HC Deb 11 May 1993 vol 224 cc665-721 4.21 pm
Mr. Alistair Darling (Edinburgh, Central)

I beg to move amendment No. 21, page 137, line 32, at end insert— '(aa) for which notice has been served that this is a non taxable field under Schedule 1 to the Principal Act: and'.

The First Deputy Chairman of Ways and Means (Mr. Geoffrey Lofthouse)

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

No. 22, page 137, line 32, at end insert— '(aaa) for which no determination under Schedule 1 to the Principal Act has been made either in whole or in part as a non taxable field and'.

No. 45, page 137, line 34, leave out '16th March 1993' and insert 'such day as the Secretary of State may appoint by order, which shall be made by Statutory Instrument and shall be laid before and approved by the House of Commons'.

No. 24, page 137, line 35, leave out subsection (b).

No. 40, page 137, line 36, at end insert 'or—

  1. (c) one in which in whole or in part, a commitment to a programme of Exploration and Appraisal drilling was undertaken under the terms of a licence agreement and approved by the Secretary or State before that date, where the field participants elect to so classify the oil field and to accept a diminishing percentage of allowable expenditure on exploration and appraisal to be offset against PRT and a ceiling on the amount allowed for each company as allowable expenditure for PRT relief; the percentage, the timescale and the ceiling to be determined by the Secretary of State and approved by the affirmative resolution of each House of Parliament.'.

No. 25, page 137, line 39, leave out subsection (2).

No. 42, page 137, line 41, leave out '16th March 1993' and insert 'the day appointed by the Secretary of State in subsection (1)(a) above'.

No. 43, page 138, line 1, leave out '16th March 1993' and insert 'the day appointed by the Secretary of State in subsection (1)(a) above'.

No. 28, page 138, line 11, leave out subsection (b).

No. 35, line 138, line 29, leave out subsection (e).

No. 29, page 138, line 35, leave out subsection (6).

No. 44, page 138, line 36, leave out '16th March 1993' and insert 'the day appointed by the Secretary of State in subsection (1)(a) above'.

No. 31, page 138, line 42, leave out subsection (7).

No. 32, page 138, line 44, leave out 'permanent' and insert 'any'.

No. 33, page 139, line 1, leave out paragraph (b).

No. 34, page 139, leave out lines 3 to 5.

Mr. Darling

The amendments concern the Government's proposals for the taxation of North sea oil and gas. Our amendments are designed to delay, or to provide for phasing in, the Government's proposals. We oppose the principle of the proposals for reasons that I shall set out, but the amendments would allow the Government to delay and, therefore, provide some transitional protection if the fiscal regime were to change so that petroleum revenue tax, both the tax and its allowances, was abandoned. The remaining and consequential clauses in this part of the Bill also have far-reaching effects and we will return to them later in Committee.

However, the amendments are also designed to draw the Government on what exactly is their strategy for oil taxation and energy policy—if they have one—and what calculations were taken into account when the Chancellor made his proposals. It should be illuminating not only for the Committee and the industry but, I suspect, for the Department of Trade and Industry and the Scottish Office, as the Treasury proposals seem to have taken them completely by surprise.

We should remind ourselves of the importance of North sea oil to the country. Without it, the country would be bankrupt. So far, 11 billion barrels have been recovered, 7 million are under production or development and a further 7.5 million are in potential developments that are known about. It is also estimated that between 4 billion and 25 billion barrels of North sea oil and gas have yet to he discovered, some of it in very difficult conditions. It is further estimated that we have between 15 and 50 years of self-sufficiency, again an important matter, and the position with regard to gas is similar, with between 20 and 50 years of self-sufficiency.

These matters are crucial when assessing the role of taxation in our overall energy strategy so that we can maximise our exploitation of this natural resource, not least because of the United Kingdom's severe balance of payments problem. We should also remember that this issue is of national importance. United Kingdom continental shelf sales in 1992 amounted to £7.7 billion—in 1984 they had been £20 billion. In 1992, they contributed 1.2 per cent. of GNP and the annual investment of £5 billion to £6 billion represents 25 per cent. of manufacturing capacity—another formidable statistic.

It is estimated that the Government's proposals will mean that manufacturing investment in the North sea will fall between £1 billion and £2 billion and it is further estimated that there will be a loss of tax revenue of between £2 billion and £4 billion over the next five years and possibly £6 billion over a 10-year period. There is no doubt that there will be a reduction in activity in the North sea.

The Ernst and Young survey of the industry is illuminating. It found that all respondents expect the number of wells drilled in the United Kingdom sector to decrease. A clear majority of those surveyed said that the attractiveness of the United Kingdom for future investment had diminished, and exploration was expected to decrease as a result of the Budget. That is the majority of people involved in the North sea and other United Kingdom sectors. Virtually all respondents expected a decline in the number of personnel working in the United Kingdom offshore industry. That is something which no Government can afford to ignore, especially as we have just heard that if the Swan Hunter yard closes another 6,000 people will join the dole queue.

The Committee will know that there has been a mixed reaction to the Government's proposals. We oppose them for three reasons. First and most important, there is a substantial risk that companies will take their new-found profits and invest them abroad. There is no guarantee that the profits that the companies now have will be invested in the United Kingdom sector. Secondly, the traumatic disruption caused to the industry by the suddenness of the Chancellor's announcement will mean that between 10,000 and 30,000 jobs will go. Some of those jobs are of great technical and economic importance and many may be lost for ever. Thirdly, there is no evidence that the Government have any strategy for oil and gas, just as we know that they have none for the coal industry.

We should also bear in mind that much of the future development is likely to be high risk and high cost. Some of the oil finds yet to be explored lie to the west of the Shetlands, in difficult waters. Others are in the Rockall basin, and present formidable challenges in retrieval. Some will be small and will not pay PRT, but, taken together, they could be viable provided that we get the taxation framework right.

I want to look at the Government's position to assess their case for making the change. Their position is a simple and familiar one—the Chancellor was strapped for cash. He desperately needed every penny that he could get. The Chancellor's strategy is a short-term, some would say very short-term, one. Indeed, some unkind people say that the only Chancellorship that he will have in July is that of the Duchy of Lancaster, in charge of the citizens charter—the ultimate humiliation for any Cabinet member.

Even on a charitable view, the Chancellor's calculations appear to have spanned three or four years, rather than the three or four-Government period that is the normal time span for the industry. The Government looked at what has happened with PRT over the recent past and their attention was drawn, not unreasonably, to the fact that they have been repaying PRT over the past two or three years. Instead, they should have looked at what has happened over the past 10 years, because the picture is rather different.

PRT receipts peaked in 1984–85 at about £12 billion because of high production and high oil prices. However, in 1991–92, revenues plummeted to £1 billion, due to the amount of eligible cost being claimed, and a net £200 million of PRT was refunded. I understand that the Minister may be about to tell us that the figure has escalated to £900 million so as to make his proposals more acceptable. However, we know that £200 million was refunded, whereas, in that period, the Government received only £50 million in PRT receipts.

Why did that happen? The Government have conveniently ignored the fact that between 1988 and 1992 two significant events, which must be considered, occurred. First, the Government and the industry were anxious to stimulate production, incurring high exploration appraisal costs. According to the Government's Brown Book—the annual assessment of what is happening in the North sea—a record number of wells were drilled in 1991–92. It says: During 1992, a total of 131 exploration and appraisal wells were drilled. Although this was 55 fewer than in the previous year, it should be remembered that 1991 saw the third highest level of drilling activity since exploration began in 1964. Exploration success has increased to a rate of 25 per cent., with 20 significant offshore discoveries being announced during the year, 4 more than in 1991. It is not surprising that the allowances claimable by the industry increased. Equally, it is not surprising that in the past two or three years the picture has not appeared as attractive as it did in the previous 10 years.

The second factor that we have to consider is that the industry is still reeling from the Piper Alpha disaster which had virtually stopped production. Since then, substantial claims have had to be made in order to implement the Cullen recommendations.

At a time when the PSBR is forecast to hit £50 billion, abolishing exploration and appraisal relief seems attractive at first sight. The Government's £700 million gain claimed by the Chancellor arises as a result not of increased tax revenues, but of allowances that will not be claimed. The gain is based on exploration and appraisal and that may never take place because of the Government's proposals.

The £700 million claimed by the Government, by which the Minister will set some store, is disputed by many in the industry and outside. Wood Mackenzie, which has a formidable reputation as a commentator on the industry, suggests that the total might be nearer £115 million. Whatever it is, and even if we split the difference between the Government and Wood Mackenzie, the gain to the Government has to be set off against the cost of losing jobs in the industry. If the total is anything like 20,000, the Government have a formidable loss, not just in tax revenues forgone—most of those working in the industry are well paid—but in the cost of maintaining them on the dole.

The Government ought to look at the PRT for the past 10 years. They must bear in mind that much of the future North sea investment will be in technically difficult areas. Production is set to rise in the middle of the decade, but many future discoveries will be in difficult areas.

Mr. Tim Smith (Beaconsfield)

Does the hon. Gentleman agree that the principal object of any tax is to raise revenue to pay for public services? What does he think the revenue would have been from the tax had the Government not proposed the changes that we are discussing this afternoon?

Mr. Darling

It is clearly difficult to predict the future rate of PRT because we do not know what will be discovered. Clearly, even with all the allowances, if oilfields do not pay PRT because it does not fall to be paid, it will be difficult to make projections of how much will be paid.

If the whole PRT regime is abandoned, first the scope for the Government levying a tax on large profits is gone, and, secondly, the allowances that are available under the PRT regime are no longer available which is a discouragement to companies to consider potentially large fields in difficult areas, as they will have to meet the entire cost of exploration and appraisal work, while at the moment they can claim substantial set-off.

The PRT regime provides the taxpayer with a potential gain, depending on what is found and a number of other factors, but it also provides a useful framework to ensure that development continues.

The hon. Gentleman raised a fundamental question which I shall address in a moment, but first I shall give way to the hon. Member for Gordon (Mr. Bruce).

Mr. Malcolm Bruce (Gordon)

Is not the problem that the Government have removed their previous achievement of a stable regime in the North sea? The hon. Gentleman is making a reasonable point. Abolishing PRT removes the automatic regulator if the price goes up. No oil company in the world believes that the Government would not change the tax regime without consultation just as quickly and just as negatively as they have this time.

Mr. Darling

The hon. Gentleman makes two important points. First, everyone to whom I have spoken in the oil industry, including those who have said publicly that they were in favour of the Government's proposals, freely admits that if the North sea sector started making large profits, in the middle of the decade for example, no Government of whatever colour would stand back and forgo the opportunity to raise money if the alternative was, for example, extending VAT to children's clothes or food or something else dear to the hearts of Conservative Members, such as raising income tax or taxation generally.

The hon. Gentleman's second point is equally important. The PRT regime was developed during the Conservative Government of 1970–74. It was implemented by the Labour Government in 1975 and it has been maintained, by and large, with cross-party support—although certainly with many adjustments—between then and the present time. It was then suddenly changed, without warning even to the Government's main energy Department, if one can call the Department of Trade and Industry such a thing—I am pleased to note that the Minister for Energy has at last turned up to listen to the debate—which is a major departure from normal practice.

I do not argue that the Government should consult every time they make tax changes—for obvious reasons—but when one considers the importance of the North sea and the United Kingdom continental shelf to the country's economy, it seems madness for the Government to embark on a course of action that could jeopardise the future of the North sea for this country.

The hon. Member for Beaconsfield (Mr. Smith) raised an important matter. There is a legitimate public debate about whether the public ought to subsidise, encourage or shield companies from the risk of exploration. I t is a legitimate debate, but the Government have not yet joined it. There is an argument that companies should shoulder the whole risk themselves; equally, there is an argument that we should not throw away a tax regime that provides a subsidy—a shield, if you like—for the risks. It is important that the Government look after the United Kingdom's strategic interests in ensuring that we maximise the natural resource that we have in the United Kingdom continental shelf sector for as long as possible.

There is no point in denying that the changes will prolong the life of some existing fields. The Government have a point on that. There is equally no doubt that some incremental development around fields is becoming more attractive—there have been announcements in the past couple of days saying just that—but when one considers the effect of abolishing cross-field allowance and the change to the tariff receipt regime, it is by no means clear that incremental development will be as attractive.

In any event, in case the Minister is tempted to pray in aid the BP announcement yesterday and the Shell announcement about a month ago, I should mention that both developments were planned some time ago. Oil companies cannot announce major developments the day after the Chancellor has made an announcement.

The Financial Secretary to the Treasury (Mr. Stephen Dorrell)

Is the hon. Gentleman suggesting that Dr. Gibson-Smith, the BP exploration chief executive, was telling an untruth when he said yesterday that the new BP developments were made more likely as a consequence of the Budget changes to Petroleum Revenue tax"? Those are not my words, but the words of the man in charge of exploration at BP.

Mr. Darling

Of course I am not suggesting that he is telling an untruth. What the gentleman said is that these developments became more likely. Is the Minister suggesting that in Shell people suddenly got up one morning and said, "Right, let's go ahead with this development"? They were considering it for some time and looked at all the sums. Then there was the fiscal change, and they said, "Yes, this is a great advantage." To say that had it not been for the Government changes nothing would have happened would be absolute nonsense. What the representatives of Shell were saying is entirely consistent.

Mr. Dorrell

I think the hon. Gentleman said that Shell was thinking about it before the Budget, that there were fiscal changes and that, following the fiscal changes, Shell decided to go ahead with it. Is that the hon. Gentleman's position?

Mr. Darling

It may surprise the hon. Gentleman to learn that, unlike some of his colleagues, I have no direct interests in the oil industry. I was not at the Shell board meeting when these matters were discussed, nor was I privy to its consideration; but it is entirely likely that Shell has been considering this matter for some time. These developments cannot be worked up from scratch. Of course changes are taken into account. I hope that the Minister will concede that other companies would have gone ahead with work that is now less attractive because of the petroleum revenue tax change, which will have a damaging effect.

I may be wrong, but I think that the Minister for Energy was nodding when I made my preliminary remark that these schemes were not just dreamt up after 16 March. I do not understand the point that the Minister is making. He seems to be making a great deal out of nothing in particular.

Mr. Alex Salmond (Banff and Buchan)

Human nature being what it is, would not it be reasonable to suppose that the companies that will gain large sums of money—we are talking about tens and, perhaps in some cases, hundreds of millions of pounds—from tax changes might believe that they are a good idea?

Mr. Darling

That is self-evident. I noticed a flurry of announcements yesterday. It is hardly surprising that BP, Shell and other companies are happy about the proposals. As I shall develop shortly, the changes mean that they have the money in their pockets and they will decide where to spend it; we might want to consider the implications of that.

Mr. Tim Smith

We should not object if they have the money in their pockets and decide where to spend it.

Mr. Darling

From a sedentary position, the hon. Gentleman makes an interesting point. He claims that we should have no objection if companies have all this money in their pockets and decide where to spend it. He is right up to a point. From the point of view of the oil companies, that argument is overwhelming, but from the point of view of the United Kingdom, the Government and the people, surely we are entitled to ask ourselves whether we want a tax regime that runs a substantial risk of investment being exported to other parts of the world at the expense of a resource which we have in this country. Every Government, of whatever colour, have used the tax regime to maximise the resources available to them. If the hon. Gentleman thinks that that is wrong—possibly he still belongs to the rump of the Conservative party that believes in that system—that is fine, but it is not a view which we take.

Mr. Robert Hughes (Aberdeen, North)

The hon. Member for Beaconsfield (Mr. Smith), who is muttering from a sedentary position, seems to forget that it was the Chancellor who said that the objective of the changes in the PRT was to raise revenue for the Government. It is the hon. Gentleman's Government who are attacking them.

Mr. Tim Smith

We do not want to tax people.

Mr. Hughes

He says that they do not want to tax people. The Government are caught on two hooks. On the one hand, they do not want to admit that they are applying the tax; on the other, they are trying to pretend that it is our fault that it is being done.

Mr. Darling

I agree with my hon. Friend. The hon. Member for Beaconsfield seemed to take the view that it is best to give as much money as possible to the companies, which will decide what to do with it. That is statable case, but there is an overarching, strategic view that the Government have to take on behalf of the people.

No doubt it would find favour in most parts of the Committee if I said that companies might be encouraged to search for large fields under the new system, whereas they might have been less enthusiastic under the old. Although they are no longer protected from exploration and appraisal costs, the risks might be high, but the gain would be immense. I dare say the Government will seek to argue that.

The only point that must be made is that when an oil company looks for oil, it does not know what it will find. In many cases, oil companies have gone into areas where they thought the field might be small and have discovered that it was much larger than expected. The argument is that they would not have gone looking in the small field if protection had not been afforded by the PRT regime.

In an excellent report on the impact of the changes on the Grampian economy published a few days ago, Professor Kemp of Aberdeen university said: For new exploration and development activities the tax system facing investors is simply the corporation tax at 33 per cent. By world standards this is unique for a major petroleum producing province. Unfortunately there is no guarantee that this situation will be permanent and the political risk of further changes must be quite high. The oil companies realise that, but it is interesting that Professor Kemp considers that the low tax barrier is unique. I suggest that the reason is that many countries take the view that there must be some fiscal incentive to go into difficult areas and, therefore, keep oil companies operating in a sector over which they have control, but if profits arise on a large scale, the taxpayer must be entitled to a fair share of them.

There is every prospect that some large oil companies will pocket their windfall gain and reinvest it elsewhere. We must bear in mind that we are in competition with many parts of the world. Substantial oil reserves are known to exist in the CIS, off south America and in the far east. Even in the United States, a high-cost country where profits are equally high, there are reserves as yet unrecovered.

4.45 pm

Boardrooms are bound to take a broad view about where it is best to go. The North sea is a high-cost centre. If companies have the cash in hand, they will not have to invest it in the North sea; they can go elsewhere. Therefore, Britain will in effect be subsidising exploration in other parts of the world. To a large extent, the PRT system locked oil companies into the United Kingdom sector. Ultimately we will become an oil importer, but I see no reason to hasten that day.

The Government will also no doubt argue that oil companies were engaged in a spate of drilling where prospects were poor. However, given that the North sea is a mature field and that many new prospects are in difficult areas, that argument does not hold much strength. The other point that ought to be made is that in 1992 the success rate of drilling was 1:3.6, which is high for the industry.

I do not believe that the Government's case is proved. There is substantial doubt about the claims. I accept that over the last week, and particularly in the week following the Budget, good news was announced by companies that have prayed in aid the Government's changes, but, taken overall, there is a substantial risk that companies will be tempted to invest their profits in other parts of the world.

The position of the oil companies has to be covered. The position of the industry rather depends on whom one speaks to. Naturally, BP is laughing all the way to the bank, if not to other parts of the world. An examination of its most recent annual report is illuminating. When it deals with potential profit centres it says, among other things: In the Azerbaijani sector of the Caspian sea we are part of a consortium which has a 20 per cent. interest in the Azeri field where about 1.8 billion barrels of recoverable oil are thought to exist. Off Vietnam, it has started an extensive exploration drilling programme; in South Africa, it is investing in a refinery, and it is expanding in eastern Europe. There is nothing wrong with that.

It is good to see a British company doing all that and I would not want to discourage it, but hitherto there has been an incentive for many companies to stay in the North sea and to carry on drilling in sometimes difficult areas. If a company has the money in hand and has a choice between going to a high-risk, high-cost area or to an area where costs and risks are less, it might choose the cheaper option. I would not argue that one should seek to hold oil companies in an area that they would not want to be in. I do not think that anyone would argue that in regard to the North sea, but, again, I stress my doubt about our throwing away the incentive that we have.

It is not surprising that BP is pleased. Like the Government, it was strapped for cash last year and its tax bill has been cut by about £140 million. Nor is it surprising that it has been keen to encourage its colleagues in the oil industry not to complain, and to join the Government in praising the Chancellor's announcement. Shell has also joined forces with BP in announcing developments. Those developments were not planned recently.

While some companies say that new investment will be encouraged, others say privately that since 16 March two things have happened which we should consider. First, the fiscal and political stability which they have valued in the North sea regime—a point made by the hon. Member for Gordon—has gone. It was of great importance and should not have been lightly thrown away. Secondly, the traumatic shock caused by the Chancellor's announcement may make many people in boardrooms, often in the United States with no direct interest in this country, look long and hard at the future of the North sea and decide that future investment lies elsewhere. As I have said, we are in competition with other parts of the world and the Chancellor may have provided the jolt which will provoke some companies to go elsewhere. Equally, for some oil companies the Government's proposals are disastrous, depending on how they were placed.

What about the supply industry? Exploration and appraisal work will decrease. In some cases, exploration will cost about four times more than in the past. Every oil company has said that exploration work will reduce. Indeed, already supply companies in the north-east of Scotland and other parts of the United Kingdom have started to indicate to their work forces that they will be laid off. More than that, many companies entered into obligations with the Government based on an existing tax regime which has been changed.

I am glad that we have on the Treasury Bench both the Financial Secretary to the Treasury and the Minister for Energy. Perhaps they will share with us the difference of opinion that is apparent between the Treasury and the Department of Trade and Industry. Press reports suggest that the DTI regards some of the obligations that companies have entered into as being legally binding, while the Treasury does not. Which is correct? It is crucial for them to say which obligations they regard as legally binding. Oil companies may test the point, but it would be useful to know Government thinking on the subject.

It is also worth bearing in mind that there were changes not only to the petroleum revenue tax but to the cross-field allowance regime, which has made any incremental developments attractive to the tariff receipt allowance, which discouraged the profusion of pipes across the North sea and which, as a result of its obligation, may skew the market—for example, in respect of offshore loading—in a way that is not altogether desirable.

The position of the United Kingdom in terms of the taxpayer and the economy should be at the forefront of the Government's consideration. The Government are proposing to abandon what is essentially a profits tax. Moreover, as I have said, they are abandoning a mechanism for locking oil companies into the North sea sector, which is a high-risk and difficult area. Indeed, we may have provided an incentive for them to go elsewhere, so our fundamental concern must be about where the money will be spent.

Will the companies keep the new profits, invest them in the North sea or take them elsewhere? We are also giving up future tax revenues—some say, on a conservative estimate, of up to £6 billion over the next 10 years. The balance of payments—an issue of great concern, given the fact that it is in desperate straits at the height of a recession—will not be helped if we start importing oil or gas.

The effect on jobs must come into our consideration of the whole issue. The Government—it is not usual for them to concede that anything they do costs jobs—have on this occasion conceded that up to 10,000 jobs will go. In his study, Professor Kemp says that between 7,000 and 11,000 jobs may go in the United Kingdom. Others have put the estimate as high as 30,000.

Considering that it costs £9,000 to keep a person on the dole and that most of the people about whom we are speaking are well paid, the cost to the Exchequer of losing those jobs would, I believe, exceed the savings likely to occur as a result of scrapping the petroleum revenue tax regime.

It is nonsense for the Treasury to look at the issue from one aspect. It considers that it will save perhaps £700 million by scrapping PRT. On the other hand, the Department of Social Security will have to pick up the tab, and it is clear—north American experience, where a similar state of affairs existed a few years ago, bears this out—that once those people have been lost, their valuable skills will not easily be recovered.

We are speaking not simply of people working on North sea oil rigs. There is a great deal of onshore activity involving geologists, physicists and people in the support industries, all of whom are highly skilled and highly paid and who contribute substantially to the nation's economy. We run the risk of losing some of them from the industry, while others will go abroad and will be lost to the country for ever. There is the additional problem that some companies may be tempted not just to cut back on exploration appraisal but to cut down on safety.

Most people accept that at some point there must be a change in the taxation regime. The North sea oil sector is mature and it has been obvious that the PRT regime must be adjusted and perhaps one day brought to an end. But this is not the time to do that, for the reasons I have given. With oil prices expected to remain low for 10 years or so, there is a limit to how much can be taken from what is essentially a windfall profits tax.

The Government should bear five points in mind. First, the PRT system should not be scrapped now. There is scope for adjusting the rate of the tax and the rate of allowances that can be claimed. There is a case for capping the allowances. All such moves would be possible under our amendment, and we shall develop those themes when we debate later clauses. The amendment would allow the phasing in of transitional relief, and if the Government are not prepared to concede the principle, they should accept that transitional relief would be of great benefit to the industry, onshore and offshore.

Secondly, the Government might consider abolishing the royalties that still exist for pre-1983 fields. That might provide assistance. Thirdly, the issue of speculative drilling could be dealt with through the licensing regime because it is for the Government to decide where companies go, because they grant the licences.

Fourthly, the way in which exploration and appraisal allowances are granted could be adjusted. For example, allowances could be given on the basis of part now and part after five years or so. The Government could take all sorts of measures to make the allowances more attractive to companies, while balancing those measures with the legitimate interest of the Treasury in recovering funds.

Fifthly, we could examine the cross-field and tariff allowance scheme. Sixthly, as I said, if the Government are determined to abandon PRT at this stage—although they would be wrong to do so—they must look carefully at the question of transitional relief, and our amendment would provide for that.

There is no doubt that the Government announcement has caused a major dramatic disruption to North sea activity. Transitional relief is a subject to which we shall return when we debate later clauses, perhaps after the Government have had a chance to reflect on what has been said. The Chancellor's record of forecasting and making financial judgments is appalling. There is no evidence to suggest that his knowledge of geology is any better or that his knowledge of what is happening in the North sea can be relied on.

North sea oil and gas are among this country's few natural resources that remain to be exploited. We are in competition with the rest of the world. Other countries are desperate for industry and are willing to provide incentives to get oil companies to go there, especially for the economic gains that can accrue.

Hon. Members in all parts of the Committee, and the Government in particular, must reflect on those issues before throwing away a regime which, by all-party consent, has served the nation well. We have an opportunity tonight to ask the Government to take stock, to coin a phrase. It would be a tragedy if North sea oil were to become another casualty of the Chancellor's poor judgment.

Mr. Tim Smith

The changes proposed by the Government have my full support. That applies to their substance and timing. My hon. Friends should not be in the slightest surprised that Labour Members are attached to an 83 per cent. tax rate, since that was the top rate of income tax in 1979. They like high tax rates. They like taking money out of people's pockets and spending it on their behalf. That applies as much to oil companies as to individuals.

That was the basis of the case made by the hon. Member for Edinburgh, Central (Mr. Darling), who believes that the Government are in a better position than the oil companies to make investment decisions. I take the opposite view. I believe in low business taxes because with low taxes—the standard corporation tax rate has been reduced from 52 to 33 per cent. in the last 14 years—investment is attracted to the United Kingdom. Indeed, that is why there has been an increase in inward investment. That applies as much to North sea oil as to business generally. Low business taxes are good. Not surprisingly, Opposition Members such as the hon. Member for Ashfield (Mr. Hoon) support high business taxes.

Mr. Geoffrey Hoon (Ashfield)

I am curious about the hon. Gentleman's introductory remarks. He criticises Opposition Members for apparently wishing to raise taxes. Is he not aware that the measure that he is defending will have the effect of raising taxes?

5 pm

Mr. Smith

I shall come to that. It will raise more tax, but the hon. Gentleman will be aware that when the Conservatives have reduced the rate of income tax, the yield has risen. We do not find that surprising because high taxes are a disincentive to people to produce more income. I shall establish during my remarks that, as a result of the changes that we propose, more income and more revenue will be generated.

I remind the Committee that we are discussing a revenue tax and not a profits tax, although the hon. Member for Edinburgh, Central continually referred to the latter. More revenue will be generated from the North sea, with the result that the yield from petroleum revenue tax will rise. The large oil companies, which the hon. Gentleman went out of his way to attack, will invest more in existing fields.

Not surprisingly, the oil companies hold on their shelves a number of prospective development projects whose economic viability turns on the oil price at a particular time and on the fiscal regime at that time. We were told by the hon. Member for Edinburgh, Central that the oil price is not likely to rise over the next 10 years—it is nice to have his forecast. If that is correct, these projects would have continued not to be economically viable, but because of the Budget changes they will now be viable and the revenue from existing fields in which Shell, BP and Esso have already invested heavily will rise further—as will the revenue from PRT.

The hon. Gentleman says that the result of all this will be that the profits are invested abroad. I believe that much of the money will be invested in new production in existing fields where there is a great deal of marginal capacity yet to be exploited—rather more than there is in the prospective fields on the edge of the North sea, which are often in much deeper water and it would cost much more to extract the oil from them. I concede that they may hold reserves, but the cost of extracting those reserves would be much higher. It makes a great deal of sense, therefore, to go for the reserves in the existing fields, from which the oil can be extracted with relative ease.

We need the change of regime to respond to changes in the North sea. The hon. Member for Edinburgh, Central says that we have had a stable regime for many years. In the next breath he claims that the North sea is now mature and concedes that changes must be made. The only issue at stake is one of timing. I think that this is the right time while he does not.

Now is the right time, too, because there has been a large fall in the price of oil. Of course it was right, 10 years ago when the oil price was much higher in real terms, to have a high marginal rate of PRT, but times change. In respect both of the greatly reduced oil price and of what the hon. Gentleman describes as the maturity of the North sea, the change is timely—

Mr. Salmond

Let us imagine that the oil price does not go along with the forecast given by the hon. Member for Edinburgh, Central (Mr. Darling) and sharply increases in the near future. Does the hon. Gentleman think it likely that any Government, regardless of political colour, would leave in place only corporation tax, faced with large windfall profits to be made from the North sea? Does he think it likely that any Government, regardless of political colour, would leave in place only corporation tax, faced with large windfall profits to be made from the North sea? If he thinks it likely, he will find that few people in the industry will believe it—given the circumstances of the early 1980s, when a Government headed by Baroness Thatcher increased the taxation regime left them by the right hon. Member for Chesterfield (Mr. Benn).

Mr. Smith

The hon. Gentleman knows very well that all Governments claim to be putting in place stable tax regimes, but they all modify them according to changed circumstances, such as I am describing. The oil price has dropped, so it makes sense to change the regime in line with what the Treasury proposes.

Perhaps the best reason of all—I think that the hon. Member for Edinburgh, Central just about conceded it—is that we raise taxes to pay for public services, even though no one likes paying them. It is nonsensical to keep a tax that involves either no yield, as it did last year, or a repayment of tax to taxpayers, as it did the year before. It is not sensible to continue with such a regime for long and it must be right to change it so that the tax is abolished or at least yields some revenue for the Treasury.

Moreover, the higher the rate of tax and the higher the allowances, the more economic distortions result. It is good if we can bring tax rates down, because it is much better for industry and commerce generally if investment decisions are made on their merits—on the likely yield from the investment—and not purely for tax reasons. I fear that in the North sea recently exploration companies have been making investment decisions principally for tax reasons, and that cannot be right.

What we need and will now have is a broader tax base, with lower rates and lower allowances. The ultimate example of that is the abolition of the tax altogether, which is what will happen with the new fields.

Of course there will be a change in the balance in favour of production and against exploration, but that makes a great deal of sense in the circumstances.

I understand the anxieties about the transitional arrangement. Such arrangement are always of critical importance as we move from one tax regime to another. The difficulty with the proposals in this respect is that a considerable cost would be involved, and it could be dealt with, as I think the amendments recognise, only by increasing the PRT rate. If one believes that a tax change is right and will benefit the United Kingdom economy and the North sea oil sector, it must be right to make this tax change straight away, which is why I support both the substance and the timing of the changes.

Mr. Robert Hughes

The debates on this subject so far took place before the events of last Thursday—the Government debacle in the county council elections in England and the disastrous result for the Tory candidate in Newbury. Since then, we understand that the order has gone out from No. 10 Downing street that Ministers should be more caring and more listening. We wait to see whether the message has got through to the Financial Secretary.

Since the Second Reading debate, the discussion has moved on and some inconsistencies in the Government's approach have appeared. Winding up on Second Reading, the Financial Secretary admitted that there had been no discussions with the oil industry. He defended that in the following terms: I will comment on the proposition that there should be consultation with the industry. It seems to be a rather odd proposition that, before a Government consider raising tax, they must engage in consultations to give notice of their intentions so that the industry can bring forward its activity to take advantage of the tax system that we are seeking to remove."—[Official Report, 26 April 1993; Vol. 223, c. 318.] He still refused to say what discussions had taken place with the DTI or the Scottish Office, or what advice he had received.

On the face of it, that would seem a reasonable defence. However, the Minister took a different tack when giving an interview last week to Robin Chrystal for the Press and Journal (Aberdeen). If the article is incorrect, I am sure that the hon. Gentleman will tell me so: In a bullish mood the Minister chided offshore companies which have complained about the change. 'They should have seen it coming,' he said. Later, the Minister all but ruled out any change, as he revealed that civil servants had been working on reforming the PTR regime for the last three and a half years. In my innocence, I believed what the Financial Secretary said in the earlier debate, thinking that he had got his proposals wrong because he had not had time to think them through or to work out their effects on sections of the industry. Now we are told that the changes have been worked on for three and a half years.

It certainly seems to be implied that the industry was party to the discussions. The Minister seems to be shaking his head, but if the industry was not party to the discussions, how could it have foreseen the changes?

Mr. Dorrell

My point was that this is a sophisticated industry which employs a large number of sophisticated tax advisers. One does not need to be a rocket scientist to work out that a tax system costing the Exchequer money is not one that will last for much longer.

Mr. Hughes

The Minister seems to be saying that the oil companies should have looked into their crystal ball and seen which way the wind was blowing and that it was all their fault that they were caught out, not the Government's.

The Minister's first proposition to the House was nearer the truth—that the possibility of the changes was kept from the industry to avoid its taking advantage of the information. The hon. Gentleman cannot have it both ways. Either he kept it quiet, or the industry had a good idea what was going on. According to the article, the industry knew all about this, so it was the industry's own fault. What he still has not told us is what discussions he had with the Department of Trade and Industry over the past three and a half years. He himself has indicated that these changes were under discussion. I am sorry that the Minister for Energy has left the Chamber, as his body language, if not his verbal language, might have given a clue as to what discussions had taken place and what advice had been given to the industry. In any event, the Minister cannot claim that he acted out of ignorance, as he certainly had ample opportunity to get things right.

All else having failed, the Financial Secretary's fall-back position is that there may be up to 10,000 job losses but that such an estimate is based on a wildly improbable scenario. Well, it is the Treasury's own scenario—and the Treasury is not given to putting forward such scenarios. I accept that we must all be careful about crying wolf. We are indebted to Grampian regional council for commissioning a study by Professor Kemp of Aberdeen university petroleum and economics consultancy. I appreciate that both Ministers took time out of a busy day to meet a deputation from the north-east of Scotland, including the convenor of Grampian regional council Dr. Middleton, the Lord Provost of the city of Aberdeen James Wyness, the chairman of Aberdeen chamber of commerce Robin Pollock, and representatives of all political parties.

Mr. Ernie Ross (Dundee, West)

Including the Tories.

Mr. Hughes

Yes, the Conservatives were certainly there.

In this regard, there appears to be near-unanimity in the north-east of Scotland—a very rare occurrence. I understand that the hon. Member for Kincardine and Deeside (Mr. Kynoch) made a mysterious appearance at the meeting this morning. I do not know what he said, but perhaps at some stage he and the hon. Member for Aberdeen, South (Mr. Robertson) will tell us not just what they think about the situation but also what they intend to do about it. If last night's voting is anything to go by, they will back the Government all the way.

The Financial Secretary has seen a copy of the report to which I have referred and will know that Professor Kemp and his unit are very well respected in the oil industry. These are not people who have suddenly come out of the woodwork; they have studied the industry for years, and their conclusions must be taken very seriously. I do not have the time this evening to go into the detail or the methodology of the report. I shall say simply that it is well reasoned, well argued and well researched. It deals with the effects on each sector of the industry and does not concern itself simply with the downside. The two conclusions are very sober and are certainly not exaggerated.

It is conceded that some parts of the industry will do well. Those with fields in production will have an incentive to prolong the active life of their reserves. Professor Kemp's guestimate—he admits that that is what it is—is that, as a result of the changes, about 1,000 jobs may be retained or created. Others in the industry argue that the incentive to prolong the life of the fields is there anyway. There is great financial advantage to be obtained from keeping the fields going. Sooner or later, when production is exhausted, the rehabilitation costs of removing structures and restoring sub-sea conditions will be massive. In any event, extraction policy will not be abandoned for the sake of minor tax changes; the real incentive is avoidance or deferral of rehabilitation costs.

Everyone accepts that there is a downside. I refer to the prospects for the exploration and appraisal of new fields.

Mr. Tim Smith

Is it true that Professor Kemp's analysis considers only prospects involving quantities under 50 million barrels?

Mr. Hughes

I do not think that that is the case. Professors Kemp's report presents a study of fields of that size and smaller fields. This is precisely the area in which the major damage will be done. If there were a sudden huge oil discovery—twice or three times the size of the biggest field, larger than Forties or any other—the tax changes would have no effect in this regard except that, as we know perfectly well, such a find would result in changes in tax policy.

5.15 pm

I do not know whether it is fashionable or allowable to quote Aneurin Bevan. He said, "Why look in the crystal ball when you can read the book?" Anyone who reads the book can see quite clearly that there has already been a downturn in exploration. Professor Kemp argues that that trend will be accelerated. Using the very modest multiplier of 1.25, a reduction of 33 in the number of wells drilled would result in 8,500 job losses—7,500, allowing for the 1,000 which might be saved—and a reduction of 50 in the number off wells drilled would result in 12,250 job losses or 11,250 net. Studies carried out by Aberdeen university over many years have shown that a multiplier as high as 1.78 could be used quite safely, without risk of exaggeration. That would result in the loss of 10,780 jobs or 9,780 net—or 17,020—16,020 net. At a conservative estimate, Grampian region would lose 4,000 to 6,000 jobs—a very serious situation on the basis of either forecast, and one that ought not to be discounted.

The message is quite clear: if the Government are not willing to change, we must at the very least have transitional relief, with capping, so that the smaller companies derive the greatest benefit and thus avoid the prospect mentioned by, among others, the hon. Member for Beaconsfield (Mr. Smith)—that there will be some sort of distortion of activity. The hon. Gentleman's approach to business is novel. The proposition that people go into the high-risk business of North Sea oil, which involves very large capital costs, on the basis that they will make money from tax relief is preposterous.

Mr. Tim Smith

The hon. Gentleman has again mentioned the question of economic distortion. Did not Professor Kemp say that it is difficult to defend the fact that, under the present regime, post-tax returns exceed pre-tax returns? Did he not accept that the pre-Budget position was unsatisfactory and was in need of reform?

Mr. Hughes

If the hon. Gentleman wishes me to go through every page of Professor Kemp's report and argue every detail, we shall be here until well after midnight. The hon. Gentleman is being very selective. I do not think that there is any difference between the parties in the Committee with regard to the fact that the Government faced a need to find money. That is the Government's basic objective—it has nothing to do with the unsatisfactory nature of the system. Having made their decision, the Government naturally looked around for suitable candidates for easy pickings. They took note of the oil industry's negative tax receipts, the pay-back, and ignored the fact that most of the costs that had to be paid back arose after the Piper Alpha incident. They did not work through the way in which smaller companies—the exploration companies in particular—would be hit.

It is not just Professor Kemp's report which presents these conclusions about the downside of the tax changes. The same message comes from many quarters, one of which is the Association of Service Sector Oil-Related Companies, which represents about 300 companies. Again, I could deal with that body's comments individually, but if I did so very few other hon. Members would be able to take part in the debate.

Wood Mackenzie—another company which has a great deal of experience in the industry and is very concerned about the changes—says in its report: If, as expected, the United Kingdom exploration and appraisal drilling levels fall sharply, the measures could be bad for the country in the long term, both in terms of balance of payments and the Government's revenue from the North sea. That company has no political affiliation to the Labour party. I should not like to put a political label on Ian Wood.

Mr. Ernie Ross

Tory.

Mr. Hughes

My hon. Friend is entitled to his view. I do not want to put anyone off Ian Wood's sagacious comments by saying that he is a Tory. They are good comments. These are serious dangers.

Professor Kemp points out that many companies may find it difficult to finance and develop export markets. As the downturn in the oil industry comes about—it is bound to come sooner or later—we in the north-east of Scotland do not want to be left with a ghost town. Aberdeen has benefited much from the North sea and so has Grampian, but we have not done so well in terms of cash from the Government to pay for the infrastructure. We do not want to be left with nothing once the industry has gone. We must build up indigenous companies which not only supply the North sea but are involved in the export market.

Confidence in the North sea is important. My goodness, the Government should know about confidence—they are for ever telling us about confidence, how important it is and how vital it is for the future of Britain that everyone should have confidence in the Government. The Government seem to think that they can destroy the confidence of companies in the North sea and that, when it suits them in two or three years' time, when perhaps they will change the regime again for their own purposes, the companies will simply come back again. The fact is that companies will not come back again once they have gone. They can go elsewhere to a less hostile physical environment and a more stable, congenial or amenable tax regime—and if they go. they will not come back. The Government simply cannot play ducks and drakes with the economy of north-east Scotland or the country at large.

The Financial Secretary and the Minister for Energy seem to have disappeared. I do not know whether they have rushed out to read the reports again and to consider whether to change their minds. I do not know whether the Chief Secretary to the Treasury has had reports of this morning's meetings, at which all said that they had a good hearing from the Financial Secretary and the Minister for Energy. Perhaps the Chief Secretary is frightened that they listened too well and has sent them packing so that he can take over the debate. We shall have to wait and see.

I hope that the Government will seriously listen to the representations from all parties, from many sections of the industry and from the whole of commerce. The chamber of commerce is certain that unless the Government are prepared to relent, unless they are prepared to have proper transitional relief, unless they are prepared to stop thinking only of the short term, great damage will be done to the North sea oil industry, to the economy of Grampian and to the country at large.

Mr. Roger Knapman (Stroud)

I am not concerned about the overall direction of the changes. If I had such doubts, I assure my hon. Friend the Financial Secretary that his excellent speech on Second Reading would have brought them to an end. I have no doubt that my hon. Friend's commitment to a low tax, low allowances regime, which is much simpler to administer and operate, is a perfectly worthy policy which I am happy to support. Nor, despite comments from the Opposition Benches a few moments ago, do I doubt the need to raise extra money from time to time, the need for fiscal prudence and—I hope that this will be the reality—an extra £700 million from the oil industry.

However, a considerable number of oil companies and—of equal importance, particularly in my constituency—a considerable number of the companies which provide the back-up to exploration, development and production, are concerned about the way in which the changes are likely to be introduced. The proposals represent one of the most fundamental changes to the North sea fiscal regime since the beginning of activity on the continental shelf and certainly the most significant shift in policy for the past decade.

Therefore, I am sure that my hon. Friend will agree that it is not unreasonable to provide some meaningful transitional arrangements, and that is the purpose of my few brief comments. Phasing in the changes would allow the United Kingdom supplies sector to adjust to the new circumstances and provide a more stable environment for the operating companies to fulfil the commitments made to the Government in good faith when licences were granted, particularly during the 11th and 12th rounds. I cannot believe that it is not possible to come up with a solution which provides a balanced phasing between the reduction in the rate of PRT and the removal of exploration and appraisal relief—this is the crux of the matter—on a fiscally neutral basis.

I was greatly reassured by my hon. Friend the Financial Secretary on Second Reading. In summing up the debate he recognised the need to avoid unnecessary dislocation and assured the House that the Government would seek ways of doing just that. I think that my hon. Friend will agree that it is crucial that the service sector in particular is given the chance to adapt. An abrupt removal of the ability of companies to offset the cost of exploration and appraisal against profits generated on PRT-paying fields could lead to a reduction in exploration activities.

Much has also been said in the past few weeks about inefficient exploration by oil companies. Some people seem to believe that their attitude to drilling wells is based on a wing and a prayer, to which is added a huge cushion from the taxpayer. I do not believe that that is so. It is difficult to reconcile that with the comment of my hon. Friend the Minister for Energy that 1992 had the highest success rate ever for exploration drilling in the North sea.

For those reasons, I urge my hon. Friend to consider seriously the representations that he has received to provide some transitional relief. The precedent is there and it can be done on a fiscally neutral basis. When the changes to the rules governing corporation tax were introduced in 1984, a major element of the Government's package was a progressive phasing out of the allowances over a period of four years. There are many parallels between those 1984 proposals and the current proposals, not least the wish to widen the tax base and reduce the level of allowances. The major difference is the lack of any meaningful transition.

I hope that proper consideration will be given to allowing companies such as those in my constituency to take their business forward in an orderly and efficient manner, and time for them to adjust is the key. I urge my hon. Friend to propose a solution which prevents the dislocation to which he referred on Second Reading. Failing that, I hope that my hon. Friend is aware of the problems that I have sought to describe and that he will be able to address them at a later stage during the passage of the Bill.

Mr. Malcolm Bruce

At the end of last year, as a member of the Select Committee on Trade and Industry, I was heavily lobbied by oil and gas companies in the North sea who were concerned that drastic changes might be introduced to the contracts for providing gas for electricity generation. Within the Committee, I successfully resisted the idea that we should break up those contracts and so cause damage and loss of confidence within the industry.

At that time, interestingly enough, the hon. Member for Aberdeen, South (Mr. Robertson) launched a high-profile campaign on the need to do that. Then, suddenly, the Budget introduced a potentially much more damaging measure, without any warning, consultation or opportunity for the industry to express a view.

During the past few weeks, the industry has been in a state of confusion and disarray as it has tried to analyse who will be the winners and the losers and the implications. It is the job of the House and the Committee to look not just at the industry but also at the national interest over time. The hon. Member for Stroud (Mr. Knapman) referred to transitional arrangements for previous changes in the oil tax regime and to the reason why those arrangements were introduced.

5.30 pm

In 1986, when we suffered the effects of a sharp price downturn in the North sea, I was very active in trying to persuade the Government to introduce tax changes. It is worth reminding the Committee and the Chief Secretary, who showed no interest or attention at the time because it was not an area with which he had previously had contact, that the purpose of the changes was to try to ensure that there was a built-in incentive for companies to invest and to reinvest in the North sea so that there would be a kick-start to activity and to confidence. Those changes were successful. Activity has recovered, and there have been successes over the past couple of years in exploration activity.

Unfortunately, the Minister for Energy is not here; he has put in only a brief appearance. It is worth reminding the House what he said in the Brown Book this year: Activity offshore continued apace. Drilling activity fell slightly during 1992 but the success rate reached a new high with another 20 discoveries of oil and gas. For the 12th year running, the increase in known reserves has exceeded production. Not only has 1992 seen a further increase in the number of fields, but production too has been above 1991 levels. There has been a record level of investment. How is that likely to continue given the proposed changes?

Exploration activity is at a level that is near the level reached before the downturn of 1986. Following the introduction of the tax measures in 1986, there was a peak of 152 exploration wells drilled in 1990. The figure dropped to 72 wells in 1992. In 1992, there were 41 appraisal wells compared with a low in 1986 of only 40. Development drilling was the one area in which activity was high; the figure was 140 compared with 85.

The implication of the figures is that the Government are running a real risk of introducing a depression in exploration and appraisal activity when the activity is already in a downturn. The consequences are not hard to see. I urge the Financial Secretary to take on board the point that no hon. Member—not even the Minister for Energy—disputes the one fundamental fact that the changes, if implemented, will lead to an immediate sharp downturn in the drilling industry and to a consequential loss of jobs. That is not a matter for debate; hon. Members on both sides accept that point. The Government must address the issue.

I have been interested by the contrasting speeches from Back-Bench Conservative Members. The hon. Member for Beaconsfield (Mr. Smith) said that he believed in tax-cutting measures, and that was why he welcomed the changes. The hon. Member for Stroud told us that he favoured the changes because they would raise revenue. The proposals cannot do both. Over the past few weeks, there has been confusion about whether the changes will yield a net increase in revenue.

As I said in an intervention in the speech by the hon. Member for Edinburgh, Central (Mr. Darling), the Government have done themselves considerable damage in terms of the stability and predictability of the regime operating in the North sea. The Liberal Democrats have never argued against a continual adaptation of the tax regime to meet needs, but we believe that there should be fine tuning, that the regime should be predictable and that it should be introduced by consultation and negotiation. We believe that the implications of changes should be fully understood.

The Government have proudly boasted in past years that they have created just such a regime, but they have now torn up their credit without any real consideration of the long-term implications. That is why there is a definite case for transitional arrangements, and that is why I shall support amendment No. 21.

The hon. Member for Banff and Buchan (Mr. Salmond) has tabled a constructive amendment, No. 40, to which I have put my name. It allows some flexibility in the application of the transitional arrangements, which seems to make sense. My hon. Friend the Member for Orkney and Shetland (Mr. Wallace) will be a member of the Standing Committee on the Bill, and he will table amendments on our behalf. I hope that the Government will recognise that they are constructive and workable. They should be considered as a way in which to ensure that changes are introduced without a sudden and sharp downturn in activity.

According to the report produced by Professor Alex Kemp, there is likely to be a net loss of jobs of between 7,500 and 11,250. That is a relatively cautious estimate, which accords with the Treasury's estimates. In the north-east of Scotland, the estimate is for a loss of jobs of 4,000 to 6,000, which in a relatively small economy represents a significant downturn which will have consequences on the local economy.

I lived through the downturn of 1986, so I know that it was an experience that no one in the north-east wishes to repeat. Processions of people came to my constituency surgery who had not only lost their jobs but found that, because of the downturn in activity, the fall in price of their houses had dropped them into sharp negative equity. New houses were being sold by builders at a price lower than that for similar houses and lower than people's mortgages.

Some of those people are still having to pay off debts that they incurred then. Interestingly, no measures of assistance were forthcoming from the Government, and nothing was done to try to alleviate the hardship. We do not want to experience that again.

When I tried to enlist the then Prime Minister's support, her argument was that the North sea accounted for only 6 per cent. of gross national product and for only 0.5 per cent. of employment. That showed a cavalier and dismissive attitude. The Government's attitude towards the North sea has been that it is more a source of revenue than an industry that needs to be given stability and momentum.

The effects of uncertainty are far-reaching. I know of one company involved in the drilling supply sector in my constituency which was sufficiently concerned for no fewer than 350 of the employees to send a letter to me immediately after the Budget expressing their concern about the future of their jobs. Many other constituents have written to me expressing concern about the future.

The fabrication yards in the highlands are extremely short of orders. Highland Fabricators and McDermott's have also said that they find the uncertainty extremely worrying. The Government make great play of confidence. The sudden change in direction has damaged confidence in the industry when confidence has been somewhat fragile in recent months.

Dr. Robert Spink (Castle Point)

Has the hon. Gentleman received any letters from the several thousand employees of BP whose jobs, according to BP, have been made more secure by the petroleum revenue tax reforms?

Mr. Bruce

That is not necessarily true. The hon. Gentleman may know that BP has made many people redundant in the past year and has very much damaged its own internal relations by the way in which it has handled the redundancies. BP is the largest employer in my constituency, so I am very mindful of what BP has said. However, I have also gone on the record as saying that BP's financial difficulties are well known. It is not surprising, therefore, that BP is likely to welcome a windfall which will help its short-term return to profitability. The balance between the long term and the short term is part of the fundamental debate, as is the balance between individual companies and the national interest.

The regime will hit one sector very hard. It is extremely unfortunate because, in recent years, we have begun to build a British indigenous drilling and drilling supply industry. It will be seriously damaged, without justification and without warning. The Government should take that factor on board; I urge them to recognise that that is the strongest case for a transitional arrangement which will allow the industry to adjust.

The second point that must be taken on board concerns the success rate of exploration—precisely the matter to which the Minister for Energy referred. The danger now is that the Government are encouraging people to invest in the existing infrastructure at the expense of seeking new fields and new developments for the future. Exploration is, by definition, an uncertain business, and incentive to explore has been extremely productive in the national interest. There has been plenty of evidence of that, not least in either the fourth or fifth round in which blocks were auctioned, when Shell and Esso paid £21 million for the so-called golden block, on which they proceeded to drill three dry holes. The major discovery associated with that round was the Brent field, which is on one of the blocks that Shell and Esso were forced to take in association with the one that they wished to buy. Oil does not always come out of the ground exactly where one expects it to and exploration is a risky business.

I urge the Government to consider the point made by the hon. Member for Edinburgh, Central—that the Government are giving companies a return on their profits that they have no obligation whatever to reinvest in the United Kingdom sector of the North sea. The hon. Member for Beaconsfield said that he hoped and believed that companies would reinvest. But the existing regime ensures that they do—not by direction or force but by making it so financially attractive that, by definition, they will orient their future activity back to the United Kingdom.

There are many bids in other parts of the world to attract activity away. There is much talk about the opportunities in places such as Kazakhstan and Vietnam. We need to ensure that we have a regime that encourages continuing investment here and takes into account the national interest, which requires us to maintain continuity of employment and expertise as well as the ability of British-based companies to develop and enhance that expertise. We need a regime that is designed to ensure that we maximise exploration and the discovery of new reserves and that the industry has a long-term stable future.

I am not persuaded that the changes were introduced for the good of the industry. I think that they were introduced because the Government believed that they needed money and needed it fast. In introducing them, the Government have knocked the confidence of the industry. They have damaged the drilling industry and have threatened the livelihoods of thousands of people in the north-east of Scotland. I urge the Minister to take those points extremely seriously and to recognise that, at the very least, transitional arrangements should be introduced to minimise the impact of the changes.

I am not happy when Government Departments say that they have deliberately calculated that a tax regime will cost 10,000 jobs, and when they apparently regard that as acceptable. That is destructive, and unnecessarily so. It should be possible to devise a regime that will secure the industry, the jobs and the future. The proposals as they stand do not do that, and I urge the Government to make sure that, when they have finished with them, they do.

Mr. Raymond S. Robertson (Aberdeen, South)

I do not intend to detain the Committee unduly but I feel that there are some points that need to be made.

Let me start by addressing the imbalanced view that the Committee must have of Professor Kemp's recent report. Professor Kemp has been widely but selectively quoted by Opposition Members, and it is only right that the Committee should see the other side of what Professor Kemp had to say. Given what has been said, the Committee will be surprised to learn that Professor Kemp actually accepts that the pre-Budget position was unsatisfactory and was in need of reform. He is quite clear about that. He also said that the new arrangements will substantially improve the profit margins on the larger existing fields which have until now been very low. Anyone who knows anything about the North sea will know that that is to be welcomed.

Professor Kemp also acknowledges that the changes will considerably improve the net present value return from incremental investment on mature fields. Given the circumstances pertaining in the North sea, that is vital. He further acknowledges that the changes will give significant cash flow benefits to larger new oil fields. As we have discovered in recent weeks and with recent announcements, the days of finding major strikes in the North sea are far from over.

The hon. Member for Edinburgh, Central (Mr. Darling) was quick to quote directly from Professor Kemp's report in what was probably one of the classic selective quotations of all time. What the hon. Gentleman did not do was to read out the next two sentences, which put a wholly different complexion on the matter. Let me read out the whole paragraph, which the hon. Gentleman refused to do. Professor Kemp said: The presence of only one simple fiscal instrument applied to new petroleum exploitation activities in the form of a corporate income tax at 33 per cent. is quite unique among major petroleum producing provinces. It must constitute a significant attraction. That last was the sentence that the hon. Member for Edinburgh, Central refused to quote. Professor Kemp continued: The level of take is certainly low by international standards. 5.45 pm

I concede that Professor Kemp had some criticisms to make of the Government's arrangements but they must be seen in their proper context and must not be taken in isolation—which Opposition Members were keen to do. Professor Kemp is critical in his assessment of the impact on exploration but, as my hon. Friend the Member for Beaconsfield (Mr. Smith) said, Professor Kemp's assessment only considers prospects up to 50 million barrels in size, in respect of which petroleum revenue tax is not paid anyway. He leaves out completely the benefit of the abolition of PRT for larger discoveries. That is a significant omission on his part.

The Opposition have been quick to go to all sorts of independent analysts to find quotations to back up their case. I, too, can do that. Norman Smith of Smith Rea Energy Associates has gone on record as saying: The Chancellor has provided the majors with more of the funds that they need to tackle the frontiers, while at the same time making re-investment in production in the United Kingdom more attractive relative to foreign areas. It is no use bandying quotations about: we can each find one to prove whatever we want to prove.

Mr. Darling

Will the hon. Gentleman give way?

Mr. Robertson

No. I listened to the hon. Gentleman without interrupting; perhaps he will do me the same courtesy.

The changes should be supported. The increased cash flow that will come from them will assist funding of significant—

Mr. Ernie Ross (Dundee, West)

On a point of order, Mr. Morris. Is it in order for an hon. Member to refer to and specifically quote another hon. Member and not give way when that second hon. Member seeks to intervene?

The Chairman of Ways and Means (Mr. Michael Morris)

That is entirely a matter of judgment for the hon. Member in question.

Mr. Robertson

The changes should be supported because the increased cash flow that will come from them will assist funding of significant additional North sea activity, and that cannot be denied. The life of the existing fields will also be extended. More oil and gas will be recovered than would have been the case; that also cannot be denied. The changes will allow for new fields and discoveries to be developed far earlier and far more quickly than would previously have been possible. The industry has up to 80 fields waiting to be developed. When jobs are being considered, the jobs that will be created from the development of those fields must be taken into consideration as well.

It has been said that exploration will be affected. It will be affected but it will not be as adversely affected as claimed. The Budget changes leave untouched a signficant amount of exploration activity. Moreover, there is still relief for exploration wells drilled within 5 km of an existing PRT paying field, giving added incentive and added encouragement for greater exploitation of resources which we know are already there.

The proposals—

Mr. Robert Hughes

Will the hon. Gentleman be quite specific and answer yes or no: is he saying that he believes that no change whatever is required in the Chancellor's changes and that he will support them irrespective of the job losses in his own constituency?

Mr. Robertson

As I have tried to point out, I think that the proposals are in the best long-term interests of the North sea. If the hon. Member for Aberdeen, North (Mr. Hughes) can wait until the end of my remarks, he will discover how I intend to vote this evening.

The proposals have had a bad press; there is no doubt about that. Despite what has been said here and elsewhere, I believe that they have stood up quite well to the intense scrutiny to which they have been subjected. Just as I could not support moves at the beginning of the year to encourage the Government to dig for uneconomic coal, I cannot now encourage them to help companies to drill for uneconomic oil. There is no sense in subsidising oil companies to drill merely for the sake of their own tax bill. With companies representing two thirds—66 per cent.—of past and future capital expenditure in the North sea firmly behind them, the proposals are obviously in the long-term interests of the North sea oil and gas industry. The changes move us from a low-risk, low-reward North sea to a high-risk, high-reward North sea and, in reply to the hon. Member for Aberdeen, North, I have no hesitation whatever in recommending them to the House.

Mr. Hoon

Clause 183 would reduce petroleum revenue tax on the operation of existing oilfields and abolish it on new fields. Therefore, it would abolish the tax relief that was available for the cost of exploration and appraisal on those new fields with effect from 16 March 1993. What is the Government's intention? Clearly, they want to raise revenue to fill the gap in public sector finances. Sadly, that seems to be the only consideration that they have taken into account. Unfortunately, they seem to have ignored the wider effects of their decision. It is necessary to ask whether it makes sense to abandon what all hon. Members agree is a stable tax position—which was successful in attracting investment into the North sea in the late 1980s—at a time when the country's energy policy, so soon after the closure of so many collieries, is beset by uncertainty and instability. It is extremely difficult to see any signs of a longer-term energy strategy in the Government's proposal.

If it is necessary to spell out the importance of the North sea to Britain's economy for the benefit of Conservative Members, it might be worth mentioning a number of statistics. The North sea has contributed more than £115 billion in tax revenue. We have had about 11 billion barrels of oil, and a further 7 billion barrels of oil are available. It is not surprising that estimates as to how much is still to be discovered vary, but they range from 4 billion barrels to as much as 25 billion barrels. That is a significant amount of oil, the recovery of which will help to boost the country's economy. Instead of importing oil, Britain could expect to remain self-sufficient in oil well into the next century. Those discoveries have made, and should continue to make, a crucial contribution to our balance of payments, provided the Government remain prepared to leave in place the existing tax arrangements. Will the Government put at risk that benefit to the country's economy for the sake of a short-term addition to their shaky finances?

Comments have been made about the likely reaction of oil companies to the change in the tax position proposed by the Government. On any view, it will make oil companies reluctant to invest the substantial sums of money that are required to explore and develop new oilfields. That must be the case especially in the North sea. Reference has been made to the maturity of the North sea field. That means almost inevitably that new exploration is likely to be in the more difficult and marginal areas. Given a choice between investment decisions in more marginal North sea oilfields and investment in other parts of the world where other incentives may be available to companies, multinational oil companies, which have no loyalty to the United Kingdom, will be tempted to go elsewhere.

Reliable estimates suggest that exploration activity might be cut by as much as a half. After all, many areas of the world—a number have already been mentioned—are competing for new oil development. Obviously, those areas will benefit from the employment implications of the changes that the Government have apparently all too readily conceded will be the result of their proposals.

The Treasury has accepted that as many as 10,000 jobs may be lost. Perhaps not surprisingly, others have suggested that the number of job losses may be greater than 10,000. The majority of those jobs will be lost in Scotland, but many people who are employed directly and indirectly in the oil industry throughout the United Kingdom will be adversely affected. That is hardly sensible at a time when the country is suffering from the effects of high unemployment.

I shall quote from a document that I received this morning from the Association of Service Sector Oil-Related Companies, which puts the case graphically: the existing proposals"— in the Budget— will act as a disincentive to continued North sea exploration and result in substantial job losses across the sector, weaken their ability to expand and grow into international markets, drain technological innovation from the United Kingdom, and increase smaller companies' vulnerability to hostile takeover bids. As a consequence"— this is the conclusion— the United Kingdom economy as a whole will suffer. That means that whatever oil is waiting to be discovered in the North sea will probably continue to wait until the opportunity is taken to develop new fields for the benefit of British consumers and, ultimately—this has been justified in terms of revenue raising—for the benefit of the British taxpayer.

The Chancellor and, indeed, the Financial Secretary have made much of justifying the change in the sense that the existing petroleum revenue tax system is costing the country money and subsidising exploration by oil companies. In one sense, that is true. We cannot argue against the figures that have been made available. However, the Chancellor and the Financial Secretary overlooked the fact that, in 1984–85, the United Kingdom raised about £12 billion in tax receipts from North sea oil. Tax receipts have obviously fallen because of lower levels of production as part of the recession and the fall in world oil prices.

By abandoning the present tax arrangements unilaterally in the way that the Government propose, they are abandoning the prospect of substantial tax relief in the future. They are effectively abandoning investment in the North sea in terms of gaining benefits today in extra tax revenue and forgoing the prospect of higher revenue later. By discouraging new investment, we will be dependent on the reduced levels of revenue that flow from fields already under development. We will be giving up for all time the revenue from new finds, which will not take place as a result of this change.

The Labour party believes that it is necessary to continue to support investment in the North sea and encourage exploration and development of new fields. In such circumstances, it cannot make sense to make a sudden arbitrary and short-term tax change. Even if the Government are determined to go ahead with the change in principle, surely it makes sense to consider our amendments which will allow transitional relief and the phasing-in of the proposals, otherwise we risk jeopardising Britain's employment prospects and the prospect of new exploration and development. As a result, we risk severely damaging our balance of payments position for the sake of a short-term contribution to the Government's finances. This is a panic measure introduced by a panic-stricken Government.

Mr. John Horam (Orpington)

I shall not detain the Committee for long. There has been general concern about the change announced in the Budget and the Committee should discuss it in the serious way that it is and in a fairly objective way. Like some of my colleagues, I want some reassurances from my hon. Friend the Financial Secretary during the debate.

The hon. Member for Edinburgh, Central (Mr. Darling) understated the case in some respects. Perhaps it is the modern Labour way—having indulged in wild excess for many years, ultra-moderation is the way to get the message across. I welcome that as a general political principle, but on this occasion the hon. Gentleman underplayed his case. The fact is that Britain is a world leader in oil and gas exploration technology. The hon. Gentleman did not make much of that point. The United States and Britain are the two world leaders in oil and gas exploration technology.

There are few areas of British industry in which we have the depth and extensiveness of knowledge and experience that we have in the oil industry. When we look at our national advantages and our natural areas of competitiveness, we are spread rather thin—we are involved in many areas but not doing especially well in them. In the oil industry, we have an enormous depth of expertise and knowledge. We are using that expertise and knowledge not only to explore the North field but in other parts of the world—that point has already been made.

If we change the financial basis of our technological advantage, we must think carefully. It is a mistake to make dramatic changes of this sort. It is a mistake in principle to make dramatic taxation changes; I favour gradual changes in taxation in so far as they affect our industrial competitiveness. There is no doubt that the exploration effort in the North sea and elsewhere may well be affected by these changes, to Britain's disadvantage. There has been some dispute about that. Various figures have been bandied about the Chamber. The hon. Member for Ashfield (Mr. Hoon) and other hon. Members mentioned a figure of 50 per cent.—my hon. Friend the Member for Aberdeen, South (Mr. Robertson) disputed that.

What is my hon. Friend the Minister's estimate of the likely effects of the change in taxation? He may say that he cannot make a sensible estimate because he does not know exactly what the regime will be. However, I presume that the Treasury made an analysis before announcing the change. It must have made some assumptions about the likely effect on the industry of such a change, even before it had a chance to announce the change. What is my hon. Friend's feeling now about the likely effect on the exploration activity in the North sea as a result of the tax changes?

6 pm

As others have said, the reason for the tax changes is that we must have general regard to the level of public expenditure and our problems with the deficit. We must consider increasing revenue. In the case of the oil industry, in the current financial year we shall make a gift to the industry of about £200 million, having taken a large amount over the years. As one of my hon. Friends said, the current position should not last long. None the less, we should not give a seismic shock to the industry to deal with a tax handback to one industry which may not be typical of what will happen every year. Is this an extraordinary year? Are the current circumstances unique? Will the £200 million handback increase every year or does it reflect the circumstances of the moment?

I am not sure that it is sensible to deal with what may be a relatively short-term position in the way that the Government propose. I am aware that discussions are taking place between the industry and the Treasury. I welcome those discussions. It is a pity that they have had to take place post-Budget. The hon. Member for Edinburgh, Central said that he accepted that Budget purdah had to operate and that it was inevitable that such measures were not properly discussed with the energy department of the Department of Trade and Industry before they were announced.

I would be rather more radical than the hon. Member for Edinburgh, Central. It is proper in any sensible Government that there should be discussion with the relevant Department and especially the DTI about such changes in taxation. One of the faults of our Government has been that, as a result of the nature of government, they have not been able to arrange sensible, discrete discussions with the sponsoring Department before Budget changes of this character are made. That is a pity. I should like to see some changes made in that direction in future.

I do not go along with the argument that we should make such a change for short-term, tax-raising reasons. The oil industry is too important to subject it to such considerations. I want to hear from my hon. Friend the Minister that he has considered the position seriously, seen that there is a problem in the shape of the tax take from the industry, which has now become a tax give, and that he is prepared to re-examine the position. I want to hear that he has some objective and clear-cut ideas about the nature of the tax regime that he seeks to impose and that the change has been made, despite appearances to the contrary, for serious and objective reasons.

I want to hear from my hon. Friend the Minister that we can put in place a regime, the general character of which will last as long as the previous regime lasted. If we are dealing with a change that will help the industry and protect our acknowledged lead in the technology of oil and gas exploration, I shall support the Government because we shall be making the change for sensible tax-planning reasons. But I cannot support industrial competitiveness being damaged for short-term tax reasons.

Mr. John McAllion (Dundee, East)

Clause 183 abolishes petroleum revenue tax on oil and gas fields which are given development consent after 14 March this year. But it is just one element in a radically new tax regime for the North sea which has already been described by many experts and analysts as being designed mainly to put money into the coffers of the Treasury. At the same time, and as a direct result of the Government's short-term obsession with boosting the Treasury take, the new tax regime is likely to destroy future exploration programmes in the North sea.

The new tax regime will effectively shorten the economic life of the North sea. It will certainly cost thousands of exploration jobs in the North sea. It will seriously damage the oil service sector of the Scottish economy. In the long term, it is also likely to have serious implications for the new safety regime in the North sea which was introduced after the Piper Alpha tragedy some years ago.

Clause 183 is extremely important. The amendments which have been tabled by my right hon. and hon. Friends are designed to put off the evil day when the new regime and the damaging consequences which will flow from it come to pass. The amendments will certainly be supported by Opposition Members, but they should also be supported by Conservative Members, in particular those who represent constituencies in Scotland, and especially the north-east of Scotland, as do the hon. Members for Aberdeen, South (Mr. Robertson) and for Kincardine and Deeside (Mr. Kynoch).

I am afraid that, tragically, we are likely to come up against the phenomenon that we witnessed last night in the debate on value added tax on domestic fuel and power. Conservative Members will be whipped through the Lobbies in support of proposals which are neither in their interests nor in the interests of their constituents. They will vote for the proposal to defend a discredited and bankrupt Government and, even more questionably, to defend their squalid little careers within that Government in the years ahead.

The Government will present what they are doing in a different light. They will package it in glowing phrases about sweeping away outdated, anachronistic and old-fashioned tax regimes which are no longer appropriate to the North sea. They will talk about introducing major reforms which will provide the industry with a stable framework for its future development. They will even trot out their supporters among the big oil companies to give some industry credibility to what they seek to do in the North sea. Such supporters include the chief executive of BP, Mr. David Simon, who has already welcomed the changes. He has forecast that investment in the North sea will be directly stimulated as a result of the changes; indeed, he has predicted even bigger profits for his company and other companies in the North sea.

I am sure that Mr. Simon is sincere in what he says about the changes. I can quote directly what he said in The Press and Journal immediately after the Budget proposals were announced. He said: I believe these reforms will encourage development of larger discoveries like west of Shetland, where a higher rate of return is needed to balance the increased risks and costs of operating in the more demanding deep-water environment. That is all very fair, but Mr. Simon's company, BP', made the spectacular oil find in the west of Shetland last autumn and will develop that field. His company, BP, will pay the lower rate of petroleum revenue tax on oil produced from that field and, indeed, other fields. His company, BP, will now be able to make even greater profits than it has already made in the North sea this year.

I have here a quote from The Press and Journal of 7 May which announced a "BP profits gush". It said: BP stormed back into the black in the first quarter of the year … The oil giant saw net profits soar to £325 million compared with a loss in the corresponding period last year of £61 million. So it is good times for BP and probably even better times ahead with the increased profits that it is likely to accrue from the changes in the North sea tax regime in relation to the discovery that it has made west of Shetland.

If the proposed new tax regime had been in place one or two years ago, before BP and Mr. Simon were given development consent west of Shetland, would they be so enthusiastic about it? If, before BP explored west of Shetland, it had faced the prospect of not being able to offset its exploration and appraisal costs against its existing liability for PRT, and seeing those costs quadruple at a stroke as a direct result, would it still have gone ahead with that exploration? I think that the answer is no. In fact, the full headline from The Press and Journal of 7 March reads: Cost cutting helps BP profits gush It is because of such cost cutting that BP has been able to get itself in the black. If it is faced with the prospect of exploration costs quadrupling overnight, the first thing it will cut will he exploration itself, because that prejudices its chances of making profits.

Under the new tax regime there will be winners and losers, but the Opposition fear that there will be far more losers than winners. Professor Alex Kemp of Aberdeen university, who has already been quoted several times today, says that he expects there to be a "host of losers" and "some winners"—he does not expect many. Those winners are likely to be the heavyweights, the major oil companies such as BP and Shell.

The losers will include the oil service companies, particularly those involved in drilling and exploration. They will include the smaller oil companies and the 14th oil and gas round that is about to be offered by the Department of Trade and Industry. They will include the thousands of workers who will lose their jobs and their families, who are dependent on their income. They will include the taxpayers, who will be expected to fork out up to £100 million in benefit to try to keep such workers out of proper employment. The losers will also include the Scottish-based service sector that supplies equipment for the North sea, such as mud pumps and drilling bits. Among those losers will be the many people who will remain working in the North sea for companies such as BP and other large companies.

It is important to remember how the new tax regime was established. The Chancellor was faced with a desperately bad public sector deficit and he cast about for the means either to cut Government expenditure or to boost Government revenue. At the same time, he also discovered that under the existing PRT regime, the cost to the Exchequer in 1991–92 was £200 million. The right hon. Gentleman was therefore determined to turn that situation around by scrapping all the allowances against PRT and thereby securing for the Exchequer, according to his estimation, £300 million in 1994–95 and £400 million in 1995–96. That turnaround is worth almost £1 billion. That is what the Chancellor expects to accrue from the changes. He tried to anticipate any backlash from the oil majors by buying them off with a reduction in their liabilities under PRT from 75 per cent. to 50 per cent. That must represent a saving of hundreds of millions of pounds for those companies.

In just two years, well in excess of £1 billion will be seized from the North sea oil economy by the Government and by the oil companies as a result of the PRT changes. That money must come from somewhere. It will be saved by companies undertaking less exploration and offering fewer jobs. Not only will that have damaging economic implications, but it will have serious implications for the North sea safety regime.

It is nearly five years since the Piper Alpha tragedy in the North sea in which 167 lives were lost. I have absolutely no doubt that the train of events that led directly to that tragedy began in 1986 with the then collapse in the oil price. That collapse cut the profits of oil companies and led directly to cuts in care and maintenance programmes and a decline in the priority that was accorded to safety. Here we are again, in 1993, discussing changes under which the Government and the big oil companies, working together, will take more than £1 billion out of the North sea economy. That may have serious, damaging implications for the current safety regime.

I know that the new safety case regime is in place following the Cullen inquiry. Reports and legislation are never sufficient to guarantee the highest safety standards in the North sea. To guarantee those standards, we must create the financial regime that is conducive to such standards. Because of the changes to PRT, however, profits will be squeezed because exploration costs will begin to rise. The contracts for drilling will become even more fiercely competitive than they are now and the temptation will inevitably be to make savings from wherever that is possible. I suspect that some companies will now try to get away with making savings on safety.

Blowout is the newspaper for offshore workers and the offshore industry liaison committee, the OILC. The June 1992 edition was published a month after the new safety regime was introduced and it provided information about one of the more recent tragedies in the North sea, the Cormorant Alpha helicopter tragedy, in which 11 men lost their lives. It provided proof that one of the victims had previously been disciplined for refusing to board a helicopter in circumstances similar to those on the night of March 14 when 11 men died. It also noted: The pilot of the ill-fated Super Puma was not told of a serious weather hazard in the area. 6.15 pm

When Select Committees and inquiries, such as that headed by Cullen, take evidence on safety, the oil companies and their contractors never admit that that type of thing goes on. Similarly, they never admit that men who complain about lapses in the safety regime are victimised and blacklisted. That practice goes on to this very day in the North sea oil industry and hon. Members had better believe that. It goes on because of financial pressures, because companies are forced to cut costs again and again. The new tax regime is trying to make the same thing happen.

Someone must pay the price for all the money that will be taken from the North sea oil economy, and I suspect that it will he the workers, who will have to work in even worse, less safe conditions. That is the bottom line that we must take on board when we vote. That is why those Conservative Members who represent workers in the North sea must consider the safety of their constituents before they vote for a tax regime that will put those people's safety at even more risk in the years ahead.

I shall certainly check the voting list in Hansard tomorrow to see whether the hon. Members for Aberdeen, South and for Kincardine and Deeside and the other Scottish Tories voted for their constituents. They let the Scottish people down last night on VAT and they had better not let down the oil workers tonight.

Mr. George Kynoch (Kincardine and Deeside)

As has already been said, I represent the employees and staff of many of the oil companies, be they large, medium-sized or small. I also represent those who work for indigenous industries that have, over the years, become oil-related service companies and those who work for drilling and supply companies.

After the Budget on 16 March, I obviously received many letters on the subject of the proposed changes to the PRT. The response was mixed. I spent the day after the Budget talking to representatives of a medium-sized oil company and debating with them why a move to a low-tax, low-allowance regime was infinitely superior to a high-tax, high-allowance regime. I suggested that those changes would bring those companies into line with the rest of British industry, because, by allowing them to keep more of the profits that they make from their production or finds, they can reinvest in their companies to produce further profit in the future.

After a period of deep reflection, many of the oil companies that had expressed initial concerns about the tax change, perhaps having latched on to the allowance side, then completed their highly complex calculations—whatever any hon. Member may say, the PRT is a highly complex tax—and revised their opinion. They accepted that, in the medium to long term, the tax changes were significantly beneficial to them, their employees, the United Kingdom and the North sea oil industry.

It is important to stress that those benefits will be apparent in the medium and long term, however, because my hon. Friend the Financial Secretary is aware of my deep concern about the transition period. As the arrangements stand, many of the incentives that the tax changes offer, will not come through for 18 months or two years at the earliest. I quote from this morning's Aberdeen Press and Journal: BP £2 million booster is oil jobs bonanza. It may well be as a result of these tax changes that that has been brought forward. It probably is. But I must emphasise that the work will not begin until early in 1995 and we are now in 1993. My hon. Friend the Financial Secretary has already said, on Second Reading, that he wishes to minimise any dislocation in the industry, and I know that he recognises that there may be dislocation. I know that the oil companies share his wish to see a fiscal situation that satisfies the Treasury and becomes tax raising rather than a tax cash curb. I am, therefore, exceedingly grateful to my hon. Friend for receiving the deputations that I have taken to him from the north-east of Scotland, representing more than 60,000 employees in the North sea, who accept the medium to long-term benefit of the change, but who see that there will be a significant dislocation to the industry in the immediate future.

I am equally well aware of the Financial Secretary's concern that by building a transition period without controls one runs the risk of overheating the drilling and exploration side and putting up drilling costs. It is a concern shared by the industry: it is in no one's interest for that to happen So I know that the industry is very keen to assist my hon. Friend's officials to work out a satisfactory capping proposal that will be fair to the Treasury, fair to industry and fair to the future of the North sea.

I share the concern of my hon. Friend the Member for Stroud (Mr. Knapman) that the Treasury should seriously consider this problem, but I must quote—again, I am afraid, selectively—from Professor Kemp. I will not go into the details of his acceptance of the inevitability of the tax changes and whether they affect small companies or large, but the one point that he clearly makes in his summary is this: The abruptness of the implementation of the budget proposals will create disruption in the exploration sector of the industry. It will also have an adverse effect on investor confidence in this sector. Exploration companies, particularly the small ones"— many of those are represented in my constituency— have based their E and A programmes on the basis of receiving full PRT relief for the expenditures. They can react in the short term only by sharply cutting their E and A activities. The result will be highly disruptive for the drilling contracting and supplies industry which are already suffering from trading difficulties. The medium term exploration effort of the smaller companies in the United Kingdom CS could also he put in jeopardy. I know that that is only one opinion, and I know that British Petroleum and Shell have put an opposite opinion —they believe that there will be minimal dislocation and that the proposals should remain intact. Bearing in mind that I have in my constituency employees represented by BP and Shell, that puts me in a rather difficult position because they take the view that, in the short term as well as in the long, there will be no dislocation, but I believe that there will he a dislocation and that if my hon. Friend the Financial Secretary looks seriously at a fiscally neutral adjustment to the transitional arrangements, it may well smooth the transition to what I believe will, in the medium to long term, be a better tax regime for all concerned.

Mr. James Wallace (Orkney and Shetland)

The hon. Gentleman has quoted, and indicated from his own discussions with the oil companies, various views. Is he in a position to inform the House what has happened since the Budget and what companies have done with regard to plans that they may already have had for exploration and appraisal?

Mr. Kynoch

As I am sure the hon. Gentleman is aware, what has happened depends on which company one looks at. There has been a fairly mixed response. The hon. Member for Edinburgh, Central (Mr. Darling) and I attended a conference of oil companies at the weekend where we heard a very mixed response. Some contracts have been postponed, but other projects have been brought forward. The situation is not cut and dried. I believe, however, that many of the projects that have been conveniently announced at this time as being brought forward will not have their full effect on employment until 1995. There are small to medium-sized service companies in my constituency that will be put in jeopardy by the delay in the making of decisions and in the awarding of contracts. It gives me great concern.

However, the clause that we are discussing is not the one on which I have had representations for change. The Financial Secretary was good enough to hear the representations from my many constituents and has been good enough to allow his officials to continue discussions with representatives of the industry to try to determine whether the dislocation can be further minimised. I am sure that he knows that the appropriate clause—-either clause 184 or clause 186—is most likely to be discussed in Committee upstairs.

I therefore conclude by urging my hon. Friend, while thanking him for having seen and considered these representations, to make sure that he understands the implications for my constituency, for the north-east of Scotland and for the United Kingdom Exchequer in the medium term.

Mr. Robert Hughes

rose—

Mr. Kynoch

I hope very much that by the time the Bill is considered in Committee upstairs the negotiations and discussions that which have gone on—

Mr. Robert Hughes

rose

Mr. Kynoch

—will have brought to fruition a satisfactory result for the north-east of Scotland.

Mr. Salmond

I could have told the hon. Member for Aberdeen, North (Mr. Hughes) that the hon. Member for Kincardine and Deeside (Mr. Kynoch) would not give way because it might have punctured the alibi that he constructed for the latter part of his speech.

I would say to the hon. Member for Kincardine and Deeside that we are discussing the principle in clause 183. If the hon. Member really wants to see transitional relief, he need not go on pleading with his hon. Friend on the Front Bench; he just needs to join us in the Lobby to secure it.

There was an interesting contrast between the hon. Member for Kincardine and Deeside and his hon. Friend the Member for Aberdeen, South (Mr. Robertson). It is some sort of double act that we are seeing here, the nice copper and the nasty one. The hon. Member for Aberdeen, South works them up and then the hon. Member for Kincardine and Deeside is meant to soothe them down. However, with their voting behaviour in the space of 24 hours, they are running a severe risk. Yesterday, they voted to put value added tax on fuel, voting against the wishes of about 99 per cent. of their constituents; tonight, it seems, they will vote to put thousands of their constituents out of work and, later this evening, if I read the signs aright, they will vote to decimate our fishing industry. That is a triple whammie delivered by these two hon. Gentlemen which people in the north-east of Scotland will find very hard to understand and will take a long time to forget.

We are debating clause 183 but also the principle of the tax shift, and I want to speak, in particular, about amendment No. 40 in the names of my hon. Friends and myself and supported by Liberal Democrat Members in which we are trying to make some positive suggestions as to how transitional relief may be effected. We do not want to do it by means of the fiscally neutral position that the Treasury has sought—that if one gives with one hand and takes away with the other, it will be satisfactory for the Treasury. One will never reach a consensus in the industry by selling some companies that they will lose prospective revenue in order to benefit others. That is not possible. In amendment No. 40 we propose that for a period a company should continue to be able to opt to receive exploration and appraisal relief, at a certain percentage and subject to a ceiling in the case of each individual company, to remove any possibility of an excess in the claim of any one company. I was pleased that we received from the Leader of the House last Thursday an undertaking that if any of this evening's amendments were carried he would see that the consequential amendments which might he necessary were brought forward in Committee upstairs. The hon. Member for Kincardine and Deeside need have no fear about waiting for the Committee. All that he has to do is join us in the Division Lobby tonight.

There is a case for changing the tax regime in any oil province. The usual time to do it is when oil prices are riding high, and the industry is subject to overheating. Then, there can be a logical case for cooling down activity in the industry and at the same time getting more revenue for the Government. It is more questionable to do it when the industry, as at present, is already in a state of substantial over-capacity.

6.30 pm

There is a case for a low-taxation regime in the North sea. It is obvious that companies would like a reduction in their marginal rate of taxation. However, it is disingenuous for Ministers to quote major companies in the oil industry—Shell, BP and Mobil—all of which will benefit to the tune of many millions, perhaps even hundreds of millions, of pounds from the tax changes, as if that were some sort of independent assessment of the overall impact of the tax changes.

The story in the north-east of Scotland is that John Morgan of BP receives £10 million for every press conference that he gives. It is a sort of payment by results scheme. The more that BP praises the Government's taxation changes, the more that it realises how much it will benefit from them. I am not attacking senior executives in BP who say what a good thing it is that the tax change will bring the company lots of money. That is an understandable position for any company facing such a tax change. However, the Government have to understand that what is good for BP is not necessarily good for the whole of the oil industry. It is the Government's duty, sadly neglected, to take an overall view and see what overall balance of effects will result from their taxation changes.

If drilling costs in the North sea are quadrupled—that will be the effect of the tax changes—that will have a substantial impact on the drilling sector and will cost a substantial number of jobs. Furthermore, because of the suddenness of the change, it will cause substantial dislocation, because many companies will face sudden cancellations of contracts.

We have been talking in general terms and about big companies. I want to read briefly to the Committee a letter that I received from Steve Lee, the manager of the advanced technology centre of Core Laboratories in Aberdeen. It is a subsidiary of a major company, and it employs 100 people in Aberdeen. Mr. Lee wrote to me on 30 April saying: Since I last wrote, the confidence of the oil industry has continued to decrease, which has resulted in exploration/ appraisal wells being deferred. The consequence of this to my company has been a substantial decrease/loss of orders. This in turn led to 16 members of Core Laboratories staff being made redundant on April 27th, 1993. A reduction of 16 per cent. of the workforce is considerable. Unless and until there is a rethink on PRT there is every likelihood of further layoffs in the coming months. I suggest consultation with the WHOLE of the oil industry would be beneficial to both the Treasury and the oil operators. Those are the effects on real companies and people in the north-east of Scotland.

We are debating the overall effect, the net effect, of the changes. Clearly, some companies will benefit and some will lose. However, as has been pointed in some of the correspondence in the newspapers, it is a fairly simple matter for an oil company to adjust its activities so as to become a major gainer from the tax changes. If one wants to be a winner, all that one has to do is up sticks and start exploring in other oil provinces elsewhere. Those who do not explore in the North sea will not be subject to the quadrupling of the price of exploration and appraisal.

We have heard from certain organisations, including Grampian region, the chamber of commerce and the offshore industry liaison committee. They represent local authorities, many of the employers in the region and many of the workers in the industry. None of the organisations has an axe to grind. All of them have workers working for winners and those working for losers. All of them have taken an overall view of what the net effect of the tax changes will be in their area and in the oil industry as a whole. All of them have come to the conclusion that the overall effect will be strongly negative and that thousands of jobs are at stake because of the tax changes that the Government are proposing.

As has been said a number of times, we are grateful for the fact that Grampian region commissioned a report from AUDEC Consultants and Professor Kemp's team at Aberdeen university. Conservative Members have claimed that Professor Kemp has been quoted selectively. They have said that Opposition Members are only quoting the adverse remarks in the report and forgetting to mention the positive things that Professor Kemp had to say about the oil tax changes.

It is obvious that an academic, and in particular an informed academic like Professor Kemp, when he is looking at an overall tax change that involves reductions in taxation in certain sectors in certain areas, will say positive things about the effect of the reductions. However, it is also true that the basis of the report was the desire to come to a conclusion about what the overall effect would be on jobs in the oil industry. There is no doubt about that. The report summary says: The Scottish level employment fall forecast ranges between 7,500 to 11,250. It should be appreciated that this does allow for the retention of some jobs as a result of incremental investment. At Grampian Regional level, the jobs lost could be 4,000 to 6,000. Greater jobs losses are quite possible. Throughout the report, Professor Kemp erred on the side of caution in every estimate. For example, those of us who have been involved in oil economics know that, for the oil industry, it is usual to use a high multiplier effect in estimating the overall consequences of job reductions. In the oil industry one usually takes a multiplier of 1.78. So as not to exaggerate the consequences of the tax changes, Professor Kemp chose the more conventional multiplier used for the rest of the industry, that of 1.25. If he and his team had wanted to exaggerate the effect of the tax changes, they could, quite defensibly, have increased the figures substantially. Wherever they had to make a choice, they erred on the side of caution.

Hon. Members on both sides of the House should accept that we are looking at a potential impact of around 10,000 job losses if the tax changes go through unaltered. I believe—I think that many hon. Members will also believe—that 10,000 jobs is too great a number to be so casually disregarded by the Government.

Did the Government know that that would be the impact before they made the proposal? We have to look at the now renowned quotation in The Press and Journal, appropriately enough from an article that appeared on April fool's day, immediately after the Budget, which used a briefing that was attributed to a Treasury official. The famous quotation "from a senior advisor" was: For 10,000 (job losses) we are securing £400–£500 million a year in taxation. It seems that the Government and the Treasury engaged in a calculation and thought that they could secure hundreds and millions of pounds' worth of additional taxation and, if there was a cost of 10,000 jobs, primarily in the north-east of Scotland, that was just too bad and it was a "price well worth paying".

I see a puzzled look on the face of the Minister for Energy. That is not unknown. Over recent weeks he has often looked puzzled and confused. As he is here and giving us the benefit of his facial expressions, even if he is not giving us the benefit of a contribution to the debate, could he answer one of the questions of the debate? Were he and his Department consulted before the Treasury put forward the taxation changes? Did he give advice that was disregarded or was he disregarded in that his advice was not even asked for?

I am happy to allow the Minister to intervene to answer, as the oil industry would like to have that question answered. I see that he is shaking his head. Does that mean that the Department was not consulted or that he is frightened to intervene to confirm what many Opposition Members believe? We believe that the oil industry and the energy sector are so disregarded by the Government that the Minister with responsibility for them is not even consulted when serious tax changes are being considered with an impact on 10,000 or more jobs, primarily in the north-east of Scotland.

The Minister for Energy (Mr. Tim Eggar)

The hon. Gentleman claims to be interested in these matters. May I refer him to the answer to a similar question that my right hon. Friend the President of the Board of Trade gave the Select Committee?

Mr. Salmond

We should like to know what it was. Was the Minister consulted or not? We can all consult the record afterwards, but I should like an answer during the debate as many Conservative Members are wondering how to vote this evening. Surely the Minister must want to tell the Committee whether he was consulted about the tax changes in the run up to the Budget proposals. I wonder whether the silence from the Treasury Bench tells us everything. I shall not even ask whether the Scottish Office was consulted as we can safely assume that no one would bother to do that. Scottish Office Ministers are not here this evening just in case they should be asked that question.

It is unfortunate that much of the debate outside the Chamber has been conducted in terms of the cash flow of individual oil companies—which companies would benefit and which would lose. It should not be a matter of the accounting position of individual oil companies but a flesh and blood issue affecting 10,000 or more families and the infrastructure of the oil industry in north-east Scotland.

I have heard the Treasury Minister, in many radio interviews, deriding those who question the wisdom of the oil changes by arguing that we want to give some advantage to the international oil industry. What greater advantage could be given to some of the largest companies in the international oil industry, at the expense of jobs and the industrial infrastructure of our oil industry, than that given under the Government's proposals?

I am concerned about the future after the taxation changes. One argument that the Government have put forward is that it will make the North sea a more attractive province, but that argument holds only if people believe that, if oil prices were to increase rapidly at some point in the future, there would be only a corporation tax regime in place.

No one in the oil industry to whom I have spoken, whether they are for or against the changes, believes that any Government of whatever political colour would leave a taxation regime in place which meant that only corporation tax would be charged on new discoveries if, once again, there were a major escalation in oil prices. The Government have introduced instability into a tax regime having previously claimed that, above all, the United Kingdom tax regime offered stability to the industry. They have undermined their strongest argument in favour of the United Kingdom tax regime.

It is obvious that the taxation changes will be bad for the industry. Clearly, any change that is anticipated to give substantial benefits to the Treasury in net financial terms will be detrimental for the industry.

The hon. Member for Dundee, East (Mr. McAllion) was right to say that at the end of the day someone will have to cough up for the additional revenue that the Treasury will expect from the changes. It will not be the international oil companies; some will lose and some will gain and the ones that lose will probably explore elsewhere. I suspect that there will be a cutback and a squeeze on the service companies and that many of the effects will be felt by the workers in the industry. One consequence of a financial squeeze, as we saw in the mid-1980s, is a reduction in maintenance and work force conditions.

The exploration sector will certainly have to become more competitive, but, once again, many workers in the North sea will face a hostile environment in terms of their conditions.

In conclusion, the changes in PRT are often described as resembling the Schleswig-Holstein question in European history in that only four people understand it: one is mad, and that certainly covers the Treasury Bench, one is dead, and in political terms that would cover the Chancellor, I have forgotten the third and the fourth is Professor Alex Kemp of Aberdeen university.

Professor Kemp was the adviser to the former Energy Select Committee. In his much-quoted report, he put forward the strongest possible argument for introducing some form of transitional relief to provide protection and attempt to save the jobs that are now at risk in north-east Scotland and elsewhere. Amendment No. 40 encapsulates Professor Kemp's recommendation and I certainly commend it to both sides of the Committee this evening.

6.45 pm
Mr. Ernie Ross

Our debates last night and tonight have demonstrated to those who watch and listen to our proceedings, who read our debates and who are affected by the policies we are discussing the Government's ability to unite diverse groups across political and economic backgrounds.

When my hon. Friend the Member for Midlothian (Mr. Clarke) catches your eye, Mr. Morris, I am sure that he will remind you that it was not long ago that the Government attempted to make the same hash of the coal industry. They consulted no one, but simply produced proposals that they considered to be in the best interests of the Government and the Coal Board. They did not worry about Britain's long-term energy needs or the impact on workers in the industry.

My hon. Friend the Member for Dundee, East (Mr. McAllion) reminded the Committee that, had there been an Energy Select Committee, it could have considered these matters. It is significant that the Government chose to introduce these changes in taxation in the knowledge that there was no Select Committee to monitor the month-by-month impact on north-east Scotland and the rest of the United Kingdom. The changes to the PRT will impact on employment, but not only in the north-east of Scotland. It is quite likely that some 3,000 jobs in the southern sector will be lost as a direct result of those changes.

It is also clear that those who will benefit most do not need the benefits as much as we need to continue to encourage exploration and appraisal in our oil industry. Companies such as BP and Shell do not need long-term encouragement that will accrue to them as much as the exploration and appraisal companies need it if we are to continue to benefit from the North sea.

What are the likely effects of the decision on the PRT? Certainly the cost of drilling a well will be increased four times as a result of the proposed changes, and that will affect the number of wells to be drilled during 1993–94. It will follow a reduction in drilling and exploration in 1991–92.

As hon. Members on both sides of the House have conceded, the number of jobs that will be lost is not quite clear. It ranges between 6,000 and, depending on whose estimates we take, 20,000 to 30,000. Even the Treasury estimates that about 10,000 jobs will be lost. It will not just be jobs that are lost but, as other hon. Members have said, the expertise and knowledge will also be lost, and once it is gone, as we discovered to our cost, particularly in the manufacturing sector, it is difficult to replace.

We have also heard the Government estimates that the net benefit to the Treasury will be about £700 million in a full year. Others have argued with that figure, and I should be interested to hear from the Financial Secretary exactly what he thinks about an estimate of £200 million or £300 million rather than the £700 million suggested by the Treasury.

The Financial Secretary to the Treasury (Mr. Stephen Dorrell)

The hon. Gentleman need not detain the Committee long on that issue, because the Treasury's estimate of the net effect of the changes to PRT is set out in the Red Book; he will find that the figures quoted there are £300 million in 1994–95 and £400 million in 1995–96.

Mr. Ross

The Financial Secretary must admit that other financial experts disagree with those figures. Only time will tell who is right. Given the Government's record on finance, I think people are more likely to believe estimates other than those given by the Financial Secretary.

The real impact will be felt by those directly affected. The cost to this country—if we accept the estimate of 10,000 unemployed—will be approximately £90 million to £100 million in lost revenue. My hon. Friend the Member for Aberdeen, North (Mr. Hughes) asked the Financial Secretary how, why and where the discussions that led the Financial Secretary to recommend to the Cabinet that the Chancellor should proceed had taken place. The Financial Secretary helpfully said that there had been on-going discussions over three and a half years. As my hon. Friend the Member for Aberdeen, North said, whoever the discussions took place with, they certainly never took place with the workers in the industry and the industry itself—the Financial Secretary said that he would have needed a crystal ball to decide or second guess the likely changes in the Chancellor's Budget.

As we now know, the Department of Energy was not involved in the discussions; I am not surprised at that. Neither was the Department of Employment, which will have to find jobs for the individuals who are liable to be made redundant as a result of the changes. The hon. Member for Stirling (Mr. Forsyth), the Minister of State, Department of Employment, appeared before the Select Committee on 14 April, and I asked him whether his Department would be responsible for finding employment for those made redundant as a direct consequence of the changes in taxation and whether his Secretary of State had been involved in discussions with the Treasury. He said no, there had been no discussion whatsoever.

Although the Government will have to find some project or scheme which will provide training, reeducation and jobs for those 10,000 people, the Treasury did not consult the Department of Employment, even though it will be given the responsibility. There was no prior discussion with the Department of Energy, with the industry, with the workers in the industry or with the Department of Employment. The Financial Secretary should tell us exactly who these discussions took place with.

My hon. Friends have rightly raised the spectre of the lost jobs in the north-east of Scotland, and those who will lose their jobs should be conscious that the hon. Member for Kincardine and Deeside (Mr. Kynoch) and the hon. Member for Aberdeen, South (Mr. Robertson) are likely to support these measures. They should be aware that their unemployment, according to the hon. Member for Kincardine and Deeside, will be a "positive response" to pressure from MPs for changes in the petroleum revenue tax which caused the unemployment. I hope it helps the unemployed, as they wend their way to the unemployment exchange, to know that a positive response made them unemployed. I am sure that there will be many people in those areas knocking on the doors of those two hon. Members, demanding that they find such people suitable alternative employment after the changes in petroleum revenue tax take effect.

My union, Manufacturing Science and Finance—which is the largest union in the oil industry—has other concerns. As hon. Members have suggested, when licences were awarded, the oil companies agreed to complete a given number of exploration wells. Those commitment wells are having to be drilled without the planned tax relief, so there will clearly be a loss to those companies. The DTI is insisting that those drilling commitments are met, and this will have a further impact on the ability of those companies to maintain employment.

It will certainly not be in the long-term interests of the country that we will have not a healthy industry, but an industry buffeted not only by economic recession—which, we are told, is not just here in this country but worldwide—but also by the impact of these changes in the exploration and appraisal tax proposals.

The White Paper on energy relied heavily on the expectation that the oil and gas sector would continue to prosper. This decision by the Treasury destroys any belief in a long-term plan for the industry. The international players in the oil business are looking for a stable fiscal background for investment. In one simple decision, the Chancellor of the Exchequer has destroyed Britain's reputation and, more importantly, shown that the Government do not understand the long-term nature of the oil industry.

The decision also sets a precedent for retrospective taxation. The commitment wells will be held to by the Department of Trade and Industry, and that will lead to further complications.

One point that has come out of this short debate is that, when such huge investments are involved, any change decided by the Government should be discussed in advance with those involved. The problems should be identified and the solutions sought before the change is gradually introduced.

I hope that other hon. Members will join the Opposition and vote for transitional arrangements which will at least offest the worst aspects of these changes.

Mr. Eric Clarke (Midlothian)

One of our main difficulties is the absence of an integrated energy policy. Obviously, we are a lucky nation in that we have indigenous oil, coal, gas and nuclear industries, but the taxation problem is causing unemployment.

This is a short-term affair; I can see it in no other way. Constituents write to me, asking in particular what is happening to the exploitation of exploration. An extractive industry will die if there is no investment in exploration. It is impossible to keep pumping oil up a single hole; the industry must be continually expanded. My hon. Friend the Member for Edinburgh, Central (Mr. Darling) mentioned the threat that investors may go elsewhere: that threat is staring us in the face. Many nations have now lifted the barriers preventing multi-national companies from exploiting their resources. I am thinking especially of China. Many of the North sea companies' competitors are there already. One aspect of the industry is that those who are not there on the ground floor will lose out to a market that has potential for the future.

Another aspect of the current threat is the knock-on effect on technology. It will be our loss if we hesitate to exploit the deep parts of the North sea, the export potential for the next generation and all the facilities, know-how and equipment available because of a taxation problem. The export potential and know-how that we can give other countries is there, staring us in the face. If there is a run-down in the companies involved, or of the high-technology institutes with which such companies work, that alone could give cause for regret in the future.

I am adding my tuppence worth to the debate on the basis of what I consider to be common sense. Those who have written to me feel that, ultimately, they will pay the price for the Government's incompetence in organising an inquiry into the effects of their proposals; that cannot be tolerated. I know how I will vote tonight, and I appeal to other hon. Members to vote in the same Lobby to ensure that the Government reconsider their proposals.

My appeal is based on common sense. We want to exploit the whole of the North sea and its potential. It should not be thought for a moment that only Grampian and the north-east are affected: anyone who boards a London train to Aberdeen will see many former miners and shipyard workers from the north-east of England whose skills have been adapted for work in the North sea. Many technical people throughout the United Kingdom are affected by the cut in exploitation of resources. I hope that hon. Members will use their common sense and support the amendment.

7 pm

Mr. Malcolm Chisholm (Edinburgh, Leith)

I too will curtail my remarks.

I became interested in this subject because of two constituency considerations. First, I was getting many letters from men who worked in the North sea and were concerned that their jobs were at risk. Secondly, I was aware that a large factory in my constituency, United Wire at Granton, had quite a few employees making screening equipment for use in oil drilling. Even within a few weeks of the Budget, orders for that equipment had declined by 20 per cent.

The Government may be rejoicing that at last they have hit the bottom of the big hole that they dug for themselves, but the rest of us are still worried about unemployment. In Leith, we will not be dancing in the streets because 46 people came off the claimant count last month; we still have over 5,000 officially unemployed. My first concern is to make sure that no more people lose their jobs.

We have heard about other parts of Scotland being worse affected. My main question is to find out the Minister's estimate of the number of jobs likely to be lost because of the tax change. Is he sticking by the much-quoted press release of 1 April, which mentioned 10,000? Another way of putting the question is to ask him whether he agrees with Professor Kemp.

I accept that Professor Kemp says different things. There may be room for small changes in the tax regime, but the main thrust of Professor Kemp's report is that about 10,000 jobs will be lost. I intended to go into his report in more detail, but because of the shortage of time I will leave it.

Does the Minister go along with what small businesses are saying? The Government claim to support small businesses. Those businesses want to know what will happen to the licences they have. Will they have to proceed with them? Does the Minister realise that small businesses are saying that they will go to other parts of the world where the tax regime is favourable?

Why is it always BP which is quoted by Conservative Members? I think that BP is the only source which has been quoted more than Professor Kemp in the debate. BP, which stands to gain £150 million from the tax change, has been abandoning new exploration in the North sea for a long time. Of course a company can be a winner under the new regime if it does not want to explore. It was misleading for the Minister to quote the new BP development, because it has a contract for that, and it will still get tax relief on it. As my hon. Friend the Member for Dundee, East (Mr. McAllion) asked, would the company have initiated the development under the tax regime?

Unemployment is our main concern, but many points about the proposal are reminiscent of problems which the Government have run into over the years. There is the short-term nature of the decision, as with so many other economic decisions. The Government seem to be saying, "Let us do something that will bring in money." It is connected with the problem of the public sector borrowing requirement. As with yesterday's debate, the tax proposal seems to he an easy way of solving the problem without regard to the long-term consequences.

Many of the mistakes which the Government have made in their economic policy are being repeated in this measure. One quarter of United Kingdom manufacturing investment is in the North sea. The low level of manufacturing investment has been a key problem under the Government, yet they are prepared to let that decline, with the result that overseas investment by companies will increase. Encouragement of overseas investment has been a feature of the Government for the last 14 years.

Even considering the matter in terms of revenue, if fewer new fields are developed, that will reduce revenue and exacerbate the fundamental balance of payments problem, to which the Government have not sought any solution. Many problems will be made worse by the measure. The main problem is that it will increase unemployment, which is still far too high in Scotland and throughout the United Kingdom.

Mr. Calum Macdonald (Western Isles)

I understand the pressure of time, but it is important to put on record that the changes will not just affect the east coast of Scotland, north-east and south-east, but will have a major impact on the west coast. The impact on the west coast may not be so great in terms of loss of income or the volume of jobs, but it may be disproportionately greater in relation to what those jobs mean for a fragile area such as the west coast.

There are direct and indirect implications. The direct implication involves people from the west coast who are employed offshore in the North sea and companies on the west coast that service part of the North sea sector. One of the most important, if not the most important, is in my constituency. The fabrication yard at Arnish, just outside Stornoway, opened in the mid-70s and closed in the late 80s when the company, Hereema, pulled out. Subsequently there was a management buyout. Under the local managers, and with the help, support and hard work of the work force, the yard has prospered, employing up to 200 people on average. That is a large number in view of the fragile economy of the Western Isles.

The quality of the jobs is as important as the number. In a rural economy dominated by agriculture and fishing, it is valuable to have highly skilled engineering jobs, filled 95 per cent. by local workers. Small yards such as that are likely to be the worst affected by the changes. Small yards will not pick up orders from companies like BP. They get orders from the smaller exploration companies which will be hardest hit by the changes.

As to the indirect effect, people from the west coast work in the North sea sector but they send their earnings home. That money plays a vital part in maintaining the economic health of the west coast.

One final factor is even more indirect—the potential impact on future exploration and development of oil and gas reserves off the west coast of Scotland, if they prove to be substantial. Some companies have expressed great interest in extending their activities to the west coast. Areas such as the Western Isles could gain greatly from that development. The companies providing services and supplies would probably not be as sophisticated as those that have sprung up on the east coast, but even if they were moderate sized they would have a beneficial effect on the fragile economy of the west coast.

It is deeply irresponsible of the Government to threaten the exploration and development potential of the west coast of Scotland. Did the Government take account of the longer-term effect? BP is showing great interest in the western continental shelf. It will turn out to be one of the winners from the changes. But I wonder whether BP will put its winnings into exploration and development off the west coast, given the effect of the changes. Did the Government even consult BP to find out exactly what the implications of the changes would be on the company's plans for developing off the west coast?

The jobs impact on the west coast of Scotland may seem relatively small in the context of 10,000 job losses overall, but it will have a huge and disproportionate impact on the west coast if exploration activity is seriously threatened by the changes. I join other hon. Members in asking the Government to reconsider the whole issue, especially the prospect of a transitional regime, and at least give a commitment that if things turn out badly for the industry as a result of the changes in the coming year or two, they will review the matter again.

Mr. Dorrell

It is common ground in the Committee that we are debating important changes with important implications for the structure of the oil industry in the medium and long term.

I begin by answering directly the hon. Members for Aberdeen, North (Mr. Hughes) and for Dundee, West (Mr. Ross) and others. I can tell them clearly and in terms that the changes are the result of a substantial programme of work that involved consultation between the Treasury, the Inland Revenue, the Department of Trade and Industry and, before that, the Department of Energy.

The work was carefully prepared and the conclusions were reached by the Chancellor of the Exchequer on the basis of that work. The common ground, shared in all parts of the Committee, is a desire to ensure that we have in the North sea a stable fiscal regime that is attractive to the operators in the North sea and the supply industry. I agree with my hon. Friend the Member for Orpington (Mr. Horam) about the importance of ensuring that we have in this country an environment that encourages the development of competition in the oil companies and the supply sectors.

No one can believe that the present system can properly be described as stable. The basic facts about the system are well known and on the record. In 1991–92, something that we call a tax cost the Exchequer £216 million. In 1992–93, it raised the princely sum of £54 million. So, in the last two years for which figures are available, the tax cost the Exchequer £162 million.

The reason for that in large measure can be attributed to development of the use of the exploration and appraisal relief well beyond anything that was envisaged when the relief was originally introduced. When it was introduced in 1983, the budget estimate was that it would have a revenue cost of £40 million. The cost in the most recent year was £700 million.

I stand absolutely by what I said in an intervention in the speech of the hon. Member for Aberdeen, North: any serious analysis of the present North sea fiscal regime must conclude that it is in need of change. That was obvious to me when I took over responsibility for the matter 12 months ago, and I think it was equally obvious to the oil companies and oil industry representatives who have been coming into my office in that 12-month period to talk about ideas for the evolution of the North sea fiscal regime.

I do not apologise for giving my view on Second Reading that I do not believe it is right for the Treasury to engage in direct formal dicussions about the future of tax rates and tax allowances in the system. That leads to serious distortions in economic behaviour, partly through companies responding to what they perceive to be a threat to the regime and partly through financial markets seeking to discount and second-guess what tax changes are likely.

I do not agree with my hon. Friend the Member for Orpington that it is sensible for Ministers to engage in a discussion about the detail of rates and allowances. It is clear to me that any serious analysis of the North sea fiscal regime over the past two years must conclude that it is a system in need of reform.

Mr. Salmond

The Minister talked about a series of consultations, but I question whether many oil industry representatives were aware that they were taking part in consultations. He also talked of departmental consultations. He did not mention the Scottish Office. Was that a deliberate omission, or did he just forget it?

7.15 pm
Mr. Dorrell

The sponsoring Department for the oil industry was the Department of Energy, now the Department of Trade and Industry. The purpose of the interdepartmental discussions was to ensure that the decision—which rests properly with my right hon. Friend the Chancellor of the Exchequer—was made on the basis of proper knowledge. That knowledge was available to him and his decision was based on a proper appraisal of the alternatives.

Let us examine the substance and detail of the present position. We have a paper tax rate of 75 per cent. for the petroleum revenue tax. That is having the effect, in my view, of depressing development activity and potentially shortening field life, because it is uniquely the highest marginal rate of tax collected anywhere in our fiscal system now.

Mr. Darling

Will the Minister explain what will be the benefit of the changes? He talked about the savings, but one must take into account the PRT that will not be collected. What calculations has he made of the cost of 10,000 people losing their jobs? Can we be given an overall picture of what the position will be from the taxpayer's point of view?

Mr. Dorrell

I gave the figure in an intervention in the speech of the hon. Member for Dundee, West. I pointed out that the Red Book contained a projection for 1994–95 of £300 million and for 1995–96 of £400 million, being the net yield from the changes.

The 75 per cent. PRT rate is recycled into exploration and appraisal, so in many cases the taxpayer is meeting 83 per cent., if corporation tax is included—that is, 75 per cent. PRT plus 33 per cent. corporation tax—of the cost of exploration and appraisal in the North sea. But as most of the fields currently being found will not pay PRT—because of the effect of the allowances—the taxpayer's share of the return on those fields, if they are found and developed, amounts to 33 per cent. In other words, the Treasury is signing the taxpayer up to a deal under which the taxpayer contributes 83 per cent. of the equity in return for 33 per cent. of the return.

That fundamental distortion leads to the tax subsidies which my hon. Friend the Member for Beaconsfield (Mr. Smith) was right to deplore. I believe that if a project is uneconomic, it is no part of the job of the tax system to make that uneconomic activity appear economic. That is the result of the PRT system as it now exists.

Another principle of the reform which I hold to be important is that if the existing system will not raise any tax, we do well to admit it. It seems nonsensical to talk about PRT in the context of a range of fields when it is common ground on the part of all who have examined the issue that it is a PRT system that will not produce any yield from most of the fields currently being explored.

If there is to be no yield, it is better to admit it and abolish the tax. The only purpose of keeping the tax, if there is to be no yield, is to provide an excuse for paying tax allowances. It seems the ultimate absurdity, which is the position that the amendment would provide, to maintain a tax system not with the object of collecting tax but to pay out allowances.

If we want to pay a subsidy to a particular sector, by all means let us do so, but it should be properly justified, not brought in under the guise of a tax system.

Mr. Malcolm Bruce

Does the Minister accept that those of us who agree that there is a case for reform and are calling for transitional arrangements are worried that the long-term disincentive to exploration will mean that the Treasury and the economy will lose out because some oil fields may not be found? It is important to ensure a viable incentive to encourage oil companies to explore in the United Kingdom rather then elsewhere.

Mr. Dorrell

I am coming to the effect of the changes on exploration, which is an important point mentioned by several hon. Members. Before doing so, I want to draw the Committee's attention to something mentioned by my hon. Friend the Member for Kincardine and Deeside (Mr. Kynoch), who does not uncritically support every aspect of the proposals. It was he who drew attention to the fact that there is striking unanimity in the industry on the point that the principles behind the long-term changes that we want to introduce are right.

I should like to quote not, as might be predicted, BP but a number of other companies. Mobil says: We believe that the changes proposed to the North Sea fiscal regime are well-founded and in the long-term interest of the industry and of the nation. Amoco's view of the changes is one of welcome for their general thrust. Marathon is supportive of the direction being taken. We believe that in the long term the development of UKCS oil and gas resources will benefit from these changes. Shell UK believes that the thrust of the changes is correct. The industry's association, the United Kingdom Offshore Operators Association, says: There is agreement that the reduction of the PRT rate and the elimination of PRT for new fields is a welcome step which will be positive to enhancing productivity from existing large mature fields and to the development of new fields. There is thus widespread recognition that the long-term effect of the changes will be to make the tax and fiscal regime in the North sea much more rational than the system that it replaces.

Several hon. Members have sought to concentrate on how we arrange the transition from the system as it is to the system that we want to create. I turn now to the transitional arrangements which the Government considered ahead of the Budget and for which we have provided in the Finance Bill. We must test proposals for transitional arrangements in two ways. First, as the new structure seems to be more rational and likely to lead to a better use of resources in the economy, it is important that the transitional regime delivers the change surely, so that there is no doubt that we will reach the end result reasonably quickly. Secondly, and equally important, we want the changes delivered with the minimum dislocation. I acknowledge that some dislocation from changes on this scale is inevitable, but we want a method of introducing them that minimises it.

Before we engage in a sensible discussion of the precise structure of transitional arrangements, I should add that I agree with the point made by my hon. Friend the Member for Orpington and by the hon. Member for Edinburgh, Leith (Mr. Chisholm)—we must make an assessment of the effect of the proposed changes on employment and especially on exploration. That will tell us the size of the transitional problem with which we need to deal.

A number of factors are relevant in this context. First, four companies in the North sea together represent 40 per cent. of all exploration and appraisal activity there. They have publicly committed themselves to no reduction in E and A. The four are Shell, Esso, Mobil and BP. Secondly, 40 per cent. of current exploration and appraisal activity does not benefit at all from E and A relief from PRT. That being so, I am at a loss to understand how the withdrawal of the relief can lead to companies cutting short their E and A programmes. There is some overlap between the two categories, but as 40 per cent. of activity has been committed to being maintained and a different 40 per cent. is not benefiting from the relief that we are withdrawing, the worst case that we posited—a 50 per cent. reduction in exploration and appraisal—is, as I told an Aberdeen newspaper, improbably pessimistic.

I am reinforced in that belief by the evidence of what is going on in the present 14th licensing round. I understand that the Department of Trade and Industry told companies that had put in bids in the 14th round after the Budget that if, in the light of the Budget changes, they wanted to withdraw or change their bids, they were free to do so. Only a minimal number of companies have taken up that opportunity. So here we have a clear market test of the likely effect on exploration; it reinforces my view that it is profoundly unlikely to be anything like as serious as most of the worst case scenarios would suggest.

Mr. Salmond

The Minister is telling us that everything will be all right and we should not worry too much. Can he offer the Committee anything comparable to the thoroughness and academic rigour of Professor Kemp's study? If not, would we not be best advised to proceed on the conclusion of the professor's analysis?

Mr. Dorrell

I have given the Committee the basis on which I am working. Professor Kemp came to see me this morning and I asked him for the basis on which the reduction in wells had been posited in the most recent document. He said that that had to be a matter of judgment—his words, not mine. I have provided the Committee with the evidence on which we have reached our conclusion that a 50 per cent. reduction in the level of exploration is improbable, and it is not the only factor acting on employment and total levels of activity in the economy associated with the North sea.

I say that that is not the only factor, because it altogether omits the fact that the reduction in the PRT rate from 75 per cent. to 50 per cent. has the effect of doubling the post-tax return of all development activity and all current activity in producing fields. It was precisely that effect that led BP yesterday, in announcing its £1.5 billion development programme, to say, not that the programme was dreamt up after 16 March—of course it was not—but that, against the background of the Budget changes, its enhanced development programme was "made more likely" by those Budget changes.

If the hon. Member for Edinburgh, Central (Mr. Darling) prefers an alternative quotation, the company said that the programme was "given a significant impetus" by the Budget changes. I ask the Committee to recognise that, for oil companies considering development activity or the life of their existing producing fields, it is wildly improbable that the doubling of the post-tax rate of return will have no effect whatever on those two indicators of activity.

It was against that background that we carefully considered the transitional arrangements that should apply to get us from where we are to where we want to be. Three choices were suggested to us, and I will consider them briefly in turn. First, it was suggested from some quarters that we should protect obligation wells. That case was argued by very few companies—indeed, by almost none of the companies that have been to see me—and it is easy to see why. The bids that were put in during earlier licensing rounds, as in this one, were invited on the basis of a proper economic assessment, and the companies that submitted them overwhelmingly made their judgments on the basis of such assessments.

I was asked about obligations. Our position was made abundantly clear in a letter from my hon. Friend the Minister for Energy to UKOOA, dated 22 April, in which, speaking for the Government collectively, he said: I regard the drilling obligations entered into as binding, and I expect these to be honoured … Of course, this does not exclude adjustments to particular wells in a drilling programme. We have always been prepared to consider, for example, the rephasing of individual wells on a case by case basis, having regard to technical or other specific arguments for change. But it was not our intention at the time of the Budget that there should be any general reinterpretation of the licensing obligations along the lines UKOOA appear to suggest. That is clearly the position on obligation wells.

7.30 pm

The second suggestion is that we should phase changes in the tax rates and the allowances. My hon. Friend the Member for Orpington saw some attraction in that approach. It seems to me that the problem is that, by delaying the PRT cut, we should be delaying precisely the incentive to which BP responded yesterday, while creating a powerful incentive for exploration companies to bring forward activity to benefit from the more generous allowances that would prevail—but prevail under notice. It would clearly be in the interests of the companies to act now rather than later, in order to benefit from a tax concession that we would have announced was being phased out.

Some hon. Members have said that that can be dealt with by capping. It seems to me that that illustrates the unattractiveness of that course. I am reminded of the common agricultural policy. It is acknowledged that a distortion is being introduced, but we are told not to worry as another distortion can be introduced to control the first one. That is not a very attractive way of designing a tax policy.

It is for those reasons that I prefer the third approach to transition. I refer to the Government's approach, as set out in the Finance Bill, which is based on existing contractual obligations. We have said that the changes will he phased, in the sense that, although E and A relief for new fields is being abolished from 16 March, the rate cut will take effect from 1 July. That has provided my right hon. Friend the Chancellor of the Exchequer with up to £200 million gross for transitional relief, based on the existing contractual commitments of the supply companies operating in the North sea—precisely those most likely to be damaged by over-abrupt change in the tax system. That was the conclusion of our careful review, and it remains so.

I started by stressing the importance of stability in the fiscal regime. We carefully considered all the choices. We believe that this structure is robust for all likely scenarios regarding oil discoveries and oil prices. No doubt the detail of the proposal can be examined in Committee. We shall have plenty of opportunity for such examination. I believe that the structure of this proposal is the result of a serious programme of work. It is one in which the Committee and the industry can have confidence, and I recommend that the amendments be rejected.

Mr. Darling

The Committee can be in no doubt about the Government's position: there are to be no concessions on this measure. The Minister has not even disputed the fact that at least 10,000 jobs will be lost as a result of the Bill. I understand that the hon. Member for Aberdeen, South (Mr. Robertson) is a former Tory party agent. Tonight, he must choose between the interests of the Conservative party and the interests of his constituents. Last night, he voted for an increase in the taxes of his constituents. If he votes with the Government tonight, he will be supporting a measure that will result in many of them losing their jobs. The hon. Gentleman's attitude stands in stark contrast to that of his hon. Friends the Members for Orpington (Mr. Horam) and Kincardine and Deeside (Mr. Kynoch), who at least recognise that there will be transitional problems. But the Government have made it absolutely clear that they are not prepared to meet the legitimate demands of people involved in the industry and those living in communities affected by these proposals, who want some sort of relief.

The Government have not disputed the fact that exploration will be affected. It was astounding to hear the Minister pray in aid of this proposal Shell, Esso, Mobil and BP, which, he says, are committed to having no reduction. How can any Government rely on the best intentions of a company, stated just after the announcement of a Budget measure? It is the Government's duty to take into account the interests of the United Kingdom as a whole rather than the interests of a few oil companies. The measure will undoubtedly benefit some oil companies, as we have said during this debate. However, there is a substantial risk that exploration will be exported from the United Kingdom waters to other parts of the world, with the result that the natural resource we have in the North sea and in our Atlantic waters will be lost. There is no dispute about the fact that, because of the traumatic disruption caused by the Chancellor's announcement, jobs will go. The Government have made it absolutely clear that there is to be no transitional relief.

To those Conservative Members who have said in the Chamber today, as well as to their constituents by way of radio and television and the other media, that they are not happy with the Government's position I say that they now have a very clear choice. If they want to support the interests of the North sea oil industry and this country's long-term energy interests, they will have to vote for Labour's amendment. By voting with the Government they will shut the door on any hope for the industry. They have nowhere to hide, and I invite them to join us in the Lobby.

Question put, That the amendment be made:—

The Committee divided: Ayes 253, Noes 289.

Division No. 262] [7.35 pm
AYES
Abbott, Ms Diane Field, Frank (Birkenhead)
Adams, Mrs Irene Fisher, Mark
Ainger, Nick Flynn, Paul
Ainsworth, Robert (Cov'try NE) Foster, Rt Hon Derek
Allen, Graham Foster, Don (Bath)
Alton, David Foulkes, George
Anderson, Donald (Swansea E) Fraser, John
Anderson, Ms Janet (Ros'dale) Fyfe, Maria
Armstrong, Hilary Galbraith, Sam
Ashdown, Rt Hon Paddy Gapes, Mike
Ashton, Joe Garrett, John
Austin-Walker, John Gerrard, Neil
Barnes, Harry Gilbert, Rt Hon Dr John
Barron, Kevin Godsiff, Roger
Battle, John Golding, Mrs Llin
Bayley, Hugh Gordon, Mildred
Beggs, Roy Gould, Bryan
Beith, Rt Hon A. J. Graham, Thomas
Bell, Stuart Grant, Bernie (Tottenham)
Benn, Rt Hon Tony Griffiths, Nigel (Edinburgh S)
Bennett, Andrew F. Griffiths, Win (Bridgend)
Benton, Joe Grocott, Bruce
Berry, Dr. Roger Gunnell, John
Betts, Clive Hain, Peter
Blair, Tony Hall, Mike
Blunkett, David Hanson, David
Boateng, Paul Harman, Ms Harriet
Boyce, Jimmy Harvey, Nick
Boyes, Roland Henderson, Doug
Bradley, Keith Heppell, John
Brown, Gordon (Dunfermline E) Hill, Keith (Streatham)
Brown, N. (N'c'tle upon Tyne E) Hinchliffe, David
Bruce, Malcolm (Gordon) Hogg, Norman (Cumbernauld)
Burden, Richard Hood, Jimmy
Byers, Stephen Hoon, Geoffrey
Callaghan, Jim Howarth, George (Knowsley N)
Campbell, Mrs Anne (C'bridge) Howells, Dr. Kim (Pontypridd)
Campbell, Ronnie (Blyth V) Hughes, Kevin (Doncaster N)
Campbell-Savours, D. N. Hughes, Robert (Aberdeen N)
Canavan, Dennis Hughes, Simon (Southwark)
Cann, Jamie Hutton, John
Chisholm, Malcolm Illsley, Eric
Clark, Dr David (South Shields) Jackson, Glenda (H'stead)
Clarke, Eric (Midlothian) Jackson, Helen (Shef'ld, H)
Clarke, Tom (Monklands W) Jamieson, David
Clelland, David Janner, Greville
Clwyd, Mrs Ann Jones, Barry (Alyn and D'side)
Connarty, Michael Jones, leuan Wyn (Ynys Môn)
Cook, Frank (Stockton N) Jones, Jon Owen (Cardiff C)
Cook, Robin (Livingston) Jones, Lynne (B'ham S O)
Corston, Ms Jean Jones, Martyn (Clwyd, SW)
Cousins, Jim Jones, Nigel (Cheltenham)
Cryer, Bob Jowell, Tessa
Cunningham, Jim (Covy SE) Kaufman, Rt Hon Gerald
Cunningham, Rt Hon Dr John Keen, Alan
Dafis, Cynog Kennedy, Charles (Ross,C&S)
Darling, Alistair Kennedy, Jane (Lpool Brdgn)
Davidson, Ian Khabra, Piara S.
Davies, Bryan (Oldham C'tral) Kilfoyle, Peter
Davies, Rt Hon Denzil (Llanelli) Kinnock, Rt Hon Neil (Islwyn)
Davies, Ron (Caerphilly) Kirkwood, Archy
Denham, John Leighton, Ron
Dewar, Donald Lestor, Joan (Eccles)
Dixon, Don Lewis, Terry
Dobson, Frank Livingstone, Ken
Donohoe, Brian H. Lloyd, Tony (Stretford)
Dowd, Jim Llwyd, Elfyn
Dunnachie, Jimmy Loyden, Eddie
Dunwoody, Mrs Gwyneth Lynne, Ms Liz
Eagle, Ms Angela McAllion, John
Eastham, Ken McAvoy, Thomas
Enright, Derek McCartney, Ian
Etherington, Bill Macdonald, Calum
Evans, John (St Helens N) McFall, John
Ewing, Mrs Margaret McGrady, Eddie
Fatchett, Derek McKelvey, William
Faulds, Andrew Mackinlay, Andrew
McLeish, Henry Rogers, Allan
Maclennan, Robert Rooker, Jeff
McMaster, Gordon Rooney, Terry
Madden, Max Ross, Ernie (Dundee W)
Mahon, Alice Rowlands, Ted
Mandelson, Peter Ruddock, Joan
Marek, Dr John Salmond, Alex
Marshall, David (Shettleston) Sedgemore, Brian
Marshall, Jim (Leicester, S) Sheerman, Barry
Martin, Michael J. (Springburn) Sheldon, Rt Hon Robert
Martlew, Eric Shore, Rt Hon Peter
Maxton, John Short, Clare
Meacher, Michael Simpson, Alan
Michael, Alun Skinner, Dennis
Michie, Bill (Sheffield Heeley) Smith, Andrew (Oxford E)
Michie, Mrs Ray (Argyll Bute) Smith, C. (Isl'ton S & F'sbury)
Milburn, Alan Smith, Rt Hon John (M'kl'ds E)
Miller, Andrew Smith, Llew (Blaenau Gwent)
Mitchell, Austin (Gt Grimsby) Soley, Clive
Moonie, Dr Lewis Spearing, Nigel
Morgan, Rhodri Steel, Rt Hon Sir David
Morley, Elliot Steinberg, Gerry
Morris, Rt Hon A. (Wy'nshawe) Stevenson, George
Morris, Estelle (B'ham Yardley) Strang, Dr. Gavin
Morris, Rt Hon J. (Aberavon) Taylor, Mrs Ann (Dewsbury)
Mowlam, Marjorie Taylor, Matthew (Truro)
Mullin, Chris Tipping, Paddy
Murphy, Paul Turner, Dennis
Oakes, Rt Hon Gordon Tyler, Paul
O'Brien, Michael (N W'kshire) Vaz, Keith
O'Hara, Edward Walker, Rt Hon Sir Harold
Olner, William Wallace, James
O'Neill, Martin Wardell, Gareth (Gower)
Orme, Rt Hon Stanley Wareing, Robert N
Parry, Robert Watson, Mike
Pendry, Tom Welsh, Andrew
Pickthall, Colin Wicks, Malcolm
Pike, Peter L. Wigley, Dafydd
Pope, Greg Williams, Rt Hon Alan (Sw'n W)
Powell, Ray (Ogmore) Williams, Alan W (Carmarthen)
Prentice, Ms Bridget (Lew'm E) Wilson, Brian
Prentice, Gordon (Pendle) Winnick, David
Prescott, John Wise, Audrey
Primarolo, Dawn Worthington, Tony
Purchase, Ken Wray, Jimmy
Quin, Ms Joyce Wright, Dr Tony
Randall, Stuart Young, David (Bolton SE)
Raynsford, Nick
Reid, Dr John Tellers for the Ayes
Robertson, George (Hamilton) Mr. John Spellar and Mr. Alan Meale.
Robinson, Geoffrey (Co'try NW)
Roche, Mrs. Barbara
NOES
Ainsworth, Peter (East Surrey) Bowis, John
Aitken, Jonathan Boyson, Rt Hon Sir Rhodes
Alison, Rt Hon Michael (Selby) Brandreth, Gyles
Allason, Rupert (Torbay) Brazier, Julian
Amess, David Bright, Graham
Ancram, Michael Brooke, Rt Hon Peter
Arbuthnot, James Brown, M. (Brigg & Cl'thorpes)
Arnold, Jacques (Gravesham) Browning, Mrs. Angela
Arnold, Sir Thomas (Hazel Grv) Budgen, Nicholas
Ashby, David Burns, Simon
Aspinwall, Jack Burt, Alistair
Atkinson, Peter (Hexham) Butler, Peter
Baker, Rt Hon K. (Mole Valley) Carlisle, John (Luton North)
Baker, Nicholas (Dorset North) Carlisle, Kenneth (Lincoln)
Baldry, Tony Carrington, Matthew
Banks, Matthew (Southport) Carttiss, Michael
Banks, Robert (Harrogate) Cash, William
Bates, Michael Channon, Rt Hon Paul
Batiste, Spencer Churchill, Mr
Bellingham, Henry Clappison, James
Bendall, Vivian Clark, Dr Michael (Rochford)
Beresford, Sir Paul Clarke, Rt Hon Kenneth (Ruclif)
Blackburn, Dr John G. Clifton-Brown, Geoffrey
Booth, Hartley Coe, Sebastian
Boswell, Tim Colvin, Michael
Bottomley, Peter (Eltham) Congdon, David
Conway, Derek Howard, Rt Hon Michael
Coombs, Anthony (Wyre For'st) Howarth, Alan (Strat'rd-on-A)
Coombs, Simon (Swindon) Howell, Rt Hon David (G'dford)
Cope, Rt Hon Sir John Hughes Robert G. (Harrow W)
Couchman, James Hunt, Rt Hon David (Wirral W)
Cran, James Hunter, Andrew
Currie, Mrs Edwina (S D'by'ire) Hurd, Rt Hon Douglas
Curry, David (Skipton & Ripon) Jack, Michael
Davies, Quentin (Stamford) Jackson, Robert (Wantage)
Davis, David (Boothferry) Jenkin, Bernard
Day, Stephen Jessel, Toby
Deva, Nirj Joseph Johnson Smith, Sir Geoffrey
Dickens, Geoffrey Jones, Gwilym (Cardiff N)
Dicks, Terry Jones, Robert B. (W Hertfdshr)
Dorrell, Stephen Jopling, Rt Hon Michael
Douglas-Hamilton, Lord James Kellett-Bowman, Dame Elaine
Dover, Den Key, Robert
Duncan, Alan Kilfedder, Sir James
Duncan-Smith, Iain King, Rt Hon Tom
Dunn, Bob Kirkhope, Timothy
Dykes, Hugh Knapman, Roger
Eggar, Tim Knight, Mrs Angela (Erewash)
Elletson, Harold Knight, Greg (Derby N)
Emery, Rt Hon Sir Peter Knight, Dame Jill (Bir'm E'st'n)
Evans, David (Welwyn Hatfield) Knox, David
Evans, Jonathan (Brecon) Kynoch, George (Kincardine)
Evans, Nigel (Ribble Valley) Lait, Mrs Jacqui
Evans, Roger (Monmouth) Lamont, Rt Hon Norman
Evennett, David Lawrence, Sir Ivan
Faber, David Legg, Barry
Fabricant, Michael Lester, Jim (Broxtowe)
Fairbairn, Sir Nicholas Lidington, David
Field, Barry (Isle of Wight) Lightbown, David
Fishburn, Dudley Lilley, Rt Hon Peter
Forman, Nigel Lloyd, Peter (Fareham)
Forsyth, Michael (Stirling) Lord, Michael
Forth, Eric Luff, Peter
Fowler, Rt Hon Sir Norman Lyell, Rt Hon Sir Nicholas
Fox, Dr Liam (Woodspring) MacGregor, Rt Hon John
Fox, Sir Marcus (Shipley) MacKay, Andrew
Freeman, Roger Maclean, David
French, Douglas McLoughlin, Patrick
Fry, Peter McNair-Wilson, Sir Patrick
Gale, Roger Madel, David
Gallie, Phil Maitland, Lady Olga
Gardiner, Sir George Malone, Gerald
Garel-Jones, Rt Hon Tristan Mans, Keith
Garnier, Edward Marland, Paul
Gill, Christopher Marlow, Tony
Gillan, Cheryl Marshall, John (Hendon S)
Goodlad, Rt Hon Alastair Martin, David (Portsmouth S)
Goodson-Wickes, Dr Charles Merchant, Piers
Gorman, Mrs Teresa Milligan, Stephen
Gorst, John Mitchell, Andrew (Gedling)
Greenway, Harry (Ealing N) Moate, Sir Roger
Greenway, John (Ryedale) Monro, Sir Hector
Griffiths, Peter (Portsmouth, N) Montgomery, Sir Fergus
Grylls, Sir Michael Moss, Malcolm
Gummer, Rt Hon John Selwyn Needham, Richard
Hague, William Nelson, Anthony
Hamilton, Rt Hon Archie (Epsom) Neubert, Sir Michael
Hamilton, Neil (Tatton) Newton, Rt Hon Tony
Hanley, Jeremy Nicholls, Patrick
Hannam, Sir John Nicholson, David (Taunton)
Hargreaves, Andrew Nicholson, Emma (Devon West)
Harris, David Norris, Steve
Haselhurst, Alan Onslow, Rt Hon Sir Cranley
Hawkins, Nick Oppenheim, Phillip
Hawksley, Warren Ottaway, Richard
Hayes, Jerry Page, Richard
Heald, Oliver Paice, James
Heath, Rt Hon Sir Edward Patnick, Irvine
Heathcoat-Amory, David Patten, Rt Hon John
Hendry, Charles Pattie, Rt Hon Sir Geoffrey
Heseltine, Rt Hon Michael Pawsey, James
Hicks, Robert Peacock, Mrs Elizabeth
Higgins, Rt Hon Sir Terence L. Pickles, Eric
Hill, James (Southampton Test) Porter, David (Waveney)
Horam, John Portillo, Rt Hon Michael
Hordern, Rt Hon Sir Peter Powell, William (Corby)
Redwood, John Tapsell, Sir Peter
Rendel, David Taylor, Ian (Esher)
Renton, Rt Hon Tim Taylor, John M. (Solihull)
Richards, Rod Taylor, Sir Teddy (Southend, E)
Riddick, Graham Temple-Morris, Peter
Rifkind, Rt Hon. Malcolm Thomason, Roy
Robathan, Andrew Thompson, Patrick (Norwich N)
Roberts, Rt Hon Sir Wyn Thornton, Sir Malcolm
Robertson, Raymond (Ab'd'n S) Thurnham, Peter
Robinson, Mark (Somerton) Townsend, Cyril D. (Bexl'yh'th)
Roe, Mrs Marion (Broxbourne) Tracey, Richard
Rowe, Andrew (Mid Kent) Tredinnick, David
Rumbold, Rt Hon Dame Angela Trend, Michael
Ryder, Rt Hon Richard Trotter, Neville
Sackville, Tom Twinn, Dr Ian
Sainsbury, Rt Hon Tim Viggers, Peter
Scott, Rt Hon Nicholas Waldegrave, Rt Hon William
Shaw, David (Dover) Walden, George
Shaw, Sir Giles (Pudsey) Walker, Bill (N Tayside)
Shephard, Rt Hon Gillian Waller, Gary
Shepherd, Richard (Aldridge) Wardle, Charles (Bexhill)
Shersby, Michael Waterson, Nigel
Sims, Roger Watts, John
Skeet, Sir Trevor Wells, Bowen
Smith, Tim (Beaconsfield) Wheeler, Rt Hon Sir John
Soames, Nicholas Whitney, Ray
Spencer, Sir Derek Whittingdale, John
Spicer, Sir James (W Dorset) Widdecombe, Ann
Spicer, Michael (S Worcs) Wiggin, Sir Jerry
Spink, Dr Robert Wilkinson, John
Spring, Richard Willetts, David
Sproat, Iain Wilshire, David
Squire, Robin (Hornchurch) Winterton, Mrs Ann (Congleton)
Stanley, Rt Hon Sir John Winterton, Nicholas (Macc'f'ld)
Steen, Anthony Wolfson, Mark
Stephen, Michael Yeo, Tim
Stern, Michael Young, Sir George (Acton)
Stewart, Allan
Streeter, Gary Tellers for the Noes:
Sumberg, David Mr. Sydney Chapman and Mr. Timothy Wood.
Sweeney, Walter
Sykes, John

Question accordingly negatived.

Amendment proposed: No. 40, in page 137, line 36, at end insert 'or— (c) one in which in whole or in part, a commitment to a programme of Exploration and Appraisal drilling was undertaken under the terms of a licence agreement and approved by the Secretary of State before that date, where the field participants elect to so classify the oil field and to accept a diminishing percentage of allowable expenditure on exploration and appraisal to be offset against PRT and a ceiling on the amount allowed for each company as allowable expenditure for PRT relief; the percentage, the timescale and the ceiling to be determined by the Secretary of State and approved by the affirmative resolution of each House of Parliament.'. —[Mr. Salmond.]

Question put, That the amendment be made:—

The Committee divided: Ayes 250, Noes 287.

Division No. 263] [7.49 pm
AYES
Abbott, Ms Diane Bayley, Hugh
Adams, Mrs Irene Beggs, Roy
Ainger, Nick Beith, Rt Hon A. J.
Ainsworth, Robert (Cov'try NE) Bell, Stuart
Allen, Graham Benn, Rt Hon Tony
Alton, David Bennett, Andrew F.
Anderson, Donald (Swansea E) Benton, Joe
Anderson, Ms Janet (Ros'dale) Berry, Dr. Roger
Armstrong, Hilary Betts, Clive
Ashton, Joe Blair, Tony
Austin-Walker, John Blunkett, David
Barnes, Harry Boateng, Paul
Barron, Kevin Boyce, Jimmy
Battle, John Boyes, Roland
Bradley, Keith Hogg, Norman (Cumbernauld)
Brown, Gordon (Dunfermline E) Hood, Jimmy
Brown, N. (N'c'tle upon Tyne E) Hoon, Geoffrey
Bruce, Malcolm (Gordon) Howarth, George (Knowsley N)
Burden, Richard Howells, Dr. Kim (Pontypridd)
Byers, Stephen Hoyle, Doug
Callaghan, Jim Hughes, Kevin (Doncaster N)
Campbell, Mrs Anne (C'bridge) Hughes, Robert (Aberdeen N)
Campbell, Ronnie (Blyth V) Hutton, John
Campbell-Savours, D. N. Illsley, Eric
Canavan, Dennis Jackson, Glenda (H'stead)
Cann, Jamie Jackson, Helen (Shef'ld, H)
Chisholm, Malcolm Jamieson, David
Clark, Dr David (South Shields) Janner, Greville
Clarke, Eric (Midlothian) Jones, Barry (Alyn and D'side)
Clarke, Tom (Monklands W) Jones, Ieuan Wyn (Ynys Môn)
Clelland, David Jones, Jon Owen (Cardiff C)
Clwyd, Mrs Ann Jones, Lynne (B'ham S O)
Connarty, Michael Jones, Martyn (Clwyd, SW)
Cook, Frank (Stockton N) Jones, Nigel (Cheltenham)
Cook, Robin (Livingston) Jowell, Tessa
Corston, Ms Jean Kaufman, Rt Hon Gerald
Cousins, Jim Keen, Alan
Cryer, Bob Kennedy, Charles (Ross, C&S)
Cunningham, Jim (Covy SE) Kennedy, Jane (Lpool Brdgn)
Cunningham, Rt Hon Dr John Khabra, Piara S.
Dafis, Cynog Kilfoyle, Peter
Darling, Alistair Kinnock, Rt Hon Neil (Islwyn)
Davidson, Ian Kirkwood, Archy
Davies. Bryan (Oldham C'tral) Leighton, Ron
Davies, Rt Hon Denzil (Llanelli) Lestor, Joan (Eccles)
Davies, Ron (Caerphilly) Lewis, Terry
Denham, John Livingstone, Ken
Dewar, Donald Lloyd, Tony (Stretford)
Dixon, Don Llwyd, Elfyn
Dobson, Frank Loyden, Eddie
Donohoe, Brian H. Lynne, Ms Liz
Dowd, Jim McAllion, John
Dunnachie, Jimmy McAvoy, Thomas
Dunwoody, Mrs Gwyneth McCartney, Ian
Eagle, Ms Angela Macdonald, Calum
Eastham, Ken McFall, John
Enright, Derek McGrady, Eddie
Etherington, Bill McKelvey, William
Evans, John (St Helens N) Mackinlay, Andrew
Ewing, Mrs Margaret McLeish, Henry
Fatchett, Derek Maclennan, Robert
Faulds, Andrew McMaster, Gordon
Field, Frank (Birkenhead) Madden, Max
Fisher, Mark Mahon, Alice
Flynn, Paul Mandelson, Peter
Foster, Rt Hon Derek Marek, Dr John
Foster, Don (Bath) Marshall, David (Shettleston)
Foulkes, George Marshall, Jim (Leicester, S)
Fraser, John Martin, Michael J. (Springburn)
Fyfe, Maria Martlew, Eric
Galbraith, Sam Maxton, John
Gapes, Mike Meacher, Michael
Garrett, John Meale, Alan
Gerrard, Neil Michael, Alun
Gilbert, Rt Hon Dr John Michie, Bill (Sheffield Heeley)
Godsiff, Roger Michie, Mrs Ray (Argyll Bute)
Golding, Mrs Llin Milburn, Alan
Gordon, Mildred Miller, Andrew
Gould, Bryan Mitchell, Austin (Gt Grimsby)
Graham, Thomas Moonie, Dr Lewis
Grant, Bernie (Tottenham) Morgan, Rhodri
Griffiths, Nigel (Edinburgh S) Morley, Elliot
Griffiths, Win (Bridgend) Morris, Rt Hon A. (Wy'nshawe)
Grocott, Bruce Morris, Estelle (B'ham Yardley)
Gunnell, John Morris, Rt Hon J. (Aberavon)
Hain, Peter Mullin, Chris
Hall, Mike Murphy, Paul
Hanson, David Oakes, Rt Hon Gordon
Harman, Ms Harriet O'Brien, Michael (N W'kshire)
Harvey, Nick O'Hara, Edward
Henderson, Doug Olner, William
Heppell, John O'Neill, Martin
Hill, Keith (Streatham) Orme, Rt Hon Stanley
Hinchliffe, David Parry, Robert
Pendry, Tom Smith, Llew (Blaenau Gwent)
Pickthall, Colin Soley, Clive
Pike, Peter L. Spearing, Nigel
Pope, Greg Spellar, John
Powell, Ray (Ogmore) Steel, Rt Hon Sir David
Prentice, Ms Bridget (Lew'm E) Steinberg, Gerry
Prentice, Gordon (Pendle) Stevenson, George
Prescott, John Strang, Dr. Gavin
Primarolo, Dawn Taylor, Matthew (Truro)
Purchase, Ken Tipping, Paddy
Quin, Ms Joyce Turner, Dennis
Randall, Stuart Tyler, Paul
Reid, Dr John Vaz, Keith
Robertson, George (Hamilton) Walker, Rt Hon Sir Harold
Robinson, Geoffrey (Co'try NW) Wallace, James
Roche, Mrs. Barbara Wardell, Gareth (Gower)
Rogers, Allan Wareing, Robert N
Rooker, Jeff Watson, Mike
Rooney, Terry Wicks, Malcolm
Ross, Ernie (Dundee W) Wigley, Dafydd
Rowlands, Ted Williams, Rt Hon Alan (Sw'n W)
Ruddock, Joan Williams, Alan W (Carmarthen)
Salmond, Alex Wilson, Brian
Sedgemore, Brian Winnick, David
Sheerman, Barry Wise, Audrey
Sheldon, Rt Hon Robert Worthington, Tony
Shore, Rt Hon Peter Wray, Jimmy
Short, Clare Wright, Dr Tony
Simpson, Alan Young, David (Bolton SE)
Skinner, Dennis
Smith, Andrew (Oxford E) Tellers for the Ayes:
Smith, C. (Isl'ton S & F'sbury) Mr. Simon Hughes and Mr. Andrew Welsh.
Smith, Rt Hon John (M'kl'ds E)
NOES
Ainsworth, Peter (East Surrey) Clarke, Rt Hon Kenneth (Ruclif)
Aitken, Jonathan Clifton-Brown, Geoffrey
Alison, Rt Hon Michael (Selby) Coe, Sebastian
Allason, Rupert (Torbay) Colvin, Michael
Amess, David Congdon, David
Ancram, Michael Conway, Derek
Arbuthnot, James Coombs, Anthony (Wyre For'st)
Arnold, Jacques (Gravesham) Coombs, Simon (Swindon)
Arnold, Sir Thomas (Hazel Grv) Cope, Rt Hon Sir John
Ashby, David Couchman, James
Aspinwall, Jack Cran, James
Atkinson, Peter (Hexham) Currie, Mrs Edwina (S D'by'ire)
Baker, Rt Hon K. (Mole Valley) Curry, David (Skipton & Ripon)
Baker, Nicholas (Dorset North) Davies, Quentin (Stamford)
Baldry, Tony Davis, David (Boothferry)
Banks, Matthew (Southport) Day, Stephen
Banks, Robert (Harrogate) Deva, Nirj Joseph
Bates, Michael Dickens, Geoffrey
Batiste, Spencer Dicks, Terry
Bellingham, Henry Dorrell, Stephen
Bendall, Vivian Douglas-Hamilton, Lord James
Beresford, Sir Paul Dover, Den
Blackburn, Dr John G. Duncan, Alan
Booth, Hartley Duncan-Smith, Iain
Boswell, Tim Dunn, Bob
Bottomley, Peter (Eltham) Dykes, Hugh
Bowis, John Eggar, Tim
Boyson, Rt Hon Sir Rhodes Elletson, Harold
Brandreth, Gyles Emery, Rt Hon Sir Peter
Brazier, Julian Evans, David (Welwyn Hatfield)
Bright, Graham Evans, Jonathan (Brecon)
Brooke, Rt Hon Peter Evans, Nigel (Ribble Valley)
Brown, M. (Brigg & Cl'thorpes) Evans, Roger (Monmouth)
Browning, Mrs. Angela Evennett, David
Budgen, Nicholas Faber, David
Burns, Simon Fabricant, Michael
Burt, Alistair Fairbairn, Sir Nicholas
Butler, Peter Field, Barry (Isle of Wight)
Carlisle, John (Luton North) Fishburn, Dudley
Carlisle, Kenneth (Lincoln) Forman, Nigel
Carrington, Matthew Forsyth, Michael (Stirling)
Channon, Rt Hon Paul Forth, Eric
Churchill, Mr Fowler, Rt Hon Sir Norman
Clappison, James Fox, Dr Liam (Woodspring)
Clark, Dr Michael (Rochford) Fox, Sir Marcus (Shipley)
Freeman, Roger McNair-Wilson, Sir Patrick
French, Douglas Madel, David
Fry, Peter Maitland, Lady Olga
Gale, Roger Malone, Gerald
Gallie, Phil Mans, Keith
Gardiner, Sir George Marland, Paul
Garel-Jones, Rt Hon Tristan Marlow, Tony
Garnier, Edward Marshall, John (Hendon S)
Gill, Christopher Martin, David (Portsmouth S)
Gillan, Cheryl Merchant, Piers
Goodlad, Rt Hon Alastair Milligan, Stephen
Goodson-Wickes, Dr Charles Mitchell, Andrew (Gedling)
Gorman, Mrs Teresa Moate, Sir Roger
Gorst, John Monro, Sir Hector
Greenway, Harry (Ealing N) Montgomery, Sir Fergus
Greenway, John (Ryedale) Moss, Malcolm
Griffiths, Peter (Portsmouth, N) Needham, Richard
Grylls, Sir Michael Nelson, Anthony
Gummer, Rt Hon John Selwyn Neubert, Sir Michael
Hague, William Newton, Rt Hon Tony
Hamilton, Rt Hon Archie (Epsom) Nicholls, Patrick
Hamilton, Neil (Tatton) Nicholson, David (Taunton)
Hanley, Jeremy Nicholson, Emma (Devon West)
Hannam, Sir John Norris, Steve
Hargreaves, Andrew Onslow, Rt Hon Sir Cranley
Harris, David Oppenheim, Phillip
Haselhurst, Alan Ottaway, Richard
Hawkins, Nick Page, Richard
Hawksley, Warren Paice, James
Hayes, Jerry Patnick, Irvine
Heald, Oliver Patten, Rt Hon John
Heath, Rt Hon Sir Edward Pattie, Rt Hon Sir Geoffrey
Heathcoat-Amory, David Pawsey, James
Hendry, Charles Peacock, Mrs Elizabeth
Heseltine, Rt Hon Michael Pickles, Eric
Hicks, Robert Porter, David (Waveney)
Higgins, Rt Hon Sir Terence L. Portillo, Rt Hon Michael
Hill, James (Southampton Test) Powell, William (Corby)
Horam, John Redwood, John
Hordern, Rt Hon Sir Peter Renton, Rt Hon Tim
Howard, Rt Hon Michael Richards, Rod
Howarth, Alan (Strat'rd-on-A) Riddick, Graham
Howell, Rt Hon David (G'dford) Rifkind, Rt Hon. Malcolm
Hughes Robert G. (Harrow W) Robathan, Andrew
Hunt, Rt Hon David (Wirral W) Roberts, Rt Hon Sir Wyn
Hunter, Andrew Robertson, Raymond (Ab'd'n S)
Hurd, Rt Hon Douglas Robinson, Mark (Somerton)
Jack, Michael Roe, Mrs Marion (Broxbourne)
Jackson, Robert (Wantage) Rowe, Andrew (Mid Kent)
Jenkin, Bernard Rumbold, Rt Hon Dame Angela
Jessel, Toby Ryder, Rt Hon Richard
Johnson Smith, Sir Geoffrey Sackville, Tom
Jones, Gwilym (Cardiff N) Sainsbury, Rt Hon Tim
Jones, Robert B. (W Hertfdshr) Scott, Rt Hon Nicholas
Jopling, Rt Hon Michael Shaw, David (Dover)
Kellett-Bowman, Dame Elaine Shaw, Sir Giles (Pudsey)
Key, Robert Shephard, Rt Hon Gillian
Kilfedder, Sir James Shepherd, Richard (Aldridge)
King, Rt Hon Tom Shersby, Michael
Knapman, Roger Sims, Roger
Knight, Mrs Angela (Erewash) Skeet, Sir Trevor
Knight, Greg (Derby N) Smith, Tim (Beaconsfield)
Knight, Dame Jill (Bir'm E'st'n) Soames, Nicholas
Knox, David Spencer, Sir Derek
Kynoch, George (Kincardine) Spicer, Sir James (W Dorset)
Lait, Mrs Jacqui Spicer, Michael (S Worcs)
Lamont, Rt Hon Norman Spink, Dr Robert
Lawrence, Sir Ivan Spring, Richard
Legg, Barry Sproat, Iain
Lidington, David Squire, Robin (Hornchurch)
Lightbown, David Stanley, Rt Hon Sir John
Lilley, Rt Hon Peter Steen, Anthony
Lloyd, Peter (Fareham) Stephen, Michael
Lord, Michael Stern, Michael
Luff, Peter Stewart, Allan
Lyell, Rt Hon Sir Nicholas Streeter, Gary
MacGregor, Rt Hon John Sumberg, David
MacKay, Andrew Sweeney, Walter
Maclean, David Sykes, John
McLoughlin, Patrick Tapsell, Sir Peter
Taylor, Ian (Esher) Watts, John
Taylor, John M. (Solihull) Wells, Bowen
Taylor, Sir Teddy (Southend, E) Wheeler, Rt Hon Sir John
Temple-Morris, Peter Whitney, Ray
Thomason, Roy Whittingdale, John
Thompson, Patrick (Norwich N) Widdecombe, Ann
Thornton, Sir Malcolm Wiggin, Sir Jerry
Thurnham, Peter Wilkinson, John
Townsend, Cyril D. (Bexl'yh'th) Willetts, David
Tracey, Richard Wilshire, David
Tredinnick, David Winterton, Mrs Ann (Congleton)
Trend, Michael Winterton, Nicholas (Macc'f'ld)
Trotter, Neville Wolfson, Mark
Twinn, Dr Ian Wood, Timothy
Viggers, Peter Yeo, Tim
Waldegrave, Rt Hon William Young, Sir George (Acton)
Walden, George
Walker, Bill (N Tayside) Tellers for the Noes:
Waller, Gary Mr. Sydney Chapman and Mr. Timothy Kirkhope.
Wardle, Charles (Bexhill)
Waterson, Nigel

Question accordingly negatived.

Clause 183 ordered to stand part of the Bill.

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