I am pleased to follow Mr. Blizzard, who made a characteristically well-argued and consistent contribution. He spoke about real issues that are clearly affecting the industry. Although the Government have to some extent acknowledged those issues, they have not yet answered them. All of the participants in the debate would like to know how the Government can acknowledge the problems, but leave them unaddressed.
The impact of the changes is real and perceptible, not theoretical. As I said in the Committee of the whole House, I have been indirectly or closely involved with the industry for more than 30 years. Thirty years ago, oil and gas was a boom industry—a crazy industry. Everyone was scrambling to get the stuff out and money was almost no object. There was an OPEC-induced oil crisis and the Government were interested only in getting the oil out and resolving the balance of payments position; they would worry about the regime later.
Now, the position is completely different. The North sea is, in the precise term used by the industry, a mature province, which means that marginal rates of return are being squeezed and the risks are higher in a high-cost area. The Government appear to have picked precisely that moment to create a new pressure on an industry which already has enough pressures on it simply because of where it operates. I urge the Government not to discount the actual and the psychological effects of the change.
The industry believed that it had established a relationship with the Government that was based on a recognition that it should be treated as an industry, not merely a source of revenue, and provided with a regime that created a climate conducive to long-term investment. The least it should have been able to expect is not that there would never be any tax changes, but that changes would not be introduced without proper consultation, transitional arrangements, and a willingness to hear the industry's explanations of how Government proposals might adversely affect investment. In reality, however, the industry has had to make that case after the Government have made their decision. In the past five years, the industry has invested £23 billion on the presumption that either the existing regime would continue, or any change would, first, be negotiated, and, secondly, allow for transition. Companies that have made investments on the basis of the pre-Budget regime are understandably extremely miffed that they have been treated in such a fashion.
Companies that made calculations based on assumptions about the oil price that were not borne out have also been hit. The Government can say, perfectly reasonably, that the risk in the industry is that the oil price fluctuates; the industry has to calculate that fluctuation and build it into its risk assessments. However, I should have thought the Government understood that an industry that has to deal with an extremely volatile fluctuating commodity price could do without a similarly volatile fluctuating fiscal regime. The combination of those two factors substantially increases risk.
The Government seriously underestimate the damage that is being done to this country's reputation for promoting inward investment and industry. The new tax regime wholly contradicts the very rhetoric that the Chancellor placed at the heart of his Budget. He expressed his desire to create a stable, predictable corporation tax regime for business in general in the United Kingdom, so as to make the UK an investor-friendly, business-friendly economy. If that is what he wants for every other sector of the economy, why has the oil industry been singled out as not entitled to benefit? We can legitimately seek an answer to that question.
The new clauses deal with the specific concerns that have been identified by the industry as "addressable". The industry wants the Government to rethink its approach to those matters. The hon. Member for Waveney stated well the Government's argument that they cannot allow financing costs to be offset against the windfall 10 per cent. The implication of that argument is that they do not trust the industry. They will allow the industry to fiddle the other 30 per cent., but not the 10 per cent. margin. However, as the hon. Gentleman said, the Inland Revenue is perfectly well aware of the regulations, so it would be interesting to hear precisely how much abuse the Government think is going on. Much more to the point, many of the smaller companies, by definition, finance their projects by going to the market to secure finance. They have real, not theoretical, financing costs which they assumed they would be allowed to offset in a proper way that, in the case of American and French companies, conformed to double taxation agreements.
In the previous debate, the Government acknowledged that problem and said that they have taken up the matter with the American tax authority, the IRS. As I said in my intervention on Mr. Flight, if the Government admit that the problem is severe enough for them to ask the American IRS to consider changing the regime, are they prepared to revisit the issue if the IRS declines to do so? Alternatively—or additionally—are the Government prepared at least to engage, or to allow the Inland Revenue to engage, in negotiations with individual companies that can demonstrate that the offset is crucial to the viability of their project and that the project will not happen without it? That would reassure us—and the Department of Trade and Industry—that the Government genuinely want to ensure that they do not seriously reduce the amount of investment that would otherwise take place.
I suspect that here we have a point of argument between Ministers, the industry and the Opposition. We genuinely believe that some investment—possibly a significant amount—is at risk and may not happen. The Government do not appear to accept that argument. At the heart of our concern is our genuine belief that investment will be prejudiced, further jobs will be lost, and some oil and gas that would have been recovered will not be recovered, at least in the short run, and possibly not at all. I therefore ask Ministers whether they are prepared to consider case-by-case representations rather than merely shut the door.
Ministers have stressed that there is a package. Part of it is the capital uplift, which is a contribution for some companies, but not all, and does not quite offset the windfall. The other part is the abolition of royalties. I am told that £2 billion of investment is proposed in respect of fields that are paying royalties, but are clearly on hold. No company is going to commit itself to investing in a royalty-paying field until it knows whether, when and how the royalties will be abolished, so the £2 billion of investment is on hold until the consultation paper is published, all the consultation is concluded and the Chancellor makes his decision. I hope that Ministers will understand that speed is of the essence if that £2 billion is not to be lost or its investment is not to be unduly delayed.
The proposal for a three-year limit has genuine merit. First, it would close off what Professor Kemp has identified as the very high potential return to Government and cost to the industry in the later years, which are difficult to predict at this stage. As a number of industry representatives have said, such provision would enable them to say that the regime will either end or be continued, but only following further debate and consultation. There is genuine merit in the proposal, especially if the new arrangement is a windfall tax that is being imposed because of the high oil price. What the Government have said about that is contradictory. Is this a windfall tax or a permanent increase that makes the tax regime less attractive at a time when the industry is having more difficulty squeezing out marginal oil at higher costs and greater risk? Now does not seem the right moment to make a permanent change of that sort.