Callum McCaig
Main Page: Callum McCaig (Scottish National Party - Aberdeen South)
Callum McCaig (Aberdeen South) (SNP)
Production increased in the North sea last year, which is welcome news at a time when most news for the industry is relatively bleak. Does the Secretary of State agree that the industry is at a point where it requires sustained support from this Government, which will require fiscal measures from her Chancellor in the coming Budget?
Amber Rudd
The hon. Gentleman is, of course, absolutely right to say that great progress has been made in reducing the cost of production already, and part of the intention of this Bill is to make sure that we can deliver further on that. I share his view that we need to give as much support as possible, but it is too early for me to comment now on whether the Treasury will be able to give that support. I know that this Government are committed to making sure that we continue to support those jobs and the industry.
Callum McCaig (Aberdeen South) (SNP)
That was an interesting contribution from the hon. Member for Selby and Ainsty (Nigel Adams). It was full of problems but not many solutions—the solution being a balanced energy market that allows flexibility. Probably the only thing I agree with him on is biomass. I also agree that a deal is a deal, but it is a shame that that has not been applied to onshore wind investors who have had deals scuppered because the goalposts have been moved.
I welcome the opportunity to speak on Second Reading of the Bill. It is important that we have finally got round to discussing it. It is nearly two years since the review of the UK continental shelf by Sir Ian Wood, which made a number of recommendations. As we have heard, it commanded, and still by and large commands, cross-party support, although there are problems with the details. I and some in the oil and gas industry have had a degree of frustration that progress has not been as swift as it could have been in fully establishing the Oil and Gas Authority, but the delay in introducing the Bill and the uncertainty that that has caused, particularly in respect of the grace periods for onshore wind, has been much more unhelpful.
Broadly speaking, the OGA is up and running and working effectively. The OGA and its head, Andy Samuel, enjoy tremendous respect and credibility within the oil and gas industry. It is beholden on all hon. Members to commend the work that has been done in setting it up. The team that is in place is impressive and is doing very well. The Bill will give them the full armoury of powers they require to ensure that the UK continental shelf thrives.
Scottish National party Members very much support the plans for the OGA in the Bill but—this will come as no surprise to the Secretary of State—we are not so keen on the onshore wind aspects. I am not required to explain the importance of the oil and gas sector to hon. Members. As has been said, it has generated in excess of £300 billion in tax revenue; 45 billion barrels of oil have been extracted, and potentially up to 24 billion are left; and it supports 360,000 jobs, with 36,000 directly involved.
Graham Stuart
Does the hon. Gentleman agree on these two things: first, that while we are burning oil and gas, it might as well be our own; and, secondly, that saying we are subsidising oil and gas simply because we tax it slightly less is a false narrative?
Callum McCaig
I agree very much with the hon. Gentleman. It strikes me that there are certain parallels with the coal conversation moments ago. That situation could come to pass if we do not support the North sea. We need to transition away from oil and gas, but that will take some time given the economics at play. If we are using oil and gas—we will be doing so for the foreseeable future—it might as well be ours. We might as well get the economic benefit of it, and we should certainly use that economic benefit to try to diversify and invest in other areas. The hon. Gentleman made the point on subsidies. The oil and gas sector is taxed very highly, and more highly than any other sector of which I am aware. It is taxed less than it was, but we probably require it to be taxed less if we are to see the benefit of the industry in future.
The OGA is vital to that future and it is hugely important that it is put on a firm footing. It must be given the regulatory powers it requires and the ability to engage fully with industry on access to infrastructure, plans for investment and so on. I very much support the Government in ensuring that the OGA continues to have a laser-like focus on maximising economic recovery, which is fundamental to that purpose. Over the years, there have been umpteen changes to oil and gas. It is in the nature of the industry, with its huge capacity to generate income, that the goalposts have changed substantially during that time, but I plead with all hon. Members not to change the goalposts again. The industry has been working for two years towards proposals on maximising economic recovery, which have universal buy-in and require that the OGA’s focus is not complicated.
Sammy Wilson
Does the hon. Gentleman accept that the focus must be on economic regeneration, rather than further regulation? The industry, especially at this time, cannot afford more costly regulation.
Callum McCaig
I disagree. The absence of a strong regulator is where there have been significant problems in the oil and gas industry, in particular with access to infrastructure. The inability to get two parties with competing commercial interests to agree a deal on access to oil and gas infrastructure—a pipeline, for example—has meant that investment decisions have not been implemented. The industry needs a regulator that is hard-touch where required. I very much hope that the threat of sanctions from the OGA will in itself be enough, and that they will not be required. The OGA probably recognises that itself. Issuing sanctions left, right and centre would suggest that its soft skills, its influence and the buy-in the Wood review has brought forward, are not working effectively enough. Where there is no compliance or buy-in to the idea of maximising economic recovery, and where disagreements about access to infrastructure are inhibiting investment, the regulator should go in—and go in hard—to ensure that what everyone is supposed to be working towards is delivered.
David Mowat (Warrington South) (Con)
The hon. Gentleman mentions, correctly, the need for a laser-like focus on maximising economic recovery as the objective of the Bill—and goodness knows we need it. Is it therefore his party’s position that the amendment in the House of Lords on carbon capture and storage is not necessary at this point, because it could risk reducing that laser-like focus?
Callum McCaig
Yes. I am coming on to that point now. I have spoken about carbon capture and storage many times and I will continue to do so. We fully support that. However, there is a requirement, which the shadow Secretary of State talked about, to have the review and the strategy in place before it can be imposed as one of the principal objectives of the OGA. If we dilute the core functions of the OGA, we distract from that attention. We should remember that the OGA and the Wood review come from a time when oil was over $100 a barrel. Those were the circumstances required to support the industry, which was going through difficult times, at a very high oil price. Those pressures are much higher today. I agree that we need to allow the OGA to bed in. Perhaps in future, once there is a strategy in place and it can be demonstrated that it has the support of the Government from both a financial and a strategic point of view, that might be something we want the OGA to do. At the moment, however, I think that is premature.
As I said, the Wood review comes from a time, two years’ ago, when oil was $110 or $115 a barrel. It is now $29 a barrel. The game has changed significantly. We have to accept that, while this is a vital step in supporting a vital industry, it will not be enough in and of itself. We need fiscal changes to the tax regime, particularly on incentives, and to review the tax level as a whole.
Immediately following the autumn statement, the Oil & Gas UK economics director, Mike Tholan, said:
“Since the last Budget, the oil price has declined further, and we must continue to do as much as we can to help boost confidence and encourage investment in the UK Continental Shelf. If the oil price continues to be lower for longer, there is little doubt that alongside industry’s own concerted effort to improve its efficiency, we will need to work with Treasury on additional measures, including revisiting the current headline tax rate—consistent with the government’s commitment to the sector’s tax rate falling over time.”
James Cartlidge
This issue clearly has to be approached through partnership between the UK Government and the Scottish Government. That being so, and given that the Scottish Government are about to get new tax-raising powers and that this is currently a real crisis for the key UK and Scottish strategic economy, will it be the policy of the Scottish Government to use those powers to raise funds to support the industry, if need be?
Callum McCaig
Frankly, I am not sure how income tax could be used to boost the oil and gas industry, but if the hon. Gentleman has any concrete suggestions—[Interruption.] On my understanding of the Scotland Act 2012 and of the progress made on tax-raising powers, I do not see how the Scottish Government would have the ability to do anything that would materially affect the fiscal regime. If the hon. Gentleman wishes to join us in calls for corporation tax for oil and gas revenues to be devolved to Holyrood—or, indeed, for full fiscal autonomy—he would be more than welcome to do so. The suggestion that the minimal powers devolved to Scotland for raising tax revenues and achieving economic objectives such as boosting the business environment could in some way be used to boost the oil and gas sector is, at best, naive.
John Redwood
The UK Government are not currently collecting any special North sea tax revenues because the oil price is so depressed. I might agree with the hon. Gentleman if reforms were made in the future, but will he give us an impression of the industry’s perspective in the area around his constituency on what will happen to jobs and investment at these oil price levels?
Callum McCaig
The oil industry is going through a difficult period, but there is a fair degree of resilience and optimism in these difficult times. A concerted effort is being made to show that it is not a sunset industry, and that it will work through what needs to be done. As was clear in the quote that I cited, the industry is making efforts to reduce costs. We in this Chamber can do nothing about the price of oil, but we can do something about the investment climate, which I think would be significantly enhanced with changes to the fiscal regime. Aberdeen is seeing job losses on a fairly sizeable scale, but it is probably still performing above average, and I certainly hope that it continues to do so.
The issue of tax revenues is not only about the supplementary charge in corporation tax or the petroleum revenue tax, because the full range of tax revenues needs to be factored in, including income tax, national insurance and the corporation tax paid by the supply companies. This is a major sector, and if we can invest in the skills and ensure that we bridge over what everyone agrees will be a temporary downturn in the oil price—how temporary is a matter on which I shall not speculate, because that could end up with my looking daft—that support will help.
Changing the tax regime would send a very powerful message to those looking at investment. If investment is not made in the UK continental shelf, because of the nature of the business the investment will be made in west Africa, Kazakhstan, Brazil or the gulf of Mexico. It is not a zero-sum game. Precisely because very little tax is being paid—unusually so—the Treasury is not banking on North sea oil to deal with what it needs to pay for, so it can afford to make the changes. The revenue forecasts for the next few years are low, and changing the regime now would make that viable. It would also send the clear message that this is a basin that is worth investing in. If there is investment, there are jobs, the skill base is maintained, and the supply chain is supported in a way that ensures that it can invest in and develop products not only for the North sea but for the global oil and gas industry, into which the United Kingdom supply chain—particularly around Aberdeen—is making great efforts to diversify.
I am very much in favour of the OGA’s establishment as an independent regulator. I am sure that, as we enter the next stage, there will be discussions about the nuts and bolts, but we want it to happen, and happen very soon.
Let me now move on to the closure of the renewables obligation. [Interruption.] Excuse me?
Mr Peter Lilley (Hitchin and Harpenden) (Con)
We thought that the hon. Gentleman was moving on to the closure of his speech.
Callum McCaig
I am sorry to disappoint the right hon. Gentleman. I will be brief, to a degree. I do not need to rehash the arguments about the closure of the renewables obligation, which is disproportionately affecting Scotland, because 70% of the wind farms that are in the pipeline would be there. I know that the Government have said that they want to try to reintroduce the closure in order to meet a manifesto commitment, but I urge them not to do so. If they do, we shall oppose the move.
Sammy Wilson
Given that fuel poverty in Scotland has increased by two and a half times since 2002—from 13% of the population to 34%—how can the hon. Gentleman justify further subsidies for wind turbines, which are paid by consumers and most of the proceeds of which go to well-heeled large landowners?
Callum McCaig
I do not think that that is the solution to fuel poverty. I think that the solution to fuel poverty is to insulate homes, in which there is huge and disproportionate investment in Scotland, and to end poverty. We have made various suggestions about how to do that, but the fact is that fuel poverty does not exist in a vacuum; it exists in the environment of actual poverty.
Onshore wind is a cheap renewable, and the closure of the renewables obligation is set to save bill payers the princely sum of 30p. Moreover, it will produce up to 63 million tonnes more carbon dioxide.
Callum McCaig
The hon. Gentleman’s colleague seemed to want me to nip on a wee bit, but I am happy to take an intervention.
Nigel Adams
I am very grateful. I apologise to my right hon. Friend the Member for Hitchin and Harpenden (Mr Lilley), who is far more senior than I am.
The hon. Gentleman talks of how cheap onshore wind is as a renewable. Does he not accept that it must be backed up by fossil fuels, which are not so cheap? If the full system cost of onshore wind is taken into consideration, it is one of the least affordable renewable technologies that we have.
Callum McCaig
So we are backing up the cheap renewables with fossil fuels that are not so cheap, and the solution to that is to use the fossil fuels that are not so cheap all the time. That sum does not quite add up. I am not sure that I have worked out the equation.
We have been EVELed out of the changes in the planning regulations, but I would not have opposed them anyway. However, I think that what is good for the goose should be good for the gander, and that the policies should respect the different attitudes that exist in the different nations of the United Kingdom. We in Scotland would like onshore wind generation to continue, and we hope that there will be mechanisms to enable that to happen—which brings me neatly to the idea of a subsidy-free contract-for-difference mechanism that would provide the price stabilisation and allow a route to market for onshore wind, the cheapest form of renewable generation. I am sorry; I could not help it. That was there for the benefit of the hon. Member for Selby and Ainsty.
Finally, the emissions trading proposals would ban the Government from using carbon accounting through the European emissions trading scheme. I and my party are not opposed to that in principle, but would recognise that we are probably a little premature in terms of agreeing that in advance of the fifth carbon budget.
David Mowat
In principle, that apparently is the position of the hon. Gentleman’s party, because to leave the ETS, which is a Europe-wide system, seems an odd tack to take for a party that is always telling us how European it is. In particular, surely the way to fix this is to get a proper ETS, not one that has a price of carbon that is so low? That is the way forward, not by leaving it. Surely as good Europeans, that cannot be the SNP position.
Callum McCaig
I do not believe there was any suggestion to leave. I would not suggest we cannot use or do it, but, rather than looking to buy carbon emissions and the capacity off our dear friends on the continent, we should be looking to be the leader and to have that high ambition. We could be in a position not only to stop counting those emissions towards our own contributions, but sell some to others who may not be quite so good in dealing with it.
In closing, as I see it there are three aspects to this Bill: the Oil and Gas Authority, the onshore wind and the emissions trading. We at this stage support two out of three, and, as Meat Loaf said, “Two out of three ain’t bad.”
Several hon. Members rose—
James Cartlidge (South Suffolk) (Con)
It is a privilege to speak about this Bill and to be asked to serve on the Bill Committee, as well as to follow so many excellent contributions, especially from my right hon. Friend the Member for Hitchin and Harpenden (Mr Lilley), and my hon. Friend the Member for Hertsmere (Oliver Dowden), who made a passionate defence of the beautiful English countryside.
It is also an honour to follow the hon. Member for Wakefield (Mary Creagh), although I will not attempt to spell or pronounce the age that she said we live in. She spoke a lot about fuel poverty, but I cannot think of a single measure to help my constituents tackle fuel poverty that even begins to compare with the fact that, with so many people heating their homes with oil tanks, it is now 60% cheaper to fill those tanks than it was a year ago. The same goes for petrol and diesel, although the percentage falls are not as steep. I welcome that fall in oil and diesel prices, particularly for our hauliers who have been so hard hit of late. I was intrigued to hear the hon. Member for Swansea West (Geraint Davies) call on those on the Labour Front Bench to lobby the American Government to curtail shale production, so that we can increase oil prices. I would be interested to know what the leader of the Labour party thinks about that policy.
Oil prices are key, and the most important part of this Bill is that it establishes the Oil and Gas Authority in what is clearly a time of crisis for the industry. Hon. Members have mentioned the cost of oil falling to $29 a barrel. In fact, according to the internet, today it fell to as low as $27.70, and Ladbrokes are now offering odds of 10:11 on its falling to below $25 in the coming weeks, and 10:1 on oil being below $10 a barrel—incredible prices.
As several hon. Members have said, 65,000 jobs have been lost in the oil sector since the beginning of 2014. It is a difficult time for the industry, but there are roughly 24 billion barrels of oil left in the North sea, which one day will not sell for tuppence ha’penny. We need an effective regulator, because that can bring stability and encourage investment.
I have no expertise or background in the industry—my background is as a director of a small business that was regulated by the Financial Services Authority and is now regulated by the Financial Conduct Authority. It is fair to say that the FSA was not a brilliant regulator—it failed fundamentally—but it is incredibly important that there is now a trusted regulator in the sector. I am sure it will be the same in the oil and gas industry. Oil & Gas UK has said:
“We believe the OGA is a critical catalyst for the work being undertaken to sustain offshore oil and gas activity and the associated employment in the sector, and its tools and capabilities should remain focussed solely on this task”.
I have one other point to mention on oil and gas. I am glad the hon. Member for Aberdeen South (Callum McCaig) is back in his place. When I intervened on him earlier and asked what the SNP could do, he suggested that it was naive to think that the Scottish Government should try to do anything about the crisis. It is a UK crisis, but it is hitting Scotland hard, particularly his constituency.
Callum McCaig
That is not a fair assessment of what I said. In response to the hon. Gentleman’s suggestion that the Scottish Government should use their new fiscal powers to support the oil and gas industry, I said that I did not see that as manageable, and that to think otherwise would be naive. Support is being provided by the Scottish Government and is being well received.
James Cartlidge
The Scottish Government will have the power to raise tax. They can do that and say to the Chancellor, “We are extremely worried about the crisis hitting our countrymen and countrywomen. We will contribute to a fund to reduce the tax rates on North sea oil.” What is so controversial or naive about that? We had all that passion from the SNP at the referendum about Scotland. Now that we have a crisis in Scotland, what are the SNP Government doing about it? They have a duty to pull their finger out, put their hand in their pocket and step up to the breach.
On the subject of devolution, we also have devolution in England. I have a question for my Front-Bench colleagues. There is an important measure in the Bill on planning and onshore wind. The result of the Bill is that power will go to local people, but I ask the Minister what will happen if a combined Suffolk and Norfolk authority has strategic economic powers. Will that take over the planning powers that will be devolved to local authorities under the measure in the Bill? That is a question about the impact of the measure and English devolution.
As in other constituencies, there have been significant cases in my constituency. In the run-up to the general election, there was a major case of a wind turbine in Pannington farm in Wherstead, near the famous “Jimmy’s Farm” of BBC TV fame. I am pleased to say that it was soundly rejected by Babergh District Council, with great support from the affected communities of Pinewood, Belstead and Wherstead in the northern part of my constituency bordering Ipswich. Of course, those communities will very much welcome the measures in the Bill.
On the subject of planning, several hon. Members, including the hon. Member for Wigan (Lisa Nandy), asked this question: if communities have a say in onshore wind, why should the same not apply to fracking? I see the point they make, but that planning currently rests with the minerals planning authority of the higher authority—in Lancashire, that meant Lancashire County Council. As a result of the time that it is taking, I understand that the decision will eventually go to the Secretary of State. [Interruption.] Is the hon. Lady trying to intervene?