Finance (No. 3) Bill

Debate between Lord Beamish and Robert Smith

Tuesday 3rd May 2011 Commons Chamber

[Sir Robert Smith (West Aberdeenshire and Kincardine) (LD)]

I remind the Committee of my entry in the Register of Members’ Financial Interests as a shareholder in Shell, and of my wider interests in the oil and gas industry.

The oil and gas in the North sea belongs to the nation, but unless we have a regime that attracts experts with the finance and knowledge we need, we will not benefit from it. One of the amendments before us would restrict the tax raid to a year, to ensure that the Government and industry can engage in constructive dialogue that will encourage investment. It is important to restore confidence in the tax regime. Following previous supplemental changes, Governments had to work very hard to restore confidence and bring back investment, with field allowances and other incentives. They engaged with the industry and provided assurances that once the tax change had been made at the beginning of a Parliament, it would not be revisited until the next election. There is scope for restoring confidence, but some hard work will have to be done.

The Government need to address some of the arguments that are being made, particularly the one advanced by my right hon. Friend the Member for Gordon (Malcolm Bruce) about what individual investors are getting for their investment. It has been put to me that people made a decision to invest last June, but now the price of oil is $125 a barrel. If they decided to invest and then hedged for this year at $88, they are not getting $125, because the hedge fund is getting the profit. I do not see a tax being brought in on hedge funds; instead, it is being imposed on the people on the ground doing the hard work, on the skilled labour and on the knowledge and risk-taking.

When we talk about windfalls, we have to be slightly careful in the case of an industry with a fluctuating commodity price. When the price goes up it makes more profit and when the price goes down it makes less, but Governments tend not to say, “We’re a bit concerned that the price has fallen, so we’re going to cut the tax.” If there is a one-way ratchet, that causes uncertainty and concern in the minds of investors.

Amendment 13 suggests that if there is a desire to have a profit-related tax that varies with the price of oil, there should be some predictability to it. The hon. Member for Aberdeen South (Dame Anne Begg) said that it would cause complication, but that complication could be factored into new financial modelling. If there were a variable rate of profits tax, any company making an investment decision could factor that in and know where they stood in the fiscal regime.

It has been put to us that other countries, such as Norway, have different fiscal regimes for investment. However, Norway has had a stable long-term fiscal regime with very little change, and it has also had the attraction of less mature, bigger finds with more upside for investors. It is important to understand the confidence element.

The Energy and Climate Change Committee has seen evidence on the wider future of our electricity and gas network. This country wants to attract £200 billion of investment in its energy infrastructure, but if investors are being asked to build a massive offshore wind farm that will bring in more profits if the price of carbon goes the way they are betting, they will look across and see what has happened to the oil industry. They will not want the Treasury to come along and say, “Electricity bills are rising, so we’re going to put a windfall tax on the offshore wind farm,” which would undermine that investment decision. There is a read-across from gas and oil to wider investment in energy and big infrastructure projects in this country.

This is not just a constituency matter for my right hon. Friend the Member for Gordon and myself, who have many constituents who work in the industry, have jobs related to it or are economically affected by it. As has been said, it also affects East Anglia, Morecambe bay and other areas. The supply chain permeates the whole of the UK economy.

[Mr Kevan Jones]

I congratulate the hon. Gentleman on standing up for his constituents; he is doing the right thing. Does he not find it remarkable that there are no Conservative Members in the Chamber from Morecambe bay or other areas that rely on the oil and gas industry, to speak up for that industry tonight?

[Sir Robert Smith]

Those hon. Members may have chosen to speak in other ways; they can raise matters with Ministers directly or in correspondence. There are all sorts of ways of trying to influence Ministers. I am using probing amendments and this debate to try to do so. If I may say so, it is rather sad that the Committee has chosen to focus on such a major industry for the UK economy at 1.30 am, but—[Interruption.] Well, the House collectively chose that time.

I want to make two final points on the instability and uncertainty caused by such upheavals. Statoil is reviewing its investment. That does not mean that it will not go ahead at all or that some of the investment might be done differently, but in the reviewing time, Statoil’s supply chain will no longer have the ability to deliver. The supply chain does not have the cash flow to sit around waiting for Statoil’s review without affecting its employment, recruitment and subcontracting. The skills base that has built up has huge export potential and earns a lot of money for the country through exports to other oil and gas provinces, but the Government need to understand that that base needs a stable home environment to ensure that we anchor as much of those profits in the UK as possible.

Finally, I want to reinforce how crucial the mature fields are in unlocking future investment. Many of the investments being attracted today are much smaller than before, and they would not stand up if they did not tie back to one of the big platforms that still operate in the North sea. That is why I was somewhat concerned by some of the Treasury’s evidence to the Energy and Climate Change Committee. The Treasury said that petroleum revenue tax fields were now just cash-making fields, so they did not need any more investment—but the very age of those fields means that they do need investment. The Health and Safety Executive is very keen to keep a close eye on those fields: because of their age, the safety of their infrastructure is crucial. Moreover, investment could be vital in ensuring that that hub remains to unlock any smaller fields around the North sea.

Another uncertainty is introduced by clause 7 because of its relationship with the clause on decommissioning. In the Public Bill Committee the Government must address that new uncertainty, which builds on the uncertainty caused by clause 7.

I urge the Government to respond constructively and positively to the industry’s desire for an investment climate in which it can take all the risks on geology, weather, technology and the future of the commodity market, in the knowledge that a Government who see its long-term importance to the economy, and who therefore recognise the need to restore confidence in a stable fiscal regime, are behind it.