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Lord Avebury: My Lords, I welcome the two orders. I am grateful for the explanation the Minister has given for them. Perhaps I may pick up one of the points made by the noble Baroness: the question of the exemptions for small businesses. If one looks, for instance, at the Engineering Construction Board Order, the exemption applies to businesses where the sum of the emoluments in respect of labour-only payments for all off-site employees does not exceed £1 million.

Has the Minister had any representations about that figure? Do small businesses believe that it is a correct figure as a cut-off point or would they prefer it to be somewhat higher? What exactly is the argument by which the cut-off point is determined, in relation

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both to that order and to any other? I am not arguing that the figures are wrong; I simply point out that the Minister in his explanation did not specify how the Government had calculated that a "small" business was one which came below that limit and was therefore entitled to the exemption, whereas a business with payments of £1,000,001 could be labelled in the other category and would be subject to the full force of the levy.

I do not want to make suggestions that make life for businesses even more complicated than it is already, but I wonder whether it is right to have an absolute cut-off point as a result of which a business £1 below the cut-off point does not pay anything at all whereas a business £1 above it is subject to the full force of the levy. That seems rather anomalous. In the real world it might have been better to have a graduated system of payments phasing up to the full amount, just as, for example, happens in the income tax system. One does not pay the full rate immediately one comes within the income tax band; one pays a reduced rate on the first tranche of one's earnings.

If one looks logically at the philosophy of dealing with small businesses, a business does not suddenly graduate from being a small to being a large business once it passes a particular point in its operations. It moves slowly from being small to large over a wide range of activity. Therefore, one would have thought that the levies should take account of that fact of life.

Lord Bach: My Lords, I am grateful to the noble Baroness and to the noble Lord for their support for the orders and for their helpful remarks. It is good that the orders, which are important, are uncontroversial to the extent that they are.

I agree with the noble Baroness that these two industries are important. She is absolutely right about that. She is right also about the issue of using more friendly language. I am delighted to be able to tell her that the statutory instruments are being reviewed this year. It may be that those reviewing them had some prior notice that the noble Baroness was going to mention that point this evening. Both boards also issue plain English leaflets and guides at the same time, which is useful.

The noble Baroness asked, fairly, for figures with regard to the increases. I shall write to her in due course and place a copy of the letter in the Library. In relation to any shortfall that may occur if someone does not pay up or pay up in time, I understand that both training boards keep reserves in order that such an eventuality may be taken care of.

With regard to courses and their cost--both matters that we are debating this week in our proceedings on the Learning and Skills Bill--the last FEFC report found good quality facilities. The LSC, when it comes into being, will set tariffs to reflect different course costs.

The noble Baroness asked about the regulatory impact assessment. It was an omission, but it was placed in the Library immediately after the debate in the other place. I am again grateful to the noble Baroness for her comments.

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I turn to the points raised by the noble Lord, Lord Avebury. He mentioned the £1 million figure in relation to the Engineering Construction Board Order. That is for off-site establishments; the head offices. The exemption is as high as it is because it concerns some extremely large firms and their offices. The people on the payroll in the offices of large firms are often fairly well paid. So the 0.18 per cent of their salaries, as it were, is a larger amount than perhaps it would be of the salaries of those who are not so well paid. As I understand it, there has been little complaint about--indeed there has been support for--the £1 million limit.

The noble Lord made one other important point. He asked why there is a cut-off point. The cut-off point simplifies matters. The noble Lord will know that when a firm moves gradually into having to pay the levy it will pay a percentage. As it gradually grows, the total amount that it has to pay will become larger and larger as its payroll increases. There is a gradualism about this, even though there is a specific cut-off point. I hope that my answer makes some kind of sense to him.

I once again thank the noble Baroness and the noble Lord for taking part in this short debate. I commend the orders to the House.

On Question, Motion agreed to.

Contracting Out (Functions in Relation to Petroleum Royalty Payments) Order 2000

9.8 p.m.

The Minister for Science, Department of Trade and Industry (Lord Sainsbury of Turville): My Lords, I beg to move the Motion standing in my name on the Order Paper.

We are here today to debate an order, under the Deregulation and Contracting Out Act 1994, which will permit the transfer of royalty collection functions from the DTI's Oil and Gas Royalties Office to the Inland Revenue's Oil Taxation Office. As your Lordships may know, the administration of direct government revenues from UK Continental Shelf production is currently split between the Inland Revenue and the DTI. The Oil Taxation Office administers petroleum revenue tax and corporation tax while the Oil and Gas Royalties Office, which has 14 staff in Aberdeen, administers the 12.5 per cent royalty paid on oil and gas produced from older--pre-April 1982--fields.

The effect of a transfer will be to consolidate all these functions in one unit--albeit with two sites, in Aberdeen and in London. The proposed rationalisation should bring significant benefits to producer companies. The intention is that the administration of petroleum revenue tax and oil and gas royalties will, with industry input, be gradually conformed, to bring a more streamlined service,

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building on the substantial similarities in royalty and PRT. The Government believe this proposal to be both worth while and uncontroversial.

It may help noble Lords if I give a little of the background history. The current division of responsibilities between the DTI and the Revenue has its origins in the earlier years of the UK's oil and gas production industry. Before 1975, oil and gas producers were liable only for production royalties and for conventional corporation tax on any production profits. Oil and gas royalty first began to generate substantial sums at the time that commercial production of gas began, in the 1960s, and, at that time, royalty administration sat naturally with the licensing authority itself--initially the Department of Energy, and latterly the DTI.

The special taxes on North Sea production profits came somewhat later with the introduction in the 1970s of petroleum revenue tax, ring-fenced corporation tax, and the extra-territorial charge on the profits earned by offshore contractors operating in the UK sector. These taxes have been administered since 1975 by the Inland Revenue's Oil Taxation Office.

The royalties office and the Oil Taxation Office have worked more or less closely together ever since 1975, but their respective sizes and responsibilities have changed substantially over that time, reflecting the development of the province and successive changes to the North Sea fiscal regime. Thus, the role of the Oil Taxation Office has steadily grown and now includes overall responsibility for the oil and gas industry, upstream and downstream, valuation of product for both tax and royalty, relations with overseas fiscal authorities, and the provision of technical support to the Know-How Fund and to the Falkland Islands Government.

For present purposes, perhaps the most significant of these changes was the effective abolition of royalty for post-March 1982 fields. Although the royalties office's workload is stable at present, the medium and longer-term future of the royalties office and its staff is, as matters currently stand, an uncertain one. Furthermore, the collection of royalty does not sit particularly well within the DTI's general area of responsibility.

While there are no guarantees for the long-term future of either office, the Government have concluded that worthwhile benefits are to be had from a merger of the two offices. First, a merged operation will facilitate a conformed approach to the administration of royalty and PRT. Both are forms of resource rent, levied on very similar licensee populations. For historical reasons, the approach of the respective offices has been different. That difference has been a source of concern to licensees, and a key objective of the merger will be to secure as much commonality in the future as is practical.

Secondly, the new merged operation will have sufficient critical mass to manage the inevitable eventual run-down of royalty and the other duties with confidence. Thus we are looking as much to secure good, effective administration in the medium and longer-term as for the present.

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In sum, there are substantial similarities in royalty and PRT on which the transfer will build, leading to simpler administration of royalty. Furthermore, the royalties office and the Oil Taxation Office currently have different skill bases and the expectation is that both will gain from further integration. The producer companies, which have been aware of the proposal for some time, stand to gain from closer integration of royalty and PRT administration, and have given their support to the idea.

Responsibility for royalty policy will remain with the DTI. An order under the Deregulation and Contracting Act 1994, rather than a Transfer of Functions Order under the Ministers of the Crown Act, is being used in this case because the Inland Revenue is not a ministerial department. I commend the order to the House.

Moved, That the draft order laid before the House on 16th December 1999 be approved [6th Report from the Joint Committee].--(Lord Sainsbury of Turville.)

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