Finance (No. 2) Bill

Lord Bruce of Bennachie Excerpts

Monday 15th April 2013 Commons Chamber

[The Economic Secretary to the Treasury (Sajid Javid)]

In debating the Finance Bill and the economy, one is reminded of the late noble Baroness Thatcher. As my hon. Friend the Member for Macclesfield (David Rutley) said, let us never forget that she rescued the country from a permanent sense of decline and restored economic strength and prosperity. She was our greatest peacetime Prime Minister. May she rest in peace.

We have had a lively and wide-ranging debate, with particularly thoughtful contributions from my hon. Friends the Members for Cities of London and Westminster (Mark Field), for Redcar (Ian Swales) and for Macclesfield. The best I can say about the contributions from the Opposition Benches is that we heard a lot of warm and fluffy talk about motherhood and apple pie but not a single idea on how to rescue our economy from the mess the Labour party created. This Government inherited a shocking legacy. The country will never forget the consequences of 13 years of Labour government: the largest deficit in the G20; the deepest recession since the second world war; and the world’s largest banking bail-out. We have taken action to cut the deficit, stimulate the economy and create a fairer and more efficient tax system. The Bill continues along that path.

Let me focus first on growth and competitiveness. The Bill builds on previous Bills by introducing a range of measures demonstrating the Government’s commitment to supporting growth and enterprise. Against the background of external challenges, such as the continuing crisis in the eurozone, it is vital that the UK tax system attracts investment to this country and does everything possible to ensure that UK businesses can compete in the global economy. The Government have already significantly reduced the tax burden on business. In 2013, corporation tax will be 23%, significantly lower than the 28% inherited from the previous Government.

Since we embarked on those reforms, we have seen a number of high-profile businesses returning to the UK or coming here for the first time, including WPP, Lancashire, Aon, Rowan and Seadrill. But we want to go further. The additional reductions set out in clauses 4 and 6 mean that the corporation tax rate will reach 21% in April 2014 and just 20% in April 2015, the lowest rate in the G20, and lower than any comparable EU member state.

But competitiveness is about more than just the rate of corporation tax. That is why the Bill also includes measures to give targeted support to the innovative sectors that will drive growth in the 21st century. Clause 34 delivers an above-the-line tax credit for large companies’ R and D expenditure, with an increased rate of support of 10%. That will provide a more visible and certain relief and greater cash flow support to the wide range of companies engaging in groundbreaking research in the UK.

Clause 35 legislates to bring in new tax reliefs for the UK’s world-leading creative industries, including animation and high-end TV. That will be among the most effective reliefs anywhere in the world.

The Bill also includes measures to support small and medium-sized businesses, which are the bedrock of our economy—points that were made very well by my hon. Friends the Members for Macclesfield and for Cities of London and Westminster (Mark Field). Clause 7 introduces a two-year increase to the annual investment allowance that has been in place since January. That will make it easier for firms to bring forward capital investment in plant and machinery, helping support businesses to grow and invest.

Clause 56 implements an extension of the successful capital gains tax holiday for the seed enterprise investment scheme, to support investment in new and early-stage firms to help give them the support they need to grow. Clause 63 enhances the tax advantages available under the enterprise management incentive, helping smaller, higher-risk companies to recruit and retain high-calibre employees. Low corporation taxes, support for innovation and help for small businesses—this Finance Bill sends the clearest possible signal that Britain is open for business.

We are also taking action to support the UK’s oil and gas industry. Clauses 77 to 90 support a new contractual approach to provide certainty over decommissioning relief on the UK continental shelf. The Government will sign contracts this year allowing the sector to unlock billions of pounds of additional investment, helping to create thousands of new jobs in Scotland and beyond.

[Sir Malcolm Bruce (Gordon) (LD)]

My hon. Friend is making an important point about the Government’s assistance to the oil and gas industry. Does he acknowledge that that has contributed this year to the biggest single investment in North sea oil and gas since they were discovered?

[Sajid Javid]

My right hon. Friend makes an excellent point. I am convinced that there will be further significant investment in that important industry because of the measures in the Bill.

I turn to fairness, which is at the heart of the Bill. The Bill helps families with the cost of living while making sure that the best off in our society pay their fair share. The increase in the personal allowance in clause 2, mentioned by my hon. Friend the Member for Redcar and others, will set the value at £9,440 for April this year, an increase of £1,335—the largest ever cash increase. It will save a typical basic-rate taxpayer £267 in cash terms and it is a tax cut for 24 million people. That is a major step towards the Government’s commitment to raise the personal allowance to £10,000 by the end of this Parliament. My right hon. Friend the Chancellor announced in the Budget that that goal will be reached next year, a whole year ahead of schedule.

Taken with previous increases in the personal allowance, the Government have taken 2.7 million people out of income tax altogether, providing real help for low and middle earners and rewarding work by enabling workers to keep a greater share of what they earn.

The Government also recognise the rising cost of fuel and the pressure that that puts on the finances of households and businesses. That is why we have decided to cancel the increase in fuel duty planned for September 2013. Clause 177 will freeze fuel duty at current levels, maintaining the longest freeze in fuel duty for 20 years. Under this Government, average pump prices are 13p per litre lower than if we had implemented the plans that we inherited from the previous Government.

When ordinary households are experiencing real pressure on their incomes, it is particularly important that tax reliefs are well targeted and cannot be used without limit by those on the highest incomes to reduce tax bills. Clause 16 legislates for a new cap on certain unlimited tax reliefs from this April to curtail excessive use of those reliefs. The cap will be set at £50,000 or 25% of the relevant person’s income, whichever is the greater, ensuring that the reliefs cannot be exploited unfairly. The cost of pensions tax relief is rising and has doubled in a decade since 2001. This Finance Bill therefore legislates to reduce pensions tax relief lifetime and annual allowances to £1.25 million and £40,000 respectively to limit the amount of relief available to the top 2% of pension savers.

Fairness is also about making sure that everyone plays by the same rules. The vast majority who pay their taxes will, rightly, not tolerate non-compliant individuals and businesses not paying the tax that they owe, and this Government agree. To that end, the Bill includes a major package of measures to crack down on tax avoidance by a small minority who refuse to pay their fair share. Clauses 203 to 212 and schedule 41 legislate for the UK’s first general anti-abuse rule, or GAAR. This is one of the most significant changes to UK tax law. It will have a strong deterrent effect on those concocting abusive tax avoidance schemes or considering using them, and where they persist it will give Her Majesty’s Revenue and Customs an effective new tool to tackle these schemes.

Air Passenger Duty

Lord Bruce of Bennachie Excerpts

Thursday 1st November 2012 Commons Chamber

[Priti Patel]

APD has a detrimental impact on our competitiveness, which is why we are calling for the economic impact. I will come to competitiveness later.

I hope my hon. Friend the Minister will be open-minded to the concept of looking at the financials and to doing an economic impact assessment, because families and businesses feel that APD is a punitive tax. Research demonstrates that the costs to the wider economy are far greater than tax receipts for the Treasury. The World Travel and Tourism Council estimates that the cost to the economy in 2012 will be £4.2 billion, and as many as 91,000 jobs.

[Sir Malcolm Bruce (Gordon) (LD)]

I commend the hon. Lady for introducing this extremely important debate. I represent Aberdeen airport. We are doubly disadvantaged, first because we are much more dependent on air travel—it takes seven and half hours to get from Aberdeen to London by train—and secondly, we must pay tax twice if we inter-line in London. That gives us an incentive to use continental rather than UK airports.

[Priti Patel]

The right hon. Gentleman touches on both the cost of APD and our competitiveness. A 2011 York Aviation report estimated that Scotland would lose 1.2 million passengers, 148,000 tourists and around £77 million in the period up to 2014.

Global Economy

Lord Bruce of Bennachie Excerpts

Thursday 11th August 2011 Commons Chamber

[Mr Osborne]

The most recent independent analysis of the British economy was done by the IMF this month. It made an assessment using lower growth forecasts, and came to the conclusion that we will hit both our fiscal mandate and our target for reducing debt, which the IMF made clear in its article IV assessment. I cannot help but note that if the right hon. Gentleman had given the leader’s speech that he had written, the Labour party would be in a much more credible place than it is today.

[Malcolm Bruce (Gordon) (LD)]

As the wolves circle country after country, are this coalition Government not vindicated? They were absolutely right to come together with a robust strategy to bring our public finances into balance over the lifetime of this Parliament, while the Labour party lacks credibility. If there is one area where we can ensure that that is done in a fair and equal way that puts the lower and middle-income groups in the driving seat of recovery, it is the accelerated process of increasing the tax threshold, and reducing taxes on those people is the best way to do that.

[Mr Osborne]

The right hon. Gentleman is absolutely right that we are taking more than 1 million low-paid people out of tax altogether, implementing the policy that the Liberal Democrats put forward at the general election. I also agree that what he describes is a vindication not just of the economic decisions we took, but of the political decisions we took. Let us reflect on the fact that a year ago we had a hung Parliament—the first time since the 1970s—and we formed a coalition Government. That was a difficult decision for both political parties involved, but given the political weakness in some other countries, which is driving a lot of the market concern about those countries, the political strength of the Government in Britain is a tribute to both those political parties, which set aside their political differences and came together in the national interest.

Finance (No. 3) Bill

Lord Bruce of Bennachie Excerpts

Monday 4th July 2011 Commons Chamber

[John McDonnell]

My amendments would go some way to ensuring that the information is published, enabling the Government to look in more detail at such information, while also enabling shareholders to have at least some opportunity to hold the directors to account. As I said, the advisory vote system worked initially, but it certainly has not worked in recent years, as the HBOS example demonstrates. Having a binding vote will give the shareholders some authority. The amendments are an attempt to redress the current imbalance of power between the shareholder and the board. It will not solve all the problems of directors being unaccountable on pay or bonus awards, but it would put another weapon in shareholders’ hands to tackle the issue.

Amendment 17 relates to enterprise investment schemes and accountability. Just as shareholders need information to hold company boards to account, the House should ensure that taxpayer’s money and tax concessions are allocated wisely to groups in society and that value for money is achieved. The amendment would invite the Government to justify in more detail future enterprise investment schemes on the basis of past performance of previously approved schemes. The amendment would seek information from the Minister on the total cost of tax relief with regard to the tax income forgone, the number of jobs created by the companies that have gained tax relief under the schemes, and the number of companies that have failed after the tax relief has been given—calculating the cost of each job created compared with the cost of the tax relief given. The information provided in the paperwork in relation to the Budget and the Finance Bill is not clear. The Treasury briefing on enterprise investment schemes and venture capital trusts sets out the proposals but provides no analysis of past measures and their performance. The Treasury Committee, in its comments on tax relief for EIS under the Finance Bill , suggested:

“The measure also needs to be viewed alongside the other proposals for EIS and whether the existing EIS conditions encourage investment in growth businesses.”

The Treasury Committee, therefore, points us in the direction of undertaking a proper value for money exercise on the proposals.

The amendment would enable the Minister to respond to that. Before we venture into such schemes, particularly EIS, we must ensure that their objectives are achieved with value for money, and the information is not currently available for us to make that judgment.

[Malcolm Bruce (Gordon) (LD)]

I shall speak briefly to amendment 51. Since the Government announced the additional corporation tax on oil companies in the Budget, I have been urging and, I hope, taking a constructive part in getting the companies and the Government to talk through how field allowances can be used to ensure that projects reviewed as a result of the tax changes can still go ahead. The purpose of the amendment is to get feedback from the Government on the progress of such negotiations, which I hope will have a positive outcome. Immediately after the Budget, Statoil made the most controversial, and certainly the most high-profile, announcement: that it was putting on hold the Mariner and Bressay fields. I imagine that those fields involve up to £6 billion of investment, with 600,000 barrels of oil recoverable and the possibility of a headquarters building being located in Aberdeen. I hope that the Government will find a way to ensure that the project goes ahead.

Next week, my hon. Friend the Member for West Aberdeenshire and Kincardine (Sir Robert Smith) and I are taking a number of oil companies that are members of Oil & Gas UK to meet the Secretary of State for Energy and Climate Change to discuss in detail the implications of the tax. The difficulty is that the tax changes impact differently on every field and on every company and its planned investments. I hope that active negotiations will lead to a recognition that allowances can be adjusted for particular types of field or circumstances, and that as a net result we will not lose too many of the investments that were originally at risk. I also hope that engagement over time will lead to both parties agreeing that a simplification of the tax system might be desirable. When prices are high, the industry might reasonably be expected to make a contribution; equally, we should recognise its need to know with some certainly the return that it is likely to get on significant investments.

The hon. Member for Hayes and Harlington (John McDonnell) made a powerful and persuasive case regarding rewards for work not done or risk not taken, but it is easy to look at the oil companies as rich fat cats, which is how the public and the House often view them. However, developing oil from under the North sea involves huge risks in relation to technology, geology, exchange rates, markets and weather. Many people engaged in the industry use their technical knowledge and expertise to make a substantial return for their companies and for the UK economy, and although they have good, well-paid jobs, the payments and returns they receive are not in the same league as those received by people in financial services.

The Government have acknowledged that they do not want to lose the production from marginal and mature fields, and they are prepared to use field allowances. According to conversations I have had, negotiating in detail over a project for a field is incredibly complicated, requiring an enormous amount of civil service time, expertise and engagement, as well as executive management time, so I hope that the system will be simplified. Perhaps everybody is prepared to devote such time to significant projects, but the Department has a limited capacity to engage in too many of those negotiations, and companies sometimes have a limited capacity and willingness to engage, to the extent they might say that investigating or investing in other projects is more worth while.

I want to be encouraged by the knowledge that constructive engagement is taking place. I get good feedback from the industry about talks that it hopes and believes will lead to agreements that ensure that investments go ahead. In the long run, I hope that we will have a system in which there is trust and understanding and the Government get the revenue from high oil prices to which they are entitled, but the country gets the investment in the expertise, people and resources that will maximise production of oil and gas in the North sea, maximise jobs in the UK, and maximise and sustain the export industry, which is growing substantially. I hope that the Government will give a positive response in due course.

[Mr Frank Doran (Aberdeen North) (Lab)]

I support amendment 51, tabled by the right hon. Member for Gordon (Malcolm Bruce). As neighbours, we share the same interest in the oil and gas industry and know full well its importance not just to the north-east of Scotland but to the whole United Kingdom. One of our disappointments about the imposition of the tax is that the Government seemed not fully to understand the industry and its importance, which I hope they understand now.

Like the right hon. Gentleman, I am pleased to hear from my contact with the industry that discussions are under way, with the possibility of improvements to field allowances. If the Government had thought the tax through properly, they would have already prepared the ground for field allowances to mitigate the damage done to the industry. It is not possible to overstate that damage. A huge blow was dealt to confidence, not just because the industry had been involved in regular discussions with the previous Labour Government and the current Government about a review of the tax system to deal with a host of areas that had been remained untouched over the years, but because of how that was done. It seems from all the available information that the politicians had no contact or discussions even with tax experts in the Treasury. This was a purely political decision that did not arise from the review, from consultation, or from any wider consideration than the need to raise money.

Finance Bill

Lord Bruce of Bennachie Excerpts

Tuesday 28th June 2011 Commons Chamber

[Mr Hanson]

The hon. Gentleman shows his complete ignorance of the impact that value added tax has on ordinary working people and their families. The rise in VAT is costing ordinary working people in Redcar and every other constituency an additional £450 each this year. Low-paid people will bear the brunt of that. I look forward to going back to Redcar with hon. Friends from the north-east and explaining what the hon. Gentleman is doing about those concerns.

[Malcolm Bruce (Gordon) (LD)]

The Labour party is keen on cutting taxes and on opposing cuts in expenditure. Consequently, it would widen the deficit, which is already at record levels. The consequence of that would be an increase in interest rates. Does the right hon. Gentleman not think that the retail trade and consumers would be more concerned about an increase in interest rates than a rise in VAT?

[Mr Hanson]

At the beginning of my speech, I said that we had a deficit reduction plan at the last election. When I was a Minister at the Home Office in the previous Government, we forwarded plans for £1.5 billion-worth of expenditure cuts. The Conservative-led Government are cutting £2.5 billion in that Department, which is why we are losing police officers and police community support officers, and why I fear that crime will go up. There was a plan. There were certainly issues that we had to tackle, and we will tackle them. The way in which the Government propose to tackle the deficit goes too far, too fast and too deep. It is being done in an unfair way that hits the poorest people hardest, and it will damage the long-term business interests of the United Kingdom.

Finance (No. 3) Bill

Lord Bruce of Bennachie Excerpts

Tuesday 3rd May 2011 Commons Chamber

[The Chairman of Ways and Means (Mr Lindsay Hoyle)]

The Committee is grateful for that explanation.

Clause 7

Increase in rate of supplementary charge

[Malcolm Bruce (Gordon) (LD)]

I beg to move amendment 13, page 2, line 36, leave out ‘for “20%” substitute “32%”’, and insert

‘after “a sum equal to 20% of its adjusted ring fence profits for that period”, insert “increasing by 1 per cent. for every $5 by which the reference hydrocarbon price exceeds $75 subject to a maximum rate of 32%”.’.

[The Chairman]

With this it will be convenient to discuss the following: amendment 14, page 2, line 36, at end insert—

‘(1A) A reference price will be determined by an independent arbiter agreed jointly between the Government and Oil and Gas UK and will determine separate prices for oil, gas and condensates.’.

Amendment 15, page 2, line 36, at end insert—

‘(1B) The increased charge shall not apply to fields producing more than 90 per cent. gas. Where a field produces oil and gas the charge will be based on the price of oil equivalent taking into account the ratios of oil to gas produced.’.

Amendment 16, page 2, line 36, at end insert—

‘(1C) The supplementary charge may be abated or offset against the cost of investment to increase production.’.

Amendment 2, page 3, line 2, leave out ‘24 March 2011’ and insert ‘30 September 2011’.

Amendment 17, page 3, line 2, after ‘2011’, insert

‘and before 30 September 2012’.

Amendment 3, page 3, line 4, leave out ‘24 March 2011’ and insert ‘30 September 2011’.

Amendment 18, page 3, line 4, after ‘2011’, insert ‘or 30 September 2012’.

Amendment 4, page 3, line 8, leave out ‘24 March 2011’ and insert ‘30 September 2011’.

Amendment 19, page 3, line 8, after ‘2011’, insert ‘or 30 September 2012’.

Government amendments 11 and 12.

Amendment 5, page 3, line 27, leave out ‘24 March 2011’ and insert ‘30 September 2011’.

Amendment 20, page 3, line 28, after ‘2011’, insert ‘or 30 September 2012’.

Amendment 10, page 4, line 7, at end add—

‘(11) The Chancellor shall produce, before 30 September 2011, an assessment of the impact of taxation of ring fence profits on business investment and growth including an assessment of the long-term sustainability of oil and gas exploration in the North Sea.’.

Clause stand part.

[Malcolm Bruce]

The purpose of this group of amendments is to persuade the Government to engage with the oil and gas industry to ensure that no major new investment opportunities are lost. I will explain the purpose of the main amendments, and I very much hope that Ministers will respond in a constructive way, because these are intended to be constructive proposals.

The Government are on record as saying that they understand the need for stability in the fiscal regime, and the Chancellor has described this as a Budget for growth. It is worth saying, however, that in contrast to the cautious way in which the Government have applied new taxes to banks, which have squandered our resources to the extent that many of them had to be nationalised, it is quite harsh to apply a marginal rate of tax of 82% to our single biggest industry. It is an industry that invests in real infrastructure and real engineering, and it takes risks in regard to weather, geology, exchange rates and cost unpredictability, as well as taxation.

I accept that the current spot price of Brent crude, at $125 a barrel, allows for unforeseen profits, at least for some fields. However, that does not apply to gas fields or to fields with large quantities of associated gas and, as Ministers will know, that is not the price that many operators actually realise, as they often contract their production at an average well below the spot peak.

I say in passing that the link between the oil tax changes and the fair fuel stabiliser are tenuous. Many of the companies operating in the North sea have no retail division, and there is no direct connection between their returns and the pump price. Also, the Government are themselves the recipient of a windfall. According to the Library brief and, I think, the Red Book, North sea profits are running at between £1.5 billion and £1.9 billion per annum over the next four years. That is additional revenue that was not anticipated in the pre-Budget statement in November. The Government have also received a VAT windfall on pump prices, averaging about 6p a litre. However, my point is not that there is no case for additional contributions from North sea operators and field shareholders. I do not take issue with the Government about that. My point is that this should be done after proper consultation and taking due account of the complex character of the mature North sea industry.

I have monitored the industry for 40 years. Indeed, 40 years ago this September, I started work as research and information officer for the North East Scotland Development Authority. Towards the end of that year, 1971, BP announced the successful commercial test of a well, which turned out to be the discovery of the Forties field. However, it is interesting to note that, believing that it had reached the end of its useful life, BP sold the Forties field to Apache in 2003. Since its acquisition of the field, Apache has greatly enhanced recovery from Forties and sees long-term potential for its development. It is worth noting that Apache has been one of the most vigorous critics of the Government’s policies, and that it questions whether its investment will be fully committed or realised.

[Andrew Gwynne]

I accept the right hon. Gentleman’s points about the North sea, but will he acknowledge that it is not only the North sea that is affected by these measures? For example, gas is a major industry in the north-west of England, and only this week, we have heard of the decision to cease operations in Morecambe bay and the Irish sea. Does he agree that that would be catastrophic for the economy of the north-west of England?

[Malcolm Bruce]

That is a very fair intervention. Perhaps I am using the term “North sea” in a slightly generic fashion. The term “UK continental shelf” is a bit long-winded, but that is what I really mean. Perhaps the House will take that as read for these purposes.

The hon. Gentleman is right: Centrica, the operator in Morecambe bay and other gas fields, has indeed indicated that it might not be able to resume production in the current regime and with the current prices. That makes the point, which I hope Ministers will acknowledge, that it is important for the industry and the Government to come together and negotiate, in order to ensure that we do not lose investment and production that might otherwise be lost altogether.

[Mr Kevan Jones]

One of the arguments put forward by the Treasury is that the 82% tax rate to which the right hon. Gentleman has referred applies only to mature fields. Does he agree, however, that those mature fields still need investment if they are to continue to produce oil?

[Malcolm Bruce]

That was precisely the point of my illustration about Apache and the Forties field. It wants to invest, and I believe it will continue to invest, but it is actively reviewing the extent to which it will invest in the light of these tax changes, which clearly make the investment less attractive.

[Mr Mike Weir (Angus) (SNP)]

Will the right hon. Gentleman give way?

[Malcolm Bruce]

Before I do, I want to point out that today I received the Oil and Gas UK index of confidence in the industry, which is to be published tomorrow. It is not surprising to note that the index reveals a very sharp fall in confidence within the industry in the first quarter since the Budget. For example, exploration and production companies’ confidence has fallen from an index level of 71 in the fourth quarter of 2010 to 46 in the first quarter of 2011. Even the confidence of supply chain companies has fallen, albeit less so, from 61 to 54, and when asked why the fall was less sharp, they said it was because their business was now much more international and they expected to pick up business elsewhere that they would otherwise have lost in the North sea. That gives a clear indication that the industry is facing a loss of confidence as a result of these changes.

[Mr Angus Brendan MacNeil (Na h-Eileanan an Iar) (SNP)]

Is the right hon. Gentleman happy with what his Government are doing in the North sea?

[Malcolm Bruce]

The fact that I am moving the amendment makes fairly clear what I think and what I am trying to do. What I am saying to the Government—[Interruption.] I accept that the Government have introduced a Budget that has made these changes. What I am trying to do is to get Ministers to understand that the industry is complex and that Government decisions might lead it to a review of investment, which could lose production, jobs and export opportunities. It is possible to retrieve the situation, however, if we have an active process of negotiation. Previous Governments have made the same mistake and realised the need to engage with the industry.

[Mr Robinson]

The right hon. Gentleman makes a fair point about the lack of consultation and involvement with the industry in this heavy change, which has been introduced on the hoof. The Economic Secretary, who is replying to the debate, having worked for three years as a senior executive in Centrica—a firm the right hon. Gentleman cited as having lost confidence—should have known better and realised the importance of consulting the industry beforehand.

[Malcolm Bruce]

At this stage, I am not here to attribute responsibility for the decision. My concern is—[Interruption.] With great respect, Members should acknowledge that, speaking as someone who represents a major North sea oil and gas constituency, I know my own industry and my own constituency. I also know the need for the Government to engage with the industry and I hope to persuade them that they can retrieve the situation to a degree by so doing.

Let me refer to a table that will appear in the UK Oil and Gas publication tomorrow. It shows something of which Labour Members should be fully aware—the correlation with the past. Interestingly enough, in 2009, North sea oil prices peaked at $145, yet within 12 months they were down to $35. At that peak level of production, investment had fallen £3 billion a year as a direct result of negative tax changes in 2006. The time lag, Ministers should be aware, is two to three years, after which investment falls away; it is then several years beyond that when we see job losses, lost investment and lost opportunities.

[Mr Weir]

The hon. Gentleman makes a good case, but he will know that it is not just the immediate impact that is important. With these mature fields, we need to make sure that the infrastructure remains in place, particularly if we are serious about carbon capture and storage, for example, which relies on much of the infrastructure from depleted fields in order to work in the North sea.

--- Later in debate ---

[Malcolm Bruce]

That is a perfectly valid and fair point, and it is clear that Ministers across all Departments understand it. What I am anxious for Ministers to appreciate is that the complexity of the industry in its mature phase, the number of different players and their variable requirements all require active negotiation. Across-the-board changes in taxes without that negotiation will lead to a loss of investment and lost projects.

[Several hon. Members]

rose—

[Malcolm Bruce]

Let me make some progress.

With an oil price of $125, people will often say, “Most projects in the North sea are viable.” Well, yes they are, but the industry has to compete for other projects around the world where the price is also $125 yet where the tax regime is more attractive and the risks lower. That must be taken into account in negotiation, because it is the basis on which investors in the mid-west of the United States, or in other parts of the world, will decide whether to back projects in the United Kingdom continental shelf or elsewhere.

[Dr Eilidh Whiteford (Banff and Buchan) (SNP)]

The right hon. Gentleman has rightly drawn attention to the loss of confidence in the oil and gas sector that has resulted from the Government’s policies. How does he think that it can be restored? Trust is what has been lost, and no matter what negotiations may achieve, what will be hardest will be restoring that trust in the industry when it comes to future investments.

[Malcolm Bruce]

That is precisely why my hon. Friend the Member for West Aberdeenshire and Kincardine (Sir Robert Smith) and I tabled the amendments. We want Ministers to begin in the process of building that trust.

The Government have made their case for this change and have defended it robustly on a number of occasions, but that is not the response that we need tonight. They have made their decision and I do not expect them to reverse it, because the Budget depends on it. What I expect them to do is engage with those in the industry, to explain the position to them, and to negotiate in detail on allowances and other flexible ways of ensuring that oil and gas that would otherwise be lost continue to be produced.

[Helen Goodman (Bishop Auckland) (Lab)]

I understand that the right hon. Gentleman seeks flexibility on the part of Ministers and is trying to persuade them of the value of his case. If the Government give him a negative response, will he still vote with them at the end of the debate?

[Malcolm Bruce]

I think the answer is that I want to hear what the Minister has to say.

[Mr MacNeil]

Answer the question!

[Malcolm Bruce]

Hang on a minute. We have had a series of debates tonight, and have heard a number of lengthy speeches, not all of which have contributed much to the argument. We are now engaged in a very material debate about the most important industry that we have, and in a serious attempt to persuade the Government to engage, piece by piece, with the industry and rebuild the trust which, as was rightly pointed out by the hon. Member for Banff and Buchan (Dr Whiteford), has been damaged and needs to be repaired The industry was very pleased that the Economic Secretary engaged with it soon after her appointment and went offshore. It is important for her not to lose that good will, and to demonstrate that she has that degree of understanding. I am sure that she will do so, because I think that she has learned a great deal from her experience.

[Mr Anderson]

Will the right hon. Gentleman give way?

[Malcolm Bruce]

I want to make a bit more progress.

The Government have made their case, and have defended it. I am simply asking them to consider the real and legitimate concerns of the industry, to look at the independent assessments, and to accept that there is a danger of losing as much as £20 billion of investment and between 1 billion and 2 billion barrels of production over the next 10 years or so. That is a Forties field that we would simply discard. It would be a huge loss, and it would be very significant in the context of the British economy. If that investment is lost—or, indeed, secured—future jobs, export opportunities, imports and future tax revenues will be affected. They all hang on the restoration of that trust, and on the industry’s being persuaded to invest in the marginal projects that might be put at risk in the absence of negotiation.

[Malcolm Wicks (Croydon North) (Lab)]

Will the right hon. Gentleman give way?

[Malcolm Bruce]

I will give way to the former Minister.

[Malcolm Wicks]

The right hon. Gentleman is making a very thoughtful speech. Does he agree that there is a geopolitical and a national security implication? With global demand for energy increasing by a third or more over the next two decades, at the very time when the United Kingdom is becoming more dependent on imports, is it not important from a national security point of view for us to look after and nurture the North sea, and for that to have an impact on our fiscal treatment of North sea gas and oil?

[Malcolm Bruce]

It certainly is. The United Kingdom continental shelf has the potential to supply up to 70% of our requirements for quite a few years ahead. It is a more secure source, geographically and practically, than other parts of the world where the politics are uncertain. Given a high oil price, the Government, the industry and the economy can all benefit if we get the balance right, and can all lose if we get the balance wrong. It seems to me that negotiation is the way forward.

Let me explain how the amendments address some of the industry’s specific concerns. On amendment 13, the Government stated in the Budget that they will reduce the supplementary charge back to 20% on a “staged and affordable basis”. That is a welcome approach, but it would be more welcome if the charge had also been raised on a staged and affordable basis, instead of having a sudden 22% step increase. The amendment therefore proposes a graduated levy, increasing by 1% for every $5 the oil price rises above the Government’s arbitrary set trigger price of $75, up to a maximum of 32%. I stress that these amendments express the proposals of myself and my hon. Friend the Member for West Aberdeenshire and Kincardine (Sir Robert Smith) as to how this could be done in a staged manner; they are not the amendments of the industry, although it is aware of them.

Amendment 14 sets up the basis for calculating the reference price. The Government seek to choose the spot price, but as I have said, few producers actually receive anything close to that. Indeed, it is not clear what calculations of what price the Treasury has made in determining its revenue projections. The amendment therefore proposes that there should be an independent mechanism for calculating a reference price, based on what producers actually receive. That would give predictability to the process and ensure that the tax base would adjust more smoothly when prices are volatile. I do not expect the Government to accept this proposal, but I hope they will accept that it is a constructive contribution to how an escalator could work both up and down, and in ways that would give the industry a lot more predictability than the Budget proposals as they stand.

[Dame Anne Begg (Aberdeen South) (Lab)]

I am very interested in what the right hon. Gentleman has to say, but would not what he is proposing have the opposite effect to what he has suggested, in that it will make things less predictable? The oil and gas price is already volatile, and to add in this extra unpredictability would make that 10 times worse.

[Malcolm Bruce]

No. I have listened carefully to the case Ministers have made, and it is important to acknowledge that Ministers are looking at a very high spot price and saying, “This is in excess of what the industry planned for, and there is a case that it should make a contribution to the economy.” I do not find that a totally unacceptable proposition, but I am concerned about it being introduced in a sudden bite from 20% to 32% and with no consultation or warning. What I am proposing is not an ideal; this is, perhaps, not where I would start from, but given where we are, it would be greatly preferable if it were to change in easily managed stages up and down, as that would enable the industry to predict where it would be and what level of taxes it would face. The alternative, which would not be very acceptable to the Treasury to pursue, is that it would go up on the basis of the $75 reference price to 32%. Are the Government really going to be comfortable, if the price falls to $69.95, to take it all off? I suspect not, and the industry suspects not. Even if the escalator up is not very well received by the Government, it is important that they try to ensure that it comes down on a predictable basis, because I think many in the industry feel it might never come down.

[Stewart Hosie]

I take it the right hon. Gentleman is not unhappy that tax levels are sensitive to profit, and I think that is perfectly reasonable, but why does he think that Ministers fail to understand that investment decisions are sensitive to tax, and why does he think Ministers fail to understand, notwithstanding the spot price, that the cost of extraction varies depending on the depth of the water, where we are in the North sea and even the type of oil that is being brought up?

--- Later in debate ---

[Malcolm Bruce]

I think, hope and believe that Ministers do understand it. That is one reason why I believe that if they do engage constructively with the industry we will get some progress and reforms that will enable the confidence to be restored and investment to be brought back.

Amendment 15 acknowledges the fact that the gas price is well below the oil price and the Government’s own trigger price of $75; $55 to $60 seems to be the average sort of price. The industry should not be facing the charge at all. There are also a lot of fields that have associated gas—in some cases quite significant amounts—so this amendment simply suggests that that should be taken into account. One way to do that would be to tax the gas produced and the oil produced separately, and another would be to aggregate the two and take the average price; either way would be fairer. As has been said, Centrica is indicating that the UK does not look like a good prospect for it; the company is clear that it wants to diversify its investments elsewhere in the world, and that would be to our detriment.

[Mr Robinson]

A series of reasoned and reasonable amendments stand in the name of the right hon. Gentleman and that of the hon. Member for West Aberdeenshire and Kincardine (Sir Robert Smith). Does he realise that the impression that would be left were he bought off tonight by some sweet sounding but meaningless words from this Tory-led coalition is that the Liberal party has a lot of responsibility but, sadly, absolutely no influence in the decisions being taken?

[Malcolm Bruce]

Time will tell—that is all I can say to the hon. Gentleman. My hon. Friend the Member for West Aberdeenshire and Kincardine and I together probably represent more oil and gas jobs than any other Member, except perhaps for the hon. Members for Aberdeen South (Dame Anne Begg) and for Aberdeen North (Mr Doran). It is important to point out that our areas account for only about a quarter of the oil jobs in the UK, as many of the jobs are in London, the north-east and elsewhere—

[Mr Angus Brendan MacNeil (Na h-Eileanan an Iar) (SNP)]

Tell us more.

[Malcolm Bruce]

Indeed, some are even in Stornoway. It is important that this is seen to be a national industry.

I have debated oil and gas in this House for 28 years. I have seen every Government make the same mistake and I am disappointed that the present Government have done so, but I have also seen every Government engage and reach an understanding because they have learnt the complexities of the industry. All I am asking is that this Government engage in the same constructive way and that we reach a position where we get the balance right. The amendments seek at least to provide a framework for the sort of conversations that should take place between the Government and the industry.

[Mr Robinson]

I do not wish to delay the House, but I must ask the right hon. Gentleman: when did the Labour Government of 1997-98, in which I had some responsibility for sounding out and consulting the industry, make any mistake such as has been made by this Government? We simply did not do so. We talked to the industry; I met John Browne and he explained the situation. Although we were prepared to do so, we did not even get into any formal consultation because he convinced us in the initial soundings that it would be the wrong move to make.

[Malcolm Bruce]

The evidence suggests that sudden step changes to taxes have been made by successive Governments and they have had the same effect: a drop in investment. [Interruption.] No, it has happened under Labour too—the party was in power for 13 years. The figures produced by Oil & Gas UK show that the last time this happened, capital investment dropped by £3 billion per annum over the subsequent three years, and that is a huge sum. Although negotiating field by field is a long drawn out and time-consuming process, too complicated for some investors, who will go elsewhere, that is preferable to simply standing one’s ground and waiting for the worst to happen.

I hope that the Government will acknowledge that some projects are bound to be delayed or cancelled because the rates of return after the tax changes make them simply unviable. If the companies can negotiate to demonstrate to the Government the level at which such projects would become viable, which requires both parties to show their hands, capital allowances or other mechanisms could be brought into play in ways that would benefit both the Government, because the investment, jobs and spin-off could be secured, and the companies, because they would be able to develop viable projects, which of course will subsequently pay taxes to the Government.

[Mr Kevan Jones]

Will the right hon. Gentleman give way?

[Malcolm Bruce]

No, because I wish to make progress and reach the end of my remarks.

The final amendments in the group would delay implementation. The only purpose of that—this relates to the intervention from the hon. Member for Coventry North West (Mr Robinson)—would be to use the time to negotiate and decide whether or not we could come up with a slightly more sophisticated mechanism to meet the needs of the industry.

The amendments, taken together or in part, set the framework for the sort of concerns that the industry has and how it would like to engage with the Government. The one comment that everybody I have spoken to in the industry has made to me in the past week or two is, “Whatever else you do, can you just persuade the Government that we need to talk to each other? If we do that, we have a fair chance of getting a settlement that will not prejudice too much investment.” Ministers will notice that the rhetoric has calmed down on the oil and gas industry’s side, because people there actually want to talk.

I hope that the Government will acknowledge that this is a real concern for a substantial industry. I hope that they will also acknowledge that if it can be demonstrated that there has been negotiation, although it will not completely wipe out the shock of a sudden increase, it will, I think, show that the Government are serious in understanding that this is our biggest industry, that it has huge potential and that it still has a big future in this country.

--- Later in debate ---

[Justine Greening]

I just said that we accept that there will be a marginal impact; however, Wood Mackenzie has said that it does not expect that marginal impact to be high. If we look at Professor Kemp’s optimistic scenario of $90, which is less optimistic than what the OBR is projecting, and then use the hurdle rate most commonly used by most companies, we see that in the high-price scenario, total future projects are expected to fall from 1,099 to 1,074—a 2% reduction. We are saying that we recognise that. We therefore believe that the challenge is now for us to work with the industry to ensure that we can mitigate the risk to that 2% of investment.

I turn briefly to the amendments in the names of my right hon. Friend the Member for Gordon and my hon. Friend the Member for West Aberdeenshire and Kincardine. Clearly, the amendments enabled them to make the points they wanted to make, but I think they would accept that the way in which their proposals would operate could mean that the supplementary charge rise started later and lasted potentially for a finite time. It might also have a staged approach. All those things would mean that the funding would not be in place to fund the package we want to introduce for motorists. I stress, however, that as my right hon. Friend the Member for Gordon said at the end of this comments, the way through this is to ensure that we work with the industry. I am pleased with the engagement we have now had with the industry. We have got through our first meeting with industry representatives after the Budget, which was a chance for them to set out their reaction to a tax rise we did not anticipate they would welcome.

The Government amendments demonstrate that we are engaged with the industry and are listening to its concerns. In fact, as a result of that engagement we wanted to address a technical issue that had arisen involving the basis proposed for the apportionment of profits. The Government’s amendments seek to address that. The legislation provides for how profits in an accounting period that straddles the date of the rate increase are to be split, so that the two tax rates can be applied to the appropriate amounts of profits. Government amendment 11 provides that a company may elect for a just and reasonable basis to be used where a time apportionment would give an unjust or unreasonable result.

We have proposed amendment 11 to take account of the concerns of industry. The amendment has an Exchequer cost of £40 million in 2011-12 only. We feel that the change is worth while because it ensures, for example, that the tax change does not affect the tax liability due in respect of transactions that were wholly completed before the Budget and that should not, therefore, have been affected by the rate change. The change follows an approach that the industry has suggested and shows that the Government are willing to change the detail of the delivery of their stated policy aims where evidence of unforeseen effects is presented by the industry. I urge hon. Members to accept the change.

This Government will carry on working with the industry on providing certainty in respect of decommissioning tax relief. Industry and officials will be engaging closely on that important piece of work in the coming months, and as previously mentioned, officials and Ministers are closely engaging with the industry in relation to the marginal field developments. We explicitly said that we would do that in the Budget, and we are now following up on that desire to ensure that investment continues to be unlocked. The concerns of gas producers are also being discussed with them. As I have mentioned, the Government are also seeking the views of oil companies and motoring groups about the level of the trigger price for the supplementary charge, and how the oil price for that purpose is to be determined. That informal consultation will be take place shortly, and we expect to be able to clarify the policy mechanism in the autumn.

We want to ensure that the Exchequer obtains a fair share of the value of our natural resource wealth while ensuring that the tax regime does not impede the development of the basin’s potential. The impacts of the measure are understood, so no further assessment is required, and I urge the Opposition not to press the amendment. It is impossible not to note that they voted—[Interruption.] I was actually referring to amendment 10, which I would have thought Labour Members would recognise, having proposed it—although I suppose that anyone who has voted for a tax cut on fuel duty, even though they have no way of paying for it because they have set out their stall against getting the funding mechanism from the oil companies, might be expected not to have followed the arguments that I have set out.

The amendments proposed by my right hon. Friend the Member for Gordon are well intentioned. Let me reassure him once again that we are listening to representations from the industry and acting to ameliorate unforeseen effects. I therefore urge hon. Members to accept the Government amendments. The clause puts in place a fair fuel stabiliser, ensuring that we can pay for much needed help for motorists up and down the country. The clause also ensures that motorists and businesses suffer less pain from high prices at the petrol pump as a result of higher oil prices that would otherwise simply increase the profits of oil companies.

[Malcolm Bruce]

We have had a very useful debate, in which Members from all parts of the Committee have had the opportunity to express some pretty forceful points of view about the industry, as well as present facts from well informed sources. It is perhaps unfortunate that it is so late, but this still stands on the record as a valuable debate.

I thank the Minister for her constructive response and for the information about the Government’s detailed engagement. It would be fair to say that the immediate situation after the Budget was that the Government mounted a robust defence of their line against an industry that was shocked at what it heard. Perhaps the first meeting was less than constructive, although it is clear that things are now moving in the right direction. The amendments in my name and that of my hon. Friend the Member for West Aberdeenshire and Kincardine (Sir Robert Smith) suggest how we might have liked the Government to proceed. We recognise that the die has been cast, although it is important that the Government should continue to engage with the industry to understand the issues of competitiveness, because the oil price is worldwide and the UK has to compete for that investment.

It is also important to take on board the fact that although the losses in production and investment might be considered marginal, we are talking about margins on huge sums of money and huge resources. In other words, we are talking about 1 billion to 2 billion barrels of oil-equivalent, which is worth £70 billion to £100 billion, and £20 billion-plus of potential lost investment. It is important that the engagement between the industry and the Government finds solutions that can deliver the revenue that the Government need and are entitled to accept, given the very high prices, as well as delivering to the country the investment in long-term production that it needs. I believe that this debate has made a substantial and useful contribution. I welcome the Minister’s response to it, and I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Amendments made: 11, page 3, line 13, at end insert:

“(4A) But if the basis of apportionment in subsection (4)(b) would work unjustly or unreasonably in the company’s case, the company may elect for its profits to be apportioned on another basis that is just and reasonable and specified in the election.”

Amendment 12, page 3, line 16, leave out “subsection (4)” and insert “subsections (4) and (4A)”.

Amendment proposed: 10, page 4, line 7, at end add:

“ (11) The Chancellor shall produce, before 30 September 2011, an assessment of the impact of taxation of ring fence profits on business investment and growth including an assessment of the long-term sustainability of oil and gas exploration in the North Sea.”—(Kerry McCarthy.)

Question put, That the amendment be made.

Proposed Public Expenditure Cuts

Lord Bruce of Bennachie Excerpts

Monday 13th September 2010 Commons Chamber

[Mr Osborne]

Over the past 13 years, Labour allowed the banking system to become completely unregulated and presided over the biggest banking crisis of our lifetime. At the time of the general election, I remember arguing in the television debates for a bank levy to be introduced in this country even if other countries did not introduce it. The then Chancellor opposed me on that. We have now introduced the levy, and I see that it has been universally accepted by the people who opposed it just a few months ago. The receipts from the levy massively outweigh any gain that comes from the lower corporation tax, and that was taken into account when I set the level of the bank levy at £2.5 billion.

[Malcolm Bruce (Gordon) (LD)]

Why, if the previous Government were so successful in achieving economic success, did the welfare bill rise by 47%? Is it not the case that the former Chancellor of the Exchequer and Prime Minister threw prudence to the winds? Is not getting the public finances in order the best way to stop hitting the sick and the vulnerable? Should not all Members of the House work together to champion the sick and the poor, rather than scaremongering when we do not have the details?

[Mr Osborne]

My right hon. Friend is absolutely right. People will remember that, in the mid-1990s, a central part of the then new Labour party’s claim to office was that it was going to reduce the bills for social failure. No doubt that was in all the election addresses that it delivered at the time. It did not do that, however; the welfare bill went up by 45%, and its former leaders are now telling us candidly that they completely failed. We are going to succeed where they failed.

Oral Answers to Questions

Lord Bruce of Bennachie Excerpts

Tuesday 13th July 2010 Commons Chamber

[Mr Gauke]

The fact is that businesses would much rather we focus on dealing with the jobs tax, which our predecessors brought in. We recognise that we have to reduce the deficit and that tax has to play a role in that, but what we can do to create jobs in the private sector is reduce the burden from national insurance contributions. This particular policy, directed at areas where the public sector is largest and where we need a stronger private sector, has to be the way forward.

[Malcolm Bruce (Gordon) (LD)]

7. What plans he has for future changes to income tax arrangements.

[The Exchequer Secretary to the Treasury (Mr David Gauke)]

In the Budget, the Government announced a £1,000 increase in personal allowances for under-65s. We estimate that 23 million basic rate taxpayers will gain by up to £170 per year from this measure, and that 880,000 will be taken out of tax altogether. This is the first step towards our long-term objective to raise the personal allowance to £10,000.

[Malcolm Bruce]

I am very grateful to the Minister for that informative answer. Can he give a more precise timetable for when the £10,000 threshold will be released? Will it be before the end of this Parliament? In other words, can it be even earlier than the five years that would otherwise be required?

Budget Resolutions and Economic Situation

Lord Bruce of Bennachie Excerpts

Tuesday 22nd June 2010 Commons Chamber

[Malcolm Bruce (Gordon) (LD)]

The Labour party’s synthetic anger, and the rather pompous and patronising show that we have just seen, are perhaps a reflection of Labour Members’ inability to accept their share of responsibility for the mess that the country is in. The party is in total denial. It is leaderless and rudderless, and it has not even had the courtesy to apologise to the British people for what it did. Perhaps Labour Members are also reflecting on the things that they could have done over 13 years but never got round to, such as restoring the earnings link for pensions, introducing a bank levy and raising the tax threshold. I do not think that Labour Members will find those on these Benches receptive to a party that has shown no leadership, no responsibility and no ideas, and that does not know where it is going.

We should be grateful that my right hon. Friend the Chancellor has set out a Budget that has ideally balanced the need to deliver tough control over our finances with a fair approach that, as the Red Book shows, will mean that in tax terms 80% of people will be better off under the Budget, while the richest 20% bear the greatest share of the burden. That is a proper expression of a progressive Budget.

[Jack Dromey (Birmingham, Erdington) (Lab)]

The right hon. Gentleman talks about balance and fairness. Will he comment on the balance between £11 billion of welfare cuts and less than £2 billion from the bankers, which is offset by the decrease in corporation tax? Will he also comment on the fairness and balance of setting an average of £35 per household from council tax against taking an extra £12 billion in VAT, which will hit the poor hardest?

[Malcolm Bruce]

I am sorry but that intervention also shows no recognition of the fact that we have to find the money from somewhere. Our approach to that gives the poorest the most and makes the richest pay the biggest contribution. I cannot think of anything more progressive than that, and the more the hon. Gentleman and others consider the Budget, the more they will recognise that it stands up to robust analysis.

I had the honour of being my party’s Treasury spokesman between 1995 and 2000. During the 1997 election, the Liberal Democrat manifesto included an aspiration to raise the threshold at which people started to pay income tax to £10,000. That was only an aspiration because, try as we might, we were unable to find the resources at that time to pay for it. However, when the Labour Government were elected in 1997, the first thing that they did was to introduce the most generous capital gains tax relief that the richest people in this country had ever enjoyed—Mrs Thatcher never contemplated it! However, closing such tax loopholes has enabled us to start to deliver the increase in the tax threshold so that people will not have to pay tax and then apply for benefit, as the Chancellor said. I for one am absolutely delighted to support a Budget that fulfils a commitment set out in an aspiration on which I fought the 1997 election.

The hon. Member for Brent North (Barry Gardiner) suggests that Liberal Democrats should be ashamed of the Budget, but far from it. There is much in the Budget of which to be proud, and I make it clear to right hon. and hon. Friends in the Conservative party that it is not a Conservative Budget or a Liberal Democrat Budget, but a coalition Budget. I would argue that it draws on the best on both parties. Those parties command the support of the majority of the British people, and the Budget’s approach will deliver benefits to the majority of the British people. I said in the election campaign, when I became aware of the seriousness of the financial situation facing the country, that the position would be much better after the election if cuts that had to be made were implemented by more than one party, as they would be forced to engage with each other and find a balance that would be more acceptable than measures adopted by one party running for a sectional interest that did not have the same strength of appeal. I honestly believe that the coalition has found a dynamic that has delivered something that is greater than the sum of its parts: a Budget that is genuinely progressive.

[Simon Hughes]

Does my right hon. Friend agree that another part of this package is fundamental? The discussion about the cuts and savings in public expenditure will take place with the public, the trade unions, business, communities and local government, so that decisions are not only informed by the prejudices of civil servants and Ministers but are made as a result of the widest consultation with the British public to make sure that although, yes, they may be tough, they will be absolutely fair.

[Malcolm Bruce]

I am grateful to my hon. Friend. Opposition Members and the wider audience looking at the Budget should examine it in detail and recognise the extent to which it is based on a much broader consensus and approach to consultation, while being radical across the piece and balanced. That is not easy to achieve, and I am prepared to admit that I had my doubts about whether the Chancellor of the Exchequer would be able to achieve it. I am pleasantly surprised by the extent to which he has been able to do so.

Indeed, there is little in the Budget to which I can fundamentally take exception. It is absolutely true that an increase in VAT is a painful decision—there is no question about that. It is difficult to understand how the Opposition could balance their books without any such tax increases. Although our proposals in the self-contained Liberal Democrat budget did not require an increase in VAT, we always said that if the financial situation required it, we would not rule it out. We never did rule it out, so those attacks that suggest that somehow this is a betrayal are not true. There was careful and guarded explanation of that position.

[Mr Redwood]

Has the right hon. Gentleman noticed that on page 45 of the Red Book the public spending figures make it quite clear that there is not a single year in which there is a cash cut in overall public spending? Public spending goes up every year in cash terms.

--- Later in debate ---

[Malcolm Bruce]

I am grateful, because I have not had time to look at the Red Book, only at one or two selected items. The health budget overall is protected. As the Chair of the Select Committee on International Development, I am delighted that the coalition is committed not only to protecting the aid and development budget but, over the coalition period, to delivering our promise of 0.7% of our gross domestic product in overseas aid spending.

Even in these difficult times, we can protect key areas, and the Chancellor demonstrated his recognition of the vulnerability of education and his desire to make sure that it received a degree of protection. I have been involved in working up a policy on the future of Royal Mail and the Post Office. I do not know how many times most hon. Members have debated the closure of post offices and problems in the Royal Mail. We all recognise that what we have at the moment is not fit for purpose, and has to be radically reformed and changed. I can honestly say that the Liberal Democrats have made a big contribution to producing a proposal that brings capital into Royal Mail, will help to support the post office network, and will enable Royal Mail employees to take a share in the business in which they are engaged in a way that makes it a much more co-operative venture. That is something that we have brought to the coalition, and I am delighted that it has been accepted.

A number of small details are worth acknowledging—for example, reversing the policy on furnished holiday lets, which affects some constituencies more than others, but is a serious cause of concern for people who have a single holiday cottage, and who would not have been able to maintain it. The policy would not have been good for tourism, and it was not a fair system, so I am glad that the Government have withdrawn it.

The commitment to deliver broadband support across the country is extremely important for rural areas, because if we want to encourage people to run businesses in such areas they need access to high-speed broadband. I am attracted to the proposal to provide finance for regional capital, although I want to hear the details of it. I can certainly think of projects in my constituency that I want to suggest to Ministers should bid for that fund. Indeed, I wrote to them in advance of the need, before I knew that there was a fund to tap into, but I think that it has real prospects. An important part of the Budget, which goes completely against the rant by the Leader of the Opposition, is the promotion of enterprise to create new jobs and businesses, whether through corporation tax reductions, decreases in national insurance costs for small businesses, or a regional premium for those areas where the public sector is disproportionately large.

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

My right hon. Friend will know, as he represents a neighbouring constituency, how important the oil and gas industry is to our constituencies. It was refreshing not to have a tax bombshell dropped on that industry, as has happened in the past. The press notices for the Budget say that further improvements in the field allowance regime will be made to encourage exploration in the high-temperature, high-pressure world. That industry brings so much revenue into the Treasury that it must be treated in such a way as to make sure that the maximum investment is delivered.

--- Later in debate ---

[Malcolm Bruce]

My hon. Friend and I represent neighbouring constituencies, where a high proportion of people and companies work in the oil and gas industry. Far too often—and this applies to both Labour and Conservative Governments—sudden changes in the tax regime have been deeply damaging, and I am grateful that that is something else that will be done by consultation. It is, I hope, recognition that north-east Scotland, which my hon. Friend and I represent, makes a disproportionately large contribution to the economy of Scotland and of the United Kingdom, not just in oil revenues but in the 450,000 jobs that derive from the activities that run out of Aberdeen and north-east Scotland. There is £5 billion of exports in sub-sea technology, and a burgeoning new industry in marine renewables, which uses the same technology. It is important that the Government understand how they can support that industry, so my hon. Friend’s intervention is pertinent and relevant.

I declare an interest, as I have a grown-up deaf daughter who receives disability living allowance, so I certainly welcome the simplification of the process for applying for that abstruse allowance. It is not means-tested—people do not have to prove that they need the money; in fact, that is not a valid reason at all for qualifying for it—as individuals have just to prove how disabled they are to enable someone to make a judgment. That is difficult, and it goes against the grain for disabled people, who want to show how able they are, in spite of their disability. A simple medical test, if it is applied objectively and fairly, would work, and I hope that someone like my daughter, who can prove that she is profoundly deaf, would automatically qualify, as would others with a similar category of disability.

[Jim McGovern (Dundee West) (Lab)]

I would like to take the right hon. Gentleman back a couple of steps. He said that his party, and presumably the coalition, welcome the part-privatisation of Royal Mail, but is he aware that people employed by Royal Mail definitely do not welcome it?

[Malcolm Bruce]

I am aware that some people employed by Royal Mail have argued that they are not in favour of that, but they include people who are involved in the downfall of Royal Mail, too. We have to undertake a consultation, and let those people make a judgment. Royal Mail needs capital, without which it cannot survive and compete. It is a good idea to give the employees a real stake in a reinvested and reinvigorated Royal Mail. I hope that when many of them see what has been proposed they will welcome it as a positive.

[Mr Brian Binley (Northampton South) (Con)]

Does my right hon. Friend accept that the real need for Royal Mail is to get an injection of management skills, which is what the proposals will create?

[Malcolm Bruce]

Good management and good industrial relations are something that Royal Mail needs. Perhaps we all need to pull together a little bit to make that happen, but reinvigorating the organisation financially is part of the process.

I had some reservations and concerns about the proposal to freeze council tax, although my fears have been substantially allayed by what the Chancellor said. We have had a freezing of council tax in Scotland under the Scottish National party Administration, and I believe that it is a populist but extremely regressive development, because it effectively weakens local authority control and accountability and strengthens the centre.

The tone of the Chancellor of the Exchequer’s explanation of the measure allayed many of my fears. He said, first, “for one year” and, secondly, “based on incentives and encouragement, rather than imposition”. However, I hope that the measure will be set against a background whereby we think again—this is in the coalition agreement—about how we finance local authorities in a way that not only makes them locally controlled and accountable, but reduces the intervention of central management and control. I repeat that, although freezing council tax in Scotland is popular because people do not have to pay for an increase, people realise over time that their local council does not have the flexibility to fund some of the services that they want. People have certainly said to me, “We’d rather pay a little bit more council tax and have more investment in our schools,” or roads, or whatever it may be, so it is not the right long-term way in which to operate local government finance.

[Stewart Hosie]

The council tax freeze is most certainly popular, but the argument that it removes flexibility is completely wrong. The Scottish Government ended ring-fencing. We trust local authorities—[Interruption.] Ah! I see from the sneers that the Liberals now want to bring back ring-fencing and put up the council tax. Are they at odds with the Scottish Government or their coalition partners?

[Malcolm Bruce]

I was not quite sure how the measure went down in Glasgow. I am very disappointed by the hon. Gentleman’s intervention, because he could have defended the council tax freeze as a short-term measure in difficult circumstances—although nothing like as difficult as our current circumstances. However, he cannot possibly defend it as a long-term policy, arguing that councils have no right to determine their own precept, and that it is entirely a matter for the Scottish or UK Governments. That cannot be the right way to proceed, and I hear nothing from the Scottish National party about its ideas. Its local income tax policy was simply not viable.

[Stewart Hosie]

You voted against it.

[Malcolm Bruce]

Well, it was not viable and it did not add up, because it was not local. That was the problem. It was a central measure. Indeed, the hon. Gentleman might also want to listen to the fact that the centralisation of business rates is one reason why north-east Scotland is so underfunded. The city of Aberdeen pays £150 million a year in business rates to Edinburgh—to the SNP Government—and gets £75 million back. That is a pretty bad deal for a city that supports the economy and has severe financial difficulties, so I do not think that we need to hear any more from the SNP.

[Michael Connarty]

Will the right hon. Gentleman give way?

--- Later in debate ---

[Malcolm Bruce]

No. I want to proceed to a conclusion.

[Stewart Hosie]

You’ve become a Tory very quickly.

[Malcolm Bruce]

I do not really understand where these people are coming from. I believe in an open, pluralistic democracy and a reformed electoral system, and I believe that, ultimately, we should all recognise that we are all minorities. No one party in the House commands majority support, and that is why we have a coalition. That is what the electorate, effectively, voted to deliver. If we want a democratic, pluralistic system, and if government is to be delivered, we have to recognise that one way or another more than one party will have to work together, either by supply and confidence from the Opposition or in a full-blown coalition.

[Chris Leslie (Nottingham East) (Lab/Co-op)]

Will the right hon. Gentleman give way?

[Malcolm Bruce]

No.

Confidence and supply gives the minority Government the freedom and the party providing the confidence and supply the responsibility, and that does not seem to be a good deal. Coalition gives both parties the opportunity to be full playing partners, to inject their own ideas, policies and people and to strike sparks off each other in ways that they could not if the situation were different. Over the past seven weeks, I have been really pleasantly surprised by how many sparks have been provided and by how rigorously a flame of reform has been blown into life as a result of the coalition.

When the Leader of the Opposition reflects on the intemperate tone of her response, she will understand that the people will say, “Those in Labour are substantially responsible for the situation in which the country finds itself, they are in total denial and they have not offered an apology or an explanation of anything that they would do.” Right now, they should just go away, have a leadership competition and let the rest of us get on with running the country and getting it out of the mess in which they left it.

Financial Services Regulation

Lord Bruce of Bennachie Excerpts

Wednesday 16th June 2010 Commons Chamber

[Malcolm Bruce (Gordon) (LD)]

I welcome my right hon. Friend’s approach. Does he acknowledge that it is not just the architecture of the regulation but its quality that has conspicuously failed? It may be understandable that the Labour party wants to defend its creation of the FSA, but do Labour Members not acknowledge that it actually failed? For many people, it too often protected the providers of services and not the consumers who were actually investing in them.

[Mr Osborne]

My right hon. Friend is absolutely right. The overall objective is to move away from a process of regulation that is simply about ticking boxes to one where more judgment is exercised and people start to ask those such as Sir Fred Goodwin, “What are you doing with your bank? Is it right that you are taking over ABN AMRO?”, instead of asking him whether he wants a knighthood.