§ Mr. Colin ShepherdTo ask the Chancellor of the Exchequer what will be the effect on his estimates of public sector debt repayment and of privatisation proceeds of the purchase by the British Petroleum Company plc of 790 million of its shares currently owned by the Kuwait Investment Office.
§ Mr. LawsonAt their extraordinary general meeting on 31 January 1989, the shareholders of BP approved the purchase of 790 million of BP shares from the KIO. Following the purchase, these shares will be cancelled and the KIO's holding will be reduced to 9.9 per cent. of BP's issued share capital, as recommended by the Monopolies and Mergers Commission.
The KIO will pay the final instalment of £830 million on these shares in March rather than on the due date of 27 April 1989 and will be issued with share certificates forthwith. The Treasury has agreed to these arrangements 228W because the powers available to BP to purchase its own shares apply only to fully-paid shares and not to partly-paid shares or shares held in the form of interim rights.
Following the KIO's payment, the public sector debt repayment in 1988–89 will be £830 million higher than otherwise. There is no other effect on the PSDR in 1988–89. BP will be liable to advance corporation tax on the purchase and it has stated that the KIO is entitled to an equivalent tax credit from the Inland Revenue. BP can offset this ACT against its future corporation tax bill, but only if its United Kingdom taxable income is high enough in the years ahead. The cost of any such offset would in any event be far less than the gains from the Government's decision in October 1987 to proceed with the sale of shares in BP at the underwritten price of 330p
The present estimate of £6.1 billion privatisation proceeds in 1988–89 will be increased to approximately £6.9 billion. There is some flexibility on the timing of privatisation receipts, and the central estimate of total proceeds remains at £5 billion for 1989–90.