Clause 271 - Certain receipts not to be tarrif receipts

Finance Bill – in a Public Bill Committee at 2:30 pm on 22nd June 2004.

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Question proposed, That the clause stand part of the Bill.

Photo of Mr Howard Flight Mr Howard Flight Shadow Chief Secretary To the Treasury, Economic Affairs, Shadow Chief Secretary to the Treasury

As the Committee will be aware, clauses 271 and 272 are the results of consultation with the oil industry, and they are broadly what it expects. Some issues have been raised about their impact on how companies in the sector do business. I cannot resist making the point that when debating the extra 10 per cent. oil tax we said that it was not a particularly sensible way of optimising a depleting oil reserve and a changing corporate structure that was likely to exploit it, so we are pleased that the clauses and schedule 35 go some way towards addressing those concerns.

Clause 271 is intended to reduce the price of extracting the smaller reserves in the North sea by making certain receipts exempt from tariff pricing. The expectation is that savings will be passed on through the supply line, thereby increasing the attractiveness of extraction. The industry expects it, and thinks that it is the best it can get.

There is a potential drawback. The Revenue is embarking on a review of the costs outside the tariff scheme to ascertain whether they are all allowable for tax. That could put costs back into the system, so I would welcome the Economic Secretary's comments on that.

Photo of John Healey John Healey The Economic Secretary to the Treasury

As the hon. Gentleman said, the clause is the result of extensive consultation with the industry, and it is broadly what it expects and welcomes. I do not want to reopen the debate on the supplementary charge, but I am pleased to see, as part of the package that we have introduced alongside the charge, strong signs that the level of exploration, activity and investment in the North sea is increasing.

Clause 270 and schedule 35 are good examples of the Government and industry working together to achieve a joint aim, which is to ensure the maximum

economic recovery of oil and gas reserves from the North sea. We recognise that the North sea is entering a mature phase where future developments depend on extending the life of existing infrastructure. Officials and Ministers have spent considerable time consulting the industry over exactly what types of new business need to benefit from this measure.

New finds are usually smaller and often need to pay tariffs to use the existing infrastructure of bigger, older fields that can represent up to 60 per cent. of the total operating costs. Some new fields are only marginally profitable. The change to a lower tariff charge will improve the economics of those marginal projects and so ensure their development.

Where the offering of services to older fields is truly new business, we want those projects to benefit from the removal of petroleum revenue tax. The legislation contains rules to ensure that such new business will benefit, while existing business that has already been found to be economic will not. It ensures that help is provided where it is needed without unnecessarily reducing benefits to taxpayers. New business that will be eligible for the reduction means business under contracts agreed after 9 April 2003, which was the date of the 2003 Budget.

We also want to encourage new business from overseas, such as the importing of gas from Norway. The provisions will help in that respect, too. The measure has been warmly welcomed by the industry, and I commend the clause to the Committee.

Question put and agreed to.

Clause 271 ordered to stand part of the Bill.

Schedule 35 agreed to.