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Yes, so I will not pursue that subject. Questions of devolution, although probably interesting, are perhaps not pertinent to clause 85 and schedule 40.
I am extremely unhappy about the way that 31 Government amendments to schedule 40 have been tabled. They might have reached the Clerks by the time limit on Tuesday, but they did not arrive with me through the internal post until 2 pm yesterday, despite the fact that I have requested, as Members may now do, as you probably know, Mr. Atkinson, to be bumped up to the maximum number of deliveries a day, which I think is four. Previously I had my post delivered once a day, but when I joined the Committee there was such an incoming load of Government amendments and personnel changes that it seemed wise to increase its frequency.
In normal circumstances, with three or four amendments, tabling them so late might be acceptable, but 31 Government amendments really is an awful lot to digest, especially when dealing with so complex a schedule. It is difficult for the Opposition to scrutinise the result properly, when there is such a number of amendments. I should point out that I submitted three or four amendments of my own, so I am not saying that the Government alone are guilty, but submitting 31 Government amendments at the last moment makes life extremely difficult, given the resources with which Opposition parties operate.
The debate will be slightly difficult because I believe that many of the Government amendments are designed to overcome the problems highlighted in our amendments. I will rely to some extent on the Economic Secretary to explain the competing merits of some of the Government amendments, relative to the merits of the Opposition amendments, because I cannot say with absolute certainty what those are, having been unable to devote the time needed to determine the merits of A or B.
Part of enabling the maximum recovery of economic reserves from the UK continental shelf in the future lies in ensuring that the licence interests are in the hands of companies that are willing to invest. The current chargeable gains system can deter companies from swapping or trading assets to achieve that, and that is what schedule 40 is intended to deal with by making it easier for companies to trade assets.
The schedule has two parts. Part 1 extends chargeable gains exemptions on licence swaps from being limited to pre-development licences, as is currently the case, to being an exemption on all licence swaps. As before, the licences will be required to be of equal value, but developed fields can now also be traded among companies. That means that companies will have greater scope to realign their assets. It should, therefore, become easier to create concentrations of fields that could make further investment more economic. In other words, in the latter part of the life of a few of those fields, being able to trade them and perhaps combine such a field with two or three smaller fields nearby would make exploitation easier and more economic. That sounds like something we want to encourage.
Part 2 of the schedule allows companies to avoid a chargeable gain on the sale of an asset, provided that the proceeds from the sale are reinvested within the North sea ring fence. Until now, a company making a disposal of a UK licence interest is subject to corporation tax on the chargeable gains that arise, although there is a possibility that the gain can be held over by reinvesting the proceeds into certain classes of asset. If the reinvestment is in a qualifying class of asset, the gain is held over until 10 years have elapsed, or the new asset is disposed of, whichever happens earlier. Part 2 takes most forms of reinvestment out of chargeable gains altogether, as long as certain conditions are met. The combined effect of both parts of the schedule should stimulate asset trading in the UKCS, either by allowing assets to be transferred to a company willing to invest in certain fields, or by enabling a series of transactions to be undertaken to align interests.
The Government have tabled 31 amendments. My understanding is that they would increase the number of licences that can be swapped in a single transaction and tighten the definitions used in part 2. Broadly, they seem to increase the flexibility of the schedule.
Government amendment 258 is especially welcome as it reflects a concern, raised directly with me by the industry, that the schedule was drafted too narrowly in excluding other companies within a group of companies from the criteria for reinvestment. That is probably the most liberalising amendment. The inclusion of other companies within a group, on the condition that they are within the ring fence, is also sensible and should increase the number of disposals, while at the same time removing the temptation for companies to find ways to work around the rules.
In her letter to the Committee setting out the amendments, the rather short-lived Exchequer SecretaryI think the hon. Member for Burnley lasted nine days, all told, but she found time to write this lettershe explained that the amendments were
the result of consultation with the industry following the publication of the Finance Bill.
As I have said, the industry also raised those points with me and we welcome the Governments willingness to listen and modify their proposal.
We tabled our amendment 266 in an attempt to deal with the situation of groups. It was anomalous to require that proceeds had to be reinvested by the companythe same companythat realised the chargeable gain, rather than extending the reinvestment provision to place it on a group basis. That would have, or should have, given rise to greater flexibility. Our amendment sought to exploit the similar arrangements that related to holdover relief and to apply them to exemption. If the Minister gives an assurance that the Government amendment will, in practice, provide the same result, I shall be happy to withdraw amendment 266.
Although the Government appear to have accommodated groups of companies in response to the feedback they received, they have not gone quite as far as they could in other respects. In particular, it appears that insufficient provision has been made for companies reinvesting in so-called subsea tiebacks, where existing platforms are connected to new wells by an underwater pipe. The new well is, as I understand the situation, dug and is linked back to the platform via an additional new pipe; it is like a satellite well. I think that is how those things work.
The explanatory notes state that where a company disposes of business
assets used in connection with a UKCS field and the proceeds are reinvested in other ring fence assets...the gain shall be treated as not being a chargeable gain.
In other words, if one reinvests the proceeds, everything should be fine. That seems clear, but all field assets are intended to come within the scope of schedule 40. If there is any doubt, the explanatory notes repeat that point the other way round.
where the assets are sold and the proceeds are not reinvested in the UKCS, then the disposals will be taxed in the normal way.
There seems to be an assumption that everything should be within the scope of schedule 40. However, it seems that reinvestment in UKCS does not include the exploration appraisal and development of new wellsthe so-called subsea tiebacks. Because of the way that part 2 of schedule 40 is drafted, drilling new wells does not qualify as reinvestment and is not seen as creating an asset.
I understand that the industrys lobbying effort to exempt gains in general was explicitly raised as an issue with one of the Ministers multitude of predecessors. It is hard to know who dealt with that lobbying effort, but the Economic Secretary is nodding, which shows that he is aware of the situation faced by some of his colleagues, past and present. Wells were explicitly raised as an issue, but the Government appear to have ignored that plea, despite the fact that it sits squarely within the schedules intent. Indeed, in reading the explanatory notes, one would think that wells are actually included, but I do not think that they are. The Minister needs to clarify that point.
An increasing percentage of recent UK continental shelf developments have been in subsea tiebacks, which are likely to continue to increase in the future. The new wells are linked to existing infrastructurethe platformso there is an advantage in having the wells provide the export route for the hydrocarbons. In most cases, the developments will not support the cost of infrastructure in their own right. As I understand it, on average, approximately 40 per cent. of the cost of a subsea tieback development is associated with the wells, so a significant proportion of the funds invested in future developments will not qualify for the reinvestment relief. Bizarrely, it appears that constructing a new well does not qualify for relief, but constructing a tieback to the well does. I would be grateful if the explained what precisely qualifies for the relief and whether the explanatory notes accurately state that everything should be accounted for.
Amendments 262 to 265 are designed to rectify the problem. I am keen to hear the Governments arguments on new wells and am willing to concede that there may be easier means to achieve the end than those that we have outlined in our amendments. If the Government can find a better way to do it, so be it, but if there is a point of principle at stake, I would like to hear it.
The raison dĂŞtre of schedule 40 is to encourage new investment in the North sea. It seems reasonable to extend the criteria to cover fully one of the primary forms of development that that investment needs to take, and there do not appear to be any additional costs associated with that step. Preventing reinvestment from incurring a chargeable gain should surely mean just that. I look forward to hearing the Ministers explanation of the competing sets of amendments and that all parts of the assets described will qualify under schedule 40.