HC Deb 05 July 1999 vol 334 cc699-713 A licence under Part I of the Petroleum Act 1998 or the Petroleum (Production) Act (Northern Ireland) 1964. This section applies to all licences (or interests in them) disposed of on or after the 6th April 1999.".'.

Government amendment No. 35.

Mrs. Roche

The new clauses and the amendment relate to the taxation of North sea oil and gas activities. New clause 15 prevents the avoidance of petroleum revenue tax—PRT—that could occur if tariff income, which was attributable to a PRT-paying field, were shifted to a non-PRT-paying field.

New clause 16 will maintain the monthly flow of PRT receipts from companies which, mainly as a result of new clause 15, will be participators in a PRT-paying field, although they will have no interest in the oil and gas produced by that field.

New clause 17 and the related amendment No. 35 extend capital gains roll-over to UK oil licences. That change will make it easier for the oil industry to rationalise its holdings of North sea oil licences. This will allow more scope for cost cutting and more aggressive development of new prospects.

There is evidence that some oil companies are considering restructuring their interests in North sea oil and gas fields. Due to the existing rules for charging PRT on tariffs received for the use of pipelines and other North sea oil assets, a restructuring of assets can lead to tariffs being shifted, for PRT purposes, from the current chargeable field to a different field.

Where the tariffs are currently attributable to a field that pays PRT, there will be an effective PRT charge on the tariffs. That PRT would be lost if the tariffs were shifted to a field that did not pay PRT. There is no justification for that loss of PRT, particularly as it would create a mismatch between the effective PRT relief already given in the PRT-paying field on expenditure on building the assets and the lack of an effective PRT charge on future tariff income.

New clause 15 prevents that PRT loss by ensuring that, where a restructuring would lead to a change in the field to which tariffs are attributed for PRT purposes, the tariffs will continue to be attributable to the current field. In addition, if the owner of the tariff-generating assets would not, following restructuring, be a participator in the field to which tariffs remain attributable for PRT purposes, he will be deemed to be a participator in that field. That will ensure that PRT can be charged in that field on the tariffs that are attributable to it.

New clause 15 is aimed at retaining the current PRT charge on tariffs which could be lost due to the restructuring of companies' interests in North sea oil and gas fields, but it should not prevent restructuring of these interests. Where there are good commercial reasons for the restructuring, new clause 15 should not prevent the companies from going ahead with it.

The total tax potentially at risk from companies being able to shift tariffs from PRT-paying fields to non-PRT-paying fields is about £100 million per year. New clause 15 will protect those tax receipts.

New clause 15 has been introduced at this stage due to the evidence that has very recently come to light about some companies considering the restructuring of their interests in North sea oil and gas fields in a way that would have led to a loss of PRT on tariff income. To protect that tax, we have had to act very quickly.

One effect of new clause 15 is that there will be more companies that are participators in a North sea oilfield but that do not own an interest in the oil produced.

PRT, as the House knows, is paid by monthly instalment. The amount of the instalment is based on the PRT liability for the previous period, and an adjusting payment or repayment is made, two months after the end of each chargeable period, to take account of any underpayment or overpayment of PRT for the current period. Where a participator in a field has not delivered or appropriated any oil in any month, he can withhold the PRT instalment that is due in the following month. That is because an oil company that has received no cash flow from the field in the previous month may not have sufficient cash to pay its PRT instalment.

Companies that are deemed to be participators by new clause 15 will be able to use that rule to withhold all PRT instalments, given that, as they have no interest in the oil produced by the field, they will never have received oil in a previous month. But there is no justification for allowing a company to withhold instalments if the company has received tariff income in the previous month. New clause 16 therefore ensures that a PRT instalment for a month cannot be withheld if the participator has any tariff receipts that are received or receivable in the previous month. New clauses 15 and 16 therefore aim to protect the Exchequer from the loss of tax that would arise from tax avoidance.

New clause 17, on the other hand, extends a relief—roll-over relief—to gains that oil companies make on the disposal of UK oil licences. Roll-over relief allows a business to sell one business asset and acquire another without facing an immediate capital gains tax charge. By deferring the tax charge, the relief helps reduce the effect of tax on companies' investment decisions.

UK oil licences were removed from the scope of roll-over relief in 1987. As a result, if a company sold its interest in a UK oil licence, it was liable to an immediate tax charge on any chargeable gain that arose. That charge was levied even if the proceeds of the sale were reinvested in another UK oil licence.

Our recent discussions with oil companies have revealed that the North sea oil industry has changed significantly since 1987. There is now far more emphasis on developing mature fields, maximising the use of existing infrastructure and managing projects efficiently. In that context, the absence of roll-over relief is causing problems for companies as they seek to rationalise and consolidate their North sea interests. It is now no longer appropriate to deny roll-over relief on UK oil licences.

New clause 17 therefore repeals the 1987 legislation that excluded UK oil licences from the scope of roll-over relief. The House will be pleased to know that UK oil licences will now be put on a similar footing to most other business assets and qualify for roll-over relief. Amendment No. 35 is consequential: it includes the repeal within the list of provisions in the repeals schedule of the Finance Bill.

I hope that this news will be greeted very warmly by both sides of the House; it certainly will be by the industry. I commend the Government new clauses and the amendment to the House.

Mr. Quentin Davies (Grantham and Stamford)

The hon. Lady intoned her brief like an orthodox priest intoning a liturgy in Church Slavonic which he did not understand and did not expect his audience to. She does much less than justice to the two measures that the Government are proposing. They are quite different from one another.

Mrs. Roche

As a member of the United Synagogue, I hope that the hon. Gentleman will rephrase that; I would hate him to get me into any trouble.

Mr. Davies

The hon. Lady is proposing five new measures. They are, in fact, about two quite different subjects. The first two—new clauses 15 and 16—deal with a PRT issue, and the subsequent three measures deal with a capital gains tax issue. It would be sensible to separate the two.

On the first group—new clauses 15 and 16—we have no problem in principle with a measure that is obviously designed to prevent avoidance of PRT. Let us say that a company has an asset that has benefited from PRT relief in its purchase or construction. It then gives up its interests in the production of a field, but maintains that tariff-generating asset to service the field. Under present rules, that tariff-generating asset could be allocated to a non-PRT field and so, whereas the asset had benefited from PRT reliefs in the past, the revenues generated by it would not be subject to PRT. In so far as new clause 15 restores symmetry in that respect and prevents the loss to the Exchequer of avoidable—I believe unjustly avoidable—PRT, we are very happy with it.

New clause 16 deals with the consequential case: if a company has given up its interests in the production of a field, by definition it has no production so, under the rule that says that if it has no production for two quarters it does not pay PRT, it would be relieved of paying PRT for ever. I take it that the hon. Lady, in conceiving these two new clauses, had in mind something like a gas or oil pipeline that services a number of fields and could, by this method, without new clause 16, be switched from a PRT field to a non-PRT field.

Mrs. Roche

indicated assent.

Mr. Davies

I see that the hon. Lady endorses my interpretation. However, I would like to ask her, because it is an important point, exactly what type of assets would be involved. I take the pipeline to be a clear case in point. I see that the second line of new clause 15 excludes mobile assets. Clearly, something like a mobile drilling rig would be a mobile asset. However, what would be the position of a floating production platform? Could such a platform have benefited from PRT relief when it was installed in a PRT field? If it is shifted to another field, will it generate revenues free of PRT? I do not know whether the Financial Secretary is listening to my question but it is an important one. The House deserves an answer to it and we look forward to that.

7.30 pm

I ask the hon. Lady to be precise with the definition of assets. She was not precise in her speech, and nor were the Government in their explanatory notes. I have suggested pipelines but we want to know beyond that what types of asset would be affected. That having been established, I think that in principle the Opposition would be happy to accede to the new clause.

When I read new clause 17, I naturally thought, "Hurrah!" What is the new clause? Of course, the Government would not tell us. The Financial Secretary has not mentioned it. New clause 17 represents the Government bringing forward a provision to deliver exactly the effect for which we have been lobbying. Our new clause 19 is designed to produce exactly the same effect. It is probable that the Government heard from the industry—we consulted it on these matters last week—that we were bringing forward a new clause. No doubt the Government thought, "Right, we shall trump the Conservatives. After all, we will do the right thing ourselves."

The Financial Secretary is clearly embarrassed about this. If not, she would have mentioned the Opposition's new clause in her introductory remarks. She managed to skate over the fact that there are two new clauses on the amendment paper that would have the same effect. Both would achieve by different means exactly the same effect.

Mrs. Roche


Mr. Davies

The hon. Lady has been rumbled and I give way.

Mrs. Roche

The hon. Gentleman has been in the House rather longer than me. However, I did not think—no doubt I shall be corrected—that it was my job when I opened the debate to speak to the Opposition's new clauses and amendments. I might be wrong, but I thought that I would leave that to the hon. Gentleman and others.

Despite all the bluster that we have heard from the hon. Gentleman, I said that the Conservative Government had removed the relief in 1987. I am extremely glad that the hon. Gentleman has come around to our point of view, but it is rather late.

Mr. Davies

The hon. Lady's attitude is astonishing. First, she is found guilty of plagiarism, and tries to hide the fact. Secondly, she introduces the Government's new clause while trying to hide from the House the fact that there is an alternative on the amendment paper which addresses the same issue but suggests a different response. My greatest suspicions are aroused by the hon. Lady's behaviour. Obviously she did not feel confident enough of her solution to the problem to want to refer to the Opposition's solution. If she thought that her solution was better and ours was weaker or less adequate than her own, she would have been delighted to speak to our new clause to explain why the Government's new clause was better. However, she did not do that.

Tonight, the House has a three-way choice. First, it can decide to do nothing and leave the present regime in place. Secondly, it can accept the Government's proposal to grant roll-over relief to North sea licences. Thirdly, it can accept the Opposition's proposal to grant North sea roll-over relief to North sea licences. The two proposals are very different.

Mr. Edward Davey

If the Government are being as opportunistic as the hon. Gentleman seems to be alleging, surely they would have done this before the Scottish parliamentary elections.

Mr. Davies

I do not think that the Government have been particularly clever in their handling of the Scottish parliamentary elections, which is why other parties did so well, to the Government's great surprise. I am not surprised that they got their tactics wrong for that one as well, as the hon. Gentleman suggests.

We have had this situation before, and it has done great damage to the country. The Conservative party has come up with a solid proposal. It is a well-thought-through, viable and sensible proposal that is very much in the national interest. The Labour party, not to be outdone, and out of sheer machismo or pique, has decided to destroy what the Conservative party put in place when we were in government, or to pretend or attempt to neglect, as we have seen this afternoon, the proposals that we are putting forward in opposition, in favour of their own.

There was a striking example of that over the past few months with the destruction of personal equity plans and tax-exempt special savings accounts, which were great successes. The Government could not bear the fact that those scheme were great successes and that people were saving more money.

Mr. Bob Blizzard (Waveney)

Will the hon. Gentleman give way?

Mr. Davies

I shall give way to the hon. Gentleman in a moment. He must learn patience.

The Government could not bear the idea that these schemes were great successes and that household saving was increasing so well through PEPs and TESSAs. Against that background, they had to introduce their own scheme. The independent savings account is full of holes, full of shortcomings and badly thought through. Of course, it went quite wrong.

Mr. Deputy Speaker

Order. I am sure that the hon. Gentleman knows that he is straying way beyond the terms of the new clause. Perhaps he will return to the matter in hand.

Mr. Davies

Of course, Mr. Deputy Speaker, I will not say any more about PEPs and TESSAs versus ISAs. However, I think that the analogy is a fair one. We have a choice between a Conservative proposal and a Labour proposal. What is more, we have the Labour Government trying to pretend that the Conservative proposal does not exist. The Labour Government are running away from the opportunity to explain the merits of the two proposals and to defend their own. It appears that they are not capable of criticising our proposal.

Mr. Blizzard

The hon. Gentleman is trying to claim credit for a Conservative proposal. However, when I argued the point during Treasury questions, no Conservative Member rose to continue to press it. When I asked my hon. Friend the Minister for Energy and Industry during Trade and Industry questions to take up the point, again no Opposition Member intervened in support. During the meetings of the all-party group, of which I am the chairman, no Conservative Members have pressed the case. How can the hon. Gentleman square reality with what he is saying now?

Mr. Davies

If the hon. Gentleman is dissatisfied with an answer that he receives during parliamentary questions, he must take up the matter with the Ministers concerned. It is Labour Ministers who are in a position to give answers. The hon. Gentleman has scored something of an own goal or has aimed a shot at his own side.

The difference between the two approaches is quite significant. However, we both appear to have the same stated aims, just as with savings schemes, which I must not mention—but we both apparently want to increase savings. The Conservative scheme or schemes delivered that and Labour's did not. Indeed, the Labour scheme delivered a great reduction in savings. In this instance, we again have the same aims. We both agree that it would be desirable to remove any tax obstacles to greater trading of North sea assets.

It is quite natural that at the beginning of the exploitation of a new field, such as the North sea, the risks are high. When licences are being bid for, those risks will be syndicated extensively so that there will be many participations. As fields become more mature, it is natural that there should be trading of those assets, shares and licences, and that there should be fewer holders. In many instances such restructuring can lead to economies of scale, which are extremely desirable.

Apparently we are all at one on the objective. That is certainly the Opposition's position. We believe that roll-over relief should be provided for North sea assets, as it is for many other business assets in this country. The question is how best to get there. We decided to get there in the most direct and straightforward fashion, and that was by saying, "We already have eight classes of business assets which qualify for roll-over relief, so we shall create a ninth." The eight classes have proved to be quite robust. There has been no difficulty at all in obtaining roll-over relief. There has been no ambiguity—and, to my knowledge, no court cases—about businesses in those eight established classes getting roll-over relief.

The sensible step would be to add a ninth class as we have done in new clause 19. What is wrong with that approach? The Financial Secretary did not attempt to argue that there was anything wrong with that approach, and I draw some comfort from her silence. That approach was evidently so unexceptionable that the hon. Lady, who is pretty combative in her way when she wants to be, gave up at the thought of trying to take exception to it. We can take comfort from the proposal that we conceived and tabled.

The hon. Lady's proposal, new clause 17, takes a different approach—a more complicated and less certain approach, which is much less sensible. It knocks out the provisions of the Taxation of Chargeable Gains Act 1992 that explicitly excluded North sea assets from benefiting from roll-over relief. The Government's new clause would restore the status quo ante—the status quo before 1992. The hon. Lady either has not done her homework, or she is being less than frank with the House by not mentioning that. She tried to skate over a material aspect of her new clause. The problem with re-establishing the status quo that existed before the 1992 Act is that that state of affairs was uncertain and unsatisfactory.

It was possible to argue then, and it had been argued before 1987, that North sea licences amounted to a claim on the continental shelf. The continental shelf is land—indeed, it was defined by the 1958 Geneva convention on the continental shelf, and confirmed by the 1982 law of the sea convention, as the extension of the land of a coastal state under the waves, so to speak.

The claim was made before 1987, not unreasonably but by no means with unambiguous certainty, that a licence was a claim on land, and that roll-over relief should therefore be provided, because land that was being exploited by the business that held the licence should qualify for roll-over relief under class 1, whereby land occupied for a commercial purpose benefits from roll-over relief.

The trouble was that that was not unambiguous. So uncertain was it that the Revenue challenged that interpretation, which gave rise to the famous case of RTZ v. Ellis in 1987, in which the Revenue argued that an area was not land and RTZ claimed that it was. As I recall, the matter was referred to the special commissioners, who decided in favour of RTZ. The Government of the day decided to legislate before the matter reached the High Court.

In other words, the jurisprudence was never established before the statute of 1987, which was replaced by the 1992 statute that the Government want to repeal. By definition, a return to the status quo ante would be a return to a state of ambiguity that was never resolved, and which was the basis for extremely expensive investigation and much doubt on the part of investors, businesses and all those involved in the oil industry.

7.45 pm

That would be a foolish way of trying to resolve the problem. I want to hear from the hon. Lady why she decided to resolve it in that way, and why, as she has taken up our initiative to grant roll-over relief to North sea assets, if it was for reasons other than machismo or pique on her part, she did not accept our way of doing that. The House deserves and will require such an explanation.

If the hon. Lady does not want to withdraw new clause 17 and accept new clause 19, which would be the best way of resolving the problem, I suggest that she makes a clear statement to the House now that the Government interpret the law prior to 1992 to mean that the continental shelf counts as land for the purposes of class 1 roll-over relief. If she says that, it may have some force in the courts if the matter is subsequently litigated.

However, I regard that as second best. It would be far better for the Government to accept our proposal and to go down that much surer and safer avenue. If the hon. Lady wants to carry the Opposition with her, she must go down one of those routes. So that the matter is absolutely plain, I repeat that she should accept new clause 19—in any event the House deserves an explanation of why she does not consider that a better route—or she should make sure that, if she goes back to the status quo before 1992 or the first legislation on the subject in 1987, the ambiguity that then prevailed is not restored. The only way in which she can do that is by making that declaration now from the Treasury Bench.

Mr. Frank Doran (Aberdeen, Central)

I welcome the measure presented by the Government and the speed with which it has been introduced. Before I develop that point, I shall comment on the speech that we have just heard from the Opposition Front-Bench spokesman, the hon. Member for Grantham and Stamford (Mr. Davies).

It is always endearing to hear a Front-Bench spokesman for the Conservative party pretending that the Conservative party still matters. The gist of the speech of the hon. Gentleman seemed to be that the Government were ignoring the new clauses tabled by the official Opposition. If that contribution was an example of the Conservative Front-Bench team at its best, it is not difficult to see why the contribution was ignored.

The hon. Gentleman left one indelible impression on my mind—the idea of our three women Treasury Ministers strutting their machismo round the Chamber. I hope that they will carry on strutting their machismo for the rest of our discussion of the Bill, because it is important that they hold the line.

The importance of the oil industry in the United Kingdom is often understated. Not only can we produce our own oil, but the industry still pays substantial sums to the Treasury—about £4 billion a year, down from the boom years when about £12 billion a year was paid in royalties and tax to the Treasury. It is a mature industry and is now in decline. We know that the decline will be long and slow. In my constituency in Aberdeen, we are still looking to at least another 20 or 30 years of the oil industry.

The fact that the industry is not in its prime must be taken into account, so I am pleased that the Government have introduced the measure. One of the biggest problems that the industry faces is the ownership structure. In the early years, many small and large companies bought shares in the various oilfields that were developed, some of them speculatively, and some of the shares have paid off handsomely.

However, rationalisation of investment is necessary to reduce costs in the North sea. We are still an expensive province, and we all compete for the same share of oil investment. It is a global industry and a global market. There is one pot of money in each company, and we compete with provinces around the world for that investment, for example, we compete with Kazakhstan, western Australia, Asia and the middle east.

Most of the middle eastern Governments are exploring the possibility of western investment coming in. All those countries can produce their oil and their gas much more cheaply than we can in the United Kingdom, so it is important that the Government take every opportunity to support the industry. The measure is a small but important one, particularly for the long-term future of the industry.

There are about 380,000 jobs in the oil industry throughout the UK. A recent survey by the Offshore Contractors Association, which is based in my constituency of Aberdeen, determined that 220 Members of the House had constituencies with more than 500 oil-related jobs. That is a significant figure. There is an impression that the industry operates only in Aberdeen, Lowestoft, Great Yarmouth, Teesside and Merseyside, but it penetrates virtually all the country. Even here in the south-east and central London, significant numbers of jobs in planning, computers and software are related to the oil industry.

Measures that help the industry and the jobs in my constituency help jobs throughout the country. They will also help to sustain the industry throughout the country for the next 20 or 30 years and I congratulate the Government on their introduction.

Sir Robert Smith (West Aberdeenshire and Kincardine)

I follow the hon. Member for Aberdeen, Central (Mr. Doran) in emphasising the pervasiveness of the oil industry. It has not only a direct, obvious presence, but has tentacles—such as subcontracting and the supply industry, which depend on it—that reach throughout the United Kingdom economy. It is important not only to Members of Parliament who represent constituencies with a direct oil interest, but to every hon. Member that the oil industry thrives and prospers long into the future.

As the joint vice-chair of the all-party offshore oil and gas industry group, I recognise the industry's importance and welcome anything that will help it to grow and prosper. Although it is especially important to my constituency in the north-east of Scotland—it is obvious and on the doorstep—from time to time we lose sight of the extent to which it pervades our local economy and how dependent on it we have become. Therefore we do not always realise that we look to the future by supporting and developing it.

We must look to the future by making sure that the industry's morale survives this period of low oil prices and by recognising that the industry is a mature province. Although we still have infrastructure in the original main fields, new technologies can exploit far smaller reserves that were ignored first time round. Those technologies are viable and economic because they can bolt on to the original technology at the heart of the mother fields, but if they go out of production we will lose that essential infrastructure and not achieve further onward developments.

Such developments would be a great benefit because the technology being developed in the North sea is exportable. If we have a good home market and a good home base for the industry, we can build the export industry and confidence in it. This country missed opportunities because it did not develop the export potential of an industry on our own doorstep as much as we might have liked. However, many small innovative contractors have the confidence to export, but they need the security of the home market. That is why anything that the Government can do to avoid disrupting the market and to encourage it is to be welcomed.

When the Government were elected, they did not fully understand the sensitivity of the market and embarked on a clumsy review of oil taxation, which worried people and threatened investment. I hope that the measure is a sign that we can draw a line in the sand on that and that the Government are beginning to learn their lessons and work constructively with the industry. I have welcomed the establishment of the task force. I hope that the measure is a symptom of what can come out of its work—not only bringing the industry and various Departments together to understand how complex and interconnected the industry is, but bringing various sectors of the industry together so that they can co-operate. Taking a constructive approach to the industry will benefit the individual players within it.

We need to drive forward the industry's export potential. In particular, I welcome paragraph 10 of the Treasury briefing on new clause 17, which states: The cost of this measure is therefore expected to be negligible. The loss of tax on gains on oil licence disposals under current legislation is expected to be offset by increases in tax yield resulting from the benefits of more rationalisation of UK oil licence holdings. That underpins the whole argument that those of us who support a long-term viable future for the industry have been putting to the Government. We want them to say now that they want to make money from the long-term future of the industry and want it to survive. That would send an important signal to people in boardrooms around the country who are deciding where to invest. If the country bought into the idea of achieving long-term returns, the industry may benefit if it also invested to achieve long-term returns.

If we can send out such a signal and build on the optimism, the industry may emerge from the price shock of the past year with more potential than would have been the case if we had not been brought to our senses by it. In particular, it helped to bring the Government round from their initial approach of immediately taking more money out of the industry, which was an easy way for the Treasury to benefit. They are beginning to realise that the Treasury will benefit if the industry survives well into the future.

Every year oil companies hold briefings on the industry's future and every year the graphs look set to dip. Oil is a finite resource, but we have pushed the envelope of that graph well into the future and the industry is viable. People ask me, "What will we do in the north-east when the oil runs out?" We should make sure that we exploit what oil there is and maximise for our community the benefits of having a good industry on our doorstep.

The industry pervades our economy and we should maximise the benefits of that for the United Kingdom and maximise its great export potential. I urge the House to support the measure and send a signal of optimism to those who have to make the vital decision to invest for the long term in an industry that is so important to the United Kingdom economy.

Mr. Blizzard

I, too, support new clause 17 and wholeheartedly welcome the restoration of the capital gains tax roll-over relief for the oil and gas industry. I am the chairman of the all-party offshore oil and gas industry group and I represent a constituency that relies heavily on the industry, which is a major source of employment.

The industry has been operating for about 30 years and has achieved huge benefits for this country, such as the sheer scale of its input into our economy. Often, people think only of the 30,000 jobs offshore, but 10 times that number are spread around the country onshore through the 5,000 contractors whose work relates to the industry. Annual investment from the industry accounts for about 16 per cent. of total British industrial investment.

Hon. Members should consider for a moment the sums that I am talking about. Shell, which is based in my constituency, invests about £2.5 billion a year in the North sea operation. We should compare that with the capital investment that is made when a new Japanese electronics company sets up. We rightly get excited about investments of £200 million, £300 million or £400 million, but one oil company is investing annually eight times that sum in the North sea. That is substantial investment.

In my constituency, as in many others, the industry provides the employment that was lost from shipbuilding and fishing. The employment comes not only from large companies such as Shell and large fabricators such as Odebrecht, but from home-grown companies such as KYE and Boston Putford and scores more, some of which are little businesses with fewer than 10 employees. They all form part of the supply chain for the industry.

The industry has also provided a huge source of revenue to the public purse down the years—the debate concerns how that can continue—and relatively clean North sea gas, which has been of great benefit to the environment. When that fuel is used to generate electricity, it produces only half the CO2missions of coal burn. This country is on course to meet the Kyoto targets because of the contribution made by North sea gas.

As other hon. Members have said, the industry has been going through a difficult time, and it is still doing so. The situation was critical when the international oil price fell to $10 a barrel. Although the price has recovered to about $16, the outlook is for a price somewhere between those figures rather than an increase to the bigger prices of the past. To understand what is going on in the North sea, we have to look beyond the oil price, because the industry is not the same as it was 30 or even 15 years ago. In fact, people then thought that the industry would not still be with us today. It is remarkable that it still is, even if field sizes are not the same as years ago.

8 pm

It would not be economic to exploit today's fields if the industry still operated as it did 20 years ago. The industry has undertaken dramatic cost reduction measures, efficiencies and the development of new technology in a hostile environment, all of which has made the North sea a world leader. It is good for our business that we can export technology and expertise around the world.

The industry has changed, and, in its maturity, it needs a new tax structure, different from those of the past. We want the industry to continue for another 30 years—we need the jobs. We want the exports to continue, and we want continued investment that must be won in a global economy in which oil companies can choose to come here or go elsewhere. We want continued tax revenue from a huge industry. As long as the infrastructure exists in the North sea, it makes environmental sense to extract as much oil and gas as possible rather than leaving it behind.

Capital gains tax roll-over relief will help. It is well targeted and effective, and it will enable assets to be consolidated or traded, ownership to be rationalised and partners to be aligned. It will therefore reduce costs. Various projects and deals that would not otherwise have gone ahead can go ahead because of the change. Existing infrastructure can be used to develop satellite fields, and the relief will encourage investment, extending the life of the industry. It is a win for both the industry and the Treasury. By extending the life of the industry, the Treasury will receive more revenue in the end.

The measure proves that we have a listening Government. The industry has put its case, and the Government have listened. The Government want to work with the industry, and their method of doing so provides a model for such working. The task force has been formed, and the Government have sat down to see what can be done. Rather than having a lot of empty bluster after everything has been sorted out, a task force—into which both the industry and the Government put much time and effort—has brought about results.

The Government have signalled their commitment to the oil and gas industry, and they understand that field size—and not just oil price—is important. The changes are welcome in my constituency and in the scores of others around the country that support the industry. One comes to the House to press many issues and ask many questions. It is good sometimes to see a case on which one has worked coming to fruition.

Mrs. Roche

This has been an interesting debate. I shall deal first with new clauses 15 and 16, which deal with the definition of an asset. The definition—not new, but in existing legislation—is plant and machinery used in the field.

Mr. Quentin Davies

Does that include a floating production platform?

Mrs. Roche

Floating production platforms are unlikely to be affected by new clause 15.

Mr. Davies

That is a very vague response. In what circumstances would a floating production platform be affected, and in what circumstances would it not be affected? It is important to be precise.

Mrs. Roche

The hon. Gentleman will appreciate that one must be careful in the language that one uses when dealing with taxation. I have been as precise as I can under the circumstances. Assets affected would include terminals and pipelines. The position regarding floating production platforms would depend on whether they were considered to be a mobile asset, a dedicated mobile asset or a fixed asset. The hon. Gentleman was perfectly right to ask his question. I mean no disrespect to him when I say that it was one of the most coherent parts of his speech.

Mr. Peter Brooke (Cities of London and Westminster)

The Financial Secretary has read the note handed along the Bench to her, and has indicated that the situation would depend on three different things. However, she did not say in what way it would depend on them.

Mrs. Roche

The right hon. Gentleman will realise that the situation will depend on individual circumstances. A definition of assets is included in the Oil Taxation Act 1983. There are also matters of interpretation, and, as a former Treasury Minister, the right hon. Gentleman will appreciate that the situation depends on circumstances. I have been as helpful to the House as I can. The position would also depend on what had been agreed at the time—the right hon. Gentleman knows how the Inland Revenue works, and what negotiations take place; he has a good memory, and all that will come flooding back to him.

The principal subject of our debate is capital gains tax roll-over relief. We heard an excellent speech from my hon. Friend the Member for Aberdeen, Central (Mr. Doran), who takes a close interest in the industry and who has great expertise. We heard a further excellent speech from my hon. Friend the Member for Waveney (Mr. Blizzard), who chairs the all-party offshore oil and gas industry group. We have had many interesting discussions on the subject, and I know of his great efforts in this regard. The hon. Member for West Aberdeenshire and Kincardine (Sir R. Smith) also holds a position in that group.

It is difficult to know how to characterise the speech made by the hon. Member for Grantham and Stamford (Mr. Davies), except to say that I heard every word, even though he delivered it without a foghorn. My hon. Friends and I were accused of machismo and of strutting our stuff, and we shall be pleased to carry on as we are. I should have taken the hon. Gentleman's bluster and protestations more seriously if the hon. Member for Maldon and East Chelmsford (Mr. Whittingdale)—now off to be Parliamentary Private Secretary to the right hon. Member for Richmond, Yorks (Mr. Hague)—had not congratulated us during the Committee Stage. At no time in Committee did he raise CGT roll-over relief. Even in the all-party group, no Opposition Member has ever raised the matter.

New clause 19 is an Opposition U-turn, reversing the position that they took in 1987. The hon. Member for Grantham and Stamford can protest all he likes, but they had all their years in Government to put it right. I shall outline the differences between our new clauses and the Opposition's new clause.

The Opposition want to allow roll-over relief on oil licences, with effect from 6 April 1999. Our new clause extends roll-over relief to oil licences from 1 July 1999, the date on which we tabled the new clause. Our aim is to encourage future transfers of oil licence interests. Applying roll-over relief to transfers that have already taken place would not help to achieve that objective. I see no case for making the new clause retrospective, as the hon. Gentleman suggested.

There are some technical differences between our new clauses. The hon. Gentleman would wish his new clause to be right, but it contains some technical problems. The Opposition want to add a new class of assets for oil licences under section 155 of the Taxation of Chargeable Gains Act 1992. That is an unnecessary complication, and the precise effect of new clause 19 is not clear as it refers to legislation that has already been repealed. The relevant provisions of the Petroleum (Production) Act 1934 were superseded with effect from 15 February 1999 by the Petroleum Act 1998. So the new clause that the hon. Gentleman invites me to prefer to the Government's new clause is defective. It is not precisely clear how the commencement rule would apply, as there is no indication of which acquisitions are to be covered by the clause.

Mr. Davies

The hon. Lady makes footling points. It makes no difference to the substance whether the provisions come into effect from April or July, and she must know that. There is no reference in our new clause to the 1934 Act, and I do not know where she got that from. Will she address the main point that I raised? Her proposed new clause takes us back to the uncertainties of the pre-1987 regime, whereas our new clause creates an explicit new class of assets which will qualify for CGT roll-over relief. The essential difference between our new clauses is the unambiguity and greater certainty of the one, and the ambiguity and lesser certainty of the other. I hope that the hon. Lady will not run away from this important issue.

Mrs. Roche

I regret that the hon. Gentleman has taken the same approach as he has taken throughout the debate, in contrast with other hon. Members who have contributed to a positive discussion about the state of the industry. I do not regard technical deficiencies in a new clause as a footling matter. I shall deal with his points if he will allow me to proceed.

When drafting our new clause, we carefully considered whether we needed to introduce a new class of assets for United Kingdom oil licences into the list of classes of assets already eligible for roll-over relief. We concluded that a new class of assets was not necessary, and that the only change required to ensure that companies can claim roll-over relief on oil licences was to repeal section 193 of the Taxation of Chargeable Gains Act 1992.

Since 1987, the Inland Revenue has accepted—the hon. Gentleman will know this if he has done his homework—that UK oil licences are an interest in land as defined in class 1A of section 155 of the 1992 Act. It has recently obtained advice from its solicitors confirming that. Its acceptance of that point is made clear in its published manual on the corporation tax rules that apply to North sea oil companies. As a result, when section 193 is repealed by new clause 17, the only barrier to oil companies claiming roll-over relief on UK oil licences will be removed. I assure the House that, as UK oil licences are interests in land, new clause 17 will allow companies to claim roll-over relief on the disposal of UK oil licences.

This has been a good debate. I should like to congratulate all hon. Members who took part. I also want to thank my hon. Friend the Minister for Energy and Industry, who chairs the task force on this issue, and the industry for all the constructive discussions we have had. I commend the Government's new clauses, and urge the House to reject the Opposition's new clause.

Question put and agreed to.

Clause read a Second time, and added to the Bill.

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