Finance (No. 2) Bill (Third sitting)

Kirsty Blackman Excerpts

Thursday 11th January 2018 Public Bill Committees

[Kirsty Blackman (Aberdeen North) (SNP)]

It is a delight to be in Committee discussing a Finance Bill again, although we seem to be discussing one every week. I hope we can move to a single fiscal event, and that we will have a single fiscal event this year, and not an extra one or two, as we have previously.

On the change to research and development expenditure credit, I completely agree with the comments about the need to encourage our companies to create good research and to develop excellent and innovative products. That need can be clearly shown by the lack of productivity growth in the UK in relatively recent years by comparison with our international comparators. Part of that is because companies have not been able to create or bring forward changes, including in how they run themselves, in order to improve productivity; and part is because the Government have been good at increasing employment, but those jobs are low paid and have low productivity. Increasing research and development is therefore a very positive thing.

As was mentioned by the hon. Member for Liverpool, Walton, the UK leaving the EU comes with an awful lot of added negatives, particularly in the area of research and development. One is to do with universities and their research. A lot of our universities do absolutely excellent research that brings forward products. A number of universities have spin-off companies that have been innovated as a result of research, and they are brilliant places for such research to be developed. A lot of that could not have happened without the level of international collaboration that has been possible. A big concern is that there could be a backward step.

Another thing is that companies will find it more difficult to export to the EU. Although the Government are clear that we will have frictionless borders, a very small number of people believe that. There will instead be more barriers to exports, whether tariff or non-tariff, so companies will struggle to find the profitability and extra cash to put money into research and development that they do now. That is a big concern for the future. Frankly, increasing research and development expenditure credit by 1% will not cut it as the fix, to make that change that we need.

My hon. Friend the Member for Glasgow Central mentioned the issue of ensuring that research and development can be monetised by companies. It is not good enough simply to create an excellent product; that excellent product or innovation needs to be brought to market and exported. Companies in my area have struggled with taking that step. They have got to the stage where they have been able to innovate, but either their intellectual property has been bought or they have not managed to get encouragement from banks to increase their capital. I appreciate what the Minister says about the patient capital review, which is a welcome step because of the funding gap. Companies being able to convert their excellent research into a product that can be sold and exported is a really positive thing.

Companies around Aberdeen in my constituency are involved in the research and development of oil and gas initiatives, particularly in the super-mature basin that we have in the North sea. We are one of the first oil and gas basins to reach the super-mature stage. We have the ability to innovate, and to do research and development that creates products that can be exported around the world when other basins come to that mature stage. It is appreciated that there is a research and development credit, but the Government need to continue to work to support businesses in making the next leap, so that they can take advantage.

[Dan Carden]

Does the hon. Lady agree that membership of the European Union has fostered a culture of research and development? We have innovation cities and other such initiatives. A 1% increase from 12% to 13% is not enough. We need the Government to show how they will innovate and work with companies to rebalance the economy from south to north when it comes to research and development and other such issues.

[Kirsty Blackman]

I agree with the hon. Gentleman. We have had many benefits from the EU, and just one of them is the level of innovation. As a result of the level of free movement that we have had, we have been able to get excellent people in to improve our research and development, and to collaborate with places overseas. Our universities, companies and hubs of expertise have been an incredible success story in recent years in terms of the research that they have been able to do. There is a brilliant hub around Edinburgh that is involved in robotics. It is hugely important to take those steps.

The Government need to ensure that they continue to foster that culture. Leaving the EU is a big problem, in terms of us not being able to bring those people here. The Government need to not only increase the research and development expenditure credit by 1%, but make changes so that the UK can be a nation that welcomes scientists and encourages them to come here and make a positive economic contribution, as they already do. We do not want to lose those people.

[Alison Thewliss]

The point about not losing what we have is absolutely crucial. The Strathclyde Technology and Innovation Centre at the University of Strathclyde in my constituency has had £89 million, including money from the European regional development fund, to set up cutting-edge industries. Anything that loses that or puts it at risk will have a hugely detrimental effect on Glasgow and Scotland’s wider economy.

[Kirsty Blackman]

I very much agree with my hon. Friend. A lot of these projects have been brought to fruition because of the benefits of EU money. The UK Government have not committed to filling the EU funding gap that there will be, particularly for universities and for the research and development of vital products that UK companies can sell on.

It is welcome that the Government are putting some focus on research and development expenditure. That is a positive thing. However, it is not in any way the end of the story. To simply stand still, the Government need to make significantly more commitments. We would appreciate the Westminster Government being much more positive about the innovation culture. They need to put their money where their mouth is and make sure they fund these things more appropriately.

[Peter Dowd (Bootle) (Lab)]

Again, it is a pleasure to serve under your stewardship, Mr Owen. I want to speak first to the points made by the hon. Member for Aberdeen North and then go on to my substantive comments on our amendment. It is worth noting what the hon. Lady says about funding research. Bill Gates, who knows a thing or two about research and development, said:

“I believe in innovation and that the way you get innovation is you fund research and you learn the basic facts.”

Are the Government funding research and development sufficiently? The answer, quite simply, is no. Neil Armstrong said:

“Research…is creating new knowledge.”

When set against that, the amount of research and development that the Government are funding, or indeed encouraging, is not creating that much more new knowledge.

Following on from the comments of the hon. Member for Aberdeen North about new clause 4, I am deeply concerned about the level of the Government’s research and development expenditure, particularly once we have left the European Union. The important question is not whether we are in or out—we are moving out; we recognise that—but how we fill that gap.

There is a rightly held concern that as a result of Brexit, the UK risks losing its reputation as a scientific powerhouse. In November, the Chair of the Public Accounts Committee stated that we are “sorely lacking” in leadership from the Government to maintain Britain’s position as a leader in robotics and in research to tackle climate change. She was responding to a National Audit Office report that highlighted that between 2007 and 2013, the UK was a “net recipient” of EU research funding and received more than £7.9 billion. In 2015, the UK Government’s expenditure on research and development was £8.7 billion, so it is almost equal.

The Government will have to make up the funding shortfall once we leave the European Union if the UK is to keep its status as a world leader in research and development.

--- Later in debate ---

[Mel Stride]

Clause 22 amends the definition of tariff receipts that are taxable to ring-fence corporation tax and the supplementary charge. Tariff receipts are income that oil companies receive from third parties for the use of their oil and gas assets. It is common for oil and gas producers to share the use of pipelines, terminals and other facilities, and tariffs are one type of commercial arrangement used in those cases.

The clause clarifies the fact that activities by petroleum licence holders in the UK and on the UK continental shelf that give rise to tariff income are oil extraction activities. That ensures that their treatment is in line with current industry practice. As a result of the change, oil and gas companies will have the certainty they need to continue investing in infrastructure. The change will also ensure that the Government can deliver on the Budget 2016 commitment to expand the investment and cluster area allowances so that they can be activated by tariff receipts. Delivering that commitment will encourage more investment in the strategic infrastructure that is crucial to the longevity of our vital national industry.

The Government introduced the investment and cluster area allowances at Budget 2015, simplifying the system for investors and driving new investment. The allowances replaced the complicated system of bespoke oil and gas field allowances. They give oil and gas companies tax relief by reducing the amount of profit that is taxable to the supplementary charge. The allowances are generated on investment expenditure on UK oil and gas assets and can be activated by income from the oilfield. The allowances therefore reward successful investment in UK oil and gas production.

At Budget 2016 the Government went further, announcing that they would expand the scope of the investment and cluster area allowances so that they could be activated by tariff receipts, in addition to the production income from the field. Including tariff receipts within the scope of the investment and cluster area allowances will encourage infrastructure owners to continue investing in the North sea’s vital infrastructure, for the benefit of third parties and to support the “Maximising Economic Recovery” strategy. Before the Government can deliver that commitment, however, it is essential that the current law is consistent with the objective of the policy.

Following an informal consultation with industry and analysis of the legislation, a degree of ambiguity was found in the current legislation, making it difficult to deliver the expansion as intended. The measure will resolve that ambiguity by clarifying that tariff receipts are treated in line with broad industry practice. The Government’s intention to clarify the legislation has been welcomed by the industry.

The changes made by clause 22 will provide oil and gas companies with the right conditions that they need to continue investing in the industry’s infrastructure. The clause amends the existing definition of tariff receipts to confirm that all tariff income earned by UK licence holders is an oil extraction activity, and therefore in the scope of the oil and gas ring fence tax regime. The clause also confirms that for ring fence corporation tax and supplementary charge purposes, there is no distinction between tariff receipts arising from old oilfields that are subject to petroleum revenue tax and new, non-PRT oilfields.

The UK oil and gas industry makes a significant contribution to the UK economy, supporting more than 300,000 jobs and providing about half our primary energy needs. To date, it has paid about £330 billon in production taxes. By clarifying the tax treatment in law for tariff receipts, whether they are generated from new or old oilfields, the clause will allow the Government to deliver their Budget 2016 commitment. That should encourage investment in the UK continental shelf. I therefore commend the clause to the Committee.

[Kirsty Blackman]

I congratulate the Minister on getting through that speech, because the subject of oil and gas taxation is incredibly technical and complicated. As the Minister has said, the clarification is welcome. Also incredibly welcome was the promise in the Budget this year to institute the transferable tax history changes that are required, and I appreciate the fact that that has happened. Industry has been calling for that for a while, as I have done quite a number of times in this room and in the main Chamber.

On “Maximising Economic Recovery”, which the Minister mentioned, it is two years since former Prime Minister David Cameron came to Aberdeen and said that an oil and gas ambassador would be appointed, but we still do not have that ambassador. Will the Minister let us know when we are likely to get the ambassador, or has the idea been shelved permanently?

[Mel Stride]

I thank the hon. Lady for her recognition of the moves that we are making on transferable tax history. I agree that they are important for the sector, particularly given its current state of development. It is important to make sure that we keep the oil industry going in her part of the country. On her question about the oil and gas ambassador, I will make inquiries and come back to her. In terms of industrial strategy, as I mentioned in detail in my opening remarks, her part of the world and the oil and gas sector are extremely important to the Government and will remain so.

Question put and agreed to.

Clause 22 accordingly ordered to stand part of the Bill.

Clause 23

Hybrid and other mismatches

Question proposed, That the clause stand part of the Bill.