§ The Earl of LAUDERDALEMy Lords, I beg leave to ask the Question which stands in my name on the Order Paper.
§ The Question was as follows:
§ To ask Her Majesty's Government how their proposals to tax production by licensees of the British sector of the North Sea compare with those in operation in the Norwegian sector.
§ The MINISTER of STATE, DEPARTMENT of ENERGY (Lord Balogh)My Lords, this is a difficult Question to answer. The final details of the new Norwegian tax proposals are not yet available. The two Governments have, however, kept in close touch at official level and our aims are the same; each country wishes the maximum benefits to accrue to its people from the North Sea without deterring the companies who must be given a fair return. The problem is very much complicated by the great differences in cost which have been experienced. What is clear is that the Norwegians have rejected the notion of an excess profits tax on the lines canvassed by the noble Earl and his friends opposite. Instead, the Norwegians propose to introduce a special tax which will impose an extra band of tax on profits computed broadly in accordance with the corporation tax rules, but with an additional allowance for depreciation. Under the general corporation tax law relief for depreciation is not given until an asset comes into use, which means that relief for the development of a second field cannot be set against receipts from an earlier field until the second field comes into production, a result substantially the same as the 964 United Kingdom's field by field basis of charge to PRT. The Norwegians also propose to put a ring fence around their Continental Shelf, as we did. A comparison of the two sets of tax proposals shows a marked similarity. The total percentage Government take from tax and royalties in the two countries is broadly comparable, the United Kingdom Government take being perhaps a little higher and accruing a little later.
§ The Earl of LAUDERDALEMy Lords, in thanking the noble Lord for that reply and congratulating him on the flexibility of judgment which enables him to say that the two systems are broadly comparable, and therefore congratulating him on the breadth of his vision, may I ask him whether it is not the case that the Norwegian system enables an exploration or production company to put together its operations in more than one field for tax purposes, and does not separate off one field from another?
§ Lord BALOGHMy Lords, it is not quite like the noble Earl suggests, because the Norwegians cannot begin to depreciate in the second field until the second field has come into being; and that, broadly speaking, is the same as the situation here. On the whole, the British taxation will accrue to the Exchequer a little later, thereby freeing the companies from risk earlier than the Norwegians.
§ The Earl of LAUDERDALEMy Lords, would not the noble Lord agree, however, that although the depreciation impact is timed to occur differently, the effect of the Norwegian system is to give a greater incentive for exploration?
§ Lord BALOGHMy Lords, I should not like to inquire into the very complicated minds of the oil magnates, but I should have thought that the fact that we can depreciate earlier, with no tax being payable until the depreciation has been completed—and even then there are, as the noble Earl knows, certain alleviations—means that our system is, on the whole, more likely to stimulate exploration, and I assure the noble Earl that exploration activity is at its maximum and is increasing.
§ Lord CASTLEMy Lords, would the noble Lord care to hazard a forecast as 965 to the percentage which the United Kingdom will receive of the total revenues from oil?
§ Lord BALOGHMy Lords, I thank my noble friend for that question. However, this is an extremely difficult subject on which to forecast because, on the one hand, costs are increasing and, on the other, we do not really yet know what the alleviations will amount to under the new system. However, I should have thought, on the whole, that over the next ten years the Government's take will amount to 70 per cent. of the profits, with the bigger fields paying rather more and the smaller and more difficult fields paying rather less than that.
§ The Earl of LAUDERDALEMy Lords, may I ask a further supplementary question? Can the noble Lord say whether it is the case that under the Norwegian system corporate tax is chargeable before the special tax, unlike PRT?
§ Lord BALOGHMy Lords, I think the noble Earl is ill-informed on this point. On the contrary, the Norwegian system is 75 per cent. straight, whereas in our case the system is such that PRT is a prior charge against corporation tax; that is to say, while the Norwegian system en principle would represent 75 per cent., with certain alleviations for depreciation and with various other measures it is decreased well below that figure.
§ The Earl of LAUDERDALEMy Lords, I thank the noble Lord for that answer. May I ask him whether he will be so kind, now or on another occasion, to arrange to circulate in Hansard the substance of what he has said in language which we can understand?
§ Lord BALOGHMy Lords, the language which the noble Earl did not understand was not mine. I am responsible only for the pronunciation.
§ Lord CASTLEMy Lords, does the noble Lord not agree that, on the figures he has given this afternoon, we have been rather more generous to the oil companies than have the Norwegians?
§ Lord LLOYD of KILGERRANMy Lords, I understood the noble Lord to say very clearly that exploration is at 966 a maximum at the present time. Could he use this occasion, or any other occasion, to make some general observations as to the position in regard to production?
§ Lord BALOGHOn another ocasion, my Lords. If the noble Lord puts down such a question, I shall certainly be glad to answer.
§ Lord LLOYD of KILGERRANMy Lords, I thank the noble Lord very much.