HL Deb 08 December 1977 vol 387 cc1740-2

3.8 p.m.

The Earl of LAUDERDALE

My 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 whether they will consider easing the burden of petroleum revenue tax on deliveries of light, low sulphur, crude oils.

The PARLIAMENTARY UNDERSECRETARY of STATE, DEPARTMENT of the ENVIRONMENT (Baroness Birk)

My Lords, petroleum revenue tax is charged on profits from winning oil and gas from the United Kingdom and its Continental Shelf, and it would not be appropriate to give special tax treatment to any particular type of oil.

The Earl of LAUDERDALE

My Lords, in thanking the noble Baroness for that reply—and perhaps I may be allowed to congratulate her on her homework about it—may I ask her whether she does not agree that it is, as it were, the top slice of any production which provides the profit to the entrepreneur; that the recent slump in the prices of light crude oils has meant that that top slice has become very small; and that the effect of the Government "take" threatens to remove profit altogether?

Baroness BIRK

My Lords, with great respect, I do not think the noble Earl is quite right about that. Oil is valued for tax purposes on the basis of its open market price. If the price falls, the tax falls, too. Light, low sulphur crude oil is worth more than heavy, high sulphur crude oil, and this would be reflected in its value for tax purposes; but it does not follow that these oils are less profitable to produce because the tax is greater. Where the tax is greater so is the profit. Petroleum revenue tax does not penalise higher profits; it is pro rata.

The Earl of LAUDERDALE

My Lords, I am much obliged to the noble Baroness for that reply, but could she ask her Department whether they would look at this again, because the costs of production are relatively constant. It is constant overheads—even though they are under the water—which determine the real price of the oil, and this variable tax pro rata can in fact turn into a disincentive to its production.

Baroness BIRK

My Lords, I shall certainly go back and discuss it and write to the noble Earl, but I must also point out that we have no evidence that the level of petroleum revenue tax is adversely affecting production. We have not heard anything from any company. In fact, most of the comments have been on the other side; that is, that a higher rate of tax ought probably to be taken for the good of the community.

Lord CAMPBELL of CROY

My Lords, was not one of the defects of this tax that a prolific field which was easy to operate could make a large profit and not be taxed in the way it would have been under the excess profits tax legislation, whereas a marginal field may well not be developed at all? Have not the Government indicated that they will waive the petroleum revenue tax completely in order to encourage some fields to be developed at all?

Baroness BIRK

No, my Lords; it is not quite like that. There are several reliefs from petroleum revenue tax designed to prevent it bearing too harshly on marginal fields, but we are not aware of any development which is not being carried out because of tax problems. This is not one of the matters which have been put before us. If there is any evidence, I will gladly try to get it acted upon, but there just is not the evidence.

Lord WYNNE-JONES

My Lords, can my noble friend say how many companies have gone out of business, in the way in which they threatened to do years ago, because of the petroleum revenue tax?

Baroness BIRK

My Lords, I do not know of any at all. In addition to what I have already said in reply, I would also point out that there is a safeguard which prevents petroleum revenue tax being payable at all if profits fall below 30 per cent. of the historic capital costs; so I would have thought that every safeguard was taken.

The EARL of LAUDERDALE

My Lords, would the noble Baroness look at the point—I will not put any further questions to her—that, if the spot price falls from 14 dollars to 13.85, that immediately reduces the profitability to the entrepreneur, whereas the Government's stake remains the same?

Baroness BIRK

No, it does not remain the same, my Lords, because if the profit falls then the tax falls as well.