Budget Resolutions and Economic Situation

Callum McCaig Excerpts

Wednesday 16th March 2016 Commons Chamber

[Callum McCaig (Aberdeen South) (SNP)]

It is a pleasure to speak in this Budget debate. After close to a year of asking for action on oil and gas, it would be churlish of me not to welcome what the Chancellor has announced today. However, it is important to take that in context: we have seen significant movement, but essentially we are back to what Oil and Gas UK says is the tax level from 2003.

There is positive movement on the supplementary charge, but to suggest that the tax has been cut in half is a bit of the smoke and mirrors that we are used to. Although it has been cut in half, from 20% to 10%, oil and gas fields will still pay 40%. If we compare that with the announcement of 17% for corporation tax, we see there is a stark contrast.

The effective abolition of petroleum revenue tax is perhaps more welcome. It will affect fewer fields, but by virtue of their age and their important infrastructure, those fields are vital to ensuring the continuing success of the North sea. If they lose out and that infrastructure is decommissioned, the potential domino effect could drastically reduce the profitability of the North sea.

I welcome the proposed manoeuvring of decommissioning allowances, allowing changes between the companies that would and would not have the decommissioning liability. That is fundamental. The Red Book talks about encouraging new entrants into the industry. It is very important for the future of the industry to have new capital, new expertise and, above all, new ideas and new ingenuity coming in and not to be burdened by artificial barriers in relation to decommissioning. What has been announced is very helpful, but in and of itself, it is not enough. This will not be the end of the requests from industry, from trade unions, and from me and the SNP, for further action to support this vital industry.

We have missed out on anything relating to fiscal support for exploration. The support for seismic surveys is welcome, but beyond that more action needs to be taken. There is also nothing in terms of—

[Mr Speaker]

Order. I am extremely grateful to the hon. Gentleman for his contribution. I think Mr Tommy Sheppard wishes to speak. No?

[Tommy Sheppard (Edinburgh East) (SNP)]

The clock has not been working, Mr Speaker.

[Callum McCaig]

The clock did not start, Mr Speaker.

[Mr Speaker]

Well, continue to orate, man.

[Callum McCaig]

I will continue to orate, and I will be as brief as I can to allow my hon. Friend the Member for Edinburgh East (Tommy Sheppard) to get in.

There is nothing on exploration, beyond seismic. There is nothing about removing the fiscal barriers for enhanced oil recovery. The activity of enhanced oil recovery will count as operational expenditure; it does not count towards the tax allowance that can be offset against income. Such a simple fiscal measure would allow these activities to happen to a far greater extent, and then everyone would be a winner.

On the effective tax rebate rate for onshore oil and gas, tax allowances for that sector are 75%, whereas the effective rate for offshore oil and gas is 62.5%. I see no reason why there should be such a difference in the investment allowance. The North sea is a far more harsh environment in which to carry out this kind of exploration activity, and I do not see why it should be penalised vis-à-vis onshore oil and gas.

There has been nothing on loan guarantees for the oil and gas sector. The Prime Minister has talked about building the bridge to the future of oil and gas. Access to finance is vital in this regard. Companies are being turned away by banks, which see the industry as something they do not wish to invest in. I hope that the measures announced today will go some way towards allaying the concerns about finance, but more can and should be done. Lots of companies have the ability, expertise and imagination to drive the innovation that the oil and gas industry will require. If they cannot access the funding and finance that is required to develop these ideas, it will be incredibly difficult for them to bring their skills and expertise to the marketplace to benefit the industry and secure the innovation and cost reductions that it has been pursuing.

While this is a welcome step, it cannot, in and of itself, be the last thing that the Government do to support the oil and gas industry. The industry has produced £300 billion in tax revenue; it contributes immensely to the UK’s balance of payments. We may not be seeing the astronomical tax revenues from oil and gas that we did before, but we cannot overestimate the importance of the role that the industry has to play for the United Kingdom and my neck of the woods in particular, in future.