§ (Clauses 10, 17,18, 20, 23, 53, 68 and 91)
§ Again considered in Committee.
§ Question again proposed, That the amendment be made.
We know that bets are off since the Wembley conference and Labour Party policy is being rethought, but the 1548 hon. Member for Norwich, South appeared to advocate that the entire North Sea should be exploited by the oil companies purely on a service fee basis. That is a novel proposition and one to which the Labour Administration did not subscribe.
We have debated these matters three times in the past 13 months. The hon. Gentleman appears to be enamoured of Norwegian precedents. I am not prepared now to embark on a comparative discussion of our system of PRT and that of the Norwegians. I am advised that they are broadly comparable. These are evolving fields. The idea that oil companies should operate on a service fee basis is not consistent with our policies. If the hon. Gentleman feels that oil companies can be attracted on that basis, it will be interesting to see what he can glean from them. However, the point hardly arises on this amendment or this raft of provisions. We are merely improving on—smoothing—the petroleum revenue tax regime that we inherited from the previous Administration. We believe that it is right to increase the rates against the increase in the real price of oil that has undeniably taken place over the past five or six years.
I can argue in a friendly fashion with my hon. Friend whether the real increase has been two-thirds or one-third. It is common ground that there has been a significant increase in the real price of oil. On that basis, it is right for the Government to propose an increase in the rate, which is precisely what we have done. We have done no more and no less.
This is not an area in which it is possible to be dogmatic. It is necessary to strike a balance between the legitimate expectations of the Government of the day and the legitimate expectations of the oil companies for the risks that they have to run. I remind the Committee that since we last debated these matters in December of last year and January of this year there has been the tragic accident to a platform in the North Sea. That emphasised that this is not a risk-free business. The oil does not gush automatically out of the North Sea. It is not quite a windfall profit in the sense that Opposition Members describe it. It demands the committal of capital and expertise, and risks have to be run.
1549 Against the rather uncertain oil supply position, I hope that clause 91 and those with which it is associated strike a fair balance between the two interests. I hope, too, that my hon. Friend will not feel obliged to press his amendment to a Division. Although he has pursued an honourable and consistent course, I am sure that he will recognise that at the end of the day a fair balance has been struck and that the Government have taken full account of the factors to which he has drawn attention. If the picture were quite as black as he has painted, perhaps there would have been a slightly less favourable response to the seventh round.
On that basis, I hope that my hon. Friend will withdraw his amendment. However, the Committee is indebted to him for having provided the pretext for a brief but stimulating debate.
§ Mr. Skeet
I am a little disappointed, since a number of hon. Members wished to contribute to the debate and they 1550 cannot do so now. I know that one hon. Member on the Opposition Benches and one of my hon. Friends wanted to contribute, but perhaps they will have an opportunity in due course.
I am grateful to my hon. and learned Friend for his observations. This is a question of balance. It has to be established somewhere. I must look to the future. I emphasised that if only 12.6p in the pound is left to the companies to do the necessary exploration and development work in the future, that is not enough. But if my hon. and learned Friend is prepared to look at it again on some future occasion, and, providing that he does not have three major changes in the next year, I may be satisfied.
In view of the opportunity that I have had to put forward the arguments which I felt should be placed before the Committee, I beg to ask leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.1551
§ Question proposed, That the clause stand part of the Bill.
§ Mr. John Garrett
It would be wrong to let this clause go without at least briefly considering the future uses of North Sea oil revenue and getting an idea from the Minister of State about how he sees future policy developing, because I know that he takes a deep and close interest in this issue.
One of the most crucial problems facing any British Government in the 1980s is the use that is to be made of the flood of North Sea oil revenues into the Exchequer. It is clear that it suits the Treasury to understate the value of these revenues, as the Select Committee on the Treasury pointed out.
It appears that these revenues are to be the source and fount of the quaintly named fiscal adjustments or tax giveaways of the 1983–84 forecast in the Financial Statement. As we know, this flow of revenues represents a huge opportunity and a huge risk for our economy. Within five years we can expect a revenue flow of between £10 billion and £15 billion a year into the Exchequer. That excludes the obvious scope for increasing the tax rate or reducing the very generous reliefs against tax; it excludes a higher charge for licensing whether by auction or levy; and it does not take account of the new discoveries which are being reported or the improvements in prospects for formerly marginal fields. There will be a net current trading account contribution of between £7 billion and £8 billion a year, and a contribution to the GNP of between 4 and 5 per cent.
The Treasury has always played down the size of the benefit from North Sea oil because, in the words of The Observer of 24 February,it fears that the success of the North Sea will encourage the slothful ways of the British public and its tendency towards easy consumption.The Treasury also has a horror of earmarking revenues for specific purposes. Therefore it has always opposed the institution of a special North Sea fund. But it seems thoroughly mistaken or unwise to let North Sea revenues sink into the general fund of Government revenue. Surely we should consciously, as a nation, deploy our greatest national asset—oil money—to solve our greatest national 1552 problem, de-industrialisation and unemployment. We should like an indication of Government thinking. They have not given any such indication since coming to power.
Much has been made of the risks inherent in North Sea oil money, particularly the risk that it will be squandered on a level of public expenditure unsustainable when the oil has gone. This scenario is known as the Dutch disease, on the analogy of what is said to have happened in Holland with natural gas revenues. I am told by people who live in Holland that the Dutch disease is discernible only to British commentators. It is a matter of surprise to the Dutch themselves.
Holland is a successful and economically stable country due, to a large extent, to the rapid expansion of natural gas production, 50 per cent. of which has been exported. This wealth has enabled the Dutch virtually to eliminate poverty and to ensure a reasonable standard of living for all its citizens, including those made redundant by structural decline in the economy, to rehabilitate their inner cities, to build cultural, social and sporting facilities on a scale unimaginable in this country, to build an excellent public transport system and an infrastructure in public works, to provide a sound basis for economic development and to provide jobs in industries most susceptible to competition from low-cost labour.
If that is the Dutch disease, the quicker we catch it the better. Dutch public sector uses of the revenue of natural gas have put that country in an excellent position to face the future. Would that we had the sense to use oil revenues to meet our country's deficiencies in transport, education, housing, public works and jobs.
Four broad areas of possible use of revenues from North Sea oil were set out in "The Challenge of North Sea Oil", published by the Labour Government in March 1978. That was a discussion document. It opened the whole question to public discussion. It is time that the present Government produced a comparable discussion document. At least the Minister gave some indication of his thinking tonight. The Labour Government's document said that the four broad areas into 1553 which our oil resources might be channelled were investing in industry—I shall not go through all the ways in which that might be carried out—improving industrial performance, investing in energy and increasing essential services. That document enabled a genuine public debate to take place on the use to be made of the flow of oil revenues.
In those days the Government were talking of an annual oil public revenue for the State of perhaps £2 billion or £3 billion a year. We shall be talking, in a few years, of £15 billion. It is therefore all the more important to have some discussion of the Government's views. Conservative philosophy, I understand, is to hand out tax reliefs all round that will lead to massive investment abroad and not to investment in British jobs. It will lead to a consumer boom fed by imports and to overheated property and share speculation of a kind that is so often a feature of Conservative Governments. In the year 2000 people will look back and say " Why were they so foolish?" At the same time, the high value of an oil-backed pound will cripple our exports.
One alternative apparently canvassed in Tory circles—I was interested to read this in The Times of 19 March—is that the revenue should be wholly used to run down the Government's borrowing requirement to a point where a surplus could be created on the Government account. According to The Times, this would force British investors either into industrial shares or, more probably, into the acquisition of overseas assets. We would thus end the oil years with more foreign assets but far less investment in British industry.
We now face an unemployment rate of well over 2 million. Any solution other than channelling oil funds into jobs, preferably in manufacturing industry, would be a criminal waste. In April this year, Mr. Geoffrey Chandler, director general of the National Economic Development Office, made an authoritative and important contribution to the debate. He proposed a positive industrial policy, a means by which oil revenues can help to build the productive potential of this country and not just feed its propensity to consume, which also means, effectively, its propensity to import.
Mr. Chandler pointed out that our 1554 industrial competitors, from far stronger economic foundations, have no hesitation in using a constructive linkage to public and private endeavour and a selective array of assistance and intervention to create the basis for successful competition.
Mr. Chandler was reported in The Times as saying of oil revenues:' It is the only buttress that this country has to cushion its poor industrial performance. It will not last for ever and we have to use the time during which it is available to recreate an industrial potential against the day of its decline.If oil revenues are not to come and go unnoticed, if they are to be identified as a specific resource for production rather than consumption, then something needs to be done to undermine their crucial role and their ephemeral nature.'A debate on the national policy towards depletion of North Sea oil was overdue and might well be too late.10.15 pm
A week ago Mr. Peter Balfour, chairman of the Scottish Council for Development and Industry deploredthe continued disappearance of revenues from the North Sea into the ' cavernous maw ' of the Treasury.' Not to reinvest oil revenues to create new industries, new technologies, new skills, not to improve our productive capacity and international competitiveness, is tantamount to asset stripping of a most blatant kind.'Perhaps the Minister of State will give us a brief view of whether that opinion of someone who is well familiar with the need to regenerate industry in one of the most rundown parts of the country is sound.
The Government are not only purposely understating North Sea oil revenues but are purposely having nothing to say about their proper use. They are keeping quiet because they do not want our rising oil revenues to be used by our EEC partners as a reason for refusing a further cut in our contribution to the EEC budget. They are keeping quiet because they want to create the impression of an overwhelming need to cut public expenditure, which is not genuine. They are keeping quiet because they want to produce tax cuts out of a hat in time for the next general election. This crucial public debate is being stifled and avoided. It must take place. Revenues from the North Sea offer us our last chance of modernising industry and of creating many thousands of new jobs through a rational and planned approach to industrial reconstruction through the creation of new industries 1555 and new technologies. All we want to know is the Government's thinking on this subject.
§ Mr. Eggar
It has always surprised me how little comment there has been in the Committee and in the House about the PRT regime. The reason, I suppose, is that it is a specialist tax affecting a small number of companies—companies that are not exactly popular either with the electorate or with the Government. However, the North Sea and revenues from it are increasingly coming to dominate our economic debates and it is time we looked carefully at the arguments about oil taxation.
I do not seek tonight to be an apologist for the oil companies; they can get on extremely well without me. However, it is worth drawing attention to the evidence given by UKOOA to the Treasury and Civil Service Select Committee. It made three main points in its representations. The first was the lack of stability in the tax regime. Oil taxation has become the new economic regulator. I am not surprised that we had our last regulator debate two days ago.
If there is to be expenditure on future exploration in the North Sea, there must be certainty about the tax rates. Without it the risk assessment of the oil companies will go up and they will not explore in areas where otherwise they would have done so.
§ Mr. Anthony Nelson (Chichester)
I agree with a great deal of my hon. Friend's argument. It is fair to say that oil companies are entitled to make their capital investment projections and feasibility studies on the basis of a fixed or reasonably assessed rate of PRT. However, they also clearly take into account the basis of the return on the price that they will get for their oil. When PRT was introduced even the most optimistic oil companies could not possibly have guessed what the price of oil now prevailing would be. While the whole debate has been on the basis that the real price of oil may continue to rise, we have to face the reality that in a recession and a glut of oil the real price may decrease. In those circumstances, regrettable as it is that this tax has become in a sense a regulator, that is perhaps inevitable with a commodity whose price is extremely volatile.
§ Mr. Eggar
I do not differ from my hon. Friend the Member for Chichester (Mr. Nelson) in a word that he said. I shall refer later to the general theme that he has developed. However, I think that it is necessary that the oil companies know the basis of oil taxation and are certain as to the percentage of their profit that the Government will be looking to take from them.
The second point that the oil companies made concerned the way in which the percentage tax take—and this refers to the point made by my hon. Friend—relates to the real price of oil and in turn to their internal rate return. I was amazed that the Inland Revenue official, in evidence to the Committee, stated quite blandly that every single PRT change introduced by the Government had been justified by the Inland Revenue's analysis of the internal rate of return to companies. All I can say is that I am surprised that the OPEC countries were so keen to bear in mind the Government's internal economic necessities when they raised the price of their oil.
The most serious point that the oil companies made in their representations concerned the lack of consultation between the oil companies and the Government—both with the Department of Energy and the Treasury. Of course, the oil companies will complain whenever there is a rise in taxation; that is a natural reaction. What I find of deep concern is that one of the grounds for that complaint was the lack of consultation. It was not that the representations of the oil companies had been heard and rejected—the Government would have been entitled to do that—but that their representations had never been asked for and that any efforts they had made to explain their situation to the Government had not been met with a welcoming hand.
None of my right hon. and hon. Friends—or, I am sure, the oil companies, in their heart of hearts—believes that PRT is unchangeable. Of course it is not. Ideally PRT should be structured to take account of the rises not only in the real price of oil but in the real price of exploration, development and production. It is almost beyond the wit of man, however, to devise a tax which meets all those criteria for all the various situations faced by the oil companies both as 1557 to their own tax positions and to the development profits they have in their own operations.
At a time when the Department of Energy is considering its depletion policy, the Government should also be considering whether it would be appropriate to enunciate a set of principles that would govern future changes in PRT. I believe that that would give the oil companies the guidelines and, to a certain extent, the certainty that they require while not requiring the Government and the oil companies to reintroduce amendments to the present oil taxation scheme.
If those proposals were put forward by the Government, of course the oil companies might not be happy about the guidelines laid down. But at least they would be certain of the basis on which the Government would set their future tax policy in relation to oil.
§ Mr. K. J. Woolmer (Batley and Morley)
I echo the sentiments expressed by my hon. Friend the Member for Norwich, South (Mr. Garrett). I hope that the Minister of State will be able to explain the Government's thinking on the use of North Sea oil revenues. That was a glaring omission from the Budget. The Minister of State must acknowledge that comments are being made about that omission.
The sums of money involved are large. The revenues are emerging quickly and will last for a comparatively short time. It is important to know how the Government intend to use the resources to the benefit of the nation. I hope that the Minister of State will shed light on the Government's policy or at least express a willingness to initiate a public debate to ensure that the Government are aware of the various opinions.
I appreciate that PRT is only part of an oil and gas policy. I appreciate that pricing, depletion and exploration policies are extremely important. I do not wish to engage in the trade union lobbying that has taken place on both sides of the argument about how much can or cannot be obtained by tax revenues from the oil industry.
The evidence is that the oil companies are still making substantial profits. The Economist article, to which my hon. Friend the Member for Norwich, South, referred, said that the increase in PRT will take less than £3½ billion extra from 1558 the oil companies in the next three years whereas gas and oil revenues are increasing by about £10½ billion. Most people will agree that that represents a generous treatment of the oil companies.
It is difficult to argue that the tax increases seriously threaten exploration. Two of the largest clearing banks are seeking to join consortia to take part in further exploration. I cannot believe that major banks would do that if the tax increase seriously threatened the profitability and viability of exploration, let alone the existing oil fields.
The Minister of State will appreciate that I am new to the House of Commons and I suspect that the answer to my next question will be " No." Is it the practice to make available the profit before and after tax made by each company operating in the British gas and oilfields? The facts are of public interest. The public have a right to know. When statements are made about oil companies being squeezed unreasonably, people could judge if they knew what profits were being made by each company. Companies cannot plead confidentiality in this matter; it is of national interest. Government Members make sweeping statements about exploration being threatened. If they knew the profits made by companies, the public would be better able to judge. If we were fully and better informed, we should at least be able to assess the arguments.
The hon. Member for Bedford (Mr. Skeet) argued that we should reduce the PRT. If the evidence supports his case, I am sure that he would be willing to see such evidence made public
I turn to the question of impending gas tax, which is not included in the Bill, It is an important fiscal measure". Will the Minister remind the Committee of the proposals, say when they are expected to be brought before the House, and estimate how much will be raised for the Exchequer this year?
I welcome indications that the Government are moving towards a type of depletion policy relating to self-sufficiency. When will we be given a statement on depletion policy? I appreciate that it is a matter about which the Minister of State, Department of Energy will make a statement. Will that statement be accompanied by the Chancellor of the 1559 Exchequer' s assessment or any changed level of Government revenues that are expected up to 1983–84? There will be important fiscal budgetary consequences. In the Treasury and Civil Service Select Committee, and in the House on occasions, it has been hinted that it is a possible reason why revenues may be lower than expected. We have a right to expect a statement of a financial nature from the Chancellor and the Minister. Will the Minister indicate when there will be a statement about the consequences for Government revenues?
Were any new assurances given to the EEC about British oil production and net exports as part of the recent budget negotiations? Does the previous commitment for a net export of 5 million tonnes of oil in 1985 remain a precise commitment? Have there been any changes in the commitment as a result of the budget negotiations? Clearly they are part and parcel of the overall financial consequences for Britain.
As my hon. Friend the Member for Norwich, South asked, is the Minister able to throw more light on the reasons for the understatement of the oil and gas revenues as set out by the Government? They appear to be substantially underestimated. It is an opportunity for the Government to explain both to the public and to the Committee, what the revenues are expected to be and why there is a substantial difference between the Government's estimates and the published figures.
Because oil prices have risen significantly since the Red Book estimate of oil revenues, what, in current prices, are the revenues from North Sea oil and gas now expected to be? It is an opportunity for the Committee to be given updated information so that it can judge the present consequences of the significant increases in prices. The figures were also somewhat vague on the question of expected revenues from gas. Will the Minister say whether these revenues are included in the Government's figures? If not, what are they expected to be?
§ Mr. Nelson
I intervene briefly to support the inclusion of the clause in the Bill. These debates on petroleum revenue tax are amongst the most important and 1560 financially significant that we have in the Chamber. As one who has contributed to such debates in the past, I think that it is sad that not more hon. Members take an interest in this important aspect of national income.
My opinion has shifted slightly from being in favour of PRT at a lower rate and opposing the initial proposals of the Labour Government, who were in favour of a much higher rate of petroleum revenue tax, to a move in that direction. The movement in the international oil price means that we are entitled to ensure that our Revenue and people obtain a greater and more adequate share of the benefit of this great national resource. At a time when the price of oil is so high, and appears to be still rising, and when the BNOC has recently increased the price of its oil, it is right that the PRT rate should be increased as proposed in the Bill.
However, I have some misgivings. Chichester, together with other areas on the South Coast, is an area of seismic exploration by a number of consortia. While the capital cost of exploring for and obtaining oil on land is much less than that in the North Sea, I am concerned that too high a rate of PRT may inhibit many of the smaller companies which are engaged in this form of on-land exploration. I recognise that PRT is only one element of a tripartite tax system of royalties and corporation tax that falls on such companies, but in striking the right balance, about which the Minister spoke with such eloquence and care, I should like an assurance that the effect of the clause will not inhibit seismic and productive exploration of oil on land along the South Coast.
I should like to refer to some of the arguments that have been put forward by Opposition Members, notably the hon. Member for Norwich, South (Mr. Garrett), about the application of PRT revenues nationally. We ought to be able to agree on some degree of bipartisan approach to the PRT element, because both major parties are in favour of a high majority percentage rate of petroleum revenue tax accruing to the Treasury. How we apply that money—whether by giving it to the National Enterprise Board or by using it to reduce the public sector borrowing requirement—is a matter for partisan debate, ideological difference, and perhaps the subject of a 1561 major debate on another occasion. But on this occasion, when we are talking about PRT as a source of national revenue, the message should go out, and it should be clear, that we are united that a high rate of PRT is necessary in present circumstances.
§ Mr. Eggar
I, too, would wish for a bipartisan policy, but we have had the extraordinary proposition put forward from the Opposition Front Bench that there is no place for profit-making oil companies in the North Sea and that they should be run on a licence basis. How does that fit into the scenario?
§ Mr. Nelson
It is no part of my remit to speak on behalf of Her Majesty's Opposition. However, in the situation hinted at by the hon. Member for Norwich, South—namely, the oil companies acting as sub-contractors—there would be no profit for them. There would be no petroleum revenue to be taxed in that way. They would undertake work for a negotiated price with an agreed or negotiated profit margin which would accrue to them, and they would pay corporation tax just like everybody else.
§ Mr. John Garrett
I cannot see why this proposal should cause such waves of shock and horror on the Government Benches. It is a customary and common arrangement for a relationship between Governments of oil-producing countries and oil companies. It is not unusual.
§ Mr. Nelson
It is not all that usual. In many instances the principal oil companies are State oil companies. Such is the position in the Gulf region.
When a national oil company or a variety of individual independent oil companies sub-contract the work of exploration and production of oil from an area such as the North Sea, it is done on the basis of a negotiated price, and all the profits will accrue to the Government. The hon. Gentleman said that he did not understand the objection to that But where will the capital investment come from in the beginning?
In the past, the trade-off has been that the private or independent oil companies had to raise the capital to invest, lose, and profit from in the North Sea. In the situation that the hon. Gentleman describes, it will be considerably more difficult for 1562 major oil companies to go to international markets to raise finance to sink into capital programmes in the North Sea. Those programmes may prove to be highly non-productive, but in the few cases which are productive they will make money. There has to be a trade-off between the rate of return and the amount of capital invested. In the situation described by the hon. Member for Norwich, South, the Government of the day or the oil agency of the Government will have to raise the capital moneys to do that. We may be able to afford that now, but that was certainly not the case when oil exploration in the North Sea started.
I suggested that the price of oil may decline. I have no divine way of foreseeing the future, but there is a tendency in investment, capital markets, and politics and amongst commentators to assume that when the price for a commodity, whether oil, property or something else, has risen considerably over a short time and is continuing to rise, that is an inevitable picture of the future. Such is not the case—as we discovered in the past with property—and there is no reason why oil should be any exception. To look at the refinery capacity in Rotterdam is false. If we look at the prospects for the major industrial economies in Europe, our economy and that of the United States, we are now seeing, and we shall certainly continue to see over the next year, a dramatic decline in industrial demand, particularly in producer demand. Consumer demand has fallen, and producer demand will fall rapidly thereafter.
Tied to a surplus of oil production, that will inevitably mean that the real price of oil will not be allowed to rise as much in the future. The cartel which the oil-producing countries have been able to impose in a way that no other major commodity set of nations has been able to exert will not survive the combined effects of a recession and a surplus production of oil.
In the future, we may have to consider reducing the rate of petroleum revenue tax if the real price of oil decreases. The exchange rate between sterling and the dollar has risen considerably, from a low of just over $1.5 to $2.32 today. If that were translated into terms of the effective price that we would have to pay in our petrol stations for oil if the rate of sterling was as low as it was previously, 1563 there would be a much higher price for oil. Exchange movements would also have a direct impact on future Government policy towards setting the rate of PRT.
I reiterate that this is an important debate, involving countless billions of pounds. Bearing in mind the application of these moneys in the future, at a time when we will not only have to repay a considerable amount of the national debt, which has grown and grown, but when we will have to deal with some of the severe structural industrial problems in the next decade, it is right that every hon. Member should be allowed to speak his mind on this most important matter.
§ Mr. Douglas
It is not my intention to canvass and review some of the arguments of the hon. Member for Chichester (Mr. Nelson). He speculated widely about the future price of oil and the impending demise of the OPEC cartel. I do not believe that that demise will take place. If the OPEC nations, which have, collectively, the substantial proportion of the free world's oil reserves, find that there is likely to be a glut of oil, it is within their hands and their competence to cut back. Indeed, speculation currently in the press is that Saudi Arabia in particular will try to reorganise the cartel by taking certain steps to raise the price per barrel by $2 and reducing its rate of production from about 9.5 million barrels a day to something substantially below that. Therefore, there are other factors to be taken into consideration other than what might be thought to be the decline of the international economy.
But we are in a nation which, for ill, has a petrocurrency. When talking about revenues raised from PRT, the Government must take cognisance of what that petrocurrency means to United Kingdom industry. Day in and day out, I meet industrialists. Coming to London this week, I met several Scottish industrialists who have substantial overseas business. They have to give fixed long-term quotations in dollars. They complained vociferously to me about the consequences of an " unnatural " high exchange rate. That is one difficulty.
The second deficiency is that we have high rates of inflation. We also have high unemployment and low growth. Most of 1564 these matters are the ill effects of having a petrocurrency. What we are looking for—my hon. Friend the Member for Norwich, South (Mr. Garrett) tried to raise this matter—are some of the beneficial effects that ought to accrue to the United Kingdom economy from the use of these resources.
This is the only Western industrialised nation which can say that it is self-sufficient in total energy resources, and we have an economy that is going into decline, with industry after industry showing redundancies. That ought not to be so. The Government have the main responsibility for reversing this process.
My hon. Friends have raised questions about the extent of the PRT in terms of total revenue to the Exchequer. We ought to have clear answers on this matter. But, looking to the future, this depends primarily on the Government's own view of a depiction policy and an overall licensing policy. If we are to talk about bipartisanship across the Floor of the Chamber—I get into enough trouble speaking for myself, and I do not speak for the Labour Party on this issue—I would welcome a long-term understanding of what the licensing policy would be on the rate of blocks per annum or every two years, or whatever it may be, and a long-term understanding about depletion policy.
If we talk in technical terms—and this relates to the long-term viability of the PRT—depletion policy should not only be related to what we loosely call good oilfield practice, as under the Petroleum and Submarine Pipe-lines Act, but also to whether we impose upon the companies the responsibility of having enhanced recovery techniques related to every field.
I know that these are technical matters and that time does not permit me to develop them. However, the rising price of oil forces the companies to consider getting a higher yield from each field in terms of recoverable reserves. The Forties field, for example, will have recoverable reserves well in excess of 40 per cent. That is because BP technicians and engineers decided from the beginning that it would have secondary if not enhanced reserve techniques. We are afraid that the pressures on the companies to seek a quick rate of return may result in the companies employing techniques that do not include the most modern and 1565 sophisticated methods of enhanced recovery. The techniques are costly, but it is the Government's responsibility to examine them. Enhanced recovery techniques may be as valuable as discoveries.
I shall not deal with the remarks of the hon. Member for Bedford (Mr. Skeet) about marginal fields and more sophisticated types of production techniques in future. I question the Government on a vital aspect of PRT, namely, revenue-raising technique. The key to PRT is the price that we charge for North Sea oil. The Government's vehicle is the British National Oil Corporation. We are getting much disquieting news about the BNOC in the press. Much ill will is engendered by bad manners, as The Times stated recently. I have in mind the handling of the appointment of the chairman and the resignation of Mr. Mortin. There was also the resignation in April of Mr. Ford.
The chairman was appointed not by the previous Labour Government but by the current Secretary of State for Energy. I quote from the annual report of the BNOC in the context of the changes that have been imposed by the Government on the corporation. The chairman said:Although important, they do not affect substantially the operations of the Corporation in exploration and development on the United Kingdom Continental Shelf, nor do they change the role of the Corporation as the major trader in UKCS oil . The general tenor of these changes was to put the Corporation for the future more nearly on a similar footing to other oil companies in regard to tax and access to new licences. The abolition of the statutory role as advisor to Government will, I believe, result in the Government being less well informed, but from the narrow standpoint of the Corporation it removes a work load for which it was not remunerated. Most importantly, it was deceided not to sell off individual assets of the Corporation, which had been unanimously opposed by the Members, because it would have destroyed the operating capabilityIf we are to talk of bipartisanship, the Government should give us an undertaking that they will refrain from their doctrinaire approach to the privatisation of the BNOC, which is unnecessary, unjustified and unwanted by the oil companies. The hon. Member for Enfield, North (Mr. Eggar) shakes his head. Let him name one oil company that wants it. If he can name one, I shall give way. If he cannot 1566 do that, I shall not give way. I give way in expectation.
§ Mr. Douglas
I used to think that I knew something about the oil industry. After 15 years of further study I realise how little I know. However, I know that if the oil companies had a gripe about the future role of the corporation they would have made their views well known. It would be appropriate for the Minister to indicate whether an oil company de sires the privatisation of BNOC. Is that desired by BP or Shell? Let the Minister name a company that wants that to happen.
The Government's approach is doctrinaire. It is destructive of the Government's useful instrument to get the maximum information about United Kingdom reserves and the maximum yield for our economy.
This has been a wide-ranging debate. All hon. Members want an assurance that we shall have, as far as possible, a technique of licence and taxation policy that will ensure access to the maximum quantity of North Sea oil and gas for as long as possible. As the Minister said, a balance must be struck. There is no evidence that the rate of taxation frightens oil companies. Applications for the seventh round indicate that oil companies are queuing up. Highly speculative banking groups are being formed. Small oil companies are also trying to get in on the act. The North Sea is for the big boys. However, the Government may wish to encourage smaller British companies.
If one wishes to examine the operations of oil companies, one should examine what they are paying for drilling rigs. They are a major item of expenditure. The market rate for drilling rigs can rise dramatically. It will probably rise from the current figure of £20,000. Shell will find that it has to pay £70,000. There is great interest in the North Sea. The North Sea accounts for half the world's offshore oil activities. It is the most valuable settled province available. If oil companies were put at arm's length, they would still get their " screw," or 1567 profit. They have the necessary expertise. I take no pleasure in making that statement. Oil companies can use their expertise to do other things in addition to exploring for oil.
The Government have probably got the right balance. We are concerned about whether the policy is right in toto. We must ensure that we get the maximum amount of oil recoverable together with a balanced accretion and licence policy.
§ Mr. Penhaligon
The hon. Member for Dunfermline (Mr. Douglas) made an interesting speech and raised several important points. He said that we needed an accretion policy that would not lead to panic exploitation of the resources and assets by oil companies. A public statement to the effect that the Labour Party would not nationalise oil companies if it won the next election would do more to stop them panicking and exploiting the facilities than any action taken by the Minister or any other hon. Member.
The Labour Party conference is now apparently the source of its policies. At the recent Labour Party conference it was said that the assets of our public sector industries—sold off to the Tories—would be taken back into public ownership without compensation. Anyone who acquires an asset will have to think how he can get a return on his investment within four years. The Labour Party is exacerbating the problem to which the hon. Member for Dunfermline fairly referred. Indeed, it can be said that his party, and not the oil industry, has caused the problem.
The hon. Member for Norwich, South (Mr. Garrett) extended the debate in an interesting way. We ought to spend more time discussing what we are to do with the money coming from North Sea oil. It will not last forever. The guesses vary from 10 years to even 20 years, depending on which document one reads. We ought to be thinking what we wish to change that great, God-given asset into. Do we want a short-term bonanza and to spend it on better pensions and hospitals? Do we wish to invest it all abroad? Do we wish to invest it in British industry? The answer must be the latter.
It is always worth reiterating that we need to import half our food to live. That means that we must export something. 1568 We have few raw materials to export, My constituency probably does better than almost any other with the exports from its china clay industry. The rest do not keep up to the mark. We have only our skill, industry and enterprise to export.
As a trained engineer, I can see that the costs involved in rejuvenating our industry and getting on the stocks and into production products that are internationally competitive are horrifying. I congratulate the public relations department of British Leyland on the ECV2, which the company claims to have developed for £100,000, but if that is all that the company has spent it has done nothing more than build a cardboard model. With modern technological requirements, one cannot make any technical progress or investment for production on such figures. They are small change.
What are we to do with the money from North Sea oil? Is it to be tipped in to reduce the upper rates of tax? Is it to be used to reduce the public sector borrowing requirement? What do the Government wish to see it changed into? If the Minister says that he wishes to increase investment in British industry, I do not know how he can equate that with 20 per cent. interest rates. Even if a company has a good idea for products, it will probably be the best part of a decade before any can be sold. That is an enormous investment, but the Government's policy requires that the money must be borrowed at 20 per cent. accumulative interest over the years.
I support the hon. Member for Norwich, South in stressing that the House of Commons and the country ought to spend far more time discussing this matter. We must realise that North Sea oil is only a short-term asset. We must think about what we want to invest it in and change it into and how we mean to do that. It is a vital subject.
§ Mr. Gordon Wilson
I am not convinced that the rate of PRT is at a sufficiently high level. All that the Government have done, in effect, is to increase the rate of tax, which was historically too low, in order to account for the increase in the price of oil in recent years. The Government will have to come back to the matter to determine a proper rate of tax and allowances. If the oil industry 1569 thinks that the House of Commons has left the matter in a state of stability, it is mistaken.
When talking about oil taxation, I criticise the Government particularly for the failure to deal, by taxation if by no other means, with the huge profits that the oil companies have been making out of inventory stocks. Every time that the price of oil goes up in the Middle East, the oil companies rush through almost immediately increases in the price of petrol. They explain that they have to buy in further stocks, but it has seemed to me for some time that that is not a particularly convincing argument.
It is a great pity that the Government refused to tax these huge profits. The best solution may have been for the Government to have taken action to prevent those unacceptable increases in the first instance, which merely drive up the rate of inflation for the benefit of the major oil companies. Insufficient action has been taken over the level of taxation. As a result, income has been lost.
The hon. Member for Dunfermline (Mr. Douglas) referred to the role of the BNOC. One criticism is that, due to the delay in increasing the price of oil through BNOC, a considerable amount of Government revenue has been lost. Perhaps the Minister of State could ask his Department to investigate that.
The hon. Member for Norwich, South (Mr. Garrett) mentioned use of oil revenues. It shows a complete absence of any policy to use that money, which was an exceptional request, to reduce the PSBR. There is no strategy for deploying those funds to modernise industry and combat unemployment in areas where it is already far too high. As a result of Government policies and their failure to take action, unemployment in my constituency and in other areas is rising fast. Almost every day the local newspaper has stories of factories closing and substantial redundancies occurring. That is set against the large volume of money going to the Government. They are making no effort to deploy that money where it is badly needed.
Can the hon. and learned Gentleman justify the Government taking no action in areas such as my constituency, with male unemployment over 10 per cent. by way of additional industrial finance being made available to reduce unemployment? 1570 People will be put on the industrial scrap-heap without hope of industrial growth over the next three or four years. Even if the Government are correct in saying that the rate of inflation will come down in the next three or four years, with resulting growth in the economy, areas with maximum unemployment will benefit last. Those who are suffering now will suffer longest. Will the Minister therefore ask the Cabinet sub-committee to reconsider the whole question of investment of North Sea oil revenues?
The Labour Party is not blameless. During the Labour Administration we debated what should happen to oil revenues and whether there should be a separate account where the oil revenues would be hypothecated and made available for industrial purposes. The Treasury argument that these funds should go to basic accounts prevailed then.
§ Mr. Wilson
Those policies mean that my part of the country and Northern Ireland, among others, will not benefit.
When the new Labour manifesto was produced at the Wembley conference on Saturday, a proposal was made for an industrial investment fund. I congratulate the Labour Party on that small step. However, when I looked at that document it grieved me to find virtually no reference to Scotland and no definition of the ways in which the industrial investment fund would be used to combat unemployment. We in Scotland will have to press for a Scottish oil fund. Without it, we shall undoubtedly end up as one of the few areas in the world in which oil has been discovered but which have gained very little benefit from the resource.
§ Mr. Dalyell
I shall not yield to the temptation to follow the hon. Member for Dundee, East (Mr. Wilson) on the subject of Wembley and other assorted matters.
I wish to make one observation, and then ask a question. I do not believe anyone who says that the oil companies are unwilling, on price grounds, to restrain themselves from exploration in the North Sea. Those of us who went to the BP briefing today know that BP, for example, is taking on the hazardous and enormously expensive development of the Magnus field. This is the most northerly of all fields. Anyone who takes on a 1571 proposition such as Magnus in the relatively far North will not be deterred by fluctuations of price, so let us put that argument out of the way.
I am sure that the Minister of State will say that I ought to be barking up other trees, but I want to make one rather peevish reference to Seaforth Maritime Limited. We discover this week that this firm has placed an order for two specialised ships in Singapore.
In a question to the Department of Industry, I asked how much Government money had gone to Seaforth Maritime Limited of Aberdeen under the Industry Act in any convenient period. I was informed by the Under-Secretary of State, the hon. Member for Basingstoke (Mr. Mitchell), that in 1976 a loan of £950,000 was granted——
The First Deputy Chairman
I am sure that the hon. Gentleman will relate this immediately to the clause which we are discussing.
§ Mr. Dalyell
The point is that the firm had Government money in one form or another, and the only way that I could table the question was under the Industry Act. The firm has benefited enormously from British public money.
This Government, like the last one, are putting a good deal of money—some would say not enough—into the ship building industry, only to find that, having been given this money, off goes the firm and, on some kind of accounting operation, places orders——
The First Deputy Chairman
Order. The matter which we are debating is related to the amount of tax which is paid.
§ Mr. Dalyell
It is all a question of public money. However, I think that I have made the point, and I shall not pursue it any further.
§ Mr. Peter Rees
We have had an interesting and far-ranging debate. I have had to remind myself from time to time that the purpose of this modest clause is to raise the rate of petroleum revenue tax from 60 per cent. to 70 per cent. But it is always profitable to hear the views of such well informed hon. Members as the Member for Norwich, South (Mr. Garrett), although he went a little far when he said that the debate on how the 1572 oil revenue should be used had been stifled and avoided.
I remind the Committee that this is the first Administration to have published a medium-term financial strategy—a modest and tentative forecast for five years—in the Red Book demonstrating that there would, optimistically, be implied fiscal adjustments in 1982–83 and 1983–84. This brings out into the open the possibility that there will be something to decide and therefore something to debate.
To say that the matter has been stifled and avoided indicates either that the hon. Member for Norwich, South has not done his homework on the Red Book or that he has quite misunderstood the point of table 9 in it.
§ Mr. John Garrett
The Government have stifled debate on the uses of public revenues from North Sea oil, given the alternatives that have been canvassed on both sides of the Committee. Hon. Members have said that they want a wider debate on the uses of public revenue from North Sea oil, particularly given the decline in our manufacturing industry. That is a perfectly reasonable request to make. There has been no discussion of it since the Government took office.
§ Mr. Rees
To say that debate has been stifled and avoided is a travesty of the truth. It is always open to the Opposition to use their Supply days to raise precisely this point if they are so minded. I shall certainly convey to my right hon. Friend the Leader of the House the intense anxiety of Opposition Members to use their Supply days for this subject. My right hon. Friend will no doubt take note of their request.
I hope that I do not sound disrespectful to the Chair, but I doubt whether clause 91 is the right vehicle for this far-reaching debate. I feel that I should be trespassing on your indulgence, Mr. Godman Irvine, if I were to explore at this hour all the possible uses. This will be a legitimate matter for debate over the years to come. There is an old adage about not counting one's chickens before they are hatched. We can have a useful and tentative debate, but I shall not embark on it tonight.
I say only that I was a little surprised when the hon. Member for Norwich, 1573 South sketched out a Dutch scenario with a Norwegian tax system. I am full of admiration for our friends in those two great countries. I hope that we in this country, with our own distinctive contribution to the world and to Western civilisation, will work out our own way of developing.
§ Mr. Rees
Hon. Members and people outside will be able to judge when they read Hansard whether my remarks are a travesty of the arguments deployed by the hon. Gentleman. I thought that his argument bore little relationship to the rate of petroleum revenue tax. That must rest between the hon. Gentleman and the Chair.
The convention, I would say to my hon. Friend the Member for Enfield, North (Mr. Eggar), is that one does not deploy in advance before interested parties the precise fiscal measures that one has in mind. My hon. Friend, I am sure, will appreciate the sensitivities that are involved. I had discussions with UKOOA and the other organisation in advance—I am surprised that my hon. Friend was not aware of them—about how they saw the oil scene in the light of the price increases. That was the furthest that it was proper for me to go. I hope that they appreciated the candid and far-reaching discussions that took place. There can' not be complaint that the Government have not gone as far as they legitimately were able to canvass these matters.
I turn to the remarks of the hon. Member for Batley and Morley (Mr. Woolmer). I hope that I do not sound " peevish "—the word was used about 45 minutes ago—in responding to him. His intervention at that time sounded more a preview of the questions that he intends to put to the next witnesses called before his great Select Committee. Whether that is debate or catechisation I do not know. I shall do my best to answer the questions.
1574 It would not be proper to make available information about the profits of individual companies. I am not entitled to ask for the tax files of individual companies, just as I am not entitled to ask for the hon. Gentleman's tax files. If he raises questions about his tax affairs, I am entitled to look at the matter and deal with the point raised. I am not, however, entitled to call for the information that he mentioned. I am certainly not entitled to debate it here.
The hon. Gentleman asked about the gas tax. That will be a matter for my right hon. Friend the Secretary of State for Energy. No doubt in due course all will be revealed to the House and there will be ample opportunity to debate the matter. The form and details have not yet been decided.
Depletion policy, again, is a matter for my right hon. Friend the Secretary of State for Energy. In due course, when all the decisions have been taken, I am sure that he will wish to confide in the House and there will be ample opportunity to consider what he announces. I can assure the hon. Member that there have been no changes in our commitment to the EEC in this area as a result of recent negotiations in Brussels.
I hope that that deals with all the points raised by the hon. Member. If not, he will have ample opportunity to pursue these matters when his own great Select Committee resumes its consideration of this point.
My hon. Friend the Member for Chichester (Mr. Nelson) approached the problem from a different angle, expressing his misgivings that the rate might be too high and might discourage further exploration off his constituency. We are, of course, sensitive to the rates of PRT. That was the purpose of the debate initiated by my hon. Friend the Member for Bedford (Mr. Skeet. However, there is a considerable element of front-end loading which enables companies engaged in exploitation in difficult areas to recoup that cost before they pay any tax.
During our debates last summer, when we increased the rate of PRT, I announced that there was to be a marginal fields review. It was to make certain that the structure and rate of the tax were not damaging exploitation in the 1575 way that my hon. Friend feared. The review is almost complete. We shall draw from it whatever lessons need to be drawn. We are very sensitive to that issue.
The hon. Member for Dunfermline (Mr. Douglas) gave his usual balanced contribution. We take note of the points that he raised, particularly about enhanced recovery techniques. These technical matters are not the primary concern of the Treasury, although the structure of the tax must take account of these matters and, of course, it will.
I take issue with the hon. Gentleman on one point. He said that on price the BNOC is the Government's vehicle. It is not. In one sense it is, in that it has oil to purchase and to sell. But the Government believe that these matters must be dictated by market forces, and we are not yet a major oil-producing country. We are therefore unable to determine the price of oil, although we can have an effect, even of the specialised oil produced in the North Sea.
The privatisation of the BNOC does not arise on this clause, and it is more a matter for my right hon. Friend the Secretary of State for Energy than me.
The hon. Member for Truro (Mr. Penhaligon), speaking from the Liberal Bench, developed in a Liberal way the general theme of the hon. Member for Norwich, South. There will be time enough to debate the implied fiscal adjustment. I hope that the hon. Member will be able to contain his impatience for a year or so yet.
The hon. Member for Dundee, East (Mr. Wilson) complained that the rate of PRT was not high enough. This matter was thoroughly ventilated in the debate on the last amendment. I hope that the hon. Gentleman will forgive me if I do not go over the ground again. I appreciate that the issue is difficult. One cannot be dogmatic about precisely where the balance should be struck. It is a matter of reconciling the not entirely divergent interests 1576 of the Exchequer and the oil companies.
I would not be so arrogant as to say that we have the balance right. I hope that we have. Judging from the conflicting contributions from both sides of the Committee, I think that we might have skated down the middle and got it right. Our minds are not closed.
I was encouraged by one of my hon. Friends to give an assurance that if the real price of oil were to fall we would bring down the rate of PRT. I cannot give a categorical assurance, but we should certainly have to take such an event into account because PRT is an annual tax and we shall continue to review it. If the real price of oil were to go up again, we should have to take that into account.
We are not slow to protect the national interest. The marginal take is now 87.4 per cent. It is a progressive tax and I hope that the Committee will feel that the country has its due proportion of oil revenue.
I turn to the notable and idiosyncratic contribution by the hon. Member for West Lothian (Mr. Dalyell). I hope that he will forgive me if I do not deal with the affairs of the company that he mentioned because I am unaware of them. I might be called to order if I were to do so.
We have had a general and interesting debate. I hope that the Committee recognises that there will be other opportunities to debate the implied fiscal adjustment. I hope that we shall have other opportunities to determine whether we need a Dutch or Norwegian scenario rather than the British scenario for which I hope. The rate is just about right. There will be further opportunities to debate the details of improvements and amendments to PRT proposed in the Bill.
§ Question put and agreed to.
§ Clause 91 ordered to stand part of the Bill.
§ Bill (Clauses 10, 17, 18, 20, 23, 53, 68 and 91) reported, without amendment; to lie upon the Table.