Taxation: Oil Companies

– in the House of Lords at 3:00 pm on 6 May 2008.

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Photo of Lord Dykes Lord Dykes Spokesperson in the Lords (Europe), Foreign & Commonwealth Affairs, Spokesperson in the Lords (Cap Reform), Environment, Food & Rural Affairs 3:00, 6 May 2008

asked Her Majesty's Government:

Whether they plan to levy a windfall tax on the profits of United Kingdom oil companies.

Photo of Lord Davies of Oldham Lord Davies of Oldham Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

My Lords, tax policy is reviewed as part of the annual Budget process. There are no current plans to introduce a windfall tax on oil companies.

Photo of Lord Dykes Lord Dykes Spokesperson in the Lords (Europe), Foreign & Commonwealth Affairs, Spokesperson in the Lords (Cap Reform), Environment, Food & Rural Affairs

My Lords, I assume that the Government might be looking for some ideas to make them more popular with the public after Thursday's results. Would it not be a good idea to consider an eye-catching proposal, whereby they would levy an extra windfall tax on the extra profits for 2008-09 of international oil companies based in Britain? The Government could then use part of that money—if not a full equivalent of that amount—and other resources to encourage British companies and others who have the energy, courage and imagination to invest in wind farms to do so with Government tax offsets.

Photo of Lord Davies of Oldham Lord Davies of Oldham Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

My Lords, the noble Lord portrays his proposition as an attractive one; I find it a little less so. The Government increased the supplementary charge on the oil companies in 2005. It is important to realise the remaining assets of the North Sea. We require investment in those North Sea assets to provide this country with an important and secure energy source. The noble Lord will expect eye-catching initiatives, attractive to the public, to be in the next Budget.

Photo of Lord O'Neill of Clackmannan Lord O'Neill of Clackmannan Labour

My Lords, does my noble friend agree that the definition of windfall implies a one-off event, yet we have had persistently high oil prices for a considerable period? Therefore, the challenge is to have a form of taxation ensuring that the Exchequer gets a reasonable return, while at the same time not prejudicing the prospect of further exploitation of our resources in the North Sea. That has a far higher priority than fiddling around with wind farms.

Photo of Lord Davies of Oldham Lord Davies of Oldham Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

My Lords, the House will recognise my noble friend's substantial experience in this area. He is of course right that we need consistency in taxing the oil companies. The windfall profits of the oil companies in recent months are derived largely from their overseas investment. The North Sea accounts for only 10 per cent of BP's profits, so we should see the limitation of any windfall tax in that respect.

Photo of Lord Howard of Rising Lord Howard of Rising Shadow Minister, Culture, Media & Sport

My Lords, does the noble Lord think that a windfall tax on oil companies—or, for that matter, any other type of company—will assist the Prime Minister in halting the current corporate exodus from this country?

Photo of Lord Davies of Oldham Lord Davies of Oldham Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

My Lords, that corporate exodus is extolled in certain parts of the media but is not borne out by many recent facts. Let me make it clear that any windfall tax, as far as oil companies are concerned, is nothing at all to do with their location. Shell and BP are firmly rooted in the United Kingdom. The issue is to guarantee that they invest sufficiently in the North Sea to return its resources, which this country will assuredly require in the future.

Photo of Lord Newby Lord Newby Spokesperson in the Lords, Treasury

My Lords, does the Minister agree that the major oil companies would be in a better position to resist calls for windfall taxation if they were seen to be investing more of their profits in sustainable energy projects rather than, as Shell did last week, pulling out of wind farms at the earliest possible opportunity?

Photo of Lord Davies of Oldham Lord Davies of Oldham Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

My Lords, Shell's withdrawal from the proposition last week was a disappointment. However, the oil companies play their part in the development of renewable energy—BP has certainly played an important part in the recent government initiative. We all want to encourage the development of renewable energy, but we also appreciate that, as far as any of us can foresee, oil and gas—particularly, British oil and gas—will play a significant part in our economy.

Photo of Lord Tomlinson Lord Tomlinson Labour

My Lords, does my noble friend agree that the corporate exodus referred to is as long on rhetoric and as short on reality as the threat of so many people in 1997; namely, that they would leave this country if a Labour Government were elected?

Photo of Lord Davies of Oldham Lord Davies of Oldham Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

My Lords, my noble friend is asking me to act more as a historian than as a Minister in terms of answering this question. But he is right that from time to time the Opposition see it as being in their interest to follow the latest scare in certain aspects of the press about people leaving the United Kingdom. There is very little evidence that it happens.