Finance (No. 3) Bill (Eighth sitting)
Debate between Kirsty Blackman and Clive Lewis(6 years ago)
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Kirsty Blackman
I will not speak for a terribly long time, because I am sure the Committee is not keen on being detained for any longer than necessary.
The devolution of air passenger duty has not been properly completed, so the Scottish Government are unable to put in place air departure tax, which we committed to introducing, or to make our proposed changes first to halve that tax and then to remove it completely. We are keen to do that because we believe it is important that we can attract people to visit, live and work in our country, and those steps were in the manifesto we were voted in on in 2016.
Complete devolution has not happened due to an issue with our exemption for the highlands and islands. I understand that the UK Government and the Scottish Government are working on that. It would have been great if it had been dealt with before, because we hoped to have air departure tax in place in April. It has not been dealt with, but I get the impression that people are still around the table trying to solve the issue, which is good news.
In lieu of APD being properly devolved and our having the powers to make our planned changes in Scotland, we support a UK-wide reduction in APD. That is why we tabled amendment 104, which would require the Chancellor of the Exchequer to
“review the effects of a reduction in air passenger duty rates from 1 April 2020”—
we chose that date because the industry has asked us to ensure that any change in rates is not made immediately—
“and lay a report of that review before the House of Commons within six months”.
The review would have to
“consider the effects of a reduction on—
(a) airlines,
(b) airport operators,
(c) other businesses, and
(d) passengers.”
One of the key issues for us is that the comparatively high taxes in the UK sometimes cause difficulties for airlines and airport operators. If we take into account VAT, air passenger duty and other taxes, the UK is one of the more highly taxed places to visit as a tourist. We are keen to see changes so that we can secure the routes we have and run more routes.
Given the remoteness of some communities in Scotland, it is important that we have good access to flights. I live in Aberdeen, which is about two and a half or three hours’ drive from Glasgow and Edinburgh. There are international flights out of Aberdeen, but not as many as I would like—there are lots of places we cannot get to unless we drive to Glasgow, Edinburgh or even further afield. I have previously looked at flying from Newcastle to get a better range of flights.
I would appreciate it if the Minister, if he cannot accept the amendment, talked a bit about what he thinks would be the impact on airlines, airport operators, other businesses and passengers of reducing air passenger duty. If he does not want to talk about that because it is not the Government’s policy to reduce air passenger duty, it would be interesting to hear why it is not their policy given my concerns. We are calling for a review because the amendment of the law resolution does not allow us to change it in a serious way. I hope I have laid out the Scottish National party’s position clearly.
Clive Lewis (Norwich South) (Lab)
With your leave, Mr Howarth, I will speak to amendments 120 and 121, and press them to a vote if necessary, before moving on to other significant questions that we feel need answering in relation to the clause. As numerous environmental non-governmental organisations, scientists and even the chair of the Committee on Climate Change have observed, the Government are failing to tackle the climate crisis that is already upon us, and we believe that that is reflected in their policy on air travel. There is an awkward mismatch between our world-leading climate change legislation and our policy and prevailing political attitudes towards aviation.
The purpose of amendment 120 is to force the Government to share with Parliament the impact, or the lack thereof, of their proposed changes to air passenger duty on a variety of environmental concerns. The Committee will be aware that the projected impact of climate change poses severe risks, not just to the natural environment but to the prosperity of the British nation and the welfare of the people we represent in the House.
Aviation has a significant and growing impact on climate change. Emissions from the sector rose by 1.2% in 2016. It currently represents about 7% of the UK’s total emissions yet, on current projections, that figure will reach 25% by 2050 as a result of increases in aviation demand and carbon reduction in other sectors. That is because aviation currently enjoys a uniquely generous target under our national framework for reducing emissions through to 2050—namely, it is not expected to make any contribution in our carbon budgets to those reductions, and is instead required to conform to a level of emissions in 2050 that are no higher than 2005 levels, which is 37.5 megatonnes of carbon dioxide. That is known as the Committee on Climate Change planning assumption for aviation. That generous target is in recognition of the difficulty of decarbonising air travel through technology and operational improvement, and of the utility and social value of air travel for those who are lucky enough to use it.
Department for Transport aviation forecasts show that UK aviation emissions are currently on course to exceed even that generous limit, thus potentially jeopardising our ability to meet our overall climate change targets in the form of the fourth and fifth carbon budgets. The Committee on Climate Change has repeatedly called on the Government to develop a robust domestic mitigation policy framework for international aviation emissions for flights taking off from UK airports. Most recently, its 2017 and 2018 progress reports in Parliament highlighted the need for a new strategy and new policies to ensure UK aviation emissions are at about 2005 levels in 2050. In its 2018 assessment of the Government’s clean growth strategy, it warned that they are falling far short of the necessary action. It noted that no progress has been made on this requirement.
The Committee on Climate Change is currently working to update its advice to the Government on mitigating aviation emissions. It is due to report on that in the spring—we await that with interest. One aspect of its guidance that is unlikely to change and is highly salient to the clause is the recognition that the UK’s participation in international mitigation programmes for aviation emissions, such as the International Civil Aviation Organisation’s CORSIA—carbon offsetting and reduction scheme for international aviation—agreement to offset growth from 2020 and the EU’s emissions trading scheme will simply not be sufficient to keep UK aviation emissions within safe limits, as defined by the Committee on Climate Change.
Likewise, even if some fairly heroic assumptions are made about technology, operational improvements and the uptake of genuinely sustainable biofuels, the projected growth in demand for air travel is expected to outstrip these efficiency gains, causing emissions to rise above the safe limit. In 2009, the Committee on Climate Change advised the Government that:
“Deliberate policies to limit demand below its unconstrained level are therefore essential if the target is to be met.”
That has remained its formal position ever since.
The statutory advice to Government by the committee—renowned, by the way, as among the best climate change advisers in the world—is therefore that the growth in demand for UK air travel must be limited if our climate change targets are to be met. That is clear. However, no Government, least of all this one, has yet proposed any such policies. On the contrary, this Government have acted to remove constraints to growth in UK air traffic, such as by approving a third runway at Heathrow Airport without any corresponding measures to meet climate change commitments.
That is why we seek through amendment 120 to compel the Government to review air passenger duty, its effect on the demand for air travel and the consequent effect on greenhouse gas emissions. That is not to say that APD is the only lever that the Government have, but it is incumbent on them to make it clear how they will achieve the climate objectives agreed by consensus of the House. Perhaps the Minister will answer some questions—I am sure the Committee on Climate Change will be interested in hearing the answers.
What impact do APD rates have on demand today? How high would APD rates need to be, or what other measures would have to be in place, to constrain growth in emissions to within the safe limits advised by the Committee on Climate Change? Was that even a consideration of the Government when developing the Bill? Assuming that the Minister agrees it is indeed the Government’s goal, he might say that APD is not the best or most equitable route to achieve that goal, but we need to be clear that there is another route. The answers we hope to receive will help us all as legislators to decide whether APD and the suggested rate changes are indeed an effective mechanism to achieve the Government’s stated policy, or whether alternative measures would be more economically efficient and fiscally progressive.
We understand that limiting growth in demand for air travel is politically fraught, and that important social justice dimensions must be considered when designing any policies to achieve that aim. The issue, however, cannot be ducked forever. The Government have been, and continue to be, remiss in their duties by failing to make any assessment of the potential for different fiscal measures or other policy approaches to constrain UK aviation emissions in line with Committee on Climate Change guidance.
Modal shift from air to rail is an important feature of nearly all decarbonisation scenarios intended to deliver zero net emissions by the middle of the century, as per the UK commitment under the Paris agreement. At the moment, however, it is much cheaper to travel from London to Edinburgh by plane than by train. That is in part a product of the chronic failure of Britain’s ill-advised experiment with the privatisation of our railways, but there is an argument that it is also due to tax advantages enjoyed by aviation over other modes of transport, which brings us back to the clause.
Under international air service agreements, it is prohibited to tax aviation fuel—an anachronism from the earliest days of international aviation, when only a handful of passenger planes were in the sky and Governments sought to do all they could to nurture this exciting new economic sector. Seventy years later, more than 23,000 aircraft are in the global fleet, and yet this highly mature industry continues to enjoy tax-free fuel, a perk it has retained through a combination of lobbying and the structural difficulties of levying a tax on an activity that, by its nature, crosses national boundaries.
That anomaly is the subject of intense debate in France, where motorists are rightly pointing out the gross disparity between the high rates of duty in the form of a carbon tax levied on petrol and diesel at the pump, and the total absence of taxation on aviation fuel. Former French environment Minister, Nicolas Hulot, last week joined calls for kerosene to be taxed. Serving members of the French Government say that they are now speaking with the European Commission.
In addition to duty-free fuel, airline tickets, planes, parts, repairs and fuel are all zero-rated for VAT, alongside items such as baby clothes and wheelchairs. There is also the duty-free shopping in airports. Given that history, the price of air travel does not reflect the environmental damage caused by flight. Taxing air travel appropriately is clearly a difficult political problem to solve, and I want to make it clear that we do not advocate that such travel should become a privilege available only to the rich. However, it is important to understand the social justice dimensions of the challenge clearly.
APD has been criticised in the past as a blunt instrument. That may be true, but it is overall a fiscally progressive tax in the sense that it is mostly collected from households at the upper end of the income spectrum. Government survey data suggests that about half of British residents do not take any flights in a given year, while about a fifth say they never fly. Research suggests that 70% of all flights by UK residents are taken by 15% of the population—the so-called frequent fliers. That group probably includes many people in this room. Only 1% of the general population fly more than seven times a year, but the richest 5% of households fly 13 times a year. Growth in demand for air travel is likewise being driven by the UK’s wealthiest residents. Perhaps the Minister can share any official figures the Government hold.
In any event, to avoid catastrophic global warming, we must collectively limit carbon emissions from aviation. Ordinary people taking occasional family holidays or visiting relatives abroad should not be the priority for any policy designed to curb demand growth.
Kirsty Blackman
The hon. Gentleman makes a strong case for the amendments. Given that more information is better, we are happy to support them. For the avoidance of doubt, I would love to stop flying every week. An independent Scotland would mean we could do that, and it would reduce our carbon footprint.
Clive Lewis
I want to raise a couple of things before we vote on amendments 120 and 121. The Committee on Climate Change has clearly stated that we are heading towards a substantial breach of the generous headroom that has been provided for aviation in the UK. The Government are going to overshoot that, to use a pun. There is a pressing climate emergency on this planet. As we speak, millions of people—many of them in the world’s poorest countries—are already being affected by climate change. My dad is from Grenada, and he has retired there. People there, and in the West Indies generally, cannot get insurance as a result of the hurricanes that destroy vast swathes of the islands year in, year out, because of climate change. I feel as though we are hearing once again from the Government about business as usual, even though a climate emergency is taking place.
I understand the APD. It is not designed as an environmental tax or a demand management tool; it is a revenue raiser. Given that we find ourselves heading towards a breach of the headroom that the Committee on Climate Change has provided, surely the Government should be looking at ways to control and push down demand for flights, so that we can begin to make a real impact on our commitments to tackling climate change. Will the Minister tell the Committee whether he plans to join our French counterparts in lobbying for tax reform on kerosene, as they will shortly talk about with the EU Commission? It seems to me that the aviation industry has enjoyed these 70-year-old tax perks and is now an established sector, but one that has yet to fully play its part in tackling climate change. This country can show leadership on that, starting with the Treasury.
Kirsty Blackman
I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Amendment proposed: 120, in clause 60, page 44, line 17, at end insert—
“(3) The Chancellor of the Exchequer must review the effects of the changes made in subsection (1) and related matters specified in subsections (4) and (5) and lay a report of that review before the House of Commons within six months of the coming into force of the changes.
(4) The matter specified in this subsection is the revenue effects of the changes.
(5) The matter specified in this subsection is the effects of the changes on—
(a) CO2 emissions,
(b) the United Kingdom’s ability to comply with its third, fourth and fifth carbon budgets,
(c) air quality standards,
(d) air travel demand, and
(e) air traffic movements.”.—(Clive Lewis.)
This amendment would require the Chancellor of the Exchequer to review the revenue, environmental and certain other impacts of the changes made by Clause 60.
Kirsty Blackman
The hon. Gentleman is making an excellent speech in which he is talking about a lot of sensible measures to reduce waste. I just want to say that the matter covered in this aspect of the Bill is devolved, so if he presses the amendment to a vote, the Scottish National party will not take part in it.
Clive Lewis
I thank the hon. Lady—her point is taken on board.
Such a beneficial undertaking would help both businesses and households to reduce drastically their waste streams and so cut their work-related and living costs. It would also go a very long way to helping the UK to meet its energy and greenhouse gas emission targets on the way to becoming a zero-waste, zero-carbon economy. As well as securing existing jobs and helping to create many new ones in the reuse, repair and recycling sectors, adopting the amendments that we are calling for would undoubtedly help to protect urban, suburban and natural environments where illegal waste dumping continues.
Will the Minister tell us how he means to address the very serious concerns of the Environmental Industries Commission and its members about the growing gap between the lower rate and the higher rate of this tax? The existing gap is already causing significant problems in the industry, with some operators presenting for the lower rate inert waste that actually contains asbestos fibres and therefore should be subject to the higher rate. How does the Minister intend to address that imbalance? In the EIC’s view, which is shared by Labour and a number of prominent environmental and countryside non-governmental organisations, the gap should be closed and not made wider, so that the tax acts as a deterrent to illegal waste disposal of all types and so benefits the public purse and society at large in significant environmental ways.
That being the case, in the absence of significant assurances from the Minister, we will struggle to support the clause as it stands. However, I would like to give the Minister the opportunity to provide us both with those assurances and some answers to the questions that we have posed. I look forward to his response.
Finance (No. 3) Bill (Fifth sitting)
Debate between Kirsty Blackman and Clive Lewis(6 years ago)
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Clive Lewis
It is a pleasure to serve under your chairmanship, Ms Dorries. I look forward to speaking on behalf of the Opposition, and I draw attention to my entry in the Register of Members’ Financial Interests. I am particularly pleased to speak to our amendments to the clauses and schedule that relate to transferable tax history, and I hope that the Minister will answer some questions on the proposed measures.
As the Minister outlined, the clause creates a mechanism for companies that are buying equity in UK oil and gas fields to acquire the tax histories of the selling companies and use them to reduce the future decommissioning costs of those fields. The Government’s intent, as we understand it, is to extend production from late-life oil and gas fields in the UK by encouraging their purchase from companies that are no longer willing to extract from them by companies that are. The Government seek to achieve that by overcoming what they believe is a barrier to sales—namely the concern that new companies will not make enough profit from the field to pay for future decommissioning costs. Transferable tax history will allow the buying company to draw on the taxes paid by the previous owners to claim the maximum tax relief possible for decommissioning.
The Opposition believe there are a number of fundamental flaws to the proposals. Transferable tax history is fiscally irresponsible. It expands the very tax breaks that put the Exchequer on the hook for exorbitant future decommissioning liabilities, which the Government have set aside no money to pay for. It creates perverse incentives, providing a windfall for companies exiting the North sea, and it fails to ensure a long-term commitment from incoming buyers on workers’ rights, capital investment and emissions reductions for the benefit of the UK. It also totally disregards the UK’s role in avoiding catastrophic climate change, and does nothing to address the urgent need for a just transition to a low-carbon economy.
With that in mind, amendments 81 to 89 seek to ensure that no transfers are approved that increase taxpayer liability for decommissioning tax-related rebates. They would also limit TTH transfers to current estimates for decommissioning costs, thus ensuring that transferable tax history does not spiral and is no higher than estimated for current reliefs. The Bill currently allows companies to transfer tax history that is worth double the value of anticipated decommissioning costs. The UK taxpayer is already committed to footing the bill for a staggering £24 billion of the estimated £64 billion decommissioning costs in the coming decades, despite the massive profits made by oil and gas companies from the North sea. Do the Government expect the £24 billion decommissioning bill to double to £48 billion over the life cycle of TTH? The UK cannot keep spending revenues that it knows it will have to pay back and that are derived from oil we cannot afford to burn, yet TTH doubles down on those policy failures. If that is not addressed now by ring-fencing a portion of oil revenue to prepare for those costs, our fiscal and environmental future will become hostage to oil revenues.
The most staggering thing about this measure, which perhaps the Minister will confirm, is that the Government have set aside no decommissioning fund to deal with the consequences of these promises. As it stands, our share of decommissioning costs is completely unfunded, and a consequence of short-term priorities and incentivising investment decisions that have been taken regardless of long-term fiscal planning and environmental exigencies. Will the Minister explain the long-term fiscal strategy for dealing with those costs when they inevitably land on the taxpayer in the not-too-distant future?
The Government’s arguments appear to rest on the assumption that additional decommissioning tax rebates will be compensated for by higher revenues from oil and gas fields, generated by increased investment and production by buyers. There is, however, an alarming lack of evidence to support that assumption, and detailed modelling of the long-term impact on decommissioning costs is conspicuously absent. Indeed, it could be argued that TTH reduces the incentives for the buying companies to increase production and generate more revenues, so have the Government considered the potential implications of that? It is perhaps unsurprising that the Government have provided no data on how much additional decommissioning rebate the Treasury might give away due to TTH, and neither have they undertaken any analysis of what would happen in a future scenario in which the oil price changes. Will the Minister commit to conducting such analysis and present the results to the House?
In our view, the measure reduces the incentive for companies to move towards efficiencies and decommissioning costs, and paves the way for decommissioning-related tax repayments that are far bigger than those companies are acknowledging. The clause is representative of the Finance Bill as a whole: it fails to deliver for the people of this country who are so desperately in need of investment in our public services, and instead it favours tax cuts for the wealthiest corporations, with the taxpayer left vulnerable to huge potential payouts. Our amendment would remove that provision and ensure that runaway decommissioning costs will not become a taxpayer risk.
Moving on, amendments 81, 85 and 86 seek to incentivise capital investment by new purchasers in job creation and emissions reductions—two crucial things that the Bill does not address. Exacerbating the problem is the fact that no clear plan has been set out by Government in the Bill to ensure a commitment to continued investment and employment from incoming buyers. Will the Minister tell us what plans he will put in place to ensure job security? Will he consider making TTH transfers conditional on maintaining employment levels? Similarly, will the Government consider limiting TTH claims to incoming companies’ investment in infrastructure, maintenance, retraining and methane reduction?
The irony of TTH becomes clear when looking at that last point. The stated aim of TTH is to prolong the life of North sea assets, yet it has the potential to do the opposite, reducing incentives for incoming companies fully to develop late-life fields. Currently, a new entrant to the North sea would have to ensure several years of production to generate sufficient taxable profits fully to carry back decommissioning losses. TTH removes that incentive. Rather than ensuring sufficient production, should the oil price dip, a company can simply claim against transfer tax history.
Far from ensuring stable future investment, the irony is that TTH has the potential to subsidise the cost of an early exit should the oil market turn against the companies, thereby making UK jobs in that industry more, not less, vulnerable to market conditions. Amendments 81, 85 and 86 limit the TTH history that may be claimed to an amount equal to such investment, ensuring that the measure will not result in increased future liabilities for the Exchequer. They will also act as a starting point for addressing issues of job security and the environment, which I will come on to in more detail.
Amendment 89 builds on ideas that the Committee has already discussed, and extends them to a decommissioning security agreement. It would require such an agreement to include an assessment of the impact on the Exchequer of the amount spent on staff in order for the agreement to qualify under the schedule. The amendment seeks to encourage transparency and accountability between the seller and the buying company, ensuring that the cost of staff, and expectations for staff retention levels, are made clear, and I look forward to hearing the Minister’s response.
There are a number of additional questions about the clause. The first expands on the issue of workers’ rights. Although the Government may argue that transferable tax history is a way of protecting jobs by extending the life of those assets, research by Oil Change International, Platform and Unite, which represent those workers, found that major North sea tax cuts over the last 40 years have not led to higher employment, and neither did tax rises reduce employment. Will the Minister say what the net flow of revenue has been between the Treasury and North sea oil and gas companies over the last three years? It seems clear that those companies have used the raft of recent tax cuts not to create new jobs—160,000 have gone in the last three years—but to enrich their shareholders.
How can the Government ensure that TTH will work in the interests of workers employed on those assets? No clauses in the Bill provide safeguards for workers’ jobs and workplace rights—it seems that the benefits of TTH will go to the private owners of oil and gas companies, and that the clause has been drafted in their interests alone. We argue that it is the Government’s responsibility to promote the stability of jobs in the region, and to ensure they are protected once smaller businesses take over the running of those sites. Will the Minister commit to conduct an analysis of the stability and security of those jobs, including the impact of the provisions, and to share that with the House?
Secondly, there is a huge concern about the environmental consequences of TTH and the encouragement of further exploitation of oil and gas in the North sea. The Government have yet properly to explain how the proposed policy fits with the UK’s commitment to the Paris climate agreement. Despite the continued claim that the UK is a global leader in taking action to meet those targets, the Government’s policies continue to fall far short of their green rhetoric. Climate science states clearly that to avoid global warming of more than 1.5°, at least 80% of known oil and gas reserves must stay in the ground. Every nation bears some degree of responsibility for leaving a portion of its fossil fuel reserves untouched.
Rather than assessing purely commercial viability, we should also assess how much remaining oil and gas in the UK can be exploited within the confines of the Paris climate agreement. It would therefore be helpful to know if and how the Government intend to assess the compatibility of TTH with that agreement. Do the Government have a view on how much of the UK’s remaining 7.5 million barrels of discovered undeveloped oil and gas resources can be equitably developed if we are to play our part in meeting the Paris goals?
Ultimately, this issue ties into the Government’s wider policy of maximum economic recovery, by which they have committed to extracting as much oil and gas as is commercially viable. Recent reforms, such as tax reduction and the decommissioning relief deed, as well as the proposal before us, are designed to make ageing marginal fields attractive to investment, even if that means reducing the per-barrel tax take or subsidising decommissioning costs to improve corporate returns. That approach is wholly inappropriate in a climate-constrained world, and it is entirely inconsistent with the Paris agreement, which requires not only a moratorium on new exploration, but the winding down of a substantial portion of current projects. In short, we need sustainable economic recovery, with Paris-compatible maximum-production targets, and a strategy to determine which combination of oil fields can most safely, efficiently and equitably exhaust the UK’s quota.
Kirsty Blackman
To clarify, is the Labour party position now no longer to maximise economic recovery?
Clive Lewis
I sat on the Bill Committee for the setting up of the OGA three years ago, and we put forward amendments for sustainable economic recovery. I recall that the Scottish National party and the Conservative party favoured maximum economic recovery. That was a difference of opinion between the two sides back then.
Thirdly and finally, there are huge risks for the taxpayer. Those risks are acknowledged by the Office for Budget Responsibility, which concluded:
“The underlying tax base is volatile and the behavioural response to these relatively complex tax changes is uncertain. We have assigned this measure a ‘high’ uncertainty rating.”
Ultimately, the policy is based on a gamble on the future oil price. Independent expert research commissioned by Global Witness states that there could be a loss of over £3 billion in tax revenue for the Exchequer over 10 years, as compared with the tax take if TTH is not introduced.
Transferable tax history has an impact on the results of investment decisions only when oil prices are relatively low. When the prices are above $50 a barrel, the impact of and need for transferable tax history is less, or even nil, since the higher prices tend to mean higher taxable income to the acquirer, who would generate enough new taxable income on their own to cover decommissioning costs.
Transferable tax history effectively provides acquirers with a hedge against lower oil prices. It jeopardizes future tax returns to incentivise investment in fields that are likely to be less efficient and with lower yields, without any consideration of climate limits or guarantees on jobs. Why is the Exchequer willing to push that cost on to the taxpayer, rather than on to the multinational companies that make vast profits from production every year and are seemingly unwilling to share them with their own workers?
Kirsty Blackman
It is not often that I will be found in Committee agreeing with clauses in any Government Bill—least of all in a Finance Bill. However, on clauses 36 and 37, I agree with the provisions on transferable tax history and thank the Government for including them.
I first raised the issue of transferable tax history on the record in March 2016 in Westminster Hall. The debate was led by the hon. Member for Waveney (Peter Aldous), the chair of the all-party parliamentary group on the offshore oil and gas industry. It is an active all-party group and does a huge amount of lobbying of the Government. I am sure the Chancellor is sick of hearing from us about things to make the industry more effective and maximise economic recovery, as we have been discussing. We have regularly proposed transferable tax history since we first discovered that the industry was concerned.
I will give a little background on the importance of transferable tax history and the reasons why we have called for it. There are smaller oil and gas fields around the central ones. The decommissioning of the central oil and gas field results in secondary oil and gas fields, and the smaller pools around the site, no longer being accessible without the building of significant new infrastructure. It is therefore important that, whenever the Oil and Gas Authority takes decisions about which assets can and should be decommissioned at a given time, it does so in the full knowledge of the knock-on impact. We need to ensure that we continue to have access, for example, to the small pools that are not economically viable now but are likely to be once the technology has improved. Decisions about decommissioning must be taken with full knowledge of the knock-on impacts.
The other thing that must be taken into account with decommissioning is the effect that removing assets might have on future carbon capture and storage plans. It is incredibly important that some pipelines are kept in place for the carbon capture and storage systems that are currently in train to be viable. That is another thing the Oil and Gas Authority must consider when it decides whether a field is ready for decommissioning.
One recent issue is that big operators that own a huge number of oil and gas fields, some of which are reaching the end of their economic life, must put in enhanced oil recovery mechanisms to get the rest of the oil out, which means working at higher pressures and temperatures. Big companies that have a huge number of operations in the North sea and around the world will not want to put in the necessary effort to maximise the recovery from the asset. It will think, “Actually, we are not fussed about this asset. Potentially we should just decommission it.”
Clive Lewis
When the deliberations were taking place with the Government, was any consideration given to climate change, the Paris agreement and the sustainable level of oil extraction? Was the fact that we will need to leave a substantial amount of oil in the ground— 80% by some estimates—to ensure we play our part in tackling climate change and remaining within the Intergovernmental Panel on Climate Change targets taken into account?
Kirsty Blackman
The SNP position and the Government position is to maximise economic recovery. Oil extraction does not have a particular impact on carbon levels. It is not about oil extraction; it is about what is done with it afterwards. Carbon capture and storage, for example, has a major impact on reducing the emissions that are produced when oil and gas are used. We have been pushing very hard on carbon capture and storage. If the extracted oil is made into tarmac or plastic products, it would not cause the emissions that would be caused if it is put into a car or turned into heating oil.
The Government have taken steps on electric vehicles and the Scottish Government are doing incredible things to promote them. They are increasing insulation in houses, because domestic heating is a significant contributor to climate change. A lot is being done in this space, and it has been recognised that Scotland has the most ambitious climate change targets in the world.
All of our oil and gas fields will be decommissioned at some point. That is how this works. It was always going to be a time-limited industry, because eventually the oil and gas that can be recovered economically will run out. Once an oil and gas field is decommissioned, there will be no jobs associated with it anymore, and there will be none of the anciliary services, so it reduces the amount of employment. A new player may come into the market and want to take on a field that is not a major asset for a big oil and gas company—it would rather decommission the field because it has had enough of it and cannot be bothered with it anymore. Transferring the asset on to the new company means that, however much technology it uses, jobs will be associated with the asset—there will be no jobs if it is decommissioned. We will still get the decommissioning spend and the jobs associated with decommissioning—we will just get it later. The continuing jobs on the asset will be a good thing.
Vision 2035 is the Oil and Gas Authority’s vision, which has been picked up by the industry. It is still not talked about enough, particularly by parliamentarians. We are doing our best to raise its profile, but more hon. Members could do more. Vision 2035 is about what we want the oil and gas industry to look like in 2035. Hon. Members will understand that it is hugely important for the north-east of Scotland because of the significant percentage of jobs supported by the oil and gas industry, but it is important throughout the UK. A huge number of companies throughout England provide widgets—I tend to call goods widgets—that are used in oil and gas. If we do not have a successful North sea operation, those widgets will not be bought or used in the north.
Vision 2035 is about anchoring the supply chain. It is about a system where, once there is no viable oil and gas left in the North sea, we can continue to have oil and gas jobs anchored in the north-east of Scotland and throughout the UK. The only way we can do that is if we support the industry now and support the jobs that there are now. The Oil and Gas Authority states that the North sea and the UK continental shelf are seen as a gold standard. If a technology is trialled and works in the North sea, other countries will be happy to roll out that technology if it suits their sea conditions, because they know it has been tested in one of the most rigorous regimes and by some of the best people—they will know that the technology works.
For us to continue to have a viable oil and gas industry and a viable anchored supply chain, we need to ensure that we continue to be at the forefront of any technological changes. What we are doing on enhanced oil recovery is genuinely world leading. There are few fields in the world that are at the supermature stage of the North sea, so we are doing some of the most amazing things with technology. We can see by the increase in productivity in the North sea that technological advances have been made. If the companies making the widgets that improve production continue to be anchored here in the UK, we will be able to export those technologies and the services that sit alongside them around the world even when there is no recoverable oil and gas in the North sea.
Many of the companies that I have spoken to in Aberdeen and Aberdeenshire are providing widgets and, yes, they are exporting them, but they are also exporting the people power and the services that go with them through ongoing maintenance contracts, which are a big revenue stream for the region. It is important that we do not talk only about the amount of money oil and gas generates for the Exchequer through petroleum revenue tax and the money that comes in because oil and gas comes out of the ground. We should also talk about the wider impact on the economy, which can be felt particularly in the north-east of Scotland.
When the oil price went down, we had a massive issue with house prices and redundancies in the north-east of Scotland. Very real change took place not just in those jobs directly involved with operating assets in the North sea, but in those jobs working in supermarkets in Aberdeen or in hotels. We saw the knock-on impact on the economy. It is important for the entire economy that we pursue Vision 2035.
As I have said previously, and I think the Minister covered this, this has been a good example of the UK Government and industry working together. I particularly thank Mike Tholen and Romina Mele-Cornish from Oil & Gas UK, who worked incredibly hard on this. Romina had a particularly difficult time trying to explain transferable tax history to a room full of MPs and managed to get there eventually, but that was not an easy task because it is quite complicated. If people do not understand particularly how decommissioning liabilities work, we have to explain that first before explaining why TTH makes a big difference, which I think it really does.
Regarding the amendments tabled by the Labour party, there is a suggestion that companies will try to inflate the cost of decommissioning or will be disincentivised from reducing the cost of decommissioning as a result of TTH. I do not believe for a second that that is the case; the point the Minister made in relation to the increase and potential fluctuation in decommissioning costs is well made, but the other thing is that companies do not want to have to spend that money. They want decommissioning not to cost a huge amount of money. I am clear that when decommissioning is done, it must be done right, and the Oil and Gas Authority must be on top of that. I am not in favour of companies being able to drive down costs to the very furthest reaches. I want them to drive down costs, but I want the decommissioning to be done properly and at the right time.
Clive Lewis
Given the fact that this could see a doubling in the current estimate of reliefs to about £48 billion—I know there is uncertainty about what that could be, but the legislation here is for that potential for TTH to double the current estimate of £24 billion to £48 billion—can I be cheeky and ask the SNP this? If they did achieve independence, would they carry on with this policy as a sovereign Government and bear the costs associated with it?
Kirsty Blackman
In the event of independence, as was laid out in our White Paper, “Scotland’s Future”, the Scottish and UK Governments will have a negotiation about what will happen to decommissioning tax reliefs. We will do what we can to maximise economic harmony in the North sea and create jobs for the long term. It is incredibly important that those jobs are kept in the UK. The jobs could simply relocate if the Government do not take action. They could do more to support the supply chain, which has been squeezed by the cuts that the bigger operators have had to make because of the reduction in the oil price. The Government could do more to ensure that the supply chain companies are provided with the support that they need. The Oil & Gas Technology Centre is doing a very good job in that regard.
Access to finance is incredibly important so that companies can begin to support and monetise the technology that they have created. They have incredible reserves of intellectual property, some of which have not had the chance to be developed. I would rather not see the IP sold on to somebody else. I would rather the Government supported such development.
All the oilfields will need to be decommissioned eventually, but we want the jobs to be kept for the longer term. We are making a case for the maximum economic recovery to be made from the fields. It is important to note that once a field is decommissioned, there are no longer any jobs associated with that field. If we can prolong the life of that asset, we prolong a situation whereby jobs and therefore money for the Exchequer are secured. That is incredibly important for the north-east of Scotland. I will not support the Labour party’s amendments; I will choose to abstain. However, I will support the Government’s clause in relation to TTH. I thank them for taking action, although I would rather they had taken it sooner.