PETROLEUM REVENUE TAX (Hansard, 12 February 1979)

§ The Earl of LAUDERDALE
My Lords, I beg leave to ask the Question which stands in my name on the Order Paper.

§ Lord STRABOLGI
My Lords, discussions are continuing with the industry about the Government's proposed charges in petroleum revenue tax. I cannot prejudge the outcome of these discussions.

§ The Earl of LAUDERDALE
My Lords, in thanking the noble Lord for that not very informative reply, may I ask whether he would not agree that the events in Iran argue very strongly for the greatest possible incentives here for exploration and development of oil, since the Western world is now running short? Could he not say whether there is some gleam of light, some hope, that these impositions can be lightened?

§ Lord STRABOLGI
My Lords, my right honourable friend the Chief Secretary announced the Government's proposals last August specifically to allow 975 time for discussion with the companies before legislation is introduced in this year's Finance Bill.

§ The Earl of LAUDERDALE
My Lords, can the noble Lord give us this little bit of encouragement: Will he agree that it is now urgent and that it should be worth while to develop fields which have known reserves of less than 300 million barrels and which are at present quite unremunerative?

§ Lord STRABOLGI
My Lords, we have studied with interest the argument of the United Kingdom Offshore Operators' Association that the fiscal system should be changed to reduce the minimum size of a field which it is economic to develop. It should be stressed, I think, that the profitability of a North Sea development is only weakly linked to size. There are protections within the fiscal system for less profitable fields, whether this is due to small size or to some other reason.

§ Lord BALOGH
My Lords, does my noble friend not agree that the North Sea at the moment is politically and financially much the most attractive place, and that any further concessions would be to the detriment of our balance of payments?

§ Lord STRABOLGI
My Lords, the Government came to the conclusion that we could not allow a situation to continue in which large profits were being made from a national resource with an inadequate share being received by the community.

§ The Earl of LAUDERDALE
My Lords, does the noble Lord not agree that the time has come to take this matter out of the rather crude Party political arguments about profit? Is it not time to consider the national interest in the widest sense, including that of Western Europe generally, and not go harping on about profits as if there were something wicked about them? In fact, they are lovely things to have!

§ Lord STRABOLGI
My Lords, the Government believe, after careful study, that there is sufficient protection for the less profitable fields within the fiscal 976 régime, even after the proposed changes. Perhaps I might remind the noble Earl that the most important provisions are that companies get full immediate relief on their capital expenditure for both PRT and uplift. The oil allowance, even at its reduced level, gives fields up to 5 million tonnes of production free of PRT. The safeguard provides protection for fields whose revenues are low in comparison to capital expenditure. The companies get immediate corporation tax relief for the cost of developing one field against the profits of another. This is quite different from the loose arrangements made by the previous Administration, when huge international conglomerates were allowed to offset losses in some sectors against profits in the North Sea. Lastly, the Government have discretionary powers to repay royalties in appropriate cases. If the companies wish to prove that these provisions are inadequate, then they must produce figures.

§ The Earl of LAUDERDALE
My Lords, without wishing to embarrass or bore the House, would not the noble Lord agree that if all these concessions are so wonderful and so effective it is very strange that exploration drilling has collapsed?

§ Lord STRABOLGI
My Lords, exploration drilling had collapsed long before my right honourable friend the Chief Secretary announced these PRT changes. As the noble Earl is well aware, there was a decline in drilling following the increased level of drilling following the relinquishment of the fourth round.

§ Lord WYNNE-JONES
My Lords, would my noble friend accept that very many of us agree wholeheartedly with the noble Earl, Lord Lauderdale, in saying that he supports the Government and does not wish to have this a political issue?

§ Lord STRABOLGI
Yes, my Lords; I agree with my noble friend and with the noble Earl, and I am sure that the oil companies will agree as well.