§ I come now to the range of measures that are necesary to raise the extra revenue for this year. First, the North Sea. In deciding on particular measures I have had to take into account recent developments and future prospects for North Sea oil and the implications that these have for Government revenues. In 1980 production in the North Sea, at 80 million tonnes of oil, was less than predicted—only four-fifths what had been expected two years before. The production difficulties experienced in the past year have led to a major revision of output levels over the next few years. My right hon. Friend the Secretary of State for Energy has just published reduced forecast ranges for North Sea production in the years to 1984.
§ While oil production is likely to be lower than once expected, oil prices are much higher. Increases since 1978 in the real price of oil have brought substantial benefits to the oil companies, which face a very different prospect from that when the present tax regime was introduced. Such has been the rise in the oil price in recent years that I believe that the Exchequer should properly look to this area for additional revenue beyond what will accrue from existing taxes. However, even after the measures that I am about to announce, the increase over the medium term in Government revenues from the North Sea will be smaller than was once expected.
§ In my statement last November I foreshadowed the measures that I had in mind for increasing the Government's share of these revenues while maintaining 772 incentives for further exploration and development. Consultations with the oil industry have taken place and I can now announce detailed proposals.
§ I intend to introduce a new tax—the supplementary petroleum duty—broadly as outlined last November. The new tax will be at a rate of 20 per cent. on the total value of oil and gas produced, after deduction of an allowance of 1 million tonnes a year for each field. It will be deductible in computing liability to petroleum revenue tax and corporation tax. In response to representations by the industry, gas supplied to the British Gas Corporation from earlier North Sea fields will be exempted, and there will be provision for the new tax to be refunded where fields do not fully recover their initial development expenditure.
§ The new tax will be payable in monthly instalments. This will make a useful contribution to achieving a smoother public sector cash flow through the year. I shall also invite the industry to consider with the Inland Revenue how a broadly similar pattern of payments may be introduced for PRT.
§ I also announced in November last year that the special reliefs devised for PRT were under review. I now have proposals to make involving some restriction of these reliefs. I hope that my hon. and learned Friend the Minister of State, Treasury will have the opportunity of covering them in more detail in the debate.
§ There are a number of other minor changes to improve the oil taxation regime—partly made in response to the industry's own views.
§ The new tax, together with changes to the PRT reliefs, will raise an extra £1 billion in 1981–82. There will be a substantial continuing yield in later years.
§ The oil companies have urged that my objectives of more revenue and a more efficient and economical pattern of tax relief could be better secured by a thoroughgoing reform of PRT, which would make it unnecessary to introduce a permanent new tax. Officials have over several months given exhaustive consideration to that possibility, but without success, and no other proposals that I could regard as satisfactory have been put forward from any other source. But I do not close my mind to the possibility that modified proposals producing a broadly similar yield might be forthcoming. I propose, therefore, that the new tax, SPD, should in the first instance have legislative effect only for the 18 months ending on 30 June 1982. That will allow ample time for further study and consultation before permanent arrangements are introduced in next year's Finance Bill.