Commons Sitting of 19 March 1975

Preamble
The House met at half-past Two o'clock
PRAYERS
[Mr. SPEAKER in the Chair]
ORAL ANSWERS TO QUESTIONS
  ENVIRONMENT

    Water Charges
    Mr. Watkinsonasked the Secretary of State for the Environment if he is satisfied that water authorities are exercising due economies in order to keep increases in water charges as low as possible.
    The Under-Secretary of State for the Environment (Mr. Gordon Oakes): My right hon. Friend has asked water authorities to do everything possible to keep down their charges. I have no reason to believe that they are not heeding that advice.
    Mr. Watkinson: Is my hon. Friend aware that the Welsh National Water Development Authority, through a process of equalising its costs in one year, has brought about a situation in which the rate increase in my constituency is over 143 per cent.? Is he able to do anything about that? Cannot he persuade the authority to equalise its costs, as other water authorities have done, over a number of years?
    Mr. Oakes: I have some sympathy with my hon. Friend. However, the Water Act 1973 requires authorities to break even taking one year with another. As regards equalisation, there is no way in which my right hon. Friend can intervene with a specific authority. Influencing the authorities is a matter for my right hon. and learned Friend the Secretary of State for Wales.
    Mr. Rathbone: Is the Minister aware that water authorities in various parts of the country have put up their rates,
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    and intend to do so again, to a degree which is extremely worrying both to those who are connected to mains water and drainage and to those who are not? Will he give a greater assurance than he was able to give in reply to the original Question asked by the hon. Member for Gloucestershire, West (Mr. Watkinson) that he will do his utmost to impress upon authorities the need to restrain short-term capital plans which are not essential?
    Mr. Oakes: I am certain that my right hon. Friend and the Minister responsible for water have done their best to impress that on the authorities. Unfortunately, under the terms of the Water Act 1973—which was not of our making—it is not possible for my right hon. Friend to intervene about charges levied by water authorities.
    Mr. Hatton: Is my hon. Friend aware of the serious concern which has been expressed to Members of Parliament representing Manchester at the continuing departure of the North West Water Authority from the national recommendations on the calculation of general service and water charges, and their failure to implement assurances which they gave to local authorities in December to rectify the anomaly caused in assessing charges for the current year? Is my hon. Friend aware that in the Manchester area the percentage increase in domestic charges in 1974–75 is 62 per cent.?
    Mr. Oakes: I am aware of the level of the increase and of the difficulties faced by some of the Greater Manchester districts. I shall look at what my hon. Friend has said.
    Mr. Shepherd: Is the Minister aware that the county of Herefordshire falls within the area of the Welsh National Water Development Authority? Will he consider increasing the rate support grant for Herefordshire to that for Wales, which currently receives 37p in the pound compared with 18·5p in the pound received by Herefordshire, thus equalising the water rate burden?
    Mr. Oakes: I am aware of the anomaly. Herefordshire and Worcestershire come under the Welsh National Water Development Authority. I cannot give that assurance today. However, as

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    the hon. Gentleman knows, I am meeting a delegation from Herefordshire tomorrow.
    Mr. Gowasked the Secretary of State for the Environment whether he will make a statement about the cost of the supply of water ; and what is the average increase in the cost of water rates in the United Kingdom during the year ending 5th April 1976.
    Mr. Oakes: The 1973 Water Act provides that it is for water authorities to decide what level of charges is required to meet their statutory obligation to break even, taking one year with another. I understand that the average increase in the authorities' water supply charges in England and Wales is likely to be of the order of 41 per cent.
    Mr. Gow: Is the Minister aware that the increase in the domestic water rate for water supply by the Eastbourne Waterworks Company for the current year is 53 per cent.? Does he agree that the present system for levying water rate is regressive, unjust and unfair and should be scrapped?
    Mr. Oakes: We are looking at all the water authorities in the course of a two-year review. I repeat, however, that the creation of water authorities is not our doing. Many of the difficulties which this House and ratepayers face result from the Water Act 1973. I am aware of the position in the hon. Gentleman's constituency. However, in defence of water authorities, I must say that they were left with a considerable burden since 47 per cent. of their expenditure is to service capital debts. They were created naked by our predecessors, and now the public,have to pay for that creation.
    Mr. Ronald Atkins: Is my hon. Friend aware that there is a difference in the amount of water used for flushing lavatories in Scotland and England? In the interests of achieving lower costs, will he press for uniformity between the two countries on the lower level, even if he gets opposition from the Scottish National Party on grounds of devolution?
    Mr. Oakes: I am afraid that water is a subject which I never think of in connection with Scotland.

    Land
    Mr. Sainsburyasked the Secretary of State for the Environment when it is his intention to introduce the Bill on Land.
    The Secretary of State for the Environment (Mr. Anthony Crosland): The Community Land Bill was introduced on 12th March.
    Mr. Sainsbury: Does the Secretary of State accept that the supply of land is vital to the continuing supply of houses and of industrial and commercial developments and that the uncertainty following the delay in bringing forward the Bill has had a further unsettling effect? Does he recognise that the previous changes in policy have been extremely unsettling as regards the continuing supply of houses? In view of the reservations and counter-proposals which have been put forward by the professional bodies and others concerned with land, would it not be appropriate to refer this Bill to a Select Committee of the House to see whether we can arrive at a policy which will be generally acceptable instead of one which is subject to further change?
    Mr. CroslandI accept that the supply of land for building and development is vital. I cannot accept that last suggestion about arriving at a non-party agreement, since the land issue has traditionally divided the parties, right and left, in this and in many other countries. As regards his other supplementary question, I do not share the hon. Gentleman's anxiety, because we have taken great trouble in the transitional provisions and in other ways to make certain that the supply of land will not be inhibited or held back by the Bill.
    Mr. Frank Allaun: From the opposite point of view, may I ask whether my right hon. Friend agrees that it is vital to take into public ownership quickly and cheaply a large amount of land which is needed for housing, with a short transitional period and with few exemptions? Would not that show the public the great benefit that would ensure and also make it much harder for a Conservative Government, should there be one, subsequently to unscramble the Act?
    Mr. Crosland: I think that the transitional provisions that we have made are

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    essential to avoid the risk to which the hon. Member for Hove (Mr. Sainsbury) drew attention. Like my hon. Friend the Member for Salford, East (Mr. Allaun), however, I should like the transitional period to be as short as possible. How long it lasts must depend not on the Government but on how quickly the local authorities can gear themselves to carry out the task laid down for them in the Bill.
    Mr. Evelyn King: Is the right hon. Gentleman aware that what he has said is not historically true? The 1947 Act, probably the greatest Act in the last two decades, was passed with the consent of both parties. Can the right hon. Gentleman say how many Acts since then have been passed by one party or the other? Whichever side was right or wrong, this perpetual change from year to year has done more harm than anything else.
    Mr. Crosland: The House always respects the hon. Gentleman's non-partisan attitude to our political affairs. However, the guts of the 1947 Act were repealed as soon as the Conservatives came back to power, and the 1967 Land Commission Act was also repealed as soon as the Conservatives came back to power.
    Dr. Phipps: Is not one of the principal difficulties faced by local authorities in solving the severe housing crisis the high cost of building land? Until it is brought into public ownership the problem will not be solved.
    Mr. Crosland: My hon. Friend has put the matter extremely lucidly and accurately.

    Regents Park (Tree Felling)
    Sir George Youngasked the Secretary of State for the Environment how many more mature trees in Regents Park his Department is proposing to fell.
    Mr. Oakes: Two poplars which are leaning dangerously at the edge of the lake near Flower Bridge in the Clarence Gate area. The remaining 22 horse chestnuts in Broad Walk (South) are coming to the end of their life and will probably be replaced within about five years.
    Sir G. Young: Can the Minister explain why only visual inspection was made of the trees before they were pulled down and why there was no tree surgery to protect the public from falling branches when they were being pulled down? Can he explain, further, why he failed to consult Westminster City Council and Camden Borough Council before taking the action he did?
    Mr. Oakes: The park superintendent inspects all trees twice a year, and the Department is advised on these matters by the Committee on Forestry of the Royal Parks. It is that committee's recommendation that we are following.

    Housing Land
    Mr. Loyden askedthe Secretary of State for the Environment what steps he can take to assist local authorities suffering from land shortage for house building within their own boundaries.
    Mr. Crosland: I am not aware of any additional assistance which is required by local authorities to ensure that they make the most appropriate use of available land within their boundaries or beyond them. The Housing, the Town Development and the New Towns Acts all make provision for housing development elsewhere to meet housing needs which cannot be satisfied locally.
    Mr. Loyden: Does my right hon. Friend agree that if the aims and objects of the 1974 Housing Rents and Subsidies Act are to be met, the effects of the reorganisation of local government mean that many local authorities now find it difficult to provide land within city boundaries? Will he take into account one of two alternatives? The first is to consider the amount of land at present occupied in my constituency by British Rail, the gas board and the British Docks Board. They occupy areas capable of providing sufficient land for the development of 6,000 houses. The second alternative is to give local authorities a wider choice of land by transferring the responsibility to the counties in the interim period.
    Mr. Crosland: On that latter point, I have no intention at present of making any further changes in the distribution of duties between counties and districts.

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    Dealing with the first part of my hon. Friend's supplementary question, I accept what he says about disused land. The South Docks in Liverpool cover a very large area of land. My hon. Friend the Under-Secretary recently met representatives of the Docks and Harbour Board, Merseyside county and Liverpool city, and a working party under my regional director's chairmanship is exploring all the possibilities as to how this land could best be utilised by local authorities.
    Mr. Beith: Is the Secretary of State aware that local authorities with insufficient land in both urban and rural areas will not be assisted by any cutback in the money available for improving housing stocks, and that in a time of economic crisis we should be placing emphasis in that direction rather than moving towards more new building?
    Mr. Crosland: I cannot agree. Within the total amount of money available for public sector housing—which, incidentally, is far greater than it was a year ago—our priorities are, number one, new additional housing ; number two, the improvement of the worst part of the existing housing stock, which is typically in the private sector ; and, I regret to say only number three, the improvements on which huge sums are being spent on purpose-built local authority estates.

    Rented Accommodation (Municipal Purchase)
    Mr. Norman Lamontasked the Secretary of State for the Environment what reductions he plans in the finance available to local authorities for purchasing privately-rented accommodation.
    The Minister for Housing and Construction (Mr. Reginald Freeson): None. Sir.
    Mr. Lamont: Will the hon. Gentleman accept that, with the Greater London Council rate precept planned to rise this year by nearly 80 per cent., it is unjustifiable to spend large sums of money purchasing blocks of flats many of which have very few vacant tenancies? How can the hon. Gentleman justify the GLC's expenditure of £350,000 on a block of flats in my constituency in which there are only two vacant tenancies? This does nothing for the home-seeker and adds
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    considerably to the burdens on ratepayers.
    Mr. Freeson: In our view, the purchase of occupied blocks of flats is not the first priority for municipalisation expenditure. The vast bulk of expenditure which has been provided has gone in the purchase of empty properties or blocks of flats in which there is a very high proportion of empty properties. That goes for the GLC as well as for any other local authority which has embarked on this policy. If the hon. Gentleman has specific cases in mind such as the one to which he referred, I shall be glad if he will let me have details.
    Mr. R. C. Mitchell: Is my hon. Friend aware that many local authorities have virtually run out of land within their boundaries on which to build new houses, and that the only way they can hope to reduce large waiting lists is to buy up empty properties offered to them? Will he ensure that adequate funds are available to those authorities which want to buy up empty properties in order to rehouse people on their watiing lists?
    Mr. Freeson: Unfortunately, in the present financial situation, I cannot say that there will be no ceiling on total national expenditure. However, provision will be made to maintain the level of municipalisation which local authorities have embarked upon, and we hope in the future to increase it by various means which I am now examining.

    Thorne
    Dr. Edmund Marshallasked the Secretary of State for the Environment whether he will make an official visit to Thorne
    Mr. Crosland: I have at present no plans to do so.
    Dr. Marshall: Is my right hon. Friend aware that 43 residents of Corona Drive, Thorne, who have paid their rates along with the weekly rent for their homes, had not up to last Saturday received any of the rate relief provided by the Government for the current year, even though the local authority paid the appropriate lump sum last autumn to the landlord's agents, who are Corona Properties of Manchester? Is not this blatant robbery by the landlords?
    Mr. Crosland: I regret that I have not had the pleasure of visiting Corona Drive in Thorne. I am always sorry that my hon. Friend, who was practically born and bred in Grimsby, moved so far away. If he will send me, as I would like him to, the details of the point he is making, I will look into it at once.

    Rates
    Mr. Michael Lathamasked the Secretary of State for the Environment whether he will now make an estimate of the number of local authorities whose rates will show an increase next year of more than 25 per cent.
    Mr. Oakes: Less than half of local authorities have so far given us the information for which we asked. It would therefore be premature to give a figure.
    Mr. Latham: Is it because of the absence of a General Election this year that the Secretary of State is not prepared to give any help to ratepayers, such as those in my constituency, who face swingeing increases in rates and real cuts in services?
    Mr. Oakes: No, Sir. The reason why the special relief was given last year was that ratepayers and local authorities had been grossly misled by the estimates of the previous—Tory—Secretary of State for the Environment.
    Mr. Raison: Is it not a curious coincidence that both last year and this year the areas which have benefited most from the Secretary of State's rate support grant, and which have therefore been able to keep their rates down, are those which happen to have had local elections?
    Mr. Oakes: That, incidentally, is not at all true. The area which benefited most from the needs element in the rate support grant was West Sussex.

    Speed Limits
    Mr. MacGregorasked the Secretary of State for the Environment whether he will introduce greater flexibility into his Department's criteria for speed limits for principal roads, and in particular more discretion for local authorities concerned.
    \The Under-Secretary of State for the Environment (Mr. Neil Carmichael): I
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    see no reason at present to change the general criteria but I am always ready to take account of special factors in a particular case.
    Mr. MacGregor: Is the hon. Gentleman aware that there are local areas, some in my constituency, which do not meet the criteria and, therefore, do not have limits but which, because of local changes in traffic conditions, present serious road safety hazards for the inhabitants? Is he further aware that it will be cold comfort for these inhabitants to know, if serious accidents occur, that it will be those accidents which produce the criteria? Will he let me know whether it would be correct to write to him about this situation or whether I should go through the normal processes? I welcome his assurance that he will give the subject sympathetic consideration. Above all, it is the local inhabitants who know how situations change.
    Mr. Carmichael: I accept that local inhabitants know a great deal about local conditions. My principal concern is to safeguard the general value of speed limits throughout the country. If they are not safeguarded, their value can be debased. We should then be worse off than we were when we started. I shall be pleased to look at particular cases in which the hon. Member feels that there has been a considerable and noticeable change in traffic conditions.
    Mr. Lee: Does not the whole question of road speed limits need overhauling? Are there not many instances where speed limits are too high and others where they are too low? Is this not a general situation, and is not the law flouted for that reason?
    Mr. Carmichael: The basic reason why we have criteria is to try to get some sort of standard throughout the country. We find that the law is not flouted if the speed limit is realistic and motorists feel that it is reasonable for the area. We work on an 85 per cent. observance of limits. If a limit is unrealistic, motorists will take a chance no matter how great the penalties.
    Mr. Freud: While I appreciate that the Minister has to change speed limits every now and then, would it not be possible to have a simple and more satisfactory arrangement whereby the voices of the

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    people in the district, who were to be the victims of a change in the speed limit. could be heard?
    Mr. Carmichael: There are opportunities for local people to make representations about speed limits. If the hon. Member looks back to the period before there was any question of speed limits and such things as pedestrian crossings being the responsibility of the Government, he will find that sometimes, while local people knew an area, they were not always able to assess the difficulties of the area. There was a general debasement of limits. Something had to be done nationally. Criteria had to be introduced. I hope that we make every effort to make them sensible.
    Mr. Cryer: Is my hon. Friend aware that in addition to the use of speed limits to reduce road hazards he ought to introduce guard rails on pedestrian refuges in the centre of roads? Is he further aware of a tragic fatal accident in my constituency in Bradford Road, Riddles-den, when a girl was killed even though she was acting perfectly properly and was on the central island reservation? Can my hon. Friend assure the House that he will investigate the possibility of providing protective diversionary guard rails on such central islands so that traffic is prevented from striking pedestrians seeking refuge there?
    Mr. Carmichael: I am aware of the tragedy that took place in my hon. Friend's constituency. I have seen some of the newspaper reports on it. I shall look at the question of guard rails. It is important to realise that the rails on central islands or before pedestrian crossings are principally to make sure that pedestrians do not try to nip across the road at any place other than that area which is designed to give them maximum safety.

    Bus Services (Rural Areas)
    Mr. Hastingsasked the Secretary of State for the Environment if he is yet in a position to announce proposals for improving conditions in rural bus services, following his discussions with local authorities and bus companies.
    Mr. Carmichael: I appreciate the concern felt by the hon. Member and we will make a statement as soon as possible.
    Mr. Hastings: Does the Minister realise that many areas, particularly the small villages, will await his statement with the greatest interest because the problem is serious? Can he, when he comes to have these discussions, encourage the traffic commissioners to approach what is admittedly a difficult problem with a little more imagination than they have done to date, particularly with regard to specific ideas such as the merging of postal and bus services and the question of local mini-bus services? Is it not high time that these ideas were tried out?
    Mr. Carmichael: The hon. Member knows that there have been a number of Adjournment debates on this matter. We have discussed it fairly fully. I have travelled round the country and met a large number of traffic authority people, including traffic commissioners. Some of the ideas that the hon. Member has suggested are among those I hope to be putting forward.
    Mr. MacFarquhar: Is my hon. Friend aware that the recent increases in rural bus fares, coupled with the regulations enforced by local bus companies about when concessionary fares can be granted to children, mean that many of my constituents are paying enormous sums every week to send their children to school? Is he further aware that some of them are now sending their children to school an hour late so that they can get concessionary fares? Will he look seriously at the possibility of enabling local bus companies to give concessionary fares for all children going to school in rural areas?
    Mr. Carmichael: The question of concessionary fares for schoolchildren in rural areas, or any areas, is fairly well laid down in the Education Acts. Schoolchildren should not have any difficulty in getting such fares if they live a certain distance from the school. Some of the other points raised by my hon. Friend will be dealt with in reply to a later Question.
    Mr. Fox: The Minister's reply to my hon. Friend the Member for Mid-Bedfordshire (Mr. Hastings) is complacent in the extreme.
    Mr. Speaker: Order. Even on the Front Bench, questions must be asked.
    Mr. Fox: It is complacent in so far as if only the Minister had accepted—[Hon. Members: "Question."] Does the

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    Minister accept that if he had adopted what we proposed in our Road Traffic Bill, particularly the clauses which liberalised bus licensing, the tragic problem of rural areas would be well on the way to being solved? Can he give us an idea of when he intends to announce these relaxations?
    Mr. Carmichael: I assure the hon. Gentleman that, if I appeared complacent, my activities over the last few months have not been evidence of that complacency—at least, I hope not. I was aware of the proposals made by the Conservative Government in their 1973 Bill. In fact, I made a comment on them in the House. Since coming to power I have realised that, although the problem varies from one part of the country to another, getting a solution which will be generally applicable is not as easy as specifying the difficulty.

    Housing (Loan Sanction)
    Mr. Michael Marshallasked the Secretary of State for the Environment whether he will amend the present regulations so that loan sanction for local authorities may be given for both the purchase of second-hand as well as new houses.
    Mr. Freeson: Local authorities already have powers to buy new and second-hand houses, subject to Government financial controls and policy guidelines such as have been set out in Circular 70/74.
    Mr. Marshall: Is the Minister aware that this Question is prompted by the experience of my local council, which recently sold one of its council houses to a sitting tenant? The sitting tenant having been transferred to another part of the country, the council is unable under the present regulations to repurchase the house. Will the Minister look at the matter and consider whether amendment of the regulations could ease the problem?
    Mr. Freeson: I cannot answer that question fully without more detail. Under the general consent laid down in the circular to which I have referred, properties which stand empty for six months or so can be purchased without specific application to the Department anyway. Other applications outside the general consent, such as are described in the cate-
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    gories in the circular, would need to be made to the Department.
    Mr. SkinnerDoes my hon. Friend agree that the Question on the Order Paper asking that local authorities should have the power to buy both new and second-hand properties makes the very idea propounded by the Opposition that councils should sell off council houses ludicrous in the extreme? How on earth can local authorities buy second-hand and new houses out of the private sector when they have only half the money that they would otherwise get by selling off council houses at about 30 per cent., 40 per cent. or 50 per cent. below the market price, which is what the Opposition want?
    Mr. Freeson: The policy of indiscriminate selling-off of council houses, such as was practised by the Opposition when they were in a position to practise it and which is still advocated by them, is to be deplored. I am unable to quote figures without notice, but there has been a considerable reduction in this practice by local authorities. There has been a massive run-down of this practice. There should be a policy of flexibility in housing provision relating to the needs on the ground. This indiscriminate policy pursued like a political gimmick by the Opposition is now at an end.
    Sir Nigel Fisher: Returning to the original Quesion, I put it to the Minister that his policy is unrealistic in practice. Is he aware that in one block of flats in my constituency, bought by the GLC, not a single flat is vacant? All the flats are tenanted. Are the tenants to be evicted? If that is not the case, not one homeless family in the GLC area will be rehoused. Furthermore, does the hon. Gentleman agree that this is an extra burden on the already record rise in the GLC rate which my constituents have to bear without benefiting a single homeless family?
    Mr. Freeson: As a matter of fact, the hon. Gentleman has not returned to the original Question. I have already indicated to one of his hon. Friends that I shall be glad to consider the details of such cases. I repeat that among the priorities in expenditure for public ownership in this sector is the purchase of empty or largely empty properties—there are other factors as well—and not the purchase of properties in good condition

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    and fully occupied. That may come later, but that is not the priority now. The hon. Member for Arundel (Mr. Marshall) asked whether further powers could be made available for local authorities to buy properties.

    Palace of Westminster (Oliver Cromwell Statue)
    Mr. Crouchasked the Secretary of State for the Environment when he expects to see Oliver Cromwell outside Westminster Hall again.
    Mr. Crosland: Early in 1977.
    Mr. Crouch: Does the right hon. Gentleman agree that the presence of Oliver Cromwell standing outside this House was never so necessary as at this time as a reminder of the supremacy of Parliament, particularly when so many persons both in the Government and outside this House fail to appreciate where ultimate power resides?
    Mr. Crosland: I am delighted to agree with the hon. Gentleman that Oliver Cromwell was a stern defender of our constitutional liberties.
    Mr. Dalyell: If my right hon. Friend is seeing Cromwell shortly, will he have a word with him about Question No. 36 and get his advice on the practicality of hiving off the railways in Scotland to a Scottish Assembly?
    Mr. Powell: Does the Secretary of State agree that the man who superseded the House of Commons would certainly be among the minority voting "Yes" in the forthcoming referendum?
    Mr. Lipton: Will my right hon. Friend assure the House that the Cromwell statue is in safe keeping because in a recent broadcast the hon. Member for Cornwall, North (Mr. Pardoe) said that Parliament was diseased, that we wanted a new Cromwell and that he was prepared to melt down the Mace for that reason?

    Concessionary Fares
    Mr. Gwilym Robertsasked the Secretary of State for the Environment if, in view of the representations made about the difficulty of operating concessionary fares schemes for retirement pensioners, evidence of which had been supplied to him by the hon. Member for Cannock,
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    he will now decide to introduce a uniform nationally financed scheme to provide concessionary fares for retirement pensioners and the disabled ; and if he will make a statement.
    Mr. Carmichael: No, Sir. I have nothing to add to the reply given by my hon. Friend the Under-Secretary of State for Health and Social Security to the hon. Member for Berwick-upon-Tweed (Mr. Beith) on 11th December 1974.—[Vol. 883, c. 190–1.]
    Mr. Roberts: Is my hon. Friend aware that I read that reply with some dismay? Does he accept that the present situation is one of absolute chaos? The concession depends on where a pensioner lives. In some areas pensioners get entirely free travel and in other areas, mostly Tory-dominated, they get nothing at all. The concession also depends on the bus route as a pensioner moves from one area to another. Does my hon. Friend accept that a simple solution would be to have an automatic system for old-age pensioners applicable both to buses and to rail?
    Mr. Carmichael: My hon. Friend is calling for a national scheme. I think he should realise that the joint circular on local expenditure which went out to local authorities showed that present expenditure amounted to about £35 million. This varies throughout the country. Not all authorities have these schemes, and there are marked differences between them. It would not be practical in the present state of our economy to introduce a national scheme, because it would cost much more than £35 million.
    Mr. Fry: Does not the question posed by the hon. Member for Cannock (Mr. Roberts) illustrate the chaos existing in public transport when some fares are subsidised by ratepayers, some are subsidised indirectly by taxpayers and others are not subsidised at all, and when services are being reduced and many people are finding it impossible to afford to travel on public transport? Is it not time that the Government, having been in office for over a year, got down to producing a coherent policy on public transport?
    Mr. Carmichael: The hon. Gentleman should realise that we have been in power for only a year. During that year the cost

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    of public transport has increased tremendously. Oil and petrol have multiplied the cost factor by five during that period. We must accept that mobility will in future be more expensive all over the world. The Government have tried to help. For instance, there is a general scheme for rebates on fuel duties and the purchase of new buses. Local authorities are empowered to operate their own local services under the transport supplementary grant.
    Mr. Tomlinson: Does not my hon. Friend agree that there is something basically absurd about priorities when we can find resources for mile after mile of motorway which communities do not want and for supersonic air transport but not for decent, basic rural transport for those who cannot afford motor cars, especially when we do not want them to run motor cars in view of the energy crisis?
    Mr. Carmichael: There are always ways of getting better services by pouring more and more money into them.
    Mr. Tomlinson: It would be cheaper than Concorde.
    Mr. Carmichael: The problem is in deciding on the best value to be obtained from any expenditure. That is what the Government intend to do. I know my hon. Friend's attitude to a particular motorway, but I get many delegations asking for motorways because they are the only way of making life tolerable in certain parts of the country.
    Mr. Wigley: Is the hon. Gentleman aware that pensioners find it difficult to understand why, when they go to urban areas like Merseyside, they can have free travel at certain hours whereas companies in the same National Bus Company in rural areas not only offer no free transport but are closing down services? Will he reveal the Government's transport policy in this area?
    Mr. Carmichael: This is, of course, a question for local authorities. The National Bus Company does not pay for concessionary fares ; it is the local authority which has this power. It must be realised that bus operators are working on a very slim margin all over the country, so that any concessions in one part of their services must be made up by the local authorities or by other travellers.

    Battered Wives and Children (Accommodation)
    Mrs. Wiseasked the Secretary of State for the Environment if he is satisfied with the progress being made on the provision of refuge accommodation for battered wives and their children.
    Mr. Freeson: No, Sir, I am not satisfied but think it best to await the recommendations of the Select Committee, to which my Department yesterday submitted a memorandum, before deciding on future policy. Meanwhile, as an interim measure, I have agreed that housing for battered wives and their children, including hostels, should be eligible for local authority subsidies and housing association grant, and I hope that councils and housing associations will make the necessary provision wherever possible.
    Mrs. Wise: I thank my hon. Friend for that reply. Will he recognise, however, that this is a matter of immense urgency for many women who daily face terrible injuries in their homes? Would he also recognise—[Laughter.] I am surprised that some hon. Members regard this as comic. I suggest that they attend the Select Committee on Violence in Marriage, where they will hear evidence which will put them right. Will my hon. Friend recognise that the valuable work done in this field so far has been done by groups of women on a help-one-another basis and that they work in difficult conditions? Will he ensure that local authorities do not harass them in any way on top of their present difficulties?
    Mr. Freeson: I certainly take the matter seriously and am trying to treat it as urgently as 1 can. The difficulty is that I am waiting for the results of the Select Committee's consideration and examination of all the evidence given it, not only by my Department, before reaching a view about the longer-term aspects of housing policy and how I can help to deal with this problem. The urgency is reflected in the fact that we have already agreed to provide the necessary subsidy facilities for the provision by local authorities and housing associations of appropriate accommodation for such people who live in tragic circumstances, as I know from cases with

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    which 1 have had to deal as a constituency Member. For the rest we must await the future, but I assure my hon. Friend that I am not complacent.
    Miss Fookes: Does the hon. Gentleman have any idea of the numbers of wives and children involved? This must obviously have a bearing on the kind of accommodation required.
    Mr. Freeson: No, 1 have no idea of the size of this problem or of its variation. This is a matter which I imagine will be dealt with much more adequately, at this stage at least, by the Select Committee. But we should not wait for some kind of national assessment of the scale of the problem before trying to provide facilities wherever possible, certainly in the field of housing for which I am responsible. To this extent I am happy that, as a result of what I have said today and contacts that we have with local authorities, facilities will be provided wherever possible under housing subsidy arrangements.
    Mrs. Winifred Ewing: I welcome all that the Minister has said. When the Select Committee reports, which it is hoped we will do as quickly as possible, will the Government find time there and then to implement any recommendations we make, even if they require legislation?
    Mr. Freeson:The hon. Lady will realise that I am concerned with one particular facet of policy and administrative practice—that relating to housing. We should have to await the examination which my right hon. Friend the Secretary of State for Social Services will give to the report when it is forthcoming before deciding what legislation will be introduced and what policy decisions will have to be taken.

    Licensed Premises (Rents)
    Mr. DavidWatkins asked the Secretary of State for the Environment what representations have been made to him about the proposals of brewing companies to increase the rents of public houses following decontrol.
    Mr. Oakes: I would refer my hon. Friend to my right hon. Friend's reply to the hon. Member for Braintree (Mr. Newton) on 3rd March.—[Vol. 887, c. 342.]
    Mr. Watkins: I thank my hon. Friend for that illuminating answer. Is he aware
    1636
    that evidence has been brought to my attention that brewers are proposing increases of as much as 250 to 300 per cent.? Is it not therefore time that their monopoly was cracked down upon instead of being unleashed?
    Mr. Oakes: As my right hon. Friend the Secretary of State explained on 19th December, the Government considered that the control of business rents was having an unintended effect on some parts of the economy. As for the general level of rents, particularly the example that my hon. Friend has given, I understand that a code of practice on tenant security, accepted by both sides of the licensed trade, provides for disputes which cannot be settled by negotiation to go to arbitration.

    Furnished Lettings
    Dr. Hampsonasked the Secretary of State for the Environment how many furnished lettings were available in England and Wales in each year from 1969–70 to 1974–75.
    Mr. Freeson: 763,000 households, 4.6 per cent. of all those present on census night in April 1971, were occupying furnished accommodation. Comprehensive information for other years is not available.
    Dr. Hampson: That seems a remarkable answer, because the Minister is basing quite a lot—[Hon. Members: "Question."] Does he not realise that what is, I believe, a stable situation will collapse dramatically because of the disincentives incorporated in the Rent Act? Will he stop deluding himself that the only thing that is falling off is the number of newspaper advertisements? The disincentives are forcing landlords to close down the lettings they have been offering.
    Mr. Freeson: If the hon. Member has specific information rather than generalisations, I shall genuinely be glad to receive it so that we may more effectively monitor what is happening in the wake of the Act. As for the absence of information for other years, there is nothing startling about that. A census will be taken in 1976 upon which basis we shall be able to update information. It is true that some sample surveys have been taken, but they are hardly an adequate basis for comprehensive statistics.
    Mr. Raison: Will the Minister take seriously the point raised by my hon. Friend? Will he apply some common sense to the whole problem of furnished lettings? Will he now set up an inquiry into the effect of the 1974 Rent Act and apply serious thought to the possibility of providing a new form of short-term tenure?
    Mr. Freeson: On that last point, as I made clear in an answer a week or two ago, the answer is No ". I do not think that an inquiry is warranted. [Hon. Members: "Oh."] The Opposition, particularly hon. Members with knowledge of property dealings, would do well to stop playing politics with this issue.

    Waste Material
    Dr. Phippsasked the Secretary of State for the Environment if he will consider introducing incentives for the separation and collection of waste by local authorities.
    Mr. Oakes: I have asked the recently-appointed Waste Management Advisory Council to consider to what extent incentives may be needed. Some schemes already make a profit and I hope that we can help local authorities to make others do so too.
    Dr. Phipps: I thank my hon. Friend for that reply. May I urge upon the Government the setting up of an advertising scheme similar to that used for the litterbug campaign in the 1960s, to give people the incentive to carry their waste to central receptacles? I understand that that would be the only economic way of collecting much of the recoverable waste.
    Mr. Oakes: I agree with my ron. Friend about litter. I encourage all local authorities to make adequate provision for such waste receptacles so that litter need not deface our streets. However, I think that that is rather away from the original Question on recycling.
    Mr. Winterton: Will the hon. Gentleman confirm that his Department is spending about £2 million to advertise the need for waste separation? Does he think that that can be justified at present? Should not the money be allocated to local authorities for other things that they need to do, bearing in mind that they cannot at present find the money to set
    1638
    up the expensive plants that are necessary?
    Mr. Oakes: I do not know where the hon. Gentleman gets his figures from. No such expenditure is being made or is envisaged.
    Mr. Jim Marshall: Is my hon. Friend aware of the difficulties that many groups which collect waste paper are experiencing as a consequence of the cyclical nature of the waste paper industry? Will he investigate ways of alleviating the difficulties and giving local authorities further power to store and dispose of waste paper?
    Mr. Oakes: I am aware of the problems They arise in the main from voluntary organisations which, properly and public-spiritedly, decided when the market was high that they would have collection schemes and so on. Because of the cyclical nature of the market, the price is temporarily low. I am convinced that the answer is to have longterm agreements between local authorities and the industry. My right hon. Friend the Secretary of State for Industry is considering Government assistance for storage by industry.
    Mr. Speed: What progress has been made on an excess stock support scheme for waste paper? Proposals from the industry have been before the Government for many months.
    Mr. Oakes: That is more a question for my hon. Friend the Under-Secretary of State for Industry. It is one of the matters being considered by the Waste Management Advisory Council. We hope for a report within the next month or two.

    Local Authority Mortgages
    Mr. Frank Allaunasked the Secretary of State for the Environment if he has now completed his consideration of the proposal to provide Government loans at lower interest rates to local authorities for the purpose of granting mortgages to would-be house buyers ; and if he will make a statement.
    Mr. R. C. Mitchellasked the Secretary of State for the Environment if he will list those local authorities which have since 23rd January 1975 announced their

    1639
    intention of charging mortgage lending rates above 11 per cent.
    Mr. Freeson: On the general issue, I would refer my hon. Friends to the answer I gave to my hon. Friend the Member for Nelson and Colne (Mr. Hoyle) on 10th March.—[Vol. 888, c. 31–2.]
    I will, with permission, circulate in the Official Report a list of 18 local authorities in England which have to my knowledge announced decisions to raise their variable mortgage rate above 11 per cent. in the last eight weeks.
    Mr. Allaun: Is it not a fact that many local authorities which help people who cannot obtain mortgages elsewhere are having to pay more than 15 per cent. on their current borrowings, whereas building societies can get money in at less than 11 per cent.? Could not the Government—at little cost to themselves, as they can obtain money cheaply—provide loans equally cheaply to the local authorities for this most valuable purpose?
    Mr. Freeson: Applying to local authorities what one might loosely call the building society scheme that we adopted a year or so ago would not be of much help, even if it were acceptable to operate it, because £500 million loaned to building societies must be seen in relation to the £2,500 million loaned by them. The application of that kind of proportion of lending to local authorities would not produce the desired results. The figures have been worked out. In any case, in terms of public expenditure our housing priorities lie elsewhere.
    Having made those two points, I want to make it clear that we are still carefully examining ways in which we might be able to deal with this serious problem, serious particularly for a minority of borrowers from the local authorities concerned.
    Sir D. Walker-Smith: While I appreciate that there are differences between the position of building societies and the position of local authorities in some respects in regard to mortgage interest rates, may I ask whether constructive action will be taken to help authorities which are encountering special difficulties? Has the Minister yet concluded consideration of, and given sympathetic attention to, the representations made to
    1640
    him by the Broxbourne District Council over its special difficulties?
    Mr. Freeson: We have had a number of representations, not from all the local authorities affected but from quite a few. Except in certain marginal respects, we have not been able to be of immediate assistance to the local authorities concerned, but we are still looking into ways in which we may be able to help in the matter.
    Mr. R. C. Mitchell: is my hon. Friend aware that with every month that goes by more local authorities will have to change more than the 11 per cent. building society rate for their mortgages? This is inevitable because of the nature of local authority financing. May I stress that many of the people who take up local authority mortgages are in the lower income groups and could not obtain mortgages from the building societies? Is it not essential that they should be treated fairly, as were the building society borrowers?
    Mr. Freeson: I take the point my hon. Friend is making about the policy practices of local authorities in the issuing of mortgages, although, as a result of recent analytical examination, I would not go too far down that road in a general way. There is evidence of a considerable overlap in the kinds of customers covered by local authority provisions and those covered by building societies—far more than I had thought until quite recently. Nevertheless, we still take the problem seriously. I cannot promise that there will be an immediate answer. We shall try to find an answer, but it must be one which does not involve public expenditure being redirected from higher housing priorities.
    Mr. Rossi: In view of the many thousands of empty houses in local authority ownership, does the Minister accept that the proposal contained in Question No. 20 is a far more sensible way of deploying public resources than a programme of municipalisation? Will he have regard to those authorities which are finding it difficult to recruit teachers or to provide homes for public service employees, because those employees do not wish to be council tenants but cannot afford to buy their own homes at the high level

    1641
    of mortgage interest proposed by local authorities?
    Mr. Freeson: The hon. Gentleman has raised some cases demanding sympathy in the coverage that has been given to the matter. The housing difficuilties which teachers and other public service workers in London and some other places have experienced did not start with the increase in mortgage rates in recent months. They started a considerable time ago during the great boom in house prices under the previous Government.
    The hon. Gentleman's introduction of the issue of municipalisation is a red herring. There are considerable pressures form public service worker's organisations for local authorities to buy even more properties in oreder that they may make vacant property available for such workers.
    Following is the list:

    Bolton DC.

    Luton DC.

    Bournemouth DC.

    Melton DC.

    Bracknell DC.

    Middlesbrough DC.

    Brent LB.

    Milton Keynes DC.

    Cambridge DC.

    North Herts DC.

    Chichester DC.

    Reading DC.

    Eastbourne DC.

    Suffolk Coastal DC.

    East Staffordshire DC.

    Tendring DC.

    Langbaurgh DC.

    Uttlesford DC.

    Sports Council
    Mr. Monroasked the Secretary of State for the Environment how much of the increase in grant to the Sports Council of £1.15 million for 1975–76 is in respect of inflation ; and how much is intended for the growth of facilities.
    Mr. Crosland: The difference between the grant for this year and that proposed for next can be accounted for by inflation, but the council's estimates for next year include over £3½ million towards capital schemes already under construction or ready to start in that year.
    Mr. Monro: Is the Secretary of State aware that his reply is totally inadequate? Is he further aware that the amount for the increased grant certainly will not cover inflation and will not allow for any expansion of facilities? What is most important, will he accept that the country cannot understand his Government's priorities, because on the one hand they give away hundreds of million of
    1642
    pounds for nationalising industry but on the other hand they cannot afford £2 million for sport?
    Mr. Crosland: It is always curious to hear Opposition Members calling for increased public expenditure. The hon. Gentleman debated this matter on Monday night with my hon. Friend the Minister of State with responsibility for Sport. If he is saying that the present Government's record on sport is inadequate and unsatisfactory, I must tell him that when my hon. Friend the Minister of State resumed his responsibility for sport there was a sensational improvement in the morale of the entire sporting world.
    Mr. Canavan: While recognising that more public expenditure is necessary for sport and recreation, may I ask my right hon. Friend to remind the Sports Council that in the financial year 1973–74 it spent £1·6 million in administrative costs in order to disburse a mere £2·1 million? Does not my right hon. Friend consider that instead of handing out public money to non-elected and non-accountable bodies it would be far better to have an integrated Ministry of Recreation, answerable to Parliament, which would be responsible for organising and financing recreational and sporting facilities throughout the country?
    Mr. Crosland: My hon. Friend has made a very interesting proposal. I would remind him that the fact that the Sports Council is now at such a distance from Parliament—and, indeed, from anywhere else—was due to the reconstruction of the Sports Council by the previous Conservative Government. We should all, of course, like more money for sport. I should like a large sum of additional money for Grimsby Town Football Club—which is a cold place on a windy day. But much as I should like that, we must nevertheless stick to our basic national priorities.
    Mr. Michael Morris: What guidance has the Secretary of State given to local authorities concerning the priority they should give to expenditure on sports facilities?
    Mr. Crosland: The guidance was given in Circular 141/74.

QUESTIONS TO MINISTERS
Mr. Adley: On a point of order. May I raise with you, Mr. Speaker, a point of view that is fairly widely held in the House—that there is inadequate time for Questions to the Department of the Environment? Housing, transport, local government and planning all have to be grouped into one day. There are 66 Oral Questions on the Order Paper. Whereas under the previous Conservative Government, energy, trade and industry were initially, for instance, all part of the responsibility of the Department of Trade and Industry they now have their separate days. Will you, Mr. Speaker, see that this matter is brought to the attention of the relevant authorities?
Mr. Skinner: Further to that point of order. When you are considering this matter, Mr. Speaker, I hope that you will bear in mind that during the 31 years of the previous Conservative administration and certainly for the first part of it, this Question hour was dominated by many planted Questions, which were tabled by hon. Members of the present Opposition, including possibly the hon. Member for Christchurch and Lymington (Mr. Adley). It may be just possible that he is a little aggrieved because he cannot now put down his planted Questions.
Mr. Speaker: No doubt the Leader of the House will consider this matter. It is not a matter for me. It is a matter for discussion through the usual channels.
Mr. Mather: On a point of order. Have you any information, Mr. Speaker, whether the Home Secretary intends to make a statement tomorrow on the transfer of the Price sisters to Northern Ireland?
Mr. Speaker: No. That is a bogus point of order.
Mr. Kershaw: On a point of order. We have today, Mr. Speaker, the statement on the Defence Estimates. Is it not usual for a statement to be made in the House when they are published? Are we to have a statement today or tomorrow?
Mr. Speaker: Again, that is not a matter for the Chair. I do ask the House to support the Chair. I am trying to stop what are in fact false points of order. I can only do that with the assistance par-
1644
ticularly of experienced hon. Members. As the hon. Member knows, that is not a matter for the Chair. [Interruption.] In the last Parliament the other side were just bad.

BUSINESS OF THE HOUSE (OIL TAXATION BILL)
Ordered,
That the Third Reading of the Oil Taxation Bill may be taken immediately after the consideration of the Bill, notwithstanding the practice of the House as to the interval between the stages of Bills brought in on Ways and Means Resolutions.—[ Mr. Coleman.]

STATUTORY INSTRUMENTS
Mr. Speaker: In order to save the time of the House, I propose, unless there is any objection, to put together the Questions relating to the two statutory instruments.
Ordered,
That the draft Redundant Mineworkers and Concessionary Coal (Payments Schemes) (Amendment) Order 1975 be referred to a Standing Committee on Statutory Instruments.
That the Rating (Water Hereditaments) Order 1975 be referred to a Standing Committee on Statutory Instruments.—[Mr. Edward Short.]

SOCIAL SECURITY (ABOLITION OF WAGE STOP RULE)
3.34 p.m.
Mr. John Ovenden: I beg to move,
That leave be given to bring in a Bill to abolish the wage stop rule in relation to the payment of social security benefits.
The wage stop rule is the rule contained in paragraph 5 of Schedule 2 of the Supplementary Benefit Act 1966.
Mr. Speaker: Order. Will hon. Members who wish to conduct loud conversations do so outside the Chamber.
Mr. Ovenden: The rule applies to all men who have to register for work as a condition of receiving supplementary benefit. The rule demands that unless there are exceptional circumstances the amount of supplementary benefit payable shall not exceed what would be the individual's net weekly earnings if he were engaged in full-time work in his occupation. I am asking leave to introduce the

1645
Bill firstly because I believe it is fundamentally wrong that we should deliberately condemn families to a life below the poverty line, which is precisely what the wage stop rule was about.
In November 1974 there were 8,000 supplementary benefit claimants subjected to the wage stop. The figures for family size, which are available only for November 1973, show that 60 per cent. of claimant families then were families with five or more children, and that another 30 per cent. had three or four children. On that basis we can calculate that in excess of 35,000 children are affected.
It is also evident that the larger the family the larger will be the wage stop deduction, and the further below the poverty line the children will have to live. The average wage stop deduction at present is about £2. But in the case of three-, four- or five-children families it is quite possible that this deduction can be three or four times the amount.
The rule is often misunderstood. It is not supposed to be a weapon against the work-shy. The Supplementary Benefits Commission has enough weapons in its armoury to deal with that problem without needing the wage stop rule.
In its 1967 report the commission stated:
" The purpose of the wage stop is not to provide an incentive for a man to get work. The wage stop does not require a man to get less than he would when working. What it does do is to ensure that an unemployed man's income is not greater than it would be if he were in full-time work."
The question we must ask ourselves is this. Are we justified merely because some families have to live in poverty when the breadwinner is in full-time work in condemning them to live in poverty when they are eligible for State benefits? The question really is this. In a humane Welfare State, can we tolerate a rule which means consciously and deliberately deciding that certain people should live below a level that we have ourselves decided is the poverty level? We are accepting a situation in which parents cannot afford to feed or clothe their children decently because of a rule which belongs more to the days of the Poor Law then to the days of an enlightened Welfare State.
1646
It is right that we as a society should be concerned about a situation in which a man may earn less in work than he can receive in State benefits. However, the reason why we should be concerned is that we should question the type of society which pays a man less than a living wage for doing a week's work. The continuation of the wage stop rule will do nothing to change that society. It will only continue to mask the injustice. I believe that the abolition of this rule will give a boost to the implementation of a system of family benefits that is needed by families in work to move them above the poverty line.
Above and beyond the moral argument on this question there is a problem of administration. The wage stop rule places an impossible burden upon the officers of the Department of Health and Social Security, because it is virtually impossible to administer fairly. First, it must be decided what an unemployed man's normal earnings would be. This means, I understand, that regard must be had to likely future earnings and that judgment must be exercised—I am told—over past earnings. Past earnings, of course, particularly in the days in which we are living now, can often be rendered meaningless by inflation.
The commission's rules state that any skill or experience should be taken into account in assessing a man's earning power and that there should be discussions with the claimant about his normal earnings. Yet in the majority of cases investigated by the Child Poverty Action Group, it was found that this was not done. The vast majority of wage-stopped claimants are assessed on the National Joint Council rates for light labourers, and, although these rates now include a guaranteed minimum income, they take no account of overtime. We all know that to a man with a large family it is the overtime earnings which make the difference between living and existing. The commission's rules mean that the National Joint Council rates are applied to all men after a year's unemployment, irrespective of their past earnings.
The rule is particularly harsh when applied to the disabled. Some men are no longer able to continue their former jobs because of disability, and not only suffer the drop in living standards to supplementary benefit rates but if they

1647
register for work they become candidates for the wage stop.
There are numerous examples which the Child Poverty Action Group has quoted. There is the case of Peter Rothman, who had earned good money as a skilled gas fitter in Liverpool until he had to leave the job because of osteoarthritis. Stuart Brown was a well-paid lorry driver until he suffered a heart attack. Ray Jameson had been a £40-a-week sanding machine operator when a stroke left him partially paralysed. Mike Bracken, who had been doing a skilled manual job, is no longer able to do that because of cervical spondylosis. Robert Chaffer, who had infantile poliomyelitis and now suffers from partial but progressive paralysis, continued to work, against medical advice, as a process operator in a steel works until his health gave out.
All these cases produced by the Child Poverty Action Group have been affected by the wage stop rule. One of them was told "There aren't any jobs for you, so you might as well sign on." By signing on, he made himself a candidate for the wage stop, and this was promptly imposed. All these cases, who were formerly skilled men, are classified according to the earnings of light labourers, jobs they never did previously.
The proper administration of this rule demands that due regard should be paid to rent and rate rebates and family income supplement due to the man concerned when in work. It is impossible to say whether this happens.
Recently I asked my hon. Friend the Under-Secretary of State to give
1648
information on how the introduction of rent and rate rebates had changed the number of people affected by the wage stop. He was unable to provide me with precise figures. I do not blame him for that, because I believe that it would be a massive task properly to monitor the rule.
Undoubtedly if the rule were carefully applied some injustices could be avoided. but at the same time that would reduce the saving to public funds of the wage stop rule and increase the administrative costs. We could well reach a point where the rule actually cost the Exchequer money, and I am sure that it would then be scrapped.
How, then, can there be any justification for keeping a rule which saves us money merely because it is applied over-harshly and haphazardly and is improperly administered?
Question put and agreed to.
Bill ordered to be brought in by Mr. John Ovenden, Mr. Ivor Clemitson, Mrs. Maureen Colquhoun, Mr. Robin F. Cook, Mr. Robin Corbett, Mr. Bruce George, Mr. Bryan Gould, Mr. Eddie Loyden, Mr. Max Madden, Mr. Stan Newens and Mrs. Audrey Wise.

SOCIAL SECURITY (ABOLITION OF WAGE STOP RULE)
Mr. John Ovenden accordingly presented a Bill to abolish the wage stop rule in relation to the payment of social security benefits, and the same was read the First time ; and ordered to be read a Second time upon Friday 11th July and to be printed. [Bill 1171

OIL TAXATION BILL
As amended (in the Standing Committee), considered.

New Clause 1

OIL ALLOWANCE

5

' (1) Subject to the provisions of this section and paragraphs 10 and 11 of Schedule 3 to this Act, where a participator in an oil field would, apart from this section and section (Annual limit on amount of tax payable by participator) of this Act, be chargeable to tax for any chargeable period on an amount (" the said amount ") consisting of the assessable profit accruing to him in the period from the field or that profit as reduced under section 7 of this Act by any allowable losses, then for the purpose of determining his liability, if any, to tax for that period, the said amount shall be treated as reduced or further reduced as follows, that is to say—

10

(a) if the said amount exceeds the cash equivalent of his share of the oil allowance for the field for that period, to an amount equal to the excess; or

(b) if the said amount does not exceed the cash equivalent of his share of that allowance, to nil.

15

(2) The oil allowance for an oil field is, for each chargeable period, 500,000 long tons, and shall be divided between the participators in shares proportionate to their shares of the oil won and saved from the field during the period.

(3) For the purposes of this section the cash equivalent of a participator's share of the oil allowance for an oil field for a chargeable period is (subject to subsection (4) below) the amount given by the formula:—

£(A x B/C)
where—

A is the gross profit accruing to him in the period or, if a gross loss (or neither a gross profit nor a gross loss) accrues to him in the period, nil (in which case the cash equivalent itself will be nil);

25

B is his share of the allowance, in long tons; and

C is his share, exclusive of excluded oil within the meaning of section 8 of this Act, of the oil won and saved from the fields during the period, in long tons.

30

(4) If a participator in an oil field so elects by notice in writing given to the Board at the time when he makes his return under paragraph 2 of Schedule 2 to this Act for a chargeable period, then the cash equivalent of his shale of the oil allowance for the field for that period shall be determined under subsection (3) above

35

(a) to the extent that his share of that oil allowance does not exceed his share of the oil (other than gas) won and saved from the field in the period, as if in computing the gross profit or gross loss accruing to him in the period all amounts relating to gas fell to be disregarded; and

(b) to the extent, if any, that his share of that oil allowance exceeds his share of the oil (other than gas) so won and saved, as if in computing the gross profit or gross loss so accruing all amounts relating to oil other than gas fell to be disregarded.

40

(5) For the purposes of this section the amount of the oil allowance for an oil field utilised by a participator in any chargeable period is

(a) if in his case a reduction is made for that period under subsection (1)(a) above, an amount in long tons equal to his share of the oil allowance for the field for that period;

45

(b) if in his case a reduction is made for that period under subsection (1)(b) above, the amount in long tons arrived at by multiplying his share of the oil allowance for the field for that period (in long tons) by the fraction of which the numerator is the amount of that reduction and the denominator is the cash equivalent of his share of the said oil allowance;

(c) in any other case, nil.

50

(6) The total oil allowance for an oil field shall not exceed 10 million long tons, and accordingly

(a) for each chargeable period there shall be determined the aggregate of the amounts of the oil allowance for the field utilised by the participators in that period; and

55

(b) as regards the earliest chargeable period such that the sum of the aggregate determined under paragraph (a) above for that period and the aggregates so determined for each earlier chargeable period would, apart from this subsection, exceed 10 million long tons, the necessary restriction shall be apportioned between the participators in such manner as may be notified to the Board by the responsible person or, in default of such notification, as may be determined by the Board.

60

In this subsection "the necessary restriction "means the restriction necessary to secure that the aggregate determined under paragraph (a) above for the chargeable period to which paragraph (b) above will, when added to the sum of the aggregates so determined for each earlier chargeable period, produce a total of 10 million long tons.

65

(7) For the purposes of this section 40,000cubic feet of oil consisting of gas at the temperature and pressure mentioned in section 1(4) of this Act shall be counted as equivalent to one long ton of oil other than gas.

(8) Any reduction to be made under subsection (1) above shall be made before applying the provisions of section (Annual limit on amount of tax payable by a participator) of this Act'.—[Mr. Dell.]

Brought up, and read the First time.
3.43 p.m.
The Paymaster-General (Mr. Edmund Dell): I beg to move, That the clause be read a Second time.
Mr. Speaker: On Clause 1, I understand that there is to be a general debate on various other matters.
Mr. George Reid: On a point of order, Mr. Speaker. In view of the indistinct printing of the Notice Paper, may I confirm with you that Amendment No. 230 will be called? It deals with the establishment of a Scottish oil fund.
Mr. Speaker: That is an amendment which is beyond the scope of the Bill. It is out of order.
Mr. Gordon Wilson: On another point of order, Mr. Speaker. In view of the importance of the Scottish oil fund to the Scottish economy, will you rule on whether it will be possible for some of the arguments in favour of the fund to be adduced on any other amendments and, if so, on which amendments?
Mr. Speaker: I should be in grave difficulty if I were to allow discussion of matters outside the scope of the Bill. Let us see how we get on. My preliminary reaction is that, if the amendment is outside the scope of the Bill, the argument in favour of it is irrelevant to our discussion.
Mrs. Winifred Ewing: Further to that point of order, Mr. Speaker. Will you please press the Select Committee on Procedure to hasten its recommendations so that amendments lodged by minority parties, particularly parties that are not minorities in the countries from which they come, can get some rights to be heard in the House?
Mr. Speaker: I do. not think that any Select Committee on Procedure would
1652
ever recommend that amendments outside the scope of a Bill could be included in the discussions on the Bill.
Mrs. Margaret Bain: Further to that point of order, Mr. Speaker. If there are to be no discussions today on the setting up of the Scottish oil fund, may we be given a guarantee that such a matter will be discussed at a future date, as it is vital to the Scottish Assembly, which will be set up under this Government's legislation, that this matter be discussed?
Mr. Speaker: That is not a matter for me. It appears to be an appropriate matter to be raised at business questions on a Thursday.
With this new clause it may be convenient to discuss the following amendments:
Amendment (a) to the new Clause 1, in line 69, at end add—
' (9) Notwithstanding subsection (1) above a participator shall be entitled to the cash equivalent of his share of the oil allowance for a field for each chargeable period from and including the first chargeable period (as defined in section 1(3) of this Act) and if for any chargeable period a participator is not able to utilise or fully utilise under subsection (I) above his share of the cash equivalent of the oil allowance calculated under subsection (3) above, and for which an election has been made under subsection (4) above, he shall be entitled on so claiming to carry forward such unutilised cash equivalent to reduce the said amount of any succeeding chargeable period '.
Amendment (b) to the new Clause 1, in line 69, at end add—
' (10) Notwithstanding subsection (1) above a participator shall be entitled to the cash equivalent of his share of the oil allowance for a field for each chargeable period from and including the first chargeable period (as defined in section 1(3) of this Act) and if for any chargeable period a participator is not able to utilise or fully utilise under subsection (1) above his share of the cash equivalent of the oil allowance calculated under subsection (3) above, and for which an election has been made under subsection (4) above, he shall be

1653
entitled on so claiming to carry back such unutilised cash equivalent to reduce the said amount of any earlier chargeable period '.
Amendment (c) to the new Clause 1, in line 59, leave out ' as may be determined by the Board ' and insert:

New Clause 2

ANNUAL LIMIT ON AMOUNT OF TAX PAYABLE BY PARTICIPATOR

' (1) The total tax payable by a participator in an oil field for the chargeable period or periods comprised in any calendar year shall not exceed 80 per cent. of the amount (if any) by which his adjusted profit for that year (as defined in this section) exceeds 30 per cent. of his accumulated capital expenditure at the end of that year (as so defined).

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(2) For a participator in an oil field, his adjusted profit (if any) for any calendar year shall be determined as follows—

(a) for each chargeable period comprised in that year there shall be ascertained—

(i) the assessable profit (without any reduction under section 7 or (Oil allowance) of this Act) or allowable loss accruing to him in that period; and

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(ii) the total amount taken into account under section 2(9)(b), (c), (d) and (e) of this Act in computing that profit or loss, excluding expenditure so taken into account under section 2(9)(b)(i) or (c)(i) which was not allowed as qualifying for supplement under section 2(9)(b)(ii) or (c)(ii);

(b) in the case of each such chargeable period—

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(i) if there is a profit under paragraph (a)(i) above, the sum of that profit and the total ascertained under paragraph (a)(ii) above is his adjusted profit for the period;

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(ii)if there is a loss under paragraph (a)(i) above smaller than the total ascertained under paragraph (a)(ii) above, the difference is his adjusted profit for the period ; and

(iii) if there is a loss under paragraph (a)(i) above greater than the total so ascertained, the difference is his adjusted loss for the period;

(c) if the year comprises only one chargeable period, his adjusted profit (if any) for that period is his adjusted profit for the year;

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(d) if the year comprises two chargeable periods then—

(i) if for each of them he has an adjusted profit, the sum of those profits is his adjusted profit for the year;

(ii) if for one of them he has an adjusted profit and for the other an adjusted loss smaller than that profit, the difference is his adjusted profit for the year;

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(iii) if for one of them he has an adjusted profit and for the other neither an adjusted profit nor an adjusted loss, that profit is his adjusted profit for the year;

(iv) in any other case, he has no adjusted profit for the year.

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(3) For a participator in an oil field his accumulated capital expenditure at the end of any calendar year is the total amount of expenditure taken into account under section 2(9)(b)(i) and (c)(i) of this Act in computing the assessable profit or allowable loss accruing to him in each of the relevant chargeable periods, that is to say the chargeable period or periods comprised in that year and all earlier chargeable periods, excluding all expenditure so taken into account which was not allowed as qualifying for supplement

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under section 2 9)(b)(ii) or (c)(ii):

Provided that in the case of a participator who has made an election under paragraph 9 of Schedule 3 to this Act, his accumulated capital expenditure at the end of any calendar year shall be taken to be what it would have been if he had made no such election.

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(4)Any reduction necessitated by this section in the total tax otherwise payable by a participator in an oil field in respect of a calendar year comprising two chargeable periods shall be made as far as possible by reducing or extinguishing the tax otherwise payable by him for the later of those periods.

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(5) In the case of any oil field the preceding provisions of this section shall have effect as if the calendar year which comprises the critical half year as defined in section 1(4) of this Act comprised the whole of the first chargeable period '.

Amendment (a) to new Clause 2, in line 43, at end add:
`and provided further that the Treasury may from time to time increase the accumulated
'shall be so apportioned as to divide the total oil allowance for the field between the participators in shares proportionate to their shares of the total amount of oil own and saved for the field during the chargeable period to which this paragraph applies and each earlier chargeable period.'.
capital expenditure in the case of any participator to take account of such alterations in the rate of inflation as may be evidenced by such index as the Treasury may from time to time determine to be appropriate '.
Government Amendment No. 1.
No. 231, in Clause 1, page 2, line 5, leave out:
'such rate as Parliament may hereafter determine' and insert 'the rate of 75 per cent.'
Government Amendment No. 2.
No. 13, in Clause 2, page 5, line 14, after '(ii)', insert:
'Subject to subsections (4A) and (4B) of the said section 3.'
Government Amendment No. 14.
No. 18, in page 5, line 29, after '(ii)', insert:
'Subject to subsections (4A) and (4B) of the said section 3'.
Government Amendment No. 19.
No. 22, in Clause 3, page 7, line 39, after '(a)', insert:
' Subject to subsections (4A) and (4B) below,'.
No. 24, in page 8, line 17, at end insert:
' (4A) If a participator in an oil field so elects by notice in writing given to the Board before 1st January 1976 or not later than one month after the end of the first chargeable period in which he is a participator in that field, the following subsection shall apply in his case as regards that field ; and an election under this subsection shall be irrevocable.
(4B) Subsection (4)(a) above and section 2(9)(b)(ii) and (c)(ii) of this Act shall not apply but where the creditor is a person connected with the participator within the meaning of section 533 of the Taxes Act the expenditure allowable in respect of interest or other pecuniary obligation shall not exceed the amount which would have been incurred in a transaction with an independent person made at arm's length '.
No. 25, in page 8, line 28, after 'works', insert:
'or acquiring an asset or any interest in an asset '.
Government Amendment No. 168.
Government Amendment No. 169.
Government Amendment No. 232.
Government Amendment No. 239.
No. 26, in page 8, leave out lines 32 and 33.
No. 61, in Clause 5, page 12, line 41, at end insert:
'(5A) The abortive exploration expenditure allowable under this section shall be increased by an amount equal to the relevant percentage of the expenditure allowable by virtue of the preceding provisions of this section '.
No. 62, in page 12, line 45, leave out 'and'.
No. 63, in page 13, line 11, at end insert:
'; and
(d) "the relevant percentage "is the percentage mentioned in section 2(9)(b)(ii) of this Act '.
Government Amendment No. 108.
Mr. Dell: I hope to introduce this large group of amendments at not too great length, but there are many points to explain and criticism from both points of view to deal with.
Today we come to the final phase of the Bill, exactly four months after its introduction and after the beginning of the consultations which have gone towards fashioning it. This group of amendments deals primarily, though not exclusively, with the implementation of my statement to the House on 25th February.
New Clause I introduces an oil allowance which is designed to assist primarily marginal fields—in other words, 1 million tons of oil allowance per annum or 500,000 tons as the maximum allowable in any chargeable period.
I emphasise that the oil allowance is not 10 million tons. That is simply the limit. It is not a ration. The 10 million tons limit was placed in order to limit the benefit to large fields. The oil allowance—that is, the 500,000 tons per chargeable period—acts to reduce proportionately the PRT burden on smaller fields and it acts so that the smaller the field the greater the proportionate relief. This does not depend on a field getting or using the whole 10 million tons within the limit. There is or should have been no misunderstanding on this point, which was made perfectly clear to the industry.
I should, however, refer to the fact that there have been reports in the Press which give a misleading impression of the effect on a small field of the operation of the oil allowance as defined in the clause. I quote from the Daily Telegraph of 8th March. There was a similar report in The Times of the same day, and therefore one may take it that it is an accurate report. The report in the Daily Telegraph said that figures had been produced
" to show that a small field with reserves of 300 million barrels and with investment costs of £250 million would now be able to recover only 1·7 million tons of tax-free oil ".

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That calculation has never been put to us by the industry. Indeed, from within the industry the figure which we have received is that more like 8·6 million tons of oil allowance would be used in respect of such a field in normal circumstances. All these calculations depend upon costs, prices, the profile of production, and so on, which cannot be accurately forecast in respect of any field at this stage.
The important question about the oil allowance is whether it adequately relieves the tax burden. I believe that it produces a heavy reduction of the tax burden on smaller fields. Moreover, on a 40 million-ton field a relatively small further reduction in tax burden would be available even if all the oil allowance was used, and I do not believe that this would be the kind of difference which would decide whether a field was developed. All this is without taking account of the effect of the safeguard, which can give some assistance to marginal fields.
The right hon. Member for Wanstead and Woodford (Mr. Jenkin) has put down an amendment which echoes the view expressed vigorously by one section of the industry and perfunctorily by other sections to the effect that we should so arrange matters that if it is possible all the 10 million tons should be used. The effect of that, apart from being different from the Government's intention, would be to give great help to the few small profitable fields, and equally it would give great help to large profitable fields by deferring PRT liability. I therefore see no justification for this proposed amendment, although I shall listen intently as always to the right hon. Gentleman's arguments.
Mr. Tam Dalyell: Will the Paymaster-General confirm that the oil allowance will be sufficient to allow exploitation of the Andrew Field in connection with Forties, and is he in any position to say whether the oil companies have accepted this as sufficient to exploit the marginal fields?
Mr. Dell: On the Andrew Field, I imagine that the companies are now assessing its economics on the basis of the information they have about the tax system we propose to introduce. I can give no assurance until the companies
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involved tell me what they have found. However, our assessment of the matter is that these aids to marginal fields will be of great assistance in ensuring that these fields are developed. As to the oil industry's reaction to the marginal field provisions, as I pointed out, I have had very vigorous reaction from certain quarters and more perfunctory reaction from other quarters, but some of the criticism I am receiving from elsewhere is that I have gone too far to assist the oil industry. I will come to that point in due course.
I hope that the House will forgive me if I do not give way too much. I have a long list of amendments to introduce and it will be for the assistance of the House if we get ahead.
I should like to compare what we are doing over marginal fields with what is proposed by the Norwegian Government should be done in their waters. They intend to give 150 per cent. over 15 years. We are also conceding a further allowance on capital expenditure, what is other than the 25 per cent. further uplift which comes in one of the amendments grouped with the new clause. However, according to our calculations our proposal gives more help to smaller fields and probably less help to profitable large fields. The right hon. Member for Wan-stead and Woodford wants me to go further than that. I see no justification for so doing, but I will listen to the arguments.
Government Amendment No. 108 is designed to ensure that the participator cannot increase his oil allowance by the device of spreading an expenditure claim for PRT or by holding up his claims for capital expenditure. That is a necessary consequence of the introduction of the oil allowance.
Government Amendments Nos. 14 and 19 increase the uplift from 50 per cent. to 75 per cent. This will help marginal fields, notably those with large capital expenditure. It gives greater assurance that uplift will cover interest. It gives the companies a better opportunity even than was originally provided by the Bill of an early pay back of capital, but I must emphasise, because it appears that some commentators have not fully appreciated this point, that uplift is in replacement of interest and therefore the figure of 175 per cent., that represents the total

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capital allowance, includes interest, a fact which has misled some commentators. It should also be remembered in considering the adequacy of the provisions in respect of interest that interest relief grants are also available from the Offshore Supplies Office.
I now come to new Clause 2 which introduces the safeguard that I announced on 25th February. As I said in my statement then, the clause has been introduced to provide some automatic protection against a fall in the real price of oil, or what amounts to the same thing—movements in domestic prices unfavourable to oil. One can hope that at any rate by the early 1980's the present uncertainties surrounding the price of oil will have been resolved and that the relationship between oil prices and other prices will be seen to be on a firmer basis.
The Government of the day would then have to consider whether the protection offered by the safeguard clause remained appropriate to the particular circumstances of some quite profitable fields late in their life. I can perhaps best explain this point by reference to the hypothetical field which was taken for the purpose of illustration in a Treasury Press Notice issued on the day of my statement. The footnote to the illustrative table said that the safeguard provision would not be necessary for the hypothetical field.
Like all such illustrations, this was based on certain underlying assumptions about relative costs, prices and the profile of production. It is, however, possible by varying these assumptions, to arrive at a situation where the safeguard might affect such a field. Even on such assumptions it would be unlikely to affect such a field during earlier years of productive life, but during the later years, as production began to decline, such a field could well benefit from the safeguard to some extent.
It would be for the Government of the day, in circumstances, one hopes, of greater certainty about relative prices than now exist, to decide whether they should permit a field of this kind to benefit towards the end of its life from the safeguard provision after it had yielded substantial profits on the investment earlier on. I in no way prejudge that issue. It might be sensible to reduce PRT to
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encourage the bringing out of residual oil, but this matter should be drawn to the attention of the House as a question which may need to be examined at some further stage.
None of this affects the statements 1 made in this House about the Government take over the next ten years, which I believe to be a figure of about 70 per cent., or the figure I have given of the total estimated take up to the early 1980's The right hon. Gentleman has suggested that we should index the capital base. I will listen to the arguments in favour of that suggestion. but I emphasise that the clause already gives protection against a change in the relative price of oil. This will be a very expensive procedure especially later in the life of the field. The right hon. Gentleman has been unable to tell us in the amendment how he proposes that the capital base should indexed, and we await that information with interest. However, the whole concept of the safeguard rests on the capital base not being indexed. In my statement I emphasised that historic costs would apply. In response to the right hon. Gentleman's proposal I must point out that even the oil industry has not proposed to me that the capital base of the safeguard should be indexed.
Government Amendments Nos. 168 and 169 relate to Clause 3. They are to meet points raised by the United Kingdom Oil Industry Taxation Committee. The amendments extend the provision to cover the purchase of ready-made assets so that it applies not just to the carrying out of works. I hope and believe that the amendments meet the point of Opposition Amendment No. 25. Government Amendment No. 29 deletes the rule that no payment for the hire of an asset shall qualify for uplift but provides that the payment shall qualify broadly if the the asset is used constructing initial treatment, storage, transportation and production facilities in the field. Again, I believe that that substantially meets the point of Opposition Amendment No. 26. No doubt we shall see.
4.0 p.m.
Government Amendment No. 232 follows Government Amendment No. 186 on Clause 3 and the related amendments to Clause 10 making the initial treatment and storage of oil allowable for PRT and

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provides that expenditure on installations for these purposes should qualify for uplift.
We have the interesting parallel of the Norwegian tax proposals and can compare the structure of our tax with what the Norwegian Government have proposed to the Norwegian Storting. Some commentators appear to believe that the Norwegian proposals are already legislated, whereas we are likely to be ahead of the Norwegians in getting this Bill through. The Norwegians do not propose to introduce an excess profits tax, and certainly not an excess profits tax of the kind recommended by the right hon. Member for Wanstead and Woodford. It is, in effect, an additional slab of corporation tax. It is a single-rate tax—a characteristic of our proposals which the right hon. Gentleman has found particularly abhorrent. It is largely on a field basis because the depreciation provisions operate only against the income from the field to which they apply. Therefore, again, substantially it is similar to our proposals, which the right hon. Gentleman has found abhorrent.
There is a difference in that the additional tax—the special tax—does not have priority over the Norwegian corporation tax or income tax, whereas ours does. As I have explained to the House and to the Committee, the object of priority is to bring in the revenue earlier, and we think that we are right to differ from the Norwegians in this respect. There are, nevertheless, remarkable similarities between the structure which they have adopted and the structure which we, quite independently, have adopted.
I come to one of the questions which have worried many hon. Members considerably, and that is the rate of tax, 45 per cent., which is implemented by a Government amendment. I wish to explain the considerations upon which it is based and its consequences for Government take.
I should like to give the House some information about the background to the consideration of an appropriate rate of PRT. The first is the considerable escalation in costs which has taken place over the last year or so. The House should bear in mind that we are dealing, even now, with estimates of costs for all fields with the exception perhaps of one. These
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costs have not yet been finalised in the sense that they have been committed or spent. There is, therefore, considerable uncertainty in that respect.
Secondly, there is inevitably a question mark over the price of oil, and the current discussions throughout the world about whether there should be a floor price emphasise the question mark and suggest that it is not unreasonable if certain oil companies are concerned that a fall in the price might operate to the detriment of their profits. That is a justification for the safeguard which we have introduced as well as for the assurance which I have given in respect of substantial changes in the real price of oil,
The third consideration is the level of return necessary to achieve financial investment in the North Sea. One of the tragic facts about the present situation is that so much of the finance is coming not from this country but from overseas. Therefore, adequate encouragement must be given if the oil resources are to be exploited at an appropriate rate.
Finally, there is the problem of slippages in the programme which have an adverse effect on the rate of return which companies can expect from their operations. Due to many circumstances, largely technical, and the weather, and difficult conditions in the North Sea, there have been slippages in the programme.
Various criteria are used by the companies and the banks in determining whether development should be financed. There is the internal rate of return which can be expected. There is the profit/ investment ratio. There is the pay-back period. The rate of tax must be designed to accommodate all these considerations and permit a return on an acceptable level.
The hon. Member for Dundee, East (Mr. Wilson), together with his colleagues, has issued an interesting Press notice in which he criticises the calculations upon which the 45 per cent. rate is based and proposes an alternative rate of 75 per cent. He suggests that $1 profit per barrel for the companies should be sufficient. The trouble with such a simple criterion —profit per barrel—as a measure of the rate of tax which is appropriate is that it ignores the time function, the rate of return on capital, and the profit/investment ratio and, therefore, should not be regarded as an acceptable basis for investment.

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However, leaving all that aside, the hon. Gentleman's calculations of costs are excessively optimistic. I wish that they were right. If they were, the Government take, on the Government's proposals, would be much higher than we shall achieve as they are. It would greatly change the situation and might well make appropriate a different rate of tax from that which we have proposed. I say that his calculations are excessively optimistic except perhaps for a very large field on which capital expenditure has already largely been made.
Moreover, the hon. Gentleman's figures include errors about the results of the Government's measures. For example, according to our calculations, he is wrong about the Government take, which, as I have said, we reckon will be about 70 per cent. over the next 10 years. The hon. Gentleman gives the figure of 65 per cent. According to our calculations, he is wrong about the profit per barrel likely to result from the Government's proposals.
Moreover, although it is a little difficult to understand the hon. Gentleman's calculations, and, therefore, I make this point with some caution and, as always, I shall be delighted to discuss it with him because he has devoted some attention to this matter and has studied with care the Public Accounts Committee's report with which I had something to do, it appears to us that the 65 per cent. figure which he gives for Government take is based on gross revenue—that is, before deducting costs from the company share. According to our calculations, and applying our methods, the Government take would be about 75 per cent. Evidently that is the figure for which the hon. Gentleman is looking. Therefore, he will perhaps not press his amendment and will vote for ours.
I appreciate that it is very difficult to calculate the results of a complex tax system, and, therefore, I blame no one for getting the matter wrong at the first attempt, but we have devoted considerable attention to working out the take. There was an article in the Scotsman on 18th March written by Mr. Frank Frazer, who, as far as I am aware, also has great experience in these matters. It is difficult to see how he has come to his conclusion, but he says that the percentage Government take will be 60 and that the per-
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centage company profit will be 40. As far as we can see—and I say this with reservation and caution because Mr. Frazer did not set out his complete calculation —he achieves that result by not deducting the capital cost and interest from the companies' share of the revenue. On our basis of calculation the Government take would again, on his essential figures, be around 75 per cent., not around 60 per cent.
The real question is whether the 45 per cent. is fair as a share for the British people in the development of these resources and the profits that are being made and whether it also gives adequate profit to encourage North Sea development so that we do not have a peak of production in the early 1980s followed by a rapid falling off thereafter.
Comments have been made by stockbrokers and others about the Forties, Piper and Argyll fields. All these are early fields for which a great deal of expenditure was entered into before the recent escalation of costs. I cannot go into the confidential information I have been given by the companies but certain facts are relevant. Argyll is a very small field and the profit made on it does not affect significantly the overall take. I do not regret that such a large and profiable field as Forties is in British ownership.
In reply to those critics who say that these proposals allow an inadequate Government take I would again make a comparison with Norway. The Public Accounts Committee had Norway very much in mind when it was drawing up its report. Norway has been described in many journals, particularly in the United States, as a land of blue-eyed Arabs. Let us compare—in so far as we can compare different tax systems one with the other—what our take is likely to be with the likely Norwegian take.
Some figures that have been published appear to be based on a misunderstanding of the Norwegian tax system. Figures have been given which suggest that the Norwegians can expect a take of 80 per cent. or 75 per cent. An editorial in the New Statesman suggested that the Norwegians would achieve a 75 per cent. take on average from their proposal. We do not believe those figures to be true of the Norwegian tax proposals. With all the uncertainties which operate when one calculates the effect of different tax

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systems—I am talking not of special taxes so much as the total tax and related system that operates throughout —we believe that our take is comparable with the Norwegian take and possibly a little higher. I do not believe that the 45 per cent. which we propose is inappropriate in the light of the facts and considerations which I have outlined to the House.
We are establishing within the Inland Revenue a substantial centralised office with highly qualified staff to deal with petroleum revenue tax assessment and expenditure claims and with the oil companies' liabilities to corporation tax. That should enable specialised questions on oil taxation to be handled expeditiously and it will bring together in one place experts in oil taxation. That is a highly desirable development given the new era which we are entering.
4.15 p.m.
Mr. Patrick Jenkin: Before I come to the clause, I should like to express my thanks and those of my hon. Friends to the Paymaster-General and to his private office for having helped us to overcome the considerable difficulties which stand in our way in dealing with what is by any standards, apart from the Finance Bill, a massive Order Paper for a Report stage.
I shall be dealing with many of the matters on which the right hon. Gentleman spoke but I should like to say at the beginning that, while I understand his anxiety in wishing to establish to some of his hon. Friends that the Government are being as rough and tough with the oil companies as are the Norwegian Government, I beg him to treat those arguments with a great deal of caution.
The Norwegians are likely to be self-sufficient in oil this year. The whole of their policy has been directed to slowing down the pace of exploration and development. Their whole licensing system, their attitude to STATOIL and their heedlessness if companies decide that it is not worth exploring in Norwegian waters are all aimed at the same purpose ; namely, to make sure that Norway does not achieve too substantial a surplus on oil account leading to a major revaluation of the krone and so disrupting established industry which depends on the
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balance of payments. That is the Norwegian policy, and the right hon. Gentleman should be a little cautious before suggesting that the same policy might be appropriate for this country. It is not. We shall not be self-sufficient for at least five years, and we shall need a continuing major effort in exploration and development if our offshore oil is to pay for the massive debts which we shall by then owe overseas.
I wish to avoid repeating all the arguments that we developed at some length in Committee and I shall try to be brief. I acknowledge that the Government have moved a long way from the form in which the tax was first introduced. Instead of the flat-rate, field by field, prior charge tax, we have a Bill which makes some attempt to tailor the burden to the variable circumstances of the fields, which imposes a proportionately heavier take from the prolific fields than from the marginal fields, which may exempt the smallest fields altogether from any charge to PRT and which has made considerable inroads into the original principle of field by field. We shall see that when we come to new Clause 3.
In short, PRT is now a tax the substance of which has changed out of all recognition from the tax as first introduced, although the form is still there. There is the £10 million oil tax allowance —and I take the right hon. Gentleman's point on the ½million tons in each period. There is the 30 per cent. safety net, the new reliefs for losses, the increased uplift in Amendment No. 14, the exclusion of gas contracts, the allowance for the initial treatment of storage plant, the allowance on shared costs, the uplift for additional expenditure and the uplift on hired assets. I could go on. All these represent a welcome change of mind on the part of Ministers. They perhaps do not go quite so far as the Treasury went on capital transfer tax, but they are coming a close second.
The announcement of 25th February was greeted somewhat to my surprise—and not by myself—as though it conferred an almightly bonanza on the oil companies.
Mrs. Maureen Colquhoun: It does.
Mr. Jenkin: There may be some who think it does. Perhaps I may quote some

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figures to reinforce what the right hon. Gentleman says. The companies have since been looking at the small print of the amendments as they have appeared on the Notice Paper and have been working out their own figures. For companies with medium or small fields there is no question of there being any bonanza. Indeed, many existing fields may still be highly marginal and may not be developed. I quote Mr. Reynolds from the report in The Scotsman:
"Conoco announced that their economists had concluded that some of the smaller schemes might not benefit fully from the allowance of £10 million free from petroleum revenue tax."
That is right as the Bill stands, and the right hon. Gentleman has confirmed that that is his intention. Later Mr. Reynolds said that, although the company would not withdraw its participation it seemed unlikely that the field could be developed economically.
Conoco is a highly respected oil company, and I have been making my own inquiries. I am grateful to one of the smaller United Kingdom companies which provided me with a special set of figures—[HON. MEMBERS: "Oh."] I am prepared to discuss the assumptions with the hon. Member for Aberdeenshire, East (Mr. Henderson). They are entirely reasonable. That company provided me with figures for a hypothetical oil field which it christened the Patrick Jenkin Field. The company assumed two fields, a 500-million barrel field and a 300-million barrel field, and assumed in the one case a figure of $10·5 per barrel of oil and in the other case a figure of $9 per barrel. It assumed that there was no loan interest at all—in other words, that the whole development was to be financed internally.
To take the most favourable situation, the 500-million barrel field at a figure per barrel of $10·5, there would be a payment of $320 million PRT and $1,623 million corporation tax. The Government take would be 63·8 per cent., and the DCF rate of return to the company would be 24 per cent.. That is dealing with the most favourable case. Assuming $9 per barrel oil, the Government take falls to 61·9 per cent. and the DCF return would amount to a bare 20 per cent. I am sure the Minister will accept that at that level is is becoming barely ecenomic.
Dr. Colin Phipps: Does the total take include royalties?
Mr. Jenkin: Indeed it does. I did not mention royalties since they are a standard figure on output. In regard to the 300-million barrel field, there is no PRT at all, and to that extent the right hon. Gentleman's point is clear. I wish to emphasise that there is no bonanza in these proposals. In that case, assuming $10·5 per barrel, the Government take is 65 per cent. and the DCF return is 17 per cent.. In regard to the $9 oil the DCF falls to 13 per cent.
I must remind the House that I am discussing a 300-million barrel field. [Interruption.] The hon. Member for Bolsover (Mr. Skinner) should realise that in most other parts of the world even a 100-million barrel field is regarded as a large one. These calculations envisage a field that is three times that size, and with a 62 per cent. Government take it yields only a 13 per cent. return to the company. At that rate nobody will bother to find the oil.
Mr. Dennis Skinner: The right hon. Gentleman is talking about theory, and I have no doubt that in special circumstances such a field as he envisages could be found. However, he should concern himself with the fact that immediately following my right hon. Friend's statement a few weeks ago the general view of the market and of the people in the oil companies was very favourable indeed. The view from the Tory Front Bench, including the right hon. Gentleman, also was favourable, although perhaps in some cases a little muted. The only occasion I can find in the past few weeks of an outcry of any kind from the oil companies was the quotation the right hon. Gentleman gave from Mr. Reynolds of Conoco. The fact is that the oil companies are squealing all the way to the bank, and the right hon. Gentleman knows it.
Mr. Jenkin: I have no doubt that the hon. Gentleman will be able to make the same point at rather greater length if he catches Mr. Deputy Speaker's eye. We shall listen to him—or at least I suppose we shall.
Mr. Skinner: Answer the question.
Mr. Jenkin: On 25th February I said:
"I accept that the Paymaster-General's purpose is to achieve both profitability and incentive for the industry, but is he aware that we entertain serious doubts whether his reliefs are adequate and whether they will be enough to restore confidence… "—[Official Report, 25th February 1975 ; Vol. 887, c. 292.]
I am now saying that the companies have looked at the figures and there is serious doubt whether that will happen. The hon. Member for Bolsover said it was possible that such a field might be found. Such fields are littered throughout the area, and the question is whether it will be worth while to go out and explore for them. I he figures I have just given were reinforced by some figures supplied to me by a small American company. Those figures show that the DCF rate of return, assuming $10 oil in a 400-million barrel field, would be 18 per cent., in a 340-million barrel field 16 per cent., and in a 275-million barrel field 13 per cent.
A Canadian company has submitted figures in the same sort of conditions showing returns between 18 and 8 pet cent. That is no bonanza when talking about a field of that kind.
The concessions made by the right hon. Gentleman, the 45 per cent. rate—lower than expected—the 75 per cent. uplift and the 10-million ton oil allowance go equally to the major fields. They are of considerable value to those larger fields. One company, which I should prefer not to name, says that the rate of return with PRT will be 35·3 per cent. Even assuming no PRT at all, the figure would be 40·3 per cent.
It seems to me that these are great defects in the tax, but they are defects which stem from the structure of the tax to which the Government are committed. From the start that structure has been hopelessly and irremediably wrong. Despite dozens of amendments in Committee and over 100 Government amendments which face the House today. PRT is still a miserable fiscal animal. As the Financial Times rightly said following the announcement
" A job once botched cannot be unbotched quickly."
Mr. Dell Mr. Dell rose—
Mr. Jenkin: Perhaps I may develop my argument. It started as a hideous monster that frightened the life out of the industry. Not all the cosmetics of
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the Inland Revenue, parliamentary draftsmen and Treasury Ministers to try to turn it into the kind of sleek thoroughbred which the Paymaster-General sought to describe can prevent its emerging as a horrid, misshapen beast. It is not so much the inelegance of which one complains as the fact that the changes made simply fail to achieve the fundamental purpose of the right hon. Gentleman. They have failed to turn it into a tax which creams off the true windfall profits in the rich prolific fields, but have left a tax which will be more costly in marginal fields. It leaves them in a difficult or even impossible position in regard to finance.
Let us take new Clause I which deals with the oil allowance. The large field will get the full benefit of the 10-million ton allowance, but the small field will be able to use only part of the benefit while still becoming liable to PRT. The reason is that the rules have been deliberately drawn up to prevent any carry forward of the oil allowance. Assuming a constant crude price of $12 a barrel, a marginal field with reserves of 225 million barrels and an investment of £230 million, the company would be able to use only 67 per cent. of the oil allowance—only 6·7 million tons of the 10 million available over the full life. It would be paying during its lifetime £43 million in PRT. If we take a 450-million barrel field and an investment of £263 million, it would be able to use the whole of the return and pay PRT of over £340 million.
We have tabled two amendments, one to carry unused balances forward and the second to carry them back. The one carried forward is important. If this proposal is accepted, the marginal field will be allowed to use the full amount of the oil allowance and will receive a bigger proportionate benefit than the prolific field. It might have the effect of eliminating the charge to PRT and might make the field economic. Our amendment would have no effect on increasing the return to the large field. I accept that for one year, or possibly six months, it might have the effect of delaying the revenue, but no additional oil allowance will become available to the major field. That is the purpose of Amendment (a) to new Clause 1. That is why we say that while the oil allowance

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is an attempt to turn this tax into a kind of excess profits tax it is a crude and clumsy weapon.
4.30 p.m.
This amendment is the most important amendment that we shall discuss today. It bears keenest on the question whether the small marginal fields will be economic. If the Government do not accept the amendment we shall have once again to wait to hear what the Paymaster-General says in winding up—we shall have to level at the Government the accusation that they are more interested in raking in revenue for the Exchequer than in winning oil for Britain.
Amendment (c) to new Clause 1 is a minor point, although it has some importance. When each participator in a field uses the full oil allowance there is no difficulty. But if some use it in full and others used it in part—for instance, because some have offsetting losses or unrelieved losses from other fields, or abortive exploration expenditure—there will be problems. The clause provides for the fact that the oil allowance will not necessarily be shared proportionately. Therefore, we have tabled Amendment (c) to seek to ensure that the oil allowance is fairly divided between the participants. I hope that the Paymaster-General will deal with that when winding up.
Our objections do not stop there. I turn to new Clause 2 and the 30 per cent. safety net. Here it is intended to provide protection for the oil companies if their returns fall below 30 per cent. before corporation tax. We live in an inflationary era. In the future we can expect, although we cannot be sure, that as costs rise in the industrial countries so will oil prices rise. Therefore, the safety net, which is tied to historic cost, will become less valuable, in the proportion which the historic cost of the capital will bear to the costs, and the revenues of the company become less.
Whatever the Sandilands Report may have to say about inflation accounting in general, this is a unique case of a relief intended to ensure for the companies a long-term safeguard against a relative fall in oil prices. However, oil prices can still fall relative to costs, even though they rise in money terms, because of the general effect of inflation. If the safety
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net is fixed by the historic cost, after a few years it will become a virtually valueless protection. There must be some form of escalator.
The wording of the amendment has been left vague since there is no proper index yet to which it can be tied. Therefore, we say that the Treasury should be able to designate an index and perhaps even compile one.
There is also the question of interest, with which we are dealing in this group of amendments. There must be an option for companies either to take the 75 per cent. uplift or to claim the real cost of their interest charges which they incur in financing. In some cases 75 per cent. may be enough to cover the cost. In other cases it will be over-generous because the greater the use of internal finance the less interest companies incur. Therefore, while the 75 per cent. uplift is a valuable benefit, it is monstrously unfair that everybody should be fitted into this Procrustean bed of 75 per cent. uplift whatever their financing costs.
I take the example of two companies developing the same kinds of field, which have the same capital costs, and which are both borrowing all their development costs. If there is a delay of one year and one company has to bear higher interest costs, no allowance is given to cover that cost. The company is entitled only to the bare 75 per cent. uplift. That is of importance to the smaller British companies which are seeking to establish themselves in the North Sea. I refer to companies represented by BRINDEX. I have seen a letter which was written to the Paymaster-General by Mr. Goodfellow, the Chairman of BRINDEX, in which he makes a powerful plea for an option for the smaller companies. Otherwise those companies will find themselves even more at a disadvantage vis-a-vis the multinational companies when competing for development finance.
If account is not taken of those factors we run the risk that many of the small fields on which this country will depend in the 1980s and the 1990s will never be prospected and will never be found. It will not be worth while for the industry to seek such fields, because, if found, such fields will provide a lower return to the industry than that which could be earned elsewhere in the world. The incentive to explore is crucial.
Mr. Dalyell: Will the right hon. Gentleman make it clear why he thinks the relatively smaller fields are better exploited by smaller companies than by the larger companies?
Mr. Jenkin: I do not say that of course, there is no correlation between small fields and small companies. Large companies find small fields, while the smaller —such as Thomson Scottish Petroleum, Occidental Petroleum (UK) Ltd., and Piper Consortium—have found prolific fields.
The interest factor is important to the smaller companies because they do not have the internal resources with which to finance their development. If they are unable to undertake exploration because it is not worth their while, many of the small fields which remain will not be found. Nobody expects any more bonanzas in the North Sea. If small fields are not found we shall be back in the hands of OPEC by the middle of the 1980s.
There are three reasons why the allowance, is inadequate. It cannot be carried forward, the safety net affords no protection from inflation, and there is no option for interest. We entertain the gravest doubts whether, even after all the massive changes which the Treasury has made to the PRT, an environment will be created in which the industry will wish to continue to operate at full blast in future.
We shall listen with care to what the Paymaster-General has to say. However, if he does not meet my arguments, the Opposition will seek to divide the House on Amendment (a) to new Clause 1.
Dr. Phipps: I am glad to see that the Government benches are slightly more populous than on the last occasion when I spoke about the petroleum revenue tax. They are not as populous as I should have liked, but at least I have some support, whereas on a previous occasion I stood almost in isolation.
I begin by declaring my interests, which are well known.
I do not accept the last comment of the right hon. Member for Wanstead and Woodford (Mr. Jenkin) that there are no more bonanzas left in the North Sea. I hope that one of my interests will be in a position to declare such a bonanza
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resulting from discoveries in 1975 and 1976, since we are involved in two wildcats which I hope will find large accumulations of oil, to the benefit of my associates and the nation.
A large number of points were raised which we discussed on previous occasions. The point was raised by my hon. Friend the Member for West Lothian (Mr. Dalyell) concerning the nature and size of marginal fields. It is important that the House should appreciate that it is not the size of the field that is of vital importance. It is the size of the modules of production and number of platforms which is important. It is the amount of oil which can be produced and recovered through a single platform unit which is important. If there is a field of optimum size for drainage by one platform, the economics of the field can be very good even if it is only a 300 million or 350 million barrel recoverable reserve. Equally, a field of intermediate size can have its economics impaired because it might necessitate two platforms at less than the optimum usage required for two platforms. The industry has tended to look at economics in terms of the size of accumulation which can be drained and exploited at an optimum rate by a single platform. This has tended to be about 300 million to 350 million barrels a day.
Mr. Patrick JenkinThe hon. Gentleman has contradicted himself. He has just referred to a figure of 350 million barrels a day. Earlier he spoke of a 350-million barrel reserve, and I think that is what he really means.
Dr. PhippsI stand corrected if I said that. I meant 350 million barrels of recoverable reserves in an accumulation.
Taking an optimum accumulation and conducting an economic evaluation on the basis of that size, it is possible to come to a figure for return on capital invested in the region of 26 to 30 per cent. It is possible to vary any number of the factors which go into making up such an economic analysis, but, taking what can best be described as average North Sea parameters for all these, one comes to a figure under the provisions of this Bill of between 26 and 30 per cent. on capital invested. I doubt whether there is a single oil company which would be disappointed with such a return on its

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capital invested, looking at units of this size.
When we come to units which are not of optimum size—and most of them are not of optimum size—we find that the amount of return on capital invested varies according to the departure from the optimum number of platforms. The degree of departure affects the degree of capital investment.
The importance of PRT as we now have it, as opposed to an excess profits tax, is that, willy-nilly—and whether it was intended to do so I am not altogether clear—it is an extremely powerful weapon in the hands of the Government in terms of the exploitation of marginal fields. The Government are able to have fields exploited which previously might not have been exploited. We may well get marginal fields exploited which, prior to this legislation would have been unecomic—even under the previous legislation, which included no PRT. We must regard this as a very significant advance, especially for the country at large.
The fact is that most of the oil—certainly half of it—in the North Sea will be found in fields of 350-million barrels recoverable reserves or less, and it is important that these fields are exploited over a period to the year 2000. Therefore, it is important that the Government have a weapon which can ensure that any fields which are economically exploitable are exploited if the Government decide that it is in the national interest that these fields should be exploited. We now have a weapon which we did not have before for making sure that they are exploited.
I want now to touch upon one small technical point. It concerns the oil allowance. The provision of a similar gas allowance is not explicit in the Bill. It is worth pointing out that if a gas allowance is to be calculated on the calorific or heat equivalent of the amount of gas required to produce the same amount of energy as 10 million tons of oil or 500,000-ton tranches of oil, it will be found that the value equivalent of gas is a good deal less than the oil equivalent. I suggest to my right hon. Friend that he should look again at this provision in the Bill to see whether the equivalents
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cannot be made value equivalents rather than energy equivalents.
4.45 p.m.
Mr. Patrick Jenkin: Does the hon. Gentleman also agree that there is a case for making it measured in barrels rather than in tons so that account may be taken of different specific gravities, which also make for differences of value?
Dr. Phipps: I am grateful to the right hon. Gentleman. This is one of the problems that people active in the international oil industry face constantly. A barrel is a measurement of volume. A ton is a measurement of weight. Different oils have different gravities. Therefore a ton of one kind of oil can be of a quite different volume from a ton of another. Since the specific gravities of oil can vary from less than 0·8 to 1 or more, there can he considerable differences between the volumes concerned, which in turn affect the calculations.
Having been brought up originally on barrels, I find it very difficult to translate into tons, and I join the right hon. Gentleman in suggesting that in future we describe everything in barrels, and cubic feet per barrel in terms of gas, and stop talking about weight.
We have an even more complex situation with gas when we talk about its energy value. We measure gas in BTUs, and the conversion of BTUs into thousands of cubic feet often is beyond me. Because of these slight technical difficulties a company may find that 10 million tons of oil means more to one company than to another and, in the case of gas, when one is looking at energy or some other equivalents other than value—and because gas is very much cheaper still in the United Kingdom the price paid for the gas contracts is very much lower than the international price of oil—a gas producer is less well-off than an oil producer.
There is one other matter which I wish to raise about gas contracts. We have excluded existing gas contracts from PRT. Future gas contracts are not to be excluded. This is likely to raise problems as long as the gas price remains relatively low in comparison with the energy equivalent of oil. We may find gas fields which in the interests of the country we want to have produced because our gas reserves look like being

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less than our oil reserves, and there may be a strong case either for exempting gas from PRT or for introducing some form of allowance which will allow gas fields to be produced, otherwise even large gas fields will prove to be marginal as the Bill stands at the moment. This is a matter of some urgency for the country, and I ask my right hon. Friend to look at it again.
Finally, on the oil allowance, the possibility of allowing the oil allowance to he taken as the first allowable overcomes the objection of the right hon. Member for Wanstead and Woodford, if it is possible to do it. If companies are not allowed to accumulate an oil allowance, they will lose out especially in the early stages of a field. It would help if the oil allowance could be one of the first allowances and they could carry some of their other allowances.
I welcome the price movement safeguard. This is vital for investment confidence in the industry and for the balance of payments position. Practice will show whether it will work out satisfactorily. I understand that the Treasury is prepared to look at this over a period and that the national interest will take preference over any other interest in deciding exactly what form it will take.
Much has been made both by Labour Members and by Members of the Scottish National Party of rates. There has been an astonishing amount of misinformation published in the newspapers, including the articles quoted by my right hon. Friend the Paymaster-General. I can produce a number of other articles purporting to be an analysis of what the national take would be, all of them equally fantastic in their calculations and in the parameters they have used.
My calculations indicate that the Treasury figure of an average of 75 per cent. is the most accurate in the current climate. In certain cases it will be lower and in other cases it will be nigher. I say to my hon. Friends that the reason it is 75 per cent. is that it is an average figure. I say to Members of the Scottish National Party that if we produce all the oil we require there will be a number of fields where perhaps PRT and other taxes will be levied at low rates.
There is an important distinction between taking 75 per cent. in tax from 2·5
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million barrels a day or 90 per cent. in tax from 1·5 million barrels a day. The country requires 2·5 million barrels a day, and 75 per cent. of that is a lot better than 90 per cent. of 1·5 million barrels a day.
Mr. Gordon Wilson: Will the hon. Gentleman accept that there is not the same stampede towards the high rate of production required by the United Kingdom since the Scottish requirement will necessarily be less?
Dr. Phipps: I prefaced my remarks by saying that they were directed towards Labour Members and Scottish National Members. The question whether we should conserve our production and save it for a future Scottish nation is not one to which I shall address myself. No doubt my right hon. Friend has this problem in mind.
Mrs. Bain: Would the hon. Gentleman not agree that it is a question not just of conserving production for the Scottish nation but of conserving it for the world? It is not in the world's interest for us to burn up these resources in a short time. We owe it to the developing nations to extract the oil slowly.
Dr. Phipps: If the hon. Lady had listened to a previous energy debate, she would have known that my concern for the way we are burning up energy reserves is as great as hers.
The reason why companies are showing a disinclination to explore in Norway at present is due to the nature of the Norwegian package. It is not merely a taxation package; it is a taxationparticipation-licensing package which inhibits enthusiasm. Companies with which I have spoken in recent weeks have said quite categorically that they prefer to spend their exploration moneys in the United Kingdom. As long as we require to discover and exploit oil at the rate which I believe to be essential, I hope that this situation will continue.
I turn to the question of allowance of interest. I would welcome an option for the smaller companies. This would be an extremely attractive advantage. It would be used in lieu of uplift.
Some smaller companies are not as confident as they might be about the

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question of waiving royalty. This would largely overcome many of the difficulties raised in the specific examples cited by the right hon. Member for Wanstead and Woodford. We have not sufficiently analysed just how powerful and important a weapon waiving royalty would be in the hands of the Government in getting marginal fields exploited.
All the examples quoted today would be transformed if royalty, either in total or in part, were waived. The return on capital invested would be quite different. This power is now in the hands of the Government. Any Government which wishes to encourage the production of marginal fields—when faced with figures showing that the economics are such that a company would not be prepared to go into production—would find that an ability to waive royalty, either in part or in whole, would be the weapon that would allow them to do so. I ask my right hon. Friend to enlarge on the Government's intention in this matter. This is one of the most significant measures affecting marginal fields development.
Despite the considerable pressure that has been applied to my right hon. Friend, the Bill has produced one of the best climates for Government take and for continued participation by the international oil industry of which I am aware. The average of 75 per cent. State take compares favourably with the percentage taken by any other country. It is a major take by the State. At the same time we shall be in a position to encourage continued exploration and the continued presence of the oil industry. The House should join me in congratulating my right hon. Friend on an excellent Bill.
Mr. Gordon Wilson: I should like to register my disapointment that Amendment No. 230 has not been called. In so doing I accept the statement from Mr. Speaker that he will allow some latitude in relation to benevolence towards a view which might be expressed in its direction.
Amendment No. 230 called for the setting up of a Scottish oil fund which would be under the control of Parliament or the Scottish Assembly.
Mr. Deputy Speaker (Mr. George Thomas): Order. To save the hon. Gentleman from being out of order later on, may I say that this amendment was
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ruled out of order as being beyond the scope of the Bill. Therefore, it is impossible for him to discuss the items in it.
Mr. Wilson: I appreciate, Mr. Deputy Speaker, that normally when faced with such a question of order you use your discretion. However, Mr. Speaker said that there might be some latitude.
Mr. Deputy Speaker: Order. I happen to be in the Chair at the moment. With respect, I can only abide by the ruling that Mr. Speaker has given formally.
5.0 p.m.
Mr. Wilson: Obedient as ever to the Chair, I will bow to your discretion, Mr. Deputy Speaker, and perhaps make my remarks in another forum.
We are not now discussing what might be a peculiarly Scottish matter since the earlier amendment has been ruled out of order. We are discussing the take which the United Kingdom might reasonably expect to get as a result of the Bill. Anyone who presents calculations of any sort on taxation matters to the House, or anywhere else for that matter, must be aware of the power of the Treasury and the resources at its disposal.
I appreciate the remark by the Minister to the effect that this is a complex matter.
I have thought from time to time as the Bill went through Committee that it might help if we were to be allowed charts or access to computer terminal points. Some better understanding of the calculations might have been reached. It is significant that the calculation the Government made on announcing the rate of PRT has been hoisted from 70 per cent., which I think was the average take, to 75 per cent. If this is correct I would be the first to congratulate the right hon. Gentleman.
Mr. Dell: Perhaps I ought to clarify this issue. My hon. Friend the Member for Dudley, West (Dr. Phipps) made an estimate of 75 per cent. The Government's estimate of the take over the next 10 years is around 70 per cent., but I have emphasised repeatedly that this is affected by uncertainties to do with costs, prices, profiles of production and so on. All these figures have to be treated with a certain care. That is our calculation of the average position, with some fields

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doing substantially better and other, marginal fields, obviously falling below that figure.
Mr. Wilson: I come to the question of the Scottish National Party calculations which were referred to by the Minister. It is true that we have projected that the jump in costs will not necessarily take place by the 1980s. It is true there has been a severe rise in costs over the last year or two, but there are new technologies beginning to emerge for the extraction of offshore oil. In particular, we have the Exxon sub-sea production system—SPS—a prototype of which is already in operation in the Gulf of Mexico. It has been estimated that this could—I emphasise "could "—reduce costs by as much as 50 per cent.
If the Minister is interested, there was a relevant report of this in the 7th March edition of Petroleum Times. The report paraphrased another report which had been taken from the Organisation for Economic Co-operation and Development. The article said:
" North Sea and Alaskan oil will be produced for as little as $125 to $1.50 a barrel by 1980 (taking the 1973 value of the dollar), offshore oil in depths of 300 to 400 metres at around $4 a barrel and oil in depths of between 400 and 2,000 metres at between $5 and $8 ".
It goes on to give the reasons for this view.
In advancing the argument that development costs might not continue their rocketing inflationary spiral that we have seen in the past two years, I am drawing upon other sources of information apart from those of the SNP. I hope that the Minister will give some consideration to them. I appreciate his argument that he would be delighted were the OECD to be proved correct and the extraction costs prove to be less than previously anticipated.
One of the criticisms we have made of the Government's figures concerns the amount of capital relief given. There is relief on the 75 per cent. uplift, which emerged during the course of the Bill with a promise for special relief for the smaller companies. There is a strong argument to suggest that the figure of 75 per cent. is excessive. Interest rates are beginning to fall world-wide. If we adopt a 30 per cent. guarantee return no tax would be paid on oil produced under PRT regula-
1682
tions until 175 per cent. of capital costs have been retrieved. After that it is argued that there would be a 30 per cent. guarantee on capital which has, in effect, been repaid.
I suggest that the Government have been extraordinarily generous during their negotiations with the oil companies. I hope to make reference to some of these negotiations later. In our study of comparative returns it was clear that in the Middle East the profit margin is currently set at $21·7 per barrel. This contrasted with our estimate, which the Minister disputes, of a net profit after tax of $2·15. In Noroil of March 1975 I noticed an estimate of $1·40 and $2·80 as a return which might be obtained from the United Kingdom sector of the North Sea.
While the Minister may object to the figure quoted by me about the North Sea, there are calculations by other observers which relate to the rate of profit. If it is said that a profit 10 times that which is capable of achievement in the Middle East is acceptable, in my opinion the Government are capable of accepting anything. I might add that we must expect a higher rate of return because of the risks inherent in the North Sea oil fields.
The multiplier of 10, taken as a form of criticism, is one which might be too simplistic. Therefore, in our calculation we have accepted that the multiplier by itself would be too high and have adopted a lower figure. It should be made clear that this is not a matter of semantics or calculations. It is a question of the money available to the British Government—the sole criterion, which we are forced to adopt in this debate—£6,700 million for the lifetime of the Scottish oil fields even allowing for the full 51 per cent. State participation which the Government have in mind.
It has been said that the Government are asking us to take their calculations as being correct. The Minister has referred to the fact that there are some differences in the calculations which have appeared in certain journals. So too has the hon. Member for Dudley, West (Dr. Phipps). He said that he could have produced other articles showing entirely different views. I accept that newspaper articles by themselves are not necessarily to be treated as tablets handed down from on

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high. That does not necessarily mean that any statements from the Government must be accepted without critical study. If we examine this situation it will be found that there are a number of reports which have been building up and which show that other people—exclusive of political interests such as those of my hon. Friends and those of the Conservative Party who represent the oil interests—have come to the opinion that the rate of tax of 45 per cent. adopted by the Government is far too generous. The first and probably best test of this is to ask what happened to the market immediately after the Government made their tax announcement. The usual effect of such announcements is to drive shares down. In this case we found that there was a rise in share prices for most of the oil companies.
Mr. Peter Rost: Will the hon. Gentleman put the matter into perspective by explaining to the House by what percentage the share prices declined from the time that the Government first came into office with a mandate virtually to carry out this policy and the time when the details were announced?
Mr. Wilson: The hon. Gentleman will be aware that for a period all share prices were in considerable decline, including oil company shares. I cannot estimate to what extent the drop in the price of oil company shares was related to the Government's announcement or anything else. In fact, share prices rose after the announcement was made in appreciation by the investing public, including the institutions presumably, that North Sea oil operations would become more profitable as a result of the tax rate which had been adopted.
Dr. Phipps: Does the hon. Gentleman accept that the change in the value of oil shares could also have been related to the enormous bogyman that my right hon. Friend had been built up to be by the Conservative Party in the preceding six months and that we were seeing a recognition of his sensible and pragmatic approach to the whole problem?
Mr. Wilson: I am glad that the hon. Gentleman has come forward with rehabilitation of his right hon. Friend in the work that he has been doing. Some of the criticisms made in Committee by
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myself, if not by others on this side, were that the right hon. Gentleman was not doing enough to act as a bogyman.
Mr. Dell: It gives me no pleasure to make this point, but it appears that I am still a bogyman. Realising that the point about share prices was likely to be made, I had figures extracted for the share prices of many of the companies operating in the North Sea. The average increase in the value of share prices of those companies between 24th February—the day before I made the announcement—and 14th March was substantially less than the increase in the FT index generally. Therefore, it appears that I have not yet escaped from my character as a bogyman.
Mr. Wilson: I am sure that, after full appreciation of the tax rate had been taken in, much of the opposition expressed in the share markets towards the right hon. Gentleman must have gone and that, therefore, he can walk into the Stock Exchange at any time without danger of being lynched.
This is not purely a question of the stock market. There have been reports from stockbrokers looking at individual companies and working out their profitability with a view to encouraging business. Those assessments suggest that the professionals, having got out their slide rules and pocket calculators, or whatever they possess now, have calculated that the 45 per cent. rate is generous to the companies involved.
I move now from the general to the particular and comment on the article in the The Scotsman to which the right hon. Gentleman referred. That article brought out a company profit of 40·6 per cent. Some elements in the calculation were not mentioned directly in the figures. However, the right hon. Gentleman will see a reference to the method of financing:
"The method of financing the development—by borrowing 90 per cent. of the capital cost and repaying over six years after peak production was achieved — would mean that some £217 million would be paid in interest charges. This would raise development outlay to £557 million."
The article goes on to point out that 175 per cent. of total capital cost in lieu of interest charges which have been disallowed under the Bill could lead to £38 million more than the actual cost of providing and borrowing the capital being

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given as a tax concession. Therefore, there is reference to development and financing charges in that article.
5.15 p.m.
I should now like to move to an assessment which has been made by a trade journal. It is all very well to take a broad approach and to say that the market jumped when the announcement was made, that individual brokers have made their assessments or that political parties, such as the Scottish National Party, have made theirs, and that special figures have been provided for the official Opposition. The Petroleum Times, a trade journal well regarded in the industry, on 7th March was extraordinarily tough in its comment on the whole business. Under the heading,
" UK Government's ' give-away' tax ",
it states:
" The battle of the UK rate of petroleum revenue tax is now over"—
it was not referring to the amendment proposed by myself and my hon. Friends—
"and the oil companies operating in the North Sea can chalk up another victory over a European government. Their success in this sector contrasts strangely with their failure to cope with the governments of the OPEC nations."
Later, it states:
"Predictably, the oil companies began their intensive defence immediately—and few industries are so well organised in matters of propaganda and lobbying. In the UK the companies were further aided "—
I hope that I do not hurt the feelings of the hon. Member for Lanarkshire, North (Mr. Smith), who is not present—
"by muddled thinking in the Department of Energy, which seemed unable to decide on the right line of approach. More complications were introduced by the Treasury Department which appeared more interested in administrative convenience than in oil."
A few paragraphs further, it continues:
" Although the computers have yet to digest the new programmes, it is already clear that the manifesto policies "—
of the Government—
"have been diluted almost to the point where no flavour is left."
Referring to the work of the oil companies, the article states:
"But the weakness in this area must be compensated elsewhere "—
that relates to OPEC—
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"if the international oil industry is to maintain its comfortable position in world affairs. So it has not hesitated to exploit, directly and indirectly, the economic weaknesses and balance of payments difficulties that have, in large measure, been caused by a critical dependence on oil. Such a policy may be of benefit to the shareholders, and the recent rise in oil share prices suggests that it is, but it will bring the industry precious few friends."
That is a comment in a trade journal which is read and respected by the oil industry.
The Minister is asking us to believe that his calculations are correct and that everybody else's may be wrong and that the Government have, in his words, been fair but tough with the oil companies and have not given away more than they should.
On the other hand, we have had the various comments to which I have referred. We have a phrase for this situation in Scotland which I am sure will tax the efforts of Hansard, but I will try to provide a translation after the event' A' oot o' step but oor Jock." I suggest that the Government are trying to pretend that all those who have said that the Government have made a critical mistake in levying the PRT at 45 per cent. are wrong when all those people believe that they are right in their calculations.
I ask the Minister, even at this late stage, to consider adopting our amendment of 75 per cent., which, according to our calculations, would add effectively 10 per cent. to the total take over the lifetime of the fields instead of present Government policy. Otherwise, when the Government find that their policy on oil development has been wrong, as it has been on so many other aspects, they will be forced on some future occasion to bring about a change in the rate of petroleum revenue tax in one of the monthly Budgets which I am sure that by next year we shall be having.
Mrs. Colquhoun: The right hon. Member for Wanstead and Woodford (Mr. Jenkin) spoke of an oil field named after him. I, too, have this claim to fame in the Maureen Field, but I have no direct interest to declare except that of a £1 share in the Brighton Co-op.
One of the interesting things about the North Sea oil debate is the inconsistency of the experts to reach any consensus

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about how much oil will eventually flow. Speaking as an economist, I would say that they join those economic experts who can always supply a directly opposing opinion to one that someone does not like.
Dr. Phipps: I hope that my hon. Friend will accept that, speaking as an oil expert, I have always been consistent and that it is not my fault if my colleagues have been in error.
Mrs. Colquhoun: I have never seen my role as projecting the importance of my hon. Friend.
Some representatives of oil companies seek to make the most gloomy possible projection of profits. The oil companies can never have been represented with more vigour and concentration than they were by the Opposition in Committee on this Bill. I regret to say it, but the Government left the Committee with less than they went in with.
Some experts in Rotterdam put the potential of North Sea oil much higher than the Government, the Opposition or the companies:
"Whilst the conventional wisdom thinks in terms of a maximum total potential reserve of 40 milliard barrels, this study indicates the possibility of a range of 80–140 milliard barrels, with a mean figure of 110 milliard."
If that projection is only remotely accurate, if these forward complicated computer programme projections from Rotterdam come true, with all the concessions that the Government have made the Bill will have created only a further and bigger bonanza for the oil companies. What I wanted was a bigger bonanza for the people. The recent profits of the oil companies sicken me, as they do every other working person.
Mr. Dell: My hon. Friend will appreciate that if the existing fields should prove to have reserves substantially greater than is now stated, the Government take from those fields, the capital expenditure having been disposed of in the early stages and the oil allowance having fallen out, will be much higher than the figures which I have given.
Mrs. Colquhoun: I hope that my right hon. Friend will not be too upset if I speak frankly and fully today.
Developing my theme, the greed of the oil companies knows no bounds. The
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extent of Government control now proposed is a great disappointment to me and some of my hon. Friends. I ask the Government even at this late stage not to be so bemused by the pressures for private profit but to stick by and consolidate North Sea oil on behalf of the people.
When I went in to the Committee on the Bill, I believed that we were about to impose a substantial extra tax on the oil companies' profits from the North Sea and to plug the loopholes in existing taxation. That was the promise in our manifesto:
"The discovery of oil off our shores dramatically changes not only the country's energy prospects, but our whole economic future. Because its importance cannot be overestimated it is essential that its development should be under public control in the interests of the whole community, and with regard to the future. The Labour Government will… Take majority participation in all future oil licences and negotiate to achieve majority state participation in existing licences."
Perhaps the Minister will say what he believes the Committee achieved and why, when it was actually sitting working out the nitty-gritty of the Bill and the hopes for ordinary people which we all had then, the Chancellor of the Duchy of Lancaster was in America, with no knowledge of what the Committee was doing, while the Committee had no knowledge of what he was doing, even more avidly negotiating more concessions to oil men.
The way in which this situation has been and is being handled makes one realise what a poor and ineffective role a back bencher has and what a sad story and miserable contribution he has to accept. All that back benchers are really needed for on a Bill is to be Lobby fodder, passive players in a drama the main part of which takes place in another country, certainly not in the British House of Commons, and over which we have no control.
To that extent, the only tiny bit of democracy left is here today, so that in the last hour one can say "I do not like what has happened." I hope that I am saying that fairly effectively and forcefully.
Mr. Alexander Wilson: Would my hon. Friend agree that if anyone ever saw capitalism entrenched for

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the benefit of profit against the wishes and interests of the British people, hon. Members on the Committee on this Bill certainly saw it? It was openly portrayed that the oil companies operating in the North and Celtic Seas and elsewhere were concerned only with profits and not at all with the interests of the ordinary people of this or any other country.
Mrs. Colquhoun: I thank my hon. Friend for his intervention. I agree that the Government do not have the best deal that they could have got for the people of Britain. Time and time again they were outwitted by the Opposition's advisers, gentlemen from the oil companies who sat in the front row of the public seating in the Committee every day. They certainly occupied the undying and reverent attention of Conservative Members.
This American-type lobbying at the very source of parliamentary power has to be stopped. It was admittedly open to members of the Committee to observe what a tragedy it was that television cameras could not enable the amazed British public to observe this process too.
Mr. Rost: Would it not have been a good thing if television cameras had been in the Committee, because people might then have seen how little the Government knew about the legislation which they were putting forward?
5.30 p.m.
Mrs. Colquhoun: People also might have seen how little the Opposition knew, and how much they had to rely on the American oil companies' lobbying for their speeches.
On one occasion the Opposition Whip circulated documents from the American lobby to the Opposition. I eventually named them the "American-suited bandits ", as I began to think of them increasingly in that role as the Committee proceeded. The whole shabby set-up should have been televised. If people could see the extent to which this American-type lobbying has permeated Parliament and the very heart of parliamentary power, they would be extremely distressed. I hope that at some stage we shall be able to take the matter up. I blame the Opposition, because hour after hour, in Committee session after Committee session, they spoke up on behalf of the oil companies and only
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occasionally, when reminded, did they speak on behalf of their constituents.
Too much encouragement has been given to the expertise of the oil companies, and not enough recognition has been given to the indisputable fact that North Sea oil belongs to the people. Having gone through the machinery of the Committee, I feel that it would have been better if progress towards winning the oil had been directed less to national or company greed, and if there had been careful and painstaking consideration of the environment, the beautiful coast of Scotland and the long-term right of the people to benefit more fully from the enormous profit that will eventually be won from the North Sea.
I fought two General Elections on a promise of oil profits for the people. However harsh this may sound to the Government, I am not certain that we have even begun to achieve that with the Bill.
Mr. John Hannam: The hon. Member for Northampton, North (Mrs. Colquhoun) has poured her heart out against her own Front Bench and the Opposition, mainly over the inability of back benchers to take part in the decision-making processes. But I am surprised to hear such comments from the hon. Lady, because she attended the Committee throughout all it deliberations, and that would have been the place for her to make such a speech. However, she was conspicuous by her silence during those debates.
I do not bear any malice against the hon. Lady for taking the opportunity to make these points now, but the Committee stage offers back benchers the opportunity to alter legislation as they examine it word by word and line by line. I regret that it is only now that we have heard her complaints about the system. For example, I should have expected in Committee to see an amendment allowing members of her sex to be on oil rigs. It has always struck me as one of the anomalies of the oil industry that it does not allow members of the fair sex to take part in its activities or to arrive on oil rigs, even in the capacity of Press correspondents.
I commend the Treasury Ministers for their considerable movement away from the original, harsh anti-oil-company

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approach establised by Lord Balogh in those heady days when the Government were in opposition. With massive increases in costs and inflation, it became apparent to Treasury Ministers that action would have to be taken to change the Bill in Committee to produce a workable tax system to enable exploration and development to continue in this vital area of our economy. I welcome the fact that the flexible and understanding Treasury Ministers have got the message from both Opposition and industry.
I turn to the question of the attendance at Committees of representatives from outside Parliament. I have since been a member of the Committee considering the Coal Industry Bill, and I recall that members of the National Coal Board sat in during the whole of the Committee stage, offering advice to both the Government and Opposition. This is an essential part of the procedure.
This Bill started life as one sort of animal but it returns today as a much less fierce creature. The scavenging wolf, which it appeared to be to the oil industry at the beginning, has now become an Alsatian, friendly enough to all appearances, but still possessing a dangerous streak which is enough to frighten prospective oil developers away from the front gate.
The original Bill would, I am sure, have effectively stifled our North Sea adventure and forced a number of oil companies away from Britain. This may be what the members of the Scottish National Party would like to see, but it is certainly not what I and, I believe, the majoirity of hon. Members would like to see. It must be remembered that North Sea development depends mainly on the willingness of American oil companies to explore and exploit our fields as against other parts of the world.
The introduction of hasty, ill-drafted legislation would have stopped all those companies dead in their tracks, especially if the details had not been finalised before being presented in the form of the Bill.
Mrs. Bain: The hon. Gentleman has referred to the Bill as now being an Alsatian. Scottish National Party Members think that it is a fairly toothless Alsatian. The idea that it would frighten
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off oil companies is incredible, because in Norway, where there are more stringent terms, 10 out of the 11 companies have accepted the terms readily and happily.
Mr. Hannam: In Norway the Government had to amend considerably their proposed terms in order to maintain the development of their resources. One company has been turned away. The proof of the pudding will be in the eating. I consider that the Treasury Ministers have seen the inherent dangers of placing a too heavy taxation burden on oil companies in relation to the sharp increase in costs of exploration and development which they have experienced in the last two years.
In Committee, we started half-way through the Bill and then went back to the beginning and worked through from there. It became obvious that the Bill was being redrafted during that procedure and that it would have to change its nature considerably. The number of amendments on the Notice Paper today demonstrate how misplanned the original legislation was. Now, on Report, we are putting the finishing touches to the taxation structure. I hope that the Government Ministers will not be too intransigent, and will not refuse to accept some of the eminently sensible amendments tabled by my right hon. and hon. Friends.
I believe that a great deal of uncertainty remains concerning the participation prospects, the anomalies concerning interest charges, and the field-by-field rigidities. However, assuming continuation of the present high price level of oil, which is about $10 a barrel, I believe that the medium and large oilfields have been given enough incentive to remain in the game. The worry is that the smaller, more marginal oilfields still face severe cash problems. It must be upon the wide range of such marginal oilfields that the surplus oil prosperity of the country will depend in the 1980s and 1990s.
The various concessions announced by the Government go about three-quarters of the way towards the measures which we should like to see, but they do not overcome the basic flaws in the prior charge system. The 75 per cent. uplift will certainly satisfy several of the major companies with prolific fields, but for the smaller and more numerous high-risk

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marginal fields uplift is not sufficient in itself.
If a field takes three years to bring into production, plus a further year to reach peak production, and it takes five or six years for the companies to repay the loans, at about 15 per cent. interest, 75 per cent. uplift will not be adequate. The smaller companies, often several of them operating in the same field, will have different borrowing costs, owing to their different creditworthiness. Non-recourse funding will often involve over-riding royalty costs on top of interest rates, totalling sometimes as much as 25 per cent. financing cost. In those examples, uplift must be inadequate.
Throughout the Committee stage we pressed for an option for bona fide borrowers to be allowed these real costs in lieu of the notional uplift. But for some reason the Government are still fighting shy of allowing the normal corporation tax system of allowable expenses, possibly because of their fear of tax avoidance through transfer pricing. I believe that it would be possible to tighten the criteria here to ensure that that does not happen.
It is also important to stress that the single rate of uplift will work against some British suppliers, in that foreign export credits giving low fixed-interest cost funds will push orders abroad, even though British suppliers could possibly provide the equipment to the same specification. That could affect our balance of payments and damage our long-term share of this expanding international market. The loans made between non-associated companies should be interest-allowable.
I turn finally to the PRT-free allowance of 10 million tons. The Paymaster-General now states that it is not an allowance but a limit to an available allowance. As I understand it, it can be used only at the rate of 1 million tons a year over the 10-year period. If the life of a small field is less than 10 years —say it reaches a peak after three years and runs out at six years—that small marginal field, at which the PRT is surely aimed, will probably receive only 6 million tons relief, while the large, prolific fields will get the full relief. That is contrary to the general objectives of the PRT relief of 10 million tons.
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It is important that a carry-forward of the total should be made possible, regardless of the life of the field, otherwise the short-lived fields will fall by the wayside. The hon. Member for Dudley, West (Dr. Phipps), with his great experience of the industry, suggested that one might take the other view and give the total allowance at the beginning, before other concessions were made.
Another important problem is that of inflation accounting. My right hon. Friend the Member for Wanstead and Woodford (Mr. Jenkin) has suggested that a Treasury index should be established upon which the oil industry could be based, and upon which the delayed tax allowances for capital expenditure could be brought up to date to take account of the inflation we are now experiencing. OPEC is trying to secure such an inflation-proofing system for its sales. It should not be beyond the Treasury's ability to draw up an index to cover what could be severe losses through inflation on the historic costs involved in the original expenditure.
The Bill has been through some traumatic experiences in Committee and in the House, but it has been improved considerably since it appeared in Committee on 14th December. We on the Opposition benches argued there that the simple PRT system would not be possible, taking into account the marginality of 60 per cent. to 75 per cent. of our North Sea oilfields. We tried to persuade the Government to change back to an extension of the corporation tax system. But we have been stuck with this PRT system, in an attempt, I believe, to achieve early revenue for the Government, rather than with any regard to the longer-term profit aspects of the development of the North Sea.
A headline in today's Daily Telegraph describes North Sea development as being in
" a state of suspended inanimation ".
That need not be the case. If the Government were to bend a little further towards some of our amendments, towards allowable interest costs, the carry-forward of the 10 million ton PRT allowance, the introduction of inflation indexing, and the relaxation of some of the field-by-field rigidities, I am sure that the momentum could be regained in North Sea development. Without that momentum towards

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future profits for the country, what hope have we, with the rest of our economy in such dire straits?
Mr. Alexander Wilson: The Conservative Party manifesto for the last election said:
"the Scottish people must enjoy more of the financial benefits from oil, and they must be given a far greater say over its operation in Scotland."
Will the hon. Gentleman comment on that? Does it relate to the revenues from oil or the technological and onshore developments that may result from the discovery of oil in the North Sea?
Mr. Deputy Speaker: I hope that the hon. Member for Exeter (Mr. Hannam) will be careful not to fall into that trap. We are considering not how the money is to be spent but how it is to be raised.
5.45 p.m.
Mr. Hannam: You stopped me in my tracks, Mr. Deputy Speaker. I was about to launch forth into a description of my visits to Scotland and to say how I hoped that the Bill would ensure that development continued to take place off Scotland and that its benefits were applied to the Scottish economy.
The country needs a sustained programme of exploration and development. This amended Bill can go a long way towards what we all want to see, but if it were amended still further on Report it would ensure that that development took place.
Mr. Dell: Hon. Members on both sides of the House have complained that this is a different Bill from that introduced on 19th November. It is, of course, a different Bill. It is different in one prime respect, in that it now includes specific provision for marginal fields.
On Second Reading, and, I believe, in the previous Budget debate, I said that the Bill lacked marginal field provision, but that we were determined to make such provision after discussions with the industry. We had discussions with the industry, and we then introduced the marginal field provision. That is the major change that we have made. We made it exactly according to the plan which I defined to the House at the outset. It did not appear to be right or possible for the Government, independent
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of such consultations, to introduce the best marginal field provision that we could find as a result of our discussions with the industry.
But it was a second objective, as I have emphasised repeatedly, to limit the period of uncertainty which would inevitably follow the introduction of a Bill increasing the taxation of the oil industry. For that reason also it was appropriate that we should have consultations with the industry, not before we introduced the Bill but concurrently with its passage through the House. That is why on 19th November, the day the Bill was introduced in the House, I called the industry into consultation so that we could get the Bill right.
My hon. Friend the Member for Northampton, North (Mrs. Colquhoun) is distressed. She wonders whether we have gone too far to meet the industry's needs, and she also wonders what the value of her role on the Committee was. I am sorry that she feels like that. I hope that she will distinguish between the two separate aspects of the problem that we have tried to keep separate—participation and the tax.
When my right hon. Friend the Chancellor of the Duchy of Lancaster went to New York, he went to speak to the oil companies about participation. It seemed appropriate that he, as the Government's chief negotiator on participation, should talk to the oil companies at their headquarters about the Government's proposals. My hon. Friend quoted the party's manifesto. The reason for our saying in the manifesto that we would negotiate majority participation in existing licences was that, given that licences had been issued, negotiation was the proper course. That is what is now happening under the leadership of my right hon. Friend the Chancellor of the Duchy of Lancaster.
That is a separate point from the question whether the rate of tax and the marginal field provisions here proposed are appropriate to secure our objectives both of ensuring that a fair share of the profit comes to the British people and of ensuring—which is certainly not less important—that development in the North Sea goes ahead.
I believe that we have achieved that. I was very pleased to hear from my hon. Friend the Member for Dudley, West

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(Dr. Phipps) that he believes that we have achieved that, though he had certain points on which he wished me to comment. The first was in relation to the appropriate relationship in the marginal field provisions in respect of gas and oil, which causes him concern. This is a problem that he has mentioned to me, which we have considered and discussed with, among others, obviously, the Department of Energy. We think that the provisions that we have made will be adequate to encourage the development of gas fields. But certainly, if my hon. Friend has information to suggest that that is wrong, I should be very glad to see it. We have no wish to prevent the development of future gas fields, because, as he says, we shall need the gas from them. Therefore, it is a matter of fact whether what we have provided is sufficient. If my hon. Friend thinks that it is not sufficient, I should certainly be prepared to look at any calculations he can present.
My hon. Friend also asked me to say something about the waiving of royalties. I believe that he was looking in the Bill to find the relevant clause. The relevant clause will appear in the Petroleum Bill. Under the Petroleum Bill it will be possible to waive or refund royalties without liability to petroleum revenue tax or corporation tax. As my hon. Friend says, that is a very powerful weapon for getting marginal fields developed — though I hope it will not have to be used frequently.
The right hon. Member for Wanstead and Woodford (Mr. Jenkin) criticised me for comparing the British proposals with the Norwegian and indicating that on our calculations the two sets of proposals were roughly comparable—although, as I say, I think it may be that we would get a slightly higher take. He warned me that this is not something to welcome because the Norwegian situation is very different from the British situation and that the Norwegians were not interested in the rapidity of development that we are interested in. The hon. Member for Dunbartonshire, East (Mrs. Bain) confirmed the point.
This is true, but the right hon. Gentleman, in his deep prejudice against the system of taxation which we are introducing, should not ignore some of its incidental benefits. I mentioned some
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of them when I was introducing the clause. To start with, we believe that our marginal field provision gives better help to marginal fields than does the equivalent Norwegian provision. This is an estimate. Obviously, remarks are made in comparing the two tax systems, which I accept is difficult to do and can lead to error. But, at any rate, that is our estimate.
However, the one essential difference between the two systems is this. We allow write-off earlier than the Norwegian system does. But we have a comparable, perhaps slightly higher, take. Because we allow write-off earlier, our system both encourages development and permits a take at any rate comparable with that which the Norwegians have gone for.
The trouble is that we have never really seen the alternative which the right hon. Gentleman prefers. We do not know even now whether it was what Lord Barber, his then right hon. Friend, would have introduced in that famous Budget that never happened, or what he would think of the appropriate levels of tax. So it is rather difficult to set an existing system against one which is so nebulous as that which the right hon. Gentleman recommends—which would not need to be nebulous if he would only confirm that this was what Lord Barber wanted to introduce and present a detailed explanation of it.
Mr. Patrick Jenkin: I do not know why the right hon. Gentleman feels that he does not have enough information about it. I sent it to him on 28th January. On 29th January I received a very polite letter from his private secretary which said:
" I am writing to acknowledge your letter of 28th January, which I shall lay before the Paymaster-General."
Since then I have heard not a squeak. If the right hon. Gentleman has many more questions about it and wants to know how it would work in greater detail, I should be delighted to answer those questions, but he has left the matter for nearly two months without asking a single question.
Mr. Dell: The trouble is that the right hon. Gentleman was unable to answer the decisive question. about any such system of taxation. That was what the appropriate rate of return was. So I merely assumed that this was the result of his

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discussions with the oil companies, and, therefore, I examined in considerable detail and with interest a comparable proposal which had been put to me by the oil companies. I assumed that the right hon. Gentleman had got his information from the usual source and that if I looked at the detailed specification indicated to me by the oil companies I would be able to undertake a comparison.
Mr. Gordon Wilson: I may be able to solve the conflict of opinion that is developing between the Government and the Conservative Opposition. A Financial Times report which has just been brought to my attention says:
"Assessing the United Kingdom as a host state, now, after these new proposals, it still remains among the most benevolent of host states. The Labour Government has introduced measures of which the Conservative Party in Britain might well have been proud."
Mr. Dell: I am grateful to the hon. Gentleman for that further contribution. I shall be coming to his remarks shortly.
The right hon. Member for Wanstead and Woodford says that we should allow the full amount of the oil allowance in any field, however small. In other words, he says that we should allow some sort of carry forward for the oil allowance so that a small field can use the full 10 million tons. I am afraid that I must repeat what I said earlier. I do not see justification for so doing. The oil allowance operates in exactly the way it was intended to operate. It operates to reduce very significantly the burden of taxation on small fields. On a 40-million ton field it really would make virtually no difference—some difference, but certainly not enough difference to mean the development or not the development of a particular field. Therefore, I do not see justification for this further concession. It has certainly not been pressed with any great vigour by the industry. [Interruption.] I repeat that it has not been pressed. I see no great justification for conceding this point. Certainly it would produce a further reduction in the tax payments, but marginal further reductions on what seem to me to be any likely assumptions about price and costs.
The right hon. Gentleman also asks that we should index the safeguard. He says that this is a wholly unique case which should lead to indexing the safe-
1700
guard. The safeguard is itself unique. It is introduced in order to give a certain degree of additional protection to companies in the early years so as to insure them against what they fear might happen, and that is a very considerable cut in the price of oil which might, if the tax system remained otherwise, heavily reduce their profits. It is for that purpose. That purpose is achieved by the safeguard in its existing character. To index it would have quite unnecessary deleterious effect on Government take.
Similarly, I have to reject the right hon. Gentleman's request, now made many times, that there should be an option in respect of interest against PRT. This would be impossible to control, for reasons which have been repeatedly explained.
6.0 p.m.
Amendment (c) deals with a detail as the right hon. Gentleman said. I do not think it is necessary in respect of such a matter to decide here and now that the Board of Inland Revenue is incapable of making such determinations in the appropriate fashion. I have no doubt that the Revenue, in considering any basis on which the participators share of the allowance should be distributed, will, in fixing the division of the total oil allowance within the 10 million tons limit, take account of the shares won by the participators. We do not need a special provision for that purpose.
We will watch the situation and will, perhaps, take action of that kind if it proves to be necessary, but I do not think that we need to tie the Board of Inland Revenue in such a way at present.
The hon. Member for Dundee, East (Mr. Wilson) was not able to establish the figures which I criticised. He adduced two arguments, one of which was not in his Press handout and one of which was. The argument which was in his Press handout was that development costs may not continue to escalate and may fall. The hon. Gentleman mentioned certain experiments currently being carried out by Exxon and the possibility that these will lead to cheaper ways of extracting oil from beneath the sea. I hope that this is so. It would be in accordance with the normal development of technology if costs fell after a time. The system which Exxon is developing could be a way, though I

1701
understand from such technical advice as I have on this point that at present all that is being said of it is that it cuts very high capital costs where platforms would be so costly as to be uneconomic anyhow. It is in that sort of situation only that hopes may be seen for the system. I do not think that it would help in the situation we face in the North Sea at rather lesser depths.
Nevertheless, the general principle might easily prove to be true that development costs will cease to escalate and might even fall. That would be a new situation. Even within the tax situation as it is, that would produce a very much higher rate of take than we estimate now. If development costs became anything like those the hon. Gentleman chooses as a comparison namely, those in the Middle East, or even half way towards them—the nation would obviously derive great benefit. However, the hon. Gentleman cannot sustain an argument for a rate of tax on the basis of technical developments which have not yet taken place. He cannot argue that there should be a different rate of tax because possibly sometime in the 1980s or 1990s there will be—I hope that there will be—much cheaper methods of extracting oil.
The OECD report to which the hon. Gentleman referred was written before the recent escalation in costs. The report gives a range of costs for the North Sea of $1·50 to $2·00 a barrel. If my memory is right, that is at 1972 prices. There has been considerable escalation since then and there is evidence of substantially higher costs at present in the North Sea.
The hon. Gentleman must deal with these problems more substantially before advancing estimates of possible take from the North Sea consistent with development in the North Sea in the way he did.
The hon. Gentleman has a different attitude. His attitude is that we should not go for the present speed of development. If he wishes to shut the whole operation down, let him be clear about it. Let him say that he wishes to shut the operation down, and then he should not talk of £6,700 million being available for distribution in the British economy or the Scottish economy.
Mr. Gordon Wilson: Does not the right hon. Gentleman recall that I was talking in relation to the figure of £6,700 million
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over the lifetime of the fields? That is the figure which emerges from our calculations. If the life of the fields were extended over a different period, the take would be the same. I cannot see the relevance of the right hon. Gentleman's point.
Mr. Dell: The point I am making is that if the hon. Gentleman and his hon. Friends want a slower rate of development of oil, the income to whatever economy benefits from it will be less. My substantial point in reply to the hon. Gentleman is that his figures are wrong. The figures on which he made his calculations are not appropriate to the present stage of development in the North Sea, except in the limited example which I conceded earlier.
As my hon. Friend the Member for Bolsover (Mr. Skinner) is here, I will briefly repeat the point I made to the hon. Member for Dundee, East, because my hon. Friend also made the point and then disappeared from the Chamber. He will no doubt be delighted to see that share prices of oil have risen less since my statement than the Financial Times index generally. I do not take any particular pleasure from it, but as my hon. Friend makes something of it perhaps he would like that additional information.
Mr. Skinner: It is true that on the day immediately following my right hon. Friend's statement there was a fairly dramatic increase in prices on the Stock Exchange. My right hon. Friend makes the point that the rise was not of the same momentum on succeeding days and in succeeding weeks. However, most of the rise had been discounted, because many of the pundits in the oil companies and outside had already made it fairly clear that the rate of tax would be about 45 per cent. Already there had been estimates of 175 per cent. on capital allowance. Already there had been talk in the Press of 1 million tons for each field. All these things had been discounted. Therefore, much of the rise had already been taken into account.
Mr. Dell: Then I do not know why my right hon. Friend made the point earlier.
The important point, as I have emphasised, is that we should continue development in the North Sea and that we should

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get a reasonable share of the return for the British people. This is what is achieved by the new clause and the Government amendments now before the House, and I hope that the House will accept them.
Mr. Patrick McNair-Wilson: We welcome the assurances and the concessions which the Government have made in this group of amendments. We welcome the other points which were made by the Paymaster-General to take account of some of the arguments which have been deployed.
However, it must be remembered that the whole concept of a petroleum revenue tax was based on the assumption that, if people would go to the North Sea when oil was $2 a barrel, when prices were quadrupled or quintupled the oil would necessarily be able to bear a substantial rate of taxation. We on this side believe that that assumption is entirely fallacious because it fails totally to take account of the enormous increase in the costs of exploration which have since taken place. Therefore, PRT will for us always represent a substantial burden on many of those who are exploring and developing their assets in the North Sea.
It was interesting to listen to some of the comments which were made by hon. Members opposite. The bon. Member for Northampton, North (Mrs. Colquhoun) courageously took part in our debates in Standing Committee. Her comments, robust though they were, emphasise for everyone here the division which exists between those who believe that by heavily taxing North Sea oil we shall benefit the people and those who realise that it high levels of tax are imposed nobody will go looking for North Sea oil, so there will be no oil and, therefore, no tax.
There can be, as she put it, no bigger bonanza for the British unless the oil flows ashore. We on the Opposition benches have been endeavouring to produce amendments and discussions to provide legislation which will give the British people the full reward in terms of oil and finance. At the same time, however, we recognise that this is the roughest water in the world and the most difficult operation that most of these companies have had to undertake.
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In an intervention the hon. Member for Bolsover (Mr. Skinner) talked about security of supply and the importance of the North Sea. I entirely agree with him. The security of supply which the North Sea provides for Britain is absolutely central to the argument on both sides of the House. The hon. Member, who has supported the coal mining industry on so many occasions in the past, and the hon. Member for Hamilton (Mr. Wilson), who spoke as a coal miner, have stressed the need for a secure supply of indigenous fuel. They must recognise that the North Sea provides precisely that.
Mr. Skinner: I find myself in strange company in this place. It appears that because the hon. Member for the New Forest (Mr. McNair-Wilson) is somewhat misguided he gets the impression that we are together on this matter. Of course, we are absolutely poles apart. However, when he talks about the need, as I did, for making completely sure that we control North Sea oil resources he must bear in mind that I am concerned not necessarily or only because of the taxation situation but because I also want to ensure that when the oil starts flowing it does not replace some of the 115 million tons of coal which are now mined each year. I want to ensure that it replaces costly imports of oil. We need to control it, and one of the ways of doing that more effectively and of taking it over completely is by taxing the oil companies to such a degree that they cannot exploit it for themselves.
Mr. McNair-Wilson: I have no doubt that the Paymaster-General and the Secretary of State for Energy will take careful note of what the hon. Member said. If he wants to drive this country back into the arms of the OPEC cartel, that is the sort of speech that he should make throughout the country.
At the time of the Middle East war in 1973 a shock ran through the whole of the industrialised world, of which we are a part, with the sudden realisation that we were to a great extent dependent on a supply of energy which could be cut off at a moment's notice. Today we are dependent for 70 per cent. of our oil upon the Arabian Gulf. One can see that if the Kissinger mission were to fail and if war were to break out again in

1705
that area we should be back where we were at the end of 1973. Therefore the Conservatives believe that it is essential that the North Sea is developed as steadily and effectively as possible. We must make certain that where resources are available they are exploited.
My right hon. Friend the Member for Wanstead and Woodford (Mr. Jenkin) made clear that the large reservoirs are the ones which tend to be found first. However, one must recognise that it is essential to go on looking for what are termed the marginal fields. This requires that companies are encouraged to do this and are not discouraged by over-taxation. When he was asked by one of his hon. Friends about the Government take from the North Sea the Paymaster-General said that this would depend to some extent upon cost and price. Price is a most uncertain factor at this time. I know of someone who was offered 150,000 barrels of Nigerian crude at only eight dollars a barrel. That shows a substantial reduction over the current world price. Abu Dhabi has been prepared to cut back on the margin and its price level.
One might find that members of OPEC —perhaps not the big producers, but those who have made heavy political commitments to their peoples about industrialisation and so on—will prefer to release their oil on to the market at whatever price it will fetch rather than see consumption and, therefore, production sink. If the OPEC cartel were to break and prices were to fall North Sea oil would be at a price which would make it uneconomical to exploit.
6.15 p.m.
Our amendments are designed to take account of two specific points which occur in new Clause 1. The first is that which revolves around the whole question of the marginal resource. My right hon. Friend made clear earlier that we believe there are deficiencies in the oil allowance concept.
I was interested to see that the Comment article in today's Daily Telegraph, written by Mr. Kenneth Fleet, said:
"Today Mr. Dell, Paymaster-General, will introduce some 30 amendments to the Oil Taxation Bill which enters its report stage before moving to the Lords and the Royal Assent, probably by the middle of next month. These amendments are intended to he the finishing touches to a notably cumber-
1706
some piece of legislation, well defined only in intent (to take the cream, and if possible the milk from North Sea oil, leaving the companies with the water).
It can be said, truthfully, that the Government has retreated a long way from the extreme Balogh position in the direction of common sense, though not far enough."
I accept that they have not gone far enough, and our amendment (a) seeks to correct that situation. That is why we regard the amendment on the oil allowance as so significant.
My hon. Friend the Member for Exeter (Mr. Hanam) and the hon. Member for Dudley, West (Dr. Phipps) referred to the option of interest rather than uplift for the smaller companies. We entirely support that, and we should like to feel that we have the support of the hon. Member for Dudley, West because this is a very critical issue for the smaller company. For the bigger company, the 175 per cent. uplift is a good and sensible way of taking advantage of the allowance.
Dr. Phipps: I hope that the hon. Member will recall that I observed that the provisions for the waiving of royalty will take full care of this difficulty about interest.
Mr. McNair-Wilson: I had intended to refer to that. The comment about relief and the clarification by the Paymaster-General a moment ago that this would be covered by new legislation is very helpful. I reiterate how much I agree with the hon. Member in his comments about the gas fields, with which we shall be dealing later.
Our amendment to give the option for interest rather than uplift is also of great significance. Our intention in these amendments is to make certain that wherever possible the marginal field is fully exploited, that as much encouragement as possible is given, and that the smaller company—not necessarily the same company, frequently a British company, as will be in the marginal field, —is given as much help as possible.
The Government have come a long way towards our position. I hope that the Paymaster-General will never be put off by the strictures of his hon. Friends who seem to feel that he has sold out to the oil companies. When the Government first introduced the Bill it was almost meaningless in the context of the real situation in the North Sea. As it is

1707
being amended, the Bill will be, if not perfect, a document with which the oil industry can live.
It is not enough for the hon. Member for Northampton, North to talk about excessive profits being made. Excessive profits are not being made in the North Sea. Because we believe that profits are hard to earn in the North Sea we have always objected to the concept of PRT as a prior charge before corporation tax. The day that we want to start getting worried is the day the companies start making losses, because that is the day that this great asset will dry up.
Our amendments are not frivolous. We regard them as essential. Therefore, in spite of the Paymaster-General's assurances, I must advise my right hon. and hon. Friends to go into the Division Lobby to ensure that they are made part of the Bill.
Question put and agreed to.
Clause read a Second time.
Amendment proposed to the proposed new clause: (a), in line 69, at end add—
'(9) Notwithstanding subsection (1) above a participator shall be entitled to the cash equivalent of his share of the oil allowance for a field for each chargeable period from and including the first chargeable period (as defined in section 1(3) of this Act) and if for any chargeable period a participator is not able to utilise or fully utilise under subsection (1) above his share of the cash equivalent of the oil allowance calculated under subsection (3) above, and for which an election has been made under subsection (4) above, he shall be entitled on so claiming to carry forward such unutilised cash equivalent to reduce the said amount of any succeeding chargeable period'. —[Mr. Patrick Jenkin.]
Question put, That the amendment be made to the proposed Clause:—
The House divided: Ayes 202, Noes 267.

Division No. 149.]

AYES

[6.22 p.m.

Adley, Robert

Fairgrieve, Russell

Kimball, Marcus

Aitken, Jonathan

Fell, Anthony

King, Evelyn (South Dorset)

Alison Michael

Fisher, Sir Nigel

King, Tom (Bridgwater)

Arnold. Tom

Fletcher-Cooke, Charles

Kirk, Peter

Atkins, Rt Hon H. (Spelthorne)

Fookes, Miss Janet

Knight, Mrs Jill

Awdry, Daniel

Fowler, Norman (Sutton C'f'd)

Knox, David

Baker, Kenneth

Fox, Marcus

Lamont, Norman

Banks Robert

Fry, Peter

Lawrence, Ivan

Bell, Ronald

Gardiner, George (Reigate)

Lawson, Nigel

Bennett, Sir Frederic (Torbay)

Gardner, Edward (S Fylde)

Le Marchant, Spencer

Benyon, W.

Gilmour, Rt Hon Ian (Chesham)

Lewis, Kenneth (Rutland)

Berry, Hon Anthony

Gilmour. Sir John (East Fife)

Lloyd, Ian

Biffen John

Goodhart, Philip

Luce, Richard

Biggs-Davison, John

Goodhew, Victor

McCrindle, Robert

Body, Richard

Goodlad, Alastair

Macfarlane. Neil

Bowden, A. (Brighton, Kemptown)

Gow, Ian (Eastbourne)

MacGregor, John

Boyson, Dr Rhodes (Brent)

Gower, Sir Raymond (Barry)

Macmillan, Rt Hon M. (Farnham)

Braine, Sir Bernard

Grant, Anthony (Harrow C)

McNair-Wilson, M. (Newbury)

Brittan, Leon

Gray, Hamish

McNair-Wilson, P. (New Forest)

Brotherton, Michael

Griffiths, Eldon

Madel, David

Brown, Sir Edward (Bath)

Grimond, Rt Hon J.

Marshall, Michael (Arundel)

Bryan, Sir Paul

Grist, Ian

Marten, Neil

Buck, Antony

Grylls, Michael

Mates, Michael

Budgen, Nick

Hall, Sir John

Mather, Carol

Bulmer, Esmond

Hamilton, Michael (Salisbury)

Maude, Angus

Burden, F. A.

Hampson, Dr. Keith

Maudling, Rt Hon Reginald

Chalker, Mrs Lynda

Hannam, John

Mawby, Ray

Churchill, W. S.

Harvie Anderson, Rt Hon Miss

Maxwell Hyslop, Robin

Clark, Alan (Plymouth, Sutton)

Havers, Sir Michael

Mayhew, Patrick

Clark, William (Croydon S)

Hawkins, Paul

Meyer, Sir Anthony

Clarke, Kenneth (Rushcliffe)

Hayhoe, Barney

Mills, Peter

Clegg, Walter

Heseltine, Michael

Miscampbell, Norman

Cockcroft, John

Hicks, Robert

Mitchell, David (Basingstoke)

Cooke, Robert (Bristol W)

Holland, Philip

Moate, Roger

Cope, John

Hordern, Peter

Monro, Hector

Costain A. P.

Howe, Rt Hon Sir Geoffrey

Montgomery, Fergus

Crouch,' David

Howell, David (Guildford)

More, Jasper (Ludlow)

Crowder, F. P.

Howell, Ralph (North Norfolk)

Morgan, Geraint

Dean, Paul (N Somerset)

Hunt, John

Morris, Michael (Northampton S)

Douglas-Hamilton, Lord James

Irvine, Charles (Cheltenham)

Morrison, Charles (Deviszes)

du Cann, Rt Hon Edward

James, David

Morrison, Hon Peter (Chester)

Durant, Tony

Jenkin, Rt Hon P. (Wanst'd & W'df'd)

Neave, Airey

Dykes, Hugh

Jessel, Toby

Nelson, Anthony

Eden Rt Hon Sir John

Johnson Smith, G. (E Grinstead)

Neubert, Michael

Elliott, Sir William

Joseph, Rt Hon Sir Keith

Newton, Tony

Emery, Peter

Kaberry, Sir Donald

Normanton, Tom

Eyre, Reginald

Kellett-Bowman, Mrs Elaine

Onslow, Cranley

Fairbairn, Nicholas

Kershaw, Anthony

Page, Rt Hon R. Graham (Crosby)

Parkinson, Cecil

Shaw, Michael (Scarborough)

Townsend, Cyril D.

Pattie, Geoffrey

Shelton, William (Streatham)

Trotter, Neville

Percival, Ian

Shepherd, Colin

Tugendhat, Christopher

Peyton, Rt Hon John

Shersby, Michael

van Straubenzee, W. R.

Prior, Rt Hon James

Sims, Roger

Vaughan, Dr Gerard

Pym, Rt Hon Francis

Skeet, T. H. H.

Wakeham, John

Rathbone, Tim

Speed, Keith

Walder, David (Clitheroe)

Rawlinson, Rt Hon Sir Peter

Spence, John

Walker, Rt Hon P. (Worcester)

Rees, Peter (Dover & Deal)

Spicer, Michael (S Worcester)

Walker-Smith, Rt Hon Sir Derek

Rees-Davies, W. R.

Sproat, Iain

Weatherill, Bernard

Renton, Tim (Mid-Sussex)

Stanbrook, Ivor

Wells, John

Rhys Williams, Sir Brandon

Stanley, John

Wiggin, Jerry

Ridsdale, Julian

Stewart, Ian (Hitchin)

Winterton, Nicholas

Rifkind, Malcolm

Stokes, John

Wood, Rt Hon Richard

Roberts, Michael (Cardiff NW)

Stradling Thomas, J.

Young, Sir G. (Ealing, Acton)

Rodgers, Sir John (Sevenoaks)

Tapsell, Peter

Younger, Hon. George

Rossi, Hugh (Hornsey)

Taylor, Teddy (Cathcart)

Rost, Peter (SE Derbyshire)

Tebbit, Norman

TELLERS FOR THE AYES:

Royle, Sir Anthony

Temple-Morris, Peter

Mr. Adam Butler and

Sainsbury, Tim

Thatcher, Rt Hon Margaret

Mr. Fred Silvester.

SI. John-Stevas, Norman

Thomas, Rt Hon P. (Hendon S)

NOES

Abse, Leo

Dunwoody, Mrs Gwyneth

Jones, Dan (Burnley)

Allaun, Frank

Eadie, Alex

Kaufman, Gerald

Anderson, Donald

Edge, Geoff

Kelley, Richard

Armstrong, Ernest

Ellis, John (Brigg & Scun)

Kerr, Russell

Ashley, Jack

Ellis, Tom (Wrexham)

Kinnock, Neil

Ashton, Joe

English, Michael

Lambie, David

Atkins, Ronald (Preston N)

Evans, Gwynfor (Carmarthen)

Lamborn, Harry

Bagier, Gordon. A. T.

Evans, loan (Aberdare)

Lamond, James

Bain, Mrs Margaret

Evans, John (Newton)

Lee, John

Barnett, Guy (Greenwich)

Ewing, Harry (Stirling)

Lestor, Miss Joan (Eton & Slough)

Barnett, Rt Hon Joel (Heywood)

Ewing, Mrs Winifred (Moray)

Lewis, Arthur (Newham N)

Bates, Alf

Fernyhough, Rt Hon E.

Lewis, Ron (Carlisle)

Bean, R. E.

Fitch, Alan (Wigan)

Litterick, Tom

Beith, A. J.

Fitt, Gerard (Belfast W)

Lomas, Kenneth

Bennett, Andrew (Stockport N)

Flannery, Martin

Loyden, Eddie

Bishop, E. S.

Fletcher, Ted (Darlington)

Lyon, Alexander (York)

Blenkinsop, Arthur

Foot, Rt Hon Michael

Lyons, Edward (Bradford W)

Boardman, H.

Ford, Ben

MacCormick, lain

Booth, Albert

Forrester, John

McElhone, Frank

Boothroyd, Miss Betty

Fraser, John (Lambeth, N'w'd)

MacFarquhar, Roderick

Bottomley, Rt Hon Arthur

Freeson, Reginald

McGuire, Michael (Ince)

Bradley, Tom

Freud, Clement

Mackenzie, Grego

Bray, Dr Jeremy

Garrett, John (Norwich S)

Mackintosh, John P.

Brown, Ronald (Hackney S)

Garrett, W. E. (Wallsend)

Maclennan, Robert

Buchan, Norman

George, Bruce

McMillan, Tom (Glasgow C.)

Buchanan, Richard

Gilbert, Dr John

McNamara, Kevin

Callaghan, Jim (Middleton & P)

Ginsburg, David

Madden, Max

Campbell, Ian

Golding, John

Magee, Bryan

Canavan, Dennis

Gould, Bryan

Mahon, Simon

Cant, R. B.

Gourlay, Harry

Marks, Kenneth

Carmichael Neil

Grant, George (Morpeth)

Marshall, Dr Edmund (Goole)

Carter-Jones, Lewis

Grocott, Bruce

Marshall, Jim (Leicester S)

Cartwright, John

Hamilton, James (Bothwell)

Meacher, Michael

Castle, Rt Hon Barbara

Hamilton, W. W. (Central Fife)

Mellish, Rt Hon Robert

Clemitson Ivor

Hardy, Peter

Mikardo, Ian

Cocks, Michael (Bristol S)

Harrison, Walter (Wakefield)

Millan, Bruce

Cohen, Stanley

Hart, Rt Hon Judith

Miller, Dr M. S. (E Kilbride)

Coleman, Donald

Hattersley, Rt Hon Roy

Miller, Mrs Millie (Ilford N)

Colquhoun, Mrs Maureen

Hatton, Frank

Mitchell, R. C. (Soton, Itchen)

Conlan, Bernard

Hayman, Mrs. Helene

Molloy, William

Cook, Robin F. (Edin C)

Healey, Rt Hon Denis

Morris, Alfred (Wythenshawe)

Cox, Thomas (Tooting)

Heffer, Eric S.

Morris, Charles R. (Openshaw)

Craigen, J. M. (Maryhill)

Henderson, Douglas

Mulley, Rt Hon Frederick

Crawford, Douglas

Hooley, Frank

Murray, Rt Hon Ronald King

Crawshaw, Richard

Horam, John

Newens, Stanley

Crosland, Rt Hon Anthony

Hoyle, Doug (Nelson)

Noble, Mike

Cryer, Bob

Huckfield, Les

Oakes, Gordon

Cunningham, G. (Islington S)

Hughes, Rt Hon C. (Anglesey)

Ogden, Eric

Cunningham, Dr J. (Whiteh)

Hughes, Mark (Durham)

O' Halloran, Michael

Dalyell Tam

Hughes, Robert (Aberdeen N)

O'Malley, Rt Hon Brian

Davidson, Arthur

Hughes, Roy (Newport)

Orbach, Maurice

Davies, Bryan (Enfield N)

Hunter, Adam

Ovenden, John

Davies, Denzil (Llanelli)

Jackson, Colin (Brighouse)

Owen, Dr David

Davies, Ifor (Gower)

Janner, Greville

Padley, Walter

de Freitas, Rt Hon Sir Geoffrey

Jay, Rt Hn Douglas

Palmer, Arthur

Dell, Rt Hon Edmund

Jeger, Mrs Lena

Pardoe, John

Dempsey, James

Jenkins, Hugh (Putney)

Park, George

Doig Peter

Jenkins, Rt Hon Roy (Stechford)

Parker, John

Dormand, J. D.

John, Brynmor

Parry, Robert

Douglas-Mann, Bruce

Jones, Alec (Rhondda)

Pavitt, Laurie

Dunnett, Jack

Jones, Barry (East Flint)

Peart, Rt Hon Fred

1710

1711

Penhaligon, David

Silkin, Rt Hon John (Deptford)

Wainwright, Richard (Colne V)

Perry, Ernest

Sillars, James

Walker, Harold (Doncaster)

Phipps, Dr Colin

Silverman, Julius

Walker, Terry (Kingswood)

Prentice, Rt Hon Reg

Skinner, Dennis

Ward, Michael

Price, C. (Lewisham W)

Small, William

Watkins, David

Price, William (Rugby)

Smith, Cyril (Rochdale)

Watkinson, John

Radice, Giles

Smith, John (N Lanarkshire)

Watt, Hamish

Rees, Rt Hon Merlyn (Leeds S)

Snape, Peter

Weetch, Ken

Reid, George

Spriggs, Leslie

Weitzman, David

Richardson, Miss Jo

Stallard, A. W.

Wellbeloved, James

Roberts, Albert (Normanton)

Stewart, Donald (Western Isles)

Welsh, Andrew

Roberts, Gwilym (Cannock)

Stewart, Rt Hon M. (Fulham)

White, Frank R. (Bury)

Robertson, John (Paisley)

Stoddart, David

White, James (Pollok)

Roderick, Caerwyn

Stott, Roger

Whitehead, Phillip

Rodgers, George (Chorley)

Strang, Gavin

Whitlock, William

Rodgers, William (Stockton)

Strauss, Rt Hon G. R.

Wigley, Dafydd

Rooker, J. W.

Summerskill, Hon Dr Shirley

Williams, Alan Lee (Hornch'ch)

Roper, John

Swain, Thomas

Williams, Rt Hon Shirley (Hertford)

Ross, Stephen (Isle of Wight)

Taylor, Mrs Ann (Bolton W)

Williams, W. T. (Warrington)

Ross, Rt Hon W. (Kilmarnock)

Thomas, Jeffrey (Abertillery)

Wilson, Alexander (Hamilton)

Rowlands, Ted

Thomas, Mike (Newcastle E)

Wilson, Gordon (Dundee E)

Ryman, John

Thomas, Ron (Bristol NW)

Wise, Mrs Audrey

Sandelson, Neville

Thompson, George

Woof, Robert

Sedgemore, Brian

Tierney, Sydney

Wrigglesworth, Ian

Selby, Harry

Tinn, James

Young, David (Bolton E)

Shaw, Arnold (Ilford South)

Tomlinson, John

Sheldon, Robert (Ashton-u-Lyne)

Urwin, T. W.

TELLERS FOR THE NOES:

Shore, Rt Hon Peter

Varley, Rt Hon Eric G.

Mr. James A. Dunn and

Short, Rt Hon E. (Newcastle C)

Wainwright, Edwin (Dearne V)

Mr. Joseph Harper.

Short, Mrs Renée (Wolv NE)

Question accordingly negatived.
Clause added to the Bill.

New Clause 2

  ANNUAL LIMIT ON AMOUNT OF TAX PAYABLE BY PARTICIPATOR
  `(1) The total tax payable by a participator in an oil field for the chargeable period or periods comprised in any calendar year shall not exceed 80 per cent. of the amount (if any) by which his adjusted profit for that year (as defined in this section) exceeds 30 per cent. of his accumulated capital expenditure at the end of that year (as so defined).
  (2) For a participator in an oil field, his adjusted profit (if any) for any calendar year shall be determined as follows—
  (a) for each chargeable period comprised in that year there shall be ascertained—

  (i) the assessable profit (without any reduction under section 7 or (Oil allowance) of this Act) or allowable loss accruing to him in that period ; and

  (ii) the total amount taken into account under section 2(9)(b), (c), (d) and (e) of this Act in computing that profit or loss, excluding expenditure so taken into account under section 2(9)(b)(i) or (c)(i) which was not allowed as qualifying for supplement under section 2(9)(b)(ii) or (c)(ii);

  (b) in the case of each such chargeable period—

  (i) if there is a profit under paragraph (a)(i) above, the sum of that profit and the total ascertained under paragraph (a)(ii) above is his adjusted profit for the period;

  (ii) if there is a loss under paragraph (a)(i) above smaller than the total ascertained under paragraph (a)(ii) above, the
  1712
  difference is his adjusted profit for the period; and

  (iii) if there is a loss under paragraph (a)(i) above greater than the total so ascertained, the difference is his adjusted loss for the period;

  (c) if the year comprises only one chargeable period, his adjusted profit (if any) for that period is his adjusted profit for the year;
  (d) if the year comprises two chargeable periods then—

  (i) if for each of them he has an adjusted profit, the sum of those profits is his adjusted profit for the year;

  (ii) if for one of them he has an adjusted profit and for the other an adjusted loss smaller than that profit, the difference is his adjusted profit for the year;

  (iii) if for one of them he has an adjusted profit and for the other neither an adjusted profit nor an adjusted loss, that profit is his adjusted profit for the year;

  (iv) in any other case, he has no adjusted profit for the year.

  (3) For a participator in an oil field his accumulated capital expenditure at the end of any calendar year is the total amount of expenditure taken into account under section 2(9)(b)(i) and (c)(i) of this Act in computing the assessable profit or allowable loss accruing to him in each of the relevant chargeable periods, that is to say the chargeable period or periods comprised in that year and all earlier chargeable periods, excluding all expenditure so taken into account which was not allowed as qualifying for supplement under section 2(9)(b) (ii) or (c)(ii):
  Provided that in the case of a participator who has made an election under paragraph 9 of Schedule 3 to this Act, his accumulated capital expenditure at the end of any calendar

  1713
  year shall be taken to be what it would have been if he had made no such election.
  (4) Any reduction necessitated by this section in the total tax otherwise payable by a participator in an oil field in respect of a calendar year comprising two chargeable periods shall be made as far as possible by reducing or extinguishing the tax otherwise payable by him for the later of those periods.
  (5) In the case of any oil field the preceding provisions of this section shall have effect as if the calendar year which comprises the critical half year as defined in section 1(4) of this Act comprised the whole of the first chargeable period '.— [Mr. Dell.]

  New Clause 3
  Brought up, read the First and Second time, and added to the Bill.

  ALLOWANCE OF UNBELIEVABLE LOSS FROM ABANDONED HELD
  .—(1) Subject to Schedule 8 to this Act, the following is, in the case of a participator in an oil field, an allowable unrelievable field loss, that is to say so much of any allowable loss which, in the case of any other oil field being a field from which the winning of oil has permanently ceased, has in any chargeable period accrued therefrom to the participator or, if the participator is a company, to a company associated with it in respect of that loss as cannot under the provisions of section 7 of this Act be relieved against assessable profits accruing from that other field to the participator or the company so associated with the participator.
  (2) In determining for the purposes of this section whether an allowable loss has accured as mentioned in subsection (1) above from an oil field from which the winning of oil permanently ceased before the total amount of oil even won and saved from it reached the amount by reference to which the critical half year is defined in section 1(4) of this Act, the first chargeable period for that field shall be taken to have been the period ending at the end of the half year in which the winning of oil from the field so ceased (including an unlimited time prior to the beginning of that half year).
  In this subsection "half year" has the same meaning as in section 1 of this Act.
  (3) For the purposes of this section—

  (a) "company" means any body Corporate ; and

  (b) a company which is a participator in an oil field is associated with another company in respect of an allowable loss which accrued to that other company in a chargeable period from another oil field if—

  (i) throughout that part of the relevant period in which both were in existence one was a 51 per cent. subsidiary of the other and the other was not a 51 per cent. subsidiary of any company ; or

  (ii) each of them was, throughout that part of the relevant period in which it was in existence, a 51 per cent. subsidiary of a third company which was not itself
  1714
  a 51 per cent. subsidiary of any company ; and in this section and Schedule 8 to this Act any reference to the winning of oil from an oil field permanently ceasing includes a reference to the permanent cessation of operations for the winning of oil from the field.

  (4) For the purposes of subsection (3)(b) above—
  (a) the relevant period is the period beginning with the chargeable period in which the allowable loss accrued to the other company referred to in that paragraph and ending with the end of whichever of the following periods ends later, that is to say—

  (i) the earliest chargeable period in which the company which is a participator in the oil field in question was a participator in that field; and

  (ii) the chargeable period in which the allowable loss accrued;

  (or, if they are the same period, with the end of that period) ; and
  (b) section 532 of the Taxes Act (subsidiaries) shall apply '.—[Mr. Dell.]
  Brought up, and read the First time.
  6.30 p.m.
  Mr. Dell: I beg to move, That the clause be read a Second time.
  Mr. Deputy Speaker: With this it will be convenient to take Government Amendments Nos. 145, 172 to 174, 146, 147 to 152 and Amendment No. 68, in Clause 7, page 14, line 43, at end insert:
  '(4) Where—

  (a) the Board have determined under Schedule 2 to this Act that an allowable loss has accrued to a participator in the chargeable period from an oil field; and

  (b) the winning of oil from that field has permanently ceased; and

  (c) that allowable loss cannot under the preceding provisions of this section be relieved against assessable profits accruing to the participator from the field then so much of the allowable loss as cannot be so relieved shall be relieved under this subsection by treating the assessable profits accruing to him from any field in any chargeable period as reduced by the amount of the loss '.

  Mr. Dell: The clause meets a commitment which I made in my decision announced in Committee on 16th January. It replaces the present Clause 6—which is repealed by Amendment No. 146—which would have allowed relief against any field for expenditure on a field in the same ownership which is abandoned before production reaches 1,000 long tons. The new provision allows the relief in respect of an overall loss on the abandoned field at whatever stage of production it is abandoned. It

  1715
  therefore meets most, though not all, of the points raised by Opposition Amendment No. 68 to Clause 7.
  The Opposition amendment would have much the same effect as the new clause, although it would not extend, as does the clause, to losses in associated companies. On the other hand, it would go wider by allowing a loss on an abandoned field to be allowed against profits from the other field in any period, in other words, past as well as future periods. I do not know whether, in the light of the new clause, the Opposition intend to press the amendment, but if they do I shall have to reject it. It appears to me wrong that the net loss of an abandoned field should be allowed against past profits on another field.
  Amendment No. 145 paves the way for the introduction of new Clause 3. Amendment No. 146 deletes Clause 6, which becomes unnecessary. Amendments Nos. 147 to 152 adapt existing procedure rules for claims in respect of abortive development expenditure to take account of the replacement of that relief by the new allowance for unrelievable field losses, as provided by new Clause 3.
  Amendments Nos. 172 and 173 modify the rules under which two companies are to be treated as associated, so as to enable abortive exploration expenditure incurred by one to be set off, for PRT, against the profits of the other. Amendment No. 174 alters the definition of "relevant period" for the purposes of the rule for determining whether two companies are associated so that abortive exploration expenditure incurred by one can be allowed against profits of the other for PRT.
  I have commented on all the Government amendments and also on Opposition Amendment No. 68. I hope in the light of my comments that the Opposition will not press their amendment.
  Mr. Hamish Gray: I do not know whether it is a compliment or a penalty to be asked to speak from the Front Bench on the Report stage of a Bill on which one has not served in Committee. I have read many of the Committee proceedings and I am glad that my right hon. and hon. Friends made such progress in the arguments that they presented to the
  1716
  Government. I welcome the clause, which allows for unrelievable loss for an abandoned field. It goes some distance towards meeting the arguments put by my hon. Friends, but it does not go quite far enough.
  As the Bill is drafted, it could result in North Sea expenditures never being relieved for PRT purposes, even though a participator has profits on which he has paid PRT. Our Amendment No. 68 seeks to correct that defect on the principle that losses should not go unrelieved to the extent that a participator has North Sea profits, whether in the past, the present or the future. Our Amendments Nos. 64 to 66 have now been substantially met by Government Amendments Nos. 161 to 163, and we are grateful for that.
  We want the Government to allow current losses from one field to be set against current profits from another. That would, in effect, introduce a measure of aggregation, but in doing so it would not upset the field-by-field structure of PRT. Our aim is to remedy the injustice of a system which, contrary to normal tax law, requires a taxpayer to pay tax on one area of his operations without regard to losses in another. Even if this measure of setting current losses against current profits is not as beneficial as full aggregation on a company basis, nevertheless it is a valuable incentive.
  As the Bill stands, no offset is allowed. Losses incurred in a field are allowable only against future income or past income from that field or ultimately, and only on abandonment of the field, against income from others. Normal corporation tax rules do not apply.
  Let us suppose that a company decides to expand in the normal course of business. Let us suppose that it is a public works company and it decides to extend into property, licensed premises and haulage. If one of those ventures is not successful, the company is allowed to offset losses in one area against profits in another. This would appear to be normal practice, and it seems wrong that it is not being extended to this area of activity.
  Let us take the case of small British companies—of which there are a great number—which would not wish to put all their eggs in one basket and to have all their investment in one exploration. The

  1717
  most likely result is that they will have a share in a number of different explorations. Let us assume that the area in which they have their biggest investment meets industrial trouble and that industrial difficulties cause a hold up in the delivery of an oil platform. The work might be held up for months, with the result that that investment could be seriously jeopardised. Is it not reasonable that such a loss should be offset against possibly more profitable ventures elsewhere?
  I shall not dwell on this matter at length, since the Minister was brief. I shall try to reciprocate. However, it would be a pity if the question of offsetting profits were to be completely ignored.
  Mr. Dell: I congratulate the hon. Member for Ross and Cromarty (Mr. Gray) on appearing for the first time at the Opposition Dispatch Box during the proceedings on this Bill.
  The point the hon. Gentleman mentioned was dealt with in Committee and the Government have now introduced this clause to meet a point which was made strongly to us by the industry. It is connected in thought with Amendment No. 163 and others to Clause 7, in that within a single field we are proposing to allow an indefinite carry-back on losses. That concession is almost unique. We have had many discussions with the industry and have accepted a considerable number of the points that were made to us.
  Having been persuaded to make this concession by the arguments in Committee, we have introduced the present provisions. But immediately we make a concession, we are told, "You must now go on to make a further concession on something else on which previously you have stood firm ". I do not regard it as appropriate within the field basis, which is part of the Bill, to make a further concession in response to the hon. Gentleman's request. There are a number of derogations from this field basis which I regard as right. But in this case we should limit ourselves to what the new clause sets out to do —namely, to allow offset against subsequent profits rather than past profits. I do not think that this is an occasion for reopening past accounts and for allowing indefinite carry-back of losses in other cases. I believe that we have dealt adequately
  1718
  with the point made by the industry, and I hope the House will accept what we have done.
  Question put and agreed to.
  Clause read a Second time, and added to the Bill.

New Clause 4

  INTEREST ON TAX OVERPAID TO BE DISREGARDED IN COMPUTING INCOME
  ' (1) Where any amount of petroleum revenue tax paid by a participator in an oil field is, under any provision of Part I of this Act, repaid to him with interest the amount of the interest paid to him shall be disregarded in computing the amount of his income for the purposes of corporation tax.
  (2) In this section "oil field" and "participator" have the same meaning as in Part of this Act'.—[Mr. Dell.]
  Brought up, and read the First time.
  6.45 p.m.
  The Minister of State, Treasury (Mr. Robert Sheldon): I beg to move, That the clause be read a Second time.
  Mr. Speaker: With this clause, it will be convenient to take Government Amendments Nos. 164 and 165 and Government Amendments Nos. 179 to 181.
  Mr. Sheldon: The new clause fulfils a commitment that interest paid to a participator on any overpayment of PRT is not liable to corporation tax. The new Clause puts that commitment into effect. Amendment No. 164 makes it clear that the 9 per cent. interest rate laid down in the Bill for arrears of PRT is a rate per annum.
  Amendment No. 165 deals with the overpayment of PRT and ensures that it will carry interest at 9 per cent. per annum.
  Amendments Nos. 179 and 180 delete the provisions under which interest is paid to a participator who is found to have overpaid tax as a result of a successful appeal on an allowable expenditure. The provisions as they originally existed are replaced by a more general rule for the payment of interest on overpaid tax.
  Finally Amendment No. 181 makes it clear that the 9 per cent. rate of interest payable by a participator when the courts reverse a decison by the Special Commissioners is a rate per annum.

  1719
  I hope that the House will accept these provisions.
  Mr. Michael Alison: I am sure that we all take great pleasure in the fact that the first speech made today by the Minister of State, Treasury, was one that acknowledged the merits of the arguments advanced in Committee. It marks a return to the norm of the hon. Gentleman's naturally sunny disposition and conciliatory manner—an attitude not always shared by his colleagues. Normally, the hon. Gentleman likes to meet us more than half way. He has done so in these provisions. I only wish that the Chief Secretary, who is now leaving the Chamber, was always as forthcoming. Their association does not seem to have resulted in a full sharing out of the conciliatory attitude displayed by the Minister of State.
  I say no more at this stage. We welcome these sensible amendments and also the new clause.
  Question nut and agreed to.
  Clause read a Second time, and added to the Bill.

Clause 1

  PETROLEUM REVENUE TAX
  Amendments made: No. 1, page 2, line 5, leave out
  ' such rates as Parliament may hereafter determine'
  and insert ' the rate of 45 per cent '.
  No. 2, in page 2, line 8, at end insert:
  ' and under section (Oil allowance) of this Act by reference to his share, if any, of the oil allowance for that period, subject however to the limit imposed in his case by section (Annual limit on amount of tax payable by participator) of this Act '—[Mr. Dell.]
  Mr. Dell: I beg to move Amendment No. 153, in page 2, line 28, at end insert:
  ' and, in connection with certain gas sold to the British Gas Corporation, to section 8 of this Act '.
  Mr. Speaker: With this amendment it will be convenient to take Amendment No. 69, in Clause 8, page 15, line 4, leave out from ' gas ' to ' shall ' in line 6.
  Government Amendments 154 to 158.
  Amendment No. 90, in Clause 16, page 22, leave out lines 41 and 42 and insert ' natural gas; '
  Government Amendment No. 159.
  Mr. Dell: Amendment No. 153 is a tidying up amendment which replaces the present subsection (6) of Clause 8, which is deleted by Amendment No. 154.
  Amendments Nos. 155 to 159 deal with the corporation tax ring fence and are consequential on the exemption of certain gas from PRT, under clause 8.
  Amendment No. 159 deletes the word "natural" from the expression "natural gas" in the provision for determining PRT payments on account. This brings the expression into line with other references to United Kingdom gas in the Bill.
  Mr. Patrick McNair-Wilson: I wish to address my remarks to Amendment No. 69, which seeks to remove gas from the scope of PRT.
  The natural gas produced in the United Kingdom sector of the North Sea must be offered to the Gas Council. Most of it is therefore sold to the British Gas Corporation on fixed contract. It is true that the Minister has exempted gas supplied on contracts which were signed before the end of June 1975. However, it is our belief that natural gas in total should be exempted. The reason for that is simple. The price of gas has not increased in line with the price of oil. The oil companies have seen the quintupling of oil prices during the past 12 or 14 months, but the gas price has not moved, for the simple reason that it is sold to a monopoly customer on a long-term contract. Natural gas is now beginning to take an even bigger share in the energy market of the United Kingdom. I should like to quote from the Statistical Bulletin of the Department of Energy. The headline reads:
  " Natural gas consumption 20 per cent. up in 1974 ".
  The article reads:
  " The provisional figures show that natural gas consumption increased in absolute terms by 8 million tons and nuclear electricity by 2 million tons of coal equivalent, each representing a 20 per cent. increase, which together offset a reduction in petroleum consumption.…as sent out in 1974 was about 16 per cent. higher than in 1973 and within the total, natural gas supplied direct to consumers accounted for more than 85 per cent. of the supply. Town gas, manufactured principally from coal, oil and reformed natural gas declined by 35 per cent. compared with the previous year and now amounts to only 12 per cent. compared with 90 per cent. five years ago."

  1721
  Natural gas is now a signfiicant element in our energy equation. The price of gas is to a greater or lesser extent dictated by the British Gas Corporation, which is a Government agency. It therefore cannot move its price in the same way that oil prices are moved.
  The petroleum revenue tax is designed to tax profits. Our contention is that there are no profits where natural gas is concerned, for the reasons I have given. The petroleum revenue tax is designed to attract a tax to windfall profits. Here we have a situation in which a product which is of significance to the energy needs of Britain is treated in the same way as a tax on oil—liquid hydrocarbon—which is subject to wide price fluctuations.
  The Government have gone a long way to meeting the problem of the Southern gas field. We recognise that. Indeed when the Bill was first introduced all contracts made before 1st July 1975 would have attracted PRT. I cannot see the objection to going the whole distance and taking natural gas out of the tax.
  The Paymaster-General indicated to us in Committee that he was considering the possibility of excluding gas from the scope of PRT. I should be grateful if he would let us know why he has not decided to do so, since the consequence of imposing PRT on gas is necessarily an increase in the price of gas.
  My quotation from the Statistical Bulletin explained that a large amount of natural gas was being used commercially and domestically. If petroleum revenue tax is now attached to contracts made after July 1975, gas prices will necessarily rise steeply. That is inevitable. Therefore the Minister, in taxing natural gas contracts made after 30th June, will directly contribute to an increase in the price of natural gas.
  The Government have made it clear that they want to see nationalised industries' prices coming into line with the commercial needs of industry. I do not quarrel with that. To do so in this totally artificial and unnecessary manner will give an additional twist to the inflationary screw. Many contracts will be signed before the end of June, while current contracts are operating in respect of fields having a considerable life. We are concerned that future contracts should take account of the commercial needs of the
  1722
  country. I do not believe that it is sensible to add unnecessarily to the price of a commodity by means of legislation when there is no way in which production of that commodity can become more profitable.
  I hope that Amendment No. 69, which seeks to exempt natural gas from PRT, will have the support of the Paymaster-General. At any rate, I trust he will repeat his assurance to consider the exclusion of natural gas from the legislation. We regard this matter as of great significance, since gas consumers will otherwise find that the price of gas will have been dramatically increased.
  Mr. Dell: I indicated that I would consider the possibility of exempting gas from the scope of PRT. In the end, I proposed to the Committee that contracts made up to 30th June 1975 should be exempted. In dealing with a difficult situation, I think that was the right compromise solution.
  The situation is different in respect of the future. I proposed the exemption because contracts would have been negotiated in ignorance of PRT. It is therefore wrong to subject such contracts to PRT, and therefore they will be exempted. Nevertheless, the situation has changed since the days when those contracts were made. It is a matter for discussion and thought—not on a partisan basis—whether, in a situation in which the United Kingdom has resources of oil and gas, the price of one should be fixed artificially low in relation to the other. That is a matter which warrants consideration, and to decide at this point to exempt gas would pre-empt such an examination.
  7.0 p.m.
  What we have done is to say that contracts made after 30th June 1975 should be liable to PRT. The prices negotiated with the British Gas Corporation for gas supplies after 30th June 1975 will be negotiated in the knowledge of PRT. Gas after 30th June 1975 will benefit from the marginal field provision. There are existing contracts which will help for a long time to limit and to delay any impact on the housewife from the decision to include such contracts within the scope of PRT.
  This is the best way of handling matters at the moment in the changed situation in which we have both oil and gas

  1723
  supplies, and we must see in due course that they are subject to a pricing mechanism which plays some part in the competition between them.
  There is the technical difficulty about the allocation of costs in fields in which there are both gas and oil supplies. This is a difficulty that the Government have accepted in relation to the decision to exempt contracts up to 30th June 1975. That is not a good reason for continuing with the difficulty thereafter. The provision that we make in the Bill will at any rate dispense with that technical problem thereafter.
  This is not really an occasion on which the relative pricing of oil and gas is appropriate for discussion. It is a matter which will have to be considered nationally and by Governments in the future. Therefore, I suggest that on this matter the Bill should be left as it stands.
  Amendment agreed to.

Clause 2

  ASSESSABLE PROFITS AND ALLOWABLE LOSSES
  Mr. Gray: I beg to move Amendment No. 3, in page 3, line 10, leave out ' one-half of' and insert:
  ' the cost or if lower'.
  Mr. Speaker: With this amendment, we may discuss the following amendments:
  No. 4, in line 17, leave out ' one-half of the said ' and insert' the said cost or'.
  No. 5, in line 37, leave out ' one-half of' and insert:
  ' the cost or if lower'.
  No. 94, in page 29, line 17, Schedule 2, after first' the ' insert' lower of cost and'.
  Mr. Gray: The amendment deals with valuation of stocks. In our view, the normal economic basis for valuing stocks is convenient for PRT. It also operates in the case of corporation tax, and the Opposition see no reason why there should be a change for PRT.
  We take that view because we believe, in the first instance, that a departure from this system will involve a tax liability on unrealised stock profits whenever the cost is less than 50 per cent, of market value
  1724
  and, secondly, because any approximation to costs will be purely coincidental.
  We also believe that there is no possibility of any saving in time or effort, because the market value of all stocks will require to be established for the purpose of the formula laid down in the Bill and, in addition, the cost of all stocks will need to be determined for economic and corporation tax purposes, anyway.
  I read the Committee proceedings on this part of the Bill, and I was extremely impressed with the contribution made by my hon. Friend the Member for Barkston Ash (Mr. Alison). He went into the matter very thoroughly, and, despite the fact that the Minister of State tried on several occasions to convince the Committee otherwise, a great many of my right hon. and hon. Friends felt that the case made by my hon. Friend was not answered satisfactorily by the Minister. The argument put forward by my hon. Friend in Committee illustrated the weakness of the Minister's case.
  We believe that it would be a positive incentive to companies to hold their stocks at a higher level if the Bill remained as it is drafted at present. Any company would be attracted, purely for tax purposes, by a system which, to use my hon. Friend's words, provided a built-in, substantial and measurable incentive to maximise stocks. We were happy about the Government amendment in Committee reducing the proportion to one-half from the original two-thirds, but we still believe that the existing system would be of benefit. Surely the lower cost or market value is so much simpler. It has been tried and tested. It is accepted by the profession, and it is generally acknowledged in tax law.
  Even at this stage, I hope that the Government will be prepared to reconsider the position.
  Mr. Robert Sheldon: Like my right hon. Friend the Paymaster-General, I am very happy to welcome the hon. Member for Ross and Cromarty (Mr. Gray) to his new position, speaking on these matters, and I assure him that the manner in which he made his case was the way in which the Government's proposals were investigated in Committee.
  The hon. Gentleman wants to see stocks valued as they are valued for corporation tax purposes. He gives as

  1725
  one of his main reasons his wish to see oil companies maintain a high level of stocks. However, the Government do not see why there should be this distortion, by means of taxation, of what might be a natural commercial judgment. In devising the tax and in our subsequent amendment, that was not our intention. It was not to take into account the value to the country, according to the hon. Gentleman, of companies keeping high oil stocks.
  Mr. Gray: That was not what I meant to imply. I was saying that the system which the Government were imposing would be an incentive to companies to keep high stocks of oil instead of distributing them.
  Mr. Sheldon: A number of factors are involved. The present Government obviously are concerned about the levels of stocks. Then there is the likely position at some future date.
  In devising the PRT it was our expectation that we would produce a tax tailored to the needs of one industry. In doing that we felt that it would be possible to take into account the details of the industry which corporation tax, covering all industries, could not take into account in quite the same detailed way.
  There is no question of any deterioration of stocks. There is no question of the doubtful nature of the market. Oil has a certain market. Because of that, the valuation of it can be determined more precisely than any valuation of the wide range of different commodities produced in the country. We can say that there is a value at any time, that it is not dependent on fluctuations in demand of the kind seen elsewhere. If we take cost, we have to consider the difficulties of the allocation of overheads, which is a part of the cost, and the frequency of the valuations, to which I shall refer later.
  At least one of the complications arising from a consideration of the frequency

  5

  ' "initial storage ", in relation to oil won from an oil field, means the storage in the United Kingdom, the territorial sea thereof or a designated area of a quantity of oil won from the field not exceeding ten times the maximum daily production rate of oil for the field as planned or achieved (whichever is the greater), but does not include—

  (a) the storing of oil as part of or in conjunction with the operation of an oil refinery; or

  (b) deballasting; or

  (c) conveying oil in a pipe-line;

  of valuations and the frequency of attributing overheads leads the hon. Member for Ross and Cromarty and several other hon. Members to doubt whether this needs to be given the high level of priority which has been attributed to it in the amendments. We started with the idea that there was no reason why the valuation should not be the same for stocks as for ordinary production, but the oil industry objected. It made representations, and as a result the Government understood that the industry would be content with a market value substantially less than the flat rate written into the Bill originally. Therefore, we reduced it by one-third and subsequently to a half. This is a reasonable compromise and shows great willingness by the Government to meet objections made by the oil industry and by the Committee.
  At the end of the day we are concerned with timing. The amount of tax will be the same, but the timing will vary slightly. We have made valuable concessions, and I hope the House will accept that we have dealt with it in the best possible manner.
  Amendment negatived.
  Mr. Robert Sheldon: I beg to move Amendment No. 182, in page 3, line 13, leave out appropriated to refining or other processing ' and insert relevantly appropriated'.
  Mr. Speaker: With this we can discuss the following amendments:
  Government Amendments Nos. 183 to 189.
  Amendment No. 70, in Clause 8, page 15, line 9, after above ', insert:
  'and oil used for the purposes of carrying on drilling and production operations and pumping to storage'.
  Government Amendment No. 204.
  Government Amendment No. 190.
  Government Amendment No. 191, in Clause 10, page 16, line 33 [Clause 10], at end insert:

  10

  " initial treatment ", in relation to oil won from an oil field, means the doing, at any place in the United Kingdom, the territorial sea thereof or a designated area, of any of the following things, that is to say—

  15

  (a) subjecting oil won from the field to any process of which the sole purpose is to enable the oil to be safely stored, safely loaded into a tanker or safely accepted by an oil refinery; or

  (b) separating oil so won and consisting of methane gas from oil so won and consisting of gas other than methane, but does not include—

  20

  (i)the storing of oil even where this involves the doing to the oil of things within paragraph (a) or (b) of this definition; or

  (ii)any activity carried on as part of. or in association with, the refining of oil; or

  (iii)deballasting'.

  Amendment (a) to Government Amendment No. 191, exceeding ', insert:
  in the case of storage in a quantity equal to '.
  Amendment (b) Amendment No. 191, in line 19, leave out ' even where this involves the doing to the oil of things within paragraph (a) or (b) of this definition '.
  Government Amendment No. 233.
  Government Amendments Nos. 192 to 196 ; and further Government amendments.
  Mr. Sheldon: Amendment No. 182 is not as important as amendments with which I shall later deal. This amendment provides a clearer definition of what is meant by oil being appropriated. We wish to insert the words "relevantly appropriated" as clarification.
  Amendments Nos. 183 to 185 deal with the cost of initial treatment and storage as well as other related matters.
  Amendment No. 185 is a drafting amendment. I shall be happy to answer any questions that hon. Members may wish to ask.
  Amendment No. 186 covers the cost of the initial treatment and storage that will be allowable for the petroleum revenue tax. Amendment No. 187 is consequential. We are concerned with the costing of selling the oil which is now to be allowable for PRT. This was represented to us as being inherently an allowable charge. Although the expenses involved in the selling of the oil are not large, we accepted the point made.
  7.15 p.m.
  Amendment No. 188 is consequential. Amendment No. 189 deals with a point raised by the hon. Member for New Forest (Mr. McNair-Wilson). It deals with fuel gas—the gas which is used as
  1728
  power for actual production, possibly on a platform, perhaps for driving compressors. Gas that is sold to the British Gas Corporation has a de minimus quantity not greater than 5 per cent. If it is not greater than 5 per cent. that amount is still exempt from PRT. The difficulty arises because part of that 5 per cent. could be used for its own production purposes in producing the gas originally.
  As a result of representations made by hon. Gentlemen, we have produced an amendment which will go a long way towards satisfying that point.
  Amendment No. 204 is a technical amendment dealing with a weakness in the rule that expenditure related to exempt gas is not allowable for PRT.
  Amendments Nos. 190, 191, 192 and 193 are the most substantial of the amendments before us in this group. They cover the initial treatment and storage allowable. We have accepted from the start a need to distinguish between all the expenses that would be allowable for producing the oil and the expenses that would not be allowable for the downstream activities such as refining. We were concerned with the valuation of the oil at the most reasonable point of landing. It was held that storage facilities are bound to be required, which we accept. It was a question of how much these could be allowed and what the size of such facilities might be.
  We tried to meet the representations of the oil industry by settling for a five days' capacity, which is frequently employed. We have gone further into this and, bearing in mind the expensive installations which are being built at Sullom Voe in the Shetlands and at Flotta in the Orkneys, we are prepared to allow initial storage as an expense for PRT up to a capacity of 10 days' supply. This is a valuable concession and we hope the House will approve it.

  1729
  We have made concessions on initial treatment. We have introduced a new definition of "initial treatment" which is the appropriation to refining or any use except production purposes. Production purposes "is defined in Amendment No. 192, to cover any use of (a) production, (b) transportation to the United Kingdom, or (c) initial treatment.
  The exemption from PRT will apply to initial storage either in the United Kingdom or in the offshore sector of the United Kingdom. I should warn hon. Members that at present there are no optional alternatives available for storage. There is the possibility that technical changes might be introduced in the future. We shall have to look at the requirements of the situation in the future if alternatives are available to the industry for storing the oil. For example, if some process otherwise qualifying as initial treatment is carried out on the oil while it is in store, the cost of this, so far as it is distinct from the cost of storage, will not be disqualified by the words the amendment would delete.
  If there were to be technical changes which radically altered the way in which storage was carried out we could not bind successor Governments to retain the present arrangements. That covers most of these amendments. If there are any points which hon. Members wish to raise I should be happy to take part in further discussion.
  Mr. Patrick McNair-Wilson: I am happy to welcome the amendments tabled by the Government, particularly those dealing with initial treatment and storage. The liquid hydrocarbon that comes out of the ground is not in a usable form. It requires stripping immediately to get it into a form in which it would normally be sold. It is this initial treatment which we have always believed should be an allowable cost against PRT. I am glad that the Government have agreed with our suggestions.
  I do not know whether the Minister of State is aware of this, but I was given a figure the other day suggesting that the annual cost of storing a barrel of crude oil is $3. This is an expensive capital overhead. The Minister quoted a 10-day supply, which is a substantial quantity. I very much agree that this may be a matter which needs re-examination when
  1730
  we have a clearer idea of the quantities which will be coming ashore and of the demand.
  The Minister's right hon. Friend was good enough to write to me on 10th March about fuel gas. This is something about which we felt strongly, because compressors have to be used for a number of purposes, not the least being to keep up the pressure within the gas reservoir so that the gas can be delivered to the British Gas Corporation at the pressure contracted for. That is a sensible and welcome concession. We welcome these concessions and feel certain that they will make this part of the Bill better.
  Amendment agreed to.
  Amendments made: No. 183, in page 3, line 33, leave out from ' was ' to ' without ' in line 34 and insert:
  relevantly appropriated by him in the period '.
  No. 184, in page 3, line 40, leave out appropriated to refining or other processing '
  and insert
  `relevantly appropriated '.—[Mr. Sheldon.]
  Mr. Hannam: I beg to move Amendment No. 6, in page 4, line 22, leave out from ' is ' to end of line 34 and insert
  the sum of the amounts mentioned in subsection (9) below '.
  Mr. Speaker: With this we can also discuss the following amendments:
  No. 7, in page 4, line 35, leave out '(a)'.
  No. 8, in page 4, line 36, leave out paragraph (a).
  No. 11, in page 5, line 9, after 'allowable', 'insert for the period '.
  No. 12, in page 5, line 10, leave out from field ' to ; and ' in line 14.
  No. 15, in page 5, line 15, leave out from ' as ' to ' for ' in line 16 and insert ' qualifies '.
  No. 16, in page 5, line 22, after ' allowable ', insert ' for the period '.
  No. 17, in page 5, line 23, leave out from ' Act ' to end of line 27 and insert for which allowance may be claimed under Schedule 6 to this Act ;
  No. 20, in page 5, line 39, leave out from beginning to ; and ' in line 45 and insert
  ' for which allowance is claimed on a claim made by him in the period under Schedule 7 to this Act, so far as that expenditure has

  1731
  not been taken into account in any previous assessment to tax '.
  No. 21, in page 6, line 3, leave out from beginning to end of line 9 and insert
  'for which allowance is claimed on a claim made by him in the period under Schedule 8 to this Act, so far as that expenditure has not been taken into account in any previous assessment to tax '.
  No. 27, in Clause 4, in page 8, line 45, leave out 'claim' and insert 'chargeable'.
  No. 28, in page 9, line 12, leave out 'claim' and insert 'chargeable'.
  No. 30, in page 9, line 23, leave out 'claim' and insert 'chargeable'.
  No. 31, in page 9, line 24. leave out 'claim' and insert 'chargeable'.
  No. 32, in page 9, line 27, leave out second 'claim' and insert 'chargeable'.
  No. 33, in page 9, line 44, leave out 'claim' and insert 'chargeable'.
  No. 34, in page 9, line 46, at end insert:
  'Provided that, where the asset was not used for any purpose in the period between the incurring of the expenditure and the asset's first use in connection with the field, the expenditure shall for the purposes of this subsection be treated as having been incurred on the date when the asset was first used in connection with the field '.
  No. 36, in page 10, line 3, leave out 'claim' and insert 'chargeable'.
  No. 37, in page 10, line 7, leave out 'claim' and insert 'chargeable'.
  No. 38, in page 10, line 7, at end insert:
  ' Provided that, where the asset was not used for any purpose in the period between the incurring of the expenditure and the asset's first use in connection with the field, the expenditure shall for the purposes of this subsection be treated as having been incurred on the date when the asset was first used in connection with the field '.
  No. 39, in page 10, line 10, leave out first 'claim' and insert 'chargeable'.
  No. 40, in page 10, line 10, leave out second 'claim' and insert 'chargeable'.
  No. 42, in page 10, line 17, leave out 'claim' and insert 'chargeable'.
  No. 43, in page 10, line 20, leave out 'claim' and insert 'chargeable'.
  No. 44, in page 10, line 21, leave out first 'claim' and insert 'chargeable'.
  No. 45, in page 10, line 21, leave out second 'claim' and insert 'chargeable'.
  No. 46, in page 10, line 23, leave out 'claim' and insert 'chargeable'.
  No. 47, in page 10, line 27, leave out 'claim' and insert 'chargeable'.
  No. 48, in page 10, line 27, leave out second 'claim' and insert 'chargeable'
  No. 49, in page 10, line 31, leave out 'claim' and insert 'chargeable'.
  No. 50, in page 10, line 35, leave out 'claim' and insert 'chargeable'.
  No. 51, in page 10, line 37, leave out second 'claim' and insert 'chargeable'.
  No. 52, in page 10, line 43, leave out second 'claim' and insert 'chargeable'.
  No. 53, in page 11, line 14, leave out 'claim' and insert 'chargeable'.
  No. 54, in page 11, line 17, leave out 'claim' and insert 'chargeable'.
  No. 55, in page 11, line 20, leave out 'claim' and insert 'chargeable'.
  No. 77, in Clause 10, page 16, leave out lines 26 and 27.
  No. 116, in Schedule 4, page 43, line 39, leave out second 'claim' and insert 'chargeable'.
  No. 117, in page 43, line 44, leave out 'claim' and insert 'chargeable'.
  No. 120, in page 44, line 33, leave out 'claim' and insert 'chargeable'.
  No. 121, in page 44, line 41, leave out 'claim' and insert 'chargeable'.
  No. 122, in page 45, line 7, leave out 'claim' and insert 'chargeable'.
  No. 123, in page 45, line 13, leave out 'claim' and insert 'chargeable'.
  No. 124, in page 45, line 21, leave out 'claim' and insert 'chargeable'.
  No. 125, in page 45, line 24, leave out from 'in' to second 'period' in line 25 and insert 'that chargeable'.
  No. 127, in Schedule 5, page 46, line 9, leave out paragraph 1.
  No. 128, in page 46, line 30, leave out second 'claim' and insert 'chargeable'.
  No. 129, in page 46, line 32, leave out 'claim' and insert 'chargeable'.
  No. 130, in page 46, line 37, leave out second 'claim' and insert 'chargeable'.
  No. 131, in page 47, line 10, leave out 'claim' and insert 'chargeable'.
  No. 132, in page 47, line 11, leave out 'claim' and insert 'chargeable'.
  No. 133, in page 47, line 13, leave out 'claim' and insert 'chargeable'.
  No. 134, in page 47, line 41, leave out second 'claim' and insert 'chargeable'.
  No. 135, in page 47, line 46, leave out 'claim' and insert 'chargeable
  No. 136, in page 48, line 42, leave out from ' allowed ' to end of line 43 and insert
  'for the chargeable period in which the expenditure was incurred '.
  No. 137, in page 49, line 29, leave out ' on the date on which the notice of appeal was given '
  and insert
  ' for the chargeable period in which the expenditure was incurred'.
  No. 138, in page 50, line 9, leave out from ' allowed ' to end of line 10 and insert
  ' for the chargeable period in which the expenditure was incurred '.
  No. 139, in Schedule 6, page 50, line 44, leave out 'claim' and insert 'chargeable'.
  No. 140, in page 50, line 46, leave out 'claim' and insert 'chargeable'.
  No. 141, in page 51, line 3, leave out second ' claim' and insert 'chargeable'.
  Mr. Hannam: This amendment, together with the others grouped with it, seeks to alter the confusing method of timing allowable expenses. The amendments range over several clauses and schedules and result from the refusal of the Government in Committee to concede the point made by my hon. Friend the Member for Barkston Ash (Mr. Alison) that the formula adopted in the Bill, although calculated to produce early revenue, was so unfair and complex that the result could only be confusion and the undermining of the cash flow situation of oil companies during the crucial early years of a marginal field.
  During the debates in Committee on 23rd and 28th January it will be remembered that the Minister of State was unable satisfactorily to explain the ramifications of his proposals for deferring allowable expenditure until that expenditure has been allowed by the Board of Inland Revenue. Further to that, the expenditure does not then become deductible from the income of that period
  1734
  for which it was incurred, but instead is deducted from the income of the period in which it is allowed "finally and in writing" by the Board.
  Here we have a novel United Kingdom tax concept of "allowable expenditure" as defined under the provisions of this complicated piece of tax legislation, being allowed only following the making of a formal claim to the Board of Inland Revenue. The company then has to wait until it receives through its defined "responsible person" the board's decision in writing stating the amount allowed by it in the claim and the amount qualifying for supplement.
  Instead of the usual system of taking what is laid down in our tax system as allowable and making the usual computations on that basis, with an adjudication in the case of a dispute being made by the Special Commissioners, we have this other system. In Committee we asked the Minister of State why this time-consuming additional procedure was necessary. We asked what was the purpose behind such a bureaucratic and unnecessary system. We received a pretty confused answer from the Minister, who battled manfully with complexities that were totally unexplainable by normal human beings.
  He tried to provide for our use a hypothetical example. Instead, he got himself into a deal of a mess. I shall not read out any part of the summary he gave. He admitted that it was complicated and that perhaps we ought to come back to it after further consultations. In view of what appeared to be some degree of "give" on the Minister's part my hon. Friend withdrew his amendment, to allow the Government to come back on Report with a simplified and we hoped, a redrafted arrangement. It does not seem to have materialised.
  My right hon. Friend the Member for Wanstead and Woodford (Mr. Jenkin) during our Committee deliberations presented some calculations on the effect of the Government's proposal upon three successive half-year periods of these representative allowances. The figures showed that under the system in the Bill there would be a loss of £26 million in period A, a profit of £8 million in period B followed by a profit of £27 million in period C. After the delaying and time apportionment inherent in this system

  1735
  these figures turned instead into a PRT charge showing for period A a profit of £28 million, for period B a profit of £45 million, and for period C a profit of £14 million. Instead of having as under normal taxation laws, £36 million taxable PRT profit, there will be a massive tax bill on 87 million in the first 18 months.
  The effect of that massive taxation increase on the cash flow situation of a marginal field would be highly significant. We are not arguing against the principle of a tax on windfall profits. We are arguing against an unnecessary and complex system of delayed allowances and against all the paperwork and bureaucracy involved. The amendments seek to eliminate the requirements for these formal claims in respect of allowable expenditure. We do not believe that there will be any substantial delay in payment of taxation.
  The Bill could certainly cause problems to companies which could result in delays in development. In Committee the Minister showed a willingness to examine this question and to have the fullest consultations before Report. I hope that he can accept these amendments which simplify and tidy the Bill without depriving the Revenue of income. In the light of what are now known to be the immense difficulties facing the oil companies operating in the North Sea the amendments will assist in the normal taxation way with allowances at the proper time for the proper period.
  Amendment No. 34 was not raised in Committee, and refers to a defect in Clause 4 dealing with the allowance expenditure on long-term assets. Where there is a delay between the first incurring of expenditure on an asset and its first use in connection with a particular field, for example, during construction or modification—which takes some considerable time before the equipment is put into use—the effect of Clause 4 seems to be to deny relief for the full cost in such cases where the full cost is not allowable in the period of first use but is to be spread. The amount for which there will be no relief will he a proportion of the cost equal to the proportion which the period between the first expenditure and first use bears to the period between the first expenditure and the end of the asset's useful life.
  1736
  The Amendment seeks to correct this defect by adding a provision that expenditure incurred some time previous on an asset which has not been used should be taken as having been incurred on the date of the first use on the field.
  7.30 p.m.
  Mr. Robert Sheldon: The hon. Member for Exeter (Mr. Hannam) moved the amendment in terms not dissimilar from those used in moving similar amendments in Committee. He explained the procedure for obtaining agreement on corporation tax. I find it difficult to know why the Opposition are getting so worked up about this matter. On my reckoning, they have put down 58 amendments. Admittedly, there are slight variations. However, I find the number surprising.
  We are dealing with the basic procedure for the prompt flow of the tax. The Government believe that the British people have a right to consideration here. They have the right to a proper share of the income that will flow from the North Sea. The two considerations which arise —one to the oil companies and the other to the country—need to be compared one with the other. I believe that this kind of balanced view has not been put forward sufficiently, if at all, as it ought to have been put forward by the Opposition.
  I am glad that the right hon. Member for Wanstead and Woodford (Mr. Jenkin) is now present, because he put forward certain figures which have been referred to by his hon. Friend the Member for Exeter. Those figures have been the subject of correspondence between the right hon. Gentleman and myself. I am not sure whether he wishes to press the original figures quoted by his hon. Friend, because substantial changes were made as a result of our subsequent correspondence. I am not sure that those changes were known by the hon. Member for Exeter.
  Mr. Hannam indicated dissent.
  Mr. Sheldon: I see that the hon. Gentleman did not realise that. These figures have been overtaken by events, so perhaps they may form little part of our discussion.
  One matter should be made clear. There is no need for the oil companies to suffer as a result of this legislation in its present form. Most of the capital

  1737
  expenditure incurred long before any oil is produced will qualify for the uplift of 75 per cent. As a result of that and, therefore, the long period between the capital expenditure and the payment of the PRT, there will be plenty of time to settle the assessment of the value of that expenditure long before PRT is payable.
  There is no problem about large amounts of expenditure. We are really talking about the much smaller incremental amounts of expenditure which may be made at any time after operations have begun and the 5 per cent. provisional allowance which is more closely related to the smaller increases in expenditure at this time. The 5 per cent. provisional allowance for expenditure is not unreasonable. We have a procedure which will permit the oil companies to satisfy the Inland Revenue.
  Again, we are concerned with the question of timing. When we look at the matter later and can take a more balanced, distant view, I think that we shall all come to the same conclusions as the Government—that this matter has been adequately dealt with previously.
  Mr. Hannam: Before the hon. Gentleman sits down, may I ask him to deal with Amendment No. 34, which seeks to deal with a defect in the Bill?
  Mr. Sheldon: What was the purpose of that amendment?
  Mr. Hannam: Amendment No. 34 relates to a defect dealing with the allowance of expenditure on long-term assets where there is a delay between the first incurring of expenditure and the use of the assets in connection with the field. For example, some time may elapse between construction or modification of equipment and its use. Clause 4, as drafted, seems to deny relief for the full cost in cases where the full cost is not allowable in the period of first use but is to be spread. The amendment seeks to correct that defect by adding the provision that expenditure incurred previously on an asset which has not been used should be taken as having been incurred on the date of first use on the particular field.
  Mr. Sheldon: I understand that the amendment seeks to remove an unintended restriction on the expenditure allowable on long-term assets where there is a gap between the incurring of the expenditure and the using of the asset for the field.
  I can best illustrate this by an example. Let us assume that an asset which has an estimated total life of 10 years, six years of which it will be for use in the field, is bought in year one but is unused for the field until year three. Without amendment, the proportion of allowable expenditure would be restricted to six-tenths. I see that I carry the hon. Gentleman with me. The amendment, in calling for the expenditure to have been incurred on the date when the asset is first used in connection with the field, would have the effect of increasing the proportion of allowable expenditure to six-eighths. The same principle would apply, first, to those long-term assets, which come under subsection (5)(b), where no reasonable estimate could be made of their future use, and, secondly, to mobile assets which come within the scope of subsection (6). This could arise in the unpredictable conditions of the North Sea. A company may buy a piece of equipment outright but, because of some setback—perhaps the weather—be unable to bring it into use immediately. In such a situation there would be a limit on the proportion of expenditure allowable by bringing into account the time when the asset could not be brought into use.
  More seriously, if we left subsections (5) and (6) unamended, it would mean that, even where an asset is to be used solely for the field, the expenditure allowable could be inappropriately restricted. This would happen where an asset—for example, a platform—has a long construction period and there is, therefore, a gap between incurring the expenditure and actually using the asset for the field.
  Mr. Patrick Jenkin: I apologise to my hon. Friend the Member for Exeter (Mr. Hannam) for not being here when he moved the amendment. I apologise, too, to the Minister of State for not hearing the whole of his reply.
  The Minister quite rightly said that we have been in correspondence on this

  1739
  matter. However, the letter of 13th March does not resolve the difficulties which, as no doubt my hon. Friend the Member for Exeter said with considerable force, stem from the fact that the Government have chosen a bizarre way of dealing with expenditure claims which may be set against revenue to arrive at the amount to be charged for tax.
  With every form of tax we have always been able to set expenditure over a given period against revenue for that period. However, with PRT we have an astonishing and convoluted procedure of setting the expenditure against the revenue of an entirely different period quantified and fixed by the date at which the expenditure is finally allowed.
  The Government's defence of this astonishing way of proceeding is that the Inland Revenue will be prepared to allow expenditure in advance and that if claims are put in ahead of time or in time it will be possible for them to be scrutinised and the necessary notices served on the responsible person in time for the expenditure to be allowed in the first period or, if not, very soon thereafter.
  That may be all right for the bulk of the initial development expenditure of a field, but it certainly will not be all right for all of it, because expenditure will go on being incurred after the field is in production, and it certainly will not be all right for the case that I put to the Minister in my letter of 17th February, with figures attached—the case of substantial additional expenditure which is added to the field after it goes into production.
  The obvious case is not a little item, as the Minister of State seemed to think. Suppose that, after a period, it was necessary to establish a new platform in a field. Platforms cost tens of millions of pounds and one cannot know what the expenditure is until it is in place, the necessary bills have come in and the claim can be submitted to the Inland Revenue. In that case it will be very difficult for the company to submit its claim for expenditure so that it can be allowed in the period in which there will be substantial revenue accruing to the company from its existing production on the field.
  There is bound to be a delay because of the way in which this has been done
  1740
  before it can be fixed. No doubt it will be allowed eventually, but in the meantime the company will be paying PRT on revenue with no allowance for the expenditure. This kind of additional expenditure was not provided for originally in the Bill—neither to be allowed nor for any uplift. Amendments made in Committee allowed for additional expenditure which enhanced value and so on. Now, we have accepted in the amendments to new Clause 1 amendments to allow uplift for that additional expenditure, but we still have the problem that it will not qualify as an allowance until a claim has been made.
  In that part of his speech that I heard, the Minister of State did not begin to answer this case. He seems to be labouring under the delusion that we are talking only about small additional items. We may be talking about very large chunks of expenditure, at a time when tax is being paid. The argument in Committee was that tax will not be paid for the first two or three periods, that one will be spending money for some years in advance and that the claims can be submitted and allowed before any tax is allowed. With this kind of supplemental capital expenditure at a time when perhaps the original allowances and the oil allowance have all been exhausted—when, therefore, substantial sums of tax are being paid—it seems impossible for the companies to do this.
  That is why we say that the idea of spreading the timing of returns of revenue and of claims of expenditure is bizarre and is bound to make the financing of North Sea oil more difficult. It is financing, after all, which will determine whether these fields are developed.
  Mr. Robert Sheldon: I am sorry that the right hon. Gentleman thinks that I was talking about the small expenditures. I was also concerned with the larger ones. What I was most interested in was the use to which the new unit would be put in processing these claims rapidly. It is this element, rather than the size of the claims, which could give rise to much speedier resolution of these problems than I think the right hon. Gentleman has realised.
  Mr. Jenkin: The right hon. Gentleman has a touching faith in the capacity of the Inland Revenue to move quickly. I

  1741
  was interested in what the Paymaster-General said about this new unit. No doubt those who set it up will be doing their best, but just as the Government clearly failed to appreciate what they were taking on in this Bill—namely, the number of amendments that they have had to make—so one seriously wonders whether the Inland Revenue realises what it will be dealing with in the claims for expenditure under this clause and the related schedule.
  7.45 p.m.
  This matter must, clearly, be looked at again. With all these amendments, the tax will not become operative for several years yet and there will be time to look at the operation before any serious harm has been done. I am sure that that would be right.
  Amendment No. 34 and Amendment No. 38, which is taken with it, raise the same point. I should like the Minister to look at his brief fairly carefully because, through the channels of which one knows, I received some indication that the Government would consider those two amendments sympathetically. Since that rumour started winging on its way from the Treasury to the House, perhaps intentions have been changed but now that the wording in the amendment has been put right—" printing error "is the term usually used—so that it is in a form acceptable to parliamentary draftsmen, it could be accepted.
  My hon. Friend the Member for Exeter made the point absolutely clear, but it was not answered by the Minister of State. In the situation in which the two provisos represented by these amendments would apply, it would be right to treat the expenditure as having been incurred on the date when the asset was first used in connection with the field and not on the other, more artificial, date which applies for purposes that we can understand in the rest of the Bill.
  Perhaps the Minister could look at this again and give a more encouraging reply.
  Even if he does accept those amendments, however, the main point dealt with in Amendment No. 6 is such a serious flaw that I hope that my hon. Friend will be reluctant to withdraw the amendment.
  Mr. Robert Sheldon: If I may speak again by leave of the House, I gave the Government's considered view on these amendments and pointed out their advantages. The right hon. Gentleman is correct about the need to remove the unintended restriction on the expenditure allowable on the long-term assets where there is a gap between incurring the expenditure and using the asset in the field. I said that I accepted the point, and I am happy to accept Amendments Nos. 34 and 38.
  Mr. Jenkin: That is indeed valuable. We shall come to those amendments in due course. However, as I said, what the Minister has just said does not deal with the problem to which I referred earlier of the main defect in the machinery of the Bill. It is a strange proceeding that companies are bound to pay tax on revenue flowing into them and only subsequently can set off the expenditure against that revenue and then not have it set off against the revenue of the same period in which it is incurred but only against that in a period 6, 12 or even 18 months later. If there is an appeal, it is set off against the period in which they actually appeal. At one time there was an enforced delay of six months after notice of appeal had been given, but, happily, that has been removed. We are still left with a serious flaw. If my hon. Friend catches your eye again, Mr. Deputy Speaker, perhaps I could say that I think he would be well advised to press the amendment to a Division.
  Question put, That the amendment be made:—
  The House divided: Ayes 189, Noes 247.

  Division No. 150.]

  AYES

  [7.50 p.m.

  Aitken, Jonathan

  Beith, A. J

  Boyson, Dr Rhodes (Brent)

  Alison Michael

  Bell, Ronald

  Brittan, Leon

  Amery, Rt Hon Julian

  Benyon, W.

  Brotherton, Michael

  Arnold, Tom

  Berry, Hon Anthony

  Brown, Sir Edward (Bath)

  Atkins, Rt Hon H. (Spelthorne)

  Biffen, John

  Bryan, Sir Paul

  Awdry, Daniel

  Biggs-Davison, John

  Budgen, Nick

  Baker, Kenneth

  Body, Richard

  Bulmer, Esmond

  Banks, Robert

  Bowden, A. (Brighton, Kemptown)

  Burden, F. A.

  Butler, Adam (Bosworth)

  Howell, Ralph (North Norfolk)

  Percival, Ian

  Chalker, Mrs Lynda

  Howells, Geraint (Cardigan)

  Peyton, Rt Hon John

  Churchill, W. S.

  Hunt, John

  Prior, Rt Hon James

  Clark, Alan (Plymouth, Sutton)

  Irvine, Charles (Cheltenham)

  Pym, Rt Hon Francis

  Clark, William (Croydon S)

  James, David

  Rathbone, Tim

  Clegg, Walter

  Jenkin, Rt Hon P. (Wanst'd & W'df'd)

  Rawlinson, Rt Hon Sir Peter

  Cockcroft, John

  Jessel, Toby

  Rees, Peter (Dover & Deal)

  Cooke, Robert (Bristol W)

  Johnson Smith, G. (E Grinstead)

  Renton, Tim (Mid-Sussex)

  Cope, John

  Kaberry, Sir Donald

  Rhys Williams, Sir Brandon

  Cordle, John H.

  Kellett-Bowman, Mrs Elaine

  Rifkind, Malcolm

  Cormack, Patrick

  Kershaw, Anthony

  Roberts, Michael (Cardiff NW)

  Costain A. P.

  Kimball, Marcus

  Rodgers, Sir John (Sevenoaks)

  Crouch,'David

  King, Evelyn (South Dorset)

  Ross, Stephen (Isle of Wight)

  Crowder, F. P.

  King, Tom (Bridgwater)

  Rossi, Hugh (Hornsey)

  Dean, Paul (N Somerset)

  Kirk, Peter

  Rost, Peter (SE Derbyshire)

  Douglas-Hamilton, Lord James

  Knight, Mrs Jill

  St. John-Stevas, Norman

  du Cann, Rt Hon Edward

  Knox, David

  Shaw, Michael (Scarborough)

  Durant, Tony

  Lamont, Norman

  Shelton, William (Streatham)

  Dykes, Hugh

  Lawrence, Ivan

  Shepherd, Colin

  Eden Rt Hon Sir John

  Lawson, Nigel

  Silvester, Fred

  Edwards, Nicholas (Pembroke)

  Le Merchant, Spencer

  Sims, Roger

  Eyre, Reginald

  Lloyd, Ian

  Skeet, T. H. H.

  Fairbairn, Nicholas

  McCrindle, Robert

  Smith, Cyril (Rochdale)

  Fell, Anthony

  Macfarlane, Neil

  Speed, Keith

  Fisher, Sir Nigel

  MacGregor, Jonn

  Spence, John

  Fletcher-Cooke, Charles

  Macmillan, Rt Hon M. (Farnham)

  Spicer, Jim (W Dorset)

  Fookes, Miss Janet

  McNair-Wilson, M. (Newbury)

  Spicer, Michael (S Worcester)

  Fowler, Norman (Sutton C'f'd)

  McNair-Wilson, P. (New Forest)

  Sproat, lain

  Fox, Marcus

  Madel, David

  Stanbrook, Ivor

  Freud, Clement

  Marshall, Michael (Arundel)

  Stanley, John

  Fry, Peter

  Mates, Michael

  Stokes, John

  Gardiner, George (Reigate)

  Mather, Carol

  Stradling Thomas, J.

  Gardner, Edward (S Fylde)

  Maude, Angus

  Tapsell, Peter

  Gilmour, Rt Hon Ian (Chesham)

  Maudling, Rt Hon Reginald

  Taylor, Teddy (Cathcart)

  Gilmour, Sir John (East Fife)

  Mawby, Ray

  Tebblt, Norman

  Goodlad, Alastair

  Maxwell Hyslop, Robin

  Temple-Morris, Peter

  Gow, Ian (Eastbourne)

  Meyer, Sir Anthony

  Thatcher, Rt Hon Margaret

  Gower, Sir Raymond (Barry)

  Moate, Roger

  Thomas, Rt Hon P. (Hendon S)

  Grant, Anthony (Harrow C)

  Monro, Hector

  Townsend, Cyril D.

  Gray, Hamish

  Montgomery, Fergus

  Trotter, Neville

  Griffiths, Eldon

  More, Jasper (Ludlow)

  Tugendhat, Christopher

  Grimond, Rt Hon J.

  Morgan, Geraint

  van Straubenzee, W. R.

  Grist, Ian

  Morris, Michael (Northampton S)

  Vaughan, Dr Gerard

  Grylls, Michael

  Morrison, Charles (Devizes)

  Wainwright, Richard (Colne V)

  Hall, Sir John

  Morrison, Hon Peter (Chester)

  Wakeham, John

  Hamilton, Michael (Salisbury)

  Neave, Airey

  Walder, David (Clitheroe)

  Hampson, Dr. Keith

  Nelson, Anthony

  Walker-Smith, Rt Hon Sir Derek

  Hannam, John

  Neubert, Michael

  Weatherill, Bernard

  Harvie Anderson, Rt Hon Miss

  Newton, Tony

  Wells, John

  Hastings, Stephen

  Normanton, Tom

  Wiggin, Jerry

  Havers, Sir Michael

  Onslow, Cranley

  Winterton, Nicholas

  Hawkins, Paul

  Page, Rt Hon R. Graham (Crosby)

  Wood, Rt Hon Richard

  Heseltine, Michael

  Pardoe, John

  Hicks, Robert

  Parkinson, Cecil

  TELLERS FOR THE AYES:

  Holland, Philip

  Pattie, Geoffrey

  Mr. Russell Fairgrieve and

  Hooson, Emlyn

  Penhaligon, David

  Mr. Richard Luce.

  Howell, David (Guildford)

  NOES

  Abse, Leo

  Canavan, Dennis

  Dell, Rt Hon Edmund

  Allaun, Frank

  Cant, R. B.

  Dempsey, James

  Armstrong, Ernest

  Carmichael Neil

  Doig Peter

  Ashley, Jack

  Cartwright, John

  Dormand, J. D.

  Ashton, Joe

  Castle, Rt Hon Barbara

  Douglas-Mann, Bruce

  Atkins, Ronald (Preston N)

  Clemitson Ivor

  Dunn, James A.

  Bagier, Gordon A. T.

  Cocks, Michael (Bristol S)

  Dunnett, Jack

  Bain, Mrs Margaret

  Cohen, Stanley

  Dunwoody, Mrs Gwyneth

  Barnett, Guy (Greenwich)

  Coleman, Donald

  Edge, Geoff

  Barnett, Rt Hon Joel (Heywood)

  Colquhoun, Mrs Maureen

  Ellis, Tom (Wrexham)

  Bates, Alf

  Conlan, Bernard

  English, Michael

  Bean, R. E.

  Cook, Robin F. (Edin C)

  Ennals, David

  Bennett, Andrew (Stockport N)

  Cox, Thomas (Tooting)

  Evans, Gwynfor (Carmarthen)

  Bishop, E. S.

  Craigen, J. M. (Maryhill)

  Evans, loan (Aberdare)

  Blenkinsop, Arthur

  Crawford, Douglas

  Evans, John (Newton)

  Boardman. H.

  Crawshaw, Richard

  Ewing, Harry (Stirling)

  Booth, Albert

  Crosland, Rt Hon Anthony

  Ewing, Mrs Winifred (Moray)

  Bottomley, Rt Hon Arthur

  Cryer, Bob

  Fernyhough, Rt Hon E.

  Bradley, Tom

  Cunningham, G. (Islington S)

  Fitch, Alan (Wigan)

  Bray, Dr Jeremy

  Cunningham, Dr J. (Whiteh)

  Fitt, Gerard (Belfast W)

  Brown, Ronald (Hackney S)

  Davidson, Arthur

  Flannery, Martin

  Buchan, Norman

  Davies, Bryan (Enfield N)

  Fletcher, Ted (Darlington)

  Buchanan, Richard

  Davies, Denzil (Llanelli)

  Foot, Rt Michael

  Callaghan, Jim (Middleton & P)

  Davies, Ifor (Gower)

  Ford, Ben

  Campbell, Ian

  de Freitas, Rt Hon Sir Geoffrey

  Forrester, John

  1744

  1745

  Fraser, John (Lambeth, N'w'd)

  Mackenzie, Gregor

  Shore, Rt Hon Peter

  Freeson, Reginald

  Mackintosh, John P.

  Short, Mrs Renee (Wolv NE)

  Garrett, John (Norwich S)

  Maclennan, Robert

  Silkin, Rt Hon John (Deptford)

  George, Bruce

  McMillan, Tom (Glasgow C.)

  Sillars, James

  Gilbert, Dr John

  McNamara, Kevin

  Silverman, Julius

  Ginsburg, David

  Madden, Max

  Skinner, Dennis

  Golding, John

  Magee, Bryan

  Small, William

  Gould, Bryan

  Mahon, Simon

  Smith, John (N Lanarkshire)

  Gourlay, Harry

  Marks, Kenneth

  Snape, Peter

  Graham, Ted

  Marshall, Dr Edmund (Goole)

  Spearing, Nigel

  Grant, George (Morpeth)

  Marshall, Jim (Leicester S)

  Spriggs, Leslie

  Grocott, Bruce

  Meacher, Michael

  Stallard, A. W.

  Hamilton, James (Bothwell)

  Mellish, Rt Hon Robert

  Stewart, Donald (Western Isles)

  Hamilton, W. W. (Central Fife)

  Mlkardo, Ian

  Stewart, Rt Hon M. (Fulham)

  Hardy, Peter

  Millan, Bruce

  Stoddart, David

  Harper, Joseph

  Miller, Dr M. S. (E Kilbride)

  Stott, Roger

  Harrison, Waller (Wakefield)

  Mitchell, R. C. (Soton, Itchen)

  Strang, Gavin

  Hart, Rt Hon Judith

  Morris, Alfred (Wythenshawe)

  Strauss, Rt Hon G. R.

  Hattersley, Rt Hon Roy

  Morris, Charles R (Openshaw)

  Summerskill, Hon Dr Shirley

  Hatton, Frank

  Mulley, Rt Hon Frederick

  Swain, Thomas

  Hayman, Mrs. Helene

  Murray, Rt Hon Ronald King

  Taylor, Mrs Ann (Bolton W)

  Healey, Rt Hon Denis

  Newens, Stanley

  Thomas, Jeffrey (Abertillery)

  Henderson, Douglas

  Noble, Mike

  Thomas, Mike (Newcastle E)

  Hooley, Frank

  Oakes, Gordon

  Thomas, Ron (Bristol NW)

  Horam, John

  Ogden, Eric

  Thompson, George

  Hoyle, Doug (Nelson)

  O'Halloran, Michael

  Tierney, Sydney

  Huckfield, Les

  O'Malley, Rt Hon Brian

  Tinn, James

  Hughes, Rt Hon C. (Anglesey)

  Orbach, Maurice

  Tomlinson, John

  Hughes, Mark (Durham)

  Ovenden, John

  Urwin, T. W.

  Hughes, Robert (Aberdeen N)

  Owen, Dr David

  Varley, Rt Hon Eric G.

  Hughes, Roy (Newport)

  Padley, Walter

  Walnwright, Edwin (Dearne V)

  Hunter, Adam

  Palmer, Arthur

  Walker, Terry (Kingswood)

  Jackson, Colin (Brighouse)

  Park, George

  Ward, Michael

  Jackson, Miss Margaret (Lincoln)

  Parker, John

  Watkins, David

  Janner, Greville

  Parry, Robert

  Watkinson, John

  Jay, Rt Hn Douglas

  Peart, Rt Hon Fred

  Watt, Hamish

  Jeger, Mrs Lena

  Perry, Ernest

  Weetch, Ken

  John, Brynmor

  Phipps, Dr Colin

  Weitzman, David

  Jones, Alec (Rhondda)

  Price, C. (Lewisham W)

  Wellbeloved, James

  Jones, Barry (East Flint)

  Price, William (Rugby)

  Welsh, Andrew

  Jones, Dan (Burnley)

  Radice, Giles

  White, Frank R. (Bury)

  Kaufman, Gerald

  Rees, Rt Hon Merlyn (Leeds S)

  While, James (Pollok)

  Kelley, Richard

  Reid, George

  Whitehead, Phillip

  Kerr, Russell

  Richardson, Miss Jo

  Whitlock, William

  Kinnock, Neil

  Roberts, Albert (Normanton)

  Wigley, Dafydd

  Lambie, David

  Roberts, Gwilym (Cannock)

  Williams, Alan (Swansea W)

  Lamborn, Harry

  Robertson, John (Paisley)

  Williams, Alan Lee (Hornch'ch)

  Lamond, James

  Roderick, Caerwyn

  Williams, W. T. (Warrington)

  Lee, John

  Rodgers, George (Chorley)

  Wilson, Alexander (Hamilton)

  Lestor, Miss Joan (Eton & Slough)

  Rooker, J. W.

  Wilson, Gordon (Dundee E)

  Lewis, Arthur (Newham N)

  Roper, John

  Wise, Mrs Audrey

  Lewis, Ron (Carlisle)

  Ross, Rt Hon W. (Kilmarnock)

  Woof, Robert

  Lomas, Kenneth

  Rowlands, Ted

  Wrigglesworth, Ian

  Loyden, Eddie

  Ryman, John

  Young, David (Bolton E)

  Luard, Evan

  Sandelson, Neville

  Lyons, Edward (Bradford W)

  Sedgemore, Brian

  TELLERS FOR THE NOES:

  McElhone, Frank

  Selby, Harry

  Mr. John Ellis and

  MacFarquhar, Roderick

  Shaw, Arnold (Ilford South)

  Mr. Laurie Pavitt.

  McGuire, Michael (Ince)

  Sheldon, Robert (Ashton-u-Lyne)

  Question accordingly negatived.
  8.0 p.m.
  Mr. Alison: I beg to move Amendment No. 9, in page 4, line 44, leave out from ' time ' to ' and ' in line 45.
  Mr. Deputy Speaker (Sir Myer Galpern): With this we may discuss the following amendments:
  No. 10, in page 5, line 4, leave out from ' time ' to end of line 6.
  No. 75, in Clause 10, page 16, line 20, leave out from beginning to ' the ' in line 21.
  No. 76, in page 16, line 22, leave out have ' and insert ' has '.
  No. 78, in Clause 12, page 19, line 22, leave out from ' to ' to end of line 23 and insert:
  'the price the oil might have been expected to fetch had the parties to the transaction been independent persons dealing at arm's length!
  No. 79, in page 19, line 38, leave out from ' it' to end of line 40 and insert:
  'the price the oil might have been expected to fetch had the parties to the transaction been independent persons dealing at arm's length
  No. 80, in page 20, line 5, leave out from ' to ' to end of line 6 and insert:
  'the price the oil might have been expected to fetch had the parties to the transaction been independent persons dealing at arm's length'.
  Government Amendment No. 214.
  No. 81, in page 20, line 7, leave out subsection (5).
  Government Amendment No. 215.
  No. 82, in page 20, line 22, leave out ' not '.
  No. 92, in Schedule 2, page 28, line 44, leave out from time ' to and ' in line 45.
  No. 93, in page 29, line 9, leave out from time ' to and ' in line 10.
  No. 95, in Schedule 3, page 37, line 7, at end insert and '.
  No. 97, in page 37, leave out lines 12 to 15.
  No. 98, in page 37, line 26, leave out from ' time ' to requires ' in line 28 and insert which '.
  No. 99, in page 37, line 37, leave out sub-paragraph (b).
  No. 100, in page 38, line 5, leave out (with sub-paragraph (2)(b) above applying accordingly) '.
  No. 101, in page 38, line 14, leave out calendar month' and insert
  ' delivery or appropriation of oil '.
  No. 102, in page 38, line 17, leave out in that month '.
  No. 103, in page 38, line 19, leave out in that month '.
  No. 104, in page 38, leave out lines 22 to 28 and insert
  ' "the material time" means the time in the chargeable period at which each delivery or appropriation takes place '.
  No. 105, in page 38, line 28, at end insert—
  ' Provided that when on any day in a calendar month there is a material change in the market value of oil as ascertained in accordance with the provisions of this Schedule, the period up to the day preceding each such day of change and the period commencing on each such day of change shall be treated as separate calendar months '.
  Mr. Alison: The object of the Opposition's amendments is to secure that in the computation of petroleum revenue tax liability all deliveries, not just arm's-length sales, are valued at market value on the specific date of delivery. Thus, there would be two virtually identical regimes of valuation—first, the stated price in an arm's-length sale, and, secondly, market value on the date of sale or disposal in other cases. As both would usually be fairly close, if not identical, there would be a single method
  1748
  of valuation for disposal both at arm's-length and at non-arm's-length.
  The best argument for the Government's accepting the amendments is that the Government have already substantially moved in the direction which we indicated by the amendments. They took note of what we said in the debate in Committee on Clause 10 about the unsatisfactory character of the original six-monthly valuation basis. They moved over—and we give them full credit for this—from a six-monthly to a monthly basis of valuation, using the mid-point in a calendar month rather than in a chargeable period.
  Logic dictates that the Government should move further and adopt the formula which we propose. "1 he first element in this logic is that the original change was made, I believe, because the Government recognised that the risk of a disparity between the notional date of valuation, the mid-point date in the six-monthly period, and the actual value was too great if there was a wide spread of time on either side of the fixed point.
  They recognised the risk that companies would have to pay tax on an artificially inflated oil price, possibly substantially inflated, which bore no relation to what the oil would sell for when the disposal occurred.
  If the Government were prepared to shorten the period to one month, it is illogical and ineffective not to go the whole hog. After all, if the Government hold that the risk of a disparity between an artificial or notional price and the real price is a hazard which should be avoided if possible, there is no point in trying to cut down the risk from a chance of one in 180 to a risk of one in 30. The risk is still very much alive and kicking, although substantially reduced.
  I believe that there is a far more substantial and potent reason, following the Paymaster-General's statement— [Interruption.]
  Mr. Rost: On a point of order, Mr. Deputy Speaker. Would you consider asking the Tribune Group to hold its protest meeting elsewhere, perhaps in a Committee room? It is difficult for hon. Members to follow the important argument in the debate.
  Mr. Skinner Mr. Skinner rose—
  Mr. Deputy Speaker: Let us not have a "Further to that point of order ". I do not know what the hon. Members concerned are discussing, and I do not want to know. They may be discussing the next amendment. As long as we are able to conduct our proceedings and each hon. Member can hear what the hon. Member for Barkston Ash (Mr. Alison) is saying, they are quite in order in staying in the Chamber.
  Mr. Alison: As long as I have the Minister of State's ear and the Tribune Group does not, and as long as that situation continues, I shall be content.
  I now emphasise the second ground of the logic of accepting the argument, which emerges clearly from the Paymaster-General's statement on 25th February. The Government have shown their sensitivity to the possibility that oil exploration and development may be discouraged, and that oil may not flow as freely as they hope and expect. So sensitive are they that they introduced the special safeguard known as the overriding limit on PRT chargeable.
  I digress briefly to show the relevance of the new overriding limit proposal which was announced earlier this year and which is now introduced in the Bill. The nuts and bolts of the proposal are set out in an extremely interesting example given in paragraph 10 of the Paymaster-General's Press statement. If, in the example given, the PRT burden for a 12-month period rose to £9 million on a profit of £41 million, the overriding limit would operate to reduce the PRT payable to £6·4 million.
  We see that it is worth while in the Government's view that a reduction of £2·6 million a year should be made in a particular tax burden. They are dealing with such sensitive margins that that figure is held to be an important and measurable concession to the oil companies —and that in a 12-month period.
  This means that for every chargeable period, a six-month period, the Government are prepared to effect a reduction of £1·3 million. If they are prepared to make concessions as small as that in a chargeable period, how ludicrous it is that they should continue to insist on a monthly valuation basis, the effect of which may
  1750
  be to produce a disparity between an actual sale and a notional sale far in excess of figures such as I have suggested.
  For example, if the price of oil dropped from £40 a ton to £35 in a chargeable period, on a turnover of 10 million tons in that period the difference in tax liability will be about £25 million. There would be a differential of that amount in the valuation of the taxable yield of the field in question.
  The sum of £25 million is almost 25 times the size of the concessions that the Government are prepared to make for one chargeable period in the overriding limit charge. Why are they prepared to expose companies to the possibility of tax variations of as much as £25 million, as a result of choosing an artificial basis for valuing the stock, when they are prepared to make concessions of £1·3 million in the overriding limit factor?
  The Government have shown themselves so sensitive to the effect of PRT that they are prepared, on the overriding limit formula, to make a concession worth just a couple of million pounds in each chargeable period. That concession could be swept away by the haphazard and chance feature of a difference in price between the artificial mid-month valuation date and the date on which disposal occurs.
  It no longer makes sense to pretend that the Government are trying to help the industry by measures such as the overriding limit formula, while they persist with all the hazards that might arise in the monthly valuation formula.
  I ask the Government to accept the logic of what we propose and to carry their reform further, to use the formula which will apply to arm's-length sales. spare the oil companies this additional hazard, and allow valuation of non-arm's-length sales on the basis of market value on the date when they occur, instead of having the artificial and haphazard formula which is now proposed.
  8.15 p.m.
  Mr. Robert Sheldon: The hon. Member for Barkston Ash (Mr. Alison) made his point very well in Committee, and has repeated it with some embellishment. The hon. Gentleman spoke about the necessity to get the right market value at the date of delivery, and referred to a number of

  1751
  concessions made by the Government in Committee on this point. I accept that there has been some movement, in a way that I think is of general benefit to the oil companies and the Government. Having made the concessions, so that the valuation is now to be at the mid-point of each month, we have reached the best available solution.
  The hon. Gentleman and others have pressed for more frequent valuations. At one time it was even suggested that there should be daily valuations. I am not sure whether that is suggested now, but it would be impossible to work. Continuous valuation produces the most exact result, but it throws an intolerable burden on not only the Inland Revenue but the oil companies. It is therefore essential to find a compromise between the frequent fluctuations in oil prices and the need to have a practical tax system.
  I suppose that this is the ideal area in which men of good will and common sense need to meet to work out a solution. I believe that the compromise proposed in Committee, of as frequent a valuation as could practicably be entertained by both parties, and frequent enough to meet the legitimate point put by the hon. Gentleman, represented a sensible solution.
  Mr. Alison: The Minister is not speaking on behalf of the oil companies when he suggests that they would prefer a monthly valuation for reasons of convenience. They would tolerate the inconvenience caused by moving over to a valuation at date of disposal.
  Mr. Sheldon: But I doubt whether the oil companies have changed their mind sufficiently to start talking about a daily valuation of a kind that is not possible.
  Concessions have been made on the petroleum revenue tax. The hon. Gentleman pointed out one, the safeguard concession, whereby the overriding limit was established. He talked about £2·6 million, which is an important and measurable difference. I have a great respect for such figures. The sum of £2·6 million is large, even in comparison with the sums with which the Government frequently deal.
  We have made concessions which we believe clearly give a positive benefit, in
  1752
  that they will help to produce oil quickly, with the maximum advantage to the companies and the people as a whole. I am afraid that I do not see a sensible alternative here. I think that the concessions that we made were valuable and that if they had been agreed more wholeheartedly by the Opposition we would have heard rather less about this matter than perhaps we have heard subsequently. This is something on which we shall need to insist. I hope that the House will take that point.
  Perhaps I may deal with Government Amendments Nos. 214 and 215. These apply the PRT valuation rules to oil which, because it has been disposed of other than at arm's length, has to be valued for corporation tax in the particular circumstances in which the PRT charge on the oil falls on the licensee but the corporation tax falls on someone else. I hope that the House will accept those amendments.
  Mr. Patrick McNair-Wilson: The Minister of State has not met our points entirely. Certainly we are a great deal more satisfied with the monthly concept than with the twice-yearly concept. But, of course, it is this degree of artificiality which exists in this part of the Bill to which we have always objected so strongly. We simply cannot see why it is necessary. My hon. Friend the Member for Barkston Ash (Mr. Alison), in his usual persuasive manner, has asked the Government to recognise that in a world in which oil prices can change, and have been shown to change, dramatically and quickly such a situation could have the most deleterious effects.
  I wonder whether the Minister of State would like to address his mind to this possibility. If he is not prepared to budge away from the monthly concept now before us, would he be prepared to look at the possibility of suspending this system in the period during which substantial changes in the price of oil were taking place? To some extent this would get over the artificiality of the problem. My hon. Friend gave us some idea of the sort of sums which could be involved.
  Rather than have what still remains a totally artificial concept for valuation and appropriation, if the Minister would care once again, Mr. Deputy Speaker, to try to

  1753
  catch your eye and let us know that he would suspend this system for the period in which a substantial oil price change was taking place, that might have a very real effect on the Opposition's views.
  However, in the absence of that assurance, I must ask my right hon. and hon.
  Friends to press the amendment to a Division.
  Question put, That the amendment be made.
  The House divided: Ayes 189, Noes 250.

  Division No. 151.]

  AYES

  [8.23 p.m.

  Adley, Robert

  Gray, Hamish

  Normanton, Tom

  Aitken, Jonathan

  Griffiths, Eldon

  Onslow, Cranley

  Alison Michael

  Grimond, Rt Hon J.

  Page, Rt Hon R. Graham (Crosby)

  Amery Rt Hon Julian

  Grist, Ian

  Pardoe, John

  Arnold, Tom

  Hall, Sir John

  Parkinson, Cecil

  Atkins, Rt Hon H. (Spelthorne)

  Hamilton, Michael (Salisbury)

  Pattie, Geoffrey

  Baker, Kenneth

  Hampson, Dr. Keith

  Penhaligon, David

  Banks Robert

  Hannam, John

  Percival, Ian

  Bell, Ronald

  Harvie Anderson, Rt Hon Miss

  Peyton, Rt Hon John

  Berry, Hon Anthony

  Hastings, Stephen

  Prior, Rt Hon James

  Biffen John

  Havers, Sir Michael

  Pym, Rt Hon Francis

  Biggs-Davison, John

  Hawkins, Paul

  Rathbone, Tim

  Body, Richard

  Heseltine, Michael

  Rawlinson, Rt Hon Sir Peter

  Boscawen, Hon. Robert

  Hicks, Robert

  Rees, Peter (Dover&Deal)

  Bowden, A. (Brighton, Kemptown)

  Holland, Philip

  Renton, Tim (Mid-Sussex)

  Boyson, Dr Rhodes (Brent)

  Howell, David (Guildford)

  Rhys Williams, Sir Brandon

  Brittan, Leon

  Howell, Ralph (North Norfolk)

  Rifkind, Malcolm

  Brotherton, Michael

  Hunt, John

  Roberts, Michael (Cardiff NW)

  Brown, Sir Edward (Bath)

  Irving, Charles (Cheltenham)

  Ross, Stephen (Isle of Wight)

  Bryan, Sir Paul

  James, David

  Rossi, Hugh (Hornsey)

  Buck, Antony

  Jenkin, Rt Hon P. (Wanst'd & W'df'd)

  Rost, Peter (SE Derbyshire)

  Budgen, Nick

  Jessel, Toby

  St. John-Stevas, Norman

  Bulmer, Esmond

  Johnson Smith, G. (E Grinstead)

  Shaw, Michael (Scarborough)

  Burden, F. A.

  Kaberry, Sir Donald

  Shelton, William (Streatham)

  Butler, Adam (Bosworth)

  Kellett-Bowman, Mrs Elaine

  Shepherd, Colin

  Chalker, Mrs Lynda

  King, Evelyn (South Dorset)

  Silvester, Fred

  Churchill, W. S.

  King, Tom (Bridgwater)

  Sims, Roger

  Clark, Alan (Plymouth, Sutton)

  Kirk, Peter

  Skeet, T. H. H.

  Clark, William (Croydon S)

  Knight, Mrs Jill

  Smith, Cyril (Rochdale)

  Clegg, Walter

  Knox, David

  Speed, Keith

  Cockcroft, John

  Lamont, Norman

  Spence, John

  Cooke, Robert (Bristol W)

  Lawrence, Ivan

  Spicer, Jim (W Dorset)

  Cope, John

  Lawson, Nigel

  Spicer, Michael (S Worcester)

  Cordle, John H.

  Le Marchant, Spencer

  Sproat, lain

  Costain A. P.

  Lewis, Kenneth (Rutland)

  Stanbrook, Ivor

  Crouch,'David

  Lloyd, Ian

  Stanley, John

  Crowder, F. P.

  Luce, Richard

  Stokes, John

  Dean, Paul (N Somerset)

  McCrindle, Robert

  Stradling Thomas, J.

  Douglas-Hamilton, Lord James

  Macfarlane, Neil

  Tapsell, Peter

  du Cann, Rt Hon Edward

  MacGregor, John

  Taylor, R. (Croydon NW)

  Durant, Tony

  Macmillan, Rt Hon M. (Farnham)

  Taylor, Teddy (Cathcart)

  Dykes, Hugh

  McNair-Wilson, M. (Newbury)

  Tebbit, Norman

  Eden, Rt Hon Sir John

  McNair-Wilson, P. (New Forest)

  Temple-Morris, Peter

  Edwards, Nicholas (Pembroke)

  Madel, David

  Thatcher, Rt Hon Margaret

  Elliott, Sir William

  Marshall, Michael (Arundel)

  Thomas, Rt Hon P. (Hendon S)

  Emery, Peter

  Mates, Michael

  Townsend, Cyril D.

  Eyre, Reginald

  Mather, Carol

  Trotter, Neville

  Fairbairn, Nicholas

  Maude, Angus

  Tugendhat, Christopher

  Fell, Anthony

  Maudling, Rt Hon Reginald

  van Straubenzee, W. R.

  Finsberg, Geoffrey

  Mawby, Ray

  Vaughan, Dr Gerard

  Fisher, Sir Nigel

  Maxwell Hyslop, Robin

  Wainwright, Richard (Coine V)

  Fletcher-Cooke, Charles

  Meyer, Sir Anthony

  Wakeham, John

  Fookes, Miss Janet

  Miscampbell, Norman

  Walder, David (Clitheroe)

  Fowler, Norman (Sutton C'f'd)

  Moate, Roger

  Walker-Smith, Rt Hon Sir Derek

  Fox, Marcus

  Monro, Hector

  Weatherill, Bernard

  Freud, Clement

  Montgomery, Fergus

  Wells, John

  Fry, Peter

  Morgan, Geraint

  Wiggin, Jerry

  Gardiner, George (Reigate)

  Morris, Michael (Northampton S)

  Winterton, Nicholas

  Gardner, Edward (S Fylde)

  Morrison, Charles (Devizes)

  Wood, Rt Hon Richard

  Gilmour, Rt Hon Ian (Chesham)

  Morrison, Hon Peter (Chester)

  Younger, Hon. George

  Gilmour, Sir John (East Fife)

  Neave, Airey

  Goodlad, Alastair

  Nelson, Anthony

  TELLERS FOR THE AYES:

  Gow, Ian (Eastbourne)

  Neubert, Michael

  Mr. Russell Fairgrieve and

  Gower, sir Raymond (Barry)

  Newton, Tony

  Mr. W. Benyon.

  Grant, Anthony (Harrow C)

  NOES

  Abse, Leo

  Atkins, Ronald (Preston N)

  Bates, Alf

  Allaun, Frank

  Bagier, Gordon A. T.

  Bean, R. E.

  Armstrong, Ernest

  Bain, Mrs Margaret

  Beith, A. J.

  Ashley, Jack

  Barnett, Guy (Greenwich)

  Bennett, Andrew (Stockport N)

  Ashton, Joe

  Barnett, Rt Hon Joel (Heywood)

  Bishop, E. S.

  Blenkinsop, Arthur

  Hatton, Frank

  Price, C. (Lewisham W)

  Boardman, H.

  Hayman, Mrs. Helene

  Price, William (Rugby)

  Booth, Albert

  Henderson, Douglas

  Radice, Giles

  Bottomley, Rt Hon Arthur

  Hooley, Frank

  Rees, Rt Hon Merlyn (Leeds S)

  Boyden, James (Bish Auck)

  Horam, John

  Reid, George

  Bradley, Tom

  Hoyle, Doug (Nelson)

  Richardson, Miss Jo

  Bray, Dr Jeremy

  Huckfield, Les

  Roberts, Albert (Normanton)

  Brown, Ronald (Hackney S)

  Hughes, Rt Hon C. (Anglesey)

  Roberts, Gwilym (Cannock)

  Buchan, Norman

  Hughes, Mark (Durham)

  Robertson, John (Paisley)

  Buchanan, Richard

  Hughes, Robert (Aberdeen N)

  Roderick, Caerwyn

  Callaghan, Jim (Middleton & P)

  Hughes, Roy (Newport)

  Rodgers, George (Chorley)

  Campbell, Ian

  Hunter, Adam

  Rooker, J. W.

  Canavan, Dennis

  Jackson, Colin (Brighouse)

  Roper, John

  Cant, R. B.

  Jackson, Miss Margaret (Lincoln)

  Ross, Rt Hon W. (Kilmarnock)

  Carmichael Neil

  Janner, Greville

  Rowlands, Ted

  Cartwright.'John

  Jay, Rt Hn Douglas

  Ryman, John

  Clemitson Ivor

  Jeger, Mrs Lena

  Sandelson, Neville

  Cocks, Michael (Bristol S)

  John, Brynmor

  Sedgemore, Brian

  Cohen, Stanley

  Johnson, James (Hull West)

  Selby, Harry

  Coleman, Donald

  Jones, Alec (Rhondda)

  Shaw, Arnold (Ilford South)

  Colquhoun, Mrs Maureen

  Jones, Barry (East Flint)

  Sheldon, Robert (Ashton-u-Lyne)

  Conlan, Bernard

  Jones, Dan (Burnley)

  Shore, Rt Hon Peter

  Cook, Robin F. (Edin C)

  Judd, Frank

  Short, Mrs Renée (Wolv NE)

  Cox, Thomas (Tooting)

  Kaufman, Gerald

  Silkin, Rt Hon John (Deptford)

  Craigen, J. M. (Maryhill)

  Kelley, Richard

  Sillars, James

  Crawford, Douglas

  Kerr, Russell

  Silverman, Julius

  Crawshaw. Richard

  Kinnock, Neil

  Skinner, Dennis

  Crosland, Rt Hon Anthony

  Lambie, David

  Small, William

  Cryer, Bob

  Lamborn, Harry

  Smith, John (N Lanarkshire)

  Cunningham, G. (Islington S)

  Lamond, James

  Snape, Peter

  Dalyell Tam

  Lee, John

  Spearing, Nigel

  Davidson, Arthur

  Lestor, Miss Joan (Eton & Slough)

  Spriggs, Leslie

  Davies, Bryan (Enfield N)

  Lewis, Arthur (Newham N

  Stewart, Donald (Western Isles)

  Davies, Denzil (Llanelli)

  Lewis, Ron (Carlisle)

  Stewart, Rt Hon M. (Fulham)

  Davies, Ifor (Gower)

  Lomas, Kenneth

  Stoddart, David

  Davis, Clinton (Hackney C)

  Loyden, Eddie

  Stott, Roger

  de Freitas, Rt Hon Sir Geoffrey

  Luard, Evan

  Strang, Gavin

  Dell, Rt Hon Edmund

  Lyons, Edward (Bradford W)

  Strauss, Rt Hon G. R.

  Dempsey, James

  MacCormick, tain

  Summerskill, Hon Dr Shirley

  Dolg Peter

  McElhone, Frank

  Swain, Thomas

  Dormand, J. D.

  MacFarquhar, Roderick

  Taylor, Mrs Ann (Bolton W)

  Douglas-Mann, Bruce

  McGuire, Michael (Ince)

  Thomas, Jeffrey (Abertillery)

  Duffy, A. E. P.

  Mackenzie, Gregor

  Thomas, Mike (Newcastle E)

  Dunn, James A.

  Mackintosh, John P.

  Thomas, Ron (Bristol NW)

  Dunnett, Jack

  Maciennan, Robert

  Thompson, George

  Edge, Geoff

  McMillan, Tom (Glasgow C.)

  Tierney, Sydney

  Edwards, Robert (Wolv SE)

  McNamara, Kevin

  Tinn, James

  Ellis, John (Brigg & Scun)

  Madden, Max

  Tomlinson, John

  Ellis, Tom (Wrexham)

  Magee, Bryan

  Urwin, T. W.

  English, Michael

  Mahon, Simon

  Varley, Rt Hon Eric G.

  Ennals, David

  Marks, Kenneth

  Wainwright, Edwin (Dearne V)

  Evans, Gwynfor (Carmarthen)

  Marshall, Dr Edmund (Goole)

  Walker, Terry (Kingswood)

  Evans, loan (Aberdare)

  Marshall, Jim (Leicester S)

  Ward, Michael

  Evans, John (Newton)

  Meacher, Michael

  Watkins, David

  Ewing, Harry (Stirling)

  Mellish, Rt Hon Robert

  Watkinson, John

  Ewing, Mrs Winifred (Moray)

  Mikardo, Ian

  Watt, Hamish

  Fernyhough, Rt Hon E.

  Millan, Bruce

  Weetch, Ken

  Fitch. Alan (Wigan)

  Miller, Dr M. S. (E Kilbride)

  Weitzman, David

  Fitt, Gerard (Belfast W)

  Mitchell, R. C. (Soton, Itchen)

  Wellbeloved, James

  Flannery, Martin

  Morris, Alfred (Wythenshawe)

  Welsh, Andrew

  Fletcher, Ted (Darlington)

  Morris, Charlas R. (Openshaw)

  White. Frank R. (Bury)

  Ford, Ben

  Mulley, Rt Hon Frederick

  White, James (Pollok)

  Forrester, John

  Murray, Rt Hon Ronald King

  Whitehead, Phillip

  Fraser, John (Lambeth, N'w'd)

  Newens, Stanley

  Whitlock, William

  Freeson, Reginald

  Noble, Mike

  Wigley, Dafydd

  Garrett, John (Norwich S)

  Oakes, Gordon

  Williams, Alan (Swansea W)

  George, Bruce

  Ogden, Eric

  Williams, Alan Lee (Hornch'ch)

  Gilbert, Dr John

  O'Halloran, Michael

  Williams, W. T. (Warrington)

  Ginsburg, David

  O'Malley, Rt Hon Brian

  Wilson, Alexander (Hamilton)

  Golding, John

  Ovenden, John

  Wilson, Gordon (Dundee E)

  Gould, Bryan

  Owen, Dr David

  Wilson, Rt Hon H. (Huyton)

  Gourlay, Harry

  Padley, Walter

  Wise, Mrs Audrey

  Graham, Ted

  Palmer, Arthur

  Woof, Robert

  Grant, George (Morpeth)

  Park, George

  Wrigglesworth, Ian

  Grocott, Bruce

  Parker, John

  Young, David (Bolton E)

  Hamilton, W. W. (Central Fife)

  Parry, Robert

  Hardy, Peter

  Pavitt, Laurie

  TELLERS FOR THE NOES:

  Harrison, Walter (Wakefield)

  Peart, Rt Hon Fred

  Mr. James Hamilton and

  Hart, Rt Hon Judith

  Perry, Ernest

  Mr. Joseph Harper.

  Hattersley, Rt Hon Roy

  Phipps, Dr Colin

  Question accordingly negatived.
  Amendments made:
  No. 14, in page 5, line 14, leave out ' 50 ' and insert 75 '.
  No. 19, in page 5, line 29, leave out 50 ' and insert ` 75 '.
  No. 145, in page 6, leave out lines and 2 and insert:
  (e) any unrelievable field losses allowable in the case of the participator under section (Allowance of unrelievable loss from abandoned field) of this Act'.[Mr. Dell.]

Clause 3

  ALLOWANCE OF EXPENDITURE (OTHER THAN EXPENDITURE ON LONG-TERM ASSETS AND ABORTIVE EXPLORATION OR DEVELOPMENT EXPENDITURE)
  Amendments made: No. 185, in page 7. line 9, after oil ', insert won from the field that was so '.
  And No. 186, in page 7, line 12, at end insert:
  ' (ff) the initial treatment or initial storage of oil won from the field ;
  (fff) disposing of any oil won from the field which is disposed of crude in sales at arm's length ; '.—[Mr. Dell.]
  Mr. Robert Sheldon: I beg to move Amendment No. 160, in page 7, line 36, at end insert:
  ' or has been allowed under Schedule 7 to this Act in connection with any oil field'.
  The amendment deals with the problem of companies going back into fields they have abandoned. It removes the risk that the same expenditure might be claimed both as abortive exploration expenditure and for a field. As the Bill stood before the Committee stage this would have been virtually impossible. Since abortive exploration expenditure was defined as expenditure which cannot become allowable for any field, and following representations that on this definition it could have been argued that no expenditure was indisputably abortive the amendment was put down.
  The possibility was put to us that a company might go into a field, might abandon it and might subsequently reenter. It is to deal with examples of this kind that the amendment has been introduced.
  Mr. Patrick Jenkin: The amendment appears to us both sensible and necessary for the protection of the revenue.
  1758
  We have no objections to it, and I am grateful to the Minister for his explanation.
  Amendment agreed to.
  Amendment made: No. 187, in page 8, line 9, at end insert:
  (iii) a building or structure used or to be used for initial treatment or initial storage of oil ; or '.—[Robert Sheldon.]
  Mr. Robert Sheldon: I beg to move Amendment No. 167, in page 8, line 17, at end insert:
  ' but nothing in paragraph (e) above shall be taken to apply to a payment made by a participator in pursuance of a contract whereby expenditure incurred for any of the purposes mentioned in subsection (1) above is to be shared between that participator and any of the other participators in the field'.
  This amendment meets the point that was made by the hon. Member for the New Forest (Mr. McNair-Wilson) in Committee. It has the peculiarity that it has the same number as the amendment which corresponded to it in Committee. It would allow expenditure incurred for developing a new field where under the terms of agreement the participator would be entitled to a share in the field. The amendment would allow him to go ahead and develop it. As worded, the paragraph disallows expenditure incurred by a new participator in developing the field. The amendment ensures that the clause will not have this effect.
  Mr. Hannam: We welcome this Government concession on the "farming-in" point. It is, as the Minister said, a coincidence that it has exactly the same number as the amendment we moved in Committee, and perhaps there is some significance in that. The amendment broadly meets the point we raised and should help those participators who jointly share in the benefits of another company's work in a field.
  Amendment agreed to.
  Mr. Patrick Jenkin: I beg to move Amendment No. 23, in page 8, line 17, at end insert:
  Provided that nothing in paragraphs (d) and (e) above shall prevent the allowance of any amount payable under an agreement made before 19th November 1974 and paid not later than six years after the date on which tax is first due on the profits from the field'.
  The amendment is designed to meet a point which I hope we can prevail upon

  1759
  the Government to accept. We discussed it at length in Committee and referred to it again this evening, and it concerns the provision in Clause 3 for the disallowance of interest. We have also discussed with that point the related provision for the disallowance of payments which are output-related. The amendment is directed to the latter point.
  In Committee we argued that it was necessary, in the financing of fields, that companies which could not raise money on their balance sheets but had to go for project financing—for off-balance-sheet financing—should have the maximum flexibility to finance their loans in ways which might be unconventional, certainly unconventional outside the oil industry. One way in which this has been done, both overseas and certainly in one case in this country of which I know, is that the payments made to the companies which put up the finance partly in the form of fixed interest and partly in the form of payments are related to output. The amendment is directed to the latter category.
  The Government have said, and we regret—we voted on the matter in Committee but we have not sought to raise it on Report—that such payments should not be allowed. We proposed in the amendment that disallowance should not operate retrospectively so as to disallow payments made under agreements arrived at before the Bill was published. Agreements have been entered into—for example, agreements for the Piper Field, some details of which no doubt have been published, although I have not seen the agreements—providing for off-balance-sheet financing, for project financing, with part of the payments related to the output from the field. Such an agreement was made during the election. The Minister of State and I had an exchange on this matter during the Second Reading debate.
  The effect of the provision in the clause which we seek to amend is to ensure that those payments are not allowed for PRT but that the company must pay PRT before deduction of the royalty payments. That seems to us to be monstrously unfair. This is the only complete off-balance-sheet financing package which the oil industry has been able to nego-
  1760
  tiate. If. as I understand is the case, a substantial part is in the form of payments which are not allowed and presumably, therefore, are intended to be covered by the uplift, it is very unfair because a company which did not have to make any payments would be equally entitled to the uplift so that a company which found it necessary, as happened. I understand, with Thomson Scottish, to raise but was unable to raise the necessary finance to develop the field on its balance sheet had to make an agreement of this sort.
  The House has always resolutely set its face against retrospective fiscal legislation save only if there has been something in the nature of a blatant anti-avoidance device. There people may reasonably take the view that the taxpayer risks legislation to close the loophole in a way which may defeat his expectations. Here the taxpayer had no reason to believe that this form of payment would be hit at in the way proposed in the Bill. It is an important matter on which I hope the Minister of State will give us some comfort.
  8.45 p.m.
  Mr. Robert Sheldon: The amendment covers a point which was partly dealt with in Amendment No. 167. The concession made in Amendment No. 167 relates to a harder aspect of this general case, the position where the terms of entry into the field are allowed for the reasons we gave and are exceptional when the agreement is dependent on developing the field. We are concerned here with the more general case where oil-related payments are to be made, and these are equivalent in effect to profit-sharing arrangements. We have to devise means of ensuring that there is no loss of PRT, as clearly there would be with an arrangement of that kind.
  It may be said that that could be overcome by allowing the payer to deduct the PRT from his oil-related payments. If I recall correctly, this matter was discussed in several exchanges in Committee. There are some agreements of that kind which contain a provision enabling the licensee to recoup PRT on the oil-related payments. This may be a matter which the right hon. Gentleman has not considered before, but there is a probability that the claim for repayment of PRT might come under the double

  1761
  taxation agreements and as a result there would be a loss of revenue to this country. For that and other reasons which I have given, we are unable to accept the amendment.
  Mr. Patrick Jenkin: I realise that the Minister of State is bound to follow the arguments he addressed to the Committee on the same point. His reference to double taxation agreements does not take us far. The company to which I referred is a United Kingdom resident company—as are all licensees. The company operates in this country and does not remit dividends abroad.
  The Minister in Committee said that it might be possible to find a way whereby the payer could deduct PRT even if that were confined only to cases in which agreements had been made before the Bill came into operation. We accept that for the present the Government have set their face against any allowance of interest or similar kinds of payment, but that should not operate to defeat existing rights under agreements which pre-date the publication of the Bill. The Minister said:
  "I would ask the right hon. Gentleman, in his present spirit of active co-operation "—
  I always show a spirit of active co-operation.
  "at least, he has gone as far as to identify the problem that we both faceif he has any appropriate means to suggest whereby we may collect the tax, we shall listen with interest In the absence of such effective means, however, I am unable to accept the amendment." — [Official Report, Standing Committee D, 30th January 1975 ; c. 523-24.]
  That is a matter to which we should address our minds in the next few weeks or months. No doubt we shall have an opportunity in Finance Bills this year, next spring or next summer—we seem to have three or four such Bills a year—to amend the tax. There is a genuine hardship.
  However, in view of what the Minister said it would not be right to press this matter, though I stress that there is a problem on the retrospective element.
  I beg to ask leave to withdraw the amendment.
  Amendment, by leave, withdrawn.
  Amendments made: No. 168, in page 8, line 28, after for ', insert:
  , or acquiring an asset or an interest in an asset to be used for the purpose of,'.
  No. 169, in page 8, line 30, leave out for '.
  No. 232, in page 8, line 31, at end insert ' or
  (d) providing any installation for the initial treatment or initial storage of oil won from the field: '.
  No. 239, in page 8, leave out lines 32 and 33 and insert:
  ' but expenditure incurred in hiring an asset shall not so qualify unless the asset is used in carrying out works for a purpose mentioned in paragraph (a), (b) or (c) above or works for the provision of any such installation as is mentioned in paragraph (d) above '.
  Mr. Jenkin: I beg to move Amendment No. 240, in page 8, line 37, at end add:
  ' (7) The Treasury may from time to time by order with respect to expenditure allowable under this section add expenditure on any purpose other than those specified in subsection (1) above as allowable expenditure; and any such order may contain provision for consequential relief from tax and may from time to time be varied or revoked by a new order under this subsection '.
  We have already dealt with the pattern of expenditure allowance and have touched on the fact that, unlike any other tax which we have considered, the Bill decides the items of expenditure which are allowable and disallows everything else. I shall not repeat the arguments made in Committee, but despite all the careful thought which has been given to the Bill by Ministers and by the Treasury, we cannot be absolutely confident that we shall succeed in sweeping into the provisions of Clause 3 all the items of expenditure which should be allowed.
  I am grateful to the Minister of State for letting me see a copy of the letting written by Mr. Dalton of the Inland Revenue to the Oil Industry Tax Committee setting out the kind of expenditure which the Inland Revenue thinks would be allowed. But I am sure he will recognise that it is one thing for an official in the Inland Revenue to give an indication of the kind of expenditure he would expect to be allowed and another thing to consider what happens when a particular case arises and is challenged and tested in the courts and if

  1763
  the courts then have to look at the wording of the legislation. We need a safeguard or long-stop, to give the Government power to take action if they find that, inadvertently, they have left out of the Bill something which should have been included. We should not have to wait for the next Finance Bill to put that right but should be entitled to make an order to add an additional item to Clause 3—in the same way as, in Committee. we added the provision for redundancy payments. Such an order would give the Government power to take action. After the Bill has left the House tonight, it will be too late to do anything about the matter in this legislation. We feel that it is a reasonable caution to have an order-making power.
  Mr. Robert Sheldon: I am grateful for the kind words uttered by the right hon. Member for Wanstead and Woodford (Mr. Jenkin), who talked of the careful consideration which the Government had given to the Bill. I certainly endorse those remarks.
  This is an attempt by the Opposition to say that something may have been omitted, although they are unable to pinpoint it. We have asked them repeatedly to tell us where the Bill falls short of any provision which might be required. We have received no reply, except that we should permit ourselves to take action if we find that we need extra measures. Words to that effect are always listened to sympathetically by any Government. If we had devised a list of articles or pieces of equipment for which an allowance should be given, the right hon. Gentleman would be right in thinking that everything had been covered and that nothing had been overlooked.
  We are not concerned with a list of items. We are concerned with purposes. In discussing the intent we can more readily achieve comprehensiveness than with a list of items. When we haw, asked those in the oil industry or the Opposition what purposes have been omitted there was no answer, for the good reason that it would be difficult to give such an answer without fundamentally changing what we wished to allow. From time to time Finance Bills change the intent. Since we have that longstop, I think it best to leave the matter there.
  Mr. Patrick Jenkin: I recognise the familiar arguments on this point which were addressed to us in Committee. This is not a point of any significance. However, it would seem to me to be a minor improvement and a useful safeguard to add to the Bill. The problem is not that the Government have not included a list of items. The problem arises because the Government have adopted an inclusive instead of an exclusive test such as that for income tax, profits tax and corporation tax. Allowance should be made according to ordinary accounting principles, unless specifically prohibited by the Bill. Under the Bill allowance is given only if the items come within Clause 3(1). Nevertheless the hon. Gentleman is right. There is a Finance Bill every year, if not two or even three. If we find that we have not thought of everything a change can be made in a later Finance Bill.
  Amendment, by leave, withdrawn.

Clause 4

  ALLOWANCE OF EXPENDITURE ON LONG-TERM ASSETS
  Mr. Patrick Jenkin: I beg to move Amendment No. 29, in page 9, line 19, leave out
  and (c) the asset is not a mobile asset '.
  Mr. Deputy Speaker: With this we are to take Amendment No. 35, in page 10, line 1, leave out subsection (6).
  Mr. Jenkin: I believe that the Government are confused on the subject of mobile assets. The normal test for the reliability of a long-term asset is that an estimate has to be made of the length of time it will be used in the field, which is represented as a proportion of the life of the asset. The appropriate proportion of the cost is given as a capital allowance. If an estimate of the length of time it will be used for the field cannot be made, we must look at the past use of the asset. That applies to all assets except mobile assets. There is no possibility of applying to mobile assets such as semi-submersible drilling rigs and surface vessels the first leg of the test, which is to estimate what proportion of their life is likely to be spent in the field. We are driven back to the other test where only the capital allowance is given, and with it the uplift, by reference to the past use of the asset.

  1765
  9.0 p.m.
  I say that the Government have got themselves into a great deal of confusion because they seem to equate mobile assets with those which are intrinsically of a category where it is impossible to state with any degree of certainty whether they will be used for the field.
  That does not follow. There is no overriding reason why an asset which happens to be mobile is any more likely to be an asset the future use of which can be guessed than an asset which might be for the time being fixed. Modules may be fixed on to a platform, it may be that both gas and oil are being dealt with, the gas runs out and merely oil is being extracted. The gas equipment is not a mobile asset, however. The module is fixed with a crane and has to be removed with a crane, yet it is permissible to make an estimate or guess. Even if it is a semi-submersible rig intended eventually to occupy a permanent position as a production platform, simply because it starts by being mobile it is precluded from the test.
  That is what the Bill says. However, in a letter which I received from the Minister of State he hedged. In the last paragraph of his letter of 26th February he said:
  " Where the mobile asset has been used solely for the field from the time of acquisition, the rules do not of course make any difference whatsoever ; they only affect the timing where an asset has been brought in from elsewhere. Thus if the Condrill is purchased specifically for a field in the North Sea there will be no restriction on the allowance."
  In other words, if it is possible to say in relation to a single field that the asset is used for that field, the allowance is given for the lot, whether it is mobile or not. This represents a very substantial change in what I understood the hon. Gentleman to say in Committee about the treatment of mobile assets.
  As I read the paragraph of the hon. Gentleman's letter which I quoted, there is no question of limiting the capital allowance by reference to past use of the asset. Clearly in the case of a mobile asset the hon. Gentleman intimates in his Letter that the Inland Revenue will be prepared to say that the whole use of that asset will be with that field and, therefore, that it can all be allowed straight away. It all comes back to the
  1766
  fact that some mobile assets will be treated as if they were not mobile assets.
  The Bill is in error in ever drawing a distinction for mobile assets and making a separate category of them. The true categories are those for which it is possible to make an estimate and those for which it is not. We accept that, and we accept that it is necessary for the protection of the Inland Revenue that where an estimate cannot be made of how far the assets are to be used in the field, the second test should be applied by reference to past use. But there is no need to take a separate category of mobile assets and preclude them from the operation of the first test because, as the Minister said, in those circumstances he would treat them as though they were not mobile assets and use the normal test.
  The Government have got themselves into total confusion. They could get out of it by accepting these two amendments and taking out of the Bill any separate reference to mobile assets. Their position is not weakened if they are dealing with a mobile asset. Where an accurate guess cannot be made, the case falls into the second category. If it is a mobile asset but a guess can be made, it comes under the paragraph of the hon. Gentleman's letter which I have read and it will come under the first test. However, the Bill does not allow that. Apparently the Government's view is—once a mobile asset, always a mobile asset, unless an extra-statutory concession is made. This is a nonsensical way to legislate, and I hope that the Minister will accept the amendments.
  Mr. Sheldon: The right hon. Gentleman was correct in one point—there is some confusion. He has failed to understand the implications of this part of the legislation. The test is the actual past use and the estimated future use of the field. That is a reasonable test for the fixed assets. I am sure the right hon. Gentleman will agree with me.
  We know what the past use of a fixed asset was and it is easy to estimate its future use. The future use of a mobile asset is more speculative. We can say what operation a mobile asset will perform but we cannot say in which field it will be used. This is the test that we do not have for mobile assets and which we do have for fixed assets.

  1767
  In the case of a fixed asset, if a piece of equipment is anchored to the seabed, we know what its future use will be. In the case of a mobile asset we know what its past use was—this is always known—but we do not know where the mobile asset will be used. It is location as well as its function that is in some doubt. This is why we have rules for accepting the speculative nature of future use. Although the rules need to be different, in the end allowances ate payable. It is a question of timing. In the absence of the certainty to which I have referred, the Bill, as drafted, should proceed.
  Mr. Patrick Jenkin: I do not accept the Minister of State's argument. He has not addressed his mind to the point, so perhaps we had better leave the amendment to be negatived.
  Amendment negatived.
  Amendments made: No. 34, in page 9, line 46, at end insert—
  ' Provided that, where the asset was not used for any purpose in the period between the incurring of the expenditure and the asset's first use in connection with the field, the expenditure shall for the purposes of this subsection be treated as having been incurred on the date when the asset was first used in connection with the field '.
  No. 38, in page 10, line 7, at end insert—
  . Provided that, where the asset was not used for any purpose in the period between the incurring of the expenditure and the asset's first use in connection with the field, the expenditure shall for the purposes of this subsection be treated as having been incurred on the date when the asset was first used in connection with the field '. — [Mr. Patrick Jenkin.]
  Mr. Gray: I beg to move Amendment No. 41, in page 10, line 11, leave out from including ' to end of line 12 and insert—
  ' the earlier of the following periods, that is to say—

  (a)the claim period immediately preceding the claim period in which the asset is disposed of ; and

  (b)the claim period in which use of the asset in connection with the field permanently ceases, the proportion of '.

  Mr. Deputy Speaker: With this amendment, it will be convenient to discuss Government Amendment No. 207, and the following amendments:
  No. 56, in Clause 5, page 12, line 19, after with ', insert the earlier of (a)'.
  Government Amendment No. 208. No. 57, in page 12, line 20, at end insert:
  and
  (b) the day on which any sum is received as mentioned in subsection (5) below '.
  No. 58, in page 12, line 32, leave out Paragraph 2 ' and insert ' Paragraphs 2 and 3 '.
  No. 109, in Schedule 4, page 42, line 19, leave out paragraph 1.
  No. 110, in page 42, line 39, after ' exceeds ', insert the greater of (a)'.
  No. 111, in page 42, leave out lines 45 to 10 on page 43 and insert—
  ' ; and
  (b) the smaller of the following amounts that is to say—

  (i) the expenditure which would have been incurred in the acquisition of the asset if the transaction first-mentioned in this sub-paragraph had been a transaction between independent persons dealing at arm's length ; and

  (ii) if, in a previous transaction to which this paragraph applies, expenditure allowable under section 3 or 4 of this Act has been incurred by a person connected with the person first-mentioned in this subparagraph in the acquisition of the asset, the expenditure which would have been incurred in that previous transaction (or, if there has been more than one such transaction, the earlier or earliest of them) if it had been a transaction between independent persons dealing at arm's length, increased by an amount equal to any expenditure incurred by any person since that acquisition in enhancing the value of the asset.

  (2) Where an asset is disposed of in a transaction to which this paragraph applies, the amount or value of the consideration received or receivable for the disposition shall be treated for the purposes of paragraph 4 below as being an amount equal to the expenditure which under sub-paragraph (1) above the person first-mentioned in that sub-paragraph is treated as having incurred.
  (3) Section 4(13) of this Act applies to the preceding provisions of this paragraph ; and those provisions shall, with any necessary modifications, apply in relation to a disposal of an interest in an asset as they apply in relation to a disposal of an asset.
  (4) This paragraph applies to any transaction between connected persons (within the meaning of section 533 of the Taxes Act).'
  No. 112, in page 43, line 6, leave out from 'Act ' to the end of line 10.
  No. 113, in page 43, line 11, leave out sub-paragraph (3) and insert—
  ' (3) Sub-paragraph (2) above shall, with any necessary modifications, have effect in relation to expenditure incurred by a person—

  1769

  (a) in renting or hiring an asset or any interest in an asset ; or

  (b) for the provision of services or other business facilities of whatever kind ; or

  (c) for the grant or transfer to him of any right, licence or interest (other than an interest in an asset),

  as it has effect in relation to expenditure incurred in the acquisition of, or of an interest in an asset '.

  Clause 114, in page 43, line 13, at end insert:
  '3. — (l) Where a person has incurred expenditure in the acquisition of an asset in a transaction to which this paragraph applies, he shall be treated for the purposes of sections 3 and 4 of this Act and paragraph 5 below as having incurred that expenditure only to the extent that it does not exceed the expenditure which would have been incurred in the acquisition of the asset if the transaction had been a transaction between independent persons (not being associated persons) dealing at arm's length.
  (2) Where an asset is disposed of in a transaction to which this paragraph applies, the amount or value of the consideration received or receivable for the disposition shall be treated for the purposes of paragraph 4 below as being an amount equal to the expenditure which under sub-paragraph (1) above the person mentioned in that sub-paragraph is treated as having incurred, or would be treated as having incurred if section 4 of this Act applied to the expenditure incurred by him in that transaction.
  (3) Section 4(13) of this Act applies to the preceding provisions of this paragraph ; and those provisions shall, with any necessary modifications, apply in relation to a disposal of an interest in an asset as they apply in relation to a disposal of an asset.
  (4) This paragraph applies to any transaction between associated persons ; and for the purposes of this paragraph a person is associated with another person if—

  (a) they are both participators in the same field ; or

  (b) one of them is a participator in that field and the other is connected (within the meaning of section 533 of the Taxes Act) with another participator in that field.

  (5) Sub-paragraph (1) above shall, with any necessary modifications, have effect in relation to expenditure incurred by a person—

  (a) in renting or hiring an asset or any interest in an asset ; or

  (b) for the provision of services or other business facilities of whatever kind ; or

  (c) for the grant or transfer to him of any right, licence or interest (other than an interest in an asset), as it has effect in relation to expenditure incurred in the acquisition of, or of an interest in, an asset '.

  Government Amendments Nos. 209 and 210.
  No. 115, in page 43, leave out lines 38 to line 25 on page 44 and insert:
  ' amount of the expenditure allowable under sections 3 and 4 of this Act shall be increased or reduced in accordance with the following provisions of this paragraph.
  (2) If the appropriate amount exceeds that proportion of the expenditure incurred as mentioned in sub-paragraph (1) above which (taking into account any adjustments made under section 4(9) of this Act) has been allowed on claims made for earlier claim periods falling within the relevant period, the excess shall be allowable under section 4 of this Act on a claim for the claim period in which the disposal is made.
  (3) If the appropriate amount is exceeded by that proportion of the expenditure incurred as mentioned in sub-paragraph (1) above which (taking into account any adjustments made under section 4(9) of this Act) has been allowed on claims made for earlier claim periods falling within the relevant period, the total amount of the expenditure allowable under sections 3 and 4 of this Act on a claim for the claim period in which the consideration is received or receivable shall be reduced by an amount equal to the excess '.
  Government Amendments Nos. 211 and 212.
  No. 118, in page 44, line 30, leave out sub-paragraph (6) and insert—
  ' (6) For the purposes of this paragraph

  (a) "the appropriate amount" is an amount equal to the excess of the expenditure incurred in acquiring, bringing into existence, or enhancing the value of the asset over the amount or value of the consideration received or receivable for the disposition where the amount of that expenditure exceeds the amount or value of that consideration, and is otherwise nil ;

  (b) where—

  (i) the disposal is made in a transaction between connected persons ;

  (ii) the expenditure incurred in the acquisition of the asset in that transaction is not expenditure to which section 4 of this Act applies (or would apply apart from the proviso to subsection (1) of that section) ; and

  (iii) the consideration received or receivable for the disposition is less than the market value of the asset at the time of the transaction,
  the consideration shall be treated for the purposes of this paragraph as being an amount equal to that market value ;

  (c) "the relevant period" means the period consisting of the claim period for which the excess mentioned in sub-paragraph (2) above is allowable or the claim period for which the expenditure allowable falls to be reduced under sub-paragraph (3) above (as the case may be) and each earlier claim period back to and including that in which the expenditure incurred as mentioned in sub-paragraph (1) above was incurred ; and

  1771

  (d) section 533 of the Taxes Act (connected persons) shall apply.'

  No. 119, in page 44, line 32, at end add—
  ' 5. — (1) Where the total amount of any expenditure allowable under section 3 or 4 of this Act is reduced under section 4(9) of this Act or paragraph 4 above upon either—
  (a) the disposal of any assets (otherwise than in a transaction between connected persons) ; or
  (b) the permanent cessation of use of any asset in connection with an oil field.
  the amount falling to be taken into account under section 2(9)(b)(ii) or (c)(ii) of this Act by reference to that expenditure shall not be reduced where the disposal or the cessation of use occurs ten years or more after the end of the half year in which the expenditure incurred in acquiring, bringing into existence or enhancing the value of that asset was so incurred ; and, where the disposal or cessation of use occurs less than ten years after the end of that half year, shall be reduced to the amount mentioned in sub-paragraph (2) below and shall not be otherwise reduced.
  (2) The amount mentioned in sub-paragraph (1) above is an amount equal to the relevant fraction of the amount which under subparagraph (1) above would have fallen to be taken into account under section 2(9)(b)(ii) or (c)(ii) of this Act if the disposal or cessation of use of the asset had occurred ten years or more after the end of the half year mentioned in that sub-paragraph.
  (3) For the purposes of sub-paragraph (2) above "the relevant fraction is that fraction of which the numerator is the number of complete half years in the period beginning with the day on which the expenditure mentioned in sub-paragraph (1) above was incurred and ending with the day on which the asset was disposed of or ceased permanently to be used in connection with the field and the denominator is 20.
  (4) For the purposes of this paragraph—
  (a) "half year" means a period of six months ending at the end of June or December ; and
  (b) section 533 of the Taxes Act (connected persons) shall apply '.
  Government Amendment No. 213.
  No. 126, in page 45, line 29, leave out (1) ' and insert (3) '.
  Mr. Gray: This is a long list of amendments. I do not propose to speak to each one.
  Amendment No. 41 has, to some extent, already been met by Government Amendments Nos. 209–212. Schedule 4(4) was under severe criticism in Committee. These amendments are the Government's reaction to that criticism. Their effect could be rather confusing. If a participator sells an asset, his allowable
  1772
  expenditure will suffer a double restriction. The original paragraph 4 imposed a balancing charge on the participator, in addition to a restriction imposed already by Clause 4.
  The Government amendments remove this overlap, but in an unexpected way. The intention seems to be that the balancing charge mechanism will not apply at all. For example, it should not apply where the purchaser is a participator in the field or a person connected with the participator. If this is the intention, there is a technical defect in line 1 of Amendment No. 210. The words a participator in the field or "seemed to have been inadvertently omitted.
  In many cases, allowable expenditure will be recaptured on disposal of assets not by reference to the selling price but instead, under Clause 4, by reference to the period that the seller has used the assets in the North Sea as compared with the asset's total useful life. This makes for consistency with the treatment under Schedule 4 of transfers of assets between associated companies or companies which are participators in the same field and underlines the Government's apparent determination not to make the improvements in those areas which are sought in Amendments Nos. 110–114. The effect as a whole does not make for equity for buyer and seller.
  Amendments Nos. 56 and 657 are now substantially met by Government Amendments Nos. 207 and 208. Amendments Nos. 115, 118 and 126 sought to amend Schedule 4 and Clause 4. I should like to go into complicated detail on Amendments Nos. 209 and 210. I have already outlined the difficulties which they could create. I suggested that some words could have been omitted in line 38, on page 43. If they have been omitted intentionally, the effect—
  Mr. Sheldon: Will the hon. Gentleman repeat the words?
  Mr. Gray: If, in Amendment No. 210, before sub-paragraph (c) the words "a participator in the field or" have been omitted intentionally, Schedule 4(4), which is the only provision applying to a balancing charge mechanism on sale of assets will apply only where a purchaser is not connected with a participator—that is, presumably, any participator in any field.

  1773
  In our words, and subject to what comes below, it will hardly ever apply, since it is highly probable that a likely purchaser will have an associated company which is a participator in one of the North Sea oil fields. Paragraph 4 will apply to a seller—that is, it will effectively impose a balancing charge on him if the purchaser, for example company A, is itself a participator in the North Sea oil field but is not connected with any other person who is a participator and will not apply if company A is associated with a further company which is also a participator and will not apply if, instead, the seller disposes of the asset to a company associated with company A.
  I apologise for that rather complicated harangue, but this is what will happen if those words have been purposely omitted from the Minister's amendment. This could have far-reaching complications. If the Minister cannot grasp all the implications of this, perhaps he will agree to take the amendment away and arrange elsewhere to have it put right.
  9.15 p.m.
  Mr. Robert Sheldon: The hon. Member for Ross and Cromarty (Mr. Gray) was right when he pointed out the way in which Amendments Nos. 56 and 57 have been met by Amendments Nos. 207 and 208. The point he makes is a complex one. 1 would like to take advantage of his kind invitation to study this rather carefully. I age that it is a problem. I understand that there is a serious difficulty in taking the kind of action that would meet with his approval.
  Dealing with Amendments Nos. 109 and 114, if a participator incurs expenditure and it is allowed for PRT, and that participator sells the asset at a higher cost, the intention of the hon. Gentleman is that the allowance received by the person who has spent money on the asset will be refunded. When he sells the asset, when the allowance is repaid, the higher allowance—assuming that the asset has increased in price—is substituted. The argument is that there is no equity disadvantage to the Revenue. The disadvantage is that the original allowance was payable for the expenditure and there are a number of problems which follow.
  Mr. Patrick Jenkin: The purchaser would be perfectly entitled to buy a different asset at the higher price and if
  1774
  he did so he would get the full allowance. What possible difference can it make if it happened to be an asset for which someone else has had an allowance which is fully repaid? I do not understand the difficulty. If the purchaser could buy an entirely different asset of the same sort, having to pay a higher price, why cannot he get an allowance for it?
  Mr. Sheldon: The right hon. Gentleman is seeing only one possible consequence. I am sure that he will be the first to admit that there is more than one possible consequence to the selling of a piece of equipment. The seller may not wish to replace it or to purchase any other piece of equipment. There are a number of other possibilities that might occur to a seller.
  I had better say something about Schedule 4. What is provided for is that where a participator has incurred allowable expenditure on an asset, subsequent expenditure by another participator on acquiring the same asset will not be allowed. If a new participator comes into a field and acquires a share of the assets, the original cost of those assets stands as an allowable deduction and anything the new participator pays to acquire his share is left out of account.
  The proposal in these amendments is contrary to this policy. It would enable the allowable costs for PRT to be much increased whenever a new licensee bought his way into a field while apparently limiting his charge on the seller to the original cost. This is one of the consequences the right hon. Member for Wan-stead and Woodford (Mr. Jenkin) did not deal with. This would open up the whole question of the purchase of interest in fields. It would be wholly against what we had in mind when framing the legislation.
  If we were to permit each participator to make available assets, not at cost but at current market value it would merely encourage concerted arrangements under which each participator would write up the cost of his assets which he brought into the deal whether by way of sale or by hire. There are these other consequences. I am sure we can all think of more.
  Part of the Opposition's responsibility is to make sure that the revenue is not eroded. I know of their interest in the

  1775
  general point. They are happy to see the revenue eroded for certain individuals and interest groups in this country. If these groups were to obtain a larger proportion of the revenue, there would be a net loss to the British people. I hope that, looking at the matter in this way, the Opposition will take a more balanced view than they have shown on a number of occasions.
  Mr. Gray: I am grateful to the Minister for dealing with the problem in some depth. The hon. Gentleman accepts that there is a problem. We shall want to study carefully what he said in reply to this matter. However, I hope that, after having had time to deliberate, he will still consider doing something in another place. In the meantime, we accept and will carefully study what the hon. Gentleman said. I hope that this will not necessarily be the end of the matter. I do not wish to withdraw the amendment.
  Amendment negatived.
  Amendments made: No. 207, in page 12, line 9, after "then ", insert:
  ' (a) subject to paragraph (b) below,'.
  No. 208, in page 12, line 20, at end insert:
  (b) if a subsequent disposal of the asset by that person otherwise than to a person connected with him gives rise to the receipt of a sum that falls to be taken into account under subsection (5) below, being a sum not less than the price which the asset might reasonably have been expected to fetch if sold in the open market at the time of the disposal, paragraph (a) above shall apply with the substitution, for the reference to the day on which the asset's useful life is reasonably likely to end, of a reference to the day on which the disposal was made '. — [Mr. Dell.]
  Mr. Sheldon: I beg to move Amendment No. 171, in page 12, line 22, at end insert:
  (2A) Expenditure is not allowable under this section in connection with an oil field if, or to the extent that, it has been allowed under Schedule 7 to this Act in connection with any oil field '.
  The amendment ensures that the same expenditure shall not be allowed twice as abortive exploration expenditure. I am sure that the amendment will commend itself to the House.
  Amendment agreed to.
  Amendments made: No. 188, in page 12, line 26, leave out such strata "' and insert:
  the end of sub-paragraph (iii)'.
  No. 172, in page 13, line 5, leave out ' 75 ' and insert 51 '.
  No. 173, in page 13, line 9, leave out 75 ' and insert 51 '.
  No. 174, in page 13, line 15, leave out from of ' to end of line 16 and insert:
  ' whichever of the following periods ends later that is to say—
  (i) the earliest chargeable period in which the company which is a participator in the old field in question was a participator in that field ; and
  (ii) the chargeable period (for that field) in which the expenditure was incurred,
  (or, if they are the same period, with the end of that period); and '.
  No. 146, in page 13, line 18, leave out Clause 6. — [Mr. Dell.]

Clause 7

  RELIEF FOR ALLOWABLE LOSSES
  Mr. Robert Sheldon: I beg to move Amendment No. 161, in page 14, line 24, leave out
  'the two preceding chargeable periods'
  and insert any preceding chargeable period '.
  Mr. Deputy Speaker: With this amendment it will be convenient to discuss the
  following amendments:
  No. 64, in page 14, line 24, leave out the two '.
  Government Amendment No. 162.
  No. 65, in page 14, line 25, leave out either of '.
  Government Amendment No, 163.
  No. 66, in page 14, line 28, leave out 'the later of those periods'
  and insert a later period '.
  No. 67, in page 14, line 30, leave out subsection (3) and insert:
  ' (3) Where the Board have determined under Schedule 2 to this Act that an allowable loss has accrued to a participator in a chargeable period from an oil field then if the participator so elects within six years of the end of such period the said loss shall be relieved by set-off against the assessable profit accruing to him in the same period from any other field or fields '.
  Mr. Sheldon: These amendments provide for the indefinite carry-back of allowable losses within a field. As such, I am sure that they will commend themselves to the House.
  These amendments follow an undertaking which I gave in Committee to reexamine particular matters so that the participator would be able to set off losses against any previous profits on a field. Under the clause as drafted, a participator may elect to carry a loss back only against his profit from the field in the two preceding chargeable periods.
  The point has been made that the restriction to the carry-back of losses could be difficult and unfair where losses were incurred well into the life of the field. An example was cited of the problem that could arise where there might be an interruption of production and subsequent continuation. The point was made that those losses which were made during the cessation of production would be unrelieved. We have met that point.
  There are other amendments which no doubt the right hon. Member for Wan-stead and Woodford (Mr. Jenkin) will wish to move. I do not know whether the right hon. Gentleman would like me to refer now to Amendment No. 67. If the House feels that that is not the most convenient arrangement, I will leave the matter there and seek to catch your eye at a later stage, Mr. Deputy Speaker.
  Mr. Patrick Jenkin: The Opposition warmly welcome Government Amendments Nos. 161, 162 and 163 as they entirely meet the points in Opposition Amendments Nos. 64, 65 and 66. Indeed, they meet the points which we made very forcibly in Committee. In the course of our debate in Committee on the Question "That the clause stand part of the Bill" the Minister of State recognised that there was something to be said for an indefinite allowance of losses backwards, and we are grateful for what he has done.
  The hon. Gentleman was quite right when he said just now that I should like to say a few words on Amendment No. 67. I am sorry that the hon. Member for Hamilton (Mr. Wilson) is not now with us. He was here a few minutes ago. It is my recollection that he was an extremely reluctant supporter of the Government in the matter of setting off losses
  1778
  in one field against the profits in another. The Government Whip was a regular visitor to our Committee. He has a very important oil company in his constituency, and we are delighted to see him here. I do not know what those hon. Members would think if they were told that these oil companies were making profits in some fields and losses in others and that the losses could not be set off against the profits.
  As I said to the hon. Member for Hamilton, what about the National Coal Board? If it had been making profits in its central coalfields in the East and West Midlands and had had to pay tax on those profits without any allowance for the losses which it was making in the coalfields in the North-East, or in Scotland, or South Wales, or Kent, the hon. Member for Hamilton would not have been the only mining Member in the House who would have created a bit of a fuss. Yet that is exactly what is proposed to be done by this Bill in relation to the oil companies. There is an iron curtain round each field for this purpose. Consider how far the Government have gone to perforate that iron curtain in the new clause which we considered earlier in connection with the abortive exploration and development expenditure and the closing down expenses of a field which has been operating for however long, and in spite of how much it has produced, when it finally closes down and makes losses.
  Apart from the capital—and I understand the argument about the capital—this is the only case in which one makes losses on one field and profits on another and yet one cannot set off the losses against the profits. One has to pay tax on the profits without receiving an allowance on the losses. The only relief is that if subsequently a profit is made in the field, the losses can be carried forward and set off against those profits, or one has the option to close down the field, in which case the ring fence comes off and the losses are set off against the profits in the neighbouring profitable field.
  Apart from the cash flow and the resultant disincentive, the only effect on the operations is that the balance could be tilted to securing the premature closing down of a field which might otherwise be carried on in an attempt to see whether

  1779
  it might become profitable. I cannot believe that this is the Government's intention and that they would want to restrict the loss relief in such a way as might force a company to close down a field when otherwise it might carry it on and win a good deal more oil for the country.
  I beg the Ministers to think again. They have moved so far in allowing losses to be set off in dealing with abortive exploration and abortive development expenditure. Having swallowed those horses, they are straining at a gnat. They ought to allow this final relief, off-setting losses against profits made in the same period in two different fields. I hope that the Minister will treat the matter sympathetically.
  9.30 p.m.
  Mr. Robert Sheldon: The right hon. Gentleman seeks to allow the losses of one field to be set off against the profits of another. No one will know better than he that the consequences are not necessarily those that he envisages. The effect would be virtually to abolish the field basis in terms of the tax flow. As a result, the amendment is unacceptable to the Government.
  Mr. Patrick Jenkin: With respect, that is not the effect. We have not sought to reopen the lengthy debate on the field-by-field basis in any of our amendments on Report, because that matter was decided in Committee. The amendment does not interfere with the Government's field-by-field basis in the sense that capital allowances are freely transferable between fields. We are talking only about revenue losses, the setting off of an operating loss in one field against the profits of another.
  Mr. Sheldon: I understand the point put by the right hon. Gentleman. What I am concerned with is the consequences of his amendment, which are to abolish the field-by-field basis in terms of the tax flow. As a result, it is obviously contrary to Government policy and contrary to the provisions that we have sought to maintain in the Bill throughout our lengthy discussions.
  The right hon. Gentleman is right to draw the attention of the House to the concessions that have been made. We have provided these concessions—the
  1780
  indefinite carry-back at the participators' option for the losses in a field ; insuring any losses unrelieved when a field is finally abandoned, whatever the level of production ; making sure that they can be set off against subsequent profits arising to the licensee or to another company in its group from another field. We have made a large number of concessions, making sure in each that we have retained this core of the field basis in terms of the tax flow.
  We are unable to accept the Opposition's amendment, and I urge hon. Members to accept the Government's amendment.
  Amendment agreed to.
  Amendments made: No. 162, in page 14,line 25, leave out ' either of those periods ' and insert ' any such period '.
  No. 163, in line 28, leave out ' the later of those periods ' and insert
  ' a later chargeable period '— [Mr. Dell.]

Clause 8

  MODIFICATION OF PART I IN CONNECTION WITH CERTAIN GAS SOLD TO BRITISH GAS CORPORATION
  Amendments made: No. 189. in page 15,line 9, after ' above ', insert
  ' or used for production purposes '.
  No. 204, in line 21, after ' 4 ', insert
  ' (including, in the case of any expression used in any of those provisions which is defined elsewhere, its definition so far as it has effect for the purpose of that provision) '. — [Mr. Dell.]
  Mr. Patrick McNair-Wilson: I beg to move Amendment No. 72, in page 16, line 1, leave out ' and approved '.
  Mr. Speaker: With this amendment we are to take the following amendments: No. 73, in page 16, line 4. at end insert:
  Provided that, where estimates have been submitted, the expenditure allowable for the field under section 3 of this Act by virtue of the said paragraph (a), (b) or (c) shall be determined in accordance with those estimates until such time as notice of approval is given by the Secretary of State '.
  No. 74, in page 16, line 4, at end insert:
  (4) Where estimates have been submitted under subsection (3) above or this section—

  (a) further estimates may be submitted to the Secretary of State and approved by him and paragraph (a) of section 3 above shall,

  1781
  with any necessary modifications, apply to such estimates as it applies to estimates submitted under that paragraph ;

  (b) the Secretary of State may determine the proportion mentioned in paragraph (a) of subsection (3) above otherwise than in accordance with the estimates and shall give notice of his determination or of his approval of the estimates (as the case may be) in writing within sixty days after receipt by him of the estimates to each person by whom they were submitted ; and

  (c) any person to whom notice of a determination has been given under paragraph (b) above may within sixty days of such notice being given appeal against the determination giving the reason for his dissatisfaction, and an appeal thus made shall be referred to and determined by a Tribunal consisting of three persons appointed by the President of the Institute of Petroleum '.

  Mr. McNair-Wilson: The clause excludes from PRT the gas sold on the contracts before the end of June 1975, but it also excludes the expenditure related to the exempted sales. This is done on the basis of apportionment, based on estimates which are to be submitted by the companies. They have to be approved by the Secretary of State for Energy, and our amendment is designed to have a provisional deduction made before the Secretary of State's approvals are given. This will be of considerable help to the companies involved. It does not appear to us in any way to try to get through loopholes in the tax base. It seems to us to be perfectly reasonable.
  Amendment No. 74 deals with an appeal related to that approval on the basis that the clause imposes no time limit within which the Secretary of State is required to give a decision and gives the taxpayer no right of appeal. It makes no provision for the updating of estimates as more reliable information about the field becomes available, and it contains no procedural machinery for application in situations in which the estimates are not acceptable to the Secretary of State. The amendment would remedy those omissions by providing a tribunal of not less than three persons to be appointed by the President of the Institute of Petroleum.
  I hope that the Government will not resist this group of amendments. They do nothing other than to tidy up an aspect of the clause which appears to be hang-
  1782
  ing in the air. There is to be an apportionment at some stage, and this will be a deduction. All that we are seeking to do is to have a provisional situation to enable the companies' cash flow not to be affected by having to wait for approval from the Secretary of State.
  Mr. Dell: The amendments, although I am sure that they are well intentioned, make difficulties where there are none.
  I deal first with Amendments No. 72 and 73. The Bill provides a simple and workable procedure. It is not unreasonable to ask participators to draw up estimates of the make-up of the reserves in the lifetime of a field, and there is ample time for them to be settled before PRT liability comes in. The Secretary of State will not delay in approving the estimates. As the range of expenditure is fairly limited, I do not think that the industry has much justification for concern on this point of detail.
  Amendment No. 74 would introduce a great deal of bureaucracy and delay into what should prove to be a simple procedure. I do not think that the Secretary of State for Energy will be looking for arguments on the estimates submitted by the companies. We should be satisfied with the procedure here.
  If experience showed a need for an appeal procedure, or if it showed that companies found that they were being unjustly dealt with, the matter could be reconsidered. But on present evidence the sensible thing is to leave the Bill as it is, in the hope and expectation that it will work fairly to everyone concerned. That is simply the intention.
  Amendment negatived.
  Amendment made: No. 154, in page 16, line 13, leave out subsection (6). — [Mr. Dell.]

Clause 10

  INTERPRETATION OF PART I
  Amendment made: No. 190, in page 16, line 27, at end insert:
  " crude ", where the reference is to oil being disposed of or appropriated crude, refers to its being so dealt with without having been refined (whether or not it has previously undergone initial treatment) ;'— [Mr. Dell.]
  Amendment proposed: No. 191, in page 16, line 33, at end insert:

  " initial storage ", in relation to oil won

  from an oil field, means the storage in the United Kingdom, the territorial sea thereof or a designated area of a quantity of oil won from the field not exceeding ten times the maximum daily production rate of oil for the field as planned or achieved (whichever is

  5 the greater), but does not include—

  (a) the storing of oil as part of or in conjunction with the operation of an oil refinery; or

  (b) deballasting; or

  (c) conveying oil in a pipe-line;

  10

  " initial treatment ", in relation to oil won from an oil field, means the doing, at any place in the United Kingdom, the territorial sea thereof or a designated area, of any of the following things, that is to say—

  15

  (a)subjecting oil won from the field to any process of which the sole purpose is to enable the oil to be safely stored, safely loaded into a tanker or safely accepted by an oil refinery; or

  (b)separating oil so won and consisting of methane gas from oil so won and consisting of gas other than methane, but does not include—

  20

  (i) the storing of oil even where this involves the doing to the oil of things within paragraph (a) or (b) of this definition; or

  (ii) any activity carried on as part of, or in association with the refining of oil; or

  (iii) deballasting '— [Mr. Dell.]

  Amendment to the proposed Amendment made: (a), in line 3, after ' exceeding ', insert—
  ' in the case of storage in the United Kingdom a quantity equal to '— [Mr. Patrick Jenkin.]
  Proposed amendment, as amended, agreed to.
  Mr. Robert Sheldon: I beg to move Amendment No. 221, in page 16, line 39, leave out "licensee" and '.
  As the House will see, we are being very reasonable here and trying our best. Wherever we can find our way to accommodate an amendment, we shall seek to do it. But here we have a Government amendment that seeks to extend the definition of a "participator" in order to include sub-licensees as well as licensees and make it clear that each licensee under a joint licence is a separate participator. This is an extension that I am sure will be welcome to the House. I shall be happy to go into the matter in any kind of detail that is required of me, but perhaps this might be acceptable to the House as it is.
  Mr. Patrick Jenkin: Although this is indeed an amendment of some substance which considerably widens the effect of the clause, it is one to which we should not wish to take objection. We see it is an improvement and we are, therefore, happy about it.
  Amendment agreed to
  Amendments made:
  No. 222, in page 16, line 40, at end insert—
  licensee "means—

  (a) the person entitled to the benefit of a licence or, where two or more persons are entitled to the benefit of a licence, each of those persons ; and

  (b) a person who has rights under an agreement which is approved by the Board and is certified by the Secretary of State to confer on that person rights which are the same as, or similar to, those conferred by a licence ;

  No. 233, in page 17, line 24, leave out
  ' appropriated it to refining or other processing ' and insert relevantly appropriated it '.
  No. 192, in page 17, line 27, at end insert—
  ' "pipe-line" means a pipe-line as defined in section 65 of the Pipe-lines Act 1962 ;
  " production purposes ", in relation to an oil field, means any of the following purposes, that is to say—

  (a) carrying on drilling or production operations within the field ; or

  (b) in the case of oil won from the field that was so won from strata in the sea bed and subsoil of either the territorial sea of the United Kingdom or a designated area, pumping it to the place where it is first landed in the United Kingdom ; or

  (c) the initial treatment of oil won from the field ;

  No. 193, in page 17, line 31, at end insert—
  . "relevantly appropriated ", in relation to oil won from an oil field, means appropriated to

  1785
  refining or to any use except use for production purposes, and "relevant appropriation" shall be construed accordingly ;'— [Mr. Dell.]
  Mr. Robert Sheldon: I beg to move Amendment No. 234, in page 17, line 36, after ' payable ', insert`—
  (but not, it is hereby declared, oil delivered) '
  Mr. Speaker: With this we are to take Government Amendments Nos. 237 and 238.
  Mr. Sheldon: Amendment No. 234 is really a consequential amendment, as is Amendment No. 237. Amendment No. 238 is the main amendment, and these amendments are necessary because of the Government's decision to take powers in the Petroleum Bill to require licensees to deliver oil in place of the cash payments of royalties, which is known as royalty oil.
  The amendment seeks to exclude the value of such royalty oil from the amounts included in the gross profits. This is a necessary consequence of such royalty oil and as such will, I am sure, be acceptable to the House.
  Regarding the substance of the royalty oil, the House will know that Parliament will obviously have the opportunity to examine in great detail the Secretary of State's proposal for this during the passage of the Petroleum Bill. This amendment is merely a clarification dealing with the measure in anticipation of the proposals which will be coming before the House.
  Mr. Patrick Jenkin: It would be wrong at this stage to seek to open up the whole question dof royalty oil. We shall obviously want to hear what is said on the Petroleum Bill, if and when that comes forward. However, if it is the Government's present intention for that Bill to make provision for royalty oil, it seems that it would be sensible, equally, to make provision here for the necessary consequential fiscal results of having that provision.
  We do not at this stage say Yea "or Nay" to the question of royalty oil. That depends entirely on the circumstances and on what the Government are able to tell us about what they would propose to do with it, and on that will depend our reactions as to whether or not we regard this provision as sensible.
  Amendment agreed to.
  Mr. Robert Sheldon: I beg to move Amendment No. 235, in page 18, line 8, leave out ' or paragraph 4 of Schedule 3 '.
  Mr. Speaker: With this we are to take the following amendments:
  No. 91, in Schedule 1, page 25, line 48. at end insert—
  ' 6. Any person to whom notice of a determination or new determination has been given under paragraph 4 or paragraph 5 above may within sixty days of such notice being given appeal against the determination contained therein giving the reason for his dissatisfaction and any appeal thus made shall be referred to and determined by a Tribunal consisting of three persons appointed by the President of the Institute of Petroleum '.
  Government Amendment No. 223.
  No. 106, in Schedule 3, page 38, line 32, leave out from ' authority ' to end of line 34.
  No. 107, in page 38, line 34, at end insert—
  ' (2) The appropriate authority shall, by notice in writing given to the responsible persons for the fields in question, inform them of the determination.
  (3) The responsible persons, or any one or more of them, may appeal to a Tribunal consisting of three persons appointed by the President of the Institute of Petroleum against the determination by notice in writing given to the appropriate authority within 60 days of the date of the notice of the determination.
  (4) An appeal under sub-paragraph (3) above may at any time be abandoned by notice in writing given to the appropriate authority by the responsible persons making the appeal
  9.45 p.m.
  Mr. Sheldon: This amendment is consequential on the deletion of the special provision in Schedule 3 for determining disputes. The main amendment is Amendment No. 223, dealing with the problem which arose in Committee, where strong objection was made to the absence of a right of appeal on the matter of the determining of the field from which the oil is to be won. A number of bodies were suggested as a means of achieving some form of arbitration into the extent of the field and its delineation.
  I said in Committee, and I remain convinced that this is so, that disputes of this kind are likely to be very rare, simply because it is in nobody's interests to delay these matters and also because at the end of it all it is in the interests of both parties to accept the objective reality of the geophysical descriptions that are produced. I

  1787
  therefore do not think that there will be any disputes of the kind which were so vividly suggested by hon. Members.
  However, we have made an attempt to meet the arguments which were advanced and to show that we are not doctrinaire. This is a matter on which there is no need for any stance to be taken. We have seen that some form of estimated assessment could be made in respect of the field from which it was considered that the oil had been understated. If the Inland Revenue disagreed with any licensees about the field, the estimated assessment could be made in respect of the field. As a result, the participators would be able to appeal against the assessment and the issue would fall to be determined, as a matter of fact, by the Special Commissioners in the same way as they go about determining any other appeal.
  The provision would at least channel such a dispute into fairly well recognised procedures. Any dispute about a point of law in the Special Commissioners' decision could then be taken to court under the normal tax machinery. This would meet the main purpose of the Opposition of providing a long-stop, without having all the problems of setting up a new body, to meet the rare case of a dispute. I repeat that I believe that disputes will be rare. I do not believe that the procedure is likely to be used, and, if it were to be used, I doubt whether it would be to the advantage of either the Government or the companies concerned. However, this meets the point made in Committee by the Opposition.
  Mr. Alison: The Minister of State has gone some way towards helping us. He said in Committee that he did not consider that the schedule which we are attempting to amend was as it stood
  " oppressive when both sides have a common interest, but if the hon. Gentleman "—
  that is myself—
  " really feels that this needs further examination I shall be happy to look at it again. I do not think it is a matter of great moment. but I will consider it without any kind of commitment." — [Official Report, Standing Committee D, 23rd January 1975 ; c. 375.]
  Helpful though the Government amendments are, and helpful though it is to have an indication that an appeal in a certain context will lie to the Special
  1788
  Commissioners where there is a dispute, the schedule, without the addition that Amendment No. 91 would secure, is unsatisfactory. I believe that the oil industry finds the schedule unsatisfactory. There is still the uncertainty arising from the character of the procedures laid down in Schedule 1 that a situation might arise in which the determination of a field can occur which does not coincide with the views of the interested companies.
  This is a very serious matter, particularly so in the light of the new provisions introduced by the Government in connection with the oil allowance. One of the important features of the allowance is that each participator's share will be attributed in proportion to his share of the oil won and saved in the chargeable period. If there is the possibility of a discrepancy between determination of the shares by the authority and the proper designation of the share which the company feels is appropriate but which is not accepted by the authority, this disparity will become even more painful, complicated and disturbing when questions of appointment of the 10 million-ton allowance are dealt with.
  This is an added illustration of the difficulties which might arise when, as the companies believe, a situation emerged in which PRT became payable by each licensee on a different share of the income accruing to them. This remains a serious concern of the industry. That concern has in no sense been completely assuaged by the Government amendments. There is a very bald and cold-blooded specification laid down in paragraphs 2, 3 and 4 of the Schedule, with the authority taking written evidence from participators in a particular field, considering the evidence and any representations made on behalf of the different participators, but finally, and in isolation, making a determination against which there is no court of appeal and no sort of reference to an external arbitrator or adjudicator.
  If the members participating in a particular area cannot reach agreement about the evidence they should submit to the authority under paragraph 2(b) of the schedule about what is an appropriate apportionment, it is unsatisfactory that the authority should have the final word without recourse to some external adjudicating body.

  1789
  What we propose would not lead to an extra loss of time—indeed, the reverse might be the case. Because of the certainty that there will be an ultimate court of appeal and arbitrator the companies may be able to expedite their submissions under paragraph 2(b) much more than if they have to get every jot and tittle cleared up finally and completely, because submission to the authority is their last chance. Therefore there may be a loss of time under the existing provisions, since no final arbitrator is proposed in the amendment.
  The companies want to get started as quickly as possible. Like the Government, they have no interest in holding things back. However, they feel that the final arbitrator, as proposed in the Opposition amendment, is necessary, and the oil allowance apportionment makes the proposal all the more relevant. If the amendment is not accepted the companies may spend extra time engaged in the most detailed, pernickety and finicky disputes and discussions among themselves before they submit written evidence.
  Nothing would be gained by not accepting the amendment. It would encourage the oil industry psychologically and practically. It would cost the Government nothing, except the necessary flexibility, to accept this reasonable proposed change in the Bill.
  Mr. Speaker: The Question is—
  Mr. Patrick Jenkin: Are we not to have a reply?
  Mr. Robert Sheldon: If I can help the House, I am happy to do so, but I thought that I had used all the arguments which I intended to use and I did not think that on Report it would be welcomed if I were to make the same points using, perhaps, only slightly different words.
  We felt that we had gone a long way in trying to find means of meeting the point repeatedly made by the Opposition in Committee. We tried to devise a method, and we thought that we had devised a useful one. We felt that the body which had been suggested was not suitable. I thought that our attempt to do our utmost to make a concession on the main point of principle without accepting the detail consequent on that principle would be readily accepted by the House.
  1790
  I accept a further point which the Opposition have rightly made, which is that the oil allowance makes the matter a little more important than it was previously. That was an element in our thinking when being persuaded by the Opposition of the need for means of further appeal. We have given effect to the substance of the criticism without implementing exactly what right had and hon. Members opposite had in mind
  Amendment agreed to.

Clause 11

  TREATMENT OF OIL EXTRACTION ACTIVITIES ETC. FOR PURPOSES OF INCOME TAX AND CORPORATION TAX
  Mr. Robert Sheldon: I beg to move Amendment No. 224, in page 19, line 8, leave out ' ending ' and insert ' beginning '.
  Mr. Speaker: With this we can also discuss Government Amendments Nos. 225 and 226.
  Mr. Sheldon: These amendments deal with the problems of apportionment which arise when accounting periods straddle the date 11th July 1974 and as a result the income for the whole accounting period falls within the ring fence. The criticism was made that this was unjustifiable, and it was suggested that the ring fence provisions should apply only to that portion of the accounting period which began on 12th July. We have sought to implement that suggestion in these amendments.
  Mr. Patrick Jenkin: It would be churlish if we were to allow the amendment to pass without saying that it is very welcome. It deals with a point which we pressed quite hard in Committee. It ensures that the ring fence system will have no retrospective effect. and we warmly welcome it.
  Amendment agreed to.
  Amendments made: No. 225, in page 19, line 10, leave out ' ending ' and insert ' beginning '.
  No. 226, in page 19, line 12, leave out ' ending' and insert:
  ' beginning ; and in the case of a chargeable period beginning on or before and ending after 11th July 1974—

  (a) subsection (1) above shall have effect as regards the part of the period falling after that date;

  1791

  (b)subsections (2) and (5) above shall have effect as regards the giving of relief against income attributable to that part of the period ; and

  (c)subsection (3) above, with subsection (4), shall have effect as regards deduction from or set off against income so attributable;

  and there shall be made all such apportionments as are necessary to give effect to paragraphs (a) to (c) above '—[Mr. Robert Sheldon.]

Clause 12

  VALUATION OF OIL DISPOSED OF OR APPROPRIATED TO REFINING OR OTHER PROCESSING IN CERTAIN CIRCUMSTANCES
  10.0 p.m.
  Mr. Robert Sheldon: I beg to move Amendment No. 178, in page 19, line 15, after Act ', insert:
  (otherwise than by virtue of paragraph 6 of Schedule 3 thereto)'.
  The amendment removes an unintended effect of Clause 12, under which a licensee who has granted an interest
  1792
  in his production to a non-licensee might have been chargeable to corporation tax on that other person's share of the oil. In such cases it is obviously intended that the PRT on the other person's share of the oil should be assessed on the participator, along with the share which he has retained. Paragraph 6 of Schedule 3 so provides. It was, however, intended that the other person should pay his own corporation tax on his share of the oil.
  Clause 12 provides that where a person disposes of oil which falls to be included in his PRT computation, the disposal shall be valued for corporation tax on the same basis as for PRT. There is a strong argument that the effect of this is not merely to ensure that the participator's retained share of the oil is valued for corporation tax on the same basis as for PRT, but also to charge him to corporation tax on the other person's share of the oil. The amendment, in effect, prevents that.
  Amendment agreed to.
  Amendments made: No. 155, in page 19, line 18, after 'field', insert:
  '(or would so fall but for section 8 of this Act)'.
  No. 156, in page 19, line 23, at end insert:
  '(or as would have been so taken into account under that section but for section 8 of this Act'.
  No. 194, in page 19, line 24, leave out:
  'appropriates any oil to refining or other processing' and insert 'makes a relevant appropriation of any oil'.
  No. 157, in page 19, line 30, after 'field', insert:
  '(or would so fall but for section 8 of this Act)'.
  No. 158, in page 19, line 40, at end insert:
  '(or as would have been so taken into account under that section but for section 8 of this Act)'.
  No. 195, in page 19, line 40, at end insert:
  'In this subsection "relevant appropriation" has the meaning given in section 10(1) of this Act'.
  No. 214, in page 20, line 5, leave out from:
  'at' to 'in' in line 6 and insert the material time in the calendar month'.
  No. 215, in page 20, line 7, leave out from 'subsection' to 'and' in line 10 and insert:
  '"material time" and "calendar month" have the meaning given by paragraph 3(2) of Schedule 3 to this Act '.—[Mr. Robert Sheldon.]

Clause 13

  OIL EXTRACTION ACTIVITIES ETC.: CHARGES ON INCOME
  Mr. Robert Sheldon: I beg to move Amendment No. 227, in page 20, line 25, leave out from 'shall' to 'have' in line 26.
  Mr. Speaker: With this it will be convenient to take Government Amendments Nos. 229 and 228 and the following amendments:
  No. 83, in page 20, line 33, leave out:
  'otherwise than from a company associated with it'.
  No. 84, in page 20, line 35, leave out 'borrowed for the specific' and insert 'used for the'.
  No. 85, in page 20, line 38, leave out from 'rights' to end of line 40.
  No. 86, in page 20, line 40, after 'company' insert:
  Provided that where interest is paid by a company to a company associated with it at a rate in excess of a reasonable commercial rate no deduction shall be allowed in respect of so much of the interest as represents the excess'.
  No. 87, in page 20, line 41, leave out subsection (3).
  No. 88, in page 21, line 7, leave out subsection (4) and insert:
  '(3) Subsection (2) above shall, with any necessary modifications, have effect in relation to charges on income within the said section 248 other than interest as it has effect in relation to interest'.
  Mr. Sheldon: The amendments are concerned with the allowance of interest, and they effect a major change. They introduce an important relaxation in the ring fence rules concerning the allowance of interest for corporation tax.
  I said in Committee that there were two aspects with which I was concerned. One is the rule that interest paid shall not be allowable against North Sea income unless it is secured on North Sea assets. That rule is dropped. Secondly, the requirement that the borrowed money shall have been borrowed for the specific purpose of North Sea expenditure becomes a requirement that the borrowed money shall have been used, or appropriated to use, for North Sea purposes.
  Then there is the interest paid to an associate, which will be allowable, whether or not matched by an external borrowing by the group, provided that it meets the test in the second requirement, and so far as it is not in excess of a reasonable commercial rate. Those are the important elements. I shall not go into detail, although I shall be happy to do so if required.
  I shall comment on the final position as it will be if the amendment is accepted. The situation on payments of interest to associates is as follows. Without the Clause 13 rule for such payments, or some effective alternative, groups could, in effect, obtain relief for extraneous losses against an interest slice of their North Sea profits.

  1795
  Those who are interested in these matters will know that this has been one of the main points that concern us. We have not accepted the argument that this is right in principle. Without the Clause 13 rule, interest paid to overseas associates would normally escape the United Kingdom tax net under double taxation agreements. Although those amounts are large, it is a matter for argument whether this should be treated as a breach of the ring fence. This matter was not referred to by the Public Accounts Committee.
  The existing rule in the clause for associates does not fit in with the changes which the Government are committed to make in the basic rule. An alternative to the present rule would cover group relief, though on somewhat broad-brush lines, but would let out the payments to overseas associates and therefore could be attacked as discriminatory.
  In all the circumstances, we have decided that the only practicable course is to accept that interest paid by a North Sea company to an associate should be treated under the ring fence, as regards both payer and recipient, in the same way as interest paid to a non-associate, so far as it is paid at a reasonably commercial rate. I am sure the Opposition will welcome this move because it ties in with a number of points strongly made by the oil companies.
  There are one or two other matters about which there is some concern and which I should seek to make clear. First, there is nothing to prevent a parent company—this is particularly important for overseas parents—putting minimum share capital and maximum loan capital into a subsidiary, so that virtually all its income from the subsidiary is taken in the form of interest payments. In view of the large amounts of money involved, we are reviewing the question to see whether it is appropriate to give companies the unfettered right to continue in this way. Although the basic rate income tax, deducted at source, will normally be charged on such interest, this does not fully compensate the Exchequer, with income tax at 33 per cent., for the corporation tax relief to the paying company at 52 per cent.
  1796
  Again, I wish to reserve the Government's right to review this matter.
  The third point concerns arm's length lenders. This would normally require a North Sea company to repay the loans over a short period, often by reference to the rate of production of oil. An associated company, however, could leave the money on loan indefinitely to enable the group to keep a large slice of North Sea income outside the ring fence over an indefinite period. I should like to consider a rule which would deem such loans to be repaid over a normal commercial period. There is the risk that certain devices would be used to write up the loans from an associate to amounts far in excess of the actual North Sea expenditure, so that even with a "commercial" test for the rate of interest, the actual interest withdrawn from the ring fence could be inflated. Again. I wish to consider whether special measures are needed to prevent this happening.
  Finally, I wish to deal with the detailed effect of this operation. Amendments No. 227 and 228 provide for the clause, as modified, to have effect only as regards such part of an accounting period as falls after 11 th July 1974, or a period falling wholly after that date. As the clause stands, it applies to the whole of any period straddling 11th July. We believe this to be appropriate as regards the starting date of the clause. We reject the view that it is retrospective to apply the clause, from the date of the White Paper, to payments made under existing agreements. We have made substantial relaxations in the clause and hope that the Opposition will not press their proposals.
  I think I have given a fair indication of the way in which the clause operates as reconstructed, and I shall be happy to deal with any further points.
  Mr. Patrick McNair-Wilson: This is a tremendous improvement in the situation. We made clear in Committee that Clause 13 should never have been included in the Bill as drafted. Therefore, it was refreshing to hear the Minister justifying the changes which we suggested should be made. He has met the points which we pressed in Committee. My only concern is that he has not been able to go the whole way.

  1797
  Subsection (4) sticks out like a sore thumb. If a company pays to an associated company a charge on income which does not consist of payment of interest, the charge will not be allowable. The Minister has tried to explain to us why that will be the case. If he is prepared to take the risk of changing the purpose for which the money is borrowed, why cannot he go the whole distance and tidy up subsection (4) as well?
  Amendment No. 88 is substantial and important. The Minister should search his heart and decide whether he is not being over-suspicious. I recognise the difficulties which the Government have experienced throughout the debates on the Bill, and their terror of creating loopholes through which oil companies can climb. Since the Minister is prepared to go this far with Clause 13, I do not think he should worry about subsection (4). I think that Amendment No. 88 tidies up this clause finally and completely. Since the Minister has introduced an amendment to allow the deduction of interest paid to an associated company, why cannot he extend it to other charges?
  Mr. Robert Sheldon: From time to time Finance Bills are brought before the House. If it were possible to extend the concession in the way proposed by the hon. Gentleman, we should be in a position to do so, but without any commitment.
  Mr. McNair-Wilson: That is a step forward. I take it in the spirit in which it is meant. In view of the fact that all legislation has to be reviewed from time to time, we leave on record our determination that our amendment is the right one but do not press it to a Division.
  Amendment agreed to.
  Amendments made: No. 229, in page 20, line 31, leave out from ' except ' to end of line 6 on page 21 and insert—

  '(a) to the extent that it was payable in respect of money borrowed by the company which is shown to have been used to meet expenditure incurred by the company in carrying on oil extraction activities or in acquiring oil rights otherwise than from a connected person or to have been appropriated to meeting expenditure to be so incurred by the company; and

  (b) in the case of interest paid by the company to a company associated with it, to the extent that (subject always to the preceding paragraph) the rate at which it was
  1798
  payable did not exceed what, having regard to all the terms on which the money was borrowed and the standing of the borrower, was a reasonable commercial rate.

  Section 533 of the Taxes Act (connected persons), shall apply for the purposes of this subsection.'.
  No. 228, in page 21, line 12 at end insert—
  '(5) The preceding provisions of this section—
  (a)shall have effect as regards accounting periods beginning after 11th July 1974;
  and
  (b)in the case of an accounting period beginning on or before and ending after that date, shall have effect as regards the allowance of interest paid and other charges on income against income attributable to the part of the period falling after that date;
  and there shall be made all such apportionments as arc necessary to give effect to paragraph (b) above'.—[Mr. Dell.]
  Mr. Patrick Jenkin: I beg to move Amendment No. 89, in page 21, line 12, at end insert:
  ' (4) Nothing in this section shall have the effect of disallowing any charge on income under the said section 248 paid under an arrangement made before 19th November 1974.
  (5) Where any charge on income has been disallowed by virtue of the provisions of this section and the payment concerned would, but for this subsection, be treated as income subject to corporation tax in the hands of the recipient, then the payment shall not be treated as so subject'.
  This is a point similar to that contained in an earlier amendment, to the effect that the Bill should not upset established arrangements and disallow corporation tax. Charges which would normally have been allowed for PRT are to be disallowed with retrospective effect. The Bill makes sweeping changes. Although the ring fence was foreshadowed in the White Paper, the precise details were not apparent until the Bill was published. In those circumstances it is right that the arrangements made before the date of publication of the Bill should be exempted from the disallowance which the Bill provides.
  10.15 p.m.
  Mr. Robert Sheldon: I do not think that I have anything more to say about this matter, which I dealt with under the previous amendment, when I pointed out the nature of the concessions which had been made regarding the interest charge and the problem of accounting periods straddling that date.

  1799
  I pointed out that these were very valuable concessions, and I had hoped that the right hon. Gentleman would accept that they went a long way to meeting his points.
  Amendment negatived.

Clause 16

  INTERPRETATION OF PART II
  Amendments made: No. 196, in page 22, line 43, at end insert—
  '(a) in searching for oil in the United Kingdom or a designated area or causing such searching to be carried out from him ; or '.
  No. 205, in page 23, line 1, leave out
  'held by him authorising the extraction '
  and insert
  authorising the extraction and held by him or, if the person in question is a company, by the company or a company associated with it '.
  No. 206, in page 23, line 6, leave out
  ' rights held by him authorising the extraction '
  and insert
  authorising the extraction and held as aforesaid '

  '61

  …

  …

  …

  In subsection (1) omit the words from "distrain upon "to "is charged or ".

  62(1)

  …

  …

  …

  Omit "or which are payable for the year in which the seizure is made ", and for "one year" and "one whole year" substitute "two chargeable periods"

  (2)

  …

  …

  …

  For "one whole year" substitute "two chargeable periods ".

  63

  …

  …

  …

  —

  64(1)

  …

  …

  …

  For "one year" and "one whole year" substitute…"two chargeable periods".

  (2)

  …

  …

  …

  For "one whole year" substitute "two chargeable periods ".

  66

  …

  …

  …

  —

  67

  …

  …

  …

  —

  This is an amendment which extends the Revenue's powers of collection of PRT so as to enable distraints to be levied for any outstanding tax or interest on that tax, or for arrears to be pursued in the county court or, in Scotland, the sheriff court and the sheriff's small debt court, bringing the powers into line with those for the collection of other taxes. This concerns moneys of a smaller value than those which we have been considering, and the amendment is required as a result.
  Mr. Alison: Presumably it is for that reason that the Minister is substituting two chargeable periods throughout for one year. Is it purely because it will be related to the collection of PRT and the exercise of distraints in that narrow
  No. 197, in page 23, line 6, at end insert or
  (c)in effecting or causing to be effected for him the initial treatment or initial storage of oil won from any oil field under rights authorising its extraction and held as aforesaid;
  No. 198, in page 23, line 9, at end insert—
  '(2) For the purposes of subsection (1) (c) above—

  (a)the expression "oil field" and" inital treatment" have the same meaning as in Part of this Act ; and

  (b)the definition of "initial storage" in section 10(1) above shall apply but, in its application for those purposes in relation to the person mentioned in subsection (1)(c) above and to oil won from any one oil field, shall have effect as if the reference to the maximum daily production rate of oil for the field as there mentioned were a reference to that person's share of that maximum daily production rate, that is to say a share thereof proportionate to his share of the oil won from that field '—.[Mr. Dell.]

Schedule 2

  MANAGEMENT AND COLLECTION OF PETROLEUM REVENUE TAX
  Mr. Robert Sheldon: I beg to move Amendment No. 175, in page 27, line 12, at end insert—
  context? If that is the case, it makes sense to substitute two chargeable periods for one whole year, but it will be very complicated if every time a year is mentioned in a tax Act two chargeable periods have to be substituted. I hope that the amendment is limited strictly to the collection of PRT.
  Amendment agreed to.
  Further amendments made: No. 236, in page 28, line 36, leave out
  ' crude oil disposed of by him '
  and insert:
  oil disposed of by him crude (other than oil delivered as mentioned in (bb) of this subparagraph) '.
  No. 200, in page 29, line 3, after each ', insert relevant '.
  No. 201, in line 4, leave out ' to refining or other processing '.
  No. 237, in line 12, at end insert—
  '(bb) in the case of crude oil delivered to the Secretary of State in the period under the terms of a licence granted under the Petroleum (Production) Act 1934, the return shall state the total quantity of the oil; '.
  No. 202, in line 14, leave out ' so ' and insert ' relevantly '.—[Mr. Dell.]
  Mr. Robert Sheldon: I beg to move Amendment No. 176, in page 34, line 50, leave out ' by reason of ' and insert:
  ' and that the deficiency resulted from'.
  This is a drafting amendment. It applies to part of the provisions which enable the board to make an additional assessment.
  Amendment agreed to.
  Further Amendments made: No. 159, in page 35, line 49, leave out ' natural'.
  No. 164, in page 36, line 42, after ' per cent.' insert ' per annum'.
  No. 165, in line 49, at end add:
  ' 16. Where any amount of tax charged by an assessment to tax becomes repayable under any provision of this Part of this Act that amount shall carry interest at the rate of 9 per cent. per annum from four months after the end of the chargeable period for which the assessment was made until repayment'.—[Mr. Dell.]

Schedule 3

  PETROLEUM REVENUE TAX: MISCELLANEOUS PROVISIONS
  Amendments made: No. 203, in page 37, line 27, at end insert:
  ' (a) the contract requires the oil to have been subjected to appropriate initial treatment before delivery ;
  No. 238, in page 38, line 28, at end insert:
  'Oil delivered in place of royalties to be disregarded for certain purposes
  4. Oil delivered to the Secretary of State under the terms of a licence granted under the Petroleum (Production) Act 1934 shall be disregarded for the purposes of section 2(5) of this Act and for the purposes of the references in section (Oil allowance) (3) and (4) of this Act to a participator's share of the oil won and saved from an oil field in a chargeable period'.
  No. 223, in line 30, leave out paragraph 4.
  No. 108, in page 42, line 15, at end insert:
  10.—(1) Where a participator has made an election under paragraph 9(1) above, section (Oil allowance) of this Act shall have effect in his case subject to the following provisions of this paragraph.
  (2) The reduction made under subsection (1) of that section for any chargeable period shall not exceed the reduction which would have fallen to be so made if the participator had not made any such election.
  (3) If for any chargeable period the reduction which would, apart from this subparagraph, fall to be made under the said subsection (1) is less than it would have been if the participator had not made any such election, an amount equal to the difference shall be available for use under the following sub-paragraph as regards subsequent chargeable periods.
  (4) For any chargeable period for which a reduction falls to be made under paragraph (a) of the said subsection (1), so much, if any, as the participator may specify of, or of the unused balance of, any amount available for use under this sub-paragraph by virtue of subparagraph (3) above shall be used by treating for all purposes of the said section (Oil allowance) the cash equivalent of his share of the oil allowance for the field for that period as increased thereby.
  Restriction of amount of reduction under section 8(1)
  11. Where—

  (a) a claim under Schedule 5 or 6 to this Act is made after the relevant time ; and

  (b) the reduction which would, apart from this paragraph, fall to be made under subsection (1) of this section (Oil allowance) of this Act for any chargeable period is greater than it would have been if the expenditure and other amounts allowed on the claim had been claimed before and allowed at the relevant time,

  then, if the Board so direct, the reduction made under that subsection for that chargeable period shall be only what it would have been if the expenditure and other amounts allowed on the claim had been claimed before and allowed at the relevant time.
  In this paragraph "the relevant time" means the end of twelve months from the end of the claim period to which the claim mentioned in sub-paragraph (a) above relates '.—[Mr. Dell.]

Schedule 4

  ROVISIONS SUPPLEMENTARY TO SECTIONS 3 AND 4
  Amendments made: No. 209, in page 43, line 33, leave out from ' consideration ' to end of line 35 and insert:
  'while in use in that connection or not more than two years after its use in that connection permanent ceases'.
  No. 210, in line 38, leave out from beginning to end of line 16 on page 44 and insert—
  '(c) the person to whom the disposal is made is not a person connected with a participator ; and
  (d) the amount or value of the consideration received or receivable for the disposal is not less than the price which the asset might reasonably have been expected to fetch if sold in the open market at the time of the disposal,
  sub-paragraphs (2) to (4) below shall have effect.
  (2) If the disposal occurs without the asset permanently ceasing to be used in connection with the field, its use in that connection shall for the purposes of section 4 of this Act and the following provisions of this paragraph be deemed to have permanently ceased at the time of the disposal.
  (3) If the disposal takes place not later than the end of the claim period in which the use of the asset in connection with the field permanently ceases, the proportion of the expenditure allowable under section 4 of this Act for the relevant period (that is to say the period which, in relation to that claim period, is the relevant period for the purposes of subsection (7) of that section) or, if the claim period in question is the first relevant claim period (as defined in that section), the proportion of the expenditure so allowable for that claim period shall be computed under that section subject to the provisions of subparagraph (3B) below.
  (3A) If the disposal takes place after the end of the claim period in which the use of the asset in connection with the field permanently ceases, then, as regards the claim period in which the disposal takes place—

  (a) subsection (7) of section 4 of this Act shall have effect in relation to the asset as if its use in that connection had permanently ceased in that claim period (but so that for the purposes of subsections (5) and (6) of that section as applied by the said subsection (7) the asset shall not be treated as having been used in that connection at any time when it was not so used); and

  (b) the proportion of the expenditure allowable under that section for the relevant period (that is to say the period which, in relation to that claim period is the relevant period for the purposes of the said subsection (7) shall be computed under that section subject to the purposes of sub-paragraph (3B) below.

  (3B) For the purposes of the computation mentioned in sub-paragraph (3) or (3A) above, as the case may be—

  (a) the amount of the expenditure incurred in acquiring, bringing into existence, or enhancing the value of the asset which would otherwise fall to be taken into account shall be treated as reduced by the amount or value of the consideration received or receivable for the disposal (or, if equal to or smaller than the amount or value of that consideration, as reduced to nil); and

  1804

  (b) the asset's useful life shall be treated as having ended at the time of the disposal or, if the asset permanently ceased to be used in connection with the field before that time and was neither used not available for use by anyone in the interval between its permanently ceasing to be so used and the time of the disposal, at the time when it permanently ceased to be so used'.

  No. 211, in page 44, line 19, leave out from ' thereof ' to above ' in line 20 and insert
  'would be allowable under section 4 of this Act apart from sub-paragraph (3B)(a)'.
  No. 212, in line 22, leave out is' and insert would be '.
  No. 213, in page 45, line 29, leave out ' paragraphs 4(1) and' and insert paragraph '.— [Mr. Dell.]

Schedule 5

  ALLOWANCE OF EXPENDITURE (OTHER THAN ABORTIVE EXPLORATION OR DE VELOPMENT EXPENDITURE)
  Mr. Robert Sheldon: I beg to move Amendment No. 166, in page 48, line 14. leave out less than six months or'.
  The purpose of this amendment is to remove the initial time of six months before the responsible person or, where appropriate, the participator, can appeal to the Special Commissioners against the board's decisions on expenditure claimed. The amendment arises as a consequence of discussions in Committee, when we pointed out that the original period of six months was set to provide that automatic appeals, which would bring into play the whole of the operation of the appeals machinery, should not be lodged.
  In discussions with the oil companies we became convinced that unacceptable administrative burdens resulting from the lodging of an appeal would not be produced purely as a formality to keep the matter open. We are pleased to accept the suggestion put forward from so many quarters to remove the initial six-months' limit. The responsible person, or the participator, will then be able to appeal to the Special Commissioners immediately he receives the board's decision on expenditure claims.
  Mr. Gray: This is an amendment which my right hon. and hon. Friends pressed for in Committee. We are delighted to welcome it now and are glad

  1805
  that the Government agreed with the representations made to them.
  Question put and agreed to.
  Amendments made:
  No. 179, in page 49, line 34, leave out sub-paragraph (4).
  No. 180, in page 50, line 15, leave out sub-paragraph (4).
  No. 181, in page 50, line 22, at end insert ' per annum '.—[Mr. Robert Sheldon.]

Schedule 8

  ALLOWANCE OF ABORTIVE DEVELOPMENT EXPENDITURE
  No. 147, in page 52, line 40, leave out from ' ceased ' to ' he ' in line 43.
  No. 148, in page 52, line 45, leave out ' ceased permanently and in those circumstances ' and insert ' permanently ceased'.
  No. 149, in page 53, line 3, leave out sub-paragraph (2).
  No. 150, in page 53, line 9, leave out ' abandoned oil field ' and insert ' field in question '.
  No. 151, in page 53, leave out lines 17 to 27 and insert—
  'Claims by participators for allowance of unrelievable field losses
  4.—(1) A claim for the allowance, in connection with an oil field, of any unrelievable field less allowable under section (Allowance of unrelievable loss from abandoned field) of this Act in the case of a participator in that field must be made by the participator to the Board and must be made within six years of the later of the following dates, that is to say the date of the decision (whether of the Board or on appeal from the Board) that the winning of oil from the oil field in the case of which the loss accrued has permanently ceased, and the date of the determination under Schedule 1 to this Act of the last-mentioned field'.
  No. 152, in page 53, line 40, leave out from ' made ' to end of line 41 and insert
  ',for references to the claiming or allowance of expenditure, of references to the claiming or allowance of an unrelievable field loss and, for references to section 3 or 4 of this Act, of references to section (Allowance of unrelievable loss from abandoned field) of this Act '.—[Mr. Robert Sheldon.M]

Schedule 9

  EXTENSION OF SECTION 485 OF TAXES ACT IN RELATION TO PETROLEUM COMPANIES.
  Mr. Robert Sheldon: I beg to move Amendment No. 216, in page 55, line 20,
  1806
  leave out consisting of petroleum or petroleum products '.
  This amendment is designed to ensure that an important part of the strengthened transfer pricing rules applied to oil companies by Schedule 9 is not confined to their transactions in oil and oil products but extends to other transactions, such as tanker freights. The purpose of the schedule is to strengthen the existing transfer pricing rules, in Section 485 of the Taxes Act, primarily in respect of transactions in oil produced outside this country. It is also intended to extend to other transactions between oil companies and their associates, mainly because such transactions could be used, by means of artificial transfer prices, to diminish oil profits. Among other things it extends to charges for transport and other services in respect of United Kingdom oil production, although not to the transfer price of the oil itself, which is governed by Clause 12 as regards corporation tax. We feel this to be an essential part of the Bill.
  Mr. Patrick Jenkin: The Government seem to be pulling a fast one here by slipping in this amendment. It substantially widens the effect of Clause 17 and Schedule 9. It is almost taking advantage of an industry which is being dealt with here in a special fiscal way. When the Bill was originally produced there was, with the full support of the Opposition, a recognition of the need to close the loopholes which had allowed big artificial losses to build up by reason of the posted price system. This system, as it operates in the OPEC countries and other oil-producing countries, gave rise to losses which were allowed to build up because the rules about artificial transfer prices did not apply to transfers which took place between two resident companies.
  As we know and as has been spelled out in the Select Committee's Report, for a number of years under both Labour and Conservative Governments, that gave rise to the substantial losses which resulted in oil profits in this country not being properly taxed. Indeed, my right hon. Friend the former Member for Altrincham and Sale, now Lord Barber, as Chancellor of the Exchequer accepted in full the recommendation of the Select Committee. The effect of the amendment is to extend this matter far beyond the

  1807
  Select Committee's proposal and anything which was accepted by my right hon. Friend. This cannot arise from the posted price system.
  The hon. Gentleman said that this proposal referred to tanker charters and other transactions of that nature. I suggest that he is now applying to oil companies tax rules which could equally apply to many other companies. If it is right to extend Section 485 to charter parties and things of that kind for oil companies, why is it not equally right to extend those rules to other shipping companies? If it is right to extend it to agreements for the sale or hire of other goods and the provision of services for oil companies, why it is not equally right to extend it to, let us say, mining, plantation, or other companies which might be expected to operate substantially overseas?
  This seems to be a dangerouse thin end of a wedge. We have all along accepted that because of the nature of the oil business it was right to deal with the oil trade in a particular way. This proposal goes far wider than that. By removing the impact of the paragraph, as originally drafted, from the sale of petroleum or petroleum products, the Government have extended to the rest of the activities of oil companies, in a dangerouse way, the special rules relating to the oil trade. This does not seem to be right.
  To slip this in—an amendment that looks like a minor one, but which has a major effect—in the last few days before the Bill leaves this House and goes to another place where it cannot be amended, is sharp practice. Were the hour not so late, we would want to express profound displeasure in the Lobbies, not so much on the substance of the amendment, though we do not like it, as on the manner in which it has been introduced. The Government should not treat legislation of this kind in this manner. This is not a mere reinforcing provision to make sure that the original proposal has the effect that was intended. This is extending the operation of Clause 17 and Schedule 8 far wider than anybody anticipated.
  Was this extension discussed with the industry? Was any proposal made to the industry? Were its views sought?
  1808
  If not, why not? While the hon. Gentleman gathers his thoughts for a reply, may I remind him of the question: was there any consultation with the oil industry, or with any of the firms engaged in it—I realise that they do not have any form of trade association in this country—whether the amendment should be made?
  We serve notice that if the Government attempt to repeat this kind of thing we shall treat the mater with great seriousness. This is a nasty, slippery piece of fiscal legislation, which smacks of sharp practice by Treasury Ministers and the Inland Revenue. I hope that they will not do it again.
  10.30 p.m.
  Mr. Robert Sheldon: The right hon. Gentleman talks about the thin end of the wedge. I know that he is very much alive to anything which seeks to tax the oil companies more heavily than he would wish them taxed. The whole House has come to recognise that he is a constant advocate on their behalf. There are times, however, when the interests of the community as a whole need to be taken into account, and when the problems of an important industry which we are anxious to encourage have to be weighed with the problems of the country. This is a valuable and useful provision.
  As for sharp practice, that is not decided by the Government. We did not decide when we produced the Bill that the clauses would so fit that this would be one of the last amendments to be dealt with. It just happens that transfer pricing comes at this stage.
  Mr. Patrick Jenkin: The Minister misunderstands me. Of course I do not complain about the place in which this provision comes in the Bill, but this amendment, totally unrelated to the rest of the amendments, was put down only last Thursday. I ask again whether any consultation was had with the industry on this matter.
  Mr. Sheldon: The complaint that the right hon. Gentleman was making—
  Mr. Gray: Answer the question.
  Mr. Sheldon: I shall answer the question, if the hon. Gentleman will contain himself. The right hon. Gentleman's complaint was that this had come late in

  1809
  the Bill and that there would be no possibility of a Division. We know why there is no such possibility—because his troops have gone home. But he should not feel aggrieved with the Government because he has sent his troops home before we had reached an amendment on which he now wishes that he could force a Division. That is not our fault; perhaps the matter should be discussed with the Opposition Chief Whip.
  This provision fits closely into the Bill, because the oil industry uniquely among such industries, provides its own transport as part of its methods of operation. It deals in transport to an extent unusual in other industries, so it is natural to make this kind of change. I believe that the tests are eminently fair for determining the transfer price for tax. If multinational groups are already using transfer prices which are fair to the Revenue, they have nothing to fear from the schedule; it will fit in with their existing practice.
  Although the amendment will provide that paragraph 6 will apply to all goods and services, it will do so only in relation to oil companies—that is, the companies carrying on their activities under paragraph 2 and then only if the transactions are such that their pricing affects the United Kingdom revenue. This is right. The right hon. Gentleman's criticism was rather extreme, and I hope that the amendment will be accepted.
  Amendment agreed to.
  Mr. Patrick Jenkin: I beg to move Amendment No. 142, in page 55, line 42, after sale ', insert ' first delivery '.
  Mr. Deputy Speaker (Mr. Oscar Murton): I understand that it will be convenient to discuss at the same time the following amendments:
  Government Amendments Nos. 217 and 218.
  No. 143, in page 55, line 42, after ' delivered ', insert
  'more than twelve months after the said date and '.
  No. 144, in page 55, line 46, leave out from ' made ' to end of line 47 and insert
  'on the date of each such delivery '.
  Government Amendments Nos. 219 and 220.
  Mr. Jenkin: We tabled this amendment because we felt it necessary to take account of the print of the single contract where decries are spread over 12 months or more. Since our amendment was tabled a number of other amendments have been tabled by the Government.
  So far as I can see perhaps the Minister of State will confirm this—the Government amendments entirely take our point and meet our objection, for which we are extremely grateful. However, it would be helpful if the hon. Gentleman would briefly explain exactly how the Government amendments will operate.
  Mr. Robert Sheldon: The question of the period of valuation of oil was discussed at considerable length on previous amendments and we dealt with the way in which we provide for the monthly valuation of oil at the mid-point period. This was a reasonable balance between the theoretical correctness of valuing each transfer of oil at the date of transfer and the problems which we had before the changes were introduced. It provides a fair, reasonable and balanced compromise, and as it was accepted on the previous amendments I hope that it will be accepted on this amendment.
  Amendment negatived.
  Amendments made. 217, in page 55, line 42, after sale ', insert (i)
  No. 218, in page 55, line 42, leave out from ' delivered ' to ' would ' in line 43 and insert ' within that time '.
  No. 219, in page 55, leave out line 47 and insert:
  'date of the sale ; and
  (ii) that such part of the property not so delivered as is delivered in any calendar month would have fetched a price equal to that which it might have been expected to fetch if sold under a contract for the sale of that part and of no other property, being a contract made at the material time in that month '.
  No. 220, in page 56, line 1, leave out sub-paragraph (2) and insert—
  '(2) In this paragraph "material time" and" calendar month "have the meaning given by paragraph 3(2) of Schedule 3 to this Act '. —[ Dell
  Motion made, and Question proposed. That the Bill be now read the Third time.
  10.38 p.m.
  Mr. Robert Sheldon:It is not often that one is present at the introduction of taxation legislation which levies taxes likely to bring in thousands of millions of pounds. The taxation legislation for which normally I have had responsibility or with which I was concerned in opposition related to taxes whose amounts were relatively small and which at best were likely to produce hundreds of millions of pounds.
  The way in which this Bill was prepared was wholly right. My right hon. Friend, in devising it, proceeded on the basis that it was important to achieve early legislation and to have the widest possible consultation. Anybody with experience of the way in which the Treasury operates will know that it was a unique innovation, whereby we had business men wending their way through the corridors of the Treasury in numbers never before seen in order to make representations eagerly awaited by the Government who wanted to learn about the oil industry in a way of which, I am afraid, the Opposition never quite got the measure.
  I know that the right hon. Member for Wanstead and Woodford (Mr. Jenkin) entertained the oil industry at great length. He was too readily persuaded by the arguments of people in that industry. Certainly never a breath of criticism of the oil companies ever crossed his lips in Committee or in this Chamber. When one considers that it is from their work that the revenue will flow, one would have expected at least a certain balance, at least so far, and that on occasion he might have conceded that they had gone further than the facts warranted. One would have expected that the people of this country and their Revenue ought to have had at least an equal time in his consideration occasionally. I felt, as did the bulk of the Committee, that the right hon. Gentleman had not had that degree of balance which I should have thought was an essential prerequisite of any Opposition spokesman speaking on a matter as important as this.
  We have seen the fundamentals of the Bill retained unimpaired—the questions of the ring fence, the prior charge and the field-by-field provisions. We have
  1812
  had the announcement of the rate and the take of the Government at a level of 70 per cent. We have a very workable scheme, which is understood by the oil industry and which gives the industry a fair share of the proceeds to make sure not only that it receives the fruits of equity but that it continues and increases its investment in the North Sea.
  When we come to survey this legislation at some stage hence we shall see that we have devised a scheme which is of benefit to all the participants in this most important industry.
  10.42 p.m.
  Mr. Patrick Jenkin: At this hour I do not intend to speak at length, although I must say that the Minister of State has risked provoking myself and my hon. Friends to reply at length to what was a monstrously unfair and inaccurate attack.
  The Minister should bear in mind that the Opposition, even when we were in Government, accepted without question one of the principle features of the Bill—namely, the ring fence, the removal of the artificial losses. On Second Reading I accepted without question the ring fence. We have accepted without question the need for additional taxation on the oil industry. To say that the Opposition did not give sufficient regard to the interests of the British taxpayer is sheer moonshine.
  What we have said all along is that the Government have chosen the wrong vehicle. In choosing a flat rate, prior charge, field-by-field tax, they chose an instrument peculiarly unsuited to the object they were setting out to achieve. The measure of that lack of suitability is the massive tally of amendments which we have accepted in Committee and on Report. Although those amendments have not changed the structure of the Bill they have changed its substance beyond all recognition.
  The Minister of State said that the scheme of the Bill remains unimpaired. His use of the word "unimpaired" was one of the most remarkable and inaccurate statements which the House has heard—at any rate since the Prime Minister's statement yesterday.
  The amendment of this legislation has been achieved partly—I concede this at once—by the extent to which the Ministers and their advisers have listened to

  1813
  the words of warning and the advice from the industry. I found it slightly surprising that if we moved an amendment which reflected a representation that the Government had had from the industry, we were accused of being merely the industry's mouthpiece. On the other hand, if we moved an amendment which had not been suggested to the Government by the industry, the immediate reaction of Ministers was that it was an amendment to which they needed to pay no attention at all because it had not been requested by the industry. The Government have tried to have it both ways in this respect, as we have seen several times this evening. The Bill has also been amended by the enduring devotions of my hon. Friends who, in Committee and today, on Report, have laboured long and with great expertise, and I thank them very much for their support.
  Ministers may not realise it, but the Opposition team on the Bill has had a remarkable record, perhaps stimulated by our success in this Bill. My hon. Friend the Member for New Forest (Mr. McNair-Wilson) and myself, who, perhaps, at one stage risked having our heads rolling, found ourselves confirmed in our posts. My hon. Friend the Member for Ross and Cromarty (Mr. Gray) has been elevated to the Front Bench, as has my hon. Friend the Member for Barkston Ash (Mr. Alison), and we are grateful to him that he has been with us to finish the Bill. My hon. Friend the Member for Croydon, Central (Mr. Moore) who, alas, has been unable to be with us on Report, has been made a vice-chairman of the Conservative Party. For a small, hardworking and devoted team that is a pretty remarkable record.
  We are not happy with the Bill, but we do not intend to vote against Third Reading because, broadly, it enshrines purposes with which the Opposition have a good deal of sympathy. But we believe the Government still to be taking grave risks with Britain's most vital natural asset, namely, our discoveries of offshore oil. I hope that my fears are ill-founded. I hope that the Government are right when they claim that the Bill provides a fiscal framework within which the oil industry can continue to do its work in exploration and development and in bringing these valuable discoveries of oil and gas ashore. I say that I hope that the Government are
  1814
  right, but I fear that they may not be. The Opposition will be watching with critical care and. considerable anxiety the developments in thiss industry over the months and years to come.
  If the Government have got it wrong, and if they have overloaded the industry with taxation so that it is persuaded, over the years, to move off to more favourable climes, the Government will bear a very heavy responsibility, which the electorate will visit upon them, I hope, with condign effect. We do not oppose the Third Reading. We have vastly improved the Bill. It leaves us to go to the other place in an enormously improved form, and I think that we on the Opposition side are entitled to some credit for that.
  Ministers have listened carefully and conscientiously to what we have said. There were times in Committee when we felt that to go on pressing the amendments amounted to a hardship on. Ministers.
  I end on this note: there is now among some extremely able and skilled advisers from the industry and elsewhere a well-established and flourishing society for the prevention of cruelty to Sheldons. We hope that the Minister of State will not feel that he has to make use of its services in the future. We leave the Bill with some regret. I have become rather fond of it. However, we hope it will achieve its purpose.
  10.48 p.m.
  Mr. Dell: I fear that I have to delay the House a little longer. I thank my hon. Friend the Minister of State for bearing the burden that was placed upon him and which he carried in taking this Bill so substantially through both Committee and Report stages. I am glad that at the end of the day the right hon. Member for Wanstead and Woodford (Mr. Jenkin) does not intend to recommend his hon. Friends to vote against the Bill, but his attitude to it seems a little odd. Apparently, it is a Bill which might still ruin our offshore industry, which might bring this country to disaster, and yet—
  Mr. Patrick Jenkin: On a point of order, Mr. Deputy Speaker. I thought that we were about to hear a debate on the social services. We are most intrigued to hear the Paymaster-General weighing in, because there are most important

  1815
  points about the social services to be dealt with. I hope that the message which has just arrived mea- that these proceedings can be brous to an end fairly soon.
  Mr. Deputy Speaker: That is not a point of order.
  Mr. Dell: I am grateful to the right hon. Gentleman for that intervention, and for the circumstances that make it possible for me to bring my remarks to a close.
  I hope that the Opposition do not seriously consider that the Bill will do such damage, or even that it has the potential to do it. If they do, I cannot imagine why they should have decided not to vote against it, even at this late hour on Third Reading.
  The Bill is an important addition to our taxation statutes. It will bring considerable revenue to the Exchequer.
  Mr. Peter Walker: If the right hon. Gentleman would like to listen to my Adjournment debate, as he is a Treasury Minister and I shall be asking for money to be spent, I shall be happy to listen to him.
  Mr. Dell: I should be delighted to listen to the right hon. Gentleman's Adjournment debate on another occasion. I welcome the right hon. Gentleman to the back benches and the opportunity to have Adjournment debates, which I am sure are very important.
  I see that my hon. Friend the Minister of State, Department of Health and Social Security, has arrived. He will listen to the Adjournment debate even more eagerly than I would have.
  I ask the House to give the Bill its Third Reading.
  Question put and agreed to.
  Bill accordingly read the Third time and passed.

  ADJOURNMENT
  Motion made, and Question proposed, That this House do now adjourn.—[Mr. James Hamilton.]

  HUNTINGTON'S CHOREA
  10.52 p.m.
  Mr. Peter Walker: I am grateful to the Minister of State for coming to reply to the debate, which is on a topic of immense importance to a small minority of people.
  The subject that I wish to raise is the problem of those suffering from Hunting-ton's disease and those who may suffer from that ghastly disease in the future. It is a disease that is inherited. It attacks the nervous system and results in all adverse effect upon bodily movement. It sometimes eventually affects the mental faculties. Frequently the disease does not develop until the person affected is in his forties, or even later.
  The first problem is to identify the disease. I hope that the Minister will have considered the problem of notification. I think that the Department does not have accurate information about the numbers affected. In 1972 we learnt from a reply to a Question that the Department estimated that the number of people suffering from the disease was 2,000. Less than two years later the estimate from the Department was that it was probably 3,000. I do not think that it would have calculated that there had been a 50 per cent. increase in that time.
  I have spoken to a number of those actively interested in the topic from a medical point of view. They tend to think that probably the figure is nearer 6,000, with many people not having been identified as suffering from the disease. Therefore, probably one in every 10,000 people in this country suffers from the disease. In a typical constituency, if we have the average incidence of the illness, we probably have 10 of our constituents suffering from it, and perhaps 40 of their children and grandchildren who live in dread that they have inherited the disease and will suffer from it. Half of them will almost certainly develop the disease before they die, and will perhaps die of it.
  It is usually a fairly slow-developing disease, although sometimes the development can be quite rapid. It usually results in the sufferer having to spend the last years of his life in hospital. Many sufferers have to spend those years in either psychiatric or geriatric hospitals, and the medical profession holds the

  1817
  strong opinion that many sufferers in psychiatric hospitals should not be there. The main reason for their being in that type of hospital accommodation is that a long period of hospital attention is required because of the nature of the disease. I ask the Minister of State to consider the possibility of providing for sufferers of the disease hospital accommodation which is not necessarily psychiatric or geriatric.
  There is need for a positive approach by the Department. This is a serious disease, ghastly for those who suffer from it and terrifying for those who know that they may have inherited it and that it will develop later in life. I wish to put forward eight constructive suggestions. I recognise that in replying to an Adjournment debate the Minister may be unable to commit himself, or to give a direct answer tonight, but I ask him to give careful consideration to my suggestions and to get his Department to come to conclusions on them. When he has done so I ask him to tell the medical profession and the sufferers from the disease what constructive approach the Department will develop.
  I ask the Minister to consider making the disease notifiable. If any disease should be officially notifiable it is surely this one. It is one which children and grandchildren are likely to inherit, and there is an even chance that they will inherit it.
  Notification of the disease could be linked with my second suggestion, which is that there should be an automatic routine of contacting the children and grandchildren of the person concerned, so that advice may be given to them by a genetic counsellor. It is vital that people should know immediately that they are likely to be carriers of the disease. Children often lose contact with their parents, and grandchildren often lose contact with their grandparents. It is therefore important for all who could have inherited the disease to be told and to be counselled on the pontential danger of their children inheriting it.
  Next, I ask the Minister to review the research programme. Some important work is being done. Those who are interested in this disease recognise the diligent work of Dr. Caro in East Anglia, which is producing interesting facts which
  1818
  would otherwise never have been discovered. The incidence of the disease in certain localities of East Anglia, for example, in Lowestoft, is far greater than might be thought. I hope that the Department will review its research programme and give help to the official organisation "Combat ", formed of interested people and sufferers from the disease.
  Dr. M. S. Miller: I am glad that the right hon. Gentleman has brought up this subject. Is he aware of the research institution in Glasgow in which is being carried out genetic engineering, not for the purpose of curing the disease—because it cannot be cured—but of eradicating it by determining before a child is born or at a very early age whether it carries this gene? I hope that the right hon. Gentleman will push the Minister of State to institute further research of that kind.
  Mr. Walker: I am grateful to the hon. Member for East Kilbride (Dr. Miller). I knew of that work. It is a valuable piece of research, which, over a period could assist in eradicating the disease. Unless it is done and done well, and conclusions are drawn from it and action is taken on it, this disease is bound to increase in the years ahead.
  The next suggestion I should like to make to the Minister is that more should be done to brief the medical profession and social workers about this disease. Because of its comparative rarity, those who have some knowledge of the disease feel that many doctors in general practice do not correctly diagnose it, and that many social workers who are brought into contact with families who have a member suffering from the disease do not recognise the considerable emotional tensions and anxiety that arise in the family. I hope that the medical profession and social workers who are likely to come into contact with the disease will be able to obtain a more positive and complete briefing, and that there will be more of a rethink than has happened in the past.
  The next suggestion I wish to make is that there should be a study of the feasibility of providing suitable hospital accommodation. Cases have been brought to my attention of people placed in psychiatric and geriatric hospitals

  1819
  having been made doubly unhappy by the surroundings in which they find themselves. Their medical advisers consider that they would be far better off if they were put in general hospitals rather than psychiatric or geriatric hospitals. In the localities where the known density of sufferers is higher than normal—and there are some where it is—it would be in the interests of sufferers to see that appropriate long-term hospital accommodation is made available to them.
  The next of my eight points concerns the question of attendance allowance. This varies in different parts of the country. Certainly all those in the medical profession whom I have contacted who are aware of the effects of this disease are unanimous in the belief that anybody suffering from it needs proper attendance. I hope that it is the objective of the Department to see that those making judgments on attendance allowances make them in favour of providing such an allowance in a family where there is a sufferer.
  Likewise, the Department should give careful consideration to the overall social welfare and community care programme for those with this disease.
  Occupational therapy and treatment of that type can be very important to the patients, particularly in the early stages of the disease.
  It is interesting that in the United States, as in this country, this topic was largely neglected until a famous folk singer, Woody Guthrie, died of the disease. His widow devoted her time to trying to organise public opinion to urge the United States Government and the governments of the states to recognise the suffering and dangers resulting from the disease. That has had an important impact in the United States, where a committee has been formed to combat the disease.
  It is also interesting that before the American Senate there are proposals for legislation to provide, in each of the next three years, $500,000 in grants for screening, treatment and counsel ; $½ million in grants for research and $150,000 for education and information.
  I believe that anybody who has ever come across a family suffering from this disease will recognise the real nature of
  1820
  the suffering. Not only do patients suffer from this creeping disease which gradually destroys the movement of limbs, retards speech and has an effect on mental processes; they also know that their children and grandchildren may have inherited the disease from them. The tensions are immense, and the anxieties on the part of those who may have inherited the disease are also very great. This is a small minority but a minority that suffers badly. I hope that the Minister will give careful consideration to what I have said and that his Department will take all possible action to alleviate the situation.
  11.7 p.m.
  The Minister of State, Department of Health and Social Security (Dr. David Owen): The right hon. Member for Worcester (Mr. Walker) is to be congratulated on raising this small—" small "in the sense that it affects a limited number of people—but major issue. It also raises a number of interesting concepts of how we deal with these problems.
  The right hon. Gentleman raised eight specific points, and I shall do my best to answer each and every one. Perhaps it will help the House if I begin by saying a few words about the nature of Hunting-ton's chorea. It is, as the right hon. Gentleman said, an inherited degenerative disease of the central nervous system. The problem is that the first symptoms of the disease generally manifest themselves at about 35 or 40 years of age, although on occasion they can appear either in childhood or in elderly people. The disease is a dominantly inherited genetic disorder, which means that each child of an affected parent will have a fifty-fifty chance of inheriting the disease. Early signs of the disease, such as unsteadiness when walking, or forgetfulness, are difficult to detect, and a firm diagnosis cannot always be made until the disease has progressed for a considerable time. This is more likely to occur if the sufferer is not known to come from a family affected by the disease. The symptoms become progressively worse until patients invariably have to enter either a hospital or residential unit, because nursing them in their own homes poses too many problems.
  Let me deal with the first of the right hon. Gentleman's points—namely, the incidence of the disease. He was right to

  1821
  say that estimates of its incidence have varied. The current estimate is about 3,000 sufferers, but I should be the first to admit that the estimate may not be correct. The right hon. Gentleman mentioned that it was possible the figure might be nearer 6,000. I hesitate to endorse such a figure, but I would not like to stand pat on the figure of 3,000.
  What can we do about the situation? The first thing I was asked was whether the disease could be made notifiable. That would involve problems. It is a difficult matter to trace and to cope with the problems and complexities of seeking to establish a register of known sufferers and members of families at risk. A systematic approach has much to recommend it, and I shall look carefully at the question of whether we could make the disease notifiable. Registers have been tried experimentally in some ranges of genetic disease. The Department is considering whether it would offer worthwhile opportunity to reduce the occurrence of the disease. A further difficulty in making the disease notifiable is that it is difficult to diagnose and, as the right hon. Gentleman said, it would involve briefing members of the medical profession and social workers on early diagnostic signs. I shall look into that matter.
  Secondly, the right hon. Gentleman raised the question of follow-up and counselling. These are vital matters. The child of an affected parent will have a fifty-fifty chance and many parents will conceive before diagnosis. If we are to stop the prevalance of the disease, it is important to trace sufferers at an early stage. Genetic counselling for prospectice parents is important. It has already been provided under the National Health Service through general practitioners, and special genetic advisory centres have been set up in each region. Late onset of the disease is one of the biggest problems in achieving effective counselling.
  That leads me to the right hon. Gentleman's point about briefing the medical profession and social workers. I admit that more needs to be done about this. One way of doing that is to make it a notifiable disease, which tends to concentrate more attention on it. It is a formidable task to guarantee that all professional staff are in possession of all the relevant information to pick up the early
  1822
  signs. However, I shall look at any way in which we can improve information about the disease. When considering notification we are bound to take into account the need to ensure that the early symptoms are known.
  The third point raised by the hon. Gentleman concerned the research programme. I shall be interested to hear whether the United States Senate approves this ambitious research project. Research is international. Research that is being done in many countries will help the United Kingdom.
  The hon. Gentleman mentioned East Anglia. The Department has recently approved expenditure of more than £16,000 over a period of three years from its central research funds to extend a project which has been financed to date by the East Anglian Regional Health Authority under its locally organised research scheme. The project aims at identifying sufferers and potential sufferers from the disease in East Anglia with the intention of assessing social and welfare needs, enabling improved planning of required facilities for care, and determining the advantages of tracing family groups to aid the provision of genetic counselling.
  The Medical Research Council is supporting a wide range of basic neurological work which could advance the knowledge of Huntington's chorea. The major part of the research programme at the MRC neurochemical pharmacology unit is concerned with studies of the biochemical changes underlying the disease. Other biochemical investigations are in progress at the MRC brain metabolism unit and in the Division of Molecular Pharmacology at the National Institute for Medical Research. The Department of Social Medicine at Edinburgh University is engaged on a project on the incidence and family distribution of the disease, and the Department of Psychiatry at Sheffield University has recently finished a project on cerebrospinal fluid amines in Huntington's chorea and other neurological conditions. The Department of Neurological Surgery at Addenbrooke's Hospital, Cambridge has also recently completed a research project on rigidity in Huntington's chorea from funds provided by the Mental Health Trust, which was concerned with biochemical aspects of the disease. The trust is now considering a proposal from the Department of Clinical Genetics at

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  the Welsh National School of Medicine dealing with some of the genetic aspects of the disease. A great deal is being done, but difficult problems are posed.
  The fourth point raised by the hon. Gentleman concerned the Association to Combat Huntington's chorea. He is right; the association has played a very important part since its foundation in 1971. It exists mainly to foster research into the disease but also makes a significant contribution to the welfare of sufferers and their families. My hon. Friend the Under-Secretary of State ressponsible for the disabled, and officials in the Department, met representatives of the association. At both of these meetings there were very full and useful discussions of the many problems involved. Following these discussions I am pleased to say that the Department has been able to increase its funding of research into this disease.
  I am considering other ways in which sufferers might be helped. I want to keep in close contact with the association. It is performing a valuable task in making more people aware of the problems involved in this disease.
  I have dealt with the briefing of the medical profession and social workers.
  The sixth point raised by the hon. Gentleman concerned available and suitable hospital accommodation. I have great sympathy with this. However, there are problems. When these patients become severe sufferers they are difficult to treat. They require heavy nursing facilities. It would be nice to promise that they would be treated close to their homes. I think that is an important factor. Many are admitted to psychiatric hospitals because of the mental aspect of the illness. However, I should not want to think that those were the only places to which they could go. We need additional smaller units for the chronic sick and the severely disabled. Much has already been done about that problem.
  I do not think we can look on this as a special disease category in terms of its treatment, because many of its manifestations are common to some other ailments. However, the fact that the disease is progressive and is genetic causes real concern. I will consider that, but I
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  do not think that I can offer any more than the overall provision, which I know is inadequate, for chronic disability.
  The right hon. Gentleman's seventh point related to the attendance allowance. Again, I do not think that we can say that all those who suffer from Huntington's chorea must have an attendance allowance. In the easly stages of the disease, they would not necessarily require it. But, as with other progressive conditions, when they become severely disabled there is no doubt that these patients should be eligible for the attendance allowance. I know that the Attendance Allowance Board shares the view that it is best and fairest for all concerned that entitlement to the allowance should be decided on an individual basis, depending on he facts in each case. It is important that the relatives of sufferers should know that they can claim the attendance allowance.
  I cannot comment on individual cases on decisions given by the board as the board is an independent authority set up under the Act of Parliament which introduced the allowance. If, however, a claimant is dissatisfied with a decision by or on behalf of the board, he or she has only to write to the attendance allowance unit, Norcross, Blackpool and ask for the decision to be reviewed. What is more, it may need reviewing fairly frequently, because the deterioration can go on. A person may be rejected on one occasion for attendance allowance and year later be a candidate for it.
  The right hon. Gentleman's final point dealt with the need for more national concern. How do we generate a feeling of concern about this and many other genetic diseases, and how do we arrange screening programmes? This relates also to community support and how much we are giving overall. It is not easy. It is a question of competing limited resources. But some of these degenerative diseases, where we know there is this dominant inheritance, pose very real problems. The early identification of families at risk is crucial. Genetic counselling prior to the decision to have children is of vital importance. There is no doubt that money spent sensibly and wisely there will not only prevent a great deal of hardship and misery to those families but will save a

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  considerable amount of money. Much has been done in research.
  The right hon. Gentleman's point that the incidence of the disease may be far greater than we currently think needs looking at seriously. I shall put this to my professional advisers. I shall look again at the question of notification. It has considerable attractions, on the face of it, but the problems of making it a notifiable disease are formidable. Experience seems to indicate that when a disease it made notifiable without being certain that cases can be picked up, an illusion of notification is given, almost generating the very atmosphere hoped to be avoided. But I am prepared to look at this. I am sure, from the right hon. Gentleman's knowledge and the research that he has done on the subject, that a number of professional people have put it to him that this is what they would like to see done. In the light of that, I shall take that suggestion away and perhaps look at the
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  experience of other countries who have notification to see whether this would help us.
  I cannot offer to those who suffer from Huntington's chorea any immediate prospect that a magic cure will be found for the disease, but I think that the research going on into the biochemical nature offers some prospect at some time. We are trying to discover more about its basic aetiology.
  As I said just now, the right hon. Gentleman spoke about public concern. He has raised the matter in this debate. He had brought it to my attention. It is an illness which, unfortunately, I had to deal with in a number of cases when I was involved in neurology myself. I will take up his points and see whether anything further can be done.
  Question put and agreed to.
  Adjourned accordingly at nineteen minutes past Eleven o'clock.