Finance (No. 3) Bill
Debate between Kevan Jones and Lord Bruce of Bennachie(13 years ago)
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Malcolm Bruce
That is a very fair intervention. Perhaps I am using the term “North sea” in a slightly generic fashion. The term “UK continental shelf” is a bit long-winded, but that is what I really mean. Perhaps the House will take that as read for these purposes.
The hon. Gentleman is right: Centrica, the operator in Morecambe bay and other gas fields, has indeed indicated that it might not be able to resume production in the current regime and with the current prices. That makes the point, which I hope Ministers will acknowledge, that it is important for the industry and the Government to come together and negotiate, in order to ensure that we do not lose investment and production that might otherwise be lost altogether.
Mr Kevan Jones
One of the arguments put forward by the Treasury is that the 82% tax rate to which the right hon. Gentleman has referred applies only to mature fields. Does he agree, however, that those mature fields still need investment if they are to continue to produce oil?
Malcolm Bruce
That was precisely the point of my illustration about Apache and the Forties field. It wants to invest, and I believe it will continue to invest, but it is actively reviewing the extent to which it will invest in the light of these tax changes, which clearly make the investment less attractive.
Malcolm Bruce
The evidence suggests that sudden step changes to taxes have been made by successive Governments and they have had the same effect: a drop in investment. [Interruption.] No, it has happened under Labour too—the party was in power for 13 years. The figures produced by Oil & Gas UK show that the last time this happened, capital investment dropped by £3 billion per annum over the subsequent three years, and that is a huge sum. Although negotiating field by field is a long drawn out and time-consuming process, too complicated for some investors, who will go elsewhere, that is preferable to simply standing one’s ground and waiting for the worst to happen.
I hope that the Government will acknowledge that some projects are bound to be delayed or cancelled because the rates of return after the tax changes make them simply unviable. If the companies can negotiate to demonstrate to the Government the level at which such projects would become viable, which requires both parties to show their hands, capital allowances or other mechanisms could be brought into play in ways that would benefit both the Government, because the investment, jobs and spin-off could be secured, and the companies, because they would be able to develop viable projects, which of course will subsequently pay taxes to the Government.
Malcolm Bruce
No, because I wish to make progress and reach the end of my remarks.
The final amendments in the group would delay implementation. The only purpose of that—this relates to the intervention from the hon. Member for Coventry North West (Mr Robinson)—would be to use the time to negotiate and decide whether or not we could come up with a slightly more sophisticated mechanism to meet the needs of the industry.
The amendments, taken together or in part, set the framework for the sort of concerns that the industry has and how it would like to engage with the Government. The one comment that everybody I have spoken to in the industry has made to me in the past week or two is, “Whatever else you do, can you just persuade the Government that we need to talk to each other? If we do that, we have a fair chance of getting a settlement that will not prejudice too much investment.” Ministers will notice that the rhetoric has calmed down on the oil and gas industry’s side, because people there actually want to talk.
I hope that the Government will acknowledge that this is a real concern for a substantial industry. I hope that they will also acknowledge that if it can be demonstrated that there has been negotiation, although it will not completely wipe out the shock of a sudden increase, it will, I think, show that the Government are serious in understanding that this is our biggest industry, that it has huge potential and that it still has a big future in this country.