Finance Bill (Third sitting)

Christian Matheson Excerpts

Tuesday 5th July 2016 Public Bill Committees

[Damian Hinds]

It is a pleasure to respond to the pertinent questions put by the Opposition and SNP Front Benchers. They both asked about exploration, which is the lifeblood of the industry’s future. We had a choice: introduce a complex system of reliefs and incentives relating to exploration, or have a simple, straightforward tax cut across the board. We chose the latter. Reducing the tax payable on the economic activity lowers the hurdle point for investments, improves the net present value of projects, and means that more will take place. It is cutting the headline rates of tax, rather than anything else, that provides a clear incentive to invest in the continental shelf. The Government have also twice provided £20 million for seismic surveying to help kick-start those processes.

Allowances came up a number of times. Over the past few years, the Government have been simplifying that system. Allowances mean that projects that are economic, but not commercial at the higher rates of tax, can go ahead. That is good for the Exchequer, as it brings in more income, and good for the companies concerned. The hon. Member for Salford and Eccles, who speaks for the Opposition, asked when the Government would finalise the secondary legislation expanding the definition of qualifying expenditure for the investment cluster area allowances. Draft legislation was published at the end of last year and the technical consultation ended in January. HMRC has been analysing the responses to that and liaising with the Treasury and the OGA to ensure that the legislation works as intended. We plan to lay the new regulation before the House after the summer recess. It will apply to all qualifying expenditure incurred after 8 October 2015.

The hon. Lady also asked about the power to extend the definition of relevant income and the timing. The Treasury will consult with industry shortly, and will ask it to provide information and evidence to inform the design of the inclusion of tariff income in the investment cluster area allowances. It is a complex area, with a range of commercial arrangements that we need to understand if we are to ensure that infrastructure owners and users can benefit from the allowances. The power has been drafted in such a way as to ensure that the inclusion of tariff income can have a retrospective effect. That measure will not delay the introduction of the extension to qualifying expenditure.

The hon. Member for Coatbridge, Chryston and Bellshill rightly asked about the crucial opportunity area of decommissioning. Decommissioning across the shelf is expected to become a multibillion-pound industry, and there are significant export opportunities as other basins around the world become more mature. Decommissioning costs here could be more than £40 billion. As I said earlier, the Government support Sir Ian Wood’s vision of establishing north-east Scotland as a real centre of excellence. That is why we support the creation of an oil and gas technology centre in Aberdeen as part of its city deal. As the hon. Gentleman will know, the OGA will soon publish its United Kingdom continental shelf decommissioning plan.

The hon. Gentleman and the hon. Member for Salford and Eccles asked about late-life assets and asset transfers. We are in constant discussion with the OGA and industry to understand what impediments there may be to value-creating deals going ahead, and we retain an absolutely open mind on that. The hon. Gentleman also asked about Government guarantees. Again, that is something on which the Government have an open mind, in recognition of the importance of the sector. The Government are willing to consider proposals for using the UK guarantee scheme for infrastructure where that could help to secure new investment in assets of strategic importance to maximise economic recovery. Any proposals would need to meet the scheme’s criteria, including those relating to commerciality and financial credibility.

The Government have recognised the exceptionally challenging conditions that the industry faces, and in response announced a £1 billion package of fiscal reforms in the March 2016 Budget, which built on the extensive package from the previous year. The package includes halving the rate of the supplementary charge, permanently zero-rating the petroleum revenue tax, and extending the scope of key allowances to incorporate leasing and to encourage investment across the North sea. The Government have also committed £20 million of funding to a second round of seismic surveys to encourage development in under-explored areas.

Despite the extremely challenging conditions, this remains a sector of opportunity for Scotland and the UK; it is estimated that somewhere between 11 billion and 21 billion barrels of oil and oil equivalents are still to be had. More than £11 billion was invested in the sector last year. I am constantly encouraged by the positive attitude of the industry, and all the work that it is doing to get its cost base down and continue to look for new opportunities. I assure you, Mr Howarth, and all hon. Members, of the Government’s absolute commitment to the very positive tripartite approach between the industry, the Oil and Gas Authority, which is really more than a regulator, and the Government, who include the Scotland Office, the Department of Energy and Climate Change and the Treasury.

[Christian Matheson (City of Chester) (Lab)]

There is no doubt that the UK offshore oil and gas sector has a world lead, provides huge revenue and technical expertise to the UK, and needs to be protected, but my hon. Friend the Member for Salford and Eccles raised the spectre of onshore fracking. Can the Minister give reassurance that our efforts to support the offshore oil and gas industry will not be used as a back-door way of giving tax breaks to onshore fracking?

[Damian Hinds]

Mr Howarth, you would not want me to stray on to topics that are not strictly in the scope of the Finance Bill. The Government believe that there is significant potential for unconventional oil and gas—for fracking—and I think that we owe it to future generations, to ourselves and to British industry to make sure that we discover what opportunities are there. Exactly how the regime develops, in fiscal terms, is to be determined, but we know that there will be an absolutely robust safety regime. In the initial phase, the important thing is to find out on how big a scale that opportunity may be.

I had reached the conclusion of my remarks, having reiterated the very firm commitment across Government to supporting this industry. This is a bold package of support in the Budget. We know of no other country in the world that has responded on quite such a scale to the extremely challenging conditions presented by the world oil price. I commend the clause to the Committee.

Question put and agreed to.

Clause 54 accordingly ordered to stand part of the Bill.

Clauses 55 to 59 ordered to stand part of the Bill.