HL Deb 09 February 2000 vol 609 cc755-7

9.8 p.m.

The Minister for Science, Department of Trade and Industry (Lord Sainsbury of Turville)

My Lords, I beg to move the Motion standing in my name on the Order Paper.

We are here today to debate an order, under the Deregulation and Contracting Out Act 1994, which will permit the transfer of royalty collection functions from the DTI's Oil and Gas Royalties Office to the Inland Revenue's Oil Taxation Office. As your Lordships may know, the administration of direct government revenues from UK Continental Shelf production is currently split between the Inland Revenue and the DTI. The Oil Taxation Office administers petroleum revenue tax and corporation tax while the Oil and Gas Royalties Office, which has 14 staff in Aberdeen, administers the 12.5 per cent royalty paid on oil and gas produced from older—pre-April 1982—fields.

The effect of a transfer will be to consolidate all these functions in one unit—albeit with two sites, in Aberdeen and in London. The proposed rationalisation should bring significant benefits to producer companies. The intention is that the administration of petroleum revenue tax and oil and gas royalties will, with industry input, be gradually conformed, to bring a more streamlined service, building on the substantial similarities in royalty and PRT. The Government believe this proposal to be both worth while and uncontroversial.

It may help noble Lords if I give a little of the background history. The current division of responsibilities between the DTI and the Revenue has its origins in the earlier years of the UK's oil and gas production industry. Before 1975, oil and gas producers were liable only for production royalties and for conventional corporation tax on any production profits. Oil and gas royalty first began to generate substantial sums at the time that commercial production of gas began, in the 1960s, and, at that time, royalty administration sat naturally with the licensing authority itself—initially the Department of Energy, and latterly the DTI.

The special taxes on North Sea production profits came somewhat later with the introduction in the 1970s of petroleum revenue tax, ring-fenced corporation tax, and the extra-territorial charge on the profits earned by offshore contractors operating in the UK sector. These taxes have been administered since 1975 by the Inland Revenue's Oil Taxation Office.

The royalties office and the Oil Taxation Office have worked more or less closely together ever since 1975, but their respective sizes and responsibilities have changed substantially over that time, reflecting the development of the province and successive changes to the North Sea fiscal regime. Thus, the role of the Oil Taxation Office has steadily grown and now includes overall responsibility for the oil and gas industry, upstream and downstream, valuation of product for both tax and royalty, relations with overseas fiscal authorities, and the provision of technical support to the Know-How Fund and to the Falkland Islands Government.

For present purposes, perhaps the most significant of these changes was the effective abolition of royalty for post-March 1982 fields. Although the royalties office's workload is stable at present, the medium and longer-term future of the royalties office and its staff is, as matters currently stand, an uncertain one. Furthermore, the collection of royalty does not sit particularly well within the DTI's general area of responsibility.

While there are no guarantees for the long-term future of either office, the Government have concluded that worthwhile benefits are to be had from a merger of the two offices. First, a merged operation will facilitate a conformed approach to the administration of royalty and PRT. Both are forms of resource rent, levied on very similar licensee populations. For historical reasons, the approach of the respective offices has been different. That difference has been a source of concern to licensees, and a key objective of the merger will be to secure as much commonality in the future as is practical.

Secondly, the new merged operation will have sufficient critical mass to manage the inevitable eventual run-down of royalty and the other duties with confidence. Thus we are looking as much to secure good, effective administration in the medium and longer-term as for the present.

In sum, there are substantial similarities in royalty and PRT on which the transfer will build, leading to simpler administration of royalty. Furthermore, the royalties office and the Oil Taxation Office currently have different skill bases and the expectation is that both will gain from further integration. The producer companies, which have been aware of the proposal for some time, stand to gain from closer integration of royalty and PRT administration, and have given their support to the idea.

Responsibility for royalty policy will remain with the DTI. An order under the Deregulation and Contracting Act 1994, rather than a Transfer of Functions Order under the Ministers of the Crown Act, is being used in this case because the Inland Revenue is not a ministerial department. I commend the order to the House.

Moved, That the draft order laid before the House on 16th December 1999 be approved [6th Report from the Joint Committee].—(Lord Sainsbury of Turville.)

Lord Avebury

My Lords, perhaps I may ask the Minister one question. Are there any implications for the pension rights of employees in the two halves that are coming together? Are their pension rights at present identical; or will there be a scheme to assimilate the rights of both sets of employees? If that is so, will there be there a "no detriment" clause?

Lord Sainsbury of Turville

My Lords, I believe the situation is that employees will retain the pension rights that they currently have and that there will not be a change. There is no significant difference between the DTI and the inland Revenue on that point.

The Government believe that the transfer will be warmly welcomed by the oil companies which pay royalty on their production from North Sea oilfields. The established success of the province owes a great deal to the pragmatic partnership that government has formed with producers. This modest proposal is very much in that spirit of practicality and pragmatism. The order will permit an important rationalisation of royalty collection functions. I commend it to the House.

On Question, Motion agreed to.