HC Deb 15 July 1981 vol 8 cc1347-50
Mr. Eggar

I beg to move amendment No. 229, in page 100, line 28, leave out 'and 30th June 1982'.

Under considerable pressure, I shall be as brief as possible, but I must stress that this is an extraordinarily important area of tax law, which receives all too little attention.

In the Budget considerable changes were introduced to petroleum revenue tax and special petroleum duty.

I begin by quoting an extract from a study initiated by Kemp and Rose, of Aberdeen university. The main summary of that independent study of the 1981 tax changes was as follows: The 1981 tax changes will influence the behaviour of operators. The development of marginal fields could be postponed, as could satellite developments. I wish briefly to focus attention on the effect of the tax changes on the marginal fields and on the smaller satellite developments. I shall do so by means of a series of questions to my hon. and learned Friend. I realise that he will not have an opportunity to reply in detail now, but I am sure that he will take an opportunity in the near future to go on the record.

Are the Government using the tax changes as a backdoor method of depletion policy? If so, that is the worst possible kind of depletion policy, because it will slow down the development of the marginal and satellite fields. Unless we are careful, this tax regime may mean that a considerable amount of oil that could otherwise be recovered will be left in the ground. Given the changing circumstances, it will never be economic to extract that oil.

There is a way round the impact that the tax changes will have on the marginal and satellite fields. We could look seriously at the way in which fields are designated. When we debated the Oil Taxation Bill in 1975, the right hon. Member for Ashton-under-Lyne (Mr. Sheldon) made it clear that the designation of fields was a geological decision and was not taken on economic or any other grounds.

Perhaps my hon. and learned Friend could clarify matters and improve the situation by making it clear that the Department of Energy will exercise more discretion over the designation of fields. Is that envisaged? I am sure that my hon. and learned Friend would be the first to agree that the special petroleum duty is a bad tax. It is based not on profits but on revenues. It is also a discriminatory tax, particularly in relation to American and French companies. Because the tax is effectively a royalty or an excise duty, it is deductible—under the double taxation treaties between France and the United States of America—but not creditable. Effectively, that means that American and French companies will have to pay tax in their respective countries over and above the special petroleum duty. We always try to avoid that form of double taxation.

The Government have introduced an amendment that enables those companies to pay PRT earlier. That means only that in addition to paying the special petroleum duty a company can pay PRT earlier and can give the British Government—instead of the French or American Governments—the extra tax. That is not a suitable concession to make. Will my hon. and learned Friend give an even more categorical assurance than the one that he gave in Committee, to the effect that the Treasury is going into a consultation period with the oil companies with an open mind and that it will not sit back and wait for the oil companies to put forward alternative proposals which the Treasury can play off, one against the other?

Will my hon. and learned Friend give an assurance that when the taxation review has been concluded, and any decisions have been made, there will, on the introduction of the new tax regime, be a clear statement on our future fiscal stability? The Dell assurances on North Sea taxation were extremely helpful to the industry. They were reassuring and they were followed. The industry requires something similar from the Government.

3.45 am

I end with the thought that is easier for the Government to point to the fact that the oil companies are still interested in the exploration blocks and that there is no firm evidence of production and development plans being put back. Throughout the world there is a drastic shortage of skilled oil personnel with offshore experience. The shortage is growing rather than decreasing. The multinational oil companies, which dominate the oil industry, whether we like it or not, have to decide how to allocate scarce human resources. Unless we can convince those companies that there is a future in the North Sea, those skilled teams that have been built up over the past eight or nine years will be broken up. That will happen not suddenly but gradually, and we shall realise that in four or five years' time we are not getting the sort of development that is necessary to maximise our North Sea resources.

Then it will be no good for the Government to try to change the tax regime to encourage more investment and development by those companies, because the expertise will have been dissipated to other parts of the world. I wish that the Government would spend less time considering discounted cash flow returns on fields and more time considering the human implications of what they are doing.

Mr. Bowen Wells (Hertford and Stevenage)

I want briefly to speak in support of my hon. Friend the Member for Enfield, North (Mr. Eggar). [HON. MEMBERS: "Hear, hear."] I appreciate those sounds of approval for the brevity of my speech.

In Committee my hon. and learned Friend referred to the fact that he was not certain that he was correct about special petroleum duty. I understand that what he meant was that if the teams of expertise were dispersed and we did not extract the maximum return of both oil and finances from the North Sea he would change the tax.

Much representation has been made to myself and other hon. Members that the Government are incorrect. Therefore, in supporting the cogent arguments of my hon. Friend the Member for Enfield, North, I ask the Government to reconsider the comments made by the oil companies.

Mr. Peter Rees

I hope that the House will acquit me of discourtesy if I deal briefly with the four points, important though they may be, raised by my hon. Friends.

I deal seriatim with the questions raised by my hon. Friend the Member for Enfield, North (Mr. Eggar). His first question was: Are the Government using tax changes as a back door to depletion policy? My answer is "No". The second question was about the designation of fields and whether it should be done on a geological or an economic basis. That is a matter for my right hon. Friend the Secretary of State for Energy. The third question was more a proposition that special petroleum duty is a bad tax because it discriminates against United States and French companies. I hope not. Indeed, my hon. Friend was kind enough to recognise that clause 110 does a little to mitigate the situation about petroleum revenue tax. He shakes his head, but he must recognise that that clause does that and he made that point himself. However, we shall take that into account it the reception we shall offer to suggestions for amending the regime in the autumn.

Fourthly, my hon. Friend asked me to give a categorical assurance—more categorical than the one I gave before—that the Treasury will approach consultation with an open mind. I do not believe that I could be more categorical. Yes, we shall approach the cosultations with an open mind.

Will I give a clear statement of fiscal stability? I am in difficulty there, first, on general constitutional grounds, because nothing that I say will bind a subsequent Administration. Secondly, I am in the same breath being enjoined by my hon. Friends to be open-minded about a possible new regime to be suggested by the oil companies. I am not quite certain whether I can reconcile those two aspirations, but I hope that I have done adequate justice to the important points made.

I am sorry that more time is not available for debate, but the subject was canvassed fairly thoroughly at an earlier stage in our debates. Although I know that my hon. Friend has a deep interest in these matters and would like to explore them thoroughly, I hope that he will feel able to seek leave to withdraw the amendment.

Mr. Eggar

I find that response somewhat disappointing. I hope that my hon. and learned Friend will be able to expand in the fairly near future on the rather brief answers that he gave so that his argument may he on the record.

I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

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