HC Deb 04 July 1983 vol 45 cc20-103

Order for Second Reading read.

3.33 pm
The Secretary of State for Energy (Mr. Peter Walker)

I beg to move, That the Bill be now read a Second time.

In his Budget statement the former Chancellor of the Exchequer remarked on the changes that he was making in taxation in the oil industry. He paid tribute to the industry's remarkable achievements. I think that both sides of the House will agree that the enterprise that has been shown, the application of new technology and the way in which the considerable dangers in the North sea have been overcome are a remarkable tribute to all those in the industry.

When I had the privilege in 1972, 1973 and at the beginning of 1974 of having responsibilities in this sphere, when North sea developments were beginning, I visited some of the sites and I could not help but he impressed by all those involved and the way in which the remarkable extraction of oil took place from the depths of the North sea.

It is important that a measure such as this is carefully considered by the House. We must compare the likely returns from future development both to the Government and to the industry, and the ultimate results. That is an important comparison. The fact that the Almighty placed the oil in the North sea and we did not discover it until the world faced its energy crisis is of considerable benefit to the United Kingdom. Any Government of any complexion must ensure that the nation obtains the appropriate benefit.

The demarcation line between the direct benefit to the nation and the benefit to the industries that carry out the work is such that, after the Budget measures and taxation proposals and the measures that will be put into operation as a result of the Bill, we can claim that the nation will obtain the lion's share. Petroleum revenue tax is 75 per cent., and thereafter there is a corporation tax of 52 per cent. The measure will mean that substantial benefit from any other discoveries and developments will come to the nation as a whole. As a result of the application of royalties for future developments outside the southern basin, the marginal tax rate for a field paying petroleum revenue tax will be reduced from 89.5 to 88 per cent. Therefore, I hope that the House will get into perspective the dimension of of the changes that will result from the Bill.

Mr. John Smith (Monklands, East)

What is the right hon. Gentleman's estimate of the cost to the Exchequer of the concession? Parliament must have an idea of the amounts involved as well as the percentages.

Mr. Walker

That would be difficult. One could argue strongly that if the Bill, combined with the tax changes, were not passed, developments would not take place, so there would be a substantial loss of revenue to the Exchequer and the taxpayer. If the right hon. and learned Gentleman, with his considerable experience in this field, had the wisdom to decide the extent to which decisions will be changed as a result of the Bill, no doubt he could publish accurate figures. However, I do not think that even he, with his remarkable ability, has that talent.

Mr. John Smith

With respect to the Secretary of State, he told the House that the effect of the change would be to reduce the taxation by a specific percentage point. He must have made an estimate to arrive at that percentage. The House should be told, even in the roughest form—to the nearest £100 million will do—the loss to the Exchequer as a result of legislation that it is asked to approve.

Mr. Walker

It would be a bogus estimate. I was about to say that I was grateful to the right hon. and learned Gentleman, because in the debate last week he used a number of the arguments that he was likely to use today. I was fascinated by them. One argument was that it was outrageous to take away the royalties payment on a profitable field. Therefore, I was kind enough at the beginning of the debate to illustrate the percentage loss on a profitable field. I said that instead of taking 89.5 per cent. the Government would take 88 per cent. The extent to which that affects the decisions taken by the oil companies and the extent to which, as a result, developments take place that otherwise would not, is something that we can see only in the years ahead.

Mr. Dick Douglas (Dunfermline, West)

Will the right hon. Gentleman concede that not to assess a marginal rate of tax is poor North sea oil economics? Will he tell us what will be the loss in Government take as a result of the measure?

Mr. Walker

I could make a vague guess and say that if the measure were not passed a mass of developments would not take place and there would be a considerable loss in Government take. I shall give a vague, inaccurate figure if the hon. Gentleman wishes. If the Opposition have their way, the Government take will be less. The Government's only objective is to see that there are developments. This is of interest not only to the oil industry but, in Scotland, to all the offshore supply industries for the fields.

Mr. T. H. H. Skeet (Bedfordshire, North)

Does my right hon. Friend agree that there are about 2.4 billion barrels of reserves in the 37 undeveloped fields examined by the UKOOA? Is not the whole purpose of the legislation to secure the development of those fields, which would not take place if the taxation were too heavy?

Mr. Walker

I shall not comment on figures, but certainly the sole objective of the Bill and of the taxation measures announced by my right hon. and learned Friend the previous Chancellor, and supported by the present Chancellor, who was then Secretary of State for Energy, was to secure this development, which is of immense interest to the Chancellor in terms of income and to all the industries in Scotland and elsewhere which supply the oil industry. It was agreed that this was the only successful way to achieve that and that the measures were therefore right.

In his interesting speech last week the right hon. and learned Member for Monklands, East (Mr. Smith) came up with a figure of £20 billion, which he said we had obtained from the North sea and had spent entirely on unemployment. That was his choice. To broaden the area of choice, I mention certain other areas to which that money might be said to have gone. It might be said that £3.4 billion went to increase expenditure on education — [HON. MEMBERS: "Private education."] No, public education. It could be said that £5 billion went on the increase in public expenditure on health. To take an example related to energy, one might say that £3 billion went into the capital investment programmes of the National Coal Board during that time. One might also say that £1.3 billion was injected into British Leyland to ensure that that company survived. If we are to go into that rather crude type of argument, which is unexpected from the right hon. and learned Member for Monklands, East, we can all make our own choices about where the £20 billion went.

Mr. John Smith

I am glad to know that the Secretary of State pays such great attention to my speeches, but does he accept that, although £20 billion went into the Exchequer from North sea oil, more than that was paid out in unemployment benefit uniquely under the Conservative Government? That money could indeed have been spent on British Leyland and the rest if the Government had not mortgaged all the North sea oil revenues to pay for an obligation that was uniquely theirs.

Mr. Walker

I pay great attention to the right hon. and learned Gentleman's speeches, because they provide such useful ammunition for my own. This is a classic example. He says that we could have put the money into, say, British Leyland or the National Coal Board, the Health Service, the education service or training programmes for young people. That is exactly what we did. It is a crude argument simply to single out the area of public expenditure that one most wishes to criticise and say that that is where the money went. If the right hon. and learned Gentleman has exhausted his arguments, I do not blame him for using such tactics, but he should not blame me for choosing other examples.

The right hon. and learned Gentleman made another interesting point. I take this up not as a point of repartee or party difference. He said that the rate of production from the North sea was too high and should be lower. That is a perfectly reasonable position and there are arguments for and against it. I was genuinely surprised, however, that it had become the position of the spokesman for the Opposition, in view of the position taken by the Labour Government when they considered these matters. The so-called Varley assurances embodied a judgment that we then made for a period of years about the importance of not reducing North sea oil production. When my predecessor continued those assurances in 1982 they were considered reasonable and were not criticised by the House.

I hope that those who now advocate an arbitrary reduction in production from existing fields, or the alternative of stopping the development of new fields, will consider the substantial arguments against that proposal. Projections for oil prices provides no cogent argument for a reduction in current production or against the development of those areas that we now wish to encourage. I believe that my right hon. Friend was correct to continue the Varley assurances. Having considered the matter closely, I, too, believe that they should continue.

Mr. Tony Marlow (Northampton, North)

What evidence has my right hon. Friend of the oil companies' investment intentions for further exploration as a result of the reasonable and sensible measure that he is now putting forward?

Mr. Walker

There is likely to be more activity, which will be important in several ways, not purely in the supply of oil or the continuation of oil supplies. On any of the criteria currently available to the Government, production at the present levels should continue. Further, production from oilfields yet to be developed should be encouraged, although many of them are less attractive, smaller and have geological difficulties. Unless we do that, whole sectors of the supply industry will face considerable difficulty. I hope that that industry will have an enormous international future in exports.

Unless changes are made in taxation and royalty payments, there will be a sudden drop in development, which will be of considerable disadvantage to an important section of British industry. For that reason I enthusiastically support the proposals that I inherited. As the new Secretary of State, I have examined them carefully and I believe that they are perfectly correct and will result in considerable action and economic activity in the years immediately ahead. We must recognise the considerable importance for our offshore supply industry of ensuring that these developments and export opportunities take place. [Interruption.] The hon. Member for Aberdeen, North (Mr. Hughes) used constantly to interrupt me during fishing debates, and is continuing to do so during energy debates. These measures were welcomed by the fishing industry, which has quite a connection with the activities of the offshore developers.

Mr. Robert Hughes (Aberdeen, North)

The fishing industry is very depressed about the common fisheries policy negotiated by the right hon. Gentleman.

Mr. Walker

I am more inclined to look at the letter sent to me only last week by the Scottish fishermen saying how much they applauded all that I had done for them. As the hon. Gentleman with his considerable information on these matters will be aware, I did rather better for that industry than my predecessors did.

The present measures deal with the smaller and geographically more difficult fields to be developed in the future. The Bill is introduced against a background of asking our own oil industry and indeed the world oil industry to move into areas of the North sea which present more difficulties than earlier sites at a time when there is considerable speculation and concern about the future of oil prices. It was against that background that the Department carefully examined the prospects of impending developments. It considered in detail those fields likely to be developed in the future, and 10 such fields were considered in great depth. On the basis of that examination, my right hon. Friend the present Chancellor and my right hon. and learned Friend the then Chancellor decided upon the range of actions propounded first by the Chancellor in taxation changes and now in the Bill. It is right to recognise the importance of taking measures to continue those developments.

If the result of taxation, in all its forms, and royalty payments, were to be to deter the industry from its development activities, there would be a delay that would considerably affect jobs and also many industries. If, at a later stage, we decided to give the appropriate incentive and encouragement, the cost of recreating the capacity that might now be lost would be considerable. For those reasons, I strongly advocate the measure and ask the House to give it a Second Reading.

Mr. Robert Maclennan (Caithness and Sutherland)

The Minister has not yet answered the question of the right hon. and learned Member for Monklands, East (Mr. Smith) about the take for the Government. Has the Minister estimated the value to the industry of the reliefs being offered?

Mr. Walker

When we are considering the future development of oilfields where the capacity and difficulties are unknown, it is absurd to talk of estimates of what that will mean in monetary terms. The Government considered the cost of developments and the general speculative figures and, after careful examination, judged that further incentive was required. If the Social Democratic party opposes that additional incentive, I shall be interested to hear its reasons. Obviously, for any such judgment it is important to decide on a range of measures that will on balance result in the desired activity. The cost to the Exchequer will be far greater if the measures are not taken.

The take of the Government includes petroleum revenue tax of 75 per cent. and corporation tax of 52 per cent. Any benefits obtained by the lapsing of the royalties will affect the profits of the oil companies concerned, which will be hit by those taxes. Therefore, the effect will be minor.

If a field paid 75 per cent. petroleum revenue tax on a large proportion of its net revenue, and corporation tax at 52 per cent., we would be considering the difference between 88 per cent. and 89.5 per cent. If a field had reserves of about 55 million tonnes— a medium-sized field by the standard of existing fields—with a life of about 12 years and development costs of just over £1 billion, the real rate of return would be a little over 30 per cent., without taking into account tax or royalties, or just over 15 per cent. when taking them into account. The net revenue over the life of the field might be just under £6 billion at 1980 prices and undiscounted. Over the life of the field, the Government would take in royalties between £4½ billion and £5 billion of that sum, and the company would take just over £1 billion. The abolition of royalties would transfer about 3 per cent. of the total net revenue to the oil companies.

I hope that there will be no more talk of the measure making a massive concession and of giving away the rents to the oil companies, when the improvement to an oil company on that sizeable development will be about 3 per cent. and the great mass of the rent will continue to be paid to the Government.

Mr. John Smith

The Minister has at last disgorged some figures. He said that the putative loss to the Government would be 3 per cent. of the £4.5 billion. [Interruption.] I do not understand how that can be described as rubbish when it is a direct quotation from the Secretary of State. Will the Minister do the simple mental arithmetic that is involved and agree that it comes to about £120 million?

Mr. Walker

What is involved here is a shift of 3 per cent from the Government to the oil companies—if they are fortunate enough to get it. As the right hon. and learned Gentleman will understand from his knowledge of the industry, the chance of having fields on that scale is not very great and there are many problems involved. Many fields will be much smaller and much more difficult to develop. We have to bear in mind all the hazards involved. If the right hon. and learned Gentleman considers a switch of 3 per cent. from the Government to the oil companies to be wrong, he will passionately argue his case, but he must also bear the accusation from the Government Benches that in arguing his case he is unwilling to take account of any marginal differences that might encourage a great deal more activity and development than would otherwise take place.

Mr. Marlow

I am grateful to my right hon. Friend for giving way yet again. Is it not the case that, if the measure does not pass through the House, development will not take place in some marginal fields? Then not only will there be no oil and no jobs in subsidiary industries; there will be no revenue for the Government anyway.

Mr. Walker

I am delighted to find that I am much more in agreement with my hon. Friend the Member for Northampton, North (Mr. Marlow) than I was when I was in my previous Department.

Obviously, the whole reason for making the shift is that in the Government's judgment, after very careful study and analysis, it was believed that several changes were required to obtain maximum development. My hon. Friend is right in saying that if those steps are not taken not only will there be a loss of revenue from the oil fields, because some developments will not take place, but there will be an effect on all the ancillary industries supplying the oilfields, with a consequent loss of jobs.

If the cost of unemployment is considered, that must also be measured if the sort of inducement that is proposed for development to take place is not given. That is the basic argument for doing what is proposed, and for doing it now.

The Chancellor of the Exchequer, in his Budget, announced improved reliefs against petroleum revenue tax, particularly the gradual phasing out of advance petroleum revenue tax, for all fields, and the doubling of the oil allowances for all offshore fields outside the southern basin whose development was approved after 1 April 1982. The Government also announced their intention to abolish royalties for new fields in the latter category.

I have been asked why we do not propose to use the provision that is available to repay royalties, so that, if a field proved to be successful, all the royalties could be kept, and if it proved to be unsuccessful, some of the royalties could be repaid. In reality, if we are to give an inducement for all the fields to be developed, to say, "If you are successful we shall pour back the royalties, and if you are unsuccessful we shall not," is not a way of encouraging the development to take place. We have advocated something that will secure the bulk of the rents without impeding the developments that would otherwise take place. We have tried to obtain that balance. It is a judgment that has to be made.

The Bill is short and simple and comprises two clauses. Clause 1 provides that petroleum won and saved from a relevant new field, as defined in section 36 of the Finance Act 1983, shall be disregarded in determining the amount of royalty payable to the Secretary of State or the quantity of petroleum to be delivered in lieu of royalty.

It has been argued that the chance of taking the oil instead of the payment gives further support to our security of supplies, but here we are talking of about 6.5 per cent., because there is already the 51 per cent. that we have the right to take, and that has to be let in terms of the amount taken as a result of the royalty payments. Therefore, we are talking of 6.5 per cent. in lieu of payments. In terms of security of supplies, the proposed developments are important, because they will have a much greater impact upon our future security of supplies than the possibility of taking the additional 6.5 per cent.

Clause 1 also specifies the licences to which the Bill applies, that is to say, seaward production licences which incorporate all or any of the model clauses mentioned in it.

Clause 1 also ensures that should the definition of "relevant new field" in section 36 of the Finance Act be amended by later legislation following a decision to extend the tax concessions—for example, to some field in the southern basin of the North sea that is excluded by the current definition—such an amendment would apply for the purpose of the Bill. In effect, the clause abolishes royalties on future oil and gasfields lying wholly offshore, outside the southern basin of the North sea. That is defined as an area east of the United Kingdom between latitudes 52 degrees north and 55 degrees north, no part of which, before 1 April 1982, has been served with a development programme or received consent or approval for a development programme.

Clause 2 gives the short title, commencement and extent of the Bill. The provisions of the Bill apply to England, Wales and Scotland, but not to Northern Ireland. The Petroleum (Production) Act 1934, which enables licences to be granted, does not apply to Northern Ireland, whose authorities have their own petroleum licensing arrangements.

The Bill provides relief only for those areas defined in section 36 of the Finance Act; that is, those offshore fields outside the southern basin of the North sea. We excluded onshore fields because costs are much lower and no further incentives for those developments seem necessary. On the limited evidence available, the new southern basin fields also seem very profitable. However, we have said that we are prepared to consider any evidence put forward by operators on the profitability of such fields, and if we were persuaded that similar reliefs should be given for new fields in the southern basin, that would be achieved by amending the definition of "relevant new field" in section 36 of the Finance Act.

We have also excluded from existing fields developments approved prior to 1 April 1982 and satellites within such fields. The evidence produced during our studies suggested that in general those remain reasonably profitable under the existing arrangements.

The Government are satisfied that the Bill is an essential element in the provision of the fiscal regime under which the development of the oil and gas reserves on the continental shelf can proceed with greater benefit to the United Kingdom economy.

4.2 pm

Mr. John Smith (Monklands, East)

During the debate on the Gracious Speech I made it clear, as the Secretary of State noted, that the Labour party opposes the proposals in the Bill. Nothing the Secretary of State has said today by way of explanation or apology moves me to amend that judgment in any way. The Government are saying that henceforth the nation is to abandon its right to receive a royalty for the exploitation of its oil resources for any of the new oil discoveries and developments that occur in the largest part of the North sea. That is a major departure from the whole approach to the obtaining of a proper return for the nation from North sea oil. It is my submission that it upsets significantly the balance between a proper return for the state and a reasonable encouragement of exploration and development that must be at the heart of any sensitive North sea policy.

The justification offered for the startling departure in policy is that the development of marginal fields must be encouraged and that most of the fields where the development decisions are contemplated are in the marginal class. That ignores the fact that ever since the tax and regulation scheme for the British sector of the North sea was put in place by the last Labour Government it has been possible for oil companies—at least since 1975—to seek relief on royalties in appropriate cases. The companies require—

Mr. Tim Eggar (Enfield, North)

Before the right hon. and learned Gentleman goes off down that path, will he tell the House why he has completely changed his mind from what he said when the Budget proposals were put forward about three months ago? Could it be that before the election he was not willing to oppose proposals that he knew would create employment, but now that the election is over he could not care less?

Mr. Smith

I wish that the hon. Gentleman would not repeat that boring rubbish. I think that I will send him a copy of my speech so that he can read it again and, perhaps, understand it. He will recollect—he can check by studying Hansard—that I did not oppose the proposals in the Finance Bill. I thought that some encouragement was necessary, especially because of the problems facing the offshore supply industry. I made it crystal clear at that time that we were resolutely opposed to the propositions in this Bill. This legislation did not get through the last Parliament because of Opposition objections that I articulated.

The point is absolutely clear and I hope that the hon. Gentleman will not repeat his remarks. The Opposition did not oppose the provisions in the Budget, but we have always resolutely opposed the remission of royalties. The hon. Gentleman claimed that I had changed my mind, but I have shown the House that I have done nothing of the sort. Indeed, I have been firmly consistent in my view. I hope that the hon. Gentleman will not persist with his daft allegations.

When seeking a remission of royalties under the Petroleum and Submarine Pipe-lines Act 1975, a company had to establish its case. It had to prove that the remission of royalties was necessary for the field to be developed. Of course, that means that an oil company must give information to the Government—something that it is never keen to do. But the Government should insist upon it and obtain the maximum information, especially if a company is seeking concessions from the state through either taxation or remission of royalties.

Mr. Skeet

Companies made no applications under section 41 of the 1975 Act because they knew that they would not be considered by the Government. Oil prices were rising steeply at that time, but it is rather different when oil prices are falling.

Mr. Smith

My information is obviously different from that of the hon. Gentleman. I understand that a number of applications for remission of royalties were made to the Department of Energy, but that none was granted by either the last Labour Government or the present Government. That leads me to conclude that either the companies did not think that they had a good case to put forward or that they were unable to make a good case. That should put us on our guard. If a provision that is favourable to companies depends upon their proving their case, but they have been unable or unwilling to do so, we should be careful before giving them that concession without requiring any justification from them.

As the hon. Member for Bedfordshire, North (Mr. Skeet) and other Conservative Members keep telling us, we are entering a period in the development of the North sea when the finds and development will relate to smaller fields, where the geology is more complex and the financial risks greater. It is precisely the time when we could expect applications for relief from royalties to be made, perhaps successfully. The provision is especially appropriate to companies thinking of embarking upon a development at this time. Is that not the more sensible way to go about matters? The provision has existed for eight years, and the Government should allow it to operate rather than throw away the right of the state.

If an operator can make a case for relief, he can obtain it. If he cannot make a case, why on earth should we give him relief? Under the current provision, the nation knows that it is not forgoing income where the incentive is not justified.

The Government are marching in the opposite direction with their Bill. For all new fields, large or small, profitable or unprofitable, complex or straightforward, the right to royalties is thrown away with no conditions, no qualifications and no criteria. That is where the first and most obvious problem arises. If a company discovers a major new oilfield—and who, among the many experts in the House, can say that that is either impossible or unlikely — no royalties will be payable even if it is manifestly absurd that such a concession is given. The position would be so bizarre that the Government would have to make yet another swerve in policy—and, my goodness, they have made many—and either reintroduce royalty or increase taxation to recoup what was being lost.

If a company found a Forties field or a major new development in the North sea, surely the Secretary of State could not argue that it was proper that royalties should be demanded. He has already made it clear that the Government are not remitting royalties on existing fields that have already been developed. Would it not be much more sensible not to forswear royalties for all discoveries in the North sea for ever and a day, but to consider the need for incentive on a field-by-field basis depending on the weight of the case, as is provided for in the 1975 Act, which I had the privilege of taking through the House?

In the general area of taxation—and I suppose that we should regard royalty as a form of taxation—the Government propose a major concession to a major interest without being able to offer any figures of the cost to the taxpayer. The Secretary of State has almost created a precedent in legislation of this kind of being unable to give the House, which authorises the collection of taxes and superintends their spending, any sensible calculation of the cost to the nation.

I suspect that the Secretary of State knows or has a fair idea of the cost to the Exchequer. I hope that the Chancellor of the Exchequer has some idea of the cost to the nation of this concession. I am sure that the United Kingdom Offshore Operators' Association, which has been lobbying the Government for some time on such matters, gave figures to the Government of the cost to the nation. It would hardly believe it possible that the Chancellor of the Exchequer or a Secretary of State for Energy would say "Yes. You can have this concession without a price tag applied to it." If a price tag was mentioned in the discussions between the industry and the Government, that information should be made available to the House of Commons.

Mr. Marlow

The right hon. and learned Gentleman describes this as a significant concession. Will it not change the prospective pattern of development in this extractive industry? What is likely to be got out of an extractive industry is speculative, anyhow. If the pattern of development changes, is it not impossible for my right hon. Friend to bring forward the figure for which the right hon. and learned Gentleman asks? Is he not asking for a figure that he knows my right hon. Friend does not have? Indeed, would the right hon. and learned Gentleman be able to make anything of it if he had it?

Mr. Smith

I say the very opposite to the hon. Member for Northampton, North (Mr. Marlow). I am certain that a figure emerged during the discussions between the industry and the Government. I have dealt with the United Kingdom Offshore Operators' Association in the past. It is a highly expert body, especially when it is pursuing a matter which is of interest to it. It would have put a figure on it and, when the Secretary of State for Energy and the Chancellor of the Exchequer were weighing up whether the proposed change should be math, I am certain that someone somewhere asked "How much will it cost us?" If that is not the way in which government is conducted, it is alarming. I cannot believe that any Government would propose giving concessions by way of taxation or royalty without knowing the consequences. The estimates may be imperfect, but imperfect estimates are better than no estimates for this Parliament.

Mr. Peter Rost (Erewash)

Does not the right hon. and learned Gentleman realise that it is impossible to guesstimate what the tax relief will be, because we are talking about fields which have not yet been developed? We do not even know the size of the fields. Many of them have not even been discovered. The right hon. and learned Gentleman is trying to make a ridiculous point.

Mr. Smith

If that is ridiculous, why did the Secretary of State talk about a notional field and give us figures for it, saying that the difference in take would be 3 per cent.? If the right hon. Gentleman can talk about a notional field and give us the gross income from it, surely he can work out the percentage and give us the figure for which I asked.

The Government introduced tax changes in the last Finance Bill and in the Red Book they gave their calculations of the impact of those changes. Surely if there is a change in tax designed to encourage development, the same possibility of ascertaining what will be the result applies. The Government gave figures in the Red Book, and they were used in our discussions on the Finance Bill. I do not understand why we cannot be shown the same courtesy by the Department of Energy as the House has come to expect from the Chancellor of the Exchequer when we discuss these important financial measures—[Interruption.] I dare say that the Secretary of State finds my reference to the Chancellor of the Exchequer amusing. We all share his amusement. But in case there was too much optimism rising in the right hon. Gentleman when he got the job of Secretary of State for Energy, I ought to point out to him that in all the political circumstances he is unlikely to follow the present incumbent into the post of Chancellor of the Exchequer. But, between them, surely the present Secretary of State for Energy and the present Chancellor of the Exchequer, whether he was acting as Secretary of State or Chancellor, had the wit to ask someone these questions. I do not believe that they were not asked. However, the House of Commons is not being given the answers at which they must have arrived.

It is not surprising that the Government exhibit a lack of balance in their approach to revenue from future fields. Their record in dealing with our North sea oil revenues and the whole of their North sea oil policy in the major fields already being exploited is little less than a national disaster. First, as the Secretary of State noted, the Government have received more than £20.5 billion in North sea oil revenues since 1979. They have squandered the lot. In all their period in office, the previous Labour Government got only £800 million out of the North sea. No Government in British history have had such a windfall as the present Government have had since 1979. The figure of £20.5 billion — the figure given in a parliamentary answer towards the end of the last Parliament—shows the size of it. It is the equivalent for the nation of a pools win for an individual.

Mr. Peter Walker

Can the right hon. and learned Gentleman say whether the £800 million that his Government received was sufficient to meet the cost of the doubling of unemployment which occurred during their period in office?

Mr. Smith

I am happy to operate on that basis. The answer is that we simply did not have substantial North sea oil revenues under the last Labour Government. Surely the right hon. Gentleman has grasped the point that the present Conservative Government are unique amongst western Governments. No Government in modern history have been given a bonanza of £20.5 billion, and the right hon. Gentleman knows that the only reason why the Government were able to get away with 3 million unemployed was the £20.5 billion of North sea oil revenue that they had. If they had not had that £20–5 billion, either they would have had to cut benefits — which will probably come our way in any event—in which case they would have courted social revolution, or they would have had to increase taxes, in which case they would have courted political defeat.

Along came the £20.5 billion to bail the Government out of the consequences of their unemployment policies, and it is quite fair and legitimate to say that the Government have an extra income which they did very little to deserve. The present Government had very little to do with the crucial period of development in the North sea between 1974 and 1979, and we know that they incurred heavy extra expenditure. I am sure that the Secretary of State for Energy still has sufficient of his Tory middle-way conscience to be sensitive to unemployment and to know the huge cost that that has imposed on the nation. We have income coming in and expenditure going out caused by the same Government. It is quite fair to set one against the other.

What is more, it goes on. We are getting about £8.5 billion a year in North sea oil revenues as a whole, and the cost of the extra unemployment created since 1979 is well in excess of that. The extra unemployment means about £12 billion a year, the total cost of unemployment being about £17 billion a year. When the history of our times comes to be written, people will hardly believe it was possible for Britain to use £20.5 billion not to modernise its industry, rebuild its welfare state or even give tax incentives to its citizens but to pay for its Government's foolish policy on unemployment.

Mr. Bryan Gould (Dagenham)

Surely the position is even worse. It is not so much that the Government have used these revenues to pay for unemployment. Because of their financial policy, they have allowed North sea oil revenues to displace manufacturing output and, therefore, to create unemployment.

Mr. Smith

I am grateful to my hon. Friend the Member for Dagenham (Mr. Gould). I am afraid that my way of moderately stating a case sometimes leads me to underestimate the true impact of my arguments. If my hon. Friend sees me falling into the serious error of moderation in the future, I hope that he will not hesitate to correct me. Government supporters will have noted that my hon. Friends regard me as a very moderate expounder of a case.

The second disastrous feature of the Government's policy is that they have become so dependent on the oil revenues to pay for their unemployment policy that they have permitted production levels, especially in the major prolific fields such as Brent and Forties, to soar to the highest levels ever. We are now overproducing in the North sea so excessively that, even allowing for all the imports which are necessary to get the mix right in the refineries, we are exporting net 30 per cent. of the total North sea production. Oil is being forced out of the North sea as if it were going out of style. There is no balance of present as against future needs, of present against future levels, or of present against future oil values. In short, there is no sensible depletion policy. The Government are simply raiding the North sea larder in order to get the revenue. That becomes all the more incredible and alarming—

Mr. Skeet

If we followed the right hon. and learned Gentleman's argument, and there were no encouragement of private industry to develop new fields, by the end of the century — because of the time lag — we would be importing oil heavily at very high prices and we would be twice as badly off as we will be if we adopt these measures.

Mr. Smith

As the hon. Gentleman knows, I am in favour of approaching in two ways the problem of maintaining our oil resources for as long as possible. First, we need to have some sensible controls on the large and prolific fields at present being exploited, and, secondly, we need to encourage the marginal fields—although not in the way suggested in the Bill. The reason behind my attitude to the measures in the Finance Bill is that I recognise sensible and balanced measures when they are offered, and I recognise foolish measures when they are offered instead.

If the hon. Gentleman is worried about the fact that we shall hit peak production in 1985–86—and every hon. Member ought to be worried about that—he should ask not only how we should encourage future fields but also whether it is sensible to export 30 per cent. net of all our oil when we know that, within a few years, production will hit a peak and begin to decline. It does not make sense to mortgage the future in order to enjoy the benefit now. The Government are well aware that after 1985–86 we shall face the problem of falling production. However, instead of moderating over-production from the existing fields, they have panicked about the lack of development of future fields and introduced over-extravagant concessions.

For most of their period of office, the Conservatives' main objective has been to extract as much money as possible from the North sea. They increased the level of taxation considerably and brought in measures such as the advance petroleum revenue tax, which amounted to payment of tax before it legitimately fell due. They then suddenly realised that they would face an awkward problem in the future, and we have therefore seen a rapid about-turn of Government policy over the past year or so.

Mr. Marlow

It would help the House if the right hon. and learned Gentleman would make up his mind. On the one hand, he says that there should be a massive panic because we are running out of oil. On the other hand, he says that if we introduce this measure there will be massive exploitation by the oil companies. He must be assuming that the oil companies will dig up oil all over the place, that oil will be bursting out of our ears and that they will be able to get away with murder. Will he please make up his mind? Will there be more oil or not? If there is to be no more oil, why is the right hon. and learned Gentleman so concerned about this measure?

Mr. Smith

I do not believe that the hon. Gentleman listens carefully to anything said in the House unless he says it himself. His intervention is a good example of that characteristic. Throughout our discussions on this subject, I have made clear my belief that we must be careful about both the management of existing fields and the development of new fields. I am in favour of sensible and reasonable incentives where they can be justified. I object to giving away royalties, as the Bill provides, without even a pretence of justification.

Mr. Peter Hardy (Wentworth)

My right hon. Friend is being relatively kind to the Government. He has ignored the fact that the Bill represents the twelfth change of the financial rules for the North sea game since the Conservatives took office.

Mr. Smith

I thank my hon. Friend for pointing out another of the arguments that I can deploy against the Government. Over the past four or five years, the pattern of North Sea taxation has been bedevilled by shifts and turns in Government policy. The structure of taxation is the most complicated that could have been devised, and is the subject of repeated complaints by those who operate in the North sea. Every time that the Government needed more money — every time that the Chancellor had a problem — they simply took more money out of the North sea. On one occasion, they did it by means of advance petroleum revenue tax.

Mr. Eggar


Mr. Smith

The hon. Gentleman must not assume that every time he gets up and bays in his ill-mannered way at whoever is at the Dispatch Box, and in the middle of a sentence, he should automatically be allowed to make an intervention. The hon. Gentlemen is probably seeking to ask why I criticise the Government for raiding the oil companies when I also say that they are getting away with too much. The point is simple. The Government took a risk in over-raiding the oil companies, but now they are going too far in the opposite direction. As we have seen in a number of previous cases, it is quite possible for the Goverment to be inconsistent.

Mr. Eggar

That is not the point that I wish to make. The right hon. and learned Gentleman criticised the Government for introducing APRT. Why, then, did his party support the introduction of APRT? Secondly, if he considers the tax system too complicated, why is he opposed to the withdrawal of royalty, which is one of four layers of taxation paid by the oil companies?

Mr. Smith

I am opposed to this measure because it is a concession that could get out of control and has not been justified.

The irony of the Government's policy is that they have indulged in injudicious overproduction from existing fields because they needed the tax revenue, and yet, at the same time, they are proposing to indulge in injudicious concessions to the oil companies ever future royalties because they desperately need future production. That is no way to conduct an oil policy. The problem about future oil sources has been obvious for at least five years, and the profile of likely production levels has been available for as long as that. However, it is only in the past year or so that the Government have paid any attention to the problem. Previously the Government had concentrated on squeezing every penny out of the North Sea in order to mask the failures of their economic policy.

Perhaps the most serious point is that the Government have thrown away vital levers of national control and initiative. They have made the nation completely dependent upon the decisions of oil companies, many of which owe no allegiance to this country or to its national needs and purposes. I refer in particular to the wanton destruction of the British National Oil Corporation, which had been built up by the last Labour Government into a highly successful, proficient and profitable oil company.

In its last year, BNOC made over £400 million for the British taxpayer. More important from the point of view of the Bill, BNOC provided unbiased and critically important information for the Government about the real trends—the problems as well as the opportunities—in our oil province. BNOC gave Britain an independent national capability to develop our own resources if the multinationals withdrew their interest. If the multinationals sought to influence Government policy on taxation, royalties or development by the often-muttered threat of leaving the North sea — as they frequently do — the Government could respond by saying that, if they left, BNOC would develop the interests and assets in their place.

Although it was a highly successful company, BNOC was only a small public sector presence in an industry largely dominated by the private sector. It represented an interesting archetype of what a public sector company could do in such an area. Because it was successful, it was destroyed. That was the overriding reason. If a public sector company makes a loss, the Government's policy is to publicise the loss and excoriate the enterprise. But a public sector company must not be allowed to make a profit; if that happens, it must be sold off. Whenever a success is identified in the public sector there is a howl from the Conservative party that it should be sold off as soon as possible.

Not only did we lose a company that made money for Britain and for the British taxpayer, but the Government now have no independent initiative left. Therefore, to encourage the development of marginal fields, they are forced to consider concessions. The Government cannot tell the companies that if they are not prepared to develop the fields BNOC will develop them instead. The Government cannot say that they will make up their own mind without being bullied, pushed or threatened into making concessions in return for development of the resources.

There is one further aspect of the Bill that is relevant to national control. Until now, the Government have always been able to take royalties in oil instead of money. They will now reduce further—by, say, 12.5 per cent. of all the oil discovered in future fields—their capacity to influence the disposition of North sea oil. They will diminish the amount of oil that is under the Government's direct control. Therefore, it is a question not only of money, but of the nation's capacity and will to safeguard its most important national resource.

In an interesting study of North sea taxation published today by the Financial Times, a comparison is made between the petroleum exploitation taxation systems of the four North sea countries — the United Kingdom, Norway, Denmark and the Netherlands. The study concludes that the United Kingdom's system is already one of the least burdensome to oil companies, particularly given the concessions made in the final Finance Act of the last Parliament. The authors of the study argue for a resource rent tax, which would direct attention to the circumstances of a particular field, so that the Government's take would increase depending on profitability, and diminish when high costs were incurred, such as might occur with a marginal field. That is an interesting idea, as it concentrates on the reality of the outcome rather than on a guess about the future.

However, interestingly enough, the authors comment on the idea of abolishing royalties and note that the other three Governments concerned in the North sea are likely to think it too radical a proposal. In other words, no other North sea Government think it necessary, desirable, or in their interests to take the foolish step proposed in the Bill of throwing away royalties for all future finds. It is worth bearing in mind the report's general tenor, that the United Kingdom's system of taxation is not severe on oil companies.

Mr. Peter Walker

The right hon. and learned Gentleman has argued cogently about that splendid report, which states that taxation should depend upon a field's success, or lack of success. The article then went on to say that three other countries rejected that idea. Does he reject it?

Mr. Smith

The royalties proposal was rejected. Perhaps I should explain the position again carefully to the Secretary of State — [Interruption.] The right hon. Gentleman is entitled to the benefit of hearing what I have to say and should listen carefully. The report's authors said that the other three Governments were likely to consider the proposal to abolish royalties too radical a step. They argue for a resource rent tax. If the Secretary of State is not familiar with that idea, he will become familiar with it. It is argued that, instead of making a projection, one should wait to see what happens, give the companies a guaranteed return on their capital and then tax the surplus. It is thought that that is a better way of approaching the matter. I dare say the authors do not want to offend the Government too much, and so say that the others will think that that is too radical a proposal. I hope that the Secretary of State has got that.

Mr. Peter Walker

Yes, I have.

Mr. Smith

If the right hon. Gentleman has understood that, we have made some progress in the right direction. We know from the report that the Government are not over-taxing oil companies at present, even without the royalties concession proposed in the Bill.

Of course, all Governments have to consider a balance. If royalties are not taken from the North sea, as proposed in the Bill, the money is likely to be found from somewhere else. Someone else will have to make up the money that the Government would otherwise have received. If the system is over balanced in favour of the oil companies, the individual and corporate taxpayers will be the inevitable losers. Oil companies are extremely realistic about such matters. That can be seen, for example, in the attempt made—led by British Petroleum —to put 8p on the price of petrol. I must profess to some profound scepticism about the timing of the increase, which comes just at the beginning of a holiday period. In exchanges at Question Time today, the Minister suggested that this was just a case of an isolated oil company endeavouring to increase the price, but that does not square with recent history. Oil companies do not operate independently. I think that they sometimes draw lots to see which company is to go out in front first. As sure as eggs is eggs, if BP gets away with its price increase, Shell, Esso and the others will propose almost identical price increases within a few days. Indeed, they may have said as much already. It may be a matter of minutes and hours, rather than of days, before that happens.

We are told that that is all right, because there is competition. But there is not much competition at the petrol pump. The oil companies tend to move together in their pricing policies. Why was there no reference to the proposed price increase in the recent election campaign, just as there was no mention of a building society mortgage increase? [Interruption.] I am comparing the oil companies' attitude towards their interests with the Government's attitude towards our interests.

Mr. Albert McQuarrie (Banff and Buchan)

I trust that the right hon. and learned Gentleman will accept that the recent increase was proposed by BP and not by the Government. I am sure that he is aware that many of us who represent rural areas have consistently and vigorously opposed such increases and will continue to do so. In the election campaign much mention was made of the fact that those of us who represent rural areas are not prepared to stand for such increases.

Mr. Smith

I am glad to have a recruit and ally in my plea to the Government to refer this matter to the Monopolies and Mergers Commission, and I am glad to see the hon. Member for Banff and Buchan (Mr. McQuarrie) nodding in agreement. Of course, the price increase was proposed not by the Government but by the oil companies. However, the Government have some powers. Under section 13 of the Competition Act they can refer the issue to the Monopolies and Mergers Commission for investigation. Indeed, I do not know why they are not prepared to do so. Earlier, the Minister told us that he was not prepared to do that and that he was satisfied with the existing competition. I do not think that the hon. Member for Banff and Buchan is satisfied with it, because if he was he would not have made that complaint.

Mr. Skeet

Let us get back to the Bill.

Mr. Smith

I have been asked to return to the subject of the Bill, but I must do the hon. Member for Banff and Buchan the courtesy of answering his question.

The oil companies will wait for a strategic time, and have indeed done so. It is wrong that they should, in effect, tell those families setting off on holiday that, because they are weak, they will be forced to pay another £1 every time that they fill up their tanks. In the past, consumers have won battles against the oil companies, but this time the oil companies picked their time carefully in order to cause the maximum inconvenience to the public and to put them in the weakest position. There is almost a defiant anti-consumerism about the way in which they have made the proposal. They say that they are making a loss on their petrol operations, but we know perfectly well that they are making considerable profits on the production side. Indeed, reference has been made to the profits that they make. We also know that they have integrated operations. For example, BP takes oil from the North sea. That passes along the chain of production, refinery and distribution, ending in a sale to the consumer at the petrol pump. We know that such companies make very large profits in some parts of their operations.

It is not beyond speculation that profits and losses can be moved round among group accounts to produce whatever result a group of companies wishes to achieve. The Government are ready to criticise public sector industries and to refer them to the scrutiny of the Monopolies and Mergers Commission. There is hardly a publicly owned industry that has not been referred to it since the Conservative party came to office in 1979. However, I am not aware of any important private sector reference to it. British Petroleum is a most suitable candidate, and it might enable the Government to recover some sort of reputation for holding an unbiased view about the public and private sectors. The Government might then be seen to be taking some action on behalf of the consumer. If they do not take that action, they will be seen to aid and abet a price increase that takes us dangerously close to £2 per gallon.

Mr. Marlow

What has this to do with the Bill?

Mr. Smith

For many people, the result of the Government's oil and gas policies is increased costs. If the boot were on the other foot and a Labour Government were in power, I can think of no hon. Member more likely than the hon. Member for Northampton, North to make the most awful fuss about such a matter. It would be just the sort of populist cause that is dear to his heart.

The Bill, after all, proposes major reliefs and concessions to the oil companies. It is disgraceful that the scale of relief is not known. However, it must run into hundreds and millions of pounds, if not more. The Government have neglected the interests of the consumer, the taxpayer and the nation as a whole through their unbalanced and misdirected policies, and in this Bill they threaten to go even further in that direction. We do not intend to acquiesce in this folly. We shall argue against this piece of nonsense with all the force at our command, and divide against it in the Lobby.

4.39 pm
Mr. Peter Rost (Erewash)

I congratulate my right hon. Friend the Secretary of State on his promotion, but I must warn him that one of the penalties of his new job is that he will have to listen to the irrelevant ravings of the right hon. and learned Member for Monklands, East (Mr. Smith). We have just had a good example of one of the right hon. and learned Gentleman's outrageous, exaggerated and long-winded outbursts.

It would be tolerable if those outbursts were not so ill-informed, but, as we have discovered on previous occasions, the right hon. and learned Gentleman does not do his homework. Once again he has shown his lack of knowledge about the North sea oil industry, and he displayed his ignorance at great length.

We heard a jumble of contradictory criticisms from the right hon. and learned Gentleman. For example, he said that the Opposition want to encourage the development of marginal fields, yet they do not want to encourage it enough to allow any profits to be made The Opposition's alternative to the relief on royalties proposed in the Bill is an assessment of field-by-field considerations, regardless of the uncertainty that such an assessment would continue to provide for the oil industry.

The factor that has created the most delay in the development of new oilfields in the North sea has been the uncertainty of the tax regime. Yet the Opposition, not content with opposing the relief proposed by the Government, want to continue the uncertainty.

When the Opposition argue against the Bill they are excelling themselves in hypocrisy, because Labour Members joined Conservative Members on the Select Committee on Energy in producing a report that spelt out in detail why it was necessary to reconsider the tax regime. Labour Members supported those proposals, made just over a year ago, and the Government responded to the report by accepting the proposals. The Chancellor of the Exchequer was persuaded that some relief was required.

The Labour Members who supported that report were not hoodwinked by the case presented by the oil companies. They saw the evidence. If the right hon. and learned Member for Monklands, East had been on the Select Committee, instead of conducting his outrageous, exaggerated ravings in the House, he could have done his homework. He would have seen the evidence showing that new oilfield developments were being held up because of uncertainty over the tax regime. That uncertainty was exacerbated by the reduction in the oil price. The right hon. and learned Gentleman would have seen evidence presented by the oil industry and by independent experts who argued that if we are to continue to develop North sea oil we must ameliorate the tax regime.

Mr. Ted Rowlands (Merthyr Tydfil and Rhymney)

I was not a member of the Select Committee, but I have gone through all the evidence and the Committee's findings. I do not recall that the Committee recommended the abolition of royalties on future fields.

Mr. Rost

I have a copy of the Select Committee report with me. If the hon. Gentleman reads it, he will see that we did not propose detailed changes because we did not regard that as our responsibility. We said that there had to be some relief in the tax regime. We did not feel competent enough to outline how reliefs should be implemented, but we made a number of important recommendations about why reliefs should be allowed and the broad context in which they should be granted. I shall say more about that later.

There were so many inconsistencies in the so-called argument of the right hon. and learned Member for Monklands, East that I cannot deal with them all. However, I must take up his claim that the legislation should not proceed because my right hon. Friend the Secretary of State was not able to quantify the amount that taxpayers would lose if we abated royalties. That is one of the most nonsensical arguments that I have ever heard from the right hon. and learned Gentleman. We cannot quantify the tax loss because we cannot quantify the number or size of the fields involved. We are talking about future developments. I remind the right hon. and learned Gentleman that the main reason why many developments have not gone ahead is that the tax regime has become too burdensome.

Rather than talking about how much the taxpayer might lose if we were to relieve oil companies of royalty payments, it would be more constructive to talk about how much the taxpayer will benefit if we provide the incentives for North sea oil developments to proceed. But the Opposition are not interested in that. They are out to score cheap party political points, almost as if the election had never taken place.

The Government, the oil industry and the public understand that the future of the North sea oil industry is crucial to the future of this country. If we do anything to endanger that development or frustrate further exploitation, we shall not only prejudice our economic future, but be unworthy to continue in government.

If the Opposition were in government, which heaven forbid, they would be talking differently. They would be doing exactly what the Bill proposes, because they know the facts, even if they are not prepared to admit them. Our future depends on continuing to encourage the development of North sea oilfields and maintaining the momentum for self-sufficiency, with the employment that results from that.

Moreover, most people know, even if the right hon. and learned Member for Monklands, East does not, that the discoveries in the North sea will be almost exclusively smaller, more marginal fields. Many of those that have already been discovered have not been developed. The upfront capital costs of development mean that the return on smaller fields is much more marginal.

The Bill is directly geared towards providing incentives for the development of smaller fields which it had not been economic to develop and with which we must press on. If we are to remain self-sufficient in oil when the major fields, such as the Forties, begin to pass their production peaks, we can do so only by providing incentives for the exploitation of smaller, more marginal fields.

The country should be grateful for having a Government who are honest, pragmatic and realistic enough to accept that, through advance petroleum tax, we taxed the oil industry too much two years ago. We have now made amends for that. We have had to adjust for the fact that the real price of oil has declined, rather than increased as seemed likely at the time. We have been realistic enough to make the necessary adjustments to the tax regime to provide the vital incentives that are required.

I referred to the Select Committee on North sea oil depletion policy reaching the conclusion that we needed not a depletion policy but a repletion policy. In other words, the evidence that came to us from a wide range of sources made it clear that, even if the tax regime was not intended to act as a disincentive to new developments, it was in practice doing so. The evidence could not be disputed. There had been hold-ups in new developments, as well as much uncertainty due to the fact that the real oil price was declining at a time when the tax regime was becoming more severe.

The Government acknowledged the greater part of the recommendations in our report in July last year. In their response they admitted everything, in effect, except that the tax regime was designed to clobber the oil companies. They did not go so far as to accept that. However, they admitted that it was necessary to review the tax regime as it appeared to be affecting the economic viability of new marginal field development. The Government have now done that, and come forward with this legislation which, together with the other tax changes, will provide the necessary incentive for which the oil industry has been urgently waiting. We can now move ahead with new developments.

This legislation is important because it accepts that the Government are prepared to take a realistic view. It is a pity that my right hon. Friend did not say—perhaps this is not the right moment to do so—that there is a case at least for stating Government policy on the future of the tax regime on North sea oil and admitting perhaps that the policy should provide stability for the system. There have been far too many changes in taxation by successive Governments. Admittedly, they have had to accept the changing price of oil, but the oil industry does not like uncertainty. The industry cannot afford uncertainty, bearing in mind the long lead times that are required to develop North sea oil investments—the huge sums that have to be raised, the security that has to be provided, and the long time that it takes before a return can be obtained. Moreover, there are great uncertainties on the geological side as well as in the economics of oil prices from the time that a project is planned until a return is obtained, and those uncertainties increase if the time involved has to be extended.

I am sure that my right hon. Friend understands those problems. I hope that he will reconsider the other proposals in the Select Committee report about the desirability of having a simpler, more stable and neutral tax regime. The Bill goes a long way to achieve that. It is a radical and important change. I hope that we shall go further and restructure the tax regime so that it is more directly linked to profitability. We think that the Government would do well to make that move.

I am sure my right hon. Friend will agree that, as well as providing an incentive for smaller marginal fields and their development, it is important from the national point of view to improve recovery ratios. We should not allow fields to be developed in a way that will endanger the recovery ratios. That means, for example, that pressure maintenance techniques will have to be employed at an early stage of a field's development, at high cost. Therefore, it is important for smaller marginal fields that the right incentives should be provided to allow the optimum investment to be made, which would not be made unless such incentives were provided.

Mr. Skeet

My hon. Friend will, of course, appreciate that only about 40 per cent. of the oil in place is recovered, and that therefore secondary and tertiary methods should be sought. So far, however, those are not allowable against petroleum revenue tax.

Mr. Rost

I am grateful to my hon. Friend.

I am saying, and I think that my right hon. Friend and his advisers have taken it on board, that we are concerned about the future of the North sea oil industry. We believe that most of the fields in future will be relatively smaller. It would be nice if we made major discoveries— no doubt we shall make some — but the pattern in any mature oil province is always the same. One gets the larger discoveries in the early years, and they are followed by the smaller fields—the satellite and more marginal fields—that make up the continuing flow of oil for a number of years. We are moving into that pattern in the North sea. Therefore, the tax regime must increasingly be geared to provide incentives for marginal field development. The regime must also be geared in such a way that the ratio of exploitation reaches its optimum, and the high cost involved in achieving that has to be put into the field in the early stage so as to achieve optimum recovery at the later stage. Unless the incentive is there, oil companies will not find it worth their while to make the initial investment which will achieve optimum recovery in later years. For that reason, if for no other, the Bill represents an important change in the tax regime, which I wholeheartedly support.

My right hon. Friend said that the Government would consider how the legislation worked, perhaps in relation to existing fields and satellites of existing fields. I hope that he will bear in mind that developments that do not come within this legislation, because they are already under way, may be treated unjustly in the tax regime because some will pay royalties, whereas new developments will not. The economics can change unpredictably in fields that are already being developed and therefore are not eligible for the tax relief on royalties under this legislation. Special consideration might have to be given if a field that should be profitable became marginal. I hope that my right hon. Friend will bear that point in mind.

I hope that the Opposition will not discredit themselves —even more than the initial speech from their Front Bench has already discredited them— by a bogus and outrageous outburst of indignation against the legislation. They know that it is necessary. Many Labour Members on the Select Committee have admitted it. If they were in the Government's position, they would have to do the same thing. Therefore, it does them no credit at all to take the hypocritical stance that they have taken this afternoon, except perhaps to provide them with one or two cheap headlines. I hope that, in the interests of sensible and constructive debate, those who follow the right hon. and learned Member for Monklands, East will adopt a more positive approach and accept that what the Government are doing is just and sensible.

5 pm

Mr. James Wallace (Orkney and Shetland)

It is an honour to address the House for the first time.I apologise if in doing so I appear to be more nervous than is perhaps usual, but this is the first of two maidens that figure prominently in my life this week. The second maiden I am to marry on Saturday afternoon.

To be elected I had to inflict defeat on two previous Members, Mrs. Winifred Ewing and Mr. David Myles. David Myles was a Member of the previous Parliament whose seat was absorbed in the boundaries changes. Lest his departure from the House might otherwise go unmentioned, let me say that during the election I found him to be a fair and honourable opponent. His interest lay in farming and he served on the Select Committee on Agriculture. His keen interest in and knowledge of farming was reflected in the fact that he achieved the highest Conservative poll in Orkney and Shetland in over 30 years.

It is the tradition of the House that in a maiden speech a Member should pay tribute to his predecessor and I am proud to honour that tradition. I understand that I am the first Liberal in over 20 years to pay tribute to an immediate Liberal predecessor. Jo Grimond represented Orkney and Shetland for over 33 years, and for one third of that time he was leader of the Liberal party. I ant too young to say that I came into the Liberal party beaus of Jo Grimond, but the Liberal party that I joined in 1971 had been given a fresh hope and a new sense of direction by Jo.

I have in my study a calendar, a sheet of which is torn off each day, giving a new motto. One which appeared recently said that a politician is one who looks towards the next election and a statesman is one who looks towards the next generation. By that criterion it would be fair to say that Jo Grimond can rightly claim to be described as an outstanding statesman. When he led the Liberal party some 20 years ago, he saw the need to reintroduce Liberal values and principles to the government of Britain. He was a man of vision who realised that that could not be done overnight, but he sowed the seeds for the realignment of British politics, the first fruits of which we tasted at the election. It is a challenge to me and my Liberal and Social Democratic colleagues to ensure that in the next election we reap a full harvest.

Although Jo Grimond was a man with a national reputation, he was also a diligent constituency Member. Wherever I campaigned in Orkney and Shetland I was told by constituents, often from firsthand experience, of the amount of work and effort that he put into representing his constituency and individual constituents. As a new Member, I can do no better than seek to aspire to the high standards that my predecessor set.

I represent the most northerly constituency in the United Kingdom. It is not, as some people still mistakenly believe, in a box somewhere to the east of the Moray Firth. Although in the past 10 years Orkney and Shetland have perhaps been most associated in the public mind with oil developments, that should not blind us to the fact that there are there many other profitable and worthwhile economic activities which make a valuable contribution to our nation's economic welfare. There is a prosperous agriculture industry in Orkney, fishing in Shetland and the traditional knitwear and craft industry.

The people of Orkney and Shetland show an enterprising and independent spirit, combined with a great commitment to the community and its welfare. That was well illustrated during the election campaign when I attended the opening of a community co-operative guest house and youth hostel on the small island of Papa Westray in Orkney, with a population of only 100. That venture showed me the determination that one fines in the islanders to sustain a viable community in spite of pressures of population decline, and it also showed the spirit of enterprise to which I have already referred.

Oil development should not blind us to the fact that Orkney and Shetland have suffered economic problems. The recent herring fisheries crisis is only the latest of these. One of the most fundamental problems is that of transport costs, not only for bringing goods into Orkney and Shetland, but for exporting fresh produce. When the right hon. and learned Member for Monklands, East (Mr. Smith) a short while ago expressed considerable horror at the prospect of petrol reaching £2 per gallon, I. was tempted to remind him that for some time that has been the cost of petrol in my constituency.

When we are dealing with a Bill that gives such substantial tax concessions to oil producers, it is about time that we started to think more seriously about giving concessions to all oil and petroleum consumers. A cry that has often come from the Liberal Benches is that there should be a differential rate of duty for petrol in remote and rural areas where a car is a necessity. It is not administratively impossible. If the political will were there, it could be done.

Unemployment has hit Orkney and Shetland, as it has hit many other places. Although for some time the averages lay well below the national average, they have been increasingly creeping up. One person in eight in Orkney is unemployed. In Shetland at the weekend I met a man who informed me that out of his class of 20 who left school last year only three had managed to find full-time employment. It is against that background of considerable economic difficulty, which is perhaps looming more and more in the islands, that I give a general welcome to the Bill.

Judging from reports and comments, the Bill, together with other measures that have already been enacted in the Finance Act and those which we are promised in an oil taxation Bill later this year, encourages the oil companies to undertake new exploration and developments in marginal fields. The question of what loss in revenue there will be to the Exchequer as a result has been raised. I have great sympathy with the Secretary of State in being unable to quantify this. We cannot tell what will happen without this measure. We cannot tell whether certain fields will not be brought into production, thereby producing no revenue in 10 or 15 years' time. It is not so much the monetary value of the Bill which is of particular help, but the incidence of the royalties. The oil companies have to pay royalties before a field is necessarily profitable and the cash flow assistance which the Bill gives is one of the most important factors. It has been welcomed by the oil companies as giving them the incentive to exploit and develop marginal fields.

The rate of development may not be as exciting as the previous Secretary of State suggested. I think he said that there would one new discovery or development every six weeks. None the less, during the election I was informed by oil representatives in Orkney that the effect of having to shelve some of the proposals because of the dissolution of Parliament had led at least one oil company to hold back from announcing new developments pending the outcome of the election to find out whether the proposed measures would be enacted.

Nevertheless, there are prospects that new developments such as the Balmoral, Glamis, Andrew and Bruce fields could benefit from the Bill. The increased activity, with the prospect of new fields coming on stream in the 1990s when production from existing fields is diminishing, must be welcome news to those who are directly involved in the oil industry, particularly those of my constituents who work at the Flotta and Sullom Voe terminals. It also offers opportunities for onshore operations, about which I shall say more in a moment.

Before doing so, I want to express two reservations. The right hon. and learned Member for Monklands, East suggested that we could lose the funds of huge new oil discoveries. The oil industry believes that it is extremely unlikely that another Forties field will be found. None the less, as a result of the Bill, we shall have two strands of oil taxation—one for the old fields and one for the new fields. If, in 1992 or 1993 a new field is making huge profits, it will not be beyond the wit of the Government to find a taxation device to ensure that some increased revenue is taken from it.

The Bill relates to "new fields". It highlights the difficulties that are sometimes found in trying to define what constitutes a new field. The problem has already arisen in connection with certain developments that are arguably new and separate, but have already fallen within an existing ring fence. With these new concessions the definition of "new fields" becomes more important. While I accept that this is a complex issue, it might be helpful if the Secretary of State could tell the House whether he is working towards a clearer definition of "new fields" which will remove ambiguity and uncertainty.

I referred to possible onshore developments as a result of the Bill. The measure would be all the more welcome if we could be certain that it marked a new Government approach to our North sea oil and gas industry and was not just another example of tinkering with the oil taxation system which has been so much a feature of our oil taxation regime over the past decade.

It is not unfair to say that, to date, oil and gas related activities—offshore and onshore—have not been treated as an industry in its own right. Rather, Governments have seen the industry as a beast to be milked whenever revenue demands required it—an approach that has been made all the more attractive by the fact that soaking the oil companies for more taxation can always guarantee some electoral appeal. The 10 or 11 alterations in North sea oil taxation over the past decade appear to have been made without any regard to the destabilising effect that they can have on the industry, particularly the onshore industry. The changes have been made, apparently oblivious of the employment opportunities that can be offered by having a consistent policy geared to promoting offshore development.

In Shetland, the recent downturn in oil activity has contributed to unemployment, particularly around the Sumburgh area, where an almost ghost-town atmosphere has been created, but planned and continuous development is obviously preferable to boom-slump. A consistent tax regime allowing such planned development will allow the oil-supply bases which already exist in Shetland to seek new openings in specialised services and will give them the long-term confidence and incentive to provide more training for young people, and avoid any need to fly in skilled labour. Consistent policy will also open up the possibilities of oil-rig servicing and repair work for supply vessels. Indeed, even agriculture in Shetland is looking towards the offshore working population as a new market for the produce from their farms and crofts.

This should not be seen as a parochial approach. Increased offshore activity can give great benefits to the nation as a whole. It will lead to greater orders for oil-rig construction. It will stimulate the engineering industry for the supply of such basic engineering components as pumps, valves and compressors, thus opening up employment opportunities throughout the United Kingdom.

Furthermore, over the past 10 years we have as a nation developed considerable expertise in offshore technology, which will no doubt be extended even further when we start to exploit the deeper waters to the west of Shetland. When one considers that estimates suggest that during the next 20 years offshore discoveries could account for between one third and one half of all the world's new oil reserves, surely we in Britain have a great opportunity to obtain a significant share of a growing market. But to do so we must ensure now a continuous policy and continuous level of demand and development at home. The green light which has been signalled by the Government in their recent measures must stay at green and must not, because of a shift or a new need or requirement, be switched back to amber or red.

I am grateful to the House for having had the courtesy to listen to my maiden speech in silence. It is probably too much to hope, Mr. Deputy Speaker, that the next time I am successful in catching your eye I shall be given such a clear run.

5.14 pm
Mr. Peter Viggers (Gosport)

It is indeed a privilege to follow such a clear and attractive speech as that made by the hon. Member for Orkney and Shetland (Mr. Wallace). The hon. Gentleman had the attention of the House throughout his speech. He impressed us with his knowledge of his constituency and of the oil industry, a technical subject on which few hon. Members choose to speak in a maiden speech. The mantle of his predecessor, Mr. Jo Grimond, is a heavy one and it has, if I may say so, fallen well. We look forward to hearing the hon. Gentleman speak on many occasions in future. If he is as successful with his maiden at his wedding on Saturday as he has been in his maiden speech, I am sure the whole House will know that he will have a long and happy marriage as well.

I made my maiden speech many years ago — and have not improved since—on the oil and gas industry and on the importance of the development of its service and supply side. My speech was based on my knowledge and experience of the industry. I was then, and still am, a director of an oil company and have other oil and gas interests, so I can speak with a small amount of direct knowledge of the subject.

The offshore oil and gas industry is now very large, employing more than 100,000 people in all areas of activity, including some that are at the forefront of engineering knowledge throughout the world. It is important that this large industry should have stability. We must ensure that, as the hon. Member for Orkney and Shetland pointed out, we do not have a stop-go policy. Stability will enable the industry to move forward with certainty.

In the Bill, the Government have proposed measures which will enhance the profitability of marginal fields. Those are specifically new marginal fields, not fields in the southern sector of the North sea. The royalty basis has been changed so that in future, on a marginal basis, the Government take will be about 88 per cent. as opposed to 89.5 per cent. The right hon. and learned Member for Monklands, East (Mr. Smith) demanded that we should be told exactly how much the Government's tax take will increase or decrease as a result of this measure. I can give the right hon. and learned Gentleman an answer which is as relevant as anything that he put forward—88 per cent. of something is more than 89.5 per cent. of nothing.

There is no doubt that the oil industry has been discouraged from proceeding with the development of marginal fields. Anybody who studies the industry knows that. The industry has been voting with its feet. It has not been developing fields that could be developed. Undoubtedly, there will now be development of some fields which previously have not been capable of development.

Mr. Douglas

Perhaps the hon. Gentleman, with his great knowledge of the industry, will be able to tell us of any submission from the United Kingdom Offshore Operators Association, or any other oil company office, asking for the total abolition of royalties.

Mr. Viggers

The hon. Gentleman knows that UKOOA put forward a reasoned case to the Department of Energy and to the Treasury based on the development of 31 fields. The hon. Gentleman knows, because my right hon. Friend the Secretary of State has told him, that the Department of Energy studied carefully 10 profiles of field development and came to the conclusion that it was necessary to have relief of this nature. I believe that the Bill will enhance oil and gas development and increase the Government's tax take.

The right hon. and learned Member for Monklands, East said that it would be possible for royalty to be lifted on a concessionary basis. That point can be answered clearly. The oil industry considers the whole of the risk-reward ratio when considering whether to go ahead with development. It considers the possibility of finding oil or gas as a result of seismological development and then decides whether the potential size of that held will enable it to go ahead and take the risk. It will not go ahead unless it is able to calibrate its reward, should it be successful in finding oil and gas as a result of development.

It is not good enough for the right hon. and learned Member for Monklands, East to say that the oil industry should go ahead and that, if it seeks a concession, the Government should weigh the balance and then decide whether to grant the concession. The oil industry needs to know on a global basis whether the reward is worth the risk. The large amounts of money involved in oil and gas development will not be put on the line unless the oil industry can decide, in advance, what the rewards are likely to be.

Our oil and gas fields are developed predominantly by private enterprise, which has served us well in North sea oil and gas development. When the Labour Government were in power, we had a nationalised oil industry. The British National Oil Corporation took a major share in oil and gas development. We even heard — reductio ad absurdum — hon. Members demanding that BNOC should seek oil offshore west of the United Kingdom when none of the oil companies wanted to proceed because they believed that little oil and gas existed in that area. Labour Members demanded that oil and gas should be sought, whether or not it was there. In such circumstances the oil industry can be thought to be under the Secretary of State's thumb. We are confident that we are well served by private enterprise in North sea oil development

Having dealt with the concessions in the Bill and the enhancement of oil and gas development that we can expect from it, I shall deal with a different subject—where the tax take will go. I shall not say anything new or original because I have made the point before in the House. I regard oil and gas, since they are minerals, as capital assets. If oil and gas are depleted, capital resources are involved. It is technically wrong to talk about revenue from the North sea when it is a depletion of capital. It is wise for us to regard North sea oil and gas as capital benefits, the money from which should be reinvested in capital assets.

It may be unattractive to the Treasury, but it is arguable that there should be, if not the hypothecation of income, which is blatant heresy, an awareness that we are using capital resources of a finite nature and that, therefore, we should apply the funds generated from those capital assets in a capital manner. There should be a capital element in the application of the funds from North sea oil and gas. I am speaking of a simple idea which is no more complicated than the way in which any company approaches its assets. A company always distinguishes between capital and revenue, as does any frugal housewife. The Government should also distinguish between the depletion of capital assets and crdinary revenue items.

Our finite oil and gas resources will last 20 or 30 years. Nobody knows exactly when, but there is no doubt that they will run out in our children's lifetime. I do not want to say to my children, "Yes, we had the precious finite resources of oil and gas, but I am afraid that we have used them. Now we are reduced to looking for the small pockets of oil and gas in the more difficult and expensive places, such as deep water." Anathema though it may be to the Treasury, there is an argument for thinking in terms of a capital element in the spending of these important funds from North sea oil and gas.

The Treasury Red Book describes the way in which money is spent by the Government on our behalf. The amount spent on capital assets is diminishing, rather than increasing, at a time when we are deriving benefi: from the North sea and when we have a unique privilege in the receipt of oil and gas funds.

The Arab countries may be unpopular because of their increasing of oil and gas prices in the last decade or two, but often they are more far-sighted than we are in considering how their finite resources should be used for the benefit of present and future generations.

We are entitled to say that the Government's depletion policies have not been enunciated as clearly as they might have been. The United Kingdom is the fifth largest producer of oil in the world, but it is not the fifth largest in terms of reserves. Therefore, although I support the measure, I think that more thought should be given on a long-term basis to the application of the funds from North sea oil and gas. If my small contribution can help in that thinking, I am grateful to have had the opportunity to intervene briefly.

5.26 pm
Mr. Peter Hardy (Wentworth)

The hon. Member for Gosport (Mr. Viggers) offered a proper appreciation of the sensible contribution by the hon. Member for Orkney and Shetland (Mr. Wallace). Since the hon. Gentleman espoused the cause of consistency in energy policy, I was glad to hear his speech and look forward to his taking part in energy debates, especially when Sassanachs such as myself are allowed to be involved.

The hon. Member for Gosport made the least and speech that I have heard from the Conservative Benches for a long time. I agree with his argument about capital. He reminded the House of the fall in investment. Labour Members perhaps were not heard by the electorate, but we pointed out during the election campaign that industrial investment had fallen by about two fifths in four years and that the enormous gain of North sea oil actually brought little advantage to Britain. I hope that the hon. Gentleman's argument will be given attention by the present Administration.

The hon. Gentleman's contribution reminded me of the words of the Secretary of State when he spoke about the way in which offshore revenue is being used. The Secretary of State did not finish his explanation. Perhaps we were too eager to interrupt him. He said that about £3½billion of the revenue was spent on education, £5 billion on health, £2 billion or £3 billion on the National Coal Board and another £1 billion on British Leyland. That amounts to about £12 billion, but he was supposed to be explaining what happens to £20 billion. Where has the other £8 billion gone? We believe that it is being used to finance the decline of British industry, the ruin of the British economy and the obscenity of unemployment. That may not be relevant to the Bill, but it is of such importance to the British economy that no debate in the House of Commons can ignore the nature of that decline and the cost to the community.

It would have been better if, in the weeks of the election campaign, the Government had talked more about policies for the offshore regime. We heard more about polls than about petroleum. We certainly did not hear about petrol being £2 a gallon. The hon. Member for Orkney and Shetland reminded us that in remote areas people already pay that amount. I suppose that petrol will cost £2.50 a gallon in those areas. My constituency is not remote, but the prospect of paying £2 a gallon does not please me.

I am making a kind of maiden speech, because I now represent a new constituency. Wentworth comprises a large part of my old constituency. I live in that area and I am delighted to have the chance to address the House as the hon. Member for Wentworth for the first time. Wentworth is a long way from the North sea, but my constituents' interests are bound up in the Government's attitude to energy.

The Government are arguing that they must introduce the Bill to take out all the oil from the larger and middle-size fields and ensure that the smaller fields are developed. At Question Time I suggested, but the Minister did not respond, that the attitude being displayed towards oil was not being repeated for the coal industry.

The Government are saying that the smaller fields must be developed, and there is a good case for doing that. They are saying that the oil from the larger and middle-size fields must all be taken out and that the taxpayer must forfeit enormous sums to enable that policy to be pursued. It may be sensible to pursue that policy, but at the same time we must consider the report of the Monopolies and Mergers Commission, not to mention the ravings of Conservative Members — some of whom are in the Chamber today — to the effect that the coal industry must be contracted and that collieries which have substantial reserves should be closed because they are not at present making a profit.

If Government policy on oil is sensible, their policy on coal is not. We suggest, not that a colliery must be given immortality —because it is an extractive industry and pits will close, just as oilfields will be drained—but that we should be sure that it is a wise Bill and view the Government's energy policy as a whole. If their attitude to oil is prudent, their attitude towards coal is imprudent. The burden of our case basically has been that the fiscal regime for oil should serve the national interest.

The result of Government policy on energy will not assist proper depletion arrangements and ensure a proper attitude towards the conservation of our energy resources. The hon. Member for Erewash (Mr. Rost) is not in his place, but he suggested that he had been making consistent speeches on the subject. Their only consistency has been that they have praised the Government regardless of the shifts of policy. My speeches about offshore policy have been consistent in advocating sensible depletion and conservation policies.

It would be consistent with a conservation policy to ensure the development of the small fields, with the larger fields being properly exploited, but one must note, for example, what was said in the Financial Times today about other countries having adopted a more sensible approach to energy. It is a pity that the Secretary of State has not shown any evidence of a willingness to adopt a more sensible approach to energy matters.

When the Oil and Gas Enterprise Bill was in Standing Committee a couple of years ago, I did not receive a reply to a question that I asked then and repeated in a debate last year. On those occasions I reminded the House that soon after the 1979 election Dr. Hammer and the present Prime Minister had a love-in on television in which Dr. Hammer demonstrated his faith and confidence in Britain by announcing an enormous investment programme from Occidental which would maximise the take from the Piper and Claymore fields. There was enormous fuss and publicity over that at the time, with the newspapers referring to what they called an act of confidence and faith in Britain and the mutual affection that was felt between the Prime Minister and Dr. Hammer of Occidental.

When, about 18 months later, Occidental decided rather dramatically to reduce its investment programme, there was scarcely a word about it in the media. Does the Secretary of State have any confidence that this measure will persuade Occidental, BP or any of the other companies involved in our offshore industry to increase investment in existing fields to ensure that a larger percentage from those fields may be extracted?

Unless the Secretary of State is able to give that sort of evidence to the House, it suggests that the Bill has been insufficiently prepared. Ministers should be able to tell us, "We have consulted the experts in the industry. They tell us with confidence that we can look forward to a more sensible depletion policy and a proper rate of extraction resulting from adequate investment in the fields now under development." We might have taken a kinder view of the Bill had the right hon. Gentleman been able to adduce such evidence.

I trust that before the measure reaches the Standing Committee the Department will have done more homework on the subject and will be able to provide the information we need, and that when it leaves the Standing Committee we shall have had demonstrated to us evidence that the Government will apply to other sectors of energy the sort of longer-term view they are seeking to convince us now applies to oil.

In view of the enormous number of changes that there have been in tax and fiscal policy towards the offshore industry, I have no confidence that the Bill is more than the latest round in an inconsistent and varying policy and that it will not be succeeded by yet mother set of rules causing great uncertainty and damage to an industry which should be bringing greater benefits to Britain than has been the case as a result of the vagaries and incompetence of the Conservative Administration.

5.37 pm
Mr. Tim Eggar (Enfield, North)

I apologise for being out of my place for about half an hour, but my absence was unavoidable. It is pleasant to speak following the hon. Member for Wentworth (Mr. Hardy) in his new guise, having spent much of my time in the last Parliament speaking after him when he was the Member for what was then Rother Valley.

It has long been recognised that the United Kingdom would cease to be self-sufficient in oil by about 1990. It was assumed that the effect of rising oil prices since 1974 would guarantee that new oil developments would come on stream of their own accord and that the sole function of the Government was to ensure a fair share for the nation by way of the economic rent which accrued from the producers in the North sea.

It became obvious to the Government this year—I regret that it did not become obvious a year earlier—that the take from the companies, the economic rent, was out of proportion and that the effect of the level of taxation was to slow down development in the North sea. There are probably four reasons why we did not see the speed of development continue at what we had come to accept as the norm.

First, there was the oil price uncertainty. After about three years, there was a fall in the real value of oil. Secondly, the companies were faced also with rising capital and operating costs. Much has been made of the vast overruns on capital costs, most of which tended to be due, in the second phase of the North sea development, to an underestimate of the annual rate of inflation. The oil industry vastly underestimated operating costs in the North sea. Not so much has been made of that because it was never significant when the price of oil was reasonably high in real terms, but as soon as the price started to fall operating costs, especially when set against the Government's taxation take, were a significant factor. They were considerably higher than anticipated.

The third reason for lack of development was changing geology. The new fields that were discovered were very much smaller and much more difficult to appraise. New technology was needed—mainly sub-sea completions—and many of them were satellites of existing fields. Above all, the recoverable reserves in the newly identified areas were significantly smaller than in the first generation of fields.

The fourth factor that impeded development was the Government's high tax take. In addition, the companies were worried by the uncertainty that the Government's oil taxation policy was creating. Changes were being made almost yearly.

I am delighted that the Government realised at the turn of the year that a change was needed to ensure development of the new smaller fields. The package that was announced in March by the then Chancellor of the Exchequer was widely welcomed. It was recognised that the package was extremely cleverly constructed to ensure that the major tax relief went, first, to satellite fields, by which I mean fields that can be developed from existing platforms, and, secondly, to marginal fields.

I am surprised by the view taken by the right hon. and learned Member for Monklands, East (Mr. Smith). When we were debating the Finance Bill before the general election he said, in effect, that it would be necessary to generate more development if there was to be more employment. That was the main thrust of his argument. It seems that he has stepped back from that position today. He said, in effect, "I do not like the segment of the Government's taxation proposals that relates to royalties." By drawing out royalties for his opposition. he is attacking the part of the proposals which were introduced by the previous Chancellor of the Exchequer which w ill be of most benefit to marginal fields. The abolition of royalties will assist marginal fields, because most of them will never attract petroleum revenue tax.

The effect of withdrawing the royalties is especially beneficial—because royalties can be offset against PRT —to marginal fields. I am surprised that the right hon. and learned Gentleman should argue that we muit secure development to increase employment, while attacking the part of the tax package that will ensure, if the Bill is enacted, that the marginal fields will be assisted. He did not explain his concern about that particular part of the package. Instead, we were presented with a regurgitation of his speech on the Finance Bill about the oil revenues that the Government had received over the past three years.

I have one general criticism of the Government's package. There are, perhaps, two classes of company operating in the North sea. One class of company has production and, therefore, can shelter behind its production in meeting most of its exploration expenditure and tax liabilities. There are other companies—mainly small United Kingdom exploration companies — that have not yet found anything, despite many attempts to do so. That means that they do not have any production.

Operations in the North sea, including the eighth round, have been costing the smaller British exploration companies £1 for every £1 that they spend on exploration. They are costing many of the established operators, including multinationals and companies such as Britoil, a great deal less than that. I suspect that in some instances they are costing those companies less than 40p for every £1 spent on exploration. That is because their exploration costs can be offset.

My general criticism of the way in which the Government are proceeding—it is a minor criticism in the context of the overall achievement— is that they have not done enough to ensure that the minor exploration companies can compete on a proper basis with the established multinationals.

That criticism makes one assumption, and it is one that is open to criticism. By saying that more independent exploration companies are needed in the United Kingdom's part of the North sea, we are assuming that they have a major role to play. It is arguable that the minor companies are a hindrance to development in the North sea and major developments of that sort. How can a company that is capitalised at £5 million contemplate taking on even 10 per cent. of a development which will cost $1 billion or S500 million in round figures? The answer is that it cannot. If it does take on a development on that scale, it has to look for farm-outs or enter into complicated financial packages. It may be that such companies are more of a drag on the development of the North sea than a benefit.

Mr. Douglas

Brindex will not like this.

Mr. Eggar

It may not, but that is no reason for not making a speech along these lines. The argument seems to be fairly finely balanced. If a minor United Kingdom exploration company has success and generates income, one then has the LASMO example. LASMO is now one of the biggest North sea oil companies in the country and a significant producer of wealth for the United Kingdom. Against that must be weighed the possible cost of development within the North sea and the difficulties that small companies have in taking part in it.

The Government should weigh these considerations in the balance before coming down firmly once and for all in favour of or against United Kingdom exploration companies having a role in the development of the North sea. If they are in favour of them having that role, we must ensure that they are not penalised through the tax system. Their taxation should not be adverse when compared with that of the established producers. If the Government continue to say nothing, the rhetoric from our side will be that we want a greater role for the exploration companies, while the reality is that the companies cannot afford to explore and develop in the way that their larger competitors can. I am asking the Government to reexamine their position. I ask that they make a clear statement and act in the light of that statement. That was a general point about the Government's taxation proposals.

Mr. Viggers

I wish to make two points that are ancillary to my hon. Friend's comments on small British companies. If the Government were to proceed on the basis of auctioning blocks, that would be a disincentive to small companies. My second point is different. Does my hon. Friend appreciate the dramatic growth that has been made possible by the elimination of exchange controls, which has enabled small companies to invest overseas and so build up their size?

Mr. Eggar

I accept both my hon. Friend's points. If we are to continue with a policy of having small exploration companies active in the North sea, we have to take account of that national policy when we decide the balance between auctioning and licence awards. I should not like all the blocks to be auctioned or to award only licences. I accept my hon. Friend's second point. There is a considerable improvement because of the relaxation in exchange controls, but there is a curious quirk in the rules. To commence trading, a North sea exploration company, encouraged by the Revenue, has to buy producing acreage abroad to get trading status. It is extraordinary to have a tax system that encourages small exploration companies to go to the United States —where most companies go—to buy small producing oil or gas properties, to get trading status, to become tax efficient for their expenditure in the North sea. There is something wrong there.

We have got ourselves into a minefield. We owe more clarification of their position to the small independent companies. Personally, I am totally in favour of the purchase by small independent companies of Wytch Farm. One of the reasons why that is advantageous to them is that they are acquiring producing property within the United Kingdom and there are knock-on tax benefits for the North sea as well as for most of onshore United Kingdom.

The right hon. and learned Member for Monklands, East said, "We may not be against remission of royalties in all cases. Under Ministers' present discretion, we might concede that in certain cases Ministers should agree to a remission of royalties." That is highly undesirable. The right hon. and learned Gentleman is arguing that it should be an administrative decision whether a company makes a significant profit on a field, no profit or a loss, and that it should be at the whim of a Minister. That does not make much sense and is not desirable. It goes against the House's approach to taxation. The consistent argument of the House and the Inland Revenue is that we must have certainty in taxation. The taxpayer must be able to say, "My tax bill in this particular area will be X." Yet the right hon. and learned Gentleman is arguing against that. He is saying, "Let the Minister decide what the tax bill will be." As a matter of principle, that is thoroughly undesirable.

There is an additional commercial point. Is it sensible from any point of view that there should be administrative involvement in North sea activities so that a decision on whether to go ahead depends on a Minister's fiat? Is that right? Should we promote that commercial approach so that the industry puts the Minister under tremendous pressure and says, "We shall proceed if you give us back the royalties or a proportion of them."? With all the implications that the right hon. and learned Gentleman knows that that has for employment, on balance that is undesirable. Therefore, apart from the inherent argument in favour of the remission of royalties, which is the only way in which we shall get development, particularly in the marginal fields, I also believe that the present discretion is undesirable.

I have another specific concern about the Bill. It does not include the southern sector of the North sea, which is mainly gas-bearing. We are told, in a somewhat airy-fairy way, that the discussions about the whole southern sector are continuing, but that gives the industry considerable problems. What has happened in the southern sector of the North sea is an appalling story. Gas was discovered in the late 1960s. It was immediately made clear that there was one buyer only, the British Gas Corporation, so the companies that had made the discovery had to negotiate against British Gas. A price was agreed which, at the time, appeared to satisfy most parties, but because of the time when the contracts were written proper escalation clauses for inflation were not inserted. By the mid-1970s the price was so low that it was impossible for the companies that found the gas to justify additional capital expenditure to maximise the amount that they got out of the southern gas reserves. Rather than turning round to those companies and saying, "We shall pay you more if you are prepared to invest more," British Gas disappeared to Norway and bought Frigg gas at an extraordinarily high price. It did that rather than encourage extra production from the southern gas fields, or additional exploration for more gas.

Then British Gas realised that the Frigg gas would not be adequate to fulfil the likely demand, so it went back to the southern field developers and offered them a higher price so that there could be more capital investment. Now we are almost in the same position. British Gas has a choice between buying Norwegian gas from the Sleipnir field—

Mr. Rowlands

A very good idea.

Mr. Eggar

So the hon. Gentleman is advocating that British consumers should pay high prices for Norwegian gas, which would provide jobs in Norway, rather than encouraging development of the southern gasfields, which would provide jobs in the United Kingdom.

Mr. Rowlands

There is value and importance in getting contracts such as the one for Frigg gas and the new one that is being negotiated. We trust tha: the Government are not interfering. The value is that one gains access to gasfields outside one's own basin, thereby protecting our fields and reserves to the maximum extent. That, combined with some development of the southern basin, is an excellent plan for the depletion of gasfields over a long period. The hon. Gentleman has continually demanded that British Gas pays the highest price to oil companies. For the consumer, that is the deadly one.

Mr. Eggar

The hon. Gentleman is arguing that we should set the cost of gas in the southern sector by reference to Sleipnir. He is saying, "We shall pay the Norwegians 27p or 28p per therm." Once British Gas has paid that price, not surprisingly the oil companies in the British sector will say that they want the same price. They will do so quite legitimately. Why should they not? If British Gas purchases highly priced gas from Norway, why on earth should not the British producers in the southern sector of the North sea sell to Holland? Presumably the hon. Gentleman will be in favour of that and sees no reason against it.

Mr. Rowlands

The real sell-out of the interests of British Gas and the consumer would be if the gas were released to Europe and sold to the highest bidder, as the oil companies and the hon. Gentleman. wish. So far, however, the Government have been unwilling to sell out our interests to that extent.

Mr. Eggar

The Opposition are behaving in a curious way. They are encouraging British Gas to bid up the price of Sleipnir gas and to pay an artifically high price for it, thus setting a price for the entire southern and central North sea gas sector. That makes no sense at all. If Britain has sufficient gas in the southern sector, why should we buy Norwegian gas? There may be an argument (or doing that if the whole North sea sector is to be looked at as one unit and the gas directed to the cheapest point of delivery. It might well be cheaper to deliver southern sector gas from the United Kingdom sector to Holland than to deliver Norwegian gas to the United Kingdom. I do not den), that. If that course is to be taken, however, those involved in the North sea—the Dutch, the British. the Norwegians, the Germans and the Danish—must agree that we intend to treat the entire North sea as one area and to make contracts on the basis of the cheapest delivery route.

The Opposition cannot have it both ways. Why should the British consumer pay higher prices for Norwegian gas while leaving our reserves undeveloped, with the inevitable loss of jobs that such a policy will entail? The Opposition seem happy to advocate a policy that means more Norwegian jobs at the price of fewer British jobs. That is most curious. I hope that the hon. Member for Merthyr Tydfil and Rhymney (Mr. Rowlands) gets his act together by the time he winds up the debate so that we can have a coherent approach from the Opposition.

In examining whether royalities should cover the southern sector as a whole the pricing policy within that sector must be examined. There are two ways of locking at this. If royalties are not payable, it seems reasonable that British Gas should negotiate a lower price with the supplying companies, as the cost of production by the supplying companies will be lower. If, on the other hand, royalties are payable on the southern sector, a higher price should be paid. Either way, the Government must make a decision. The Government's key criterion must be to obtain a reasonable level of economic rent from the southern sector of the North sea. Whether they choose to do that by charging royalties with a higher price paid by British Gas to the producing companies and no additional taxes on British Gas, or no royalties and higher taxes on British Gas, is neither here nor there.

The Government must make their position clear. The many companies that have reserves in the southern sector face difficulties when negotiating with British Gas because they do not know how they will be taxed. So Long as discussions continue about the application of the Bill to the southern sector, the position will remain unclear. Will my right hon. Friend the Secretary of State make a categoric decision on this? I express no opinion as to which course is preferable, but if the Bill does not apply to the southern sector the way in which the additional economic rent will be taxed, whether through an extension of the monopoly levy or some other avenue, must be made clear to British Gas. That is extremely important.

The Bill is part of a package and should be judged as such. I am convinced that this proposal, which helps the marginal fields, is in the country's best interests because we shall continue to be self-sufficient for longer and because additional developments will be created in the next two or three years which will lead to more jobs. I am sure that the whole House will wish for that.

6.6 pm

Mr. Dick Douglas (Dunfermline, West)

It is difficult to follow the hon. Member for Enfield, North (Mr. Eggar) on this issue. I do not wish to argue with him about the way in which British Gas should negotiate, but if he thinks that Sir Denis Rooke will be deluded in complex negotiations with the Norwegians or anyone else into selling the British consumer down the river, the hon. Gentleman is very much mistaken. The Government dislike Sir Denis and the corporation because under his leadership the corporation has been a very good protector of its consumers. The Government have used the corporation and its activities as a means of raising taxation to supplement Government revenue, while laying the blame and odium on the corporation.

I have views about how we should negotiate with the Norwegians, but I am not the negotiator. In all my discussions with Sir Denis Rooke on this, however, it has been clear that he is well aware—far more aware than Ministers have been—of the overall implications for the United Kingdom economy. In this context, I refer with some regret to the activities of the former Member for Ross and Cromarty, now departed to the House of Lords, when he was at the Department of Energy.

The Bill is small, but, as the hon. Member for Enfield, North said, it is part of a package. The package derives directly from the requests made by the United Kingdom offshore operators in their submission. In no previous case have a Government conceded virtually everything that the oil companies sought. Indeed, the Bill concedes more than everything that the operators sought.

On royalties, the UKOOA asked for the introduction of an automatic royalty repayment method. It said: As a positive measure to promote development, the general mechanism for Royalty repayment is already provided in the Petroleum and Submarines Pipeline Act, but the provision is discretionary and thus unreliable as a basis for investment commitments". That was also the view taken by the Secretary of State in promoting the Bill.

The UKOOA proposal continued: An automatic procedure for Royalty repayment can be defined to vary inversely with production, i.e. full repayment would apply below a defined level (e.g. 20,000 b/d) with linear decrease in the repayment to nil at a higher level (e.g. 60,000 b/d)". The operators asked for royalties to be related to the production potential of the field, but the Government are not interested in that. They have decided to remit royalties regardless of the production potential of the field. Why have they conceded more than the industry sought? Where is the public benefit in that? I am willing to concede that there may be some public benefit, but the Secretary of State spoke in very broad terms. He said that the Government would protect the onshore industry. Where is the evidence for that? What deals have been done with the oil companies to ensure that that industry will be assisted?

I declare an interest in drilling. The United Kingdom gets 30 per cent. of exploration and appraisal drilling. That estimate has been given during the development of the North sea. Where is the evidence to suggest that, if there is an increase in exploration and appraisal drilling, the rigs will be used by United Kingdom drilling companies?

The hon. Member for Enfield, North mentioned tax concessions and showed us that the burden of exploration and appraisal drilling would be borne by the taxpayer, who would pay 88 cents in the dollar. Some rigs are at present lying idle. If there is an increase in exploration and appraisal drilling, the rigs called into activity will not be British-manned or British flag ship rigs, but will probably be American rigs. Nevertheless, the Government, having made concessions to the oil companies, cannot come forth with any quid pro quo, because they emasculated the British National Oil Corporation and in so doing denied themselves an instrument to guide such activity fruitfully.

Great claim has been made about what Britain could do concerning exports. An area of fruitful export is the south China sea, but, despite BP's great will, the Chinese will never allow BP or anyone else to develop and appraise the south China sea without some quid pro quo. If we go there to drill, we shall be asked to engage Chinese companies and to embark on joint ventures with them. That nation is in the early stages of its development and is not a reasonably mature nation as we are, yet it adopts a stiffer bargaining attitude than we do, because it has its own national oil company—something that we have denied ourselves directly.

Wood Mackenzie estimates that the effect of the Bill and its tax package would be to raise the oil price from 30 dollars to 40 dollars a barrel in terms of payback. That is an increase in present value of 80 per cent., which is a substantial benefit to the companies, but where is the benefit to our onshore industry? Can the Government guarantee that drilling rigs and production platforms will be built in United Kingdom yards? The real incentive, of which I approve, is to remove some of the front-end loading from the so-called marginal, "uneconomic" fields, which are the 25 million to 150 million size fields. How will those fields be developed? Will they be developed? Have the Government taken cognisance of the 31 fields? Will they be developed by means of fixed structures, will they be tied in with existing platforms, or developed by means of floating structures? If there are to be new floating structures, can the Government guarantee that the United Kingdom's onshore industry will benefit?

If there are smaller fields — the hon. Member for Gosport (Mr. Viggers), who is not present now, made interesting points about oil revenues — and we need secondary and tertiary recovery, it will be advantageous to design floating structures that can be moved from one field to another. It would be possible to have a number of floating structures. One of them could be designed for deck loading to produce the initial production from the field. That could then be moved to another field, so that there would be secondary and tertiary recovery on different platforms. Where the fields were smaller—we are not here talking about the depths — obviously the platforms would be smaller. Is that aspect covered by the Bill and by the tax provisions?

There is little point in moving towards a remission of royalty that will leave some of the possible recoverable reserves in the ground. If we can devise other incentives that are within the tax structure—I think that some of them can be, although I have not studied the matter carefully — it will be possible to move a production platform and to have leasing deals between companies in order to achieve the full advantage of the concessions. If that is in the Government's mind—or if I can put it into their mind—there should be an interrelationship with industries such as shipbuilding, which are crying out for such orders. They could design platforms specifically for those fields, so that it would be possible to get the full advantage of the Government's tax and royalty concessions.

The Government have difficulties because of their own greed. During their period of office they have embarked on a large number of tax changes. Those changes have been produced at a rate that is detrimental to our long-term interests. The real criticism relates not to what is in the Bill, but to the Government's delay in introducing such a measure.

In energy debates in this House, some of us have been arguing for three years for some concessions to be made —not necessarily of the nature of those in the Bill—for marginal fields. The Government, because of their greed, have waited until almost the last minute before saying, "We must make these concessions," and they have gone further than they need to go because of the desperate position in which they have put themselves by their greed for revenue. That is bad enough, but they have put the nation in a desperate position, because the likelihood—

Mr. Marlow

In view of what the hon. Gentleman has just said, will he tell the House whether he will be supporting the measure or voting against it? If he is arguing that the oil companies need concessions, although he does not entirely agree with the concessions on offer in the Bill, is he saying that he will vote for the Bill, or against it? If he votes against it, he will be trying to stop the concessions coming forward, yet he has brilliantly put a case for giving concessions.

Mr. Douglas

The Government have gone further in making concessions than even the oil companies desire. I shall not vote for the concessions, because they give the oil companies carte blanche —a blank cheque. As to whether or not the oilfields might be profitable without concessions. I concede fully that there are some fields that would need remissions in terms of front-end loading, but that—

Mr. Marlow


Mr. Douglas

The hon. Gentleman has been peripatetic enough and hon. Members have been extremely generous to him. I have made my points clearly and the Minister of State has been courteous and listened attentively. I am saying that there are fields that require concessions, but, even if it were necessary to make the concessions that are contained in the Bill, where is the deal with the companies? Where are the concessions from the companies that will assist industry and assist onshore development?

Mr. Marlow


Mr. Douglas

No, I shall not give way. I believe that the hon. Gentleman has a drilling school in his constituency. He will understand that if we are to make this concession to the industry we should ensure that we can build up our capacity to drill in the United Kingdom. I am talking not just about platform drilling but about offshore drilling generally. No other nation would have behaved as stupidly as we did in not using the benefits from the oil industry to build up our onshore developments.

We do not want what happened with multipurpose support vessels to recur. For example, orders were given to Finland and elsewhere for goods MI: ch should have been produced within the United Kingdom. The Government have the opportunity to guide and assist our onshore industry to increase development. My criticism is that they have probably mistimed the legislation and gone too far. But they have the opportunity, even at this juncture, to redeem themselves by proving beyond doubt that they have taken cognisance of the arguments put forward, so that there will be substantial benefits onshore to industry.

6.21 pm
Sir Peter Mills (Torridge and Devon, West)

I congratulate my right hon. Friend the Minister of State on his new position. He is another former Minister in the Ministry of Agriculture, Fisheries and Food, which shows how some hon. Members seem to be involved in every area of the business of the House.

I am no expert on oil exploration, except as a user of oil. I am concerned about its price. Because agriculture is a major purchaser of oil, those involved in farm activities should have some say in these matters. I hear of nothing else but North sea oil. Anyone would think that there was no possibility of a development in oil exploration elsewhere. I remind the House that in the United Kingdom there is a region known as the south-west of England where we are concerned about what is happening off shore. The Bill will provide the extra incentive needed to encourage oil exploration in the south-west. Many of us believe that there is oil offshore in the south-west.

As the North sea wells dry up more encouragement must be given to find oil in other areas. I am told that the south-west of England is a difficult area in which to find oil, although already some drilling has taken place in the approaches to the Channel. If we found oil off our shores in the south-west that would be advantageous. We rave the facilities to service the rigs and so on. There are excellent facilities at Falmouth for ship repair, servicing and tendering — I hope that those are the correct terms. There are adequate facilities at Plymouth as well. If oil were found off the south-west coast, it would be of enormous benefit to the area—especially in providing employment. The people of the south-west are adaptable to new jobs. Although they may find it strange working in the oil industry, they would adapt quickly. I welcome what the Government are doing in that area.

I hope that the large companies will vigorously pursue exploration in the south-west. Will my right hon. Friend the Minister tell me the exact position? I appreciate that he may need notice of the question, but it is important to know the results of the drilling and testing in that area. If oil is found in the south-west we shall have to learn from some of the mistakes made in other areas. I understand that problems arise from the sudden influx of new wealth and the consequent economic changes.

Mr. Marlow


Sir Peter Mills

I shall give way to my hon. Friend provided that he does not ask me any technical questions.

Mr. Marlow

I am interested to listen to my hon. Friend who, like myself, comes from a part of the country where traditionally oil has not been sought or found. During his speech, will he address himself to a couple of points made by Opposition speakers? The right hon. and learned Member for Monklands, East (Mr. Smith) said two things. First, he said that one of the great benefits of royalty was that it forced oil companies to go through the large, bureaucratic rigmarole of providing Government with a great deal of information. Secondly—although he was quite wrong about this and became very muddled— he said that the Government would gain more revenue without the provisions of the Bill. Of course, the Government will gain more revenue because of the incentive provided by the Bill.

It would be a great help to Conservative Members whose constituencies are not traditionally involved with oil or its extraction if my hon. Friend could tell us to what extent people in his part of the country would wish not to be borne down with bureaucracy and not to have to pay large taxes in areas where the extraction of oil could be fairly marginal. It is important that we should know—

Mr. Speaker

Order. I well understand that the hon. Gentleman is seeking to be helpful this afternoon, but it is rather a long intervention

Sir Peter Mills

I am not sure whether my hon. Friend the Member for Northampton, North (Mr. Marlow) is being helpful. He is the very man to answer his questions. Should he be lucky enough to catch your eye, Mr. Speaker, I am sure that he will develop his argument and deal with the Opposition. I agree with my hon. Friend that the Opposition are always in a muddle, and my hon. Friend is the man to deal with them. I do not think that it would be wise to give way to any further interventions.

The south-west must learn from the mistakes of other areas. If it is fortunate to find oil, the balance must be right. The south-west has a good tourist trade, and we do not want oil development to spoil that. It has good agriculture and many retired people live in the area. Although I would strongly welcome the finding of oil in the south-west, we must get the balance right. In his Budget statement, my right hon. and learned Friend the Member for Surrey, East (Sir G. Howe) said that these proposals would be part of a package of measures to encourage future offshore development. I make a strong plea to my right hon. Friend the Minister of State to think, perhaps for the first time, about the south-west so that we may have the advantages that oil exploration can bring.

A newspaper report said that the Budget would breathe new life into the North sea oilfields. I want it to bring some life to the south-west of England. If anyone thinks that I am biased, I confess that I am. I want to see my region becoming economically viable and obtaining some of the benefits that have accrued to other areas following the discovery of oil. We want to share in these fortunes and, although it may be expensive business, especially in the south-west, it is obvious that in time the oil in other areas will run out and we shall need to be ready to find other supplies.

Mr. Eggar

indicated assent.

Sir Peter Mills

I am glad that my hon. Friend the Member for Enfield, North (Mr. Eggar) agrees. It is rare to see an hon. Member doing that in a debate of this kind. However, I think that I have made my point clearly. I hope to learn from the Minister the exact circumstances of oil exploration in the south-west. If this measure does anything to encourage that, I shall be extremely pleased.

6.32 pm
Mr. Geoffrey Lofthouse (Pontefract and Castleford)

Like the hon. Member for Torridge and Devon, West (Sir P. Mills), I do not profess to be an oil expert. In fact, I confess to being even less of an expert than he. However, I am aware that the Bill means that the nation is to abandon the right to receive royalties for future North sea oil. That is not refuted. Unfortunately, however, the Secretary of State was unable to tell the House the likely cost to the Exchequer. We have been told why figures are not available, but I cannot believe that no assessment has been made, and I cannot understand why figures cannot be provided for our guidance. In their absence we can only guess, and my guess is that the Bill will give away the nation's assets without Parliament knowing what we are giving away.

It is clear from the debate so far that the Government have given the offshore companies all that they have asked for, and my main reason for intervening is to remind the House and, I hope, people outside of the inconsistency of the Department of Energy, under the same Secretary of State, in its attitudes to the private sector and the public sector.

We talk glibly about investment in the North sea and of how essential it is that the oilfields should be worked. Unfortunately, the Government do not operate the same criteria when they deal with the mining industry. The Government are prepared to help the private sector, in this case the oil industry, but we are told repeatedly by the Chancellor of the Exchequer of the money that subsidies to the mining industry cost and that the country cannot afford it. We cannot afford to keep our mining industry alive, but we can afford to forfeit revenue from the North sea.

Mr. Marlow

Will the hon. Gentleman give way?

Mr. Lofthouse

No, I will not. The hon. Gentleman has been on his feet six times already. I think that he has had his fair whack.

As a result of Government policy, the mining industry is going through complete turmoil. Men do not know what their future is. Men who are now 50 and over are told that in the next two or three years they will no longer be required for work, because the Government say that they are no longer prepared to offer subsidies. In this morning's Yorkshire Post, MacGregor himself is reported as saying that Ministers always require our nationalised industries to break even. If that is the case, someone should come clean and tell us that it is a fact of life, because the Government are not prepared to give as generously to the mining industry as they are to the North sea, that 70,000 jobs will go. They should tell us that any uneconomic pit will be closed—

Mr. Speaker

Order. I understand the hon. Gentleman's difficulty, but that is a track down which we should not go too far.

Mr. Lofthouse

With respect, Mr. Speaker, I am only comparing the Government's attitude in the Bill with their attitude to the mining industry and attempting to emphasise what it means for the mining industry. However, I bow to your ruling.

I hope that even at this late stage the Government will give the same sympathetic treatment to our mining industry so that we may save our miners their jobs and their families the distress that they are going through at present.

Mr. Eggar

Will the hon. Gentleman give way?

Mr. Lofthouse


Mr. Eggar

I am trying to be helpful—

Mr. Speaker

Order. The hon. Member for Pontefract and Castleford (Mr. Lofthouse) is not giving way.

Mr. Lofthouse

I listened to the speech of the hon. Member for Enfield, North (Mr. Eggar). I do not attempt to pit my wits against his knowledge of the oil industry. I do not expect him to attempt to pit his wits against what I know to be happening in the mining industry as a result of the Government's failure to be as sympathetic towards it as they are in the Bill to the oil industry.

Mr. Eggar

It is not true.

Mr. Lofthouse

It is true. At the end of the day there will be a cutback in the mining industry which will savage 70,000 jobs. If the Government woulJ give the mining industry the sympathetic treatment that they intend to give the oil companies, there would be no need for these jobs to be butchered.

Mr. Marlow

The hon. Gentleman said that the Government were being generous to the oil companies and mean to the mining industry. How much money does he think the taxpayer pays each year to the mining industry, rightly or wrongly—in other words, how much does the mining industry get for capital investment— and how much does the oil industry pay towards it?

Mr. Lofthouse

The Chancellor of the Exchequer and the former Secretary of State for Energy talks about £1.25 million a day going to the mining industry, but no one will say what will be the loss to the Exchequer following the passage of the Bill. The Government should come clean and tell us. The Government say glibly that they intend to run down the mining industry because it is costing £1.25 million a day in subisidies, but that they intend to relieve the oil companies of royalties, while giving us no figures. Clearly there is one law for the private sector and another for the public sector, and we see a stark example in the mining industry. The Government are inconsistent, and the miners are aware of it. They feel that they are being treated unfairly and. when Bills of this kind come before the House, they only add fuel to the fire. They make our miners believe that a lot of the propaganda sent to them is right.

Measures such as this do no good. I hope that the Government will withdraw it, give sympathetic consideration to our mining industry and out a locker in MacGregor's wheel when he becomes chairman of the National Coal Board.

6.40 pm
Mr. Richard Needham (Wiltshire, North)

This is the first time that I have had the privilege of following—if I can call it that—the hon. Member for Pontefract and Castleford (Mr. Lofthouse), although in the 1974 election I followed his predecessor by some 30,000 votes. I have a high regard for his constituency and for those who have represented it, although I have not always agreed with everything that they said or how they said it. There was once a Mr. William Needham who was Conservative Member of Parliament for Pontefract. That was before coal was discovered. I am sure that at some time in future another Mr. Needham will represent the constituency.

The hon. Member for Pontefract and Castleford and my hon. Friend the Member for Torridge and Devon, West (Sir P. Mills) have made their "maiden" speeches on this subject. As I am well aware of the great expertise and technical knowledge on this subject on these Benches. I trust that I shall be the last "maiden" speaker in this debate. The right hon. and learned Member for Monklands, East (Mr. Smith), the hon. Member for Dunfermline, West (Mr. Douglas) and the hon. Member for Pontefract and Castleford should not be allowed to get away with all the points that they made. There seems to be considerable disarray in the Labour ranks. The hon. Member for Pontefract and Castleford said that no one knew how much this measure would cost in terms of royalties not collected. If he had listened to his right hon. and learned Friend, he would have heard that he, too, was concerned abouT that. One of the right hon. and learned Gentleman's arguments was that another great field might be lurking in the northern region of the North sea, out of which could come vast amounts of royalties. If so, how can anyone conceivably know how much the royalties would amount to? As the right hon. and learned Gentleman, or one of his hon. Friends, pointed out, until the field is developed, no one can know what will come out of it. It is therefore impossible for the right hon. and learned Gentleman or, indeed, for the Minister — brilliant mathematician, statistician, economist and oil expert though he is—to make any judgment on the royalties that will be lost. No one knows whether, in the words of the right hon. and learned Member for Monkton, East, an enormous field is lurking out there.

Mr. Lofthouse

Surely that means that we are giving away royalties — taxpayers' income — and we do not know how much.

Mr. Needham

I understand the hon. Ger Oman's point, but unless the oil companies believe that they can get a return on their money— unless they have some incentive—they will not develop the fields.

The hon. Member for Pontefract and Castleford asked the Minister to tell the House what the cost would be, although his right hon. and learned Friend had made it perfectly clear that he did not know. Perhaps the right hon. and learned Gentleman and the hon. Gentleman should discuss the matter.

Mr. Eggar

Is it not curious that the hon. Member for Pontefract and Castleford (Mr. Lofthouse) should have made that point? When estimating the cost of the subsidy given to the mining industry, he failed to point out that the National Coal Board charges artificially high prices for the coal that it sells to the electricity board, and those costs are then passed on to industrial and domestic consumers. Effectively, the mining industry receives a large chunk of subsidy which neither the hon. Gentleman nor any other Labour Member mentioned.

Mr. Needham

Another important point is that the oil industry provides the Government with enormous revenue, whereas the mining industry is a great burden on the taxpayer.

Mr. John Smith

I hope that the hon. Gentleman will not persist in his puzzlement about the Opposition's attitude, which is quite straightforward. Before a tax concession is given, Parliament should have some idea of the amount involved. For example, the Secretary of State could have told us what the effect would be on two fields already approved for development—Alwyn and Clyde. Those fields will be covered by the concession, so there must be some projection. Even minimal information such as that would have given us a rough idea of what is involved. I hear the Minister of State muttering that we have had some information. That is a point for the hon. Member for Wiltshire, North (Mr. Needham) to puzzle over. If it is impossible to produce information, as he says, how is it possible for the Minister of State to do so? Would it not be reasonable for the Government to give us some idea—even to the nearest £100 billion—of the effect of the legislation?

Mr. Needham

The right hon. and learned Gentleman cannot have it both ways. It would be fair enough for information to be given to the right hon. and learned Gentleman by the Government about fields where oil is likely to be found, but that is not the point that he made. He said that there might be another great field lurking out there. If so, not even the right hon. and learned Gentleman — if he were Secretary of State for Energy — could suggest what the royalties would be. He could not possibly know. He should not even contemplate asking the Government to mislead the House on this question, when he himself does not know the amount of the royalties.

There was an inconsistency between the right hon. and learned Gentleman's argument and that of his hon. Friend the Member for Dunfermline, West. The hon. Gentleman seemed to be saying that there was some merit in the Bill. However, all Opposition Members must say that a Bill provides too little or too much, and that it is too complicated, too simple or too late. The hon. Gentleman said that the Government were giving too much away and doing so too late. He should therefore vote for the Bill in principle and try to improve it in Committee. I have so far heard three Opposition Members speaking about the Bill. and each has taken a different line. Given the state of the Opposition, that is not altogether surprising. I hope that in future they will seek agreement before taking part in a debate.

The right hon. and learned Member for Monkton, East made two further points which I should like briefly to challenge. He said that we have wasted an oil bonanza on unemployment benefit. However, he must know that the major reason for the increase in the value of this country's currency has been the increase in the oil price. Equally, he must know that we abandoned exchange controls to try to keep a proper balance in our economy. If the Government had followed the Opposition's policy of import and exchange controls, the value of the currency would have been very much higher and our manufacturing industry would have been much worse. In this area, the right hon. and learned Gentleman's alternatives would have been disastrous. Instead of a massive oil import bill, we now have a balance of payments that is greatly improved by oil. That has put enormous constraints on our ability to handle our currency and to maintain our competitiveness.

According to the right hon. and learned Gentleman, the cost of the bonanza that we have thrown away on unemployment is about £17 billion, of which £5 billion could be regarded as paying for the unemployment created during the lifetime of the Labour Government and the remaining £12 billion for unemployment caused by this Government. When the right hon. and learned Gentleman left office, unemployment was 1.3 million. It is now 3 million. Therefore, if the cost was £5 billion under the Labour Government, it could not conceivably be more than an additional £6.5 billion under this Government. Of course, the right hon. and learned Gentleman has forgotten to take inflation into account. Therefore, the House should listen to the points made by the right hon. and learned Gentleman with great care and caution. If his statistics for that are so awry, they cannot be trusted in too many other areas.

Mr. Derek Foster (Bishop Auckland)

Is not the hon. Gentleman failing to take account of the fact that the average length of unemployment is much greater now than when the Labour party was in office? He will recall that the number of long-term unemployed has tripled during the past four years. The average length of unemployment is much greater nowadays. Therefore. the resulting cost is much higher.

Mr. Needham

I accept that the average length of unemployment is much greater now. However, I am talking about the annual cost, not the length of time for which people are unemployed or the amount of benefit.

Mr. John Smith


Mr. Needham

With respect, I have given way to the right hon. and learned Gentleman. Other hon. Members wish to speak, and I want to be brief.

There is an article in the Financial Times of 13 May which was written by a journalist called Ray Dafter. I hope that he is not aptly named. The article is entitled Election hits oil tax concessions. He points out that the fact that the previous Bill was lost put some oil companies' plans for developing the northern fields at considerable risk. Interestingly, he points out: Oil companies are confident that the legislation will be reintroduced early in the next session of parliament irrespective of the outcome of the election. I imagine that Mr. Dafter had some grounds for making that statement. Perhaps he had words with the hon. Member for Dunfermline, West, or a whisper in the ear of the right hon. and learned Member for Monklands, East. The Opposition must tell us whether Mr. Dafter was correct. Would the Labour party have introduced such a measure? If not, why was the article not refuted? One is forced to the conclusion that the Opposition's heart is not in their hostility to the Bill. They may cavil a little at the margin, but they know that the Bill is worth while. It would seem from what is said that if they had had the opportunity, they would have introduced such a Bill themselves.

6.53 pm
Mr. Robert Hughes (Aberdeen, North)

The hon. Member for Orkney and Shetland (Mr. Wallace) is not in the Chamber, for understandable reasons, and I make no complaint about that. However, I join those who have congratulated him on his maiden peech. He concluded by saying that next time he spoke he would probably not get such a clear run. I think that we can promise him that. I say that as a tribute to his maiden speech, because several of us had to hold ourselves down in our seats in an attempt not to interrupt him. That shows that the hon. Gentleman gained our interest, even if we did not necessarily agree with all that he said, and I look forward to debating with him in future.

I begin on a rather sombre note, because about four or five hours ago a Bristow's helicopter crashed at Dyce airport, Aberdeen, on its way back from an oilfield in the North sea. Such crashes are a constant reminder to us of the high cost of recovering the oil from the North sea. It can be measured not only, as we used to say, in terms of pounds, shillings and pence, but in the number of lives lost. However, I am happy to say that in this case the 16 passengers and two crew have been taken to hospital for treatment and, as far as I am aware, there are no fatal casualties. It is understood that the helicopter spiralled down from about 90 feet and caught fire once it had hit the ground.

I trust that there will be a full inquiry into the accident, and I have asked the Department of Transport to ensure that one is held. We all knpw that every day there is a tremendous amount of traffic between the North sea and Dyce.

Mr. Bill Walker (Tayside, North)

I can assure the hon. Gentleman that every time an aircraft crashes there is a full and proper searching inquiry.

Mr. Hughes

fully understand that. However, with the transfer of departmental responsibilities, we wish to be assured that the inquiry will take place at the earliest possible moment. Indeed, we all need to be assured that every safety precaution is taken and that every effort is made to ensure that helicopters flying to and from the North sea are properly serviced and so on. I do not suggest that there is any blame to be attached ir this instance, but I am worried because helicopter incidents seem to be more frequent. Given the many helicopters in service, it is perhaps not surprising to have a period with two or three crashes and then years without any crashes. Nevertheless, everyone will want the matter to be fully investigated and all hon. Members will want to pass on their regards to the injured.

I hope that the Minister of State is not leaving the Chamber. As the Secretary of State is out of the Chamber, my compliments to the right hon. Gentleman and the Minister of State on transferring to their new Department will have to be read, rather than heard, if the Minister leaves. However, I suppose that I should welcome the Secretary of State and the Minister to their new posts at the Department of Energy. I wish that I had their attention. I have a particular message for the Minister of State. He should take heed of the electoral demise of his predecessor at the Department of Energy.

I refer, of course, to Hamish Gray, the former right hon. Member for Ross and Cromarty, who failed to be returned as the candidate for Ross, Cromarty and Skye. The fact that he lost his seat is not unconnected with the fact that he went out on a limb in saying that the gas-gathering pipeline would be built anJ funded by the Government. Of course, at the end of the day, he was unable to deliver, and I think that that had something to do with his electoral defeat. Another factor was his inability to defend the jobs of the worker; at the aluminium smelter at Invergordon. His excessive loyalty to the Government was rewarded in the election result. I can only hope that the new boys at the Department do a bit better than they did when they were twins together at the Ministry of Agriculture, Fisheries and Food.

It is all very well for the Secretary of State to tell me this afternoon that he has had a letter from the fishing organisations thanking him for all that he did as Minister of Agriculture, Fisheries and Food. He should be aware that those letters represent a triumph of courtesy over common sense. The fishermen are far from happy about the way in which the common fisheries policy has been carried out since its inception.

A Bill produced by the Department of Energy as its first Bill in a new Parliament should be a bit more ambitious and all-embracing than this very narrow measure. However, that is not to say that it is not an important Bill. Indeed, it is important, but I should have thought that wider aspects of Government policy on energy should be engaging the Government's attention. One of the issues that should engage their attention is the scandal of the price of petrol at the pumps. They should consider the scandalous way in which, willy-nilly, without any apparent proper consultation with the Government or consumer organisations, and without any thought whatever for the needs of consumers, 8p—or whatever is the desired figure—has been put on to the price of petrol.

There was a time, during the palmy days of a Labour Government, when, if the price of petrol increased by 1p or 2p a gallon there were demands for emergency debates and for the resignation of the Government. There was the sort of noise from Tory Back Benchers which has been conspicuous by its absence today. An increase of 8p a gallon has been slapped on at 24 hours' notice. It is disgraceful. In the previous Parliament, a number of Conservative Back Benchers from rural areas expressed considerable vocal opposition to the proposal to increase the tax on petrol. Unfortunately, with one or two notable exceptions, they did not withdraw their support from the Government, which is the only sort of action that the Government understand. If they withdraw their support this time, it will be because they are comforted by the size of the Government majority. In the words of the well-known phrase, they are Willing to wound, and yet afraid to strike We can be sure that the loyalty of Tory Back Benchers will remain undiminished.

Indeed, the loyalty of Conservative Members has to be seen to be believed. It is difficult to accept that their naive speeches on the Bill represent their true views. The Bill includes no estimate of its financial consequences and I cannot understand how it can be greeted with dumb acceptance. One after another, Tory Members have repeated, parrot fashion, that no one can estimate the cost of the Bill because no one knows how many oilfields will be developed.

There is a certain rudimentary logic in that approach. If we do not know what fields will be developed or discovered we cannot calculate the cost of the Bill. But someone must have an idea. The Bill did not appear suddenly. The Secretary of State said that it was promised by his predecessor and was lost because of the election. The right hon. Gentleman did not wake up one morning and say, "Let us do away with royalties on all new fields." Government does not work like that. I cannot believe that the Government are so profligate with our national resources that they hand out money without estimating the cost.

The oil companies must have estimated the cost. If it is significant enough for a Bill to be brought before the House, it must be important to someone. The oil companies must have made a case to the Government and someone, somewhere must have made an estimate. I do not expect precision in these matters—indeed, unlike my right hon. and learned Friend the Member for Monklands, East (Mr. Smith), I do not even want to know the cost to the nearest hundred million pounds; I will be much more generous—but an estimate must have been made of the lower limit and the upper limit of the cost of the Bill. The Government should give us a rough idea of the bottom end and top end of the scale. The figures must exist. If they do not, the Bill represents a dereliction of duty by the Government.

The Secretary of State, anxious, as always, to play both ends against the middle, said that the Government have no idea of the cost, but he gave us an illustrative example of how the new scheme would work in a hypothetical field. From the figures that he gave, my right hon. and learned Friend the Member for Monklands, East calculated the cost at £130 million.

The Secretary of State said that the cost for that hypothetical field would be 3 per cent. and he described that as "minor". The right hon. Gentleman cannot have it both ways. If 3 per cent. is minor, it must be minor in terms of the activities of oil companies. I do not believe that they operate on such small margins that 3 per cent. will make the difference between development and non-development.

However, that 3 per cent. represents a large sum which could be of great value to those who need the money. Why has the cost been omitted from the Bill? Why have the Government made the concession? Of course, Tory Governments have always given in to the oil companies sooner or later, but there are provisions in existing legislation for oil companies to seek relief on royalties in marginal fields. The only condition was that the case for relief should be proved. The Bill allows automatic relief.

I have tried to think of another sphere of Government policy, whether in fiscal matters or social benefits, where applications are approved automatically. I have been unsuccessful. If someone asks for rate relief, he does not get it automatically. He has to prove his case. The same is true of rent rebates and social security claims. People have to prove that they are entitled to the money. A similar provision should apply in this case, and claims for royalty relief should be justified. The fact that relief is automatically to be given demonstrates the weakness of the Government's case.

However much or little the cost may be— we are surely talking of hundreds of millions of pounds — the money could be used to improve the infrastructure and to develop indigenous industries in the north-east of Scotland. I am sure that, like me, the hon. Member for Banff and Buchan (Mr. McQuarrie) would be grateful for more money to improve the infrastructure in his constituency. We have both complained about, for example, the state of roads through Aberdeen, Peterhead and Fraserburgh in our part of the country. The money that the Government could use to improve those roads is being handed away.

Mr. Needham

Will the hon. Gentleman explain how we can spend all that money if it is not forthcoming because fields are not developed because royalty costs are so high?

Mr. Hughes

I have dealt with that, but I will repeat what I said. The Secretary of State referred to a cost of 3 per cent. and I do not believe that that will make the difference between development of a field and non-development. I do not believe that the margins are that tight. After all, the Secretary of State said that it was a "minor" matter.

Of course, if fields are not developed, we will not get royalties, petroleum revenue tax or corporation tax. But no one is suggesting that. We say that a more sensible course would be to ask companies to justify their claim. Why is that not being done? Why are we providing automatic relief? It has not been justified so far.

As I was saying, we need money to develop indigenous industries and the infrastructure in the north-east of Scotland. I do not blame this Government alone, but there has been a failure to identify the needs of Aberdeen and to deal with them. In the period since North sea oil was developed, when there has been much onshore development in Aberdeen, unemployment has increased dramatically. The hon. Member for Torridge and Devon, West (Sir P. Mills) said that he hoped that there would be oil developments in the south-west of England. I can tell him that oil developments are not the complete answer. I recall making a speech as long ago as 1971 in the Scottish Grand Committee about the need for the oil revenues and corporation tax, or whatever the take was from North sea oil, to be kept separately and identified as investment money, because otherwise the money would be wasted and frittered away. That is precisely what is happening.

It is wholly inconsistent for the Government to speak on the one hand about reducing public expenditure and seriously to think about cutting the value of unemployment benefit — it is a very serious matter to consider penalising the unemployed even more than they are being penalised at present—and on the other hand to say, "We are so hard up that we must start cutting public investments and unemployment benefit, but we are not so hard up that we cannot hand out hundreds of millions of pounds to oil companies automatically without their having to justify it." That is what makes this Bill so disastrous.

I know that many other hon. Members wish to speak, so I shall not transgress on the House's time, but I want to make two points. We should not consider the Bill on its own. We should consider the whole Government strategy and the way in which it has helped oil companies. One reason—if not the prime reason—for the Government's massacre of BNOC was simply that the private oil companies did not like it and did not want state competition. In particular. they did not want BNOC to follow through its original proposition in not only developing fields, but continuing right through into refining and petrochemicals. It was not just a holding company. It was intended to be a direct competitor, in all its aspects, of the private oil companies. Those companies did not like that, and they therefore persuaded the Government to break it up.

The Government have one answer all along the line. If a nationalised industry loses money, it is to be pilloried wherever possible. If a nationalised industry makes money, it is to be sold off, because the Government's friends in the City and elsewhere cannot wait to get their snouts in the gravy trough. This Bill is an example of Government weakness, pandering to their friends in the oil companies, and in my opinion it should be opposed root and branch at every stage of its parliamentary proceedings.

7.12 pm
Mr. Bill Walker (Tayside, North)

The hon. Member for Aberdeen, North (Mr. Hughes) drew attention to the sad happening today of the helicopter crash at Dyce. That must worry all of us, because, as he said, it brings vividly to us an awareness of the constant dangers that people face in bringing the oil and gas ashore. One should not forget that when talking about oil and gaslields. These fields have been developed by men taking enormous risks, often on the edges of technology, and we should be thankful that they have developed in the way that they have.

The hon. Gentleman also said that Government Back Benchers had not commented on the price of petrol at the pumps. I can only conclude from that that he does not read the Sunday Post, otherwise he would have read the comments that I personally have made about petrol prices at the pumps.

Mr. Robert Hughes

I must confess that I do not find the Sunday Post compelling reading.

Mr. Walker

The hon. Gentleman must be one of the very few Scots, both at home and abroad, who does not, but, as he lives mostly in London, I can understand it. He is not so well conditioned to the thinking of Scots in Scotland as the Scots who live in Scotland.

Mr. Hughes

That remark was as cheap as the hon. Gentleman, and I hope that he will reflect on that. It was quite unnecessary, and he knows that it is quite untrue.

Mr. Walker

If what I said is untrue, I unreservedly withdraw it, but I based my remark on something that the hon. Gentleman said to me a long time ago, when he told me that he had moved his home and his family from Aberdeen to London.

Mr. Hughes

I have never hidden the fact. There is nothing to be ashamed of if my wife and family live in London, as indeed many others do. However, I resent what the hon. Gentleman said, and it was extremely cheap of him to imply that I am not attuned to what is happening in Scotland. If there is a political dinosaur about, it is the hon. Member for Perth.

Mr. Walker

As I am no longer "the hon. Member for Perth", I conclude that that remark was not aimed at me. I find the hon. Gentleman's remarks rather disturbing, because he must be aware that the Sunday Post is the most widely read Sunday newspaper in Scotland. I was merely commenting that as he had moved his home to London he had become conditioned to the thinking in the capital, where I understand the Sunday Post is not the most widely read newspaper.

Mr. Hughes

The hon. Gentleman knows perfectly well that my aversion to the Sunday Post stems from the fact that it is a non-trade union paper and because, in my view, its political views represent all that is worst in the gutter journalism of Scotland. I know that many people in Scotland share that view.

Mr. Walker

I am sure that many readers of the Sunday Post will wonder, when they read the hon. Gentleman's remarks, just who is out of step.

I return to what I was saying, before the hon. Gentleman intervened some four interruptions ago, about the price of petrol at the pumps. The hon. Gentleman will know that I and my hon. Friend the Member for Banff and Buchan (Mr. McQuarrie) have constantly spoken of our concern about the price of petrol in rural areas. We have expressed that concern in the only way that Back Benchers can, and that is by the way we vote. I have not changed my views on this matter, because I believe that the duty on petrol is penal for people who live in rural areas. It is regressive taxation, because those people have little option or choice. Public transport is frequently non-existent, and for that reason people often have to use their cars. In the days when fuel was cheap it was perfectly possible and feasible to do that, but today, with the quadrupling, tripling or doubling of oil prices, that is no longer so, and the price of petrol at the pumps reflects that.

An ingredient in the price of petrol at the pumps is, of course, the Revenue take. It was always my intention that the public should be aware that I was homing in on the amount of money that the Revenue takes on each gallon of petrol that is sold at the pump, because the revenue that we take at the pumps has a regressive effect. As I said, it is penal taxation, and that is what I was drawing attention to.

It has always been recognised by those in Government and by people outside that the stage would be reached in the development of the offshore oilfields when it would be necessary to do something to encourage the development of marginal fields. It comes as no surprise to those of us who have studied the matter that we have now reached the stage when it is obvious to everyone, other than those who do not want to see it, that something has to be done to encourage the development of those marginal fields, otherwise exploration in the North sea, and particularly the northern sector of the North sea, which is turbulent and difficult to explore, will come to a halt and no new fields will be developed. So it is right and proper that the Bill should be introduced to encourage the oil companies to develop.

The hon. Member for Dunfermline, West (Mr. Douglas) said that the Government were giving the oil companies just what they wanted. Oil companies are in the business of getting, finding and extracting oil. If they were deterred by whatever measures the Government imposed in the past, in the days when fields were easier to exploit, we must surely do something to help them. There is nothing odd about giving the oil companies what they want. It is a sensible way to encourage the development of those marginal fields. I make no apology fo- the fact that, as a Member of Parliament for a Scottish constituency, I have a large interest in what is happening in the oilfields, because they mean jobs for many of my constituents. Jobs in Scotland are in short supply, as they are in every other part of the United Kingdom. We want the oil companies to develop the marginal fields so that there will be more job opportunities for the Scottish people.

Tayside, which has not done so well out of the oil boom in the past, may now have an opportunity as a result of the location of the marginal fields. In particular, Dundee has a splendid harbour and other facilities and could now have the opportunity to benefit from those fields that have not previously been developed. I hope that the oil companies, by taking up the opportunities presented by the Bill, will see that Dundee, with its harbour and its new roll-on, roll-off facility, will be ideal for servicing the marginal fields.

In addition, Tayside has developed at Dundee an airfield with a new hard runway which was laid some two years ago and which has since been extended, with new navigation aids, more of which are on the way. I hope that all that will mean that the oil companies will find Tayside to be a place which they can get to and from easily. Dundee airport will not be nearly as congested as Aberdeen airport and its facilities will help the oil companies to develop the marginal fields.

I have never been able to understand why Labour Members think that it is right and proper to bring jobs to an area through Government assistance while saying that it is wrong to do the same thing simply by reducing the amount of taxation on companies to encourage them to do something. Both are designed to achieve the same end. The one takes away in order to give to another and the other gives opportunities to develop. I see Labour Members shaking their heads. I am a simple business man, not one of the intellectuals on the Labour Benches who have studied the theory of these matters. I have had the problem of creating wealth and jobs, and it is not so easy and simple as some suggest.

The enterprise zone which has been located in Dundee at the harbour and airfield will be another opportunity for oil companies. It will be free of local authority rates for 10 years. That would apply were they to be located in either the harbour area or at the airfield. The oil companies should consider that carefully.

The hon. Member for Pontefract and Castleford (Mr. Lofthouse) is no longer in the Chamber. He contrasted the Government's treatment of the oil companies under the Bill with their treatment of the mining industry. The difference is that the oil companies do not ask for or get handouts from the Government, whereas the coal industry, for historical and other reasons, receives substantial public funds. [Interruption.] I agree with Labour Members. They are always a little quick at shouting without waiting to hear what is said. Energy policy must be more co-ordinated than it has been, not in the immediate past, but before that, when it was very unco-ordinated. Real efforts were made by the Labour Government to make their energy policy meaningful and sensible, but there is still a long way to go.

No one would doubt that while we want to develop and open up new oilfields, particularly marginal ones, in the North sea, we should at the same time look at marginal mines and many that are no longer able to compete effectively. If the miners believe that those mines are viable, the Government can be just as generous to the miners as they are being to the oil companies. They can give those mines to the miners for nothing, to work as miners' co-operatives.

If the miners believe those mines to be viable, they should put their money where their mouths are. That is the message to the miners meeting at Perth today. Perhaps they should consider more carefully how to present their case. If the Government were able to follow the example in the Bill, they could end up by saying to the miners that they would be generous and give the miners the pits which the National Coal Board judges are due to be closed. I hope that the miners would respond positively by saying that they were confident that the pits could be made to work and make a contribution to an all-embracing energy policy. Indeed, I go further and say that the Government could be just as generous as the miners would like them to be by giving the miners the working capital to sustain one of the uneconomic pits for 12 months. In that way, we might have some sanity in our approach to the problems.

Earlier, I commented on the helicopter crash. We must recognise that, sadly, energy never comes cheaply, either in the cost of exploring for it or in human lives. It is easy in this Chamber to forget the people who sail and fly out to the oilfields or who go down mines and put their lives at risk every day so that we can have the energy that we require.

I hope that my comments have been noted by the oil companies and that they will recognise the potential for them at Dundee and on Tayside. I shall be happy to take representatives from any of the interested oil companies to look at the facilities there, as I am sure will other Members of Parliament who represent Tayside. I am sorry that the hon. Member for Dundee, East (Mr. Wilson) is not in the Chamber. I should have thought that as he speaks so much about oil, Scotland's oil, oil prices and everything else to do with oil, this is a unique opportunity for him to put on record the views of the Scottish National party. It is rather sad that he has not taken the opportunity to do so. However, I shall be generous and say that I am prepared to go with him, as, indeed, I am with the hon. Member for Dundee, West (Mr. Ross) whom I find much more helpful and co-operative in the battle for jobs on Tayside.

I am prepared to go with either or both of those hon. Gentlemen and any other hon. Member who represents Tayside to meet the oil companies in the hope that they will use the advantages that will obviously be brought about by the Bill. When they are exploring and developing the new marginal fields, I hope that they will recognise that there is also a massive untapped human resource available on Tayside, in addition to the other resources that I have mentioned. I hope that they will take advantage of that and do something positive.

7.28 pm
Mr. Terry Patchett (Barnsley, East)

As an ex-miner of 26 years' standing and with many years' association with the National Union of Mineworkers, it is appropriate for me to make my maiden speech on a Bill dealing with energy. My constituency of Barnsley, East is new and carries a third of the old Dearne Valley constituency which was for years represented by my friend, Edwin Wainwright. He was a man much loved in his constituency, as he was in the House which he holds so dear. He has asked me to express his best wishes to his old friends here. It is apparent to me that Edwin Wainwright's quarter of a century in the House was not wasted. However, I represent a constituency of many mining communities—angry communities who feel that we are now being governed by deceit.

A few months ago a ballot by individual and private vote—as is so often advocated by the Government—was conducted of which we all know the result. The House is well aware of that decision, so let me make the House aware too of the anger felt by the miners at certain admissions by the coal board. Miners now know what is meant by the term "government by deceit". The Bill is a deceit as it seeks to slice off revenue due to this country from oil. The Conservatives criticise a great deal the subsidies paid to nationalised industries. Their criticisms take no account of the interest that those industries must reply back. The miners and the general public will not be deceived by the indirect subsidy to the oil industry provided by the Bill, no matter how the Government attempt to disguise it. I hope that Conservative Members recognise the extreme cost of the Bill to this country in terms of jobs, which will be borne by the taxpayer through the cost of the dole. That added cost should be considered with the Bill before us. The Govrnment are seeking unfairly to interfere with free competition, which is very much against Tory dogma.

What do the Government mean by "helping the oil industry"? I suspect their motives to be based more on political dogma—a dogma which is emphatic in trying to bring the National Union of Mineworkers to its knees at any price. That is no way for any Government to establish policies or priorities. However, one riddle has been answered in the debate today. When is a subsidy not a subsidy? When it takes the form of an abolition of royalties.

The Government, because of their narrow outlook, have taken sides in the competition on energy. The Government would be better occupied trying to get people back to work, thus creating the demand for energy.

It appears that there is no money to be made by the coal industry or Conservative Members would be fighting to privatise it. We are well aware of the lucrative prospects for Selby and the Vale of Belvoir. The greed that brings forward such Bills is of no help to the country. My right hon. and learned Friend the Member for Monklands, East (Mr. Smith) pointed out that the Bill may create jobs in one part of the country but that jobs will be lost elsewhere, particularly in the mining industry. If money is the incentive in such policies, Conservative Members are on the wrong road. The Bill will not create jobs; it is designed only to lose them. I hope that Conservative Members will bear in mind the full implications of this hasty action. I have grave doubts that they can be so :persuaded because when money is flying about it creates strange bedmates.

It would appear that the great patriotic feeling in the country has withered in some quarters A great deal has been made of patriotism over the past 12 to 18 months. Why do the people who play on patriotism appear to run away if the country makes something out of an industry? It is unpatriotic to take a paying proposition out of public ownership and give it to private ownership.

We oppose the Bill not only because of the subsidies it gives to the Conservatives' friends in the money market but because of the job implications. The country is well aware that some Tories are happy with unemployment at 3.5 million as it helps the free market, but they do not want a free market in industrial relations. The country is well aware that the biggest part of that 3.5 million total is the result of political dogma. I hope that Conservative Members will think seriously before they support the Bill.

7.33 pm
Sir Hector Monro (Dumfries)

I should like warmly to congratulate the hon. Member for Barnsley, East (Mr. Patchett) on his maiden speech. He spoke with great knowledge of, and feeling for, the coal industry. I am sure that we shall hear a great deal more from him on this important subject in the years ahead.

The hon. Gentleman spoke delightfully about his predecessor, the former hon. Member for Dearne Valley, who most of us know better as Edwin Wainwright, a distinguished Member who won the British Empire Medal and was a special character in this place. He had many friends on both sides of the House, and shall miss him.

The hon. Member for Barnsley, East, as a Yorkshireman, bowled a fine maiden over and we look forward to many more Yorkshire centuries for England in the near future.

The hon. Member for Aberdeen, North (Mr. Hughes) referred to the helicopter crash in Aberdeen earlier today. I share his concern about the accident, but he can rest assured that the air accident investigation branch will go into the accident in the greatest detail, as it does with every accident involving passenger-carrying aircraft. It is a fact of life that helicopters are much more complicated pieces of machinery than fixed-wing aircraft and carry out particularly arduous work. I am afraid that from time to time we must be prepared for accidents, even allowing for the high standard of maintenance and airmanship of the crews looking after and flying the helicopters.

I welcome the Bill. It is a boost to the oil industry, which is such a vital component of our economic future and balance of payments. My hon. Friend the Member for Tayside, North (Mr. Walker) pointed out its importance to jobs in Scotland and futher afield. It gives worthwhile encouragement to petroleum companies to develop the resources under the sea and around our coast. I listened carefully to the right hon. and learned member for Monklands, East (Mr. Smith), but I am at a complete loss to know why the Opposition should oppose the Bill.

The hon. Member for Orkney and Shetland (Mr. Wallace) made a very competent speech. We come from the same town, Annan, in Dumfriesshire, and he opposed me in the 1979 election. He was a fair opponent, but he was wise and right to seek election elsewhere. To follow in Mr. Jo Grimond's footsteps is a daunting task. but I am sure that the hon. Gentleman will do it well. We enjoyed what he said to the House today.

The hon. Member for Orkney and Shetland paid a warm tribute to Mr. David Myles, the respected Member for Banff in the last Parliament. It is sad that the boundary commissioners abolished his seat and that he was not selected to serve another constituency not far to the south of his former constituency. We all recall with envy his knowledge of agriculture and his winning ways with Ministers. We shall miss him.

The Bill brings welcome relief to the oil companies in terms of royalties which they have been forced to pay. It will encourage the oil companies to press on with exploration around our coast. I hope that we shall be told what is in store for the west coast of Scotland, particularly in the Solway Firth area. One often hears rumours, but not many facts, about oil exploration.

If there is to be exploration there, planning decisions and conservation implications will be important. Any exploration must be undertaken only after careful consideration. It is a confined area with tourist potential, which must be developed further, and important fishing interests. We must find a balance between the jobs and economic benefits that could come from oil exploration and the possible spoiling of an attractive area.

We welcome the vital economic developments in the North sea and the brave decisions by the oil companies and workers in the industry, but we must consider the objective of the whole operation—the consumer. People v^ ho live in rural areas, such as my constituency, which are hungry for tourists, will have experienced shivers down their spines at the prospect of another increase in the cost of petrol.

We live in a free economy and the petroleum companies must fix their own prices, but there should be some pressure on them to be reasonable in their increases. When the price of petrol goes up, so does the income for the Treasury through VAT. I hope that the Chancellor of the Exchequer will bear that in mind when he considers petroleum taxation. If income from VAT continues to rise, the revenue from petrol tax should come down. Petrol and diesel are the life-blood of rural areas. I hope that places far from urban areas will be given careful consideration. The discount system, which can have a severe impact on rural suppliers and small garages in remote areas, should be borne in mind.

The Government's proposals should give oil companies immense encouragement and confidence to press ahead. They should bear in mind what I have said about prices and consumers. With that in mind and because oil is such a vital component of our economy, I shall give the Bill every encouragement.

7.45 pm
Mr. Bryan Gould (Dagenham)

I congratulate my hon. Friend the Member for Barnsley, East (Mr. Patchett) on his maiden speech. He spoke with the authentic voice of his constituency and industry. Many of us remember with affection his predecessor, Eddie Wainwright. I am sure that my hon. Friend will make an equally valuable contribution to our proceedings.

I was tempted to speak briefly in the debate when I realised that it might be possible to consider the sorry tale of what has happened to North sea oil revenues in the last four or five years. It is an astonishing and tragic story—almost one of stupidity and culpability. It takes me back to 1977–78 when a great debate took place about what should happen to North sea oil revenues. Many people thought that North sea oil would provide manna from heaven, a disposable surplus, a means of breaking free from the constraints from which we had suffered and open up new options. People considered whether to use the money to improve social services, cut taxation, regenerate British industry or pay off our debts. All that was thought possible in the new situation created by oil revenues.

I was one of those who said, "Wait a moment. Unless we are careful and pursue sensible economic policies, it will not turn out that way." In an article in The Guardian I warned that if we got it wrong not only will we have frittered away the oil revenues in an import-led consumer boom, but we will have done so in such a way as to inflict maximum damage on our own industrial base. The flood of imports will inevitably displace domestic production, while the disincentive to exporting will further reduce investment, employment, and production in our own industry. When I wrote that on 4 January 1978, I did not realise that in little over a year we would have a Government of such stupidity that even my worst expectations would be substantially exceeded.

Not only did I look forward with apprehension to such consequences, but others on the opposite side of the argument said that the consequences were inevitable, right and even desirable. In 1980 the Institute for Fiscal Studies said that this was the right way to take advantage of North sea oil revenues. It said that it would mean a fall in industrial output and a rise in unemployment. It forecast that North sea oil revenues would result in a fall in manufacturing output of 8.9 per cent. and that perhaps 700,000 jobs would be lost. Not only were my expectations exceeded, but those of the Institute for Fiscal Studies.

Manufacturing industry has lost not 8.9 per cent. output, but nearly 20 per cent. More than 2 million jobs, not 700,000, have been lost. We did not have the option of tax cuts, because in the past four years the tax burden on the ordinary family has been substantially increased. We did not even have the option of improving services, because we have endured four years of cuts, and we know what is in store for the next four years.

Even with the immense benefit to our balance of trade, brought to us by £8 billion savings on our balance of payments in a year, we are rapidly running into deficit. That has happened because for the first time in our industrial history we are importing more manufactured goods than we are selling abroad.

How did that happen? How did over £20 billion of revenue, that enormous advantage to the balance of payments, produce such dreadful results? It can be explained only in terms of the most incredible stupidity and doctrinaire nonsense by the previous Government—nonsense which the present Government seem prepared to perpetuate. They reinforced the inevitable results of having oil in terms of the exchange rate by their lunatic monetarist ratchet which created a tight money supply and which, to do that, drove up interest rates, thereby reinforcing the already upward movement of the exchange rate. That destroyed the competitiveness and profitability of British industry, with the result that nobody in his right mind would think of using North sea revenues to invest in manufacturing industry. Nobody did, and manufacturing investment has fallen by 36 per cent.

There were those who argued consistently that there was no escape from that trap, that it was a dilemma into which we had to walk as bravely as possible. But that need not have been the case, because, for example, Norway, which has an oil asset even more important to its economy than ours, has not suffered such a tremendous reduction in its industrial base.

If we allied North sea oil and the tremendous opportunities it offers with a sensible expansionary economic policy, we could use that money and resource to free us from the traditional constraints through the balance of payments on the better economic performance which we have been seeking for so long. We could use the money to invest in British industry and buy in more imports to provide industry with the semi-manufactured components that it needs to expand our industrial capacity. Instead, we have got ourselves hooked on a downward contractionary spiral.

I was glad that my right hon. and learned Friend the Member for Monklands, East (Mr. Smith) permitted me to intervene earlier to point out that North sea oil revenue is not a fortuitous sum of money on the side that enables us to confront the problem of unemployment. North sea oil is a major and integral part of the process that has created that unemployment. It has been allowed to operate in that way through the terrible mistakes in economic policy followed by the Conservative Government.

It is a truism that the oil will run out. The problem for us, often referred to, is that, when that happens, we shall be left stripped of our major means of earning a living. British industry wil be not leaner and filter, but smaller and weaker. The fact that North sea oil, which should have been such an opportunity, has been a snare and delusion which has led us to that parlous state is another reason for taking a jaundiced view of this legislation.

7.54 pm
Mr. Michael Howard (Folkestone and Hythe)

When I made my maiden speech last Wednesday I little imagined that I would be addressing the House again so soon. Indeed, I did not realise it as little as an hour and a half ago. I have been encouraged to contribute tonight, and I shall do so by pursuing a theme that I took up in my maiden speech.

In doing that, I hope that the hon. Member for Dagenham (Mr. Gould) will forgive me if I do not follow him into the highways and byways of his argument, the kind of argument that was put before the country during the last election and on which the country gave its verdict. Indeed, many of the speeches in the House during the last couple of weeks have been a repetition of the arguments that formed the basis of the general election campaign. I want to move away from those arguments.

In my maiden speech I expressed the need for simplicity in legislation. I referred to recent observations of Lord Diplock and the Master of the Rolls, who have put in pleas to Parliament for simpler legislation. "Let us have," they have said, in effect, "legislation that the ordinary man or woman in the street, the ordinary person on the shop floor, can understand". It was from that standpoint that I recently examined, I confess for the first time, the Bill now before the House.

The Bill makes a good start in that it is short; it extends to two pages containing but two clauses and a total of 34 lines. But after that good start its standard falls more than somewhat because in only two pages we are constrained — if we are to have even the most elementary understanding of what the legislatior means—to look at three other statutes and one statutory instrument. Clause 1(2) says: This section applies to any licence granted under section 2 of the Petroleum (Production) Act 1934". Off one scurries to that Act, but wher one digs up section 2 of that, thinking that it will provide the key to this enactment, one is sadly disappointed, for clause 1(2) of this measure goes on to refer to a licence granted under section 2 of the 1934 Act which incorporates all or any of … the model clauses set out in Schedule 5 to the Petroleum (Production) Regulation 1982 (production licences for seaward areas); or … the model clauses referred to in section 19(1)(a), (d) or (e) of the Oil and Gas (Enterprise) Act 1982 (corresponding licences issued in accordance with previous legislation)". Only if one has ready access to all those documents can one begin to make sense of clause 1(2). I regret, however, that it does not end there, because if one reads on in subsection (3)—and, remember, one has not got beyond clause 1—one finds a further reference to the 1934 Act and one learns that 'relevant new field' has the meaning given in section 36 of the Finance Act 1983". In other words, before one has got beyond clause 1 one must have recourse not only to the Petroleum (Production) Act 1934 and the Finance Act 1983 but to one other statute and one statutory instrument, both of 1982, to make sense of only a part of the Bill. That is a sad state of affairs.

Members of my profession do not object to being paid to search for such documents. They are happy to spend their time at the behest of their clients. whether they be oil companies or others, scurrying around digging out statutes and statutory instruments to make sense of these measures. Surely it is wrong that the House should cause the public to pay their lawyers to scurry around in that fashion. I should like to see simpler legislation which is not so free in its references by incorporation. I want to see legislation that is simpler and more comprehensible to the man and woman in the street or on the shop floor.

The instances of abuse that we find in the Bill are not new. Perhaps the Bill is not a particularly bad example. It is not an example that is likely to warrant the court's attention in the same way as, for instance, section 72 of the Housing Act 1980, which I cite as an example of legislative complexity which is to be avoided. Hon. Members may not be aware of the details of that section. That being so, I shall draw them to their attention. Section 72 states: Rent tribunals, as constituted for the purposes of the 1977 Act, are hereby abolished and section 76 of the 1977 Act, (constitution etc. of rent tribunals) is hereby repealed. (2) As from the commencement of this section the functions which, under the 1977 Act, are conferred on rent tribunals shall be carried out by rent assessment committees. (3) A rent assessment committee shall, when constituted to carry out functions so conferred, be known as a rent tribunal. I must be careful of my language, and I shall not describe that piece of legislation in words that perhaps come most easily to the tongue. However, that sort of legislative obstacle race is not something that we should encourage in the House. If that section of the Act is a particularly bad example, I am bound to say that the Bill does not greatly improve upon it.

I was further encouraged to participate in the debate, quite apart from the contents of the Bill, by the observations of my hon. Friend the Member for Torridge and Devon, West (Sir P. Mills), who was anxious to say that the Bill will not be confined in its operation to the North sea. He was anxious also to take up the claims of areas off the south-eastern coast which have an equal claim for resources for exploration and which he hopes will be encouraged by the Bill. When his remarks were taken up by the hon. Member for Wiltshire, North (Mr. Needham), I wondered which offshore field my hon. Friend would claim as his own for the purposes of the Bill. However, he was rather more restrained and inhibited in his remarks.

As I told the House only last Wednesday, I represent Folkestone and Hythe. What is good enough for the southwestern approaches is good enough for the south-eastern approaches. It would be wrong for me to let my hon. Friend the Member for Torridge and Devon, West get away with his plea for the application of the measures that are contained in the Bill to areas offshore of Devon without it being suggested that they might have equal application to areas off the south-east coast of England.

The measures in the Bill will encourage exploration and production. They will encourage the offshore oil industry to make a contribution to Britain's economy in the areas where the oil is found and to the economy generally. Despite the shortcomings of its drafting, which means that it is necessary to have recourse to all the other legislative measures to which I have referred, I shall support the Bill if there is a Division.

8.5 pm

Mr. Kevin Barron (Rother Valley)

I do net intend to take up the remarks of the hon. Member for Folkestone and Hythe (Mr. Howard), who appears to be lost in a legal maze. It is my responsibility to say that I am honoured to represent Rother Valley, which I hope to represent for many years.

It is the custom to comment on one's predecessor. I am pleased to say that my predecessor is now the hon. Member for Wentworth (Mr. Hardy), who is sitting on one of the Benches behind me. This shows that the people of south Yorkshire show good sense when it comes to boundary changes. I thank my hon. Friend for the many years of hard work that he undertook and the level of representation that he gave to Rother Valley from 1970 until the end of the previous Parliament. I have not heard it suggested outside the House, or inside it, that he did other than a good job for Rother Valley.

The waste of North sea oil revenues seems to be growing annually. My hon. Friend the Member for Dagenham (Mr. Gould) talked about the need to invest, and it is clear that the misuse of North sea oil has led to an imbalance in the economy. If the Government are finding it difficult to decide where to invest North sea oil revenues, I suggest that Rother Valley would be a good place to start. The constituency has nearly double the average adult unemployment level. Two out of three of the young people are without work. Indeed, I cannot remember our youth ever being given a real future.

The main industries in the Rother Valley are steel and coal, Over the past three years the steel industry has been ravaged by the Government's policies. This has had a detrimental effect on the coal mining industry. Some hon. Members have talked about coal stocks, but over the past three years the mining industry has lost 10 million tonnes of coking coal a year.

There are some extremely good steel plants in south Yorkshire that are most efficient. Why do the Government want to privatise the steel industry in south Yorkshire? They say that it will create more efficient plants, but we already have some of the best plants in Europe. It is more likely that the Government want to make a quick profit out of the steel industry. They know that they cannot expand industry to save jobs elsewhere. Their policy will not save the steel plants that are not the most efficient.

Six mining communities in my constituency are under threat. One of the Government's obsessions is running down the coal mining industry. That, of course, goes contrary to what the Secretary of State and Conservative Members have said during the debate.

The share of coal in inland energy consumption in 1981–82 was 37.4 per cent. That is not a high share of the market. The under-use of coal-fired power stations is a crime, while at the same time oil imports cost us 30 to 40 per cent. more to generate electricity. Then we hear Conservative Members talk about the cost of electricity for those in need in society and in industry. The Government should look critically at the way in which the energy industry is run.

The coal industry needs a commitment to build more coal-fired power stations. That will affect not only the coal industry, but the future of this country. We know one thing about energy—oil and gas have their limitations. We know also that we have used coal for 300 years and that the island is built on coal. It would be wrong to put people's future at risk by starting to close down the coal industry.

I refer now to what has happened in the mining industry in the past four years. In 1979 the Government adopted a policy of tight control of the external financing limit. That created many problems in the coal industry, including the current rundown in manpower. Tens of thousands of jobs have been lost each year over the past three years. The strengthening of the pound was a deliberate act by the Government in 1979–80. It meant that we could not compete in the world coal market against other coal industries, which are heavily subsidised. Those countries receive higher subsidies per tonne than are available here.

The rundown in manpower over the past four years has created great problems in terms of social costs for the industry. Redundancies, pensions, transfer and travelling allowances have all gone up. In 1981–82, social costs rose by 128 per cent. If the closure programme envisaged by some Conservative Members is carried out in the coal industry, those problems will only get worse. We must ask what the costs are of running the industry down. They are not just for subsidies on coal stocks. There could be a case for keeping the coal mining industry at its present level. We have not looked at that matter. That is something that I hope to do in the next few months.

No one will thank us for closing down collieries that are supposedly uneconomic now and sterilising millions of tonnes of coal that may be of immense value in 20 or 30 years' time. We must consider the long-term effects before telling the new chairman of the National Coal Board about the need to make the industry efficient. Conservative Members have said that we must make sure that uneconomic pits close. Some 90 per cent. of the British coalfields might close down if they used that crude way of measuring how profitable the industry is. It is important to recognise that fact.

There has been a rundown in the mining industry in the past three years, but we must recognise that output per manshift has increased. The miners have worked harder. I was a miner until four weeks ago. Output has gone up by a colossal amount. There has been a rise of efficiency in the past financial year of between 4 and 5 per cent. I hope that the Government will not thank the British miners for that efficiency and the level of production over the past three years by starting the closure programme mentioned by Conservative Members. It would not be right for the British miners to have to suffer for all the hard work that they have done over the past three years.

My constituency needs a Government who will take action to protect it, not a Government who are hiding behind political and economic dogma. The people in my constituency have helped to create this country's wealth for many generations and they deserve better than the level of unemployment and the expectations that they have at the moment.

8.16 pm
Mr. Albert McQuarrie (Banff and Buchan)

I congratulate the hon. Member for Rother Valley (Mr. Barron) on his maiden speech. I am sure that he will not think it remiss of me if I say that I was deeply pleased that he mentioned the former Member for Rother Valley, now the hon. Member for Wentworth (Mr. Hardy), who has had a great career in the House and contributed to debates on many occasions. I am sure that the new Member for Rother Valley will live up to the reputation of the former Member. I also congratulate the hon. Member for Barnsley, East (Mr. Patchett) on his maiden speech and his tribute to Eddie Wainwright, who was well respected in the House.

Some of my Scottish colleagues have already mentioned the accident at Dyce airport, in which a helicopter was involved. We understand that there have been no deaths, and we hope that there will be none. Dyce airport is the largest heliport in Great Britain, if not the world, so it is gratifying to know that there are so few accidents. but we would rather have none at all. I sincerely hope that the inquiry will determine the cause of the accident. We give our sympathy to the people who are worried about their relatives.

My right hon. Friend the Secretary of State said that this was a short Bill. It is a short Bill, but it is important. Unfortunately, on the last occasion it fell because of the Dissolution of Parliament. It represents the most important tax concession for marginal oilfields introduced by any Government. It is widely welcomed in my constituency of Banff and Buchan where, at St. Fergus and Cruden bay, the largest proportion of North sea oil is pumped ashore to the mainland of the United Kingdom.

The main effect of the Bill is to back development consents first given after 1 April 1982—a pre-election promise by the Government to ensure the abolition of royalty for new oilfields. As we have seen today, the Government have made this a first priority in legislation and it represents a major tax concession to stimulate North sea oil development. The House should therefore welcome the proposals, despite the comments of Labour Members. The abolition of royalties for new oil and gasfields other than in the southern basin will give help where it is most needed—that is, in the small, high-cost fields. I am somewhat disappointed, however, that my right hon. and learned Friend the former Chancellor in his last Budget speech and my right hon. Friend the Secretary of State today have continued the exclusion of the southern basin oilfields.

Until now, a royalty of 12.5 per cent. has been a condition of the exploration licence and can be taken in cash or in kind. There was a difference between the first four licence rounds and subsequent rounds, in that in the earlier rounds certain treatment and conveying costs were allowable against the well heads. That is the general practice in other countries in which royalties apply. In effect, royalty is a turnover tax for which liability is incurred on production. It is not related to profitability. The Governent take is therefore a larger element for a small field than for a large field.

In partial recognition of the last point, the Petroleum and Submarine Pipe-lines Act 1975 gave the Secretary of State for Energy discretionary powers to award tax-free refunds on royalties paid.

Mr. John Smith

I, too, have read the brief, which says: The key words are"—

Mr. McQuarrie

The right hon. and learned Gentleman is quite right.

The key words are 'discretionary' and 'tax-free: That underlines the importance of the matter. As the right hon. and learned Member for Monklands, East (Mr. Smith) said, applications were made by a number of oil companies but no refunds were awarded by the Labour Government or by the last Conservative Government. Such discretionary powers in relation to a major feature of the tax system are a potential source of arbitrary discrimination between taxpayers and add one more uncertainty to the assessment of project viability.

Mr. Rowlands

Will the hon. Gentleman be going on to define the words "tax free"?

Mr. McQuarrie

Yes. They mean without tax. I hope that that satisfies the hon. Gentleman.

The words "tax free" meant that royalty remissions would not be liable to PRT or corporation tax. They were thus potentially of significant benefit, although the positive features did not offset the objection of uncertainty and the possibly discriminatory nature of the powers. [Interruption.] Perhaps the hon. Member for Merthyr Tydfil and Rhymney (Mr. Rowlands) will have the courtesy to allow me to finish my speech.

These conditions still apply to fields developed prior to 1 April 1983. [Interruption.] It is common for companies to prepare briefs to assist hon. Members on particular Bills. If an hon. Member chooses to use part of such a brief, that is no discourtesy to the company and should not be ridiculed by the Opposition. If the points are not brought out by a Member, the brief prepared by the company in the interests of the House cannot properly be taken into account. I make no apology for using parts of a brief prepared by a certain oil company in relation to the Bill.

The proposals contained in the Bill, arising out of the 1983 budget, are such that the Government would effectively abolish royalties on offshore fields approved for development after 1 April 1982 except in the North sea south of 55 degrees and north of 52 degrees. The 12.5 per cent. of sale value forgone will be largely clawed back later by the Government in the case of profitable fields, as the extra profits will be liable not only to PRT but to corporation tax, which, as my right hon. Friend the Secretary of State said in opening, are 75 and .52 per cent. respectively. At the margin the Government take is reduced only, as he rightly said, from 89.5 to 88 per cent.

The later payment to the Government, resulting from the change from a turnover tax to a profits tax, results in a significant improvement in the investment-earning power potential and has been estimated by the United Kingdom Offshore Operators Association at about 2 per cent. That relates only to a field that is sufficiently profitable to pay PRT. The Bill's proposals, however, are especially helpful to fields at the margin, which will pay only corporation tax, because the proposals remove the regressive features of a turnover tax. Highly profitable fields will continue to pay heavy taxes, but those which are barely profitable will be taxed more lightly.

Oil companies welcome the Bill and believe that its imaginative proposals will stimulate development, because the typical field now discovered in the North sea is much smaller than those discovered previously. It may even encourage oil companies to consider developing some of their existing discoveries which were previously considered to be uncommercial.

The United Kingdom Offshore Operators Association analysed the impact of taxation on four fields that were carefully chosen to simulate the likely pattern of future development. The smallest of them, with only 38 million barrels of reserves, will remain unprofitable under the Bill and requires a major breakthrough in cost reduction and a massive rise in oil prices. Fields 2 and 3 have 62 million and 88 million barrels of reserve respectively and come into the category of marginals under the Bill's proposals, of which the royalty abolition is the most important. Field 4, with 125 million barrels of reserves, will be improved from a marginal to a profitable position. In terms of earning power the abolition of the royalty will account for approximately half of that improvement. For that reason, it is disappointing that the Government feel unable to extend immediately the benefit of the new proposals to the gasfields in the North sea south of 55 degrees.

The nation is not currently self-sufficient in gas, and will not be, unless there is a major increase in exploration and development. Although there are undoubtedly potentially profitable fields under the existing tax regime, there are many small accumulations of an especially complex nature on low permeabilities which will make their development expensive. It would be most unfortunate if the development of indigenous resources were delayed by inefficient incentives, and import supplies grew. We would suffer not only in regard to job opportunities but there would be a loss of content for the oil-related service industries, many of which are located in my constituency of Banff and Buchan and in the Grampian region as a whole.

Whether or not the Bill meets with the general approval of oil companies, I hope that it will be a first step in removing the uncertainty about royalties for future gas development. That uncertainty puts the producers in a difficult position for negotiating prices in a market where there is no independently set market price, and it can only cause delay.

The proposals for the abolition of royalities for the many new fields are welcome, but the additional complications introduced by different rules for exisiting fields and the two patterns for new fields are unfortunate and could slow down the development of the United Kingdom's gas resources at a time when major developments should be considered. I hope that my right hon. Friend will remember those matters when he considers further improvements to the Bill, because the prospects for offshore development and associated related employment are less optimistic than they were last year.

The triangle of forces will be with us for some time, and Bills such as this must keep coming before the House if we are to remove the clouded uncertainties of price, taxation and technology. Offshore development can still be one of the few steady growth sectors in the latter years of this century if we are to take notice of its needs.

I close with a quotation from the May issue of the oil and gas journal Noroil: The acid test for commerce is whether companies quit Britain completely. That they have not done, and whatever the grumbles, they are unlikely to do so. But that will be only so long as the Government of the day pay attention to the future of the oil and gas industries. I commend the Bill to the House.

8.31 pm
Mr. Lawrence Cunliffe (Leigh)

I congratulate the maiden speakers on having helped to relieve the pressure upon me, as a Whip, in trying to ensure some form of continuity in the debate. I am associated with my hon. Friends the Members for Rother Valley (Mr. Barron) and Barnsley, East (Mr. Patchett) through my mining background — I was a mining engineer — and my relationship with the National Union of Mineworkers.

The hon. Member for Banff and Buchan (Mr. McQuarrie) made an original speech. I had to scrap brief No. 3 on the same subject. Nevertheless, I am sure that three of us will not repeat the same speech this evening, and I relish the opportunity to bridge the energy gap once again to achieve continuity in the debate.

Whips can be useful, despite what the Prime Minister said during the election campaign. Indeed, our role has been somewhat diversified today.

The Opposition are resentful because the Bill contains no degree of accountability. That is our main criticism of it. It is understandable that the Government should be motivated to ensure that there are impending developments in oil exploration and that there should be some financial encouragement, but it is reckless of them, in the national interest, to introduce a Bill with no strings attached to it. It is not often that a Conservative Government give us, as we would say in the north, something for nothing, but on this occasion they appear to have neglected an opportunity to raise revenue which could have been used in many other respects for the creation of jobs. Conditions could have been imposed that would not necessarily have narrowed the Government's intention to encourage oil exploration in the marginal areas, but helped to reinforce the belief that investors in oil exploration would honour certain pledges. As part of the freeing of companies from tax or royalties, the Government could have insisted on using British technology, drilling rigs and labour.

The Secretary of State said that there could be problems in the ancillary industries if developers did not go into the marginal areas. We could have offered another service in the ancillary industries. We could have attached strings to the Bill and insisted on the petrochemical industries, if successful in oil exploration, refining their products in British refineries. It is inconceivable that we should be producing 2,000 barrels of North sea oil a day and refining only one third in Great Britain—the rest being refined in Europe and the United States of America. It would be reasonable to suggest that if the fields proved to be rich the companies could undertake to put the oil into British refineries, thus creating jobs and security.

Many of our oil refineries face closure. There is a large degree of insecurity and morale is low. Many of the multinationals involved in the refining sector have no scruples. Shell and Esso are moving their oil refining activities elsewhere in Europe, for obvious reasons. That is one reason for accepting some form of accountability for—

Mr. McQuarrie

It is unfair of the hon. Gentleman to accuse Esso and Shell of sending their oil out of the country when they are building a huge petrochemical complex at Moss Morran.

Mr. Cunliffe

I accept that information with acclamation. I have been talking only about past performance. I am sure that the House welcomes Shell's initiative. Great Britain has not built large petrochemical factories and, as a result, it is now the biggest net importer of plastic products and feedstock for the petrochemical industry. We are paying for that in international currency, which we badly need. In 1977 we imported £577 million of feedstock and in 1982 more than £1,000 million. We could have avoided that by having our own petrochemical industry with a modern structure and high technology, thus giving security and wealth to the nation.

Let us consider energy planning and fiscal rewards in the energy industry. There is no doubt that during the past 10. 15 or 20 years this country has lacked a sensible, planned, energy policy co-ordinating all our energy industries and energy requirements for the future. Criticism has been levelled by hon. Members on both sides of the House at the lack of a stable depletion policy for our fuels.

The hon. Member for Tayside, North (Mr. Walker) made some comments about the mining industry. It was hard to define whether he had sympathy with the interests of the miners, because he was certainly alien to some of their views.

The hon. Gentleman mentioned the possibility of giving the pits to the coal miners, but he mentioned only the uneconomic pits. For many years the miners' unions have believed that those who produce the wealth of the nation should be its possessors. That is an understandable attitude. If the Government want to give the whole of the mining industry to its workers, it would be their most sensible move since they took office. The workers would accept it tomorrow with far greater acclamation than I can express tonight. The National Union of Mineworkers' conference is being held in Perth. If the Government feel inclined to give the industry to its workers, I am sure that the conference could table an emergency resolution within 24 hours.

The best and largest oilfields have been explored and exploited. I understand that the abolition of royalties will include the marginal fields. We must draw a comparison between what the Bill proposes and what happened to the rich coalmines which were exploited by aristocratic pit owners. Many of the collieries were left with only the bad seams, which were costly to develop.

The granting of subsidies really means the granting of loans. The National Coal Board, like any other enterprise, needs to borrow money. It rightly prefers to be supported by the Government, but it pays ordinary market rates for its loans. During the past 22 years the mining industry has made a profit over operating costs. Unfortunately, it has been burdened with high interest rates, especially since 1979 when the Government took office. That has meant that it has sometimes made a loss or only a marginal profit.

We have 55 million to 57 million tonnes of coal underground. Coal stocking means that the NCB must borrow more and pay additional interest. Many of us believe that the recession has been brought about by the Government. Conservative Members should not bellyache about the miners. They bear a large degree of responsibility for the stagnated economy and interest rates at an unprecedented level during the past decade. A reduction in manpower has made it more difficult for the mining industry to be as viable and commercial as it once was.

One hon. Member spoke with some regret about the current increase in petrol prices. He said that it was a pity that the free market economy and the market mechanism that regulates prices could not be controlled. I thought that he made a strong case for the introduction of a price commission. If we had had such a commission, we should have had the full inquiry for which he called into related costs and how they can fluctuate so rapidly in weeks or months. Petrol prices today are so unstable that it is impossible to assess economically how transport authorities or private car owners should budget over a given year.

The latest price increase has come at a very bad time. My constituents are at present embarking on their annual holidays, as are many others in the north-west of England. Many family motorists will be in great difficulty. Some will have left already for their holidays and others are about to go. It was not a very responsible action to increase petrol prices when many families, some of them unemployed, are struggling to make ends meet and still wish to enjoy some sort of family holiday and relaxation at weekends.

My comments about depletion apply to gas, oil and coal. The Labour party believes in an alternative energy strategy. It is high time that we recognised that we cannot go on trusting to luck. Energy forecasting has been extremely unpredictable over the past 20 years. That is an amazing thought when we know now that we have only about two decades of discovered oil reserves and a decade and a half of gas reserves. But still we are not planning to use them in a sensible and prudent way which will ensure that our future energy requirements are assured. We ought to be working on a long-term resource plan for our fuel industries. If we carry on as we are, we shall be a net importer of oil again in another 15 years or so.

The sooner that the Government produce a new energy plan for the future, the better. We badly need for our energy industries—deep-mined and opencast coal, oil, gas and nuclear energy — a sensible, planned energy policy in the near future. It is imperative that we have it so that all our industries may know how to invest for the nation's future when at last we have an upsurge in the economy after the Government's imposed recession comes to an end.

8.49 pm
Mr. Keith Best (Ynys Môn)

It is an unexpected pleasure to hear the hon. Member for Leigh (Mr. Cunliffe). He is an Opposition Whip, and it is not often that we have the pleasure of listening to him. I hope that we shall have the opportunity of doing so repeatedly in the future and not just when the Opposition are short of speakers to take part in a debate.

I appreciate what the hon. Gentleman and his colleagues said about our oil being a national asset and about the need to have it refined here. However, the purpose of the Bill is to ensure that the oil is extracted in the first place. The hon. Member for Leigh answered his question himself when he said that the Bill might be designed to help the marginal fields. He was right. It is designed to give an incentive to ensure the extraction of oil that might otherwise not be extracted because of taxation. I am sure that the Government and the Opposition can agree on this matter. If no oil is extracted, there is no oil to be taxed. The House of Commons must concentrate on providing incentives and opportunities for the oil to be extracted, and that is what we shall do by means of the Bill.

The Government first introduced the Bill in April, and it fell only with the calling of the general election. The Opposition cannot therefore claim that it has taken them by surprise. On 18 March my right hon. Friend the then Secretary of State for Energy, now the Chancellor of the Exchequer, made a speech in which he predicted that such a Bill would be brought in. His speech led to much speculation in the press, and much of the press comment was favourable. It was felt that such legislation would have a highly beneficial effect on extraction prospects.

I do not speak from as profound a knowledge of the subject as my hon. Friend the Member for Banff and Buchan (Mr. McQuarrie) who made a most interesting speech. I was most encouraged by the comments made from a sedentary position by the right hon. and learned Member for Monklands, East (Mr. Smith) and the hon. Member for Merthyr Tydfil and Rhymney (Mr. Rowlands) during my hon. Friend's speech, which showed that they were in agreement with him. So strong was that sense of unanimity that the hon. Member for Merthyr Tydfil and Rhymney actually anticipated what my hon. Friend was about to say. I hope that the Bill will be accepted in the spirit of unanimity so generously demonstrated by the hon. Gentleman.

The Bill cannot come as a surprise to any hon. Member or to any member of the electorate. It is fairly and squarely in line with the Government's philosophy of providing greater incentives for people to work and to exploit our natural resources. It will give freedom to exploit resources — a freedom which might otherwise be denied by taxation. I find it hard to understand why — even after the general election—the Labour party always considers that all assets must be taxed. The same philosophy determines Labour policy on the wealth tax, and a variety of other plans. Everything must be taxed, not simply in order to raise revenue but for ideological reasons.

That is unacceptable to me. The companies that extract oil from our fields are of great benefit to this country, and not only in their primary task of extracting the oil. In Amlwch, in the northern part of Ynys Môn in my constituency, there is a single buoy mooring operated by Shell. It is extremely successful. Large tankers that could not otherwise put into port discharge their oil onto the single buoy mooring. It then goes by flexible hose to the shoreline and is conveyed underground 78 miles to the Stanlow oil refinery. As a result of the contruction of that single buoy mooring the Ynys Môn borough council is richer by some £500 million a year, which is paid by Shell. That money has been spent on local facilities, on helping local organisations and on a whole variety of individual projects. Without the single buoy mooring, we would not have had that money.

Although our debate has centred on North sea oil, I hope that the Bill will encourage marginal fields not only in the North sea, but elsewhere. The House will understand if I place particular emphasis on any prospect of oil extraction in the Irish sea. If it were possible to extract oil from the Irish sea, it would mean a boom time for my constituency and for the construction of oil rigs. With the likelihood of drilling there, the employment prospects would be very good.

We have heard that the Bill is likely to ensure that one new project in the North sea will come forward every six weeks. It will probably double the number of projects in the next two years. I hope that it will do far more than that, and that it will open up the prospect of extraction in areas in which people have hitherto thought there was little opportunity. I hope that that will benefit my constituency, as well as the country as a whole. Indeed, the single buoy mooring has undoubtedly greatly benefited my constituency already.

I commend the Bill to the House and I hope only that the hon. Member for Merthyr Tydfil and Rhymney will not ruin the sense of unanimity that I detected a moment ago, and that the Bill will go through unopposed.

8.56 pm
Mr. John Hannam (Exeter)

I shall relieve you, Mr. Deputy Speaker, of the embarrassment of not recognising me, as I am wearing my glasses. However, I take up the remarks made by my hon. Friend the Member for Ynys Môn (Mr. Best) in his general approach to the Bill. I am relieved that he pronounced his constituency's name, as I should not have known for a moment how to pronounce it if he had not done so.

In the few moments remaining I should like to welcome the Bill and its proposals for giving royalty payment relief to new oilfields outside the southern basin. During the past 18 months it has become apparent to most of us involved in energy that something would have to be done in this year's Budget to reduce the overall tax burden on our oil industry if important investment decisions, which are crucial to the future development of the North sea, were not to go against us in the near future.

Demand for oil in the industrialised world has fallen quite dramatically since 1973. Indeed, in this country it has dropped by about 35 per cent. That is partly due to the recession, but it is also due to structural energy changes of a more permanent nature. The advent of North sea gas has obviously had a big impact. Energy saving and the substitution of other fuels for oil have also been important. I share the view of the chairman of Shell, Mr. Raisman, who said in a recent address that oil demand was unlikely to return to 1973 levels.

If we look at the new investment opportunities in the North sea we see a new generation of oilfields which will be much smaller and more expensive structures than those that we have seen in the past. It is therefore understandable that the decision-makers on financial oil investments—be they in Dallas, Houston, Denver or Aberdeen —should be pretty cautious at present about new developments in what are bound to be considered the fairly inhospitable waters of the North sea, especially if the tax regime is still based on the prices and profits that occurred in the 1970s. So, despite the ever-present risk of a middle east crisis, or a growth in oil demand—both of which could cause an escalation of oil prices and profits—the prevailing view today, in the short term at least, is that world oil prices are unlikely to increase, at least in real terms, and will probably even decline further. Therefore, the Government were right — and I believe that in principle the Opposition accept this—to ease the oil tax burden in line with this decline in oil profits and prices.

In Britain, we can easily see the dilemma that we face. Our North sea oil production will start to decline in a few years' time and there is nothing that we can do about that. However, we can bring on sufficient new fields in the late 1980s to help keep us on target for oil self-sufficiency in the 1990s. Otherwise, we shall find ourselves having to import more and more oil and that will lead to balance of payments and tax revenue problems. Opposition Members talk of wasted oil revenues, but taxation is revenue wherever it comes from. If the Labour party had been in power, it would most certainly have used its oil tax revenue to maintain social and welfare services during the recession, just as we have done.

When looking at the oil industry, we see a clearly identifiable diminution of interests in new North sea oil developments, with projects being deferred and a much cooler response to licensing rounds. Something had to be done and I congratulate the Government on the steps being taken to ease the tax burden.

The right hon. and learned Member for Monklands, East (Mr. Smith) accepted that marginal fields need encouragement and that royalty relief was a good idea in principle. That is not surprising, because he introduced it in a discretionary form in his 1975 Act, but he wants it to continue on a discretionary basis, although all the evidence points to the fact that that has not worked and is unlikely to stimulate investment by the hard-headed oil chiefs throughout the world.

The Government had to make a choice between maximising short-term revenues and forgoing part of the £4½ billion revenue from oil taxes to create the incentive for further investment in the North sea. Only by such investment can we maintain self-sufficiency in the 1990s, with all the benefits that will accrue in revenue, jobs and supply industry activity. Surely success in one part of the economy strengthens the whole economy. For many and varied reasons, this vital part of the engine must be kept going.

I regret that the southern basin is not included in the Bill, but I accept that great interest is still being shown in those shallower waters and, in any case, the Bill allows for an amendment if circumstances warrant it.

Therefore, I congratulate my right hon. Friend the Secretary of State on his presentation of the case for the Bill, which I fully support. I know that it will produce the increased activity and investment that we need in the North sea if our target of self-sufficiency in the 1990s is to be achieved.

9.1 pm

Mr. Ted Rowlands (Merthyr Tydfil and Rhymney)

It may be a sign of coming of age that I have the pleasant duty of congratulating the three hon. Members who have made their maiden speeches in this debate. My hon. Friends the Members for Barnsley, East (Mr. Patchett) and Rother Valley (Mr. Barron) spoke with the authentic voices of representatives from the coal fields. As one who represents four pits in the fast-diminishing Welsh coal field, I more than appreciated the powerful emotional expressions contained in their speeches. We will want them to speak frequently to press home the message to the Government that the coal industry is important and does not deserve to be emasculated or destroyed as some of the wilder elements on the Conservative Back Benches would wish. I welcome my two new hon. Friends with pleasure.

Both my hon. Friends paid tribute to their predecessors, one of whom, the hon. Member for the new constituency of Wentworth (Mr. Hardy), is still here and spoke in the debate. I will not testify to his qualities; they are well known. However, all of us recall with great affection the many contributions of Eddie Wainwright who, for many years, was also the authentic voice of his community and of the coal industry, which he knew so well.

I also congratulate the hon. Member for Orkney and Shetland (Mr. Wallace) on his maiden speech. As he said, he has the awesome task of trying to follow that great figure in British politics, Jo Grimond, but I am sure that he will rise to that task.

The hon. Gentleman said that he had two maidens to overcome. The first was his maiden speech and the other is his wife-to-be. I understand that the hon. Gentleman is getting married on Saturday. The hon. Gentleman may not believe it when he looks at me, but I was even younger than he is when I was first elected to the House in 1966. I was also single then, and I can give the hon. Gentleman some personal advice. He will find it easier to speak in the House than to maintain a good family life in the circumstances in which hon. Members have to work. However, I am sure that the hon. Gentleman's marriage and parliamentary career will survive.

There is another maiden speech to come, that of the Minister of State, Department of Energy, who will be making his maiden speech in that new capacity—unless, of course, he spoke last week, but I do not believe that he did.

The Minister of State, Department of Energy (Mr. Alick Buchanan-Smith)

I have a new constituency as well.

Mr. Rowlands

I did not know that. I am not up-to-date on my Scottish political geography.

One of my hon. Friends said that he should not follow his predecessor too closely in certain respects. Having spent two or three years in saying not very nice things about the right hon. Gentleman's predecessor, Hamish Gray, I should add that I never found Hamish in personal terms anything but a most pleasant and delightful person to argue with. [HON MEMBERS: "Hear, hear."] During the 150 hours or so that we spent together on the Oil and Gas (Enterprise) Bill we built up a personal respect for him. As one of my hon. Friends advised the new Minister of State, we strongly recommend that he does not close smelters or abandon gas-gathering pipelines, because the misfortune of doing so is to go to another place and become another Minister in another Government job.

The debate has ranged widely, as hon. Members on both sides have sought to set the Bill in the context of our national energy needs, and in particular our needs for North sea development. I intend to do the same. However, at the beginning I wish to make it clear why we oppose the Bill. The Secretary of State in opening and other Members set out the wrong reasons for our opposition to the Bill. We believe that the Bill is a big error because in our view the principle of royalties, and their abolition on future fields, raise fundamental issues both in principle and practice. We believe that they are separate, and can be identified as being separate, from changes in taxation. An important distinction can be made between the character and nature of concessions on royalties and concessions on taxation allowances and reliefs. After I have replied to some of the issues that have been raised in the debate, I intend to underline the specific reasons why we believe that the Government have erred in taking this means to achieve the objective of stimulating North sea oil development.

As my right hon. and learned Friend the Member for Monklands, East (Mr. Smith) pointed out repeatedly to the hon. Member for Enfield, North (Mr. Eggar) and others, we did not oppose the changes that were proposed and made in oil taxation in the March Budget. We shall wait to see the new oil taxation legislation that we understand will be coming forward in the autumn, and again we shall look at it in the same positive spirit. For reasons that I shall adduce later, we make a clear distinction between the concept of abolishing royalties and creating a tax regime for development in the North sea.

Hon. Members on both sides have rightly sought to set this Bill and the debate on the abolition of royalties in future fields in the context of the development of the North Sea and, as my hon. Friends who represent constituencies with coalfields have said, of the future of our energy needs. It is important to underline what is and has been for many years a common objective. As the Secretary of State said, successive Governments have attempted to discover the proper balance between fiscal arrangements to encourage and stimulate development in the North sea and the nation's justifiable right to control its oil supplies, and the right to taxation to achieve benefits for the nation as a whole from those developments. That is the balance. That is what has been at the heart of many debates in recent years.

We all agree that in many respects the North sea has been a marvellous success story. It has been a technological, production and, up to a point, investment success story. It is not for Conservative Members to chide the Labour party for the failures or difficulties in developing the North sea. I remind them that more than half the investment that has gone into the development of the North sea took place under a Labour Government between 1974 and 1979—not the easiest of times—by private enterprise with contributions from public enterprise through BNOC and BGC. Those private and nationalised bodies operated within a political and fiscal arrangement that was clearly successful and helpful. That is important. Some Conservative Members have spoken as if they have been the great saviours of North sea development. They have spoken as if they created the environment — the tax regime — that has produced the great oil bonanza of recent years. That is not so.

The major part of the £19 billion of investment—£29 billion in 1982 terms—that went into the North sea was within the fiscal regime, the political and economic environment, for which the Labour Government from 1974–79 were responsible. We successfully created the right environment for development. We combined proper and effective control of our oil through the participation arrangements and royalties, and, as has been said, through the growing, profitable and vibrant BNOC.

It is right, as my right hon. and hon. Friends have sought to do, to point out the importance of BNOC's role in the development of the North sea. Despite all the jibes, BNOC gained great respect within industry. It was poised to make powerful contributions in the very areas about which we are now talking—many of the marginal fields that were the subjects of the fifth and sixth rounds—in partnership with multinational companies. Its destruction was a meaningless act of vandalism, wholly unrelated to North sea oil development or needs. It is ironic that one field that will benefit from the retrospective nature of the Bill which goes back to April 1982 is the Clyde field which was developed by BNOC. It has little to do with Britoil's efforts; it is the product of the successful BNOC which has been destroyed.

We accept that it is one of the ironies of life, both political and economic, that those efforts to encourage development in the 1970s bore fruit, at least in taxation terms, in the 1980s. I trust that the Secretary of State and the Minister of State will have the grace to admit that they received a gratuitous tax windfall of some £20 billion, for which they have done little. All that they did was to try to screw more and more out of the oil companies. Just how much of a gratuitous windfall it has been is illustrated by the Budget papers—the financial statement and Budget report — of 1982–83 which underestimate Government revenues by £1.5 billion and projected revenues for 1983–84 by £1.75 billion. That is, by any standards, a windfall. It is the allegation of Labour Members that the Government have squandered and frittered away that gratuitous windfall which they did little to achieve.

It is also rather strange that Conservative Members should suggest that the Bill and the taxation measures are part of some coherent grand plan; that it has all been a normal consequence of previous policy. Let us face it; it has been nothing of the sort. From 1979 until 1983 the Conservative Government sought to wring as much as they could out of the oil companies in a series of often bewildering tax changes and instant imposts. The Bill, in part, contains some kiss-and-make-up measures for the oil industry—the Government's conscience money.

The Government came to the conclusion late in the day that they were strangling the potential development of North sea oil. The oil price explosion of 1979–80 changed the context and the score. It was right and proper that the Government should seek to obtain a full share of any windfall profits that accrued or flowed from oil price increases. Those of us who have debated these issues over the past two or three years will testify that the Government's handling created confusion and uncertainty in the industry and in development. The confusion was caused not so much by the total amount taken from the oil industry as by the wholly capricious character of taxation.

The results that the Minister said would happen if the Bill did not go through and if the taxation changes did not occur were already happening. It was a consequence of some aspects of the Government's policy that had led to developments being postponed, to yards being orderless and to a genuine and growing fear that the hiatus would lead to a major shortage of oil in the late 1980s. That is especially so, as my right hon. and learned Friend pointed out, when we are pumping oil from mature fields at an alarming rate.

We have heard today, as on previous occasions a discussion about depletion policy but the figures are staggering. In 1982 we extracted 103 million tonnes of oil when our actual needs in 1982 were 75 million tonnes. That is not just a margin but a fantastic, excessive production over and above our requirements. The Government's attitude to depletion policy has been nothing less than reckless. We have recklessly used our cheapest oil from our largest and most mature fields at an alarming rate.

The hon. Member for Gosport (Mr. Viggers), in a rather tongue-in-cheek fashion, underlined the consequences of such a policy. He pointed out not only that the capital expenditure had not been used for capital development in other industries — my hon. Friend the Member for Dagenham (Mr. Gould) said so again in a powerful speech — but that we have been depleting unnecessarily and that there was a case for a depletion policy. The hon. Gentleman drew an interesting analogy with the way in which OPEC and the Gulf states had exercised a form of depletion policy. In some ways we should go down on our prayer mats and praise the fact that the Gulf states exercised such a depletion policy because had they released their potential on to the market there would have been no oil development in the North sea last year or the year before. We should realise that Saudi Arabia is producing 3.5 million barrels a day with a total capacity of almost double that already in place without any requirement for investment. Therefore, depletion policy is a genuine issue and should not be brushed aside by the Secretary of State.

We face a challenge in the late 1980s — an investment challenge as much as a technological challenge. We must realise the scale of the challenge. It has taken £29 billion in 1982 money to extract what we have extracted so far. It will take £60 billion in 1982 money to extract the same amount of oil in the next range of marginal oilfields. We should be considering ways and means to stimulate the development of marginal fields. The investment challenge faced by the industry could be met by different aspects of taxation policy but should not be met by abolishing royalties in the way the Government now propose.

I noticed, incidentally, although the Secretary of State did not mention it, that one of the grand consequences of the Government's changes was that we should have one new oilfield every six weeks — that was said by the Government Chief Whip when he was the Minister of State, Treasury. At least when the Secretary of State introduced the debate he did not make such an extravagant claim. Does the Minister of State now subscribe to the incredible, nonsensical proposition that one new oilfield will be developed every six weeks? That was the claim by the present Chief Whip. It was part of the "Keep Hamish Gray in the House" campaign because Hamish "Boom" Gray went around preaching that there would be a tremendous boom on every Scottish doorstep if only we agreed to these measures.

A more cautious view was expressed by the Secretary of State. He made no such extravagant claim. If the taxation and royalty provisions are to have such a dramatic effect, why is the assumption made that capital expenditure will fall in the next two years rather than increase as expected? What is the Minister of State's interpretation of the Treasury statement on the tax changes? In paragraphs 14 and 15 of the statement accompanying the proposals the Treasury states: Since the 1982 Budget there have been some reductions in the assumptions about future capital expenditure for 1983–84 and 1984–85 in the North Sea. That is not the language of boom. That is not the expectation of planning for a great sudden take off of development — one oilfield every six weeks. The Treasury's calculation behind its tax take proposals for the next two years is some reductions in the assumptions about future capital expenditure". The assumptions were not all that high at the time. What reductions in assumptions about future capital expenditure were made by the Treasury for 1983–84 and 1984–85?

Mr. Hannam

Is the hon. Gentleman aware that reports after the tax changes from leaders of the major companies stated that the future lay in the development of smaller fields? It is, therefore, apparent that, although there may be a reduction in the total coverage, the target of a new oilfield every six, eight or ten weeks is still possible.

Mr. Rowlands

If that is so, let the Government give the figures. Let them explain exactly what paragraph 15 of their statement means. That paragraph is in the Treasury document that accompanies proposals for the great changes and that makes the assumption about £800 million tax relief over four years. The former Secretary of State for Energy, now the Chancellor, should know what it means. I hope that he will have time to tell the Minister of State. Then we can calculate whether the hon. Member for Exeter (Mr. Hannam) is accurate in what he said in his intervention. Does the Minister of State still believe in the claim, made a fortnight before the general election, that one oilfield will be developed every six weeks?

We have made it clear that we support and advocate appropriate assistance to oil companies to develop the marginal fields. We believe that it should be tied to future development. My hon. Friend the Member for Dunfermline, West (Mr. Douglas) made two important points. First, he said that this extraordinary provision bears no relationship to onshore facilities, the development of the rig industries or other onshore industries accompanying the development of oilfields. Secondly, he said that UKOOA did not ask for the abolition of royalties. It welcomed it with open arms, but did not ask for it. It appreciated the case for maintaining the principle of royalties.

We suggested that there should be royalty payments, related to the size of production in certain fields. We shall pursue that aspect in Committee because it was a reasonable point for us to have made. Not only was it a point the industry accepted, but the industry did not expect the complete abolition of royalty as a principle on all future fields.

The concept of royalties is as old as the hills, as old as the sedimentary basin, as contained in legislation handed down and refined. The principle of royalty oil underlines the principle of ownership. With royalty goes the concept of ownership and, as the nation owns the oil, it has a right to royalties on it. Royalties are the simplest and most direct affirmation of ownership. Because the nation owns the oil, its right to those royalties should be upheld.

We appreciate the flexibility that is necessary in dealing with oilfields and the situations that can arise. That was the point made by my right hon. and learned Friend the Member for Monklands, East (Mr. Smith) when he pointed out that in the 1975 Act provison was made to waive royalties. It was also the flexibility sought by UKOOA in its recommendations, namely, that there could be a basis for royalties on the size of a field and its production.

Above all, royalty oil is an important part of our right to control oil supplies, yet the right hon. Gentleman dismissed that in a curious aside. I remind him of what happened to his predecessor when faced with the sort of crisis that we could face in the future. Think back to the summer of 1979, when the then Secretary of State found petrol filling stations throughout the country running short of supplies. Hon. Members in all parts of the House were crying out for action to get oil supplies; to their constituencies, particularly the rural areas. In the midst of that crisis, the then Secretary of State, with his back to the wall and being attacked on all sides, said: I am also considering taking royalties in kind which may help United Kingdom refineries, suppliers and their customers' demands. In the summer of 1979, the then Secretary of State appreciated the value of being able to exercise some control over supplies through royalty oil. He repeated that statement a month later, when he said: I can take powers under the Energy Act 1976 to control oil movements in conditions of limited shortage, but BNOC's direct access to participation oil, together with royalty oil, strengthens our position. In other words, at a time of real crisis in the supply of oil — at a time when hon. Members representing all constituencies were pleading with the Government to do something and when they were even faced with the prospect of rationing — the then Secretary of State rightly turned to, and understood the importance of, royalty oil as a means of influencing supplies. He said twice that he could do it, and then he did it. I urge the present Secretary of State to remember the way in which, in 1979, his predecessor immediately sought to switch from royalty in cash to royalty in kind from the oil companies. By the end of 1979, 1½ million tonnes of royalty oil had been collected by the power exercised by the then Secretary of State over royalties in kind.

Mr. Skeet

The British National Oil Corporation will exercise the right on behalf of the Government. It will receive about 270,000 barrels a day. The companies will be absolved only after the crucial date.

Mr. Rowlands

Is it being argued that there will not be another crisis of the sort that faced us in the summer of 1979? The importance of royalty oil was not dismissed in 1979. The then Secretary of State changed the arrangement so that he could collect the royalty oil.

Mr. Peter Walker

In securing the future supply of oil for Britain, it is much more important to get on with the development of new fields. That is more important than retaining the additional 6.5 per cent. for which the hon. Gentleman is arguing.

Mr. Rowlands

It is, of course, always important to get on with development. The Opposition acknowledge the importance of that, but we do not accept that the right approach is the abolition of royalties. The right to take royalty oil has been important when crises have arisen. That was important in 1979 and it could be important in future. If we allow the Bill to be enacted as it stands, a future Secretary of State will be denied the power that was exercised in 1979. It is for that reason and others that we shall oppose the Bill now and in Committee.

9.31 pm
The Minister of State, Department of Energy (Mr. Alick Buchanan-Smith)

First, I thank the hon. Member for Merthyr Tydfil and Rhymney (Mr. Rowlands) for his kind remarks in welcoming me on this my first occasion on the Government Front Bench with my new energy responsibilities. As the hon. Member for Aberdeen, North (Mr. Hughes) knows, I represent a constituency in which more people are involved in the North sea industry than in possibly any other except, perhaps, his own. I have been involved in the North sea oil industry as a constituency Member of Parliament for a considerable time, but I have had cause to reflect on whether a little knowledge at a local level is a good thing. That knowledge enables one to know what is going on, but when one assumes ministerial responsibilities it becomes apparent how little one knows about an industry that is so complex and so important to the United Kingdom's economy.

I, too, pay my personal tribute to Hamish Gray, who served the interests of the United Kingdom as my predecessor. I think that we all appreciate the real contribution that he made.

I wish to pay my tribute to those who have made their maiden speeches during the debate. I pay a particular tribute to the hon. Member for Orkney and Shetland (Mr. Wallace). We welcome him to the House and I look forward to hearing more of his contributions in these debates. It was obvious that he spoke from first-hand experience of his constituency, and we know that that experience will grow. The hon. Gentleman's predecessor, Jo Grimond, was one of the most respected Members of the House. He was recognised as a good constituency Member and a statesman. That was recognised throughout the United Kingdom, but he enjoyed particular affection in Scotland.

The hon. Member for Merthyr Tydfil and Rhymney was kind enough to make some courteous remarks about David Myles. David was in a position in which tribute could not be paid to him formally in the House at an earlier stage. Those who watched David over the past few years and recognised the contribution that he made to our debates and our work will deeply regret his failure to return to the House. Perhaps I miss him more than most, having been associated with him for many years. At one time he was my constituency association chairman.

The hon. Members for Barnsley, East (Mr. Patchett) and for Rother Valley (Mr. Barron) also made their maiden speeches. They brought to the debate qualities which the House enjoys and welcomes — not only considerable experience of the industry and the communities that they represent, but strength of feeling and commitment to the causes on which they were elected to the House. I congratulate them on what they said. Although I am certain that I shall not agree with everything that they say in future, I shall listen with interest to their views, which they put forward with sincerity.

I acknowledge what the hon. Member for Aberdeen, North said earlier, and I share his thoughts about the helicopter crash at Dyce today. I extend to those who were injured and their relatives our sincere regrets and hope that they will recover fully as soon as possible. I have been associated with the North sea oil industry right from the beginning, watched its development and got to know many of the individuals in it. A great endeavour such as North sea oil is not only expensive in capital and all the other things that have been mentioned in the debate, and difficult in terms of the financial risks and the speculative nature of the industry, but is expensive in terms of human lives and safety. Lives have been lost. The accident at Dyce airport is a timely reminder when, as in the debate, the talk is more of money than of people. It is still people who are involved in the industry, and people who, first and foremost, have made the industry not only a resounding success in the United Kingdom but an example to many other areas in the world.

Because of the nature of the North sea, and increasingly because of the more difficult and deeper waters to which we are going, we are developing new technologies and techniques. We are looked to by the rest of the world, not only for knowledge and experience, but for the individuals who have trained and developed the new techniques, who now have something to offer. I shall return to that point and mention other areas and developments.

We have had a wide-ranging debate. I make no complaint that we have talked about the coal industry. It is important that we see oil within the wider energy perspective. The hon. Members for Wentworth (Mr. Hardy), for Pontefract and Castleford (Mr. Lofthouse), for Rother Valley and for Leigh (Mr. Cunliffe) talked about the coal industry and the developments that they wished to see. I enjoyed hearing their remarks. I have no doubt that in future we shall have the opportunity to return in more detail to what has been said.

The debate has ranged widely over different parts of the United Kingdom. I am glad that my hon. Friend the Member for Torridge and Devon, West (Sir P. Mills) could not resist the temptation of following me from more pastoral scenes to energy. I listened with interest to what he said and look forward to his future contributions. I am sure that he will be just as trenchant on energy, with his new-found interests, as in other areas, and will represent equally well his constituents in the south-west of England. My hon. Friend asked about developments in the Channel and the south-western approaches. Five exploration wells were undertaken in the south-west last year, but developments there are still on a very limited scale, although it is certainly an area in which interest may arise in the future.

My hon. Friend the Member far Dumfries (Sir H. Monro) clearly hoped that there would be developments in the Solway area. There has been considerable speculation about an area of the Clyde in recent weeks, but press reports last week related purely to seismic surveys for which appropriate authority had been given. No authority has been given for exploration or other drilling and it is only at that stage that any knowledge about oil resources there can be obtained.

Ranging still more widely, I listened with interest to my hon. Friend the Member for Folkestone and Hythe (Mr. Howard). I am glad that he welcomed the legislation and that we pleased him by producing a short measure, but I was rather disappointed at the criticisms that he made. I warn him in the friendliest possible way that if he continues in that vein he will ensure that he qualifies for Standing Committee duties. As the Minister who will have to steer this Bill through Committee, I shall not be entirely sorry if he is not a member of that Standing Committee. However, being a short Bill, it might be a good one on which to begin with co-operation from the Opposition.

The right hon. and learned Member for Monklands, East (Mr. Smith)—[Interruption.] I shall come to my other hon. Friends in a moment. They will have to wait a little longer. I have waited all day for the opportunity to speak, whereas others waited far less long for their chance to contribute. The right hon. and learned Gentleman did a disservice to the entire oil industry today in the fierce attack that he launched on the Bill. There was a great deal of rhetoric, but very little substance in his criticism. He may have sought to justify his position in the Opposition leadership contest by the strength of his criticism — [HON. MEMBERS: "He is not a candidate."] He is not a candidate, but we all know of his role in the matter. If he wishes to impress his hon. Friends he should arrange for more of them to be present to hear the strength of his case. His speech today was rather wasted on the empty Benches behind him. He should make sure of his audience before developing the kind of speech that he made today.

Opposition Members, especially those on the Front Bench, must make up their minds exactly what they want. They encourage us to keep up the pace of development for a whole series of reasons, but out of the other side of their mouths they say that we must thump the oil companies and take as much from them as we can. They say that we must strike a balance, but they entirely fail to say what that balance should be.

The hon. Member for Dunfermline, West (Mr. Douglas) is especially guilty of this. On 28 February he was emphatic that incentives were needed, and the right hon. and learned Member for Monklands, East wanted to know why the Government had done almost nothing in this respect. Yet to hear him today one would hardly have thought that only four or five months ago the Opposition were urging us to take action along the general lines that we are now taking. That is why from the Opposition Benches — and particularly from the Opposition Front Bench—we have heard so many inconsistencies between one hon. Member and another. The lack of argument has been covered by requests for information and statistics about matters that were hardly relevant to the debate. All the time the Opposition have hidden behind a total lack of argument.

The hon. Member for Merthyr Tydfil and Rhymney was as guilty as any of his hon. Friends when he went into matters that we have debated previously in this House concerning the disposal of the assets of BNOC He ranged over the whole area of royalties and ownership and into very much more academic and abstract arguments. He showed the same inability as his hon. Friends to grasp the real problem that we have before us in the House concerning the proper development of North sea oil.

Earlier in the debate the right hon. and learned Member for Monklands, East spoke of the use of revenues and of the Government making an excuse about unemployment benefit. I treat unemployment, as he does, as a very serious matter, but he was dealing with only 3 per cent. of the total of Government expenditure, totally ignoring the other 97 per cent.

It is interesting to note what has happened in Norway, Denmark and the Netherlands. None the less, Opposition Members completely fail to grasp the fact that we have to consider the circumstances in which we organise our industry in the United Kingdom. I am interested in the United Kingdom context. Some people are always glad to compare the United Kingdom with other countries, such as Norway, but that is not comparing like with like, because the countries have different economies and are different in size and in population.

Whereas the Government talk of producing in excess of our needs, the Opposition talk in terms of mere self-sufficiency, completely ignoring the fact that we are a trading nation and that our background is different from that of other countries in so many ways. Once again we saw the barrenness of comparisons between one country and another. I am interested in what happens in the United Kingdom and on our continental shelf. I am also interested in what happens onshore to United Kingdom companies which supply our North sea oil industry.

The right hon. and learned Member for Monklands, East asked, as did the hon. Member for Merthyr Tydfil and Rhymney, for information about the effects of what we are proposing. The right hon. and learned Gentleman said that he had made certain calculations in relation to the proposals in the Budget. That again demonstrated the false comparisons that the Labour party has made, because the Chancellor of the Exchequer gave a figure over a four-year period, which related to the effect of the budgetary changes upon present fields or fields that were under development.

As my hon. Friend the Member for Wiltshire, North (Mr. Needham) said, we are dealing not with that position but with the effect of royalty relief on new fields. The number and value of the new fields cannot be predicted. When the Labour party was in goverment it loved making predictions of one sort or another based on the most dubious of information. I shall not be tempted into that area.

We have produced this legislation because we are concerned about the rate of development. The precise effect is impossible to quantify.

Mr. Rowlands


Mr. Buchanan-Smith

When the hon. Gentleman asked his question he was talking not about the number of fields but about the effect on the revenue to the Exchequer. Again, that shows the muddle that the Opposition are in. They do not even know the difference between the number of developments and wells that are drilled and the revenue that comes comes from those wells. They asked about the actual revenue. The moment that we try to show what a foolish question was asked they try to ask a different question. We all know that that is an old technique, and I am surprised that the right hon. and learned Member for Monklands, East should use it tonight.

The effect of the Bill is simply to reduce the marginal rate of tax from 89.5 to 88 per cent. My hon. Friend the Member for Gosport (Mr. Viggers) said how much better it was to have 88 per cent. of something than 89.5 per cent. of nothing, which is the alternative. That is what makes the effect of this type of calculation so difficult to work out.

The hon. Member for Dunfermline, West asked about discussions which the Government had with the United Kingdom Offshore Operators Association. The Opposition Front Bench spokesman echoed what he said about giving the oil companies even more than they had asked for. I ask Opposition Members to study the position, because the UKOOA asked for an automatic formula for royalty repayments, not just a discretionary repayment, which is quite different.

The association was asking for an automatic provision, thus taking away the discretionary element. Opposition Members must realise that if one is to have an automatic provision it is important that guidelines are laid down about the circumstances in which that will apply. One of the main objections to using that method of refund or repayment is the uncertainty in the way it is applied. If there is any uncertainty and someone is paid on a discretionary basis there will be doubts when a development is planned about the various tax and royalty liabilities. If we do nothing to alleviate that uncertainty we will not achieve the objective of the Bill, which is to remove that uncertainty.

Mr. Douglas


Mr. Buchanan-Smith

Let me finish this point. If we have an automatic provision, we must have guidelines. That is the real gap in the Opposition's argument. There was no attempt tonight to specify what those guidelines should be. Now it all comes out. The Labour party is not prepared to put its arguments on the Floor of the House. Its members want to wait until the legislation goes before a Committee. That demonstrates the thinness of their argument. They are afraid to put it before the House tonight. They cannot say what the guidelines should be. The drawing up of such guidelines would be extremely difficult. I look forward to our arguments in Committee. Had it been practical and sensible to go down that road, we might have done so, but we felt that it was too difficult.

Mr. Douglas

It is only when we probe the matter that we gain information about the background. The Minister should not try to give the impression that there are no uncertainties in the Bill. There is uncertainty in the definition of new fields and in the fact that royalties are related to licence terms and conditions, which are not waived in the Bill.

Mr. Buchanan-Smith

The hon. Gentleman would be a miracle worker if he could remove all uncertainties from life. Of course there are uncertainties and there always will be. However, the Government are seeking to reduce the uncertainties and stimulate development.

The Opposition completely ignore the fact that the Petroleum and Submarine Pipe-lines Act 1975 provided for refunds free from tax. Where full refunds were given, it reduced the marginal rate of tax to 77 per cent., compared with the 88 per cent. in the Bill. If the Opposition intend to reduce the marginal rate of tax to 77 per cent. they should come clean and say so. They will be going beyond the Bill's proposals.

The real purpose of the legislation is to ensure that we maintain the momentum of development of North sea oil. As my hon. Friends the Members for Enfield, North (Mr. Eggar) and for Tayside, North (Mr. Walker) and others said time and time again, we want that momentum to be maintained, not only for the revenue form North sea oil, but for the sake of the oil itself.

My hon. Friend the Member for Tayside, North referred to Dundee and the oil development taking place there. We must maintain momentum where developments are taking place onshore and where jobs are being created. It is worth having a slightly smaller Government take in total revenue. If a field is successful, it is only a tiny reduction in Government take. If a field is unsuccessful, we ensure that the rate of development continues.

We need flexibility in North sea oil development, but the Opposition are trying to deny that to the industry. They rely on doctrinaire arguments, dogma and royalties to demonstrate the ownership of the country's assets. The Government do not take that approach. We take a flexible approach that gains the best benefits for Britain, not only in revenue, but in jobs.

Question put, That the Bill be now read a Second time:—

The House divided: Ayes 260, Noes 103.

Division No. 7] [10 pm
Alexander, Richard Ashby, David
Alton, David Ashdown, Paddy
Ancram, Michael Aspinwall, Jack
Atkins, Rt Hon H. (S'thorne) Heddle, John
Atkins Robert (South Ribble) Henderson, Barry
Beaumont-Dark, Anthony Hickmet, Richard
Beith, A. J. Hicks, Robert
Bellingham, Henry Hogg, Hon Douglas (Gr'th'm)
Bendall, Vivian Holland, Sir Philip (Gedling)
Blackburn, John Holt, Richard
Boscawen, Hon Robert Hooson, Tom
Bottomley, Peter Hordern, Peter
Bowden, Gerald (Dulwich) Howard, Michael
Brandon-Bravo, Martin Howarth, Gerald (Cannock)
Brooke, Hon Peter Howell, Ralph (Norfolk N)
Brown, M. (Brigg & Cl'thpes) Hubbard-Miles, Peter
Buchanan-Smith, Rt Hon A. Hunt, David (Wirral)
Budgen, Nick Hunt, John (Ravensbourne)
Bulmer, Esmond Hunter, Andrew
Burt, Alistair Jenkin, Rt Hon Patrick
Butterfill, John Jessel, Toby
Carlile, Alexander (Montg'y) Jones, Gwilym (Cardiff N)
Chapman, Sydney Jones, Robert (Herts W)
Chope, Christopher Kershaw, Sir Anthony
Clark, Michael (Rochford) Key, Robert
Clegg, Sir Walter King, Roger (B'ham N'field)
Cockeram, Eric Kirkwood, Archibald
Conway, Derek Knight, Gregory (Derby N)
Cope, John Knight, Mrs. Jill (Edgbaston)
Cranborne, Viscount Knowles Michael
Crouch, David Knox, David
Currie, Mrs. Edwina Lang, Ian
Dorrell, Stephen Latham, Michael
Douglas-Hamilton, Lord J. Lawler, Geoffrey
Dover, Denshore Lawson, Rt Hon Nigel
du Cann, Rt Hon Edward Lee, John (Pendle)
Dunn, Robert Leigh, Edward (Gainsbor'gh)
Dykes, Hugh Lennox-Boyd, Hon Mark
Eggar, Tim Lester, Jim
Emery, Sir Peter Lewis, Sir Kenneth (Stamf'd)
Evennett, David Lilley, Peter
Eyre, Reginald Lord, Michael
Fairbairn, Nicholas Luce, Richard
Fallon, Michael Lyell, Nicholas
Farr, John McCurley, Mrs Anna
Favell, Anthony McCusker, Harold
Fenner, Mrs. Peggy Macfarlane, Neil
Finsberg, Geoffrey MacGregor, John
Fookes, Miss Janet MacKay, Andrew (Berkshire)
Forman, Nigel MacKay, John (Argyll & Bute)
Forsyth, Michael (Stirling) McNair-Wilson, M. (N'bury)
Fowler, Rt Hon Norman McQuarrie, Albert
Fox, Marcus Major, John
Franks, Cecil Mallins, Humphrey
Fraser, Peter (Angus East) Malone, Gerald
Freeman, Roger Maples, John
Fry, Peter Marshall, Michael (Arundel)
Gale, Roger Mates, Michael
Galley, Roy Mather, Carol
Gardiner, George (Reigate) Maude, Francis
Gardner, Sir Edward (Fylde) Mawhinney, Dr Brian
Glyn, Dr. Alan Maxwell-Hyslop, Robin
Goodhart, Sir Philip Mayhew, Sir Patrick
Goodlad, Alastair Meadowcroft, Michael
Gorst, John Mellor, David
Gower, Sir Raymond Merchant, Piers
Gregory, Conal Meyer, Sir Anthony
Griffiths, Peter (Portsm'th N) Miller, Ha[...] (B'grove)
Ground, Patrick Mills, Ian (Meridan)
Gummer, John Selwyn Mitchell, David (Hants, NW)
Hamilton, Hon A. (Epsom) Moate, Roger
Hamilton, Neil (Tatton) Monro, Sir Hector
Hampson, Dr Keith Montgomery, Fergus
Hanley, Jeremy Moore, John
Hannam,John Morris, M. (N'hampton, S.)
Hargreaves, Kenneth Morrison, Hon C. (Devizes)
Harvey, Robert Morrison, Hon P. (Chester)
Haselhurst, Alan Moynihan, Hon C.
Hawkins, C. (High Peak) Murphy, Christopher
Hawkins, Sir Paul (N'folk,SW) Neale, Gerrard
Hawksley, Warren Needham, Richard
Hayward, Robert Nelson, Anthony
Heathcoat-Amory, David Neubert, Michael
Newton, Tony Stewart, Andrew (Sherwood)
Nicholls, Patrick Stewart, Rt Hon D. (W Isles)
Norris, Steven Stradling Thomas, J.
Oppenheim, Philip Sumberg, David
Osborn, Sir John Tapsell, Peter
Ottaway, Richard Taylor, Teddy (S'end E)
Page, John (Harrow, W) Tebbit, Rt Hon Norman
Page, Richard (Herts, SW) Temple-Morris, Peter
Penhaligon, David Terlezki, Stefan
Percival, Rt Hon Sir Ian Thomas, Rt Hon Peter
Pollock, Alexander Thompson, Donald (Calder V)
Powell, William (Corby) Thompson, PatricK (N'ich, N)
Prentice, Rt Hon Reg Thorne, Neil (Ilford, S)
Price, Sir David Thornton, Malcolm
Proctor, K. Harvey Thurnham, Peter
Raffan, Keith Townend, John (Bridlington)
Rathbone, Tim Tracey, Richard
Rees, Rt Hon Peter (Dover) Trippier, David
Renton, Tim Trotter, Neville
Rhodes James, Robert Twinn, Dr Ian
Ridley, Rt Hon Nicholas van Straubenzee, Sir W.
Ridsdale, Sir Julian Viggers, Peter
Rifkind, Malcolm Waddington, David
Robinson, Mark (N'port W) Wakeham, Rt Hon John
Roe, Mrs Marion Walden, George
Ross, Stephen (Isle of Wight) Walker, William (T'side N)
Rossi, Hugh Walker, Rt Hon P. (W'cester)
Rost, Peter Wall, Sir Patrick
Rowe, Andrew Wallace, James
Ryder, Richard Waller, Gary
Sackville, Hon Thomas Ward, John
Sayeed, Jonathan Wardle, C (Boxhill)
Shaw, Giles (Pudsey) Watts, John
Shaw, Sir Michael (Scarb') Wells, Bowen (Hertford)
Shelton, William (Streatham) Wheeler, John
Shepherd, Colin (Hereford) Whitney, Raymond
Silvester, Fred Wilkinson, John
Sims, Roger Wilson, Gordon
Skeet, T. H. H. Winterton, Mrs Ann
Smith, Tim (Beaconsfield) Winterton, Nicholas
Soames, Hon Nicholas Wolfson, Mark
Speed, Keith Wood, Timothy
Speller, Tony Woodcock, Michael
Spencer, D. Yeo, Tim
Spicer, Michael (Worcs, S) Young, Sir George (Acton)
Stanbrook, Ivor
Stern, Michael Tellers for the Ayes:
Stevens, Lewis (Nuneaton) Mr. Tristan Garel-Jones and
Stevens, Martin (Fulham) Mr. Tim Sainsbury.
Archer, Rt Hon Peter Davis, Terry (B'ham. H'ge H'I)
Ashley, Rt Hon Jack Dewar, Donald
Atkinson, N. (Tottenham) Dixon, Donald
Bagier, Gordon A.T. Dormand, Jack
Banks, Tony (Newham NW) Douglas, Dick
Barnett, Guy Dubs, Alfred
Barron, Kevin Eastham, Ken
Beckett, Mrs. Margaret Evans, loan (Cynon Valley)
Bermingham, Gerald Evans, John (St. Helens N)
Bray, Dr Jeremy Ewing, Harry
Brown, Hugh D. (Provan) Fields, T. (L'pool Broad Gn)
Brown, Ron (E'burgh, Leith) Fisher, Mark
Caborn, Richard Foster, Derek
Callaghan, Jim (Heyw'd & M) Foulkes, George
Campbell-Savours, Dale Freeson, Rt Hon Reginald
Canavan, Dennis Gould, Bryan
Clark, Dr David (S Shields) Gourlay, Harry
Clay, Robert Hamilton, W. W. (Fife Central)
Cocks, Rt Hon M. (Bristol S.) Hardy, Peter
Cohen, Harry Harrison, Rt Hon Walter
Conlan, Bernard Hattersley, Rt Hon Roy
Cook, Frank (Stockton North) Haynes, Frank
Cook, Robin F. (Livingston) Heffer, Eric S.
Cowans, Harry Hogg, N. (C'nauld & Kilsyth)
Craigen, J. M. Holland, Stuart (Vauxhall)
Crowther, Stan Hoyle, Douglas
Dalyell, Tam Hughes, Robert (Aberdeen N)
Davies, Rt. Hon. Denzil (L'lli) Hughes, Roy (Newport East)
Davies, Ronald (Caerphilly) Hughes, Sean (Knowsley S)
John, Brynmor Pike, Peter
Kaufman, Rt Hon Gerald Prescott, John
Lambie, David Randall, Stuart
Lamond, James Redmond, M.
Leadbitter, Ted Rees, Rt Hon M. (Leeds S)
Lewis, Ron (Carlisle) Robertson, George
Lloyd, Anthony (Stretford) Rowlands, Ted
Lofthouse, Geoffrey Silkin, Rt Hon J.
McCartney, Hugh Skinner, Dennis
McKay, Allen (Penistone) Smith, C.(Isl'ton S & F'bury)
McKelvey, William Smith, Rt Hon J. (M'kl'ds E)
MacKenzie, Rt Hon Gregor Soley, Clive
McNamara, Kevin Spearing, Nigel
McTaggart, Robert Thomas, Dr R. (Carmarthen)
McWilliam, John Thorne, Stan (Preston)
Madden, Max Tinn, James
Marshall, David (Shettleston) Wardell, Gareth (Gower)
Mason, Rt Hon Roy Wareing, Robert
Michie, William Winnick, David
Milian, Rt Hon Bruce Young, David (Bolton SE)
Miller, Dr M. S. (E. Kilbride)
Nellist, David Tellers for the Noes:
O'Brien, William Mr. James Hamilton and
Patchett, Terry Mr. Laurence Cunliffe.
Pavitt, Laurie

Question accordingly agreed to.

Bill read a Second time and committed to a Standing Committee pursuant to Standing Order No. 42 (Committal of Bills).