Oral Answers to Questions

Robert Smith Excerpts

Tuesday 10th March 2015 Commons Chamber

[Mr Gauke]

This is about recognising marriage within the tax system, but it should also be noted that it will benefit many low-income households, including 1 million households where tax credits are claimed.

[Sir Robert Smith (West Aberdeenshire and Kincardine) (LD)]

14. What steps he is taking to support jobs in the north-east of Scotland by maximising the economic recovery of North sea oil and gas. [R]

[The Chief Secretary to the Treasury (Danny Alexander)]

The Government have made significant progress on supporting the North sea oil and gas sector, including the announcements I made in December about an investment allowance and other changes, although I recognise that there are very serious ongoing problems at the moment.

[Sir Robert Smith]

I thank the Chief Secretary to the Treasury for recognising the problems in the North sea. Does he also recognise that the job losses that have been announced predate the fall in the oil price, and that it is crucial that in the Budget we see long-term structural change for the maturity of the province?

[Danny Alexander]

I wholeheartedly agree with my hon. Friend. I have had a number of meetings with Oil & Gas UK and representatives of the oil industry. Having set out in December the fact that the tax regime for the North sea is going to be on a declining path, recognising precisely the issues that he mentions, we have set a clear direction of travel, and the Chancellor will set out our decisions in the Budget next Wednesday. Let me reassure my hon. Friend that this Government take incredibly seriously the need to make sure that we have a fiscal regime that supports maximum economic recovery of the resources of North sea oil and gas.

Oral Answers to Questions

Robert Smith Excerpts

Tuesday 27th January 2015 Commons Chamber

[Priti Patel]

To put it bluntly, this Government have turned around not only the economy, but the business environment. This Government have backed British businesses and business lending every step of the way, which is in stark contrast to a Labour Government, under whom that would only go backwards.

[Sir Robert Smith (West Aberdeenshire and Kincardine) (LD)]

Does the Minister recognise that when the consultation on tax reforms for the North sea finishes, it will be crucial to businesses in the north-east of Scotland for the Budget to set in place permanent reforms for the long term, not just for the crisis?

[Priti Patel]

My hon. Friend touches on a very significant point. The reality right now is that the reforms are all about long-term economic security. This Government have worked assiduously to ensure that every measure undertaken, whether to back businesses or to create the right tax environment for businesses—he has championed that in his constituency—is the right way forward.

Autumn Statement

Robert Smith Excerpts

Wednesday 3rd December 2014 Commons Chamber

[Mr Osborne]

Of course, the legislation needs to pass through the House of Commons before the tax can be levied, so the diverted profits taxes are from April next year, and the hybrids taxes are from a little later, in 2017. It is complex tax legislation, but we aim to get it through. I suspect that, in order to get it through before the general election—the right hon. Lady might be helpful in this—we might need the co-operation of the Opposition in passing those clauses in the Finance Bill.

[Sir Robert Smith (West Aberdeenshire and Kincardine) (LD)]

With several hundred job losses already announced in the north-east of Scotland, I certainly welcome the UK Government’s decision to send a signal that we want to maximise investment in the North sea. That would have been a necessary signal whether or not the price of oil was falling, and it will build the jobs base in the UK and a great export industry. Will the Chancellor confirm that such a move is possible because we are part of the United Kingdom’s diversified economy?

[Mr Osborne]

My hon. Friend makes a good point. Of course, what is very striking, if one looks at the receipts revenue forecasts from the OBR, is that they are wildly different from those produced by the Scottish Government before the recent referendum. As he will see tomorrow, when his colleague the Chief Secretary to the Treasury sets out in Aberdeen what we are doing, the tax cuts we announced today, which will come into effect in the coming weeks, will have an immediate effect, but we are also going to try to set out a longer road map for the direction we want to head in. As he well knows, industry investment decisions are made over long cycles and people need predictability about the future of the British oil and gas tax regimes so that we get the maximum amount of oil out of the basin.

Finance Bill

Robert Smith Excerpts

Wednesday 2nd July 2014 Commons Chamber

As Oil & Gas UK has pointed out, driving drilling rigs out of the UK continental shelf may only compound the problem of low levels of exploration and production. As the Wood review recently identified, exploration is now at a critically low level. Even more worryingly, production fell by 38% between 2010 and 2013.

[Sir Robert Smith (West Aberdeenshire and Kincardine) (LD)]

The hon. Lady is making an important point: maximising exploration is crucial to future revenues. Unless oil is produced out of the ground, we will not see any tax revenue.

[Catherine McKinnell]

That is an ambition that I believe the Chancellor has expressed himself. It is vital the Government get this right and that is why we are asking these questions today. I hope we will receive reassurance from the Minister.

Production fell by 38% between 2010 and 2013, which is the equivalent of 500 million fewer barrels of oil being produced. Critically low exploration has meant that 150 million fewer barrels of oil equivalent have been discovered in the past two years.

This clearly has wider implications for the UK’s oil and gas sector. As the hon. Gentleman points out, it also has serious implications for the Exchequer. Just yesterday, there was a report in the Financial Times highlighting the fact that North sea oil and gas tax receipts decreased by 60% in the past two years alone, and are now at their lowest level since 2004. Some of that can be accounted for by significant investment in the past few years—the fiscal regime was designed in such a way, under the previous Labour Government, to encourage such activity and therefore be less liable to tax—but these figures are still reflective of the wider issues facing our North sea oil and gas sector, as I outlined previously.

I want to draw the attention of the House to concerns, expressed by numerous tax specialists, that these measures represent the Government abandoning the application of the arm’s length principle in determining transfer pricing in the oil and gas sector. Just to explain the background, OECD member countries have agreed that to achieve a fair division of taxing profits, and to address international double taxation, transactions between connected parties—for example, intra-group companies—should be treated for tax purposes by reference to the amount of profit that would have arisen had the same transaction been executed by unconnected or independent parties. The arm’s length principle is enshrined in article 9 of the OECD model, treaty or convention.

The Government apparently support the arm’s length principle, but the Chartered Institute of Taxation has expressed concern that imposing such a cap, as new schedule 1 would provide for, calculated through a formula based on the original cost of the asset, effectively imposes a legislatively fixed benchmark price that overrides the arm’s length principle. An article for Tax Journal in February highlighted this issue and concluded:

“these measures are reflective of the Treasury’s willingness to introduce special measures where it perceives that the application of the arm’s length principle fails to determine an appropriate allocation of profits in cross-border transactions.”

Will the Minister say whether this reflects the Treasury’s willingness to intervene and override the arm’s length principle, where it deems the application of such to be inadequate? The main reason why the Government’s abandonment of the arm’s length principle is of such concern is the possibility that other countries may follow suit and introduce their own special measures; something that the OECD and its members, through the arm’s length principle, are at pains to prevent. It would be useful to hear from the Minister whether the Government have taken account of international reactions to these measures and their potential detrimental impact.

As the Minister well knows, and as we have put on the record in this House on countless occasions, the Opposition support the Government on any steps they take to tackle tax avoidance. However, a number of concerns remain as to how the Government have approached implementing these measures. We welcome the Government’s consultations with the industry, belated though they are, but I would be interested to hear from the Minister whether he and his officials believe that they have, in the final version of the Bill, fully addressed the concerns of industry. The feedback I have received from the industry suggests otherwise.

After the debacle of the autumn statement last year with regard to this unexpected announcement, it is important that Ministers finally, three years after they made the same mistake, learn the lessons of turning to the North sea oil and gas industry to plug holes in their books, and coming up with policy on the hoof. In 2011, we saw the detrimental impact such unilateral action can have, particularly in an increasingly marginal industry—that was, perhaps, reflected in the Financial Times report yesterday. We can only hope that the Government have fully considered the impact of the latest changes and properly accounted for them. Finally, the measures seem to diverge from the Government’s general approach to transfer pricing and the arm’s length principle, but I hope the Minister can provide clarification on that.

New clause 5 and new schedule 4 provide for further tax relief for the creative sector—based, of course, on the last Labour Government’s highly successful film tax relief. They introduce a tax relief for theatrical productions, and the relief will operate in almost exactly the same way as it does for high-end television and animation productions, but with one small difference. It allows qualifying companies engaged in theatrical productions to claim an additional deduction in computing their taxable profits. Where that additional deduction results in a loss, they have to surrender it for a payable tax credit. Both the additional deduction and payable credit are calculated on the basis of UK core expenditure capped at 80% of total core expenditure by the qualifying company.

The Minister set out the provisions in some detail, and they received some welcoming comments, particularly from Government Back Benchers, but I have a few queries about the new relief; I hope the Minister will be able to resolve any outstanding ones. The first relates to measures contained in new schedule 4, and it is important to ensure that the measure is not open to abuse. Such reliefs as these—or tax expenditures, to use Treasury-speak—well-intentioned though they are, have increasingly come in for criticism from the Public Accounts Committee and the National Audit Office. We have already discussed the number of both known and potentially unknown tax avoidance schemes generated around the reliefs and the subsequent criticism of them. I do not think it would be helpful to hold this discussion again here on the Floor of the House; Members will be able to read Hansard to see the extensive debates and discussions we had in the Public Bill Committee.

Following the consultation process, the Government appear to have taken on board the views of the Chartered Institute of Taxation, which suggested in its consultation submission that any evidence of abuse should be promptly identified and acted on by using the general anti-abuse rule. New schedule 4 provides for a general anti-abuse rule based on the GAAR, but the Chartered Institute of Taxation suggested that this tax relief should be properly monitored and reviewed by the Government. The Government’s consultation response suggests HMRC will “continue to monitor” for abuse, but can the Minister give a specific commitment in this respect?

Scotch Whisky Excise Duty

Robert Smith Excerpts

Wednesday 8th January 2014 Westminster Hall

[Mr Donohoe]

I am grateful to my hon. Friend for the point he makes, and it is clear that the issue of jobs is part of the equation.

[Sir Robert Smith (West Aberdeenshire and Kincardine) (LD)]

One of the crucial points that the hon. Gentleman highlighted about the export industry is that the way we treat our own whisky at home sends a signal to foreign importing markets. It is important to send the right signal to those markets, so the Treasury needs to consider the impact that the issue has on the importing countries.

[Mr Donohoe]

That is a very important point. If we go to the European Commission and argue with it, there is that divide between the north and south of Europe; until a few years ago, the Commissioner was very pro-wine and anti-spirits. It is an indicator of the seriousness of the situation that we are discriminated against—the Commission throws at us the level of taxation in our own country. That is an element that must be addressed by the Chancellor at the Budget.

Amendment of the Law

Robert Smith Excerpts

Wednesday 21st March 2012 Commons Chamber

[Mr Tyrie]

We will seek evidence on that point and on all the main measures, and we will publish it as quickly as we can. I thank the right hon. Lady for making that point.

The principles that we set out in our paper a little over a year ago were more or less endorsed by the Chancellor today. They were: does a measure make the tax system more simple, predictable—the Chancellor used that word—stable, fair and coherent, and does it unlock higher economic growth? As last year, we will ask the major accountancy bodies—the chartered accountants, the certified accountants and the Chartered Institute of Taxation—to score each major measure against those principles. We hope the Committee can thereby assist the House in gauging progress towards a simpler, fairer tax system. That is what all our constituents want.

We will also ask those bodies to scrutinise some of the measures that have been announced today—the cap on tax reliefs and its workability; the yield from the 45p rate; the general anti-avoidance provision, about which a number of us have concerns; and the reference to retrospection in the tax system that is associated with that provision, which many have held could damage the yield in the long run. We will also take a look at the Leader of the Opposition’s point that this was a Budget for millionaires, at the expense of the squeezed middle.

A number of colleagues have asked the Committee also to examine measures that were introduced in previous Budgets, to see what the effect of them has been. Have they had the effect of raising more revenue and generating more efficiency than was outlined for them when they were introduced? We have not made up our mind about which measures to examine in that respect, but I suspect that in a few years’ time the cut in the top rate of tax announced today will be a prime candidate. We will be able to judge whether Mr Laffer really was out and about.

[Sir Robert Smith (West Aberdeenshire and Kincardine) (LD)]

Will the hon. Gentleman give way?

[Mr Tyrie]

I might be able to manage just one more intervention.

[Sir Robert Smith]

I thank the hon. Gentleman. In looking at the tax system, will he consider how the constructive engagement between the oil and gas industry in the North sea and the Treasury has led to a change of heart, some certainty on decommissioning and added incentives to encourage further investment and more revenue for the Treasury?

[Mr Tyrie]

We were a bit concerned about that. The Chancellor announced in either his first or second Budget that he would not alter the framework for the North sea tax regime, and then in his following Budget announced significant changes. That does not do wonders for tax certainty, of course. We need to keep an eye on exactly that sort of thing. We need to move steadily and remorselessly towards a simpler, fairer, clearer, more certain and more reliable tax system. That is what will unlock the huge potential for investment in the private sector; medium-sized and large firms are often sitting on cash piles and have very strong balance sheets.

I am sorry—I have lost my way.

Oral Answers to Questions

Robert Smith Excerpts

Tuesday 6th March 2012 Commons Chamber

[Mr Osborne]

I did not really understand what the hon. Gentleman was saying. He seemed to suggest that we should be cutting less than the Darling plan, so the Opposition are now abandoning even the deficit reduction plan that they claimed to have when they were last in government. It just shows how all over the place they are.

[Sir Robert Smith (West Aberdeenshire and Kincardine) (LD)]

T3. The oil and gas industry has opened its books to an unprecedented degree to show the costs of operating in the North sea, to help the Chancellor understand the need for investment and incentives. Will he recognise the need to respond positively in the Budget on decommissioning relief and on other incentives to maximise the job potential of the oil and gas that we have left in the North sea?

[Mr Osborne]

I am very aware of what an important industry that is for the UK and how important it is to extract what remains of the oil and gas in the North sea—of course there is still an enormous amount of oil and gas in the North sea—and to have an industry in Aberdeen and other places that continues long after the oil runs out. We are specifically engaging with the industry on decommissioning relief in order to give certainty to the industry about the years ahead, and on specific field allowances, which might aid new exploration.

North Sea Oil and Gas

Robert Smith Excerpts

Wednesday 25th January 2012 Commons Chamber

[Nicholas Soames]

The hon. Gentleman raises an important point. I am sure that it is germane, but the decrease that I am highlighting is, in my judgment, due to the taxation regime.

The United Kingdom already imports around 10% of its oil and almost 40% of its gas, and such imports will increase rapidly without the benefit of new investment. The Government’s decision in March 2011 to increase tax rates on the industry, which increased the top tax rate to 81% and the corporation tax rate to 62%, is inevitably and regrettably having a chilling effect on the leading indicators of investment.

While total capital investment this year has increased to about £8 billion from £6 billion in 2010, that was largely due to development momentum from previous years. Worryingly, just nine new fields accounted for 40% of the total capital invested and all the development projects were well advanced prior to the tax increase.

The signs of lower investment in the future are already apparent. Indeed, my hon. Friend the Economic Secretary will see from the Department of Energy and Climate Change’s latest energy trends analysis a significant impact on drilling activity, with exploration wells down 50% in 2011.

It is from that exploration drilling that the future large capital investments will flow. The March 2011 tax increase reduced the value of future projects by 25% overnight. My hon. Friend knows that the future development of the North sea depends in large part on clever, technical solutions at the very forefront of what is manageable for marginally economic fields, but the increase in the tax rate has rendered many of those future fields uneconomic to develop. That serious matter for the country must be addressed.

I gather from the estimates of Oil & Gas UK, the industry’s trade body, that investment of at least £12 billion in more than 1 billion barrels of oil and gas resource will not occur without some stimulus. That is 60,000 jobs that will not be created and a loss of a benefit of £15 billion to £20 billion to the budget deficit as a result of the tax increase.

[Sir Robert Smith (West Aberdeenshire and Kincardine) (LD)]

I remind the House of my entries in the Register of Members’ Financial Interests to do with the oil and gas industry. I intervene to reinforce the right hon. Gentleman’s point about the industry’s importance not only to the north-east of Scotland, but to the whole of the United Kingdom. I thank him very much for bringing the spotlight to bear and bringing the message south that it is the whole United Kingdom that would benefit from tax reform.

[Nicholas Soames]

I am grateful to the hon. Gentleman, whose championship and knowledge of the industry are well known. He emphasises the important point that this is a United Kingdom industry, relevant to the whole country, and therefore even more important than might otherwise be the case.

Oil & Gas UK estimates that a further 1.7 billion barrels of the UK’s oil and gas resource would be recovered if the uncertainty about decommissioning reliefs—a very difficult subject—was resolved.

In an industry with highly mobile capital, investment will flow to other, more attractive destinations. We must not let that happen. Further repeated change in the taxation regime of this vital UK industry is causing great uncertainty in the boardrooms of both the international and the home-grown companies involved in all sectors of the industry. That inevitably has a further unhelpful impact on inward investment, at a time when we should be doing all we can to attract that investment, as well as the jobs, the tax receipts and the balance of payments benefits that come with it. I am sure the Economic Secretary agrees that doing that is even more important given the Government’s genuine determination to generate greater growth in the economy, without which many of the difficult problems we face cannot be dealt with.

I am aware that discussions are ongoing between the Treasury, the Department of Energy and Climate Change and the industry to try to find ways to stimulate investment, and I welcome that. I ask the Economic Secretary to confirm that she understands—I know she does—the serious impact on inward investment being caused by the tax increase and other adverse changes in taxation, and the damage to the future tax base and future tax receipts. Further, will she confirm that the Treasury will give serious and detailed consideration to measures to protect future investment through extensions to tax allowances and giving certainty on decommissioning reliefs, and see to it that those measures are enacted or headlined in the Budget, to the greater advantage of the British economy in the years to come?

Oral Answers to Questions

Robert Smith Excerpts

Tuesday 24th January 2012 Commons Chamber

[Danny Alexander]

I certainly cannot confirm that debt is higher than it would have been if we had followed the path advocated by the Opposition. That path was leading to lack of economic credibility. When this coalition Government came into office, our credit rating was on negative watch from one credit rating agency, and it is only because we have taken tough action to deal with the deficit that we have got our spending under control, we are reducing our deficit and we have established this country’s credibility on the international markets, which was in considerable doubt under Labour.

[Sir Robert Smith (West Aberdeenshire and Kincardine) (LD)]

T5. Can the Minister update the House on lessons learned from the Fiscal Forum on how to maximise investment in jobs in UK oil and gas production?

[The Economic Secretary to the Treasury (Miss Chloe Smith)]

I certainly can, and I welcome my hon. Friend’s interest in this policy area, based on his constituency experience. The Government have been clear that they want to see the oil and gas industry thrive, given its importance for jobs and growth around the country. Ministerial colleagues, officials and I continue to engage the industry in ongoing constructive dialogue to understand the challenges facing it.

Fuel Prices

Robert Smith Excerpts

Tuesday 15th November 2011 Commons Chamber

[Mr Reid]

I agree with the hon. Gentleman, and I hope that he will give credit to the Government for what they are doing on fuel duty on islands. The high price of fuel obviously has a great impact on people’s living standards, and makes it difficult for anyone trying to run a business on an island or in a remote rural area.

[Sir Robert Smith (West Aberdeenshire and Kincardine) (LD)]

My hon. Friend is making the important point, which has come out again and again in the debate, that people in remote rural areas in constituencies such as ours have no choice but to use a car. Does he agree that, in the long run, the Government will have to look at a system of variable road user pricing that is based on the choices available and that will enable essential users to pay a lower price?

[Mr Reid]

I certainly agree with my hon. Friend.

There has always been an environmental argument for higher fuel prices, in order to persuade people to use public transport rather than a car. That argument works fine in a city with plenty of bus and train services, but it falls down completely in a rural area, and particularly in a remote rural area such as Argyll and Bute, where in places there is a bus service only on school days. That might be okay for getting schoolteachers to and from work, but it is no good for anyone who needs to be at work outside school hours. The advantage of road user pricing would be that more could be charged for driving on city roads, with a much lower price for driving on a remote rural road. The problem with fuel duty is that it is a blunt instrument, in that the same level of duty is charged in all parts of the country, irrespective of whether public transport alternatives exist or not.

--- Later in debate ---

[Sarah Newton]

I am aware of that concern, especially in rural areas where there is no option but to use a car because of the limitations of public transport.

Hard-working families and mums who are raising their children are the backbone of communities across my constituency. I look forward to hearing from the Minister what more the Government can do to support those families. We all agree that it is vital to sort out the nation’s finances, but we must support people to carry on looking after their families.

[Sir Robert Smith]

The hon. Lady is making an important point, which has been expressed across the House, on the strength of feeling about the need to tackle fuel price rises. Perhaps one challenge that comes from this debate is how the Office for Budget Responsibility calculates the benefit that the Government get from higher fuel prices through the windfall in VAT revenues and other revenues. The OBR argues that that does not count for anything. Perhaps in revisiting that we could also address the argument that a reduction in fuel duty might increase revenues by increasing spending.

[Sarah Newton]

What we are all agreed on today—I hope we will hear this from the Minister—is that we should leave no stone unturned in finding ways to stop the increases in fuel prices and in starting to tackle the problems that we have heard about in this debate.

I will not use the limited time that I have to duplicate the points that have been made by my colleagues, the majority of which I agree with. However, I will develop the issue raised by my hon. Friend the Member for Romsey and Southampton North (Caroline Nokes) about the impact of rising fuel prices on volunteer transport schemes. Like many rural areas, my constituency does not have good public transport. It also has a high proportion of elderly people, many of whom are living in poverty.

We have one acute hospital that serves everybody living in west Cornwall. Volunteer drivers play a vital role in taking people to hospital, to their GPs and to other therapeutic appointments. Volunteer-run minibuses are also very important. One such service, Transport Access People, run by Age UK Cornwall, is based in my constituency. TAP has just under 30,000 clients and its volunteer drivers have clocked up more than 2.6 million miles. It currently has 250 volunteer drivers, but it has lost six in the past couple of months because of rising fuel prices.