Finance (No. 3) Bill

Debate between Geoffrey Robinson and Lord Bruce of Bennachie

Tuesday 3rd May 2011 Commons Chamber

[Malcolm Bruce]

The fact that I am moving the amendment makes fairly clear what I think and what I am trying to do. What I am saying to the Government—[Interruption.] I accept that the Government have introduced a Budget that has made these changes. What I am trying to do is to get Ministers to understand that the industry is complex and that Government decisions might lead it to a review of investment, which could lose production, jobs and export opportunities. It is possible to retrieve the situation, however, if we have an active process of negotiation. Previous Governments have made the same mistake and realised the need to engage with the industry.

[Mr Robinson]

The right hon. Gentleman makes a fair point about the lack of consultation and involvement with the industry in this heavy change, which has been introduced on the hoof. The Economic Secretary, who is replying to the debate, having worked for three years as a senior executive in Centrica—a firm the right hon. Gentleman cited as having lost confidence—should have known better and realised the importance of consulting the industry beforehand.

[Malcolm Bruce]

At this stage, I am not here to attribute responsibility for the decision. My concern is—[Interruption.] With great respect, Members should acknowledge that, speaking as someone who represents a major North sea oil and gas constituency, I know my own industry and my own constituency. I also know the need for the Government to engage with the industry and I hope to persuade them that they can retrieve the situation to a degree by so doing.

Let me refer to a table that will appear in the UK Oil and Gas publication tomorrow. It shows something of which Labour Members should be fully aware—the correlation with the past. Interestingly enough, in 2009, North sea oil prices peaked at $145, yet within 12 months they were down to $35. At that peak level of production, investment had fallen £3 billion a year as a direct result of negative tax changes in 2006. The time lag, Ministers should be aware, is two to three years, after which investment falls away; it is then several years beyond that when we see job losses, lost investment and lost opportunities.

--- Later in debate ---

[Malcolm Bruce]

I think, hope and believe that Ministers do understand it. That is one reason why I believe that if they do engage constructively with the industry we will get some progress and reforms that will enable the confidence to be restored and investment to be brought back.

Amendment 15 acknowledges the fact that the gas price is well below the oil price and the Government’s own trigger price of $75; $55 to $60 seems to be the average sort of price. The industry should not be facing the charge at all. There are also a lot of fields that have associated gas—in some cases quite significant amounts—so this amendment simply suggests that that should be taken into account. One way to do that would be to tax the gas produced and the oil produced separately, and another would be to aggregate the two and take the average price; either way would be fairer. As has been said, Centrica is indicating that the UK does not look like a good prospect for it; the company is clear that it wants to diversify its investments elsewhere in the world, and that would be to our detriment.

[Mr Robinson]

A series of reasoned and reasonable amendments stand in the name of the right hon. Gentleman and that of the hon. Member for West Aberdeenshire and Kincardine (Sir Robert Smith). Does he realise that the impression that would be left were he bought off tonight by some sweet sounding but meaningless words from this Tory-led coalition is that the Liberal party has a lot of responsibility but, sadly, absolutely no influence in the decisions being taken?

[Malcolm Bruce]

Time will tell—that is all I can say to the hon. Gentleman. My hon. Friend the Member for West Aberdeenshire and Kincardine and I together probably represent more oil and gas jobs than any other Member, except perhaps for the hon. Members for Aberdeen South (Dame Anne Begg) and for Aberdeen North (Mr Doran). It is important to point out that our areas account for only about a quarter of the oil jobs in the UK, as many of the jobs are in London, the north-east and elsewhere—

[Malcolm Bruce]

Indeed, some are even in Stornoway. It is important that this is seen to be a national industry.

I have debated oil and gas in this House for 28 years. I have seen every Government make the same mistake and I am disappointed that the present Government have done so, but I have also seen every Government engage and reach an understanding because they have learnt the complexities of the industry. All I am asking is that this Government engage in the same constructive way and that we reach a position where we get the balance right. The amendments seek at least to provide a framework for the sort of conversations that should take place between the Government and the industry.

[Mr Robinson]

I do not wish to delay the House, but I must ask the right hon. Gentleman: when did the Labour Government of 1997-98, in which I had some responsibility for sounding out and consulting the industry, make any mistake such as has been made by this Government? We simply did not do so. We talked to the industry; I met John Browne and he explained the situation. Although we were prepared to do so, we did not even get into any formal consultation because he convinced us in the initial soundings that it would be the wrong move to make.

[Malcolm Bruce]

The evidence suggests that sudden step changes to taxes have been made by successive Governments and they have had the same effect: a drop in investment. [Interruption.] No, it has happened under Labour too—the party was in power for 13 years. The figures produced by Oil & Gas UK show that the last time this happened, capital investment dropped by £3 billion per annum over the subsequent three years, and that is a huge sum. Although negotiating field by field is a long drawn out and time-consuming process, too complicated for some investors, who will go elsewhere, that is preferable to simply standing one’s ground and waiting for the worst to happen.

I hope that the Government will acknowledge that some projects are bound to be delayed or cancelled because the rates of return after the tax changes make them simply unviable. If the companies can negotiate to demonstrate to the Government the level at which such projects would become viable, which requires both parties to show their hands, capital allowances or other mechanisms could be brought into play in ways that would benefit both the Government, because the investment, jobs and spin-off could be secured, and the companies, because they would be able to develop viable projects, which of course will subsequently pay taxes to the Government.