|As amended (in the Standing Committee), considered.|
|New Clause 1|
|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.
§ Mr. Speaker
On Clause 1, I understand that there is to be a general debate on various other matters.
§ Mr. George Reid (Clack mannan and East Stirlingshire)
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. Gordon Wilson (Dundee, East)
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 (Moray and Nairn)
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 (Dunbartonshire, East)
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
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).|
|5||(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|
|10||(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—|
|15||(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;|
|20||(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;|
|25||(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;|
|30||(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.|
|35||(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|
|40||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.|
|45||(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.|
|50||(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'.1656
No. 63, in page 13, line 11, at end insert:
(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 producedto 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 ".1657 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 (West Lothian)
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 1658 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 1659 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 1660 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.
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 1661 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 1662 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.
1663 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- 1664 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 1665 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 (Wanstead and Woodford)
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 1666 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.
§ Mr. Jenkin
There may be some who think it does. Perhaps I may quote some 1667 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.
§ 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 (Bolsover)
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. 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 announcementA job once botched cannot be unbotched quickly.
§ 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 1670 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 1671 is an attempt to turn this tax into a kind of excess profits tax it is a crude and clumsy weapon.
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 1672 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 1674 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 Jenkin
The 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. Phipps
I 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 1675 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 1676 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 1677 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 1678 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 1679 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 1680 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 1681 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 1683 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 (Derbyshire, South-East)
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 1684 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 1685 given as a tax concession. Therefore, there is reference to development and financing charges in that article.
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— 1686if 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 1687 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 1688 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 (Hamilton)
Would my hon. Friend agree that if anyone ever saw capitalism entrenched for 1689 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.
§ 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 1690 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 (Exeter)
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 1691 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 1692 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 1693 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.
1694 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 ina 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 1695 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 1696 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 1697 (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 1698 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 1699 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.
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 1702 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 1703 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 (New Forest)
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.
1704 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.
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 267.1711
|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)|
|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|
|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.