HC Deb 04 December 1986 vol 106 cc1096-108 4.12 pm
Mr. Bryan Gould (Dagenham)

I beg to move amendment No. 1, in page 1, line 7, leave out from beginning to 'who' in line 10.

The First Deputy Chairman of Ways and Means (Mr. Ernest Armstrong)

With this, it will be convenient to take the following amendments:

  • No. 2, in page 1, leave out lines 14 to 16.
  • No. 4, in page 3, line 1, leave out schedule.

Mr. Gould

As my hon. Friends and I made clear on Second Reading, we support the general purpose of the Bill, although we made it equally clear that there may be some perhaps not minor but technical matters on which we should like some further elucidation. This group of amendments is designed to secure precisely that elucidation. We are happy that whatever help may be available should be targeted as accurately as possible to those who need it. I pass over for the time being the matter of how much help might be available, because I shall ask the Minister about it later.

On the assumption that we are dealing with a finite sum—most people, including the Government, assume that it is likely to amount to £310 million—it is important and desirable that it is directed to those smaller companies that need help rather more obviously and immediately than larger oil companies. I do not mean to suggest that we can take the larger companies for granted, but in the present climate they are better able to look after themselves. Nothing in the Bill—indeed, nothing that is practicable in terms of a tax regime—will make much difference to the immediate level of oil production from the North sea. Nor do I believe—the Minister went some way towards accepting the point on Second Reading—that anything in the Bill will do very much to stimulate the exploration and development that is sorely needed by the Scottish offshore industry.

The point that the Minister made and which we, at least in substance, accept is that there is a case in equity for doing something for smaller companies which, when oil prices were high, found themselves, by virtue of the advance petroleum revenue tax, making a forced interest-free loan to the Government. Now that oil prices have fallen, they find themselves with that loan still outstanding, and still some time to wait before it is to be repaid. Because of the lower oil price, some of them at any rate presumably find that they have cash flow difficulties.

If the basis of this measure is fairness, equity and justice as between the Government and the oil companies, it also follows that some attempt should be made to do justice as between some of those companies that might notionally expect to fall within the group that would be helped by this measure. I do not say for a moment that the Government have been blind to that consideration. They did what they could in what is inevitably a blunt and crude way to identify the companies that deserve this help.

It would be unfortunate if the outcome were that some fields and companies are to be judged by criteria that are inappropriate for the purpose and find themselves excluded, whereas other companies in a similar situation, by virtue of the vagaries of the application of the criteria, find that they benefit. The Government have chosen to use as their criterion for winnowing out those who qualify for help and those who do not whether or not payback has been reached by a certain date—that is, by 1 July of this year. Presumably, the thinking is that, in the case of a field in regard to which payback has been reached, almost by definition it should mean that the companies with interests in that field ought to have overcome, for the time being, their cash flow problems because the field ought to generate sufficient income to enable them to overcome any short-term problems.

That rough and ready measure—that criterion—seems to work, at least in most cases. In other words, virtually all the fields in which there is still a substantial amount of unrelieved APRT will meet the criterion that the Government have singled out. Companies such as Britoil and Enterprise Oil will benefit as a consequence, and that is to be welcomed.

I am sure that the Minister is well aware, as indeed we all are, that there appears to be one exception. That is the point to which the amendment is directed, and we hope that it will enable the Minister to elucidate. The one field that appears to fall outside the criteria contained in the Bill is the Maureen field. In that field, there is still a large amount of unrelieved APRT, but no relief can be offered under the Bill because payback was reached before 1 July 1986. It was reached in various parts of the field, and in respect of varying interests in the field, some time towards the end of 1985 and, in some cases, early 1986.

That means that, whereas some companies such as Britoil and Enterprise benefit from the Bill, other companies with interests in Maureen do not. They are companies such as Phillips and Petrofina. It is estimated that Petrofina may be owed £38 million of APRT and that Phillips may be owed perhaps £45 million. I hasten to say that these are estimates. We do not know the details of the accounts of these companies. Other small, independent British companies have interests in the Maureen field but are excluded from help simply by virtue of the payback criterion. It is not my purpose to act in any sense as a spokesperson for any of these companies, but there seems to be an anomaly. It is curious. Why hit on a criterion which, miraculously, excludes those fields whereas other, perhaps better, fields fall within the net?

The Minister may argue that the date of payback is the best guide to the profitability of the fields which may qualify for relief. I believe, and analysts in the City believe, that on any reasonable measure of profitability Maureen is by no means less profitable than other fields brought within the net. Magnus, for example, qualifies for relief—the limitation on relief is imposed by the £15 million per field requirement—although it is bigger, has greater potential output and a better likely rate of return than Maureen.

Nor can it be argued that, if the Minister were to rearrange the criteria to bring Maureen within the area of relief, somehow we would hand out money to large foreign oil companies. If Maureen were to qualify for relief, it is estimated that it would attract for small British independent companies 25 per cent. of the money available, whereas if the £310 million is left to be distributed as is currently planned that percentage in favour of small British independents is only 23 per cent. Therefore, there is no argument on the basis of the incidence of help to British companies, as opposed to foreign companies, to justify the exclusion of Maureen.

If this small group of amendments were passed, it would do great violence to the Bill in terms of the number of lines that would remain. In tabling them, I am not seriously proposing that the Bill should be amended in precisely that way. For a start, it would be necessary to make further adjustments, if the Minister accepted my case that payback defined in this way is not the most appropriate criterion. We may have to think of another form of limitation, for example, limiting the relief to fields which are in safeguard. Whatever consequential amendments may be required, if the Minister accepts this argument, it would be useful to the House and the industry if he were to explain how it is that payback was selected, why it has been selected to operate in this way and how the exclusion of Maureen can be justified when other fields which look less in need of relief are to be included.

The Financial Secretary of the Treasury (Mr. Norman Lamont)

I am grateful to the hon. Member for Dagenham (Mr. Gould) for the way in which he has proposed the amendments, for reiterating the Opposition's support for the Bill and for emphasising that the purpose of the amendments is to elucidate the thinking behind the Government's claim to be targeting help in the Bill. Obviously, I shall endeavour to answer his questions, but he will understand if I do not get drawn into talk about individual taxpayers. Nevertheless, I hope that my remarks will explain our philosophy and that he can draw his conclusions about how that might or might not apply to individual companies and fields.

The amendments would delete the payback qualifications for early APRT repayments under the Bill. Any company with outstanding APRT would thus qualify for accelerated repayments, whether or not that field, giving rise to that repayment, is not yet generating net cash flows.

I shall come to talk about the philosophy, but I should like to point out that if these three amendments were taken in conjunction with amendment No. 3, which raises the ceiling on the early APRT repayment to a company in respect of a particular field from £15 million to £20 million, the whole package would cost £210 million. In other words, that would increase the total reduction in 1986–87 tax take from £310 million to £520 million. I appreciate that the hon. Gentleman was not necessarily supporting that and that he was merely probing with his amendments.

It is legitimate for me to point out that that would be the effect of the amendments because, obviously, the Government have had to consider that effect in deciding what action to take. Even if one did not take all the amendments together and the Opposition intended the present £15 million ceiling to remain, the removal of the payback qualification alone would cost some £160 million.

Obviously, those are substantial sums and we would argue that spent in that way they would not represent money well spent.

As I made clear on Second Reading, the Bill, at least for the immediate future, is all about development. In particular, we are concerned that certain key developments are not held up because the companies involved are prevented from pressing ahead because of cash flow shortages. To achieve that, some targeting has been necessary; that is why the early APRT repayments have been designed to home in on companies in fields which have not yet begun to generate net cash flows and which may thus be expected to have particular difficulty in continuing to finance activity on the various North sea developments in which they are involved. In other words, by concentrating on fields and companies which have the possibility of a cash constraint, we shall concentrate on companies which are likely to be constrained financially in deciding whether or not to proceed with a development.

As I explained in the previous debate, that has had the result that the lion's share of the benefits has gone to independent, medium-sized and small companies. I cannot go into the case of individual companies, but I have quoted a figure of 75 per cent. going to independent, medium-sized and small companies. Perhaps it would interest the hon. Gentleman if I enlarged on that. In total £230 million of the repayments under the Bill will accrue to the benefit of the independent, medium-sized and small companies. Of that, over half will go to independent companies with no downstream activities, 40 per cent. to independent companies which are integrated, and the remainder, that is, less than 10 per cent., to foreign companies.

In terms of developments, targeting in this way should result in a significant proportion of the total repayments going to companies at present involved in key developments. They are developments which we see as particularly important to the prospects of the North sea, especially to the offshore supplies industry. Those projects, as well as being important purely in terms of development, are of particular importance because of their likely timing. With prospective start dates all coming shortly, they have the potential to generate the sorts of orders which in this particularly difficult period for the offshore supplies industry could be of assistance to it. Under the measure, some 70 per cent. of the total benefits would accrue to companies in such key developments.

If we removed the payback qualification, it would undermine, indeed one could say destroy, that targeting. I accept that the hon. Member for Dagenham has stated that his opposition to this proposal is intended to assist small companies. However, there is a choice of mechanisms by which we can assist them and we must consider the alternatives.

Under the alternative that the Opposition are putting forward, admittedly only for discussion, it is not just the smaller companies that would benefit. No less than £40 million of the additional £160 million would accrue to the majors if we followed the suggestion of the hon. Member for Dagenham. Precisely the same proportion of the extra cash provided by these amendments would go to the majors as would repayments under the terms of the Bill as it stands. I do not say that the Opposition amendments would make matters worse, but in that respect it would not do any better. Even those beneficiaries that are not majors are in many cases large companies, often foreign owned, with diversified interests.

4.30 pm

The amendments would involve spending a large amount of money to achieve a relatively small addition to the total sum of early APRT payments going to the genuinely small company. If the Opposition intend to aid small companies, it is difficult to understand why they propose altering the ceiling from £15 million to £20 million.

We are conscious of the important contribution made over many years by the smaller British independents. As I said earlier, the purpose of the measure is not to foster a specific category of company. Rather, the purpose is to give help where it is most needed and where we believe that help will encourage companies to go ahead with developments that might otherwise be restrained by cash shortages. By targeting on those companies involved in fields which have not yet reached the position of payback, we believe that we are targeting those companies that are likely to have to make decisions about developments in the near future.

Mr. Ted Rowlands (Merthyr Tydfil and Rhymney)

Is it beyond the wit of the Treasury to devise a revision of the proposed scheme to assist other British independent companies that are truly not as well benefited by the measure? My hon. Friend the Member for Dagenham (Mr. Gould) mentioned the contrast between the Magnus and Maureen fields, which are operated by independent British companies. Although the Minister has criticised our proposal, can he produce a revised suggestion to assist the cases that we have put to him since Second Reading?

Mr. Lamont

It is a fair criterion to aim relief at those companies involved in developments which have not reached payback. As the hon. Member for Merthyr Tydfil and Rhymney (Mr. Rowlands) acknowledged, it is not an argument about profitability; it is an argument about cash flow. Where cash flow is a constraint, it is most likely to endanger development. Our proposals are routed to deal with that problem.

It would make no sense to introduce a measure that would help all companies regardless of whether they had gone beyond payback. The hon. Member for Dagenham referred to fields that have gone beyond the payback position—companies that are profitable but perhaps only moderately so, or profitable in a low sense. We have targeted the proposals on companies that have specifically not reached payback because we believe that that is the correct way to proceed to help the key developments that may or may not go ahead.

I would like to enlarge on the distribution of the benefits of the measures as proposed in the Bill. Only 24 per cent. of the repayments will go to the majors. The hon. Member for Dagenham would have to agree that, seen in the context of the majors' share of outstanding APRT—that is, 50 per cent. of the total—the fact that they are receiving 24 per cent. of the repayments does not seem unreasonable. The smaller independent companies—that is, excluding the majors and integrated companies—will receive 40 per cent. of the benefit as compared with their share of the total APRT outstanding of 22 per cent. That illustrates the distribution of the benefits in the Bill.

The Opposition's suggestion would result in benefits ceasing to be channelled primarily towards companies in key developments where cash flow is likely to be a factor that will put at risk further development activity. By our reckoning, little of the additional £160 million repayment provided by this group of amendments would go to companies and developments in that position. The same is true of the extra benefits flowing from raising the ceiling from £15 million to £20 million. Instead of the near 70 per cent. being directed towards these developments that might or might not go ahead, under our proposals less than half would accrue to companies in such developments were the payback qualification to be removed.

I must respectfully tell the hon. Member for Dagenham that his proposal is in essence a scatter-gun approach. We cannot simply reach out for an abstract perfect solution. We must choose between the different solutions that have been proposed. The amount of resources consumed under the hon. Gentleman's proposal would be out of all proportion to the results. I am sure that it is not his intention to give such a part of the cost of the amendment to the major oil companies that are not so key to the developments in the North sea that we are anxious should proceed in the near future.

I do not believe that the hon. Member for Dagenham has proposed an alternative basis for a more targeted approach. I commend to him the conclusions that we have reached as being most targeted on those developments that will or may be constrained by cash flow. Those are the developments that are most likely to benefit the offshore supplies industry.

That is very much our concern. We are not simply concerned about the oil companies; we are concerned about the companies supplying the offshore developments. The hon. Member for Dagenham will be aware of that from his constituency experience. As I said on Second Reading, that has been a major part of our motive in bringing the measure forward. I recommend the Bill as it stands to the House.

Mr. Dennis Skinner (Bolsover)

Here we are on a Thursday afternoon discussing this new Bill about Government intervention. This is a far cry from 1979, when we were told that the Government believed in the entrepreneurial society. One would have thought that the oil companies in particular would not have to be bailed out in 1986 with £310 million of taxpayers' money, but that will be the financial effect of the Bill.

Here we are discussing what can loosely be termed a probing amendment moved by my hon. Friend the Member for Dagenham (Mr. Gould). We are discussing the question of £310 million being taken out of the taxpayers' pocket. That would have been provided by the oil companies in a different form, but they are being relieved of payment in 1986–87, with resulting losses to the taxpayer of some £120 million in succeeding years.

It crossed my mind that it is a little strange that the Minister can intervene so easily on such a scale. I do not know whether the Prime Minister is aware of what is happening. Is she altogether happy that £310 million is being taken from the money that would otherwise be in the Chancellor of the Exchequer's chest? That is what the Bill means.

My hon. Friend the Member for Dagenham has proposed an alternative. I will not go into the pros and cons of that argument. All I would say on behalf of my hon. Friend, without regard to the amendments, is that he is doing no different from what Ridley has done in wanting to change the rate support grant for the various authorities. My hon. Friend is putting forward a different argument—[Interruption.] What is wrong with my hon. Friend the Member for Dagenham? I thought that I heard someone shout, "Order."

The First Deputy Chairman (Mr. Ernest Armstrong)

Order. If the hon. Gentleman wishes to refer to the Secretary of State for the Environment, he should refer to him by that title.

Mr. Skinner

If—[Interruption.] I do not need your help. You have plenty on in Northern Ireland with the Hillsborough agreement. If you can sort that out—

The First Deputy Chairman

Order. The hon. Gentleman must address the Chair.

Mr. Skinner

I was telling my hon. Friend the Member for Dagenham that I do not need his help. He has plenty of balls in the air, none of which he can catch, in respect of Northern Ireland because he decided to back the Hillsborough agreement and now he cannot handle it. Frankly, I do not need anyone's help on this. When I talk about the Ridley plan, I mean the Ridley plan and that is what I shall call it. The Ridley plan means that Derbyshire county council, or more correctly Derbyshire ratepayers, lost £23 million at a stroke of the pen by the Secretary of State for the Environment yesterday. When my hon. Friend the Member for Dagenham talks about having a different set of figures and doing the same thing in a different way, he is putting forward the same type of proposition as the Secretary of State for the Environment.

I rise principally because this Bill follows the Coal Industry Bill. The Department of Energy, the Prime Minister and every other Tory Minister say that pits with extremely narrow seams of coal must be closed because they are uneconomic and they are losing money. Yet when it comes to narrow seams of oil in the private sector, this Government who are supposed to believe in market forces do not tell the oil companies to close down uneconomic fields. Instead, they offer the oil companies £310 million in tax relief so that they can put more money into the Tory party coffers ready for the general election.

If the Government can intervene in the oil industry to that extent, they have a duty to do the same for other industries such as the coal industry. I am not knocking the idea that narrow seams of oil should be exploited, but the Government must be consistent and apply the same principle to the coalfields so that we can exploit the 300 years' worth of coal under the ground. When we run into narrow seams and geologically difficult strata, the Government should do the same for the coal industry as they are doing for the oil industry.

That is the essence of the matter, and that is why I rose to speak. The Government should be consistent. They should not have one attitude to the private sector and a completely different attitude to the coal industry and the public sector generally.

Mr. Gould

I was interested in the Minister's reply to my opening speech in support of the amendment, but puzzled about two points.

The Minister said that the cost of the amendment would be £160 million. Perhaps he could explain in broad terms how he arrives at that figure. My briefing may be inadequate, but the City analysts certainly seem to believe that Maureen is the only major field that has reached payback but still has substantial unrelieved APRT, estimated at £132 million. Even adding some of the smaller fields, it is hard to see how the Minister can arrive at his figure when one takes into account the £15 million per field limitation.

Secondly, I fully understand why the Minister will not talk about the tax affairs of individual companies, but I am still not clear why the criterion that he identifies has to apply in such a way as to produce this result, especially in relation to the Maureen field. If the Minister is unhappy about getting rid of payback, why has he fixed the date in such a way as to exclude Maureen? If we compare the treatment of Maureen and Magnus, two roughly comparable fields, one qualifying for relief and the other not, the Government save money in respect of Magnus by virtue not of the payback criterion but of the £15 million per field limitation. If that is what the Minister wants to do, that is acceptable and will work perfectly well, but why can he not do the same for Maureen? If Maureen were allowed to qualify by overcoming the payback problem, the same £15 million per field limit could be applied, thus ensuring that a valuable sum of money went to some of the smaller independent United Kingdom companies which very much need that help. I am still not clear why the Minister's criterion means that Maureen should be treated in such a very different way.

4.45 pm
Mr. Rowlands

I do not think that the Minister described the development process in practical terms. As he knows, although there may be a major company at the top of a licence group, often a large number of other participators have to fork out their percentage if a given development is to go ahead. Such development requires the support and ability of smaller interest groups within the licence, so the cash flows of smaller independent British companies are often vital to the whole operation of the larger partner. The smaller members of the group must agree to put in their share, so their cash flows are vital to the success of the development, even when there is a bigger company at the top of the licence list. If the smaller companies cannot finance a project, it will be slowed down. That is the point illustrated by Maureen and Magnus.

I have no financial interest in those individual British independent companies. I am interested in jobs and development in Scotland and elsewhere. We are desperately worried that there may be a hiatus in development. Following what my hon. Friend the Member for Bolsover (Mr. Skinner) has said, on top of the problems of the coal industry we fear a crisis in oil development jobs. The two problems together could have a fateful impact as about 25 per cent. of industrial investment in the past three or four years has been in the oil industry. Many of us who represent communities far away from the oil development areas have not seen the effects of that development filtering into the wider economy, and we sometimes benefit from lower oil prices. Nevertheless, on top of all the other problems, we fear a major hiatus in the development of marginal oilfields as a result of possibly temporary variations in price.

It is important that the Minister should understand the process of development. I shall not name individual companies, but some British companies are considering cutting their investment. We have not yet seen the full impact of the change in oil prices on development and jobs. Many existing obligations were in place and work and development was being undertaken. Companies will not cut their budgets this year, but they will cut them next year when they come out of obligation and into choice, and in the process of decision making they will not be compelled by existing obligations of one kind or another to spend money.

One company, which I shall not name, has been spending about £35 million on development, but in the next 18 months it will be looking at ways of reducing development expenditure to about £20 million. If the Treasury or Parliament can devise a mechanism whereby companies like that can resume development, that might prevent a dramatic drop in development expenditure of the kind that I have outlined. Despite the arguments that we would give too much away to the big boys as a result of modification, I do not accept the suggestion by my hon. Friend the Member for Dagenham (Mr. Gould). He should try to come up with some other variation to ensure that small British companies of the kind that we spoke about on Second Reading, and which want to go ahead with development, have their cash flows helped by repayment. After all, it is an enforced loan being paid back at a date earlier than the one originally decided.

Often, the success of a major development, led by a major British company or even by a multinational, depends upon the cash flows and economics of small companies in that field. The Minister must target on those small companies as well as on the case that he made to my hon. Friend the Member for Dagenham.

Mr. Norman Lamont

The hon. Member for Dagenham (Mr. Gould) pressed me on the figure of £160 million. I cannot elaborate on that because to do so would lead me into a discussion about individual fields. However, I can tell him that by going beyond the payback criteria, on our reckoning it would not just be Maureen that would be brought in, because companies in six different fields would benefit. That is what lies behind the figure of £160 million.

Mr. Gould

I have difficulty in understanding that figure. The figures that I have seen may be wildly inaccurate. However, they were produced by very good analysts in the City and show that the total amount of unrelieved advance petroleum revenue tax excluded by the Minister's payback criterion does not amount to £160 million, quite apart from the £15 million limit. That is why I am puzzled by his figure, and it would be helpful if he could give us some idea of what consonance there is between his set of figures and the figures by which most people outside are operating.

Mr. Lamont

I am not sure about what greater detail I can go into, but I shall see whether I can give the hon. Gentleman more detail later. Quite often an analyst's view of tax payable in respect of oil companies in aggregate differs from official estimates. That is not entirely unknown or wholly incomprehensible. I have given the hon. Gentleman the best estimate that I have, and I have explained the basis upon which it has been calculated. I have told him the number of fields in development that would be included if we did precisely what he has suggested. He has suggested going beyond payback and into the safeguard area. The hon. Gentleman and his hon. Friend the Member for Merthyr Tydfil and Rhymney (Mr. Rowlands) have considerable knowledge of this subject and will know precisely what I mean by the safeguard provision.

As I have explained on several occasions, the aim of the Bill is to remedy cash flows and cash flow shortages, which are a brake on developments that might have gone ahead. Safeguard bears no such direct relation to the problem that the Bill addresses, but is simply an arbitrary point in time. The cash flows of companies in a particular field at the time when safeguard runs out is likely to vary markedly depending on which field one is looking at. In practice, extending repayments under the Bill by reference to the point in time at which safeguard runs out would be expensive.

Perhaps I might now deal with the interesting and trenchant intervention by the hon. Member for Bolsover (Mr. Skinner). I am always grateful to the hon. Gentleman for trying to keep us on the straight and narrow. He is the bearer of the convenant of rectitude. He accused the Government of giving way to interventionism. Altering the tax rate because of the economic climate is not unknown, but we are not doing that. As his hon. Friend the Member for Merthyr Tydfil and Rhymney said, we are repaying earlier an enforced loan. We are not altering the tax rate, but repaying earlier advance petroleum revenue tax which would have been set off against mainstream petroleum revenue tax. The companies would have got it back anyway, but we are paying it back earlier because it is an enforced loan. It seems entirely equitable and right in present conditions, when many of these companies will not even pay petroleum revenue tax, that that enforced loan should be repaid.

The hon. Member for Bolsover talked about the economics of oilfields, compared them to the economics of coal mines and spoke about what was happening in uneconomic pits. One of the specific points that I made on Second Reading, and which I have made on a number of other occasions, and with which Opposition Members choose to disagree, is that it is no purpose of our fiscal policy on the oil industry to try to transform an oilfield that is uneconomic in pre-tax terms into one that is economic in post-tax terms. The hon. Member for Bolsover is quite right when he says that if we did that we would be wholly wrong. We are not doing that, and that will not be a consequence of the Bill.

Mr. Skinner

Will the Minister give way?

Mr. Lamont

I shall be delighted to give way in a moment. A project that is uneconomic in pre-tax terms will not be made economic in post-tax terms as a result of the Bill. I am grateful to the hon. Member for Bolsover for trying to keep us confined to the straight and narrow, but we are on the straight and narrow anyway.

Mr. Skinner

I am not trying to keep the right hon. Gentleman on the straight and narrow of market forces. I am delighted that the Government's philosophy has been shown up for what it is and that it cannot be controlled any longer. I remind the Minister that the Bill is there for any hon. Member who wants to read it. The effect of the Bill will be that in the financial year 1986–87 revenue receipts of up to £310 million will be lost to the Treasury. Certain other sums will be lost after that period. The Minister is using various forms of sophistry and trying to suggest that somehow or other the Chancellor of the Exchequer will not be relieved of that amount of money. The petroleum revenue tax system has been designed— not just by this Bill but in the one that we had two or three years ago—to take account of the narrower and shallower pools of oil in the North sea. That is what it will do this year.

Mr. Lamont

That is not the aim of the Bill. It will not make a new sort of project in the North sea economic, and that has been illustrated in the debate. It is about existing deep water developments. The hon. Gentleman says that there will be a cost to the Exchequer of some £310 million, but he omits to say that although there would be that cost now over the next three years the £310 million would have been repaid anyway. The amount will be totally offset in later years. All we propose is a cash flow effect which will be offset in later years. The hon. Gentleman understands that, because he described it as an enforced loan which would be repayable anyway at a later stage. The hon. Gentleman is rebuking us, and his hon. Friends are urging us, with little conviction, to go even further. However, neither of them is entirely right and we are quite content with the provisions as they are.

5 pm

Mr. Rowlands

Will the Minister answer one question? He did not respond to my point that development is dependent upon smaller partners being in a position to finance their share of the development. Therefore, the cash flow of the smaller partners in some of the fields is equally important. That situation has arisen in the Maureen field, which is the example that we gave to the Minister. Can the Minister devise any way to assist that process through the Bill?

Mr. Lamont

I do not wish to be drawn into a discussion on just one field. The hon. Gentleman keeps commenting on one field which has reached the payback stage. He is right in what he has said, in general terms, about the role of the smaller companies within total field development. One of the effects of the measures that we are putting forward will be that the smaller partners within the fields will also benefit from our proposals. They are the ones that may be cash constrained. We should concentrate on those companies and on those fields which have not reached the payback stage. Some of the smaller companies are precisely in the category which the hon. Gentleman has advocated we should help. Nobody is saying that we can help all companies in that situation, but many of the companies to which we are directing our assistance will fall firmly within that category.

Mr. Gould

For the sake of the record, I should re-affirm that my hon. Friend the Member for Merthyr Tydfil and Rhymney (Mr. Rowlands) and I mentioned a particular field because it is the one field which seems to be treated in a rather extraordinary fashion by the criteria which the Bill identifies. That is the only reason why we have singled it out, and the only reason why I argue that the Minister should have dealt with it. If the Minister had been able to deal with that, perhaps we could have seen rather more clearly how the Bill is meant to work.

We were not, as the Minister suggested, urging him with great enthusiasm to hare off in one direction rather than another. We had hoped to provide an opportunity for the Minister to clarify his mind for us at any rate, if not for himself. I am not sure that we fully succeeded. In my case at any rate, the Minister's thinking remains somewhat opaque. However, we have had a useful debate and I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Mr. Gould

I beg to move amendment No. 3, in page 1, line 26, leave out '£15' and insert '£20'.

The amendment is, if anything, even more probing than the previous amendment. It is designed to draw attention to how the Minister decided upon the sum that he felt was available for relief in that way. Did he and his ministerial colleagues decide that there was about £310 million available for that purpose and then hit upon a collection of criteria to split it up in a more or less satisfactory way? Or did he say, no, certain companies in certain categories deserve help at a certain level, and when that was totted up did it happen to come to £310 million? What process did the Minister follow? Is there some rigid control or strategic thinking relating to the way in which the Government's finances are managed? How did the Minister produce that sum? If it is, in the first place, a global sum, are we entirely satisfied that the Minister's proposals are the right way to divide it out? Contrary to the thrust of the amendment, is that a case for putting in a lower limit per field to allow more companies to share in the goodies, albeit at a lower level?

If, on the other hand, there is no global limit and the Minister, out of the goodness of his heart, and because he is concerned about the welfare of those companies, would simply like to help them in some way, why stop short at £15 million per field, and why stop short at £310 million? If it is a good thing, why not, as one of the Minister's hon. Friends said to the Prime Minister recently, have more of the same? Let us have a little more of the £800 million which it is estimated remains outstanding as advance petroleum revenue tax that has not been paid back.

The Minister will see that the amendment is designed to allow him to explain to the Committee exactly how the figure was arrived at and how—assuming that some figure was arrived at—it was then decided to split it up.

Mr. Norman Lamont

I am grateful to the hon. Member for Dagenham (Mr. Gould) and I shall try not to be opaque. Taken in isolation, the effect of the amendment would be to increase from £15 million to £20 million the maximum amount that could be repaid to any company in respect of a particular field. Of course, the effect would be that the same companies would benefit as under the provisions of the Bill as drafted. However, any company with an APRT credit of more than £15 million in respect of a particular field would receive a larger repayment. In fact, less than half the companies qualifying for repayments would benefit from the proposed £5 million increase in the ceiling. We do not have that amount of tax to use up. The revenue effect of the amendment would be to reduce oil tax revenues by a further £35 million in 1986–87, bringing the total reduction in oil tax revenues to £345 million.

The hon. Gentleman asked me whether there was any strategy or precision behind the proposed figure. Several factors were taken into account when we decided where to set the ceiling. One major factor was the revenue effect of the APRT measure, which has to be weighed alongside other competing claims for the Exchequer's resources. The other factor was simply our objective of targeting repayment on companies which might suffer particular cash flow difficulties. It was our judgment that that degree of relief would reduce the risk of cash shortages constraining future development work.

I explained to the hon. Gentleman, in previous amendments and on Second Reading, that we have particular key developments in mind. There are companies involved which operate fields which have not yet reached the payback stage. That could constrain further development. It was our view that that sort of relief would be sufficient. That is our judgment and our view, and it is the best explanation—and I hope not an opaque one—that I can give to the Committee.

Mr. Gould

I am grateful to the Minister for his explanation of the revenue effects of the change that is proposed in the amendment. I hesitate to say that his answer was in any way opaque, but, from his reply to my wider question, I understood that there was no strategic thinking, that it was not the Minister's intention to convey any sense of the part that this measure was to play in the overall pattern that the Government intended to develop for public spending, that it was simply something that had arisen, ad hoc, to be judged on its own merits, and that he decided upon the figure of £310 million by accident. We shall bear that impression in mind when we look at other aspects of the Government's public spending plans, which they will no doubt announce from time to time.

There is a sense in which we are entitled to worry about that a little closer to home, a little closer to the precise point of the Bill. This is simply the beginning of a process whereby the Government, who have been flushed with money derived from North sea oil revenues over recent years, and who have been more flushed with that sort of money than any of their predecessors were fortunate enough to be, are beginning the process of handing back, through the tax mechanism, a good proportion of that money to the oil industry. This is the first stage and the first instalment. There will be further instalments. For example, as abandonment costs rise, tax relief will be given for those. Those chickens will all come home to roost in years to come, when the Minister and his ministerial colleagues will long since have departed those Benches. Nevertheless, we are concerned, and entitled to be concerned, that there should be some strategic thinking about the balance of advantage between the taxpayer and the Government where the flows are considerable.

I suspect that we shall not flush the Minister out any further. We understand how the figure of £310 million was arrived at. At least he has given us a description of that process, and we must be grateful for that small mercy. Therefore, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 1 ordered to stand part of the Bill.

Clause 2 ordered to stand part of the Bill.

Schedule agreed to.

Bill reported, without amendment; read the Third time, and passed.

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