Finance (No. 3) Bill

David Anderson Excerpts

Tuesday 3rd May 2011 Commons Chamber

[Mr David Anderson (Blaydon) (Lab)]

Is it not amazing that we are talking about a minute bank levy when hundreds of thousands of public sector workers will lose their jobs, and when those who stay in their jobs will see their pay frozen for two years and their pension contributions go up by 50%, all as a result of the failure of the banks? The Government parties think that that is okay.

[Chris Leslie]

It is a crying shame that there will not be more publicity for this debate; perhaps the complexity of bank taxation is difficult to report, for whatever reason. If people knew about the Government’s weakness in trying to claw back the money that is owed to the taxpayer and their enthusiasm for cutting public services and raising taxes on ordinary people, they would see that it is a scandal.

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[Chris Leslie]

Indeed, and I think it important for us to convince the Government of the need to act. I look forward to hearing the Minister demonstrate that he will stand up to the Chancellor of the Exchequer. We know that he is not a patsy in the Treasury. He is a senior figure there, and he is able to show the Chancellor that the House of Commons was determined to send the Treasury the message that we do not accept its policies on bonuses and bank taxation.

[Mr Anderson]

I thank my hon. Friend for giving way. He is being very generous.

UK Financial Investments, the Treasury body that manages the state’s role in the Royal Bank of Scotland, gave its approval for Stephen Hester’s package, which included £1.2 million in basic pay, a £2 million bonus, and share options that could amount to £4.5 million. It has already given in.

[Chris Leslie]

Again, I think that we need to engage in a proper debate about corporate governance of the state-owned banks. It is important for us to understand the potential powers that Ministers have, and the consequences of their choosing not to exercise those powers. If they choose to approve a certain level of remuneration, that constitutes intervention just as much as disapproval does.

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[Mr Anderson]

It is not only my hon. Friend who disagrees with the right hon. Member for Wokingham (Mr Redwood); the OECD disagreed with him as well, saying that the actions of the previous Government prevented the recession from turning into a depression.

[Mr Jones]

I agree with my hon. Friend. The Tory spin doctors forget that if we had followed the first reaction to the Northern Rock crisis from the then shadow Chancellor, the right hon. Member for Tatton (Mr Osborne), we would have let Northern Rock go, which would have had a knock-on effect on other banking systems and the recession would have turned into a depression. It is perhaps not fashionable to say it, but we should thank the Chancellor and the Prime Minister of the time for the decisions they took to ensure that that depression did not materialise.

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[Malcolm Bruce]

Hang on a minute. We have had a series of debates tonight, and have heard a number of lengthy speeches, not all of which have contributed much to the argument. We are now engaged in a very material debate about the most important industry that we have, and in a serious attempt to persuade the Government to engage, piece by piece, with the industry and rebuild the trust which, as was rightly pointed out by the hon. Member for Banff and Buchan (Dr Whiteford), has been damaged and needs to be repaired The industry was very pleased that the Economic Secretary engaged with it soon after her appointment and went offshore. It is important for her not to lose that good will, and to demonstrate that she has that degree of understanding. I am sure that she will do so, because I think that she has learned a great deal from her experience.

[Mr Anderson]

Will the right hon. Gentleman give way?

[Malcolm Bruce]

I want to make a bit more progress.

The Government have made their case, and have defended it. I am simply asking them to consider the real and legitimate concerns of the industry, to look at the independent assessments, and to accept that there is a danger of losing as much as £20 billion of investment and between 1 billion and 2 billion barrels of production over the next 10 years or so. That is a Forties field that we would simply discard. It would be a huge loss, and it would be very significant in the context of the British economy. If that investment is lost—or, indeed, secured—future jobs, export opportunities, imports and future tax revenues will be affected. They all hang on the restoration of that trust, and on the industry’s being persuaded to invest in the marginal projects that might be put at risk in the absence of negotiation.

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[Helen Goodman]

I do not accept the hon. Lady’s analysis. Unnecessary complexity is one of the problems. A positive aspect of the amendments tabled by the right hon. Member for Gordon (Malcolm Bruce) is the improvement in transparency, stability and predictability that would ensue from them. Those things would simply not ensue from the Chancellor of the Exchequer’s proposals.

[Mr Anderson]

Does my hon. Friend agree that one of the differences between what is happening now and what happened in 1997 is that, in 1997, the Labour party went to the country to ask for a mandate to put in place a windfall tax on the energy companies, and that the people of this country voted for that?

[Helen Goodman]

That is a powerful point. What happened then contrasts with the total lack of consultation by this Government.

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[Helen Goodman]

My hon. Friend has hit the nail on the head. This opens a huge hole in front of the Minister’s revenue forecast. There is total uncertainty. Every company will be able to turn up and renegotiate its own tax regime, which is ludicrous. How far will this be taken? Will it be a general principle established in the tax code for the purposes of all corporation tax, or personal tax? I hope that the Minister has a very good explanation for what is going on.

Let me return to the underlying worry that has been exposed in tonight’s debate—that the Government simply have not taken account of the importance of energy security. Everyone knows that the energy market is under a number of different pressures. On the one hand, we must have a market that is environmentally sensitive and reduces our carbon footprint; on the other hand, we must have prices that are affordable for people in this country and that tackle fuel poverty. We must also have security of supply in a world that is particularly uncertain at this time. Wars are taking place in north Africa and there is conflict in the middle east, and it is at this moment that the Government have chosen to impose taxes that are so insensitive that they put the North sea oil and gas regime at risk.

[Mr Anderson]

I want to speak in support of amendment 10, but first I want to say something about the speech of the right hon. Member for Gordon (Malcolm Bruce). I am pleased that he has returned to the Chamber, because I was very interested in what he had to say. Most of those who have spoken in the debate on these amendments have done so on the basis of a degree of experience, which was not the case in earlier debates.

I wonder whether the case made by the right hon. Gentleman was made to the Government before the Budget. It appears from what was said by him and by the hon. Member for Dundee East (Stewart Hosie) that the industry has been saying to the Government for some time, “If you are going to do this, please talk to us and please make sure that we get it right.” The industry does not want to end up with the circumstances described by my hon. Friend the Member for Bishop Auckland (Helen Goodman), in which anyone could do whatever they want whenever they want.

If that information was shared with the Chancellor before he made his statement on 23 March, it would seem from what was said by the hon. Member for Dundee East (Stewart Hosie) about why he had ignored the voices of experienced people such as the right hon. Member for Gordon and those in the industry that the only thing that matches the Chancellor’s arrogance is his ignorance. Clearly he has decided to say, “I know better. I will impose this on the industry and on this country.”

This is not just about places such as Aberdeen and the north-west, because a huge amount of work is going on across the whole of Tyneside and the north-east of England. Some of the most advanced technical work anywhere in this country is being done there in very small factory units by very skilled men and women who are doing a great job. Shipyards have reinvented themselves after the closure programme of the 1980s and are building exploratory rigs and doing work that is vital to maintaining the skills base and developing the new work that we want to do. That will be development for not only the oil industry, but the offshore wind industry.

[Mr Kevan Jones]

A large number of individuals, many of whom live in my constituency and that of my hon. Friend, worked in former shipyards and heavy engineering firms in the north-east and now travel to Scotland and other areas where the UK oil and gas industry is based. They have very good jobs and choose still to live in the north-east. Does he agree that they are an important part of the wages that go into the north-east economy?

[Mr Anderson]

My hon. Friend is absolutely right. These people are rightly still among the most well-paid people in this country—why on earth should they not be, given the work they are involved in and the risks they take in their daily lives?

I worked underneath the North sea bed as a coal miner, so I have some experience of working in the energy industry. I am not the person to feel sorry for multinational oil companies, but if the Government take crass decisions that will have a massive impact on not only the industry, but the people who are dependent on it right across the board, we should surely question that. I have no problem with saying to the oil companies that we want them to play their part in trying to help us to get this country back on an even keel. Clearly, when companies such as Shell and BP are making huge profits, that discussion should take place, but it should happen before decisions as serious as this are imposed on people.

Some 450,000 people work in the industry. Our subsea industry is at the cutting edge and leading the world. People talk about what happened in the gulf of Mexico only a year ago, but the probability is that that will never happen in the North sea because of the experience we have gained over many decades of working up there. We lead the world and we should be proud of that, but this taxation surprise has made the industry question whether it should carry on being there, and clearly the oil industry can go to lots of other places in the world.

[Helen Goodman]

Does my hon. Friend agree that the expertise, research undertaken and skills gained on the UK continental shelf in the North sea enable British-based companies to explore successfully in the gulf of Mexico and the south China sea, and that from that exploration we also gain in income and investment from dividends overseas?

[Mr Anderson]

My hon. Friend is absolutely right about that. There is no doubt that as we move further forward and the exploration starts to take place west of the Shetland Islands, presenting new challenges, our people working in these industries will again lead the way. But that may not happen if companies are frightened away by a tax regime that is going to punish them. It will particularly punish them when it is a rabbit pulled out of a hat at the end of a Chancellor’s Budget, when it has not been discussed with the industry and when the industry has not been able to prepare, consider what it is doing and talk things through in a sensible and adult way in a genuine partnership to make these things work. As has been pointed out a number of times, Centrica has said this week that it is considering not reopening its gas fields off our north-west coast. That is a hugely important area of development and if Centrica decides not to reopen the fields they will just become sterile, like so many other of our energy reserves in this country over the past 30 years as a direct result of Government failures and inaction. It is clear that the Government have not thought this measure through, and the plea by the right hon. Member for Gordon is absolutely the right one, because they should think it through.

What will happen to the tax revenue in the meantime? That point was raised by my hon. Friend the Member for North Durham (Mr Jones). Clearly, the decision made on 23 March was that a certain amount of money would be raised by this attack on the North sea. If that money is not raised, either because of the discussions that go on or because the decision has changed, what will the Chancellor come back with? How will he fill the hole that will be left, at least temporarily, if we do not go ahead with the measure?

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[Andrew Gwynne]

Is that not exactly the difference between this measure and the example raised in an earlier intervention about the effect of the windfall tax on the privatised utilities? When Labour was in opposition before 1997, the party was in full discussions with the privatised utilities, which might not have been 100% happy with the proposal but were altogether certain that if the Labour party came to office, it would invest in our young people and get them back to work.

[Mr Anderson]

My hon. Friend is correct. That debate went on in the Labour party for a long time long before that election. It was quite clear to the industry and to the people of this country that if they voted Labour on 1 May 1997, we would impose a windfall tax. Discussions had been going on and the companies were able to absorb the idea and plan for that.

As ACCA says further:

“The sudden change in rate came as a shock to those involved in the North Sea oil industry”—

the change was not a shock in 1997, because companies had been able to prepare for it—

“and has been widely condemned as reducing the competitiveness of the UK as a target for investment”.

[Mr Kevan Jones]

Does my hon. Friend agree that the windfall tax, which was a one-off tax and quite clearly understood, was different from what we are facing today with this tax increase, which is a potentially fluctuating tax that gives uncertainty to oil and gas producers about the level of profit they will make long term on their investment in the North sea or anywhere else?

[Mr Anderson]

In the learned advice that she gave, my hon. Friend the Member for Bishop Auckland spelt out more clearly than anyone else in this debate that nobody seems to know what people will be paying in tax. Nobody knows whether they will be paying anything or whether they will be able to say, “I want to get away with this while you get away with that.” That is absolutely ludicrous; even if we accept that the tax should be imposed, people at least need to know what the Government are going for.

[Hugh Bayley]

I wonder whether my hon. Friend has read the article in today’s edition of The Guardian entitled “Accountants attack Osborne’s North Sea oil levy”, which reports on the ACCA report that my hon. Friend has just mentioned. It also reports the Chairman of the Treasury Committee as saying:

“Every time we do the unexpected, future business is deterred. It’s crucial we construct a tax system around the principles of certainty, simplicity, stability as well as fairness. The only beneficiaries of complex changes are tax accountants and tax lawyers—the very people who are complaining.”

[Mr Anderson]

I have read that report. Whatever hon. Members’ views, we respect the Chair of the Treasury Committee as someone who has done a good job for the people of this country and for the House, and when he says such things, hon. Members should listen. He is not someone who should be ignored: he speaks not from arrogance or ignorance but from a lot of knowledge. His Committee has undertaken a rapid investigation of an issue that is of massive importance to the country.

We have been here before with Tory Governments, who have a long history of making crass policy decisions on energy. In the 1930s, the Tories presided over a coal industry that was in internal decline and had massive problems, with more than 1,000 men a year being killed in the industry and with no investment whatever. Those men were using 19th-century technology—life was cheap and people were not allowed to live decent lives. The situation was pushed back after the war when the Labour Government came in and nationalised the coal industry.

Then there was another repeat in the 1980s. My hon. Friend the Member for Bishop Auckland has mentioned the POP forecast and the pricing of oil according to how much it costs to get oil from coal. In the 1980s, we led the world in getting oil from coal, but that industry was destroyed at the whim of the then Government, who did that for political reasons. I can see that you are getting annoyed, Mr Hoyle, which is not like you, so I shall move on rapidly.

The truth is that Tory Governments, and not just in the past, have taken policy decisions that were to the detriment of the energy system in this country. That is being confirmed today, because this is not just about the oil industry. As has been discussed in debates on the solar power industry, Ministers have changed the rules halfway through a process. I have received a letter from a company in my constituency saying that it is involved in a number of projects in which clients want to build solar arrays that do not fulfil energy requirements. Funders and clients are now cautious because of the uncertainty caused by the policy change halfway through discussions. The industry had been told that it would be able to set targets at a certain level, but that level was later changed and the same thing is happening now. If the Government spring surprises on companies that are investing in energy policy, those companies will not know where they are and will look at other markets. As I have said before, I am not one to stick up for the oil companies, but I am one to stick up for this country and the workers of this country, and this part of the Bill, along with many others, is detrimental to the workers and the people of the country.

[Mr Kevan Jones]

Let me begin by congratulating the right hon. Member for Gordon (Malcolm Bruce) and the hon. Member for West Aberdeenshire and Kincardine (Sir Robert Smith) on their amendment. They clearly care about the industry, know a lot about it and are arguing vociferously on behalf of their constituents. From the body language of the Economic Secretary and the Financial Secretary, it looks as though the right hon. Member for Gordon and the hon. Member for West Aberdeenshire and Kincardine are two unwelcome relatives at a wedding who had been forgotten about but turned up and started to argue about how this was not part of the wedding deal of the coalition.

The amendments raise serious concerns about the effect of the Budget not just on the constituencies of the right hon. Member for Gordon and the hon. Member for West Aberdeenshire and Kincardine, but on many others throughout the UK. I would have expected Members on the Government Benches who have oil and gas interests in their constituency—Morecambe bay has been mentioned, as well as the gas fields off the coast of East Anglia—to speak in the debate, yet we have not had a single contribution from the Conservative Benches. That should be noted by constituents who rely on the oil and gas industry for their livelihood. I am sure that if the former Member for Morecambe and Lunesdale were still a Member of the House, she would have been vociferous in making representations on behalf of her constituents. I hope she is watching the debate, even at this late hour.

The decision announced in the Budget to increase the supplementary charge on North sea oil was taken at the last minute, without any consultation with the industry. It led to the ludicrous situation mentioned by the right hon. Gentleman, with the profits of some of the mature fields being taxed at 80%. We are constantly told by the Conservative part of the coalition how important private sector growth is to the future of the UK economy.

There is no better example than the oil and gas industry. It is an economic engine for the UK economy. In 2010 alone it invested some £6 billion into the UK economy. It creates and supports more than 440,000 jobs, not just directly in the industry, but way down the supply chain and across the UK, as my hon. Friend the Member for Blaydon (Mr Anderson) noted. More importantly, it produced in 2010-11 some £8.8 billion in corporation tax for the Treasury, and it is estimated that for 2011-12, with the increase in the oil price, that revenue take will be about £13.4 billion. To treat such an important industry in the cavalier way that the Government have treated it is a disgrace.

I feel for the right hon. Member for Gordon. He said that the Government were listening, but I am not sure they are. I ask him to look at the report of the Treasury Committee’s meeting of 29 March, where the Treasury said:

“The 81% rate applies only to those mature fields where there is no further exploitation taking place that pay petroleum revenue tax. It is quite a high rate but, equally, there is not an issue with further investment needed there, and the oil is coming out of the ground. That is a pure”

profit.

Members asked whether that had been looked at in any detail. The Treasury went on to say that

“the Treasury does a lot of work on all the tax levers on an ongoing basis.”

It is clear from talking to the industry that investment in those mature fields is needed. For example, Total E&P UK says that production at mature fields will cease without further investment. The Alwyn area is a good example of why activity and investment need to continue. I accept that the industry requires a huge amount of start-up investment, but there is also an increasing need for investment over time. For example, Total has stated in its submission that investment is needed in the Alwyn field not only for ensuring that the field is secure and safe, but for living accommodation and other investments. It is absolute nonsense to suggest that such mature fields do not need continued investment, and to tax them at 81% or 82% is, frankly, ridiculous.

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[Justine Greening]

I will start by explaining why we introduced the increase in the supplementary charge rate. I will then cover the Opposition amendment and respond to the amendments tabled by my right hon. Friend the Member for Gordon (Malcolm Bruce) and my hon. Friend the Member for West Aberdeenshire and Kincardine (Sir Robert Smith) before explaining the two technical Government amendments.

I appreciate the constructive amendments tabled by my right hon. and hon. Friends. They have put a lot more thought into finding a way through the challenges than the Opposition, and I appreciate the points that they raised. I reassure them that we are working closely with the industry. We have met with its representatives on a number of occasions: I have met with them, as has the Chancellor of the Exchequer, and officials recently went to Centrica’s office to look through its calculations on field allowances and profitability. We are discussing with Oil & Gas UK and individual companies precisely the issues that have been raised in this debate.

The broad rationale for the increase is that the Government are abolishing the fuel duty escalator and replacing it with the fair fuel stabiliser. Clause 7 forms the second part of the stabiliser, which ensures that when oil prices are high, as they are now, and oil and gas production is more profitable, the companies that benefit more from that are asked to pay more. The hon. Member for Blaydon (Mr Anderson) fairly acknowledged that, and we are seeking to ensure that we do it in the right way, as he said we should.

[Mr Anderson]

Is not the point that this debate should have happened before the Chancellor made the decision, not afterwards?

[Justine Greening]

Realistically, it is not always possible to discuss rate changes with the industries concerned. It is not done as a matter of course, but the point about working with the industry to ensure that we understand the impact on more marginal investments is valid, and that is precisely what we are doing.

The clause increases the rate of the supplementary charge, which is a tax on the profits of oil and gas production, from 20% to 32% from 24 March this year. It is fair to point out that oil prices have increased from $77 a barrel at the time of the June 2010 Budget to about $125 a barrel today.