Finance Bill

Angus Brendan MacNeil Excerpts

Wednesday 2nd July 2014 Commons Chamber

[Stewart Hosie]

Indeed; I recognise all those points, and the pressures that are being applied to finite and very mobile resources, such as rigs and accommodation vessels, but I will come back to some of that later.

This measure not only penalises the drilling and accommodation vessel sector, but potentially impacts on the entire £35 billion upstream oil and gas supply chain. Derek Henderson from Deloitte UK said:

“While it doesn’t affect operators directly, many expect that the costs will be passed on to them and could discourage drilling.”

That would impact on the entire support and supply chain that is dependent on drilling activities.

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

On the point about making other jurisdictions more attractive, are the Government not actually helping Scotland’s competitors by ensuring that rigs, of which there is a shortage, go to more sympathetic jurisdictions?

[Stewart Hosie]

Indeed, and Malcolm Webb from Oil and Gas UK made a near-identical point when he said:

“It is perplexing…that the Government has chosen to proceed with the bareboat measure. This can only increase costs on the”

UK continental shelf. He also said:

“we fear that this move will drive drilling rigs, already in short supply, out of the UKCS.”

That would be a ridiculous thing to do.

What makes this measure all the more peculiar is that the bareboat charter arrangements are commercial arrangements that are widely used across a range of industries, and not just in the oil and gas sector. The arrangements we are talking about are used internationally, and have formed a consistent part of the UK continental shelf operation for 40 years. So why pick now to take an extra £500 million or £600 million out of the North sea over the next five years? The Treasury’s decision in the Budget to apply this measure only to the oil and gas industry, and only now, to a few specific vessel types, is utterly illogical.

I do not want to detain the House too long, so I think that the key thing to do is to consider the points that the International Association of Drilling Contractors makes about the measure. This is not a gentle criticism of a mildly inconvenient tax; it is an excoriating critique of what the UK Government have done. The association says:

“The measure is unfair and a unilateral deviation from international best practice…with no ability for contractors to reset prices,”

it

“amounts to retrospective and double taxation”,

and in a real and practical sense, it does. It says:

“The measure will depress economic activity. The…changes affect the cost base of the drilling industry”,

with all the impact that might have. It goes on:

“The measure targets a single, specialist sector for additional rent…Specialist international companies that have relocated”

to the UK “will be particularly hit”, when they and their investment should be welcomed instead.

The association argues:

“The government has manipulated the introduction of the measure to avoid proper scrutiny.”

In a particular criticism, it goes on to say:

“It is not appropriate for legislation as complex as this to be published in initial draft form”

on the day it was due to come into effect. That is a preposterous way for the UK Government to behave. The association continues:

“The consequences of the measure have not been properly assessed by HRMC”,

and it says that there are reports that up to £2 billion could be lost from the continental shelf. It also says:

“The measure is deliberately discriminatory...all vessels bar drilling rigs and accommodation units have been exempted for reasons that are far from clear.”

To put that another way, only two sorts of vessels remain included in the scope of the measure, which appears to be the usual sort of smash-and-grab cash raid that this Government make on the North sea.

There appear to be a great many reasons why the bareboat chartering regime is wrong. There appears to be an illogicality about the way it is being introduced, as well as a complete lack of transparency and time properly to assess the long-term impact, not just on drilling rigs and accommodation vessels, but on the entire supply chain. Little concern appears to have been felt about the consequential impact on growth and jobs in the sector and in the economy in general. That is quite a scathing set of criticisms to make of this Government, although it is not unique and could apply to any number of other things that they have done.

I look forward to hearing what the Minister has to say, but unless there is a very credible explanation of the amount of tax that he believes is lost, and of how the proposals will help, rather than having the consequences that I have described, I fear that we might divide on new clause 1.