Stewart Hosie
Main Page: Stewart Hosie (Scottish National Party - Dundee East)Department Debates - View all Stewart Hosie's debates with the HM Treasury
(13 years, 4 months ago)
Commons ChamberAs the hon. Lady knows, the price of gas has also been on an upward path. However, we have discussed the matter with representatives of the industry, including Centrica, which has raised it directly with me and with other Ministers. We said in the Budget that we were willing to consider extensions of the field allowance regime to provide breaks for particular fields in the event of particular problems, and we are doing that at the moment. Existing rules allow breaks for very deep oil wells and heavy oil, for example. The discussion continues. It is right for us to engage with the industry openly, in recognition of the issue raised by the hon. Lady.
I will give way to the hon. Gentleman, but I must make progress once I have heard his intervention.
The right hon. Gentleman says that the price of gas is rising. It will be driven up by, possibly, a third because the $75 trigger point established by the Government is equivalent to about 80p a therm. The gas price is currently about 57p a therm. The Government’s actions will drive the price up to an extraordinary extent. Did they not understand that before they set their Budget?
I do not accept the hon. Gentleman’s analysis. As he will know, we are currently consulting and engaging with the industry on precisely that question of the trigger price.
I am sure Members in all parts of the House agree that on the road to sustainable growth, access to finance is also a critical issue. For that reason, clause 42 increases the relief available for the enterprise investment scheme to 30%, encouraging further investment in small and growing businesses; clause 9 doubles the lifetime limit on entrepreneurs’ relief from £5 million to £10 million; and clause 43 raises the rate of research and development tax credits for small and medium-sized enterprises to 200%. As we announced in the Budget, from next year it will rise again to 225%, providing real support for small firms investing in research and development.
Small and medium-sized enterprises are the driving force behind the recovery. They employ 60% of Britain’s work force, and contribute to about 50% of all output. Their success will help to define the future of our economy. The last Government planned to increase the small profits rate of corporation tax, but we have chosen to do the opposite. Clause 6 will reduce the rate paid by small businesses to just 20%. The Budget also revealed that we would continue to provide business rate relief for small firms for another year, which will support growing businesses up and down the country.
The Finance Bill follows the Budget in March. On the opening day of the Budget debate, I laid out the SNP’s opposition to a large number of the measures in the Bill. Today, I will take the lead from the hon. Member for Aberdeen North (Mr Doran) and concentrate on the most damaging single proposal: the Chancellor's and the Chief Secretary’s determination to see a 60% increase in the corporation tax supplementary charge on oil and gas production in the North sea from 20% to 32%. The proposal will take about an extra £2 billion a year in tax from the sector, and that is on top of last year’s £4 billion windfall as a result of the rising oil price and this year’s windfall, which is over and above the 2010 forecast as a result of oil trading at about $120 a barrel.
The proposal also runs counter to the Chancellor’s stated objectives: his objective in 2010 of providing tax stability for the North sea; his objective of delivering a growth agenda, which was meant to be at the heart of this year’s Budget; and his objective to see production here in lieu of imports. The proposal will drive a coach and horses through those worthy objectives laid out over the past year by the Government.
When the tax raid was announced, it was reported almost immediately that the leading figures in Oil and Gas UK, the sector’s trade body, gathered in a state of disbelief over the Government’s plans. It was reported almost immediately that oil companies were preparing to cancel and suspend investment plans, and that up to 40,000 new and existing jobs were at risk. It was reported that Statoil was suspending the development of the heavy crude Mariner field, putting the development of its sister field, Bressay, at risk. That led Jeremy Cresswell, the editor of The Press and Journal’s “Energy” supplement, to say:
“Statoil’s decision to stop the massive Mariner development and probably Bressay too represents a huge blow to future investment in the North Sea.”
That is significant. For those who are unaware, The Press and Journal in Aberdeen covers oil and gas in a way that no other newspaper in the UK can or does. When its energy correspondents and editors view what is going on, they do so with huge experience of the sector and of the implications that tax changes might bring.
To help us understand the impact of the Chancellor’s decision on his own strategy, a senior UK oil executive has warned that a slowdown in North sea activity will increase the country’s reliance on imported oil and gas, with the consequence of an even higher balance of payments deficit and a corresponding suppression of GDP growth. On tax receipts, Alan Booth, the chief executive of EnCore oil said:
“Undeveloped and undiscovered oil and gas pays no taxes”.
Of course, he is absolutely right. He was talking about future development and revenues. However, Valiant Petroleum acted immediately and said that its near £100 million project was no longer viable because of the surprise Budget move. Even the oil giant Chevron, the second largest US oil company, has warned that there will be unintended consequences from this move. Oil and Gas UK is clear that it has
“shaken investor confidence to the core.”
All we have from the Chancellor and the Chief Secretary is complacency. The Press and Journal reported that when the concerns had been put to the Chancellor, a Treasury spokeswoman said:
“Mr Osborne did not expect investment to be damaged.”
I am not sure who he was listening to, but that quotation proves that he is complacent, and I think that he is wrong.
Jim Hannon, a founding partner of the drilling analysts Hannon Westwood, warned that 30,000 people could lose their jobs if exploration activity drops by only 15%. The hon. Member for Aberdeen North quoted Professor Alex Kemp and Linda Stephen at length. I was delighted to hear all the various scenarios described in detail, because it is important that nothing is ignored, and that was particularly helpful. Professor Kemp and Linda Stephen have warned that 2 billion barrels of oil and gas equivalent could be left in the North sea because of this decision. Derek Leith, the oil and gas partner at Ernst and Young, has warned of projects being delayed and cancelled:
“I think Statoil is only the tip of the iceberg…There are a lot of companies that will not pursue projects but will not go public about it.”
He repeated the point that the Chancellor and the Chief Secretary clearly fail to grasp:
“barrels left in the ground do not provide energy, do not pay tax and do not support jobs”.
Oil and Gas UK tells me that the tax increase announced in the Budget saw the value of investments in the UK continental shelf fall by 24% overnight. That is bound to have an impact on activity. This is a global industry and the ability of the UK to compete for capital to explore and develop new fields and, importantly, to extend existing fields will be impacted significantly. The level of the impact is explained in the research by Professor Kemp, who revealed, as we heard in some detail, that the tax increase could reduce UK oil and gas investment by up to £30 billion and production by up to a quarter over the next three decades.
I have spoken mainly about oil, but one of the biggest casualties is gas, which accounts for 46% of UK continental shelf production, and yet trades at prices substantially below the $75 trigger price proposed by the Government. Gas production is not seeing the same price increases, and the tax change will result only in less investment and lower recovery of this important asset. It is worth noting that although I am concentrating on the increase in the supplementary charge, the Government have also decided to reduce decommissioning relief, which might accelerate the decommissioning of essential infrastructure and make the extension of fields by the new entrants that we have heard about more difficult. The combination of those proposals leads to an 81% marginal tax rate for mature fields—not just the 62% proposed under the supplementary charge increase.
I am indebted to Centrica for its detailed assessment of the problem in relation to gas. It makes the point that gas projects are highly marginal and that gas economics are very different from oil economics. Brent crude trades at about $120 per barrel, whereas UK wholesale gas trades at about $57 per barrel equivalent. Centrica is convinced that the proposed increase will result in the decline of the North sea, as gas projects become uneconomic, which is likely to have a direct impact on jobs in the sector, the regional economy and the wider economy.
Centrica has a broader concern that the increase will add to existing upward pressures on customers’ energy bills. It makes the technical point that oil markets are deep and global in their nature, whereas gas markets are regionally priced and shallow. Increases in UK tax costs that result in reduced UK investment will therefore mean that lower-priced North sea gas production will be replaced by higher-priced gas imports. That leads to the conclusion that there may well be further increases in prices for gas and power consumers in the UK, with increasing wholesale energy costs adding to existing upward pressures. That was alluded to earlier by the Chief Secretary when he said that gas prices are rising in line with oil prices. We do not want to see the gas price hit the oil price. That would be the equivalent of an increase of a third in the cost of gas, which would be catastrophic for families and heavy energy-using businesses.
Centrica argues that the tax increase should apply to gas, but not at the equivalent trigger price to that for oil. The $75 a barrel trigger for oil proposed by the Chancellor is the equivalent of 80p a therm, which is much higher than the 60p a therm or so at which gas is currently trading. Centrica’s overall warnings are actually starker than those from the oil sector. It believes that the tax changes will result in an annual cost to the UK economy of up to £8 billion a year by 2013, undermining the Government’s intention to reduce the deficit. It believes that that will influence investor sentiment in other sectors as well, because of the global nature of energy companies. There will be an impact on the low-carbon agenda and the security of supply and jobs, and up to £100 billion-worth of energy investments and associated jobs will be put at risk. Those are frightening figures.
Of course, the warnings did not just appear for a day or two after the Budget when the industry was in shock; they have continued almost daily for a month. PricewaterhouseCoopers has said today that the increase in North sea oil taxation could cut offshore investment. It argues that whereas mergers and acquisitions in the oil and gas sector worldwide in the first quarter were not down on last year, the emphasis in deals was on frontier territories such as India rather than mature provinces such as the North sea. The chief executive and chairman of ConocoPhillips, Jim Mulva, has joined the chorus of condemnation and said that the “unexpected nature and scale” of the increase has damaged investor confidence and will hamper investment. He has said:
“Although the chancellor has shown an appetite to consider granting companies tax relief for new field developments, these can be rendered ineffective by tax increases…The industry has lost confidence in the UK’s fiscal landscape. With three major tax increases in less than 10 years, it is now a difficult place for future investments.”
Instead of being complacent, the Government ought to heed the warnings. I cannot believe that the Chancellor and the Chief Secretary are right and Oil and Gas UK, Statoil, EnCore, Valiant, Chevron, Professor Kemp, Ernst and Young, Hannon Westwood, Centrica, PricewaterhouseCoopers and ConocoPhillips are all wrong. It strikes me as inconceivable that a month of warnings should be ignored simply to fill a hole in the Government’s books.
I hope that the Government will think again. They have an opportunity on the first day of Committee, as early as next week, to bring forward sensible amendments that recognise the difference between gas and oil and the dangers to investment and jobs. They can do so before the investment profile of this country becomes so bad that we begin to lose not only investment but many new and existing jobs, as has been warned about for more than a month since the announcement in the Budget.