HC Deb 06 December 1976 vol 922 cc196-206

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

12.6 a.m.

Mr. Douglas Henderson (Aberdeenshire, East)

After trying for the Ballot for the Adjournment debate several times I am delighted to have the opportunity tonight to raise a subject which is probably of more concern to my constituents—and perhaps to those of my hon. Friend the Member for Banff (Mr. Watt)—than to any others in the United Kingdom. I am very pleased to see the Minister of State here to reply to the debate, because I feel that it shows that the Government are concerned about this matter. I look forward to hearing his comments at the end after he has heard what I have to say.

The nature of oil and gas developments in the North Sea to date has been such that very considerable pressures have been placed on the communities in Aberdeenshire and the North-East of Scotland as a whole to provide the facilities necessary to allow these developments to take place, and to provide them within a remarkably short space of time.

In my own constituency we have had developments at St. Fergus, at Peterhead and at Cruden Bay. All hon. Members will realise that coping with these projects and providing the infrastructure for them requires assembling men, material and equipment in substantial numbers and over a short period of time. It involves road improvements, expansion of drainage facilities, water supplies, schools houses and other community provisions. This in itself, because of the time scale, has caused conditions of disturbance and inconvenience to the communities concerned. These cannot be expressed in monetary terms, but the Minister will be aware that considerable disturbance has been caused in many of these communities by the need for these developments to take place. What can be assessed in monetary terms is the additional call on the public purse to deal with these problems.

I was one of those who campaigned for special assistance to be given to areas such as Aberdeenshire, which are facing quite unprecedented expenditure as a result of oil and gas developments. I was delighted when the Secretary of State at the time conceded the case and took the appropriate powers under Section 12, and particularly under Schedule 2, of the Local Government (Scotland) Act 1975.

I feel that it is so important for the case I have to argue tonight that I should perhaps remind the Minister of the wording of Schedule 2, because this is the crux of the problem. Paragraph 5 of the Schedule says that the Secretary of State may, as respects any year, make provision for the apportionment of a presribed part of the needs element —that is, of the rate support grant— among authorities incurring extraordinary expenses". Sub-paragraph (2) of paragraph 5 says that In this paragraph 'extraordinary expenses' means expenses of such categories and for such purposes as the Secretary of State, after consultation with such associations of local authorities as appear to him to be concerned, may determine should be supported by an apportionment under this paragraph". To clarify the somewhat obscure tone of that paragraph, in Second Reading debate on 20th January 1975, the then Secretary of State said: While the paragraph is expressed as relating to extraordinary expenses in general—not mentioning oil—the intention is to give assistance under it only to authorities affected by oil developments. Replying to the debate, the then Minister of State—now Secretary of State—said: I am glad that the oil provisions have been welcomed by hon. Members on both sides of the House. The reason why oil is not specifically mentioned in the Bill is that we want to maintain an element of flexibility. The provision may be used for other purposes in future, although I cannot anticipate what they may be. … By doing it in this way we shall be able to listen to representations from hon. Members and local authorities about the way in which we intend to operate the scheme, and if we are not bound by a precise formula written into the Bill we can make changes." —[Official Report, 20th January 1975 Vol. 884, cc. 1038 and 1177. It is refreshing to find an Act in which the powers are not so circumscribed that Ministers and those advising them have no opportunity of considering special difficulties in special cases. The indication that the right hon. Gentleman gave—that he would listen to representations from hon. Members and local authorities—is one that all those concerned will appreciate.

Tonight, I am speaking in support of my own local authority—which is also represented by my hon. Friend the Member for Banff—the Banff and Buchan District Council, which has made representations to the Minister. I am seeking to persuade the Government to reconsider their interpretation of the wording in the Schedule as it affects my constituency. My plea is in respect of a gas-related development. I understand that it falls, strangely enough, within the general definition of "petroleum".

The Offshore Petroleum (Scotland) Act 1975 refers to the Petroleum Production Act 1934, where petroleum is defined as any mineral oil or related hydrocarbon and natural gas existing in its natural condition or state. It cannot, therefore, be argued that gas-related projects fall into a different category from oil-related projects. The difference lies in the interpretation which the Secretary of State places on his willingness to assist local authorities with "extraordinary expenditure."

I make it clear that I support the proposition that the Secretary of State should not be too rigidly bound by these matters, and I welcome the flexibility. But this places on him the onus to examine with great care and sympathy the cases put to him by hon. Members and local authorities.

Since the passing of the 1975 Act, amounts have been allocated by the Government to meet this type of extraordinary expenditure. In a parliamentary answer to me on 11th November, the Minister of State gave the information that in 1975–76, £2½ million had been allocated and in 1976–77 £4.9 million. I understand, from the publication today of the Statutory Instrument on the Scottish rate support grant, that the figure for 1977–78 is £7.3 million.

When one considers that these amounts are being shared by 18 different local authorities and that they represent only a small fraction of the benefits to the Exchequer of the projects concerned, the Government can hardly be accused, even by the most reactionary Members of the Conservative Party, of any wild and uncharacteristic generosity in the allocation of money for public expenditure.

One may say that this is a fairly modest assistance to those who are in the front line of providing so much of the wealth on which the Government place so much reliance. The specific case that has given impetus to my local authority's representations is the application by Scanitro to build an ammonia plant at Peterhead. This was, of course, subject to a public inquiry to consider an outline application which the company submitted. The Secretary of State subsequently empowered the district council, by Article 10 direction under the Town and Country Planning Act 1972, to issue planning permission, subject to conditions and reserve powers in respect of the development. So, in principle, it could be said that approval has been given, and the dilemma facing the authority is the cost of providing the infrastructure.

The Banff and Buchan District Council has advised me that the annual costs of providing the houses and services for which it is responsible is about £55,000. Although I have not had the same figures from the Grampian Regional Council, I understand that the cost to it of providing the services required would be approximately four times that amount. Therefore, between the region and the district, the annual charges would be expected to reach £250,000.

Mr. Hamish Watt (Banff)

Does my hon. Friend agree that if this development were taking place in Norway the oil company would be expected to supply the infrastructure itself?

Mr. Henderson

I am grateful to my hon. Friend for that intervention. It brings me to the point that the local authority has endeavoured to solve the problem by asking the developer for assistance with the project, so far without success. The developer has estimated the cost of establishing the plant at £50 million, and I am led to believe that the company can expect between £10 million and £12 million in Government money, mainly from development area grants, whereas the hard-pressed ratepayer in the area will get no mercy in the outlay that will be necessary to provide the infrastructure.

It cannot be assumed that there will be any real gain to the community from the rateable value of the project. It is thought that the rateable value will be about £800,000, yielding about £1.2 million in rates. That may seem marvellous, until it is realised that the poor old ratepayer will be no better off, because the level of rate support grant will be reduced accordingly. I challenge the Minister to deny that that will be the case.

Unless there is a change of heart by the Government the bill for providing the services will be presented to the ratepayers. The recent decision by ShellEsso to discontinue its planning application in Peterhead does nothing to strengthen the hand of the local community in its dealings with the developer.

The Scanitro plant would be fed by natural gas from the Frigg field as a result of an agreement by the United Kingdom and Norwegian Governments. One part of this agreement was that Norsk Hydro, one of the participants in the Scanitro consortium, would be allowed to buy back the gas at a specially low rate. This project has arisen as a result of the Frigg gas being landed at St. Fergus, consequent upon the Government decision.

The district council has already incurred costs in dealing with the project. Twenty thousand pounds has been spent on a public inquiry, and I want to know whether, irrespective of the results, this will qualify for special assistance, or whether that is another bill that the local ratepayer must pick up. I am not asking the Minister for an instant conversion or an eleventh-hour change of heart; I am asking for a reasonable and responsible answer, which will allow the case to be reconsidered. A quarter of a million pounds a year is not a large sum in full public expenditure terms, particularly if it will yield several millions of pounds a year in relief to the balance of payments. If the Minister will say that he can see a purpose and merit in a meeting with myself, my hon. Friend the Member for Banff and the local authority representatives concerned to look again at this matter, I shall feel that perhaps we have made some progress, and that the stony heart of St. Andrew's House has been ever so slightly touched.

I welcome the Minister's continued personal interest in the problems of North-East Scotland. Last time he visited my constituency he brought the glad tidings that Peterhead Harbour was not to lose its independence and that the local people would continue to have their say in its running. Let him add to his reputation by agreeing to look again at the arguments on this matter and to hear the voices of the North-East which call for equity. We look at this as a test of the Government's good faith. The national Exchequer stands to gain a good deal from the development. Surely the local exchequer should not be penalised.

12.21 a.m.

The Minister of State, Scottish Office (Mr. Gregor MacKenzie)

I listened with considerable interest to the speech of the hon. Member for Aberdeenshire, East (Mr. Henderson) and I am grateful to him for raising this important subject. It is indicative of the interest that the House shows in this subject that there is tonight the largest attendance I have seen for an Adjournment debate for several years. Three parties are represented, which is an indication of the interest in the important oil and gas developments which are taking place in Aberdeenshire, East.

Aberdeenshire, East is a constituency which I know exceedingly well, having on one occasion attempted to persuade electors there to send me here—albeit that they preferred to send Sir Robert Boothby instead. I have never held that against them and, since then, I have always listened to them with considerable interest. It is right for the hon. Member for Aberdeenshire, East to stress his concern that expenditure on the infrastructure needed in support of development should not fall unnecessarily upon the local authorities within whose area the development lies. I welcome the opportunity to set out Government policy on this matter.

Local authorities receive, in the normal course, specific Government grants and subsidies directly related to the cost of providing certain services, such as housing, police, water supplies and sewerage. They also receive rate support grant, which is the means by which the Government give general financial support to local authorities to help pay for the services which they are statutorily required to provide, and which would otherwise fall on local rates alone. Rate support grant is given in aid of local revenues generally and not towards any one service.

Certain local authorities most affected by the impact of the North Seal oil discoveries had pressed on our predecessors the need for some special assistance as the population built up very rapidly. Soon after we came to power in 1974 the Government recognised that certain local authorities were being required to meet relatively heavy expenditure in providing the infrastructure required for offshore oil and gas developments and that these expenditures were placing on their rating resources an additional burden for which the normal system of financial support did not adequately cater. This was mainly because rate support grant is based on historical expenditure, and in the distribution of grant it is difficult to take account of rapid developments affecting a particular authority.

In such circumstances my right hon. Friend the then Secretary of State announced, in November 1974, that special financial assistance would be given to authorities providing additional infrastructure essential in support of oil and gas related developments. I am grateful to the hon. Member for Aberdeenshire, East for the remarks that he made tonight about that decision.

The special assistance is given in aid of a local authority's current expenditure. This means that the grant directly covers expenditure on such items as the cost of additional maintenance and of extra staff recruited because of oil and gas developments. More important, in the case of capital projects such as housing, new schools, road construction and drainage schemes, the grant covers the net loan charges which an authority has to pay when it borrows to finance these projects.

I need not trouble the House with details of what is a rather technical exercise, but the net effect of the grant as it has been operated so far is that Government grants have covered the increase in local rates which would otherwise have occurred. In short, the Government, in introducing the special assistance arrangements, were concerned to ensure that the cost of providing oil-and gas-related infrastructure did not fall unreasonably on the ratepayers of a limited number of local authorities.

The Government's decision was, of course, welcome, but the arrangements could not be open-ended. Certain criteria must be satisfied before expenditure is accepted for the special financial assistance. There are two main criteria. First, expenditure must be on works or services provided or extended because of developments relating to the exploration for, or exploitation of, petroleum in the North Sea or in any other part of the Continental Shelf. Secondly, the works or services must, in the view of my right hon. Friend, be essential and not merely desirable.

One main effect of these criteria is to exclude—and the circular is very clear on this point—the provision of infrastructure associated with oil refining or petrochemical projects. This seems to be a perfectly valid distinction—the Government wished to spare local authorities from the impact of servicing activities necessary in the national interest to get the oil and gas ashore. The Government, of course, wish to encourage downstream development, but we see this as normal industrial development using the available feedstocks.

At this point it is perhaps convenient to stress that petroleum in this context is taken to include not only oil but gas. This is the common interpretation within the oil business, and the various statutory definitions carry this meaning. It may be that the circular to local authorities does not make it sufficiently clear that gas-related infrastructure qualifies for the special assistance. My understanding is that local authorities are fully aware that gas-related expenditure does qualify for grant, but I shall certainly consider whether for subsequent years the circular could be expanded to meet this point.

Mr. Watt

Does the Minister not agree that extra classrooms for the children of the men who have come in to create the infrastructure of which he talks are essential, and not luxuries?

Mr. MacKenzie

That is the whole point of this debate. I am doing my best to meet the points raised by the hon. Member for Aberdeenshire, East. There are grants to cover many of these matters. I have already stressed that fact.

It is, however, clear that infrastructure provided in support of gas developments is eligible for the special assistance providing—and this is crucial—the developments were essential to the exploration and extraction of the gas. Within the Aberdeenshire, East constituency for example, assistance has been payable in respect of the 149 houses provided by Banff and Buchan District Council at Keyhead, St. Fergus, for personnel employed at the gas terminal there; and again at Keyhead, grant is being paid on capital expenditure incurred in the provision of recreational facilities. The hon. Member for Aberdeenshire, East can be assured, therefore, that local authorities incurring additional expenditure in the provision of infrastructure as a consequence of developments related to the exploration and extraction of gas will qualify for special assistance in the same way as they do for oil-related projects.

The hon. Gentleman referred to the ammonia plant at Peterhead, planned by Scanitro, and questioned the decision that infrastructure provided in the support of this project would not qualify for special assistance. I have followed the hon. Gentleman's arguments with interest. The fact is, however, that the project is the outcome of a purely commercial decision to use as feedstock gas from the Frigg field which is landed at St. Fergus. After the separation process at the St. Fergus terminal the gas is fed straight into the British Gas Corporation grid, and the ammonia plant will utilise the gas purchased from BGC without further separation. In other words, it cannot be held that the plant is essential to the main activities of exploration or extraction of the gas, as is, for example, the St. Fergus terminal itself.

I have discussed this case with Banff and Buchan District Council during my visit to the area in September. The council had represented—I hope the hon. Member did not misunderstand the answer I gave him on 5th November—that infrastructure provided in connection with the plant should be eligible for assistance. I am not persuaded by these representations. The hon. Member will appreciate that somewhere a dividing line must be drawn. We have established criteria against which claims for special assistance must be set, and I am satisfied that in this case the decision we have taken is correct.

It has been suggested that the siting of the plant is in some way tied to an agreement between this Government and the Norwegian Government relating to Frigg Gas. I can assure the House that the Government were not party to any agreement which provided for favourable treatment of a Scandinavian company in return for the landing of Norwegian Frigg gas in the United Kingdom. Nor were the Government party to any agreement in relation to a location for development associated with the landing of the gas which in any way pre-empted the planning decision on the siting of the Scanitro plant. The firm's proposal to build in the Peterhead area was therefore not one flowing from any Government action, but was based on normal commercial arrangements.

The hon. Gentleman also argued that to the extent that Banff and Buchan benefit from additional rate income flowing from the Scanitro project, they would suffer in terms of rate support grant. In this respect, however, the district would be in no different position from any other rating authority in whose area is located a major industrial development. This, of itself, is no argument for special treatment.

The hon. Gentleman also drew attention to the fact that the Scanitro project could benefit from normal regional incentives on a scale which makes possible Government assistance for infrastructure relatively insignificant. The point here, of course, is that he is not comparing like with like. The regional incentives are generally available to encourage much-needed development in assisted areas. Government assistance with oil-related infrastructure is a special scheme designed to meet very specific circumstances.

In the context of what is happening in the North-East of Scotland, I know that there is concern about the Shell-Esso separation plant. The issue has been raised from time to time. The companies at one time proposed to locate such a project in the hon. Member's constituency. Shell-Esso has now decided to seek planning permission for a site in Fife. I can appreciate that this is a disappointment to some of the hon. Member's constituents, but I emphasise that the companies' decision was taken on the basis of commercial judgment. The Government in no way sought to influence the decision.

I have sought tonight to underline the Government's determination that local authorities should not be required to meet, to an unreasonable extent, additional expenditure arising from the provision of infrastructure in support of oil-and gas-related developments. The special assistance arrangements that we have introduced are the earnest of that resolve and I am grateful to the hon. Member for mentioning that. The provisional settlements reached in the two years during which the assistance has been made available amount in 1975–76 to £2.5 million and in 1976–77 to almost £5 million—a substantial additional contribution. As the hon. Gentleman has said, the Order for 1977–78, laid today, includes a figure of £7.3 million for Scotland as a whole. I would not wish to let this opportunity pass without commending all the Scottish local authorities concerned for the splendid way in which they have risen to the challenge thrown up by the advent of oil and gas—

The Question having been proposed after Ten o'clock on Monday evening, and the debate having continued for half an hour, Mr. DEPUTY SPEAKER adjourned the House without Question put, pursuant to the Standing Order.

Adjourned at twenty-four minutes to One o'clock.