Phasing Out of Aprt

Part of Orders of the Day — Finance Bill – in the House of Commons at 7:15 pm on 28th April 1983.

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Photo of Mr David Crouch Mr David Crouch , Canterbury 7:15 pm, 28th April 1983

I was being generous when I said that I believed that it was a slip of the tongue. I believe that it was a transferred epithet, although I understand the hon. Gentleman's argument.

I must declare an interest in North sea oil. I cannot say that I am a tax adviser—who is a tax adviser? But I advise a small participator in the North sea oil industry, and I have run across the problems of the North sea tax regime for several years. During my speech I may reveal that I do not know as much about the complex problems as my preamble might suggest.

Clause 73 concerns the phasing out of advance petroleum revenue tax. I was glad that the hon. Member for Blackburn said that the amendments were intended to create a debate on the general tax regime in the North sea, and I am grateful to you, Mr. Armstrong, for allowing the debate to proceed on that basis. I hope that you will listen to me carefully to ensure that I do not go too wide of the debate on the phasing out of advance petroleum revenue tax.

My right hon. and learned Friend the Chancellor of the Exchequer said in a press release of 15 March that the proposed changes in the tax regime are designed to encourage future exploration and appraisal of United Kingdom oil and gas reserves and the development of new fields". The relief will total £800 million spread over four years, which means that the industry will be relieved of £118 million in the current tax year.

Clause 74—I refer to it only to illustrate points that are relevant to clause 73—contains some exemptions. The Chancellor has said that the oil allowance on petroleum revenue tax will be doubled from 250,000 tonnes to 500,000 tonnes. Such front end relief is most realistic, and we must congratulate the Chancellor on having accepted those figures as a realistic assessment of the problem. That concession will be valuable to North sea operators. Equally, the abolition of royalties will be of enormous value and is another essential relief to the companies developing our production of oil and gas from the North sea. The decision to abolish all royalties payable on future offshore oil and gas fields, other than in the southern region to which it does not apply, will also be valuable.

The advance petroleum revenue tax is an advance payment of tax in the early years of production of a new field. I would have said that it was iniquitous to pay tax in advance, but it replaced supplementary petroleum duty, which was even more iniquitous. I have talked to the Chancellor about this matter— I shall not reveal any confidences — and I know that he did not lose any money on the deal. He did not intend to. The tax will be phased out gradually over four years, and by the end of 1986 it will be abolished completely. In future the costs of exploration and appraisal will be allowed whether or not that expenditure was abortive, which is very valuable.

On the night of the Budget statement the Secretary of State for Energy issued a press statement that praised the changes in the Budget. I am sure that he played some part in making those changes. I am pleased that the Secretary of State for Energy has at long last been heard in the Treasury and that the Chancellor of the Exchequer has taken action on what he said.

The Secretary of State for Energy, in his press statement, said: The royalty concession, and the other measures announced by the Chancellor, are made after detailed study of the views expressed by the industry about lack of fiscal incentives to encourage development of the smaller more marginal future generation of off-shore fields. I now look for an early and positive response from the licensees concerned. I am sure that the Secretary of State will get that response. I wish to thank the Chancellor, my hon. Friend the Minister of State and the Secretary of State for Energy for the concessions and for listening to the industry. The benefits enable the industry to keep in business, to explore, appraise and develop oil and gas fields, not just for the industry but for the nation.

7.30 pm

The Chancellor was asked by the industry to make changes in the tax regime to encourage new developments that were simply not taking place, as the hon. Member for Blackburn has said, under the existing tax arrangements. He has made those changes and they will have the desired effect, but they are only just in time. The Secretary of State for Energy will be pleased with the response. It is valuable to discuss the complex subject of North sea taxation and I hope to reveal that I understand a little of it. The Government's present tax take on North sea oil, at least until the Finance Bill is passed, is 89·5 per cent. In simple terms, after allowances—the front end allowances are more generous than they were—the net return to the oil companies is 10·5 per cent. The proposed changes mean that the Government will be taking 1·5 per cent. less—88 per cent. — leaving the oil companies with 12 per cent. That does not seem as though the Government have been generous. The important factor is that the relief has been given at the front end—the oil allowance has been doubled — and that exploration and appraisal costs in new fields may be offset against profits chargeable to petroleum revenue tax. That concession is sensible, realistic and much appreciated by the participators and operators in the North sea.

I could stop there and hon. Members could have an early night. I should say thank you. No matter how I am regarded by the Government Front Bench, I will not stop at that point. The Minister gave me a dark look, but, like Oliver Twist, I would argue, not just ask, for more from the Chancellor. The Social Democratic party sometimes does that, but I am not thinking of following suit. I ask as a result of my own studies. There is no ethical logic in restricting these benefits — for which I thank the Government—to new fields where companies are not already committed. Surely the benefits should be extended to fields under development but not yet on stream.

Why could not the Government have extended the benefits to those fields that are about to produce oil? Unfortunately, they are exempt. Those fields will suffer from the effect of depressed oil prices. Future developments—I refer to fields that have not yet been developed—will not be on stream until the late 1980s and will, no doubt, enjoy higher oil prices than today. The Government have plenty of time and opportunity between now and then to deal with such an eventuality to their own advantage and to adjust the tax balance accordingly. Clause 73 does not involve just the phasing out of APRT. Behind this tax and clause is the price of oil.

In the Finance Act 1981 the Chancellor introduced a rigorous tax regime for the North sea. He was riding high because oil prices were riding high. In the first half of 1981, as the right hon. Member for Greenock and Port Glasgow (Dr. Mabon) will appreciate, having been a Minister of State responsible for this sphere in another life and in another party, the BNOC market price was $39·25. It is hard to imagine that price today, when oil is $29·50 a barrel. The Chancellor wanted revenue and he spotted a gold mine in the shape of a North sea oil well. He got his money, as the hon. Member for Blackburn has reminded the House, but we did not get the oil. There was virtually no new development taking place in the North sea, with the exception of Clyde and North Alwyn.