OFFSHORE OIL AND GAS POLICY (Hansard, 11 July 1974)

§ The Secretary of State for Energy (Mr. Eric Varley)
With permission, Mr. Speaker, I should like to make a statement.
The Labour Party election manifesto expressed Labour's determination to ensure not only that the North Sea and Celtic Sea oil and gas resources are in full public ownership, but that the operation of getting and distributing them is under full Government control with majority public participation. The Government have also made it clear that it is their intention to ensure that, as a result of the exploitation of 1559 these resources, maximum benefit is conferred on the community, and particularly on Scotland and the regions elsewhere within which the older industrial revolution industries were developed and which have suffered for a generation from the decline of those industries.
I have today presented a paper, copies of which will be available to hon. Members in the Vote Office, which sets out the action which the Government intend to take to achieve these objectives.
First, we propose an additional tax on profits from the Continental Shelf and the closing of various loopholes in the rules governing existing taxation of oil companies' profits.
Secondly, we propose to make it a condition of future licences that the licensees shall, if the Government so require, grant majority participation to the State in all fields discovered under those licences.
Thirdly, we shall be inviting the companies to enter into discussions with us about majority State participation in existing licences for commercial fields.
Fourthly, we shall set up a British National Oil Corporation through which the Government will exercise their participation rights.
Fifthly, we shall extend our powers of physical control over offshore operations. including production, and over pipeline developments.
Sixthly, we shall set up a Scottish Development Agency and make similar arrangements for Wales as oil exploration develops in the Celtic Sea.
These are comprehensive and far reaching proposals. They show the Government's determination to act, and to act quickly, to ensure that the nation gets full benefit from our newly discovered wealth, while leaving a substantial rôle for the oil companies.

§ Mr. Patrick Jenkin
rose—

Mr, Speaker
Order. I remind the House that a debate has been promised on this topic. Therefore, I hope that we shall have questions, not expressions of opinion.

§ Mr. Arthur Lewis
On a point of order, Mr. Speaker. May I ask why, when full details of this matter were not only broadcast every hour from six o'clock 1560 last night, but the right hon. Member for Wanstead and Woodford (Mr. Jenkin) went on London Radio this morning to debate and discuss it, the time of the House is now being wasted? This matter has been broadcast from six o'clock last night every hour on the hour on L.B.C.

§ Mr. Speaker
I do not think that is a matter for me.

§ Mr. Patrick Jenkin
Following what the hon. Member for Newham, North-West (Mr. Lewis) said, I must say that the Department of Energy has become the master of the contradictory leak. The number of different versions of the statement which have appeared in the Press has been quite astonishing.
Is the right hon. Gentleman aware that, while we must await the details, we welcome the proposals for taxation, because these were in part announced and foreshadowed by my right hon. Friend the Member for Altrincham and Sale (Mr. Barber) when he was Chancellor of the Exchequer?
Secondly, we welcome the proposals for strengthening the controls over offshore operations which the previous Government already had under review.
Thirdly, we welcome—[Interruption.]—I should be interested to compare the right hon. Gentleman's list with mine. We welcome the announcement of a Scottish Development Fund, because that reflects exactly the proposals announced by my right hon. Friend the Leader of the Opposition speaking at Ayr last month.
I should like to ask three questions. First, regarding existing licences, the right hon. Gentleman said that he will invite the companies to enter into discussions. Will he give the House a categorical assurance that this will be a voluntary negotiation with the perfect right for members of these consortia to refuse?
Secondly, is he prepared to make any distinction in favour of those groups which already include a public sector partner, bearing in mind that, including the 12½ per cent. royalties, the Government already have a 28 per cent. share in the successful fields that have so far been discovered?
Thirdly, since it is the general expectation in the industry that investment 1561 of about £1,500 will be needed to produce a barrel-a-day flow of oil, if we assume 2½ million to 3 million barrels a day as the production by 1980, an investment of £3½ billion to £4½ billion will be required. Is he aware that 51 per cent. of that will be about £2 billion? Why on earth must the British taxpayer be saddled with finding sums of that magnitude simply to raise the money which could perfectly well be raised by taxation without any need for investment at all? Is this not simply nationalisation for nationalisation's sake?

§ Mr. Varley
The right hon. Gentleman suggested that at least some of these measures, and certainly the tax proposals that I have announced, were prepared by the previous administration. It is a pity that the Conservative Government did not publish and tell the House about their tax proposals so that hon. Members could judge them. The House never saw any such proposals.
My statement means that we are inviting the companies to discuss the question of participation in existing licences. We are inviting them to have meaningful discussions with us, and we hope that these talks will go ahead as quickly as possible.
I am astonished at the Conservative Party's inferiority complex in this matter. We want to make sure that the British people get a proper share and benefit from North Sea oil and gas. The right hon. Gentleman is already rewriting history, just as he did on the subject of night storage heaters, because only two months ago, when speaking in Oslo, he said that though "carried interest" and participation would be controversial in Britain, the last Conservative Government had by no means ruled it out.

§ Mr. Grimond
May I ask the right hon. Gentleman to give the House a few more details about the Scottish Development Agency? This appears to be what Scotland gets out of this. What finances will it have, what power will it have, and whom does the right hon. Gentleman intend to put on it?
Secondly, will the right hon. Gentleman give an undertaking that arrangements made by local authorities in Scotland will not be interfered with, and will he say something more about the form 1562 of Government participation? Is it not the case that the Government have the right to appoint two directors to BP, one of whom is always a retired diplomat in search of a post, while the Other office has been vacant for eight months?

§ Mr. Varley
The interests of Scotland, Wales and some of the regions of Britain will be represented on the British National Oil Corporation. We want to get the Scottish Development Agency under way immediately, rather than wait for the oil revenues, which have not started flowing. The agency will be financed by the United Kingdom Exchequer, and it will be directly responsible to my right hon. Friend the Secretary of State for Scotland.

§ Dr. Phipps
What will be the relation. ship between the proposed British National Oil Corporation and the existing interests of the Gas Corporation and the National Coal Board?

§ Mr. Varley
Is it our intention that the holding of the National Coal Board will be transferred to the British National Oil Corporation. The Gas Corporation already has a capability in the North Sea. We want to work out a close relationship between the Gas Corporation and the new oil corporation.

§ Mr. Peyton
Only three things matter here—getting the oil as quickly, as cheaply and as safely as possible. Is the right hon. Gentleman satisfied that none of his proposals will impede any of those things?

§ Mr. Varley
We want to see the oil landed ashore as quickly as possible, and that is part of our purpose in having these arrangements. I do not think that there is a lot of disagreement about that, but it is our intention to have what can be described as a proper depletion rate. One reason for these powers of participation is to ensure that, eventually, as the oil builds up and starts to flow there is a proper depletion rate and we have some control over it.

§ Mr. Harry Ewing
Is my right hon. Friend aware that the people of Scotland will welcome his statement about the agency, coming, as it does, on the anniversary of the birth of Robert the Bruce? My right hon. Friend should realise that the people of Scotland will write a new chapter into the history books.
1563 Does my right hon. Friend accept that this statement honours another pledge that was given by the Labour Party in Scotland during the February election; namely, that it would set up a Scottish Oil Development Agency to help rebuild the infrastructure and the industrial future of Scotland?
Does my right hon. Friend realise that his statement today will be violently opposed by both the Tories and the Tartan Tories who are in favour of leaving the oil with the oil companies and have written that into their programme? Will my right hon. Friend take every opportunity to make that known to everybody?

§ Mr. Varley
I am sure that my hon. Friend is right in saying that the Government's proposals will be welcomed in Scotland and be seen as a fulfilment of the pledge in our election manifesto.
I have already said that the Scottish Development Agency will be under the control and operation of my right hon. Friend the Secretary of State for Scotland, and I can tell my hon. Friend that the headquarters of the British National Oil Corporation will be in Scotland.

§ Mr. Gordon Wilson
Is the right hon. Gentleman aware of the tremendous and widespread anger throughout Scotland over the sequestration by England of Scotland's principal natural resource? Is the right hon. Gentleman aware that the absence of any specific reference to the oil revenues coming to Scotland will cause concern to many people? If it is the right hon. Gentleman's intention to make a direct allocation of the oil revenues to Scotland, will he now state categorically what proportion of them will go to the Scottish Development Agency?
In view of the failure of the hon. Member for Edinburgh, East (Mr. Strang) to defend Scottish interests, and in view, too, of his selling of the Labour Party short in Scotland, will the Minister ask for his hon. Friend's immediate resignation?

§ Mr. Varley
I find it difficult to understand the logic of the hon. Gentleman and the Scottish National Party. I do 1564 not doubt the hon. Gentleman's sincerity and his wish to help the people of Scotland—I, too, hope that the benefits of offshore oil will go to Scotland—but I found the actions of his party a few weeks ago in voting with the Conservative Party against the principle of public enterprise rather astonishing. It is only through public participation that the people of Scotland will benefit.
The Scottish Development Agency will be got under way immediately. We do not want to wait until the oil revenues come in. We want the agency to be financed immediately so that the Scottish people will benefit.

§ Mr. Fairgrieve
Will the right hon. Gentleman avoid the separatist and other less desirable proposals of the SNP which would mean unemployment in industries in the Scottish central belt and in other non-oil-related industries in Scotland, whose biggest export markets are south of the border, and could also mean a reduction in the Scottish population to the size of that of Norway?

§ Mr. Varley
I have some difficulty in understanding the hon. Gentleman. We know that the oil companies will respond to the proposals that we are making. We know, too, that they want to get into serious discussion with us about how to fulfil our plans.

§ Mr. Kinnock
Is my right hon. Friend aware that there will be a widespread welcome for the beginnings of Socialism in the North and Celtic Seas but that his proposals, so far as we have heard them, regrettably do not provide enough resilience for the possibility of change under another Government who, for ideological reasons, could dismantle the whole machinery of State participation in the North and Celtic Seas? Many people who will welcome my right hon. Friend's statement will require extra power to be given to the State oil corporation and the people behind it.
Is my right hon. Friend aware that the opinion of Mr. Arve Johnsen, Managing Director of Stat Oil, the Norwegian National Oil Corporation, a much smaller nation than ours, was that "a nation should be in the driving seat" and this means that such a national asset should be in our ownership and for our profit right down the line?

§ Mr. Varley
When my hon. Friend has had a chance to consider the paper he will be reminded that North Sea oil is already nationalised. That was done by the last Conservative Government but one, under the leadership of the right hon. Member for Kinross and West Perthshire (Sir A. Douglas-Home). We are determined to ensure that we have a majority of the participation in future licences and where possible we shall renegotiate existing licences. I am confident that we can do that and will have a proper capability within the new British National Oil Corporation.

§ Mr. Heath
Could the Secretary of State address himself to what I think is the key point on all this? He has just said that, as a result of the Continental Shelf Act under the Conservative Government 1963–64, no oil can be produced except with the permission of the State, which is done through licensing.
As far as control of the oil is concerned, that also is governed by licensing the oil which has to be landed on our shores. The Secretary of State can take power through the licences to control the rate at which oil is produced from particular fields when they are discovered. Any Secretary of State can have complete control over the production of the oil and, as we used the powers before last Christmas, he also has power to control the export from this country of various types of oil. Therefore the powers of the Secretary of State in this respect can cover all aspects of the production and distribution of oil.
There then comes a key question. How does a proper share of the revenue from this come to the State? In this respect there are two systems. There can be "carried interest", in which the State has a participation in the actual expenditure on the oil and takes part of the profits; or there can be the system in which the State taxes the proceeds of the oil, if necessary by a special tax solely dealing with oil.
This is the point I wish to put to the Secretary of State. It is a crucial point, He has announced, I believe quite rightly, that the State will ensure a proper proportion of the revenue through taxation. Why, therefore, is it necessary, in view of the fact that he can have complete control over all other aspects of oil 1566 through his powers, for the people of this country to have to provide by 1980 £2 billion sterling from taxation or loans in order to put it into this industry? That is a crucial point to which the right hon. Gentleman has not addressed himself.

§ Mr. Varley
The question of negotiations on existing licences will take place quickly. I do not accept the figures just given by the right hon. Gentleman. We can get the required degree of control over oil only by public participation.
The right hon. Gentleman should know of the excellent Report of the Public Accounts Committee for 1972–73. The Committee was chaired by my right hon. Friend, the Paymaster-General. There was a majority of Conservative Members on that Committee, as is usual with the PAC. The eight Tory Members of the Public Accounts Committee said: We were also concerned that there was no provision for variation or renegotiation of the financial terms, however large the find, or for obtaining a degree of Government participation. I am astonished that the Leader of the Opposition, referring to participation, said on 26th March We believe that that should be introduced only for existing licences."—[OFFICIAL REPORT, 26th March 1974; Vol. 871, c. 339.] That is what he said, and that is what we are proposing to do. That is what we shall talk to the oil companies about. Every major country in the world with oil reserves is negotiating some kind of State participation. I cannot understand why the right hon. Gentleman should say that the tiniest Persian Gulf State can have participation but that the British Government cannot.

§ Mr. Heath
If the right hon. Gentleman will refresh his memory, he will find that I said during the debate on the Address that if the Government were determined to go for participation, they ought not to behave as other States had behaved in altering existing contracts, because we as a country have always protested against that in the interests of BP and Shell, our own companies. But the Secretary of State has still not answered my question. When he can get all the revenue he requires through taxation, why must he use £2 billion sterling of public money—taxpayers' money or from loans—in this way?

§ Mr. Varley
The oil companies must borrow money. The State can borrow money.

§ Mr. Heath
Why?

§ Mr. Varley
If the right hon. Gentleman will listen he will receive the answer.
The right hon. Gentleman knows that most of the oil companies will receive a major return on their capital within a year or two as a result of the North Sea operations. The Government can come to arrangements, just as the oil companies can come to arrangements. There is no doubt that we can do that. We are not talking about confiscation. We are talking about negotiating "carried interest". We can do that.

Several hon. Members
rose—

§ Mr. Speaker
Order. There will be a debate on this matter.

§ Mr. Cryer
On a point of order, Mr. Speaker. You earlier asked hon. Members to be brief. Most hon. Members, including many back benchers and myself, want to accede to your request. But the Opposition Front Bench speakers were lengthy. May I ask whether your request applies to the Opposition Front Bench as much as to the rest of us?

§ Mr. Speaker
Of course my request applies to the whole House.

§ Mr. Sproat
On a point of order, Mr. Speaker. May I point out that neither today nor yesterday at Question Time, when oil was discussed, nor during the previous Scottish Question Time, when oil was discussed, have I been able to catch your eye in connection with questions relating to oil?

§ Mr. Speaker
Order. The hon. Gentleman knows that that is not a point of order. I do my best, but some hon. Members take a lot of time.

§ Mr. Terry Walker
On a point of order, Mr. Speaker. May I, as a mere back bencher, ask for your protection in these matters? Much time is spent raising matters during Question Time. On Tuesday I put down a Question—No. Q3—to the Prime Minister. That was not reached. It seems to me that the Leader of the Opposition is taking up the time of this House by starting the election campaign, thus denying back benchers the right to ask Questions of the Prime Minister during Question Time, The time of this House is being taken up to no avail. I ask for your protection in this matter.

§ Mr. Speaker
I will gladly give the hon. Member such protection as I can. I thought we did rather better today during Prime Minister's Questions. If hon. Members look at the record they will discover that the Answers take just as long as the Questions.

§ Mr. Churchill
The Government have made a statement today which will involve the expenditure of several thousands of millions of pounds by 1980. Would it not be in order for the Minister to say what is the Government estimate of the cost?

§ Mr. Speaker
That is not a matter for the Chair. The House has a great deal of business today. As I said, I think yesterday. I have noted those hon. Members who have tried to catch my eye. When we come to the debate, I shall not forget that I have been unable to call them today.