Draft Investment Allowance and Cluster Area Allowance (Relevant Income: Tariff Receipts) Regulations 2018

Robert Jenrick Excerpts

Wednesday 9th January 2019 General Committees

[The Exchequer Secretary to the Treasury (Robert Jenrick)]

I beg to move,

That the Committee has considered the draft Investment Allowance and Cluster Area Allowance (Relevant Income: Tariff Receipts) Regulations 2018.

It is always good to start the day with a Treasury statutory instrument. The draft regulations will amend the investment allowance and cluster area allowance to expand the meaning of “relevant income” to include tariff receipts. The aim is to incentivise operators in the North sea to continue investment in their infrastructure, which is critical to protecting oil and gas production in the UK and bringing new projects on stream.

The UK’s oil and gas sector is a national asset—a foundation stone of our economy, supporting more than 280,000 jobs across the UK, particularly in north-east Scotland, and meeting approximately half of our primary energy requirements. High-quality infrastructure is vital to the industry, and encouraging the industry to work together is important to its future. Sharing pipelines, terminals and other offshore infrastructure brings efficiencies that can benefit everyone involved and ensure continued competitiveness.

The draft regulations will help to ensure that infrastructure is well maintained and well utilised by encouraging continued and healthy investment. Under existing legislation, the investment allowance and cluster area allowance offer relief for oil and gas companies operating on the UK continental shelf that can be offset against ring-fenced profits taxed by the supplementary charge. At present, however, the allowance can be activated only by income derived directly from oil and gas production, not by tariff income—income from third parties for access to infrastructure. This runs the risk of the UK continental shelf experiencing a lack of investment in core infrastructure, possibly leading to the early decommissioning of assets, which would undermine the Government’s objective of maximising economic recovery of North sea oil and gas reserves.

In the 2016 Budget, the Government addressed the issue by committing to extend the scope of the investment and cluster area allowances to include tariff receipts. The Finance Act 2016 introduced a power to enable that expansion to be delivered through regulations, and the Government published a draft for consultation in July 2018, which was very well received by the industry.

The draft regulations will widen the definition of relevant income that can activate the investment and cluster area allowances and provide further relief for profits subject to the supplementary charge. This will promote investment in the 14,000 km of pipeline that connects the sector’s oil and gas platforms and wider production infrastructure. The additional tax relief given to owners of the infrastructure will help to ensure the protection of existing production, the development of new projects and the prevention of early decommissioning —all objectives that we can agree on.

In conclusion, the draft regulations will stimulate investment in the UK’s oil and gas infrastructure and provide support to the wider industry by including tariff income within the investment and cluster area allowances. I commend them to the Committee.

--- Later in debate ---

[Robert Jenrick]

I shall try to respond briefly to the questions put to me. On the Government’s support for the oil and gas industry, particularly in Scotland, it would be difficult for the Government to do more than we are doing at the moment. The oil and gas industry is extremely supportive of the actions that the Government have taken in successive Budgets. The driving investment principles were established by the former Chancellor of the Exchequer and restated at autumn Budget 2018 by the present Chancellor, who made it clear that we would be maintaining the headline tax rates at their current level. We have taken forward and legislated for—in fact, it passed its final stage last night—the transferable tax history, an important and innovative tax measure, supported by the Scottish National party. It will help to extend the life of a number of oilfields and put decommissioning further into the future. Of course, in terms of the headline tax rates, we reduced the supplementary charge from 32% to 10% and petroleum revenue tax—PRT— to 0%. The Government have therefore been extremely generous towards the oil and gas sector, appreciating that it is a national asset that supports so many jobs throughout the United Kingdom, that the oil price remains lower than it has been historically—but volatile—and that the industry remains weak, particularly in parts of the supply chain in critical areas of the country, such as around Aberdeen. I and other Treasury Ministers have a very good and productive relationship with the industry, regularly visiting Aberdeen and other stakeholders to ensure that they are getting all that they require from the Government.

We think that we are striking exactly the right balance. In fact, last night, on Third Reading of the Finance Bill, the Scottish National party spokesperson, the hon. Member for Aberdeen North (Kirsty Blackman), praised the Government for our cross-party work to support oil and gas. We are in a good place, and I am pleased that there is a general cross-party consensus on that.

The hon. Member for Stalybridge and Hyde asked about the retrospective nature of the measures. They will be backdated to September 2016, and we estimate that the cost to the Exchequer will be £60 million over the next five years. We think that maximising economic recovery is important, and I believe it remains the Labour party’s position to support that. I think that that is right for the UK. It does not contradict our broader commitment to climate change and to meeting our targets for reducing carbon emissions.

We have done a full analysis of the impacts arising from this measure and found no evidence to support the suggestion that it will result in increased carbon emissions. The oil and gas industry is a very important part of our industrial strategy. It contributes to the diverse energy mix that our economy requires, but we remain absolutely committed to supporting a wide range of energy sources, including renewable energies. In the Budget and the Finance Bill that we have just legislated for are a range of interventions to support renewable energies and associated technologies, such as electric vehicles.

In the future we will continue to work closely with the oil and gas sector to ensure that, as it recovers from the oil price dip in around 2008, it receives the support that it requires from the Government. With that, I urge the Committee to support the draft regulations.

Question put and agreed to.