Clause 62 - First-year allowances for expenditure wholly for a ring fence trade
Finance Bill
12:00 pm
Mr Christopher Chope (Christchurch, Conservative)
This group of amendments is important. Committee members may have noticed the press statement that was issued on Thursday, 23 May on the politics section of BBC Ceefax. It stated:
''The United Kingdom oil industry is warning that up to 50,000 jobs could be lost owing to tax changes in the last budget. The changes including a 10 per cent. rise in corporation tax were a shock to the industry. The United Kingdom Offshore Operators Association said the extra costs will cost £8 billion in the next eight years.''
It warned that companies looking to develop new oil fields will bypass the North sea.
Given what the Chancellor said at the time of the Budget, the provisions are designed as a sop to the oil and gas extraction industry to soften the blow of clause 90, which we discussed on the Floor of the House. The clause gives a 100 per cent. first-year allowance for expenditure on plant and machinery, which is not a long-life asset used in a ring-fenced trade. It will help cash flows, but the amendments would give a larger benefit to the industry. They would give increased allowances to expenditure incurred before the introduction of the supplementary 10 per cent. corporation tax charge.
The UK oil industry points out that companies have already incurred much of the capital expenditure that generates income subject to the supplementary charge and that tax relief has already been given on capital allowances claimed to date against income taxed at the old rate of 30 per cent. The amendments would increase the rate of writing-down allowance available on existing capital expenditure to compensate for the higher rate of corporation tax.
Recent investments have been adversely affected by changes announced in the Budget. In recent years, the oil industry has been encouraged to invest. Indeed, not long ago—in the November 2000 pre-Budget report—the Chancellor of the Exchequer said that it had been put to him that North sea oil companies that earn higher profits from higher oil prices should be subject to special taxes, but that he was determined not to make short-term decisions based on short-term factors. He said that the key issue was the level of long-term investment in the North sea and that that would be the approach that would guide Budget decisions in future.