Petroleum Royalties (Relief) Bill (Hansard, 21 December 1983)

§ Lord Stoddart of Swindon

My Lords , this is the last opportunity we shall have before the Bill receives Royal Assent to state the Opposition's fundamental opposition to the provisions of the Bill, which abolishes all royalties for new oilfields outside the southern basin. This is a vital Bill with sweeping powers and I wonder whether it has been appreciated in this House or in another place how important a Bill it is.

I stated quite clearly and unequivocally at every stage of the Bill in your Lordships' House that the principle of royalties was basic and should be retained at all costs. That remains our position today. We also dislike this Bill because it is unnecessarily generous to the oil companies and consequently detrimental to the interests of the British taxpayer and to the interests of the nation as a whole. It is regrettable and also reprehensible that the short-term needs of the Government to maximise revenue in the short term should undermine their future ability properly to control developments in the North Sea and lead to the sacrifice of long-term financial benefits.

732 I also find it quite deplorable that Parliament should be asked to give consent to a Bill of this kind without the Government giving any estimate of the cost to the Exchequer. The Government have asked for a blank cheque which, when it is finally filled in and presented for payment, I rather fear the taxpayer will be many thousands of millions of pounds worse off. That is a matter of great significance.

During the Committee stage the Opposition attempted to improve the Bill in such a manner as to preserve the Government's control of and income from the North Sea, while at the same time ensuring that development—that is including development of marginal fields—continued in an orderly and beneficial manner, consistent with the need to achieve the optimum benefit from the North Sea over the longest period of time. The fact that your Lordships felt unable to agree with our view will, we believe, result not only in a huge loss of revenue, but will also place the Government in a vulnerable position over royalties in other areas of the North Sea, not covered by the Bill. Indeed, we see this Bill as the thin end of the wedge, leading to the complete abandonment of royalties over the whole of the North Sea. If that were to happen, we would be the only oil-producing country in the world without royalty oil. That is something which the whole House should deplore. For all these reasons, and because the Bill undermines the very principles and rights of ownership in the North Sea, we reject this Bill, and although in accordance with the conventions of this House we shall not vote against a Third Reading there should be no mistake about our complete and utter opposition to and detestation of the measure.

§ The Earl of Avon

My Lords, in the debates and Committee discussions both here and in another place we have faced a difficult decision of how much needs to be given in fiscal concessions to oil companies exploring, developing and producing on the United Kingdom continental shelf in order to achieve a proper rate of development. It is important that those reserves which can economically be produced should be produced. The fiscal régime must therefore provide adequate encouragement for this, while, at the same time, ensuring an adequate share for the nation.

The noble Lord, Lord Stoddart. claims to have calculated an Exchequer loss of £5,750 million. I do not propose to compete with him in offering calculations that must necessarily be wholly speculative. But by explaining where I believe there are two significant misunderstandings in this particular calculation. I hope that I shall be able to underline two of the principal reasons why the Government are moving this Bill.

First, I see that the noble Lord's figure of 2,300 million barrels of recoverable reserves is close to the equivalent figure in the Brown Book of 300 million tonnes for proven and probable reserves in significant discoveries not yet fully appraised. But I must ask him to recognise that much of this would not have been worth developing without this year's package of fiscal incentives. For no developments were brought forward for approval from 1980 until after last winter's review of the fiscal regime had started. And that detailed 733 review left us in no doubt that a number of fields that were profitable before tax offered such poor returns after royalty and tax that they were likely to remain undeveloped without a significant change in circumstances.

So the noble Lord cannot simply take the whole amount, multiply it by the rate of royalty and accuse the Government of giving the resulting amount away. Rather I suggest to the House that the Government have gained for the Exchequer the tax take from those fields that will now be developed but would not otherwise have been.

Secondly. I think that the noble Lord's calculations assumed a rate of loss of 12½ per cent. May I once more try to explain, as I did during Second Reading, that the royalty relief proposed in this Bill has the effect of increasing the pre-tax revenue potentially liable to petroleum revenue tax and corporation tax. Thus the marginal rate of Government take may be reduced only from 89½ per cent to 88 per cent. Of course some—or even very occasionally all—of the extra revenue may be protected from tax by allowances. But that is right and proper. Unlike royalties, PRT and corporation tax are progressive taxes, with allowances designed to reduce their incidence on less profitable fields. It is through these profit-based taxes rather than through royalties that the Government should take for the nation its share of future North Sea holdings. I should like now to thank the noble Lord, Lord Bishopston, for focusing the House's attention on the question of how much paperwork is entailed by various of the fiscal alternatives.

There have been to date three requests for royalty refunds, none of which has been agreed to. Without this Bill, I should confidently expect requests for virtually every new field, most of which would be agreed to. But it is not consideration of a request for, or payment of, a refund which causes the great mass of paperwork; it is the original calculation and collection of royalties. Even though the royalties were to be refunded, these detailed calculations will be insisted upon by licensees since the notional liability to royalty is an allowance against PRT. It is perhaps worth pausing for a moment on the thought that what industry thought of was a refunding of royalty that would have given them relief from tax as well as royalty. Under the Government's proposal in this Bill, the exemption is only on royalty.

The Bill now before the House is aimed at completing the package of which the other parts are in the Finance Act 1983 and the Oil Taxation Act of the same year. It completes the adjustment of the fiscal regime in such a way as to give, so far as can be foreseen, a fair return to companies and enough to give incentive for exploration and development while securing an increased return to the nation through the developments of fields which would otherwise have been by-passed. I do not believe that either the taxpayer or the country have anything to fear from this Bill. In fact, I believe they would benefit from it. I invite the House to agree that the royalty relief as proposed in this Bill should be given and that the Bill be read a third time.