rightly still among the most well-paid people in this country—why on earth should they not be, given the work they are involved in and the risks they take in their daily lives?
I worked underneath the North sea bed as a coal miner, so I have some experience of working in the energy industry. I am not the person to feel sorry for multinational oil companies, but if the Government take crass decisions that will have a massive impact on not only the industry, but the people who are dependent on it right across the board, we should surely question that. I have no problem with saying to the oil companies that we want them to play their part in trying to help us to get this country back on an even keel. Clearly, when companies such as Shell and BP are making huge
3 May 2011 : Column 614
profits, that discussion should take place, but it should happen before decisions as serious as this are imposed on people.
Some 450,000 people work in the industry. Our subsea industry is at the cutting edge and leading the world. People talk about what happened in the gulf of Mexico only a year ago, but the probability is that that will never happen in the North sea because of the experience we have gained over many decades of working up there. We lead the world and we should be proud of that, but this taxation surprise has made the industry question whether it should carry on being there, and clearly the oil industry can go to lots of other places in the world.
Helen Goodman: Does my hon. Friend agree that the expertise, research undertaken and skills gained on the UK continental shelf in the North sea enable British-based companies to explore successfully in the gulf of Mexico and the south China sea, and that from that exploration we also gain in income and investment from dividends overseas?
Mr Anderson: My hon. Friend is absolutely right about that. There is no doubt that as we move further forward and the exploration starts to take place west of the Shetland Islands, presenting new challenges, our people working in these industries will again lead the way. But that may not happen if companies are frightened away by a tax regime that is going to punish them. It will particularly punish them when it is a rabbit pulled out of a hat at the end of a Chancellor’s Budget, when it has not been discussed with the industry and when the industry has not been able to prepare, consider what it is doing and talk things through in a sensible and adult way in a genuine partnership to make these things work. As has been pointed out a number of times, Centrica has said this week that it is considering not reopening its gas fields off our north-west coast. That is a hugely important area of development and if Centrica decides not to reopen the fields they will just become sterile, like so many other of our energy reserves in this country over the past 30 years as a direct result of Government failures and inaction. It is clear that the Government have not thought this measure through, and the plea by the right hon. Member for Gordon is absolutely the right one, because they should think it through.
What will happen to the tax revenue in the meantime? That point was raised by my hon. Friend the Member for North Durham (Mr Jones). Clearly, the decision made on 23 March was that a certain amount of money would be raised by this attack on the North sea. If that money is not raised, either because of the discussions that go on or because the decision has changed, what will the Chancellor come back with? How will he fill the hole that will be left, at least temporarily, if we do not go ahead with the measure?
2 am
This decision has clearly been made for political gain. The Chancellor was on the back foot—he was on the run—because he had been knocked all over the place by the shadow Chancellor’s attacks about the impact that oil prices, petrol prices and, in particular, VAT on fuel were having on ordinary people and businesses in this country. As the Chancellor would not reverse the VAT on the petrol price at the pump, it was clear that he
3 May 2011 : Column 615
would have to find another way to fill that hole, and he did it through the rise in the North sea oil tax. It was clearly a huge mistake, made to cover up another political mistake. The mistake was not just the act of putting up VAT, but that of introducing a measure that was not supported and was in neither Government party manifestos nor the coalition agreement. Again, the proposal was sprung on the British people as well as the industry. There was no consultation with the industry, and when one says to a body such as Oil & Gas UK which represents a group of companies, that the effective tax rate on its profits will be 81%, it will go and look elsewhere in the world. If it can get a better return, that is where it will go. We should have been discussing that with the companies before they went.
It is plain to see that this measure has been a huge mistake—but I would say that. The criticism does not just come from me, however. I understand that the Treasury Committee is going to hear from a group that has been asked to report to it on the impact of the change in tax on offshore drilling to 32% from 20%—I was going to say that it would do that tomorrow, but it is probably today by now. One body, the Institute of Chartered Accountants in England and Wales, was critical of the North sea policy because it could deter investment in the area. It said:
“We understand the policy rationale for this decision but imposing unexpected tax charges with immediate effect is likely to cause damage to the UK’s competitiveness.”
The Association of Chartered Certified Accountants adds its disproval, saying:
“The increase in the rate of tax on ring fenced profits…was unexpected, and is understood not to have been subject to any consultation”.
“While the measure is clear, simple and targeted”—
clearly it is, as the Government just need to say to somebody that they will pay 20% today and 32% tomorrow—
“it fails on the principles of stability and supporting growth”.
The Conservatives lecture us constantly in the House on the idea that they are all about developing growth, but ACCA clearly does not think so.
Andrew Gwynne: Is that not exactly the difference between this measure and the example raised in an earlier intervention about the effect of the windfall tax on the privatised utilities? When Labour was in opposition before 1997, the party was in full discussions with the privatised utilities, which might not have been 100% happy with the proposal but were altogether certain that if the Labour party came to office, it would invest in our young people and get them back to work.
Mr Anderson: My hon. Friend is correct. That debate went on in the Labour party for a long time long before that election. It was quite clear to the industry and to the people of this country that if they voted Labour on 1 May 1997, we would impose a windfall tax. Discussions had been going on and the companies were able to absorb the idea and plan for that.
“The sudden change in rate came as a shock to those involved in the North Sea oil industry”—
3 May 2011 : Column 616
the change was not a shock in 1997, because companies had been able to prepare for it—
“and has been widely condemned as reducing the competitiveness of the UK as a target for investment”.
Mr Kevan Jones: Does my hon. Friend agree that the windfall tax, which was a one-off tax and quite clearly understood, was different from what we are facing today with this tax increase, which is a potentially fluctuating tax that gives uncertainty to oil and gas producers about the level of profit they will make long term on their investment in the North sea or anywhere else?
Mr Anderson: In the learned advice that she gave, my hon. Friend the Member for Bishop Auckland spelt out more clearly than anyone else in this debate that nobody seems to know what people will be paying in tax. Nobody knows whether they will be paying anything or whether they will be able to say, “I want to get away with this while you get away with that.” That is absolutely ludicrous; even if we accept that the tax should be imposed, people at least need to know what the Government are going for.
Hugh Bayley: I wonder whether my hon. Friend has read the article in today’s edition of The Guardian entitled “Accountants attack Osborne’s North Sea oil levy”, which reports on the ACCA report that my hon. Friend has just mentioned. It also reports the Chairman of the Treasury Committee as saying:
“Every time we do the unexpected, future business is deterred. It’s crucial we construct a tax system around the principles of certainty, simplicity, stability as well as fairness. The only beneficiaries of complex changes are tax accountants and tax lawyers—the very people who are complaining.”
Mr Anderson: I have read that report. Whatever hon. Members’ views, we respect the Chair of the Treasury Committee as someone who has done a good job for the people of this country and for the House, and when he says such things, hon. Members should listen. He is not someone who should be ignored: he speaks not from arrogance or ignorance but from a lot of knowledge. His Committee has undertaken a rapid investigation of an issue that is of massive importance to the country.
We have been here before with Tory Governments, who have a long history of making crass policy decisions on energy. In the 1930s, the Tories presided over a coal industry that was in internal decline and had massive problems, with more than 1,000 men a year being killed in the industry and with no investment whatever. Those men were using 19th-century technology—life was cheap and people were not allowed to live decent lives. The situation was pushed back after the war when the Labour Government came in and nationalised the coal industry.
Then there was another repeat in the 1980s. My hon. Friend the Member for Bishop Auckland has mentioned the POP forecast and the pricing of oil according to how much it costs to get oil from coal. In the 1980s, we led the world in getting oil from coal, but that industry was destroyed at the whim of the then Government, who did that for political reasons. I can see that you are getting annoyed, Mr Hoyle, which is not like you, so I shall move on rapidly.
3 May 2011 : Column 617
The truth is that Tory Governments, and not just in the past, have taken policy decisions that were to the detriment of the energy system in this country. That is being confirmed today, because this is not just about the oil industry. As has been discussed in debates on the solar power industry, Ministers have changed the rules halfway through a process. I have received a letter from a company in my constituency saying that it is involved in a number of projects in which clients want to build solar arrays that do not fulfil energy requirements. Funders and clients are now cautious because of the uncertainty caused by the policy change halfway through discussions. The industry had been told that it would be able to set targets at a certain level, but that level was later changed and the same thing is happening now. If the Government spring surprises on companies that are investing in energy policy, those companies will not know where they are and will look at other markets. As I have said before, I am not one to stick up for the oil companies, but I am one to stick up for this country and the workers of this country, and this part of the Bill, along with many others, is detrimental to the workers and the people of the country.
Mr Kevan Jones: Let me begin by congratulating the right hon. Member for Gordon (Malcolm Bruce) and the hon. Member for West Aberdeenshire and Kincardine (Sir Robert Smith) on their amendment. They clearly care about the industry, know a lot about it and are arguing vociferously on behalf of their constituents. From the body language of the Economic Secretary and the Financial Secretary, it looks as though the right hon. Member for Gordon and the hon. Member for West Aberdeenshire and Kincardine are two unwelcome relatives at a wedding who had been forgotten about but turned up and started to argue about how this was not part of the wedding deal of the coalition.
The amendments raise serious concerns about the effect of the Budget not just on the constituencies of the right hon. Member for Gordon and the hon. Member for West Aberdeenshire and Kincardine, but on many others throughout the UK. I would have expected Members on the Government Benches who have oil and gas interests in their constituency—Morecambe bay has been mentioned, as well as the gas fields off the coast of East Anglia—to speak in the debate, yet we have not had a single contribution from the Conservative Benches. That should be noted by constituents who rely on the oil and gas industry for their livelihood. I am sure that if the former Member for Morecambe and Lunesdale were still a Member of the House, she would have been vociferous in making representations on behalf of her constituents. I hope she is watching the debate, even at this late hour.
The decision announced in the Budget to increase the supplementary charge on North sea oil was taken at the last minute, without any consultation with the industry. It led to the ludicrous situation mentioned by the right hon. Gentleman, with the profits of some of the mature fields being taxed at 80%. We are constantly told by the Conservative part of the coalition how important private sector growth is to the future of the UK economy.
There is no better example than the oil and gas industry. It is an economic engine for the UK economy. In 2010 alone it invested some £6 billion into the UK economy. It creates and supports more than 440,000
3 May 2011 : Column 618
jobs, not just directly in the industry, but way down the supply chain and across the UK, as my hon. Friend the Member for Blaydon (Mr Anderson) noted. More importantly, it produced in 2010-11 some £8.8 billion in corporation tax for the Treasury, and it is estimated that for 2011-12, with the increase in the oil price, that revenue take will be about £13.4 billion. To treat such an important industry in the cavalier way that the Government have treated it is a disgrace.
I feel for the right hon. Member for Gordon. He said that the Government were listening, but I am not sure they are. I ask him to look at the report of the Treasury Committee’s meeting of 29 March, where the Treasury said:
“The 81% rate applies only to those mature fields where there is no further exploitation taking place that pay petroleum revenue tax. It is quite a high rate but, equally, there is not an issue with further investment needed there, and the oil is coming out of the ground. That is a pure”
Members asked whether that had been looked at in any detail. The Treasury went on to say that
“the Treasury does a lot of work on all the tax levers on an ongoing basis.”
It is clear from talking to the industry that investment in those mature fields is needed. For example, Total E&P UK says that production at mature fields will cease without further investment. The Alwyn area is a good example of why activity and investment need to continue. I accept that the industry requires a huge amount of start-up investment, but there is also an increasing need for investment over time. For example, Total has stated in its submission that investment is needed in the Alwyn field not only for ensuring that the field is secure and safe, but for living accommodation and other investments. It is absolute nonsense to suggest that such mature fields do not need continued investment, and to tax them at 81% or 82% is, frankly, ridiculous.
2.15 am
Another point, which has been mentioned by my right hon. Friend the Member for Croydon North (Malcolm Wicks) and the hon. Member for Dundee East (Stewart Hosie), is that as technology has improved we have been able to get more oil and gas out of what in the past would have seemed very mature fields. That is happening not just in the UK, but internationally. Through this short-term fix to try to sort out the issue of fuel prices, we will leave oil and gas in the ground. As my hon. Friend the Member for Blaydon mentioned in relation to the coal industry, after stepping away from such resources we cannot simply go back years later and recover them. It needs to be extracted now, which leads to the point about security of supply for oil and gas.
Ian Mearns: I must say that I am completely overcome by the power of my hon. Friend’s argument and wonder whether the right hon. Member for Gordon and his hon. Friends on the Liberal Democrat Benches really want to argue at this stage for a late codicil to the coalition agreement on the issue.
Mr Jones:
I have known my hon. Friend for more than 25 years, and I think that this is the first time he has ever been overcome by something I have said—it might be the first time he has ever listened to anything I have said. The idea of leaving oil and gas in the ground
3 May 2011 : Column 619
and not extracting it is absolutely ludicrous. It makes no sense whatsoever with regard to the investment that has already been made, and it makes no economic sense with regard to security of supply in this country.
Helen Goodman: Does my hon. Friend agree that the problem is that the Government have no strategy? Just as they panicked when they realised that they had a fiscal hole to fill in the few days before the Budget, so they have now panicked with this ridiculous amendment 11.
Mr Jones: My hon. Friend has done the Committee a favour by drawing our attention to amendment 11, and that is something that we will all want to be argued for in the case of individual tax returns. The point of the matter is this: if the results are what has been suggested, how on earth will the Government be able to predict how much they will get from this tax?
Helen Goodman: Does my hon. Friend agree that it is also not clear, when a company negotiates its own tax regime, whether it will be a secret tax regime, or one that everyone will know? If it is secret, does that not open up the possibility of even more unfairness?
Mr Jones: It does, and that leads us to the point about how we would arbitrate in disputes between different companies. My hon. Friend the Member for Aberdeen South (Dame Anne Begg) mentioned the fact that decisions on investment in oil and gas are not taken in this country, but in Houston, Calgary and other parts of the globe, so the North sea and exploration in this country is competing for investment from around the world. If companies have to jump through hoops to negotiate their individual tax liabilities before trying to put an appraisal together, I am sure that decision makers will go for the easier options so that they know what the return on investment will be, rather than the uncertainty that this has left us with.
Dame Anne Begg: If it is necessary to bring in all sorts of complicated extra things to mitigate the effects of a tax and make it appear fairer, surely the original tax is fundamentally flawed and should never have been introduced in the first place.
Mr Kevan Jones: My hon. Friend makes a very good point, and her point about investment will increasingly be thought of when making such decisions.
That brings us to the question of what the decision-making process was when coming up with this tax. We have already had the ludicrous situation whereby even a Minister who practically used to work for a gas company did not recognise the difference between gas and oil prices. In my experience as a Minister dealing with Treasury officials, I always thought that they knew what they were talking about, so I am surprised that the Treasury allowed this measure to get through, because everyone knows the difference between the prices of the two.
We have already seen the effects of that this week, with the possibility that Centrica might turn off investment in Morecambe bay, and I am sure that the Minister will be off the company’s Christmas card list next year
3 May 2011 : Column 620
unless she does something radical to change what has been proposed. That decision will not only mothball a gas field that would have provided this country with gas for years to come, but write it off.
What will we do instead? We will import gas, which does not make sense economically or for energy security, especially when we look at where the large concentrations of gas are in the world—the former Soviet Union, parts of the middle east and, lo and behold, north Africa. Any idiot can work out that even Morecambe bay, and possibly Blackpool on a rowdy Saturday night, is more peaceful than north Africa or parts of the former Soviet Union, so it is important that we take seriously the comments of companies such as Centrica, which have invested over many years and not just in oil and gas fields but, as my hon. Friend the Member for Blaydon said, in new technologies.
It is a dirty industry, but it is also a leader in new technologies, such as robotics and drilling, and, owing to the difficulty of extracting oil and gas from parts of the North sea, we have been able to develop new techniques that are now used throughout the world. That is why many UK companies are leaders not only in this country, but throughout the world.
It has also become increasingly clear that the tax rate will have a real effect on the economy of north-east England. I accept that hon. Members who represent Scottish constituencies feel passionately about the issue, but the measure will have a dramatic effect in the north-east, too. The Conservative part of the coalition tells us that we in the north-east should grow the private sector, but the oil and gas industry is a very vibrant part of the private sector. Indeed, my hon. Friend has already mentioned the sub-sea sector, which supports 10,000 jobs and 380 firms in the north-east.
Andrew Gwynne: Like my hon. Friend, I feel passionately about those jobs in those cutting-edge industries. Is not the issue to protect jobs today and invest in future jobs in the north-east and the north-west, including in things such as apprenticeships?
Mr Kevan Jones: It is, and the north-east has been able to take advantage of the change in, for example, the River Tyne, which was heavily dependent on shipbuilding. Now we have facilities such as the Walker technology park, and the city council was far-sighted when it developed an offshore park for the North sea oil industry.
Helen Goodman: Does my hon. Friend agree, as the hon. Member for Dundee East (Stewart Hosie) said, that there is also—
Christopher Pincher (Tamworth) (Con): Turn around.
The Chairman of Ways and Means (Mr Lindsay Hoyle): Order. Can you face the Chair, please? Thank you.
Helen Goodman: There is also a problem with partnerships between the private sector and the universities.
Mr Jones:
There is indeed. There are also new technologies. For example, the development of mine ploughs for mining the North sea bed for the laying of oil pipes was generated from a company that spun out
3 May 2011 : Column 621
of Newcastle university. Places such as the Walker technology park sustain offshore supply jobs for the North sea, and two companies based there—Duco and Wellstream—produce 90% of the world’s capacity of sub-sea umbilical housing and cords. Those are well-paid jobs. Such companies chose to invest in the north-east of England not only because of the skills base but because of the access to the North sea, and they are now able to export from there across the world.
George Rafferty, the chief executive of NOF Energy, says:
“For the last six to nine months we have been talking about a renaissance in oil and gas especially from the North Sea and the benefit to our members in the North-East as a result of investment being put in. With this announcement by the Government, which was made without consultation with the industry, there is a serious risk those investment decisions will be reversed.”
The industry body Oil & Gas UK said that the tax would not be passed on to consumers after the Chancellor warned that the sector faced a “direct squeeze” from it. That is exactly the uncertainty that exists today. It does not affect only the jobs in the north-east region itself. We have a large travelling population of individuals who travel to work via the North sea; they go across to Morecambe bay to work in the gas fields, and to East Anglia and other parts of the UK. That shows that this is an industry that affects numerous parts of the UK economy as well as the north-east. We have to ensure that any decisions that are taken on taxation do not have a huge detrimental effect.
It is necessary to know what is going to be done when making decisions about where future oil and gas investment will go. Unfortunately, some companies have already invested in oil or gas fields on the basis of what the tax regime was going to be pre-Budget, and they now face a completely different set of circumstances. For example, Total E&P UK has established Laggan-Tormore—the west of Shetland gas development—and that investment of $4 billion is now at risk. Questions will be asked by the individuals who made the decision to invest there. What will be the future of that type of investment?
This is clearly short-termism for reasons of political expediency to do with the Chancellor. In the previous debate, we even got an admission from the Minister that the downturn in the petrol price was 0.8%—and we all know what we can do with 0.8 of a penny in our household budgets! Is it really worth making that type of fix, which will jeopardise not only the investment that has gone in to date but will go in in future? This is a world-class industry of which we should be proud in the UK. It sustains many jobs. Over the years, it has been a leader not only in technology but in safety, as my hon. Friend the Member for Blaydon mentioned.
I take no joy in what I am going to say now. I feel sorry for the right hon. Member for Gordon and the hon. Member for West Aberdeenshire and Kincardine, because I fear that they will feel the political consequences of this in the ballot box. I hope that with their expertise and continued lobbying, they can change the Government’s mind. A short-term decision based on the petrol price will have a huge economic impact on the UK, on the industry as a whole, and on the economy of the north-east. I urge the Government to think again. I do not know whether they will take silly decisions like this in the future, but please can they do a U-turn for the sake of the investment and jobs that they will put in jeopardy if they continue with this ludicrous policy?
3 May 2011 : Column 622
2.30 am
Justine Greening: I will start by explaining why we introduced the increase in the supplementary charge rate. I will then cover the Opposition amendment and respond to the amendments tabled by my right hon. Friend the Member for Gordon (Malcolm Bruce) and my hon. Friend the Member for West Aberdeenshire and Kincardine (Sir Robert Smith) before explaining the two technical Government amendments.
I appreciate the constructive amendments tabled by my right hon. and hon. Friends. They have put a lot more thought into finding a way through the challenges than the Opposition, and I appreciate the points that they raised. I reassure them that we are working closely with the industry. We have met with its representatives on a number of occasions: I have met with them, as has the Chancellor of the Exchequer, and officials recently went to Centrica’s office to look through its calculations on field allowances and profitability. We are discussing with Oil & Gas UK and individual companies precisely the issues that have been raised in this debate.
The broad rationale for the increase is that the Government are abolishing the fuel duty escalator and replacing it with the fair fuel stabiliser. Clause 7 forms the second part of the stabiliser, which ensures that when oil prices are high, as they are now, and oil and gas production is more profitable, the companies that benefit more from that are asked to pay more. The hon. Member for Blaydon (Mr Anderson) fairly acknowledged that, and we are seeking to ensure that we do it in the right way, as he said we should.
Mr Anderson: Is not the point that this debate should have happened before the Chancellor made the decision, not afterwards?
Justine Greening: Realistically, it is not always possible to discuss rate changes with the industries concerned. It is not done as a matter of course, but the point about working with the industry to ensure that we understand the impact on more marginal investments is valid, and that is precisely what we are doing.
The clause increases the rate of the supplementary charge, which is a tax on the profits of oil and gas production, from 20% to 32% from 24 March this year. It is fair to point out that oil prices have increased from $77 a barrel at the time of the June 2010 Budget to about $125 a barrel today.
Dame Anne Begg: Plenty of other companies and industries deal in commodities whose prices go up, and plenty of other companies and industries make huge profits, but can the Economic Secretary name one other industry where the marginal rate of tax is 81%?
Justine Greening:
The point is that we faced an increase in oil prices that had fed through pretty directly to pump prices. The increase in the cost of fuel was not just impacting on motorists, but having a huge impact on hauliers, on the cost of living and on businesses. We had to decide what was the right thing to do. I think that the right and fair thing to do was to share the burden by taking some of the additional profits that oil companies were making—profits at a level that far exceeded the projections of the companies when they made those investments. I will come on to answer the
3 May 2011 : Column 623
question from the hon. Member for Bishop Auckland (Helen Goodman) about projected future investment. I will give a telling statistic that makes my point very well.
We expect pre-tax profits from oil and gas production in the UK to be £24 billion in the current tax year, which is a 50% increase in just two years, primarily as a result of the increased oil price. Oil companies can afford to pay a bit more, but hard-pressed motorists, hauliers and businesses deserve to pay less.
Dr Whiteford: I am pleased that the Economic Secretary recognises the impact that fuel prices have been having on business and hauliers, particularly those in more remote and rural areas. It is precisely those areas, including the parts of north-east Scotland represented by myself and by the right hon. Member for Gordon (Malcolm Bruce) and the hon. Member for West Aberdeenshire and Kincardine (Sir Robert Smith), who tabled the amendment, that face a hugely disproportionate impact on jobs and investment in the oil and gas sector.
Justine Greening: We have just agreed to clause 19 without either the Scottish National party or the Labour party having divided the House. If we are willing to accept the cost of the motoring package in clause 19, which I think we all accept was badly needed to support motorists, hauliers and businesses, we also have to accept some responsibility for putting in place a way of funding it. Clause 7 is how we will do that.
Dame Anne Begg: Will the Economic Secretary give way?
Justine Greening: Let me make a bit more progress, because Members have raised some real concerns and I want to ensure that I respond.
The Government recognise that we need to act as a good custodian of the UK’s natural mineral wealth; at the same time, we need to manage a tax regime that tailors the level of tax to the level of profits available from the UK continental shelf. The UK’s oil and gas reserves are a finite resource that belongs to the nation. Current oil production was not sanctioned on the basis of the high prices from which the industry benefits today. Those unexpectedly high prices and profits have arisen due to geopolitical events in the middle east and north Africa, as we have heard, and the Government must ensure that they secure a fair return for the UK taxpayer, particularly given the impact that oil prices are having on the broader economy outside the oil and gas exploration industry.
Stewart Hosie: But the tax rate was 50% before. Although clause 19 has been agreed to, it ought to have been paid for by the windfall that the Government got because of last year’s rise in the barrel price and by the windfall over and above the 2010 forecast that the Government are going to get this year. The problem is that what the Government have done with this tax grab, this 60% hike in the supplementary charge, is likely to damage investment and jobs and weaken economic recovery. It is not necessary to pay for clause 19—the money was already banked.
3 May 2011 : Column 624
Justine Greening: I only wish that the hon. Gentleman’s assertion was correct. The previous Parliament debated this very issue, and I think it was responsible of the new Government to get the independent Office for Budget Responsibility to examine it, given that there had been conflicting assessments from different industry watchers and think-tanks. The OBR was very clear that although we received some extra revenue from the North sea as a result of higher prices, the impact of higher oil prices is far more wide-ranging. We can see that from the debate that we have had over a number of weeks, which continues tonight, about the impact of oil prices as they feed through to high pump prices.
I remind the hon. Gentleman of his own words about how to pay for the stabiliser back in 2009. He said:
“That amount could come from the VAT windfall or the North sea windfall, because it would be directly related to the price of oil.”—[Official Report, 13 May 2009; Vol. 492, c. 908.]
I know that he was talking about the direct revenues that he has just mentioned, but I think he was also making the broader point that a more general windfall accrues to the North sea industry when oil prices are high. I will talk briefly about some of the steps that we want to take to ensure that we mitigate the risks involved in the more marginal investments, so that we manage the concerns that have been raised, particularly by Liberal Democrat Members.
Amendment 10, which was proposed by the Labour party and spoken to by the hon. Member for Bristol East (Kerry McCarthy), would require the Chancellor to
“produce, before 30 September 2011, an assessment of the impact of taxation of ring fence profits on business investment and growth including an assessment of the long-term sustainability of oil and gas exploration in the North sea”.
As I have said, I want to reassure hon. Members that we are engaged closely with the industry. In fact, we explicitly mention in the Budget document that we want to work with the industry on field allowances, particularly those on marginal gas fields. Since coming to power, we have engaged closely with the industry, as my hon. Friends are aware. We have introduced a change to the ultra-high-pressure, high-temperature field allowance to ensure that the fiscal regime was appropriate to those prevailing circumstances.
The Government are keen to continue working with the industry. I have personally met representatives of Statoil and Centrica and spoken directly with them about their individual concerns. As I am sure the right hon. Member for Gordon is aware, Wood Mackenzie explicitly pointed to the Mariner and Bressay oil fields as two of the few fields where there would be an uneconomical impact, but for a variety of reasons, a number of technical challenges associated with those fields already made them a challenging investment. Nevertheless, we are working directly with Statoil to look at whether field allowances can be developed to help to unlock that investment.
The Government published our assessment of the impact of the measure in a tax information and impact note at the time of the Budget. Although we do not expect the measure to have a significant impact on investment or production in the forecast period, as I have said, we are working closely with the industry. First, we want to look at field allowances to see how we can unlock those more marginal fields, and secondly, we
3 May 2011 : Column 625
want to look at the longer-term issues that the industry is keen to address, including, for example, achieving more certainty on decommissioning.
Of course, the Government expect that the average post-tax profits per barrel will be higher over the next five years than it was over the past five years because of the higher oil price. In its analysis of the Budget, industry analyst Wood Mackenzie stated:
“At current high oil prices, few new projects will become uneconomic as a result of the change”,
However, we want to do what we can to ensure that investment is unlocked for those projects that remain at risk, so that they go ahead.
Helen Goodman: I am just a little concerned about how the Minister expressed herself in her most recent remarks. My understanding is that Ministers are not supposed to be privy to the individual tax bills faced by individual taxpayers. From what she is saying, it sounds as if a line has been stepped over when it perhaps should not have been.
Justine Greening: I do not think that that is true. It is perfectly normal and reasonable for the Treasury to work with industry and individual companies to look at the particular problems that they face. That is exactly what the previous Government did, and they introduced field allowances. There is no substance at all to the hon. Lady’s claim. In fact, she would have more justification for complaint if we were not taking such action.
As I have said, the recent very high sterling oil price has resulted in unexpectedly high profits for oil and gas companies, although at the same time it has resulted in financial pain for motorists and the wider economy. The Government therefore decided that it was appropriate to increase the rate of supplementary charge, to redress that imbalance. The fact that we have acted in that way does not mean that we do not appreciate the impact of taxation. However, we believe that investment in an exploration of the UK continental shelf will continue, driven by the record high oil price.
The hon. Member for Bishop Auckland (Helen Goodman) asked about forecasting. Of course, there is a range of industry forecasts on future oil prices, but the Government use the OBR, which is entirely independent of us. The OBR forecasts an oil price for the forthcoming years of this Parliament in excess of $100 a barrel for every year of that period.
2.45 am
That brings me to the work of Professor Kemp, briefly mentioned by hon. Members. We are aware of his analysis of the impact of the increase in the supplementary charge. That analysis makes it clear that when considering the impact on investment, the tax increases are far less important than either oil and gas prices or the hurdle rate for investment adopted by individual companies. In fact, Professor Kemp’s analysis points to only a small impact on activity at the level of prices expected and using the level of screening hurdle most commonly employed by active investors. Of course, however, we need to ensure that on those marginal fields that are impacted, we work hard with the industry to ensure that investment can nevertheless take place.
3 May 2011 : Column 626
Mr Kevan Jones: In response to my hon. Friend the Member for Bishop Auckland (Helen Goodman), the Minister talked about negotiations she is having with individual oil companies. Is the revenue from fields going down? If so, from where is she providing compensation to fill the gap, or is she not giving any money away at all in these negotiations?
Justine Greening: The hon. Gentleman is missing the point that because of the high oil price there is continued investment in the North sea. Interestingly, Professor Kemp’s optimistic scenario is $90 a barrel and 70p per therm, but as I just said, the OBR has projected independently that oil prices over the next five years could be more than $100. That is $10 higher than the most optimistic scenario in Professor Kemp’s analysis.
Stewart Hosie: It is worth pointing out the Professor Kemp states that his projections are all in real terms, so they increase yearly with general inflation, and he gives three different scenarios for a barrel-of-oil price plus the therm price. In each instance—I will be very accurate here—field investment is reduced by £19.2 billion, by £19.5 billion or by £29.1 billion. Those are 30-year forecasts. For the sake of accuracy and completeness, therefore, I am sure that the Minister will agree that Professor Kemp and Linda Stephen’s work points to reduced investment over all the scenarios investigated.
Justine Greening: I just said that we accept that there will be a marginal impact; however, Wood Mackenzie has said that it does not expect that marginal impact to be high. If we look at Professor Kemp’s optimistic scenario of $90, which is less optimistic than what the OBR is projecting, and then use the hurdle rate most commonly used by most companies, we see that in the high-price scenario, total future projects are expected to fall from 1,099 to 1,074—a 2% reduction. We are saying that we recognise that. We therefore believe that the challenge is now for us to work with the industry to ensure that we can mitigate the risk to that 2% of investment.
I turn briefly to the amendments in the names of my right hon. Friend the Member for Gordon and my hon. Friend the Member for West Aberdeenshire and Kincardine. Clearly, the amendments enabled them to make the points they wanted to make, but I think they would accept that the way in which their proposals would operate could mean that the supplementary charge rise started later and lasted potentially for a finite time. It might also have a staged approach. All those things would mean that the funding would not be in place to fund the package we want to introduce for motorists. I stress, however, that as my right hon. Friend the Member for Gordon said at the end of this comments, the way through this is to ensure that we work with the industry. I am pleased with the engagement we have now had with the industry. We have got through our first meeting with industry representatives after the Budget, which was a chance for them to set out their reaction to a tax rise we did not anticipate they would welcome.
The Government amendments demonstrate that we are engaged with the industry and are listening to its concerns. In fact, as a result of that engagement we wanted to address a technical issue that had arisen
3 May 2011 : Column 627
involving the basis proposed for the apportionment of profits. The Government’s amendments seek to address that. The legislation provides for how profits in an accounting period that straddles the date of the rate increase are to be split, so that the two tax rates can be applied to the appropriate amounts of profits. Government amendment 11 provides that a company may elect for a just and reasonable basis to be used where a time apportionment would give an unjust or unreasonable result.
We have proposed amendment 11 to take account of the concerns of industry. The amendment has an Exchequer cost of £40 million in 2011-12 only. We feel that the change is worth while because it ensures, for example, that the tax change does not affect the tax liability due in respect of transactions that were wholly completed before the Budget and that should not, therefore, have been affected by the rate change. The change follows an approach that the industry has suggested and shows that the Government are willing to change the detail of the delivery of their stated policy aims where evidence of unforeseen effects is presented by the industry. I urge hon. Members to accept the change.
This Government will carry on working with the industry on providing certainty in respect of decommissioning tax relief. Industry and officials will be engaging closely on that important piece of work in the coming months, and as previously mentioned, officials and Ministers are closely engaging with the industry in relation to the marginal field developments. We explicitly said that we would do that in the Budget, and we are now following up on that desire to ensure that investment continues to be unlocked. The concerns of gas producers are also being discussed with them. As I have mentioned, the Government are also seeking the views of oil companies and motoring groups about the level of the trigger price for the supplementary charge, and how the oil price for that purpose is to be determined. That informal consultation will be take place shortly, and we expect to be able to clarify the policy mechanism in the autumn.
We want to ensure that the Exchequer obtains a fair share of the value of our natural resource wealth while ensuring that the tax regime does not impede the development of the basin’s potential. The impacts of the measure are understood, so no further assessment is required, and I urge the Opposition not to press the amendment. It is impossible not to note that they voted—[ Interruption. ] I was actually referring to amendment 10, which I would have thought Labour Members would recognise, having proposed it—although I suppose that anyone who has voted for a tax cut on fuel duty, even though they have no way of paying for it because they have set out their stall against getting the funding mechanism from the oil companies, might be expected not to have followed the arguments that I have set out.
The amendments proposed by my right hon. Friend the Member for Gordon are well intentioned. Let me reassure him once again that we are listening to representations from the industry and acting to ameliorate unforeseen effects. I therefore urge hon. Members to accept the Government amendments. The clause puts in place a fair fuel stabiliser, ensuring that we can pay for much needed help for motorists up and down the country.
3 May 2011 : Column 628
The clause also ensures that motorists and businesses suffer less pain from high prices at the petrol pump as a result of higher oil prices that would otherwise simply increase the profits of oil companies.
Malcolm Bruce: We have had a very useful debate, in which Members from all parts of the Committee have had the opportunity to express some pretty forceful points of view about the industry, as well as present facts from well informed sources. It is perhaps unfortunate that it is so late, but this still stands on the record as a valuable debate.
I thank the Minister for her constructive response and for the information about the Government’s detailed engagement. It would be fair to say that the immediate situation after the Budget was that the Government mounted a robust defence of their line against an industry that was shocked at what it heard. Perhaps the first meeting was less than constructive, although it is clear that things are now moving in the right direction. The amendments in my name and that of my hon. Friend the Member for West Aberdeenshire and Kincardine (Sir Robert Smith) suggest how we might have liked the Government to proceed. We recognise that the die has been cast, although it is important that the Government should continue to engage with the industry to understand the issues of competitiveness, because the oil price is worldwide and the UK has to compete for that investment.
It is also important to take on board the fact that although the losses in production and investment might be considered marginal, we are talking about margins on huge sums of money and huge resources. In other words, we are talking about 1 billion to 2 billion barrels of oil-equivalent, which is worth £70 billion to £100 billion, and £20 billion-plus of potential lost investment. It is important that the engagement between the industry and the Government finds solutions that can deliver the revenue that the Government need and are entitled to accept, given the very high prices, as well as delivering to the country the investment in long-term production that it needs. I believe that this debate has made a substantial and useful contribution. I welcome the Minister’s response to it, and I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Amendments made: 11, page 3, line 13, at end insert:
“(4A) But if the basis of apportionment in subsection (4)(b) would work unjustly or unreasonably in the company’s case, the company may elect for its profits to be apportioned on another basis that is just and reasonable and specified in the election.”
Amendment 12, page 3, line 16, leave out “subsection (4)” and insert “subsections (4) and (4A)”.
Amendment proposed: 10, page 4, line 7, at end add:
“ (11) The Chancellor shall produce, before 30 September 2011, an assessment of the impact of taxation of ring fence profits on business investment and growth including an assessment of the long-term sustainability of oil and gas exploration in the North Sea.”—(Kerry McCarthy.)
Question put, That the amendment be made.
The Committee divided:
Ayes 27, Noes 253.
[2.55 am
AYES
Anderson, Mr David
Bayley, Hugh
Begg, Dame Anne
Brown, Lyn
Campbell, Mr Alan
Cooper, Rosie
Cunningham, Tony
Flynn, Paul
Glindon, Mrs Mary
Goodman, Helen
Gwynne, Andrew
Hanson, rh Mr David
Hosie, Stewart
James, Mrs Siân C.
Jones, Mr Kevan
MacNeil, Mr Angus Brendan
McCarthy, Kerry
Mearns, Ian
Robertson, Angus
Rotheram, Steve
Smith, rh Mr Andrew
Spellar, rh Mr John
Turner, Karl
Weir, Mr Mike
Whiteford, Dr Eilidh
Winterton, rh Ms Rosie
Wishart, Pete
Tellers for the Ayes:
Phil Wilson and
David Wright
NOES
Adams, Nigel
Aldous, Peter
Alexander, rh Danny
Amess, Mr David
Andrew, Stuart
Bacon, Mr Richard
Bagshawe, Ms Louise
Baker, Norman
Baker, Steve
Baldry, Tony
Baldwin, Harriett
Barclay, Stephen
Barker, Gregory
Barwell, Gavin
Bebb, Guto
Bellingham, Mr Henry
Benyon, Richard
Beresford, Sir Paul
Bingham, Andrew
Binley, Mr Brian
Blackman, Bob
Blackwood, Nicola
Blunt, Mr Crispin
Boles, Nick
Bottomley, Sir Peter
Bradley, Karen
Brake, Tom
Bray, Angie
Brazier, Mr Julian
Brine, Mr Steve
Brokenshire, James
Bruce, Fiona
Bruce, rh Malcolm
Buckland, Mr Robert
Burns, rh Mr Simon
Burrowes, Mr David
Burstow, Paul
Burt, Alistair
Byles, Dan
Cairns, Alun
Carmichael, rh Mr Alistair
Carswell, Mr Douglas
Chishti, Rehman
Clark, rh Greg
Clifton-Brown, Geoffrey
Coffey, Dr Thérèse
Collins, Damian
Colvile, Oliver
Cox, Mr Geoffrey
Crouch, Tracey
Davey, Mr Edward
Davies, David T. C.
(Monmouth)
Davies, Philip
de Bois, Nick
Dinenage, Caroline
Djanogly, Mr Jonathan
Dorrell, rh Mr Stephen
Dorries, Nadine
Doyle-Price, Jackie
Duncan Smith, rh Mr Iain
Dunne, Mr Philip
Ellis, Michael
Ellison, Jane
Elphicke, Charlie
Eustice, George
Evans, Jonathan
Evennett, Mr David
Fabricant, Michael
Field, rh Mr Frank
Foster, rh Mr Don
Francois, rh Mr Mark
Freeman, George
Freer, Mike
Fuller, Richard
Garnier, Mr Edward
Gauke, Mr David
Gibb, Mr Nick
Gilbert, Stephen
Glen, John
Goldsmith, Zac
Goodwill, Mr Robert
Grayling, rh Chris
Greening, Justine
Gummer, Ben
Gyimah, Mr Sam
Halfon, Robert
Hames, Duncan
Hammond, Stephen
Hancock, Matthew
Hands, Greg
Harper, Mr Mark
Harrington, Richard
Harris, Rebecca
Hart, Simon
Haselhurst, rh Sir Alan
Hayes, Mr John
Heald, Oliver
Heath, Mr David
Heaton-Harris, Chris
Hemming, John
Henderson, Gordon
Herbert, rh Nick
Hinds, Damian
Hoban, Mr Mark
Hollingbery, George
Hollobone, Mr Philip
Holloway, Mr Adam
Hopkins, Kris
Horwood, Martin
Howarth, Mr Gerald
Howell, John
Huhne, rh Chris
Hunt, rh Mr Jeremy
Huppert, Dr Julian
Hurd, Mr Nick
Jackson, Mr Stewart
James, Margot
Jenkin, Mr Bernard
Johnson, Gareth
Johnson, Joseph
Jones, Andrew
Jones, Mr David
Jones, Mr Marcus
Kawczynski, Daniel
Kelly, Chris
Kirby, Simon
Knight, rh Mr Greg
Laing, Mrs Eleanor
Lancaster, Mark
Leadsom, Andrea
Lee, Jessica
Lee, Dr Phillip
Lefroy, Jeremy
Leslie, Charlotte
Letwin, rh Mr Oliver
Lewis, Brandon
Lewis, Dr Julian
Lilley, rh Mr Peter
Lopresti, Jack
Lord, Jonathan
Loughton, Tim
Luff, Peter
Main, Mrs Anne
Maude, rh Mr Francis
McCartney, Jason
McCartney, Karl
McIntosh, Miss Anne
McLoughlin, rh Mr Patrick
McPartland, Stephen
McVey, Esther
Menzies, Mark
Mercer, Patrick
Metcalfe, Stephen
Miller, Maria
Mills, Nigel
Milton, Anne
Mitchell, rh Mr Andrew
Moore, rh Michael
Mordaunt, Penny
Morris, David
Morris, James
Mosley, Stephen
Mowat, David
Mulholland, Greg
Munt, Tessa
Murray, Sheryll
Murrison, Dr Andrew
Neill, Robert
Newmark, Mr Brooks
Newton, Sarah
Nokes, Caroline
Norman, Jesse
Nuttall, Mr David
O'Brien, Mr Stephen
Offord, Mr Matthew
Ollerenshaw, Eric
Paice, rh Mr James
Parish, Neil
Patel, Priti
Pawsey, Mark
Penrose, John
Percy, Andrew
Perry, Claire
Phillips, Stephen
Pincher, Christopher
Poulter, Dr Daniel
Prisk, Mr Mark
Pritchard, Mark
Raab, Mr Dominic
Randall, rh Mr John
Reckless, Mark
Rees-Mogg, Jacob
Reevell, Simon
Robathan, rh Mr Andrew
Robertson, Hugh
Rogerson, Dan
Rosindell, Andrew
Rudd, Amber
Russell, Bob
Sandys, Laura
Scott, Mr Lee
Selous, Andrew
Sharma, Alok
Shelbrooke, Alec
Simmonds, Mark
Simpson, Mr Keith
Smith, Miss Chloe
Smith, Henry
Smith, Julian
Smith, Sir Robert
Spelman, rh Mrs Caroline
Spencer, Mr Mark
Stephenson, Andrew
Stevenson, John
Stewart, Bob
Stewart, Iain
Stewart, Rory
Streeter, Mr Gary
Stride, Mel
Stuart, Mr Graham
Sturdy, Julian
Swales, Ian
Swayne, Mr Desmond
Swinson, Jo
Syms, Mr Robert
Thurso, John
Timpson, Mr Edward
Tomlinson, Justin
Tredinnick, David
Truss, Elizabeth
Turner, Mr Andrew
Vaizey, Mr Edward
Vara, Mr Shailesh
Vickers, Martin
Villiers, rh Mrs Theresa
Walker, Mr Robin
Wallace, Mr Ben
Walter, Mr Robert
Ward, Mr David
Watkinson, Angela
Weatherley, Mike
Webb, Steve
White, Chris
Whittaker, Craig
Whittingdale, Mr John
Wiggin, Bill
Williamson, Gavin
Wilson, Mr Rob
Wollaston, Dr Sarah
Wright, Jeremy
Wright, Simon
Young, rh Sir George
Zahawi, Nadhim
Tellers for the Noes:
Stephen Crabb and
Norman Lamb
Question accordingly negatived.
3 May 2011 : Column 629
3 May 2011 : Column 630
3 May 2011 : Column 631
Question put, That the clause, as amended, stand part of the Bill.
The Committee divided:
Ayes 251, Noes 8.
[3.7 am
AYES
Adams, Nigel
Aldous, Peter
Alexander, rh Danny
Amess, Mr David
Andrew, Stuart
Bacon, Mr Richard
Bagshawe, Ms Louise
Baker, Norman
Baker, Steve
Baldry, Tony
Baldwin, Harriett
Barclay, Stephen
Barker, Gregory
Barwell, Gavin
Bebb, Guto
Bellingham, Mr Henry
Benyon, Richard
Beresford, Sir Paul
Bingham, Andrew
Binley, Mr Brian
Blackman, Bob
Blackwood, Nicola
Blunt, Mr Crispin
Boles, Nick
Bottomley, Sir Peter
Bradley, Karen
Brake, Tom
Bray, Angie
Brazier, Mr Julian
Brine, Mr Steve
Brokenshire, James
Bruce, Fiona
Buckland, Mr Robert
Burns, rh Mr Simon
Burrowes, Mr David
Burstow, Paul
Burt, Alistair
Byles, Dan
Cairns, Alun
Carmichael, rh Mr Alistair
Chishti, Rehman
Clark, rh Greg
Clifton-Brown, Geoffrey
Coffey, Dr Thérèse
Collins, Damian
Colvile, Oliver
Cox, Mr Geoffrey
Crouch, Tracey
Davey, Mr Edward
Davies, David T. C.
(Monmouth)
Davies, Philip
de Bois, Nick
Dinenage, Caroline
Djanogly, Mr Jonathan
Dorrell, rh Mr Stephen
Dorries, Nadine
Doyle-Price, Jackie
Duncan Smith, rh Mr Iain
Dunne, Mr Philip
Ellis, Michael
Ellison, Jane
Elphicke, Charlie
Eustice, George
Evans, Jonathan
Evennett, Mr David
Fabricant, Michael
Field, Mr Mark
Foster, rh Mr Don
Francois, rh Mr Mark
Freeman, George
Freer, Mike
Fuller, Richard
Garnier, Mr Edward
Gauke, Mr David
Gibb, Mr Nick
Gilbert, Stephen
Glen, John
Goldsmith, Zac
Goodwill, Mr Robert
Grayling, rh Chris
Green, Damian
Greening, Justine
Gummer, Ben
Gyimah, Mr Sam
Halfon, Robert
Hames, Duncan
Hammond, Stephen
Hancock, Matthew
Hands, Greg
Harper, Mr Mark
Harrington, Richard
Harris, Rebecca
Hart, Simon
Haselhurst, rh Sir Alan
Hayes, Mr John
Heald, Oliver
Heath, Mr David
Heaton-Harris, Chris
Hemming, John
Henderson, Gordon
Herbert, rh Nick
Hinds, Damian
Hoban, Mr Mark
Hollingbery, George
Hollobone, Mr Philip
Holloway, Mr Adam
Hopkins, Kris
Horwood, Martin
Howarth, Mr Gerald
Howell, John
Huhne, rh Chris
Hunt, rh Mr Jeremy
Huppert, Dr Julian
Hurd, Mr Nick
Jackson, Mr Stewart
James, Margot
Jenkin, Mr Bernard
Johnson, Gareth
Johnson, Joseph
Jones, Andrew
Jones, Mr David
Jones, Mr Marcus
Kawczynski, Daniel
Kelly, Chris
Kirby, Simon
Knight, rh Mr Greg
Laing, Mrs Eleanor
Lancaster, Mark
Leadsom, Andrea
Lee, Jessica
Lee, Dr Phillip
Lefroy, Jeremy
Leslie, Charlotte
Letwin, rh Mr Oliver
Lewis, Brandon
Lewis, Dr Julian
Lilley, rh Mr Peter
Lopresti, Jack
Lord, Jonathan
Loughton, Tim
Luff, Peter
Main, Mrs Anne
Maude, rh Mr Francis
McCartney, Jason
McCartney, Karl
McIntosh, Miss Anne
McLoughlin, rh Mr Patrick
McPartland, Stephen
McVey, Esther
Menzies, Mark
Mercer, Patrick
Metcalfe, Stephen
Miller, Maria
Mills, Nigel
Milton, Anne
Mitchell, rh Mr Andrew
Moore, rh Michael
Mordaunt, Penny
Morris, David
Morris, James
Mosley, Stephen
Mowat, David
Mulholland, Greg
Munt, Tessa
Murray, Sheryll
Murrison, Dr Andrew
Neill, Robert
Newmark, Mr Brooks
Newton, Sarah
Nokes, Caroline
Norman, Jesse
Nuttall, Mr David
O'Brien, Mr Stephen
Offord, Mr Matthew
Ollerenshaw, Eric
Paice, rh Mr James
Parish, Neil
Patel, Priti
Pawsey, Mark
Penrose, John
Percy, Andrew
Perry, Claire
Phillips, Stephen
Pincher, Christopher
Poulter, Dr Daniel
Prisk, Mr Mark
Pritchard, Mark
Raab, Mr Dominic
Randall, rh Mr John
Reckless, Mark
Rees-Mogg, Jacob
Reevell, Simon
Robathan, rh Mr Andrew
Robertson, Hugh
Rogerson, Dan
Rosindell, Andrew
Rudd, Amber
Russell, Bob
Sandys, Laura
Scott, Mr Lee
Selous, Andrew
Sharma, Alok
Shelbrooke, Alec
Simmonds, Mark
Simpson, Mr Keith
Smith, Miss Chloe
Smith, Henry
Smith, Julian
Spelman, rh Mrs Caroline
Spencer, Mr Mark
Stephenson, Andrew
Stevenson, John
Stewart, Bob
Stewart, Iain
Stewart, Rory
Streeter, Mr Gary
Stride, Mel
Stuart, Mr Graham
Sturdy, Julian
Swales, Ian
Swayne, Mr Desmond
Swinson, Jo
Syms, Mr Robert
Thurso, John
Timpson, Mr Edward
Tomlinson, Justin
Tredinnick, David
Truss, Elizabeth
Turner, Mr Andrew
Vaizey, Mr Edward
Vara, Mr Shailesh
Vickers, Martin
Villiers, rh Mrs Theresa
Walker, Mr Robin
Wallace, Mr Ben
Walter, Mr Robert
Ward, Mr David
Watkinson, Angela
Weatherley, Mike
Webb, Steve
White, Chris
Whittaker, Craig
Whittingdale, Mr John
Wiggin, Bill
Williamson, Gavin
Wilson, Mr Rob
Wollaston, Dr Sarah
Wright, Jeremy
Wright, Simon
Young, rh Sir George
Zahawi, Nadhim
Tellers for the Ayes:
Stephen Crabb and
Norman Lamb
NOES
Begg, Dame Anne
Bruce, rh Malcolm
Flynn, Paul
Hosie, Stewart
MacNeil, Mr Angus Brendan
Robertson, Angus
Smith, Sir Robert
Wishart, Pete
Tellers for the Noes:
Dr Eilidh Whiteford and
Mr Mike Weir
Question accordingly agreed to.
3 May 2011 : Column 632
3 May 2011 : Column 633
Clause 7, as amended, ordered to stand part of the Bill.
Question proposed, That the clause stand part of the Bill.
Mr David Hanson (Delyn) (Lab): It is a great pleasure to be in the Chamber this evening, Mr Hoyle, for what I hope will be a fruitful discussion on clause 4, on corporation tax. As hon. Members will know, the clause reduces the rate of corporation tax with the aim of reducing it still further over the next few years. That has been done by Ministers because they recognise that there is a need for growth in the private sector, and that is an aim that we would support.
We need to consider growth in the private sector, which is a key issue that we must examine in some detail. If time permits, which I am sure it will, I intend to outline the case for discussing the issues related to the need for growth in the private sector. We must examine how we use corporation tax to deal with unemployment, something that affects the regions quite considerably, and how we compensate with private sector jobs for the Government’s massive cuts in public spending.
Let us look in some detail at the question of the economy and unemployment in general. There is real concern about the level of unemployment in the country at large. The economic indicators show that there are currently ranges of unemployment across the United Kingdom that cause concern in relation to unemployment levels generally. One reason why the corporation tax cut has been brought forward is that the Government recognise that they need to look closely at how they can generate private sector employment by ensuring that we expand the private sector as a whole.
If we look closely at the level of unemployment, we see great disparities across the country. In the north-east region—my hon. Friend the Member for Tynemouth (Mr Campbell), who is present, is a representative of that region—the unemployment rate is 10.2% and in the west midlands it is about 9.9%. Those high figures show that we need to develop the private sector. In London, the unemployment rate is currently about 9.4%. Looking around the Chamber, I see many hon. Members—
Stephen Phillips (Sleaford and North Hykeham) (Con): Not on the Labour Benches!
Mr Hanson:
The hon. and learned Gentleman may say that, but this is an argument about corporation tax and if Members wish to participate in the debate I am very happy to stay here for as long as they wish to, because we can discuss this matter in some detail. It is
3 May 2011 : Column 634
very important that we discuss the circumstances in which we need to ensure that the growth in the private sector is undertaken by the Government—
[
Interruption.
]
I mean that the growth is encouraged.
[
Interruption.
]
Government Members know that there is a very important debate to be had about whether corporation tax plays a role in helping to grow the private sector. There is some synergy between what the Opposition and the Government believe on this matter, but we need to explore this in detail and I intend to do that. Hon. Members who have supported me in Committees in the past know that I will happily discuss these matters in detail for some considerable time if required. We need to consider what the current situation is, what the levels of unemployment are, what the need for private sector growth is when we are faced with massive public spending cuts and how to deal with those issues.
If one looks in detail, as I intend to, at the statistics for jobseeker’s allowance, one sees that they currently show that the unemployment count increased by 700 in March 2011 and now stands at 1.45 million people aged 18 or over. The unemployment rate for International Labour Organisation-based measures of unemployment was 2.48 million in the period from December to February 2011. We need to look at how corporation tax and the proposed cut in it will ensure that we can raise the level of employment in the regions that have been particularly hard hit.
As I have said, unemployment is 10.2% in the north-east, 9.9% in the west midlands and 9.4% in London. In the Yorkshire and Humber region—I can see Members from that region in the Chamber—the unemployment rate is around 9.3%, whereas in my region in Wales it is 8.7%. That rate is of considerable importance to my constituents and others across north-east Wales.
Mr Kevan Jones: My right hon. Friend mentions that the unemployment rate in the north-east is in excess of 10%, but does he recognise that that is before the impact of the budget cuts in local authorities and the cuts in public expenditure that have been announced? In a region such as the north-east, which is heavily reliant on the public sector, that 10.2% will rise greatly over the next few months.
Mr Hanson: I am grateful to my hon. Friend for raising that. One of the themes that I shall develop in our discussions today is the cut in the rate of corporation tax to stimulate private sector growth. That private sector growth is extremely important, particularly at a time when we face massive cuts in public spending across the board. There is a debate to be had, which I am happy to engage in, about why and how those public spending cuts are being made, but my hon. Friend the Member for North Durham (Mr Jones) will recognise that in the Budget proposals to date for the period to 2014-15 there are major areas of public spending cuts where the corporation tax cut proposal is being put in place to ensure that we generate private sector jobs to meet the loss of those public sector jobs across the board.
For example, as hon. Members know, we face a 27% reduction in local government spending between now and 2015. We face a 25% cut in Business, Innovation and Skills departmental expenditure between now and 2014-15.
3 May 2011 : Column 635
Ian Mearns: The average cut in local authority grant in the 12 authorities in the north-east of England is 24%, whereas the average cut in local authority grant in the south-east of England comes to no more than 4%. Why is that?
Mr Hanson: There is a range of reasons for those proposals. As part of the Government’s proposals to cut public spending across the board, there are major cuts which are unfairly hitting the north-east and other regions. I mention these issues because in the Minister’s justification for the reduction in corporation tax in the Budget proposals, he said that the Government were doing that in order to raise the level of private sector investment to attract businesses to the United Kingdom and keep them here through the corporation tax regime. Clause 4 provides the framework for generating growth in the private sector at a time when we face the loss of a possible 500,000 jobs in the public sector and great pressure on private sector industry.
Mr Kevan Jones: One of the mistakes that the Government make is to think, “Public sector bad, private sector good.” Is my right hon. Friend aware of a study undertaken by Durham university which suggests that as a direct result of the cuts in public expenditure in the north-east of England, there will be between 45,000 and 50,000 job losses, and 20,000 of those will be in the private sector?
Mr Hanson: I am acutely aware that in my constituency the public sector and the private sector remain intertwined. They are interdependent. The fact that we have public spending cuts does not mean that only jobs in the public sector work force will be lost. The cuts will also have a strong impact on the private sector as a whole, because contracts are won in housing, local government, transport and capital projects, all of which are put at risk by major cuts in public spending across the board. This is an important part of the debate, because in his arguments for the corporation tax cut, the Minister maintains that one of the ways in which we can regenerate the economy to compensate for those public sector cuts is by cutting corporation tax.
Mr Anderson: In the previous debate it was clear that the Government had embarked on a series of measures arising from arrogance and ignorance. When, for example, £80 million of Building Schools for the Future money is taken away from Gateshead council, that clearly has an impact not just on the public sector but on the private sector. That is the mistake that the Government make.
Mr Hanson: My hon. Friend’s region, the north-east, faces the highest unemployment in the whole United Kingdom, as I have mentioned, at 10.2%—[ Interruption. ] The hon. Member for North East Hertfordshire (Oliver Heald) says that that is our fault, so I presume that he has missed the fact that there has been a world banking crisis and that unemployment has risen in countries across the board. There are no arguments.
3.30 am
As hon. Members on the Treasury Bench know, the Labour Government and my right hon. Friend the Member for Edinburgh South West (Mr Darling) had a
3 May 2011 : Column 636
plan to ensure that we reduced public spending to help tackle the deficit, but the current Government’s cuts in public spending are going too far, too fast and too deep. Their only alternative is to grow the private sector, which is good and positive and we accept that it needs to be done. The corporation tax cut before the Committee is one of the tools for doing that, and clause 4 is key to that strategy. We need to explore in detail what income will be forfeited as a result of the corporation tax cut, how it will attract businesses to the United Kingdom and encourage them to stay, and what the targets are for the creation of jobs on the basis of that cut for the future as a whole.
Ian Mearns: Government Members say that it is all our fault, but at the same time they say that we are all in this together. The fact that unemployment in the north-east went up by 11,000 at the same time as national unemployment went down by 17,000 seems to escape them. How does that illustrate the idea that we are all in this together?
Mr Hanson: Clearly we are not all in this together, because even now there are differences in the rate of unemployment across the board in the United Kingdom. As has just been said, in the north-east it is 10.2%. In the region that the Minister represents, and in the region represented in the Chamber today by Members from Cornwall and other parts of the south-east, such as the hon. Member for Truro and Falmouth (Sarah Newton), unemployment is 6%. There is a discrepancy between the unemployment rate in the north-east, which is 10.2%, and the unemployment rate in regions such as the south-east and the south-west, which is 6%. The question I want to put to the Minister, and the discussion we want to have around this, is about how the corporation tax cut proposed in the Bill is intended to bring jobs to my hon. Friends’ region and other regions with lower levels of unemployment generally across the board. We need to look at the impact of the corporation tax cut generally across the board.
Mr Graham Stuart: He’s said that five times.
Mr Hanson: If the hon. Gentleman looks at the Order Paper, he will see that the business may continue until any hour. I can make any argument I wish on these matters, in any order I wish, until such time as he wishes to pursue the matter further. If he wishes to intervene I will happily give way. If he does not, he can sit and heckle from a sedentary position.
Mr Stuart: I am happy to intervene on the right hon. Gentleman, who has repeated one phrase five times already in his ruthlessly repetitious speech. He rightly links the level of corporation tax to unemployment. Of course the previous Government, like every Labour Government, put unemployment up. Every time it is in power the Labour party leaves the working man on the dole, not in a job, and we are having to put it right. A little bit of recognition from him and the rest of his colleagues, even at this late hour, would be welcome.
Mr Hanson:
If the hon. Gentleman reflects on the unemployment figures for May 2010 and May 2011 he will find that unemployment has risen in the past year.
3 May 2011 : Column 637
It has risen because of the policies of the Conservative and Liberal Democrat coalition, which has ruthlessly cut public expenditure over the past year. The strategy on corporation tax before the Committee is one of a range of tools that we need to explore with reference to how the economy is to grow.
It is important that we use this Finance Bill debate to examine the question of growth in the economy. The issue before the Committee is simply a corporation tax cut, which in itself is worthy of discussion, but we need to raise and consider other matters, too.
Hugh Bayley: The hon. Member for Beverley and Holderness (Mr Stuart) is getting a little tired and tetchy—the hour is late—but one should avoid using crude headline statistics. As another Yorkshire MP, I can tell him that when Labour was in power, my city—the city of York—saw the number of people in employment go up from 40,000 to 57,000. One reason why we had that increase in growth was the reductions in business taxation, so this is an important measure and the Committee needs to treat it seriously, rather than just dismissing it with crude and misleading statistics.
The Chairman of Ways and Means (Mr Lindsay Hoyle): Order. May I suggest that we try to stick to the clause? On both sides, we do need to try to stick to the clause before us.
Mr Hanson: The clause is about a corporation tax cut, and my argument is that because of the Government’s massive public spending cuts, which are designed to tackle the deficit and which we would indeed have made in part, the corporation tax cut is designed to help grow the private sector. We need to look at the impact of that particular cut.
Mr Graham Stuart: That’s seven times!
Mr Hanson: Well, we need to look at the impact of that particular cut, and I will say it eight times for the hon. Gentleman: we need to look at the impact of that cut.
Let me, for example, look at the issue in relation to how the corporation tax cut will affect the private sector. [ Interruption. ]
Mr Hanson: The hon. Gentleman might like to take the issue more seriously than he is doing, because it is important. [ Interruption. ] My hon. Friends the Members for Gateshead (Ian Mearns), for North Durham and for Blaydon (Mr Anderson) represent constituencies with the highest unemployment in this country, at 10.2%, and they have a right to argue about how the corporation tax cut proposed in the Bill will impact on their constituencies in creating employment at a time of massive public spending cuts. We want to hear from the Minister in due course, when we have finished our arguments—because I am sure that my hon. Friends will contribute to the debate as well, about how the corporation tax cut will impact on job creation in those areas.