Andrew Gwynne
Main Page: Andrew Gwynne (Labour (Co-op) - Gorton and Denton)Department Debates - View all Andrew Gwynne's debates with the HM Treasury
Finance (No. 3) Bill
Andrew Gwynne Excerpts(13 years, 6 months ago)
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Ian Lavery
The reality is that people in my constituency cannot even get a loan from the banks. In the past they could get loans for all sorts of things, and that was a run-of-the-mill thing to do in my community and many others. If someone wanted a holiday, a carpet or a car and they could not afford it outright, they would have gone to the bank or building society and got a loan.
Now they not only cannot get loans, they cannot even get credit cards. The bankers are making billions, but the people at the sharp end, who are suffering the most as a result of the Government’s cuts, cannot even get a loan from the banks or building societies.
Andrew Gwynne (Denton and Reddish) (Lab)
My hon. Friend is right, but it is not just his constituents who cannot get a loan—many of his local businesses face the same problem. He spoke earlier about the need for growth in our economy. Is it not a scandal that many banks will not, as the right hon. Member for Wokingham (Mr Redwood) said, take a risk on small and medium-sized businesses? They will not even take a punt on a good business proposition.
Ian Lavery
That is exactly right. I was merely highlighting the plight of ordinary families. Small and medium-sized enterprises in every region of the country are suffering greatly as a result of the austerity measures and of the negative attitude of bankers, who think only about how much they will make at the top of the ladder, not about how anybody else—business people or ordinary people—will manage.
Barry Gardiner
It seems to me that when it comes to bonuses, the clue is in the word. If one looks at the etymology, the word “bonus” comes from the Latin: it means “good”. In fact, it should be “bonum”, as with “maximum”, “minimum” and “premium”, so that we had “bonum” and “bona”, but let us leave that aside. The bonus culture in the banks is supposed to be for something good—for good performance—and yet, certainly within the banks that are largely owned by the public, these bonuses are being given almost uniformly for bad performances: they are “malum”, not “bonum”. It is really quite ridiculous that these bonuses should be paid and that the Government should be proposing to levy such a low rate against them.
The right hon. Member for Wokingham (Mr Redwood) gave us a bit of the history of how the recession had come about and the context in which these bonuses were being paid. Interestingly, however, his history stopped in 2006 or 2007, when he published a paper about the regulatory regime and the need for tighter regulation. To find out the true history of this, one has to go back to a time before 2006 and 2007, and beyond this country, to look at the sub-prime market in the United States in 2000. At that time, the proportion of mortgages in the United States that were lent to sub-prime borrowers was just 5%. Between 2000 and 2005, that increased to 47%. That meant that by 2005, 45% of mortgages in the US were in arrears by two months, or more than 60 days. That is the origin of the problem.
Much has been said by Government Members to try to set the recession in context. For months, they have said that it was because of the Labour Government’s disastrous economic management. Of course, the context for it is in the United States, where what happened with Fannie Mae and Freddie Mac, the two major mortgage-lending institutions, was the beginning of the collapse of what had been a virtuous circle, and what became a vicious one. Those institutions could not lend because they were not getting revenues in, which was because people with mortgages were more than two months in arrears. That meant that there was a drying up of credit in the system in the United States.
One of my hon. Friends—I cannot remember who—mentioned the role played by the rating agencies. The way in which the situation impacted more widely on the economy, first in the United States and subsequently elsewhere, was through the securitisation of mortgages into bundles to create revenue streams for companies and, indeed, for financial institutions.
Andrew Gwynne
My hon. Friend is making a perfectly good point about the historical context of the global downturn. Is it not the case that the bubble burst because financial institutions across the globe were not certain about the packages that they had bought, because of the unpicking of those packages, and because of the percentages of those packages that were made up of bad debt?
Barry Gardiner
My hon. Friend is right, but perhaps he has missed a further element of that toxic mix. That is not the role of the rating agencies, although they played their part in bundling up sub-prime mortgages. In order to securitise them into revenue streams for companies, they had looked at the historical rate of default in the sub-prime sector in 2000, when only 5% of the market was being sold to sub-prime borrowers, not in 2005, when the figure was 47%. The effect was that many companies had security streams that were not very secure. The piece of the toxic mix that we need to introduce is the way in which hedge funds brought to bear their financial might.
Barry Gardiner
My hon. Friend is absolutely right. To give the right hon. Member for Wokingham his due, he did distinguish his own position on the issue from that of his party’s Front Benchers. Both would have failed to support Northern Rock, the consequences of which would have been disastrous for savers, but the right hon. Gentleman would have gone further. He would have stopped any support for the wider banking system, including for Halifax, the Royal Bank of Scotland and Lloyds. There we see the consequences of policies that had their origin in “There’s no such thing as society.” Only if someone does not pay regard to society can they adopt such a hard-line position, because it ignores the consequences of failure and the effect on ordinary human beings—not just savers but, as he said, investors. The structural consequences of the failure would have been economically disastrous for this country.
Andrew Gwynne
Is it not also the case that the banking system is getting the best of both worlds? Over the past few years it has received very substantial support for the taxpayer, but at the same time as paying itself ever-increasing bonuses it is refusing to invest in local companies and valid business propositions in all our constituencies, thus hampering economic growth across the country. Is it not right that the bank levy is introduced for a second year and beyond through the reviews suggested in the amendment, so that we can get that growth back into the economy?
Barry Gardiner
My hon. Friend makes an excellent point in contrasting the lending policies of the banks with the bonuses that they seek to pay, particularly to their higher-end staff. The Government have to be much clearer in the regulatory demands that they impose on the banks, because they are speaking with forked tongue. On one hand, they are insisting that there is tighter regulation and that there is a regime to ensure that there are adequate reserves and far more stringency in the banks’ investment policies. On the other hand, they are on the side of business, urging the banks to lend more money. It is not possible for them to have it both ways, and we must not fall into that trap either. Either the Government have to say, “We want tighter regulation, and to hell with small business”, or they have to say, “No, we want small businesses to thrive, because we want growth in the economy”, in which case the regulatory regime for banks has to allow for that.
That does not affect my hon. Friend’s point, because he is absolutely right to contrast the bonus structure with the banks’ lending policy. The bankers expect the situation to be all good for them, but it is not so good when they are dishing out the money at the other end.
Andrew Gwynne
My hon. Friend is exactly right. Is not the real problem that we are actually getting neither of the things that he mentions? We are getting neither effective regulation of the banks nor money flowing into small and medium-sized enterprises.
Barry Gardiner
That is the sad fact of our situation. I am sure that all of us, as constituency MPs, have business people coming to us saying that they cannot get credit. Indeed, many successful businesses that have had no change in their circumstances are suddenly being told by their banks that their credit facilities are no longer there. The banks are unilaterally changing the terms of those facilities, and the Government must do something about that. They cannot on one hand let the banks off with a £20 billion tax allowance for bonuses and, on the other hand, say that they do not have to ensure that they are lending to small businesses.
The difference between Opposition and Government Members goes right to the heart of whether we believe that the most important thing to do is to get growth back into the economy, get money flowing into small businesses and pay people a decent wage rather than make them redundant—that means that their spending on goods and services does not contract, and they spend money on brown goods and white goods and generate wealth and jobs in the economy, so that we grow our way through the problems—or whether we believe that we have simply to cut, cut, cut the public sector and pay, pay, pay the bankers’ bonuses.
Andrew Gwynne
My hon. Friend makes an excellent point. Does he understand the dismay of those from small and medium-sized companies in Denton and Reddish who come to see me? They would not mind their banks being a bit more generous in their lending now and then. They cannot even get a decent proposal through their local banks for funding to expand their businesses. These are not risks; they are sound business proposals that would generate jobs in my constituency. No doubt the same happens in my hon. Friend’s constituency, too.
Mr Jones
My hon. Friend makes a good point. Those examples can be seen up and down the country.
Given the amounts of money that some of the directors of Barclays are being paid, they could lend money to those small businesses themselves. The two highest-paid managers, Jerry del Missier and Rich Ricci—great name!— were handed more than £40 million each after share deals awarded over the previous five years. Bob Diamond, the chief executive, took the helm in January this year and, in that period of remorse, has received £27 million, including £6.5 million in bonuses for 2010 and £2.525 million awarded in shares, which could be paid out in the future. The share deal for the past five years paid out £40 million, and the one for 2007 paid out £5 million.
We know about those amounts because of the Government’s great deal under Project Merlin to force banks to expose what their directors are being paid. If that was supposed to act as a threat to them, they seem to be ignoring us and doing it all anyway. They seem to have very tough hides, because rather than being remorseful for the mess that they got us into, they are still taking the money.
Andrew Gwynne
Why does my hon. Friend think that those on the Government Front Bench are so apprehensive about having a review of their own banking levy? Does he suspect, as I do, that the findings could show that it was not working?
Mr Jones
I am, but that is part of the scrutiny process, and so is this. If the hon. Gentleman is so interested in the banking levy and the effects of the Bill on his constituents, why does he not speak? At one point he was alone on the Liberal Democrat Benches. The Government Benches have been fairly deserted this evening: the poop deck of the Mary Celeste may have had more life in it. Members who support the proposal in the Bill should at least turn up to argue in favour of it. No doubt we will be receiving “Focus” leaflets from the Liberal Democrats—although after Thursday they may be called something different—describing how tough they have been in regulating the banking system, but it is clear that they have not.
The hon. Gentleman has until late tonight, and tomorrow, in which to contribute to the debate so that he can reproduce his contribution in his “Focus” leaflets ad nauseam, which I know the Liberal Democrats love doing. People will be able to learn about how he stood up for them against the bankers rather than just listening to the hollow words and rhetoric of the Prime Minister and the Deputy Prime Minister in the run-up to the general election. The beauty of being in government is that politicians can actually do things. I know it has come as a big shock to many Liberal Democrats that they are in a position of responsibility whereby they can actually affect the lives of ordinary people. [Interruption.] Yes, responsibility without influence, as my hon. Friend the Member for Gateshead (Ian Mearns) says from a sedentary position. As the Liberal Democrats are in government, they can follow through and make sure that the Bill deals with the people who were responsible for getting us into this mess three years ago. They also have an opportunity to tackle the excessive profits. I do not know what the average salary is in Bradford, but I am sure that £1 million is a lot of money to the people there. I know that in 1914, prior to the first world war, Bradford won the competition for being the place where the most Silver Ghosts were sold, because it was a rich mill town back then; I learned that from the predecessor of the hon. Member for Bradford East when I was working for him in a by-election many years ago. I doubt whether many Rolls-Royces are sold in Bradford nowadays, however, and the hon. Gentleman’s constituents can only dream of some of the bonuses he is supporting this afternoon.
Andrew Gwynne
Will not such a review serve to make it clear that many of the commitments made by the Liberal Democrats in opposition have not been implemented—and, indeed, have not even made it off the drawing board to become Government policy?
Mr Jones
Yes. I do not particularly like giving opportunities to Liberal Democrats, but it would give them an opportunity to show that they have the teeth that the Liberal Democrat Cabinet Ministers claim they have got in this coalition, because they would be able to say to the Conservative part of the coalition that they want change—that they want, for example, to increase the levy or to make sure that the huge bonuses being paid are taxed in a different way, or to bring in regulation. Let us be honest about this, however: most Liberal Democrat Ministers have not got sharp teeth—unless they have been to the dentist in the last few weeks. In the next few days we will see the beginning of the demise of the Liberal Democrats, and, as it were, the extraction of their teeth. It will certainly be interesting to see how sharp their teeth are after Thursday.
The current Government’s bank levy should take the same amount as the Labour Government’s bank bonus measure raised, which was £3.5 billion.
Kerry McCarthy
Before the election, the Economic Secretary said in this House during a debate on fuel duty:
“What people want from the Government today is a helping hand to get them out of their financial troubles. Instead, what they see from the Government is no help at all. Far from providing a hand to pull them out of their troubles, the Government are pushing them further down into them.”—[Official Report, 16 July 2008; Vol. 479, c. 359.]
How astonishing, then, to find that that is exactly what she and her Government are doing. They may have made a show of helping people up with a small fuel duty cut, but that is after they have given them a much bigger push down with their VAT rise on fuel. Before the Chancellor gave his Budget statement, Labour Members called for him to look again at the fuel duty escalator, which I think the Economic Secretary is muttering about from a sedentary position. In previous Budgets, we cancelled or postponed fuel duty rises when pump prices were rising quickly. In the 2010 Budget, the then Labour Chancellor phased in the increase for that year in three stages to ease pressure on business and household incomes. In the 2008 Budget, the previous Government postponed the increase in fuel duty for six months, again to support the economy and help businesses and families. We therefore welcome the fact that the Chancellor has done so again in this Finance Bill. However, when that cut is put in context, we see that families and businesses are facing more pressure than before as a result of the Government’s policies on fuel tax.
This is not the only policy in the Bill that is not all that it seems when it is put in context. The Government have made much of their increase in the personal allowance for income tax. The Chancellor said:
“The increase in the personal tax allowance already announced will vastly exceed anything lost through employee NICs uprating”.—[Official Report, 23 March 2011; Vol. 525, c. 954.]
However, he failed to mention that the rise in the allowance is swamped by his VAT rise, which will take £450 a year, on average, from the pockets of families with children. Families earning as little as £31,000 could lose their child tax credits as the Government take £400 million out of the system, while the Government’s Welfare Reform Bill creates uncertainty for families over whether they will keep their child care support and free school meals. In a couple of years, a family with two children with a single earner earning just £44,000 could find that the Government have taken £1,750 a year away from them in child benefit. It is no wonder that the Institute for Fiscal Studies said that the Chancellor was
“giving with one hand…and taking away with lots and lots of other hands.”
Nor is it surprising that the economist Roger Bootle said today that household incomes were “all but certain” to fall.
All this comes at a time when Government cuts mean front-line cuts in services that people rely on—schools, the NHS, social care, even the police—and workers in those vital public sector jobs are facing redundancies. The Government may say that some factors are outside their control. When we were in government, oil prices rose substantially, as we are seeing now, but we left government with a proportional tax take on fuel lower than when we came into government—down from 75% to less than 65% on petrol and down from 74% to 64% on diesel. It is no coincidence that under the last Conservative Government fuel taxation shot up from 66% of the price of petrol in 1992 to 75% in 1997, and from 66% to 74% for diesel.
The Minister of State for International Development made the front pages in March, saying:
“if this does go wrong”,
referring to the Budget,
“£1.30 at the pump could look like a luxury, $200 a barrel is on the cards”.
He can hardly have expected that remark to put a stop to speculation in the oil markets.
Rather than helping people through the tough times, the Government seem to want to make things worse. There was an alternative for the Government. Before the Budget, we called on the Chancellor to scrap the hike in VAT on fuel. That would have been of genuine help to families and businesses.
Andrew Gwynne
Is my hon. Friend, like me, extremely surprised at the lack of ambition from the Government parties when it comes to seeking a derogation for the rise in VAT on fuel? Given that President Sarkozy managed to get a derogation on VAT for French restaurants, does she not think that the British Government should do the same for fuel?
Kerry McCarthy
My hon. Friend makes a valid point, which I will come on to in a moment. [Interruption.] Ministers are peddling the line that it would take six years to achieve such a derogation from the EU. I ask them, have they even tried? I suspect that the answer is no. It is a fairly defeatist attitude to say that we will not even ask because we know what the answer will be. That is not fighting for Britain’s corner in the European Union.
As I was saying, there was an alternative for the Government. We called on the Chancellor to scrap the hike in VAT on fuel, which would have been of genuine help to families and businesses. It could have been paid for from the £800 million more than expected that was raised from the bank levy. Unlike the stabiliser proposed by the Conservatives in the run-up to the general election, that would not have been “unbelievably complicated and unpredictable”, to use the words of the Secretary of State for Business, Innovation and Skills.
The stabiliser is based on the idea that taxation will vary according to fluctuations in petrol prices, so that
“when fuel prices go up, fuel duty would fall. And when fuel prices go down, fuel duty would rise”,
to use a direct quotation from the Conservative party consultation document on the issue. The stabiliser was a flagship policy for the Conservatives in the general election campaign. The present Prime Minister made an issue of it when he visited a Coca-Cola plant in Morley just a week before polling day, where he said that
“it would give you certainty as you go about your lives, knowing what your salary is, knowing what your mortgage is, we’d be helping with the cost of living by trying to give you a flatter and more constant rate for filling up your car”.
When the Conservative party got into government, it soon realised that that was an empty promise, made glibly without doing the homework required, as we have seen with so many of its policies in its year in government. In the Budget, the Chancellor resorted to a different so-called stabiliser by increasing the supplementary charge on North sea oil. We will discuss that issue later tonight when we come on to the next group of amendments.
It is true, as my hon. Friend the Member for Denton and Reddish (Andrew Gwynne) mentioned, that asking for a special rate of VAT would require our asking for a derogation from the European Commission. The Chief Secretary to the Treasury said that the Government could not afford to “sacrifice income willy-nilly”. However, he was willing to go to the EU to ask for a derogation for remote islands, although not for the rest of Scotland or the UK. Even members of the Conservative party agree that the solution should apply to the rest of the UK.
Ian Mearns
That is exactly what I am suggesting such a report could achieve.
The VAT chargeable on the duty element of the fuel price brings the total impact of fuel duty to about 69p a litre—that figure is a few days old, so it might be more or less than that now, depending on the daily price rate. Using a typical fuel consumption rate for road haulage of 8.5 miles per gallon, that means that each kilometre travelled provides 22p to the Exchequer; given an average load of 10 tonnes, each tonne of freight transported into or out of the north-east region delivers £4.30 to the Exchequer in fuel taxes, compared with an average for goods moved between English regions of only £3.52. We are already starting to see the impact on an economically deprived region in terms of businesses developing there and on its prospects for employment, given its peripherality to the bulk of the English economy.
Many hauliers in the North East chamber of commerce membership have no choice but to pass a proportion of those costs on to their customers, the vast majority of whom tend to be based in the north-east region. The chamber of commerce has argued that decisions on fuel duty need to take greater account of the impact on businesses in each part of the UK, and that a more considered approach is needed than that of the automatic increases that have been fixed into Government policy for the upcoming period. The figures I have quoted exclude those for goods transported within regions, as the impact of fuel duty would be the same in each region for that type of journey.
If the amendment were accepted, I would ask that a detailed analysis be included of the introduction of a measure that would help to stabilise fuel duty. In fact, that is exactly what the Federation of Small Businesses has been calling for. We have had debates in the past about some sort of fuel duty stabiliser, and it remains to be seen whether that would be a workable option, but surely when carrying out such an analysis, the Government could look at measures that would stabilise fuel duty and the cost of fuel.
Andrew Gwynne
My hon. Friend is making a superb case stating the competitive disadvantage that the Government’s policies are placing on the road haulage industry in the north-east of England and in other English regions. Does he think that the reporting proposed in the amendment could help to determine Government policies for supporting economic growth in regions such as his?
Ian Mearns
I am trying to point out to Ministers that fuel duty imposed nationally has a differential impact across the different regions and indeed nations of the United Kingdom in terms of contacting the main hub of economic growth, the south-east of England. There has been a debate in my region about the dualling of the A1 north of Newcastle upon Tyne, but the main driver of growth in the north-east economy is actually to the south and west of the region in terms of the contact with the main drivers of our economic future.
Mr Jones
I am becoming concerned. The hon. Lady’s blood pressure does not seem stable tonight. She seems to be turning red and getting rather excited in tonight’s debate, which I am not sure is good for her health. Why did she argue for and push through an increase in VAT when she and her Prime Minister stood on a manifesto saying that they would not put VAT up? That is not being honest with the British people. What she has to explain to hard-working families in my constituency, North Durham, and in Putney is why she reneged on that promise.
There has been much talk in recent weeks about trust in politicians, and a lot of nonsense talked by the yes to AV campaign about whether MPs are hard working and trustworthy. When the Prime Minister and the hon. Lady say clearly that they will not increase VAT, and then that is the first thing she does, I understand why my constituents and hers are rather cynical about certain promises.
In the Budget the Chancellor used the gimmick of cutting the price of petrol by 1p. We will shortly debate how he will pay for it. It has had disastrous consequences for the economies of parts of Scotland and north-east England. He also increased VAT by 3p. He took it off with one hand and put in on with the other. Paying for that will have consequences for oil exploration in the North sea not only in the next year or so, but for a generation.
Andrew Gwynne
Does my hon. Friend recall that the Chancellor of the Exchequer, soon after the Budget, took a very dim view of those retailers who did not pass on the 1p decrease in fuel duty, and does he agree that the purpose of having such a review is to see whether the Government’s policy was ultimately a success or a failure?
Mr Jones
That is a very good suggestion. That is one of the issues that could be included in the review. Do the Government honestly think that they can con my constituents and others and that a 1p reduction in petrol duty will really be a vote clincher for them? Late last Friday I was in the excellent Sainsbury’s in Pity Me in Durham, and I noted that customers who spent £70 on their groceries could get 5p a litre off their fuel. It is a deal offered by other supermarkets—I do not want to favour Sainsbury’s. Are those on the Treasury Bench really convinced that constituents will be conned by the 1p reduction, when the cost is being increased by 3p, and if they can get 5p a litre off when they spend more on extra groceries?
My hon. Friend the Member for Ilford South (Mike Gapes) made a good point, which I accept, about the differences in fuel prices in different parts of the country. I think that there is a case for part of the review looking at why fuel is priced differently across the country. I hasten to add that at the weekend, when I was in Worksop in Bassetlaw visiting my father, I went to a Sainsbury’s—it happened to be the supermarket there—and noticed that diesel was £1.38, although down here in London and in parts of Durham it is £1.42. Clearly the constituents of my hon. Friend the Member for Bassetlaw (John Mann) are getting a good deal from the Sainsbury’s in Worksop. These are the issues that could be looked at in a review.
Justine Greening
Clause 19 cuts fuel duty by 1p per litre. In fact, it has already happened—at 6 pm on Budget day. That was the first step in removing the Labour party’s planned fuel duty escalator and, instead, putting in place a fair fuel stabiliser, which will ease the burden on motorists.
The hon. Members for Gateshead (Ian Mearns) and for North Durham (Mr Jones) talked about the burden that the planned tax rises would have placed on their own region, and I can tell the hon. Member for York Central (Hugh Bayley) that, in fact, under the previous Government fuel duty rose by 55%, so it is simply wrong to focus totally on the previous Conservative Government. His Government increased the burden on motorists substantially.
The amendment calls for the Chancellor to publish an assessment of the impact of taxation on fuel prices within three months of the Act being passed, and it aims to determine the extent to which the cut in fuel duty has been passed on. By introducing such a measure, Opposition Members clearly intend to distract the public from their policy, which would have seen pump prices rise yet further as they introduced their planned escalator. In addition, the Opposition appear keen to suggest that the cut in fuel duty and the cancellation of their fuel duty escalator has not offset the effect of the VAT increase at the start of the year—a VAT increase that as a party they did not vote against.
I will go on to set out the Government’s assessment of the impact of this measure, as Members have requested, and to address the points raised in the debate, but perhaps I should start by explaining to the Committee why the Government took the action they did in the Budget to support motorists at this time of record pump prices. It is true that motoring is an essential part of everyday life for many households and businesses, as mentioned by the hon. Member for Wirral South (Alison McGovern). The Government also recognise that the rising price of petrol has become an increasingly significant part of day-to-day spending, and we know that high oil prices are causing real difficulties in ensuring that motoring remains affordable. It is important that when shocks such as the steep rise in the oil price occur a responsible Government are able to listen and respond.
The previous Government would have introduced a fuel duty escalator, which involved seven fuel duty increases, three of which have been implemented, adding 3p to pump prices, and they had planned another above-inflation increase for the start of last month.
Andrew Gwynne
Is the Minister not even slightly embarrassed that her Government did not seek the powers to get a derogation from the European Commission? Her party has gone from being the party of “No, no, no” on Europe to the Putney shrug.
Justine Greening
The hon. Gentleman’s party does not even have a position on that because Labour Members abstained on it. If the policy in clause 19 is so bad, I expect them to vote against it, but I suspect that it will be another case of abstention making the heart grow fonder. I do not think that that will work with taxpayers, who remember exactly who was planning to bring in the fuel duty escalator had they remained in power.
This Government listened to hard-pressed motorists and businesses. We declined to increase the escalator and to introduce the 1p per litre fuel duty increase, which would collectively have added 6p to pump prices compared with what they are now. Instead, we responded with a £1.9 billion package to ease the burden on motorists at this time of record pump prices. We acted by cutting fuel duty by 1p per litre from 6 pm on Budget day. We cancelled the previous Government’s fuel duty escalator for the rest of the Parliament. We introduced a fair fuel stabiliser that will better share the burden of high oil prices between motorists and oil companies, and so fuel duty will increase by inflation only when oil prices are high.
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.
Kerry McCarthy
It is always a pleasure to follow the right hon. Member for Gordon (Malcolm Bruce). He has made an eloquent case on behalf of his constituents, who are directly affected in more ways than most people by the Government’s proposal to increase the supplementary charge on North sea oil to 32%. Amendment 10 simply asks the Chancellor to produce, before the end of this September, an assessment of the impact of taxation of ring-fenced profits on business investment and growth, including an assessment of the long-term sustainability of oil and gas exploration in the North sea.
The amendment should not be at all controversial, although we saw in the debate on the last group of amendments that the Government were not happy to be asked merely to produce an assessment of the impact of that policy. That is surprising because, after all, the Government say that they want more consultation and more transparency in their tax policy making. They say that they will—I am quoting their tax policy making document—
“embed impact analysis in the policy development process”
and
“integrate impact analysis into the consultation process.”
Those are both the kind of sentences that one has to read several times before one can work out quite what they are on about, but my understanding is that the Government are trying to say that they want more transparency and consultation. We have had to table amendment 10 because, in reality, none of that has happened.
The Government are right to consider increasing taxation on sectors of the economy that are enjoying windfall profits. We did the same when we were in government. There is an urgent need to deal with the fiscal deficit that is recognised on both sides of the House, and it is right that we should ask for more from those who are able to pay, but this change has been rushed through without consultation, as the right hon. Member for Gordon said, surprising the industry, and inevitably it has fallen down at the first scrutiny.
If the Economic Secretary had consulted representatives of the industry, they might have told her that the stability and predictability of the North sea tax regime is important for investment. Oilfields are long-term investments that require long-term certainty and stability to attract investors. The industry believes that the value of investments in UK oil and gas has fallen by 24% as a result of the 2011 Budget. That will cause long-term damage to the industry’s trust in the Government for short-term political gain.
I agree with the Select Committee on the Treasury, which said:
“The decision to increase the supplementary oil and gas levy by 12% without warning, less than a year after the Government had undertaken to provide a ‘stable’ tax regime in the sector, may weaken the Government’s credibility in seeking to establish a stable tax regime in this and other areas.”
Andrew Gwynne
My hon. Friend is making an excellent point. Given the concern I raised earlier about people in the north-west of England who work in the industry, particularly in relation to Centrica’s decision about Morecombe bay, does she find it all the more surprising that the Economic Secretary once worked for Centrica?
Kerry McCarthy
My hon. Friend makes a valid point. I wonder what the current sales and marketing finance manager for Centrica thinks of the actions of the holder of that post from 2002 to 2005, and what experience the Economic Secretary had during her three years working for the company that has caused her to turn against it in such a fashion.
As I was saying, there is a real requirement, as the Treasury Committee has noted, for a stable tax regime in the sector. The Chartered Institute of Taxation has said that
“the last minute and precipitate change in Oil tax rates for an industry that is particularly dependent on long-term planning seems wrong”.
Does the Minister agree?
The threshold chosen by the Government may also be a problem for stability. The average oil price in 2008 was $100 a barrel, but in 2009 it was $60 a barrel and in 2010 it was $80 a barrel. If prices carry on fluctuating above and below the $75-a-barrel mark, as they have over the past three years, the uncertainty about the tax rate and whether companies will be caught by it could drive more investment away from the UK.
Had the Economic Secretary consulted the industry before the Budget, it might have reminded her that the supplementary charge applies to gas as well as oil. Gas prices are on the rise, but at less than 60p a therm they are still significantly below the Government’s $75 a barrel trigger price on an equivalent basis. In the UK, gas prices are less closely correlated with oil prices than in other jurisdictions, where there are often still contractual links between the two. Whereas oil prices are set by the global market, gas prices are more localised. Graham Parker of the Office for Budget Responsibility told the Treasury Committee quite recently that gas prices were “quite variable” so even if the Government think they have chosen the right level for oil, they might have set the balance wrongly for the gas sector. That could be disastrous given that gas accounts for 46% of the North sea industry’s production.
Kerry McCarthy
The Minister is trying to return to the topic we debated in the previous group, so perhaps she should have been a little quicker and thought up her intervention then. I am talking now about stability in fuel prices and the empty promises the Government made to the electorate in the run-up to the election that they would be able to do something to stabilise fuel prices at the petrol pumps.
Representatives of the oil and gas industry tell us that as recently as February the Government were giving assurances that they wanted to keep the North sea tax regime stable, as they had said in their previous Budget, but between February and April they very swiftly changed their mind. Perhaps the Minister can tell us why? What caused the Government to have such an urgent rethink on the fair fuel stabiliser? Many of us suspect that the increased scrutiny that the Opposition brought to bear on the Government’s policy might have prompted them belatedly into action—action they would have realised much sooner was needed if they had only done their homework and listened to what people were trying to tell them.
Inevitably, given the panicked way in which it was put together, the Government’s new version of the fair fuel stabiliser is equally as half-baked as the proposal put forward before the election. As a result, potentially tens of thousands of jobs, as well as billions of pounds worth of investment, are at risk, and the Government have broken their commitment to stable, consultative tax policy making.
Andrew Gwynne
My hon. Friend is making a superb case about the short-termism of the Government’s approach. Is she not absolutely right to point out that, in a short-term fix on gas and oil, this discredited Government are going to risk jobs, industry and investment in this country?
Kerry McCarthy
Again, that is a very good intervention by my hon. Friend. The industry needs stability and long-term investment, because we cannot dig an oil well or develop an oilfield overnight, yet the Government are creating uncertainty that will send investors off to other countries where the tax regime is more stable.
The Government have also completely damaged the trust between themselves and the industry, and that is why we have tabled our amendment. We simply call on the Government to do what they said they would do before making major tax changes: carry out a proper assessment of the impact, so that we can scrutinise it and have transparency. The Government were right to look towards North sea oil and gas to ensure that the burden of taxation was fairly spread, but without stability tens of thousands of jobs could be at risk. For the Opposition, that is not a price worth paying for short-term political gain.
Andrew Gwynne
The hon. Gentleman has made a superb point about the Morecambe Bay gas field. Is it not crazy economics that that investment will be lost to north-west England, which has some of the most deprived communities in the United Kingdom? We need to nurture the investment in the Morecambe bay gas field, not drive it away and import gas from abroad.
Stewart Hosie
I could not agree more. This is not just about Scotland, but about the entire UK continental shelf and the 440,000 people who are employed throughout the UK, including in East Anglia, off the north-west coast and elsewhere.
As I said—this is important—the warnings did not end a day or two after the Budget; they kept on coming. The most comprehensive analysis of the problem is in the 2011 international annual energy survey, which will be launched at the offshore technology conference in Houston, Texas this weekend. It is conducted by Maxwell Drummond, the industry employment specialist, which covers 100 international directors from all energy sectors. It says:
“the Coalition Government’s ‘supplementary charge’ on oil and gas production, projected to add an extra £2 billion to Treasury coffers, significantly and immediately impacted on global perceptions of the already challenging North Sea environment.”
If the international energy markets are warning of significant and immediate impacts, if there is a threat to tens of thousands of jobs, and if there is a threat to tens of billions of pounds of investment, the decision is clearly wrong.
Andrew Gwynne
It is excellent that my hon. Friend is bringing her Treasury expertise to this debate. She is adding greatly to the discussion. Does she agree that one of the motives for the Government’s tax raid on the oil and gas industry is that they view it as the goose that laid the golden egg?
Helen Goodman
I defer to my hon. Friend’s knowledge of poultry-keeping. However, I agree that that is the problem that we face with the Government at the moment. Their approach simply is not serious; it is trivial.
Helen Goodman
Of course. I am extremely concerned, as my hon. Friend and neighbour is, about the impact that the proposals will have on the economy of the north-east, and it will not be just a short-term impact, but a long-term impact. When we get investment in the oil and gas industry, we are getting investment in an industry at the cutting edge of technology. There have been many other positive spin-offs from the investments that the oil and gas sector has made.
Andrew Gwynne
That is precisely the point. The jobs in a lot of the support industries for the gas and oil industry are high-skill, high-tech and pretty well-paid jobs. Once we lose those skills in areas such as the north-west and north-east of England, they are gone for good. We need to support those industries, as well as the wider oil and gas industry.
Helen Goodman
That is absolutely right. The investment that the Labour Government tried to encourage in completely new energy industries such as the offshore wind industry used very similar skills. It is important to have a critical mass in these industries, and the achievement of that is now being put at risk.
It is not at all clear what the Government mean by rebalancing the economy. Our debate earlier this evening revealed a bizarre situation in which taxes on the financial sector are not tough enough, while taxes on the primary sector are over-strong. That is simply not going to take us down the route that we all want to go down.
Andrew Gwynne
Is that not exactly the difference between this measure and the example raised in an earlier intervention about the effect of the windfall tax on the privatised utilities? When Labour was in opposition before 1997, the party was in full discussions with the privatised utilities, which might not have been 100% happy with the proposal but were altogether certain that if the Labour party came to office, it would invest in our young people and get them back to work.
Mr Anderson
My hon. Friend is correct. That debate went on in the Labour party for a long time long before that election. It was quite clear to the industry and to the people of this country that if they voted Labour on 1 May 1997, we would impose a windfall tax. Discussions had been going on and the companies were able to absorb the idea and plan for that.
As ACCA says further:
“The sudden change in rate came as a shock to those involved in the North Sea oil industry”—
the change was not a shock in 1997, because companies had been able to prepare for it—
“and has been widely condemned as reducing the competitiveness of the UK as a target for investment”.
Mr Kevan Jones
My hon. Friend makes a very good point, and her point about investment will increasingly be thought of when making such decisions.
That brings us to the question of what the decision-making process was when coming up with this tax. We have already had the ludicrous situation whereby even a Minister who practically used to work for a gas company did not recognise the difference between gas and oil prices. In my experience as a Minister dealing with Treasury officials, I always thought that they knew what they were talking about, so I am surprised that the Treasury allowed this measure to get through, because everyone knows the difference between the prices of the two.
We have already seen the effects of that this week, with the possibility that Centrica might turn off investment in Morecambe bay, and I am sure that the Minister will be off the company’s Christmas card list next year unless she does something radical to change what has been proposed. That decision will not only mothball a gas field that would have provided this country with gas for years to come, but write it off.
What will we do instead? We will import gas, which does not make sense economically or for energy security, especially when we look at where the large concentrations of gas are in the world—the former Soviet Union, parts of the middle east and, lo and behold, north Africa. Any idiot can work out that even Morecambe bay, and possibly Blackpool on a rowdy Saturday night, is more peaceful than north Africa or parts of the former Soviet Union, so it is important that we take seriously the comments of companies such as Centrica, which have invested over many years and not just in oil and gas fields but, as my hon. Friend the Member for Blaydon said, in new technologies.
It is a dirty industry, but it is also a leader in new technologies, such as robotics and drilling, and, owing to the difficulty of extracting oil and gas from parts of the North sea, we have been able to develop new techniques that are now used throughout the world. That is why many UK companies are leaders not only in this country, but throughout the world.
It has also become increasingly clear that the tax rate will have a real effect on the economy of north-east England. I accept that hon. Members who represent Scottish constituencies feel passionately about the issue, but the measure will have a dramatic effect in the north-east, too. The Conservative part of the coalition tells us that we in the north-east should grow the private sector, but the oil and gas industry is a very vibrant part of the private sector. Indeed, my hon. Friend has already mentioned the sub-sea sector, which supports 10,000 jobs and 380 firms in the north-east.
Andrew Gwynne
Like my hon. Friend, I feel passionately about those jobs in those cutting-edge industries. Is not the issue to protect jobs today and invest in future jobs in the north-east and the north-west, including in things such as apprenticeships?
Mr Kevan Jones
It is, and the north-east has been able to take advantage of the change in, for example, the River Tyne, which was heavily dependent on shipbuilding. Now we have facilities such as the Walker technology park, and the city council was far-sighted when it developed an offshore park for the North sea oil industry.