Then one would have to find some other way of justifying the issue of shares at a discount. It is a matter of valuation. If the rights from the moment shares are issued are identical to those of the ordinary shareholder, they could only be issued at the price at which the ordinary shareholder would have shares issued to him. If we are to give the advantage of the power to issue them at discount, there must be restrictions to justify such a discount. It is exactly the same principle as in the share incentive scheme contained in the legislation which went through the House last year.
The right hon. Member for Birkenhead raised a number of points about North Sea oil. He has apologised to me that he cannot be here this afternoon. Since he raised points of such importance, I felt that it was right they should receive a prompt answer.
The right hon. Gentleman welcomed my right hon. Friend's swift response to the Public Accounts Committee's Report, and his main anxiety was whether the Chancellor had gone far enough in his proposals. I must make it clear, as did my right hon. Friend last Tuesday, that he was not purporting to give the Government's full reply to the Public Accounts Committee's Report. His present proposals are confined only to the question of dealing with the artificial losses—very necessary if the revenue yield from the North Sea is not to be seriously impaired.
But the proposals regarding the losses are not—nor were they presented as being—the complete answer to the question of ensuring an adequate share for the Exchequer in North Sea profits. The Government already had under consideration before the PAC reported the licensing terms for North Sea operators and the general question of the "take" from operations on the Continental Shelf. These are matters with which my right hon. Friend the Secretary of State for Trade and Industry is closely concerned. The right hon. Gentleman and the House may take it that there will be a further statement in due course.
The right hon. Member for Birkenhead also raised another important point, and it is important that the answer should be on the record. He asked about the advice alleged to have been given by the Inland Revenue in 1964; also the Press has pursued this same point. I think that there has been some misunderstanding about this, and I should like to get the story straight. The Inland Revenue did not recommend one method rather than another of taxing the yield from the North Sea. What the Inland Revenue did was to point out that oil companies would be liable to company tax on their North Sea profits—since at that time there were little or no artificial losses to set against them—but that a royalty would produce a more immediate yield because of the effect of capital allowances. It is right that this point should be made clear.
My hon. Friend the Member for Horsham spoke on Thursday night about profits margin control, and he referred to the proposal in the Green Paper that price reductions should be made when unit costs fall. He said that this was quite inconsistent with the objective of safeguarding investment. This simply is not so. I realise that there have been wide misconceptions about this part of the Green Paper and I welcome the chance to clarify what is meant by it. Despite what some hon. Members have said, it does not mean that increases in sales must automatically lead to price reductions. The profit margin control will not apply to net profits as such but to net profits as a percentage of turnover, so that as sales rise profits normally will be able to rise, too.
The provision in the Green Paper about falls in unit costs is not intended, as it now stands, to refer to all costs but only to allowable costs such as labour, raw materials, rent and interest rates. Therefore, if the code went through in this form no price reductions would be required to the extent that rising sales lead to reductions in unit costs on non-allowable items, such as depreciation, overheads, marketing, transport and so on. Moreover, the Green Paper refers only to "significant" falls, and we do not envisage insisting on price reductions on account of every minor fluctuation. All this is subject to the Price Commission's discretion not to insist on price reductions if to do so would seriously impede investment. I also emphasise that the Green Paper is a consultative document and as such is not necessarily the Government's final word.
My hon. Friend also said in another part of his speech:
…what an incomes policy can do is to lower inflationary expectations."—[OFFICIAL REPORT, 8th March, 1973; Vol. 852, c. 840.]
My hon. Friend is absolutely right and I believe that our counter-inflation policy is doing just that. But it means not merely holding prices steady or even limiting the scope for raising prices. It must also mean taking every opportunity to bring prices down, and I do not believe that we are asking too much of industry in this regard.