HC Deb 02 August 1978 vol 955 cc753-62

3.30 p.m.

The Chief Secretary to the Treasury (Mr. Joel Barnett)

We have come to the conclusion that there is scope for increasing the share of North Sea profits which accrue to the public.

When we fixed the rates and allowances for petroleum revenue tax at the beginning of 1975 we deliberately adopted a cautious approach. We set the rate of PRT no higher than 45 per cent. and we gave generous allowances and reliefs because of the great uncertainties at the time.

Now, however, though many uncertainties remain, we are in a position to take stock and it is apparent that some companies are obtaining very large profits from the natural resources of the nation. We believe that the public share of these profits can and should be increased without endangering the exploitation of the less well placed fields.

We do not propose to alter the structure of the tax or to remove the front end loading of allowances which, together with the safeguard provisions, serves to encourage the exploitation of marginal fields. But we do propose that the rate of PRT should be increased from 45 per cent. to 60 per cent. for chargeable periods ending after 31st December 1978. We propose also that the 75 per cent. uplift against PRT should be reduced to 35 per cent. in respect of qualifying expenditure under contracts entered into after today, and we propose to halve the oil allowance as from 1st January 1979. There will be special transitional arrangements for expenditure under contracts already entered into.

The details are set out in a press statement issued today. I am making copies available to hon. Members from the Vote Office.

Provisions to give effect to these proposals will be included in next year's Finance Bill. [HON. MEMBERS: "Oh."] I repeat, in next year's Finance Bill. With PRT continuing to be deductible for corporation tax, we estimate that they will increase public take by about £150 million in the financial year 1979–80. As regards later years, there are enormous uncertainties but we estimate that as the yield from PRT builds up with more fields coming on stream the public's share between now and the middle 1980s will be increased by something over £2 billion in total and by about £400 million per year thereafter at today's prices.

The oil allowance at its new level will continue to be of particular value to small fields, and the safeguard provisions will remain unchanged. If, nevertheless, there are worthwhile developments which prove to be uneconomic under the proposed new rates, the Government still have the means of assisting them in the shape of our powers to refund royalties free of PRT and corporation tax. Up to now we have not had to use these powers but Ministers stand ready to do so in appropriate circumstances in order that developments in the national interest go ahead.

My right hon. Friend the Secretary of State for Energy is today announcing the arrangements for the sixth round of offshore licensing including the blocks on offer. This early announcement of our intentions on tax will enable the oil companies to consider the proposals and, if they wish, to discuss them with the Inland Revenue.

The Government are conscious of what has been achieved on a basis of partnership between the public and private sectors. The right balance must be struck between the need to secure for the community a fair share of the benefits arising from the national resource which the North Sea represents and the need to leave the private sector with a rate of return which is fair in the light of the risks involved. The Government are satisfied that the changes which I have just announced will achieve a better balance.

Mr. Tom King

Is the Chief Secretary aware that we shall obviously need to examine these proposals in detail before commenting on them? Is he also aware that we have always placed the greatest emphasis on a proper tax regime for securing for the nation the benefits from North Sea oil, rather than on the Government's obsession with BNOC and increasing its powers, but that we accept that there is clear scope for adjustment of that tax regime?

Will the right hon. Gentleman confirm—it might put into a slightly different context the cheers of his hon. Friends—that the announcement that he has just made will amount to an extra £2 billion up to 1985, and that, as the Government's present estimate is some £25 billion over that period, it will add something under 10 per cent. to the present yield? In fact, will not the changes that he has made have very little effect on major discoveries which have already been made and for which contracts have already been signed, but be very damaging to the smaller discoveries which are likely to make up the bulk of future discoveries in the North Sea?

Finally, is it not utterly characteristic of the Government's whole approach to this matter that they produce a White Paper on how to spend all the untold riches that will flow to the nation from the North Sea and only months later actually address themselves to how they will raise the revenue?

Mr. Barnett

I think I noted that the hon. Gentleman was in favour of increasing the tax. Coming from a member of a former Government who virtually gave away North Sea oil, as most independent observers recognise. I take it that he is now in favour of the increase in tax. At least I am grateful to him for that. I note that he thinks that £2 billion is not all that great. I think that the £2 billion will be very helpful to future Labour Governments in the handling of the economy, and we shall deal with that accordingly.

On the other two questions about this proposal being damaging to small discoveries, he will be aware that adequate safeguards are available to ensure that we do not damage the national interest. What is required, as I hope he will agree, is that there should be a fair balance between the national interest and the interests of the oil companies. That is what this proposal seeks to do.

Mr. Ioan Evans

Does my right hon. Friend realise that the statement that he has made will be generally welcomed? However, we should like to have had it earlier than today. Does he realise that the people of Britain wish to see the offshore oil developed for the interests of the community as a whole? The view taken by many people was that the Conservative Government allocated the licences on the basis of a North Sea Bubble similar to the South Sea Bubble.

Mr. Barnett

I am obliged to my hon. Friend for his welcome. We exercised great care and consideration over the increase in petroleum revenue tax, and we hope to have further discussions with the oil companies. I am sure that the co-operation between the Government and the oil companies will continue in the very fine way in which it has occurred in the past.

Mr. Pardoe

Would the Chief Secretary care to estimate what the revenue from North Sea oil under this new tax regime will be in the next financial year compared with what it would have been had the Conservative Party's tax regime still been in force? Does he accept that our generation of politicians will be judged not by how much of the North Sea oil revenue goes to reducing taxation or increasing welfare benefits but by how far we use it to establish a firm industrial base for our children and grandchildren?

Mr. Barnett

I certainly agree with the hon. Gentleman's second point. It is important that, whatever we get from North Sea oil, we ensure that it is used for the benefit of the nation as a whole in creating the right kind of economic background.

I shudder to think how much would have been obtained under the tax regime proposed by the Opposition when I remember their criticism of virtually every element in the tax structure when the taxation Bill was first introduced.

Mr. Tom King

Two dollars a barrel.

Several Hon. Members

rose—

Mr. Speaker

Order. I shall do my best to call all those who have been standing. There is an enormous list of right hon. and hon. Members who want to speak in the major debate to follow.

Mr. Dalyell

Will not this package in general and the deductability of PRT from corporation tax in particular help to solve the problem of exploiting small fields of marginal value in a rational long-term sequence? Will my hon. Friend confirm that these financial measures help to solve that problem?

Mr. Barnett

As I pointed out to the hon. Member for Cornwall, North (Mr. Pardoe), there are more than adequate safeguards available to the Government, and I indicated in my statement that we are more than willing to use them to ensure that the national interest is taken into account in the development of small fields.

Mrs. Bain

Apart from reminding the Chief Secretary that the first licences allocated by the British Government to the North Sea oil companies was under the Labour Administration in the late 1960s and that they were handed out very cheaply, may I ask when the Treasury expects to announce what it will do with the extra funds? May we expect a reassessment of the oil funds, and may we expect environmental guarantees for the areas affected by oil developments?

Mr. Barnett

I can assure the hon. Lady that the proceeds from the petroleum revenue tax and, indeed, from all taxation, including the North Sea, will be used sensibly, as this Government have been doing for the last four and a half years.

Mr. William Hamilton

Will my right hon. Friend consider publishing in the Official Report the profits of the oil companies in each of the last five years and the tax paid by them? How does this tax regime compare with that of comparable countries? Does he think that the regime, which many of us think is too liberal to the companies in any event, will frighten the oil companies away from the North Sea?

Mr. Barnett

I do not believe that it will frighten away the oil companies. I think that they generally recognise that the position so far has been very generous and is still very reasonable in the return it will allow to them.

As for publishing oil companies' profits and taxes, as my hon. Friend will know, the publishing of profits and taxes of individual taxpayers is not part of our system.

Mr. Skeet

Is the Chief Secretary aware that this is just a piece of window dressing for the next General Election, the result of which he will not be in a position to witness? Is he also aware that the petroleum industry and the users of oil already pay £3 billion worth of taxation per year—which is roughly 8 per cent. of total revenue? Is he also aware that inflation in the North Sea is between 12 per cent. and 15 per cent. and that the return on the Ninian field is no more than about 16 per cent.? The risks have not abated.

Mr. Barnett

I am not sure about it being window-dressing, because we have a long time before the General Election in October 1979. What we are doing is making sure that a fair share of the proceeds of North Sea oil accrue to the public. It is absolutely true that oil companies already pay a fair amount of corporation tax. But up to 31st March 1978 they had not paid any petroleum revenue tax at all. As for inflation in the North Sea and the returns to particular fields, of course, as he will know, the internal rates of return to particular fields vary considerably. But, overall, from all the figures that I have seen, I am satisfied that this new tax regime will ensure that there will still be a reasonable return to the oil companies.

Dr. Phipps

Will my right hon. Friend confirm that the uplift provisions and the return on capital provisions already extant have not been changed, that they fully protect the smaller discoveries in the North Sea and that it is only the very large discoveries that will, in fact, be affected by this current change?

Does my right hon. Friend also agree with me that if President Carter in the United States had the benefit of the petroleum revenue tax, he would not now be having the kind of difficulties with his own Congress that he has in trying to raise the internal price of gasoline and petroleum products in the United States?

Mr. Barnett

I hope that my hon. Friend will forgive me if I do not get involved with the problems of the President of the United States. On the question of the uplift, as my hon. Friend appreciates, both in respect of small fields and large fields a lot of the capital expenditure will already have taken place, so they will still have obtained the benefit of the uplift at 75 per cent. But they will also have the benefit of the transitional arrangements, where public expenditure has been committed. When my hon. Friend considers the details of what I have said, I think he will see that most of the fields in the North Sea will be able to obtain what I have described as a reasonable return.

Mr. Forman

Will the right hon. Gentleman confirm that it was always foreseen that there would be a low return from petroleum revenue tax—at any rate, in the earlier years? Will he also con- firm that it is far preferable to take the nation's share of this surplus wealth in the shape of tax on profit rather than through unlawful and backdoor intervention by the British National Oil Corporation?

Mr. Barnett

I do not know what the hon. Gentleman is talking about when he mentions "unlawful and backdoor" methods. The British National Oil Corporation was set up by legislation in this House, and it is doing nothing unlawful or by backdoor methods.

As regards the low rate of return in the earlier years, the hon. Member is quite right. As I said earlier, we were particularly cautious about the levels of rate of PRT and the various safeguards and front-end loading we built into it. We now feel that it is necessary to improve that situation.

Mr. Adley

Will any of the money be set aside by the Government for the oil pollution fund? Will the Chief Secretary consult his right hon. Friend the Secretary of State and the Secretary of State for the Environment about what is the public interest in relation to local areas rather than national areas?

Mr. Barnett

On the latter point, every area of the country will benefit from the increased take that the Government will have. It will benefit everybody in the country, including local areas, such as the hon. Gentleman's, and I hope he will be pleased about that.

As for setting aside certain parts of revenue to deal with oil pollution, the Government do not believe it right to hypothecate particular parts of the revenue, but we shall deal, as we are now, with the problems of oil pollution.

Mr. Rost

What possible justification can there be for continuing to exempt the British National Oil Corporation from paying its share of the petroleum revenue tax unless it is a sinister Socialist motive to allow the BNOC to maintain its privileged trading advantage against the commercial oil interests which have to pay the tax and have to compete against it?

Mr. Barnett

I plead guilty to sinister Socialist motives in that respect. As the hon. Gentleman knows, there is no economic or financial difference whether or not there is a charge on the BNOC in respect of petroleum revenue tax, because the Government have it in their power to take whatever proportion of their revenues they require to the national oil account.

Mr. Viggers

Has not the Minister laid a rather clever smokescreen? Is it not the fact that it is now necessary to increase petroleum revenue taxes by one-third because the Government miscalculated in the past and their estimates of the receipt of petroleum revenue tax were wildly wrong?

Mr. Barnett

That is not at all true. Even an increase by one-third is not an increase in the total take by one-third, as the hon. Gentleman will appreciate. The increased PRT is offset against the company's profits for the purposes of corporation tax, and that reduces the take considerably. It was always intended that there should be a low yield while there were uncertainties at the beginning of the programme. We believe that it is right after more than three years to increase the take in the national interest.

Mr. Dodsworth

Will the Chief Secretary confirm that the required investment up to 1987 in the United Kingdom sector of the North Sea is approximately £22 billion and that the best way to finance it is through retained earnings? Does not this underline the Government's industrial strategy, which is to punish success and subsidise failure?

Mr. Barnett

That is an astonishing remark. The hon. Gentleman does not appreciate that his Government introduced a system of corporation tax that worked directly in the opposite direction—that is, to encourage distribution rather than retained earnings. I can agree with nothing that the hon. Gentleman says. There will still be 135 per cent. of capital investment available as an offset before petroleum revenue tax is paid, which I believe to be quite reasonable.

Several Hon Members

rose—

Mr. Speaker

Order. Before I call the hon. Member for Mid-Sussex (Mr. Renton) to introduce his Ten-Minute Bill, which I understand is to be opposed, may I say that nearly 40 minutes of our time will have been taken up before we turn to the major debate? More than 50 right hon. and hon. Members have already indicated to me that they will seek to catch my eye in today's debate on Rhodesia. Eleven Privy Councillors have indicated that they wish to speak. It will be evident to the House, therefore, that it is not likely that everyone will be called. I intend to follow the precedent set by my predecessor of not calling two Privy Councillors immediately after each other if they belong to the same party. In view of the very large number of hon. Members who wish to speak, I hope that no one will come to the Chair to advance his claim. It is difficult when so many right hon. and hon. Members wish to speak. In the words of my predecessor, Mr. Speaker Selwyn Lloyd, such action will be counter-productive"— and I mean it.