Anne Begg
Main Page: Anne Begg (Labour - Aberdeen South)Department Debates - View all Anne Begg's debates with the HM Treasury
(13 years, 3 months ago)
Commons ChamberIt 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.
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.
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.
My hon. Friend makes an important point. The jobs being lost are in areas where there is little other employment. As he says, people in the area he represents have been affected by the decline in other traditional industries under the last Conservative Government. Now they are being hit by a double whammy with their jobs in the oil and gas sector being put at risk.
Does my hon. Friend agree that the best way to deal with the deficit is to grow the economy? The industry was growing and investing, but that growth and investment could be put at risk as a result of the measures.
Precisely. We come back to that time and again with this Government. They are looking at the very short term for quick revenue gain or political gain, not taking a longer-term approach. The point should not have to be made that if the Government want to encourage growth in the private sector, which they are always talking about, they need to encourage investment and have the right economic climate for that investment to take place. If the tax regime is not stable, that is put in jeopardy.
I accept that it may not be possible for the Government to consult widely on every tax policy. There is a balance to be struck between robust scrutiny and consultation and the Government’s freedom to act when necessary in the national interest, and consultation may flag up to certain companies that they ought to engage in tax avoidance measures, but in this case, the Government not only ditched their brand new tax policy framework, but went back on specific assurances to the oil industry.
The previous Government had formed a good working relationship with the industry, which may now be damaged. After a meeting in 2008 between the then Prime Minister and Chancellor and the oil and gas industry, the Government consulted with the industry to develop a package of new measures to revitalise investment in UK oil and gas reserves. Those were announced in the 2009 Budget and included the new field allowances and other incentives for companies to invest in the UK’s smaller and more difficult fields. Such close working together is vital to the stability of the tax system for North sea oil and gas. Unfortunately, it will become more difficult if the Government cannot restore trust with the industry.
Although it sounds hard to believe, as I said earlier, last year the Government created new golden rules for themselves to make tax policy more predictable, more stable, and more transparent. We can only conclude that the Government have ditched those rules altogether, just a year after taking office, because we cannot see how Treasury Ministers are
“committed to providing clarity and certainty on the future direction of tax policy.”
The industry body for the UK oil and gas industry agrees with us, saying that the measure has damaged the industry’s confidence and trust in the tax regime. I cannot see either how the Treasury still believes, as it said last year, without a hint of irony, that consultation is
“an integral feature of all policy making”,
which
“helps ensure that changes are well targeted and without unintended consequences, and that legislation is right first time.”
What happened to that statement of intent from the Government? Clause 7 is a perfect example of a policy for which there was no consultation. As a result, it is poorly targeted, has potentially serious unintended consequences for the industry, and is certainly not a policy that they got “right first time”, and all because the Government did not consult on their decision.
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.
Does the hon. Gentleman agree that because the UK continental shelf is now a mature province, many of the decisions on investment in the province are no longer taken in Scotland or London, but in Houston, Calgary or elsewhere in the world, and that the international perception of the tax regime is therefore crucial when such decisions are being made?
That is absolutely right. I said when I intervened on the right hon. Member for Gordon that of course taxation needs to be sensitive to profitability, but that Ministers also need to understand that investment decisions are sensitive to tax and other costs. Although the field is mature, some of it is unexplored. If the perception is that it is expensive and that there is tax instability—which has been said—we will lose the ability not only to continue work in some of the mature fields, but to explore as yet untapped reserves, albeit in a mature sector.
As I have said, this is the most damaging measure in the Budget for economic growth. Although I respect the attempts to amend it and the tabling of amendments for the Government to discuss, we think that it is so damaging that we hope Mr Hoyle will be able to call on hon. Members from across the Committee to resist clause 7 very vigorously indeed.
It does, and that leads us to the point about how we would arbitrate in disputes between different companies. My hon. Friend the Member for Aberdeen South (Dame Anne Begg) mentioned the fact that decisions on investment in oil and gas are not taken in this country, but in Houston, Calgary and other parts of the globe, so the North sea and exploration in this country is competing for investment from around the world. If companies have to jump through hoops to negotiate their individual tax liabilities before trying to put an appraisal together, I am sure that decision makers will go for the easier options so that they know what the return on investment will be, rather than the uncertainty that this has left us with.
If it is necessary to bring in all sorts of complicated extra things to mitigate the effects of a tax and make it appear fairer, surely the original tax is fundamentally flawed and should never have been introduced in the first place.
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.
Realistically, it is not always possible to discuss rate changes with the industries concerned. It is not done as a matter of course, but the point about working with the industry to ensure that we understand the impact on more marginal investments is valid, and that is precisely what we are doing.
The clause increases the rate of the supplementary charge, which is a tax on the profits of oil and gas production, from 20% to 32% from 24 March this year. It is fair to point out that oil prices have increased from $77 a barrel at the time of the June 2010 Budget to about $125 a barrel today.
Plenty of other companies and industries deal in commodities whose prices go up, and plenty of other companies and industries make huge profits, but can the Economic Secretary name one other industry where the marginal rate of tax is 81%?
The point is that we faced an increase in oil prices that had fed through pretty directly to pump prices. The increase in the cost of fuel was not just impacting on motorists, but having a huge impact on hauliers, on the cost of living and on businesses. We had to decide what was the right thing to do. I think that the right and fair thing to do was to share the burden by taking some of the additional profits that oil companies were making—profits at a level that far exceeded the projections of the companies when they made those investments. I will come on to answer the question from the hon. Member for Bishop Auckland (Helen Goodman) about projected future investment. I will give a telling statistic that makes my point very well.
We expect pre-tax profits from oil and gas production in the UK to be £24 billion in the current tax year, which is a 50% increase in just two years, primarily as a result of the increased oil price. Oil companies can afford to pay a bit more, but hard-pressed motorists, hauliers and businesses deserve to pay less.
We have just agreed to clause 19 without either the Scottish National party or the Labour party having divided the House. If we are willing to accept the cost of the motoring package in clause 19, which I think we all accept was badly needed to support motorists, hauliers and businesses, we also have to accept some responsibility for putting in place a way of funding it. Clause 7 is how we will do that.
Let me make a bit more progress, because Members have raised some real concerns and I want to ensure that I respond.
The Government recognise that we need to act as a good custodian of the UK’s natural mineral wealth; at the same time, we need to manage a tax regime that tailors the level of tax to the level of profits available from the UK continental shelf. The UK’s oil and gas reserves are a finite resource that belongs to the nation. Current oil production was not sanctioned on the basis of the high prices from which the industry benefits today. Those unexpectedly high prices and profits have arisen due to geopolitical events in the middle east and north Africa, as we have heard, and the Government must ensure that they secure a fair return for the UK taxpayer, particularly given the impact that oil prices are having on the broader economy outside the oil and gas exploration industry.