The Government recognise the importance of having a stable and fair UK oil and gas tax regime that provides certainty for business. As one step towards ensuring stability, the Government have committed to legislating for the various changes to the regime, announced by the previous Administration, that will improve existing allowances and reliefs that aim to support investment.
The clause extends the scope of the chargeable gains ring fence reinvestment relief legislation. Reinvestment relief was originally introduced in the Finance Act 2009. It allows companies to remove a chargeable gain arising on the sale of an asset, provided that the proceeds from the sale are reinvested in oil and gas assets in the UK or the UK continental shelf, subject to certain conditions being met.
The relief was intended to be available in a group context when the disposal is made by one company in a group and the reinvestment is made by another company in the same group. Amendments tabled in Committee when the legislation was introduced sought to ensure that. However, a technical oversight at the time prevents the legislation from applying in such circumstances.
Reinvestment relief is now extended by the clause to include those cases where disposal and acquisition are made by different companies in the same group of companies. The clause thus ensures that the original policy intention of the reinvestment relief legislation is achieved. The legislation was intended to apply in those circumstances when it was introduced in 2009 and, to reflect that, the clause has effect in respect of disposals made on or after 22 April 2009, the day from which the legislation applies. The change in the clause allows the reinvestment relief legislation to fulfil its original policy objectives.
Thank you, Mr Chope. [ Interruption. ] That was certainly an overenthusiastic welcome from my hon. Friend the Member for Nottingham East; I think he is probably expecting to hear something slightly more exciting about the provision than he will actually hear.
As the Minister explained, the clause addresses a problem with the drafting of the original legislation and reinstates what was always intended. Ring fence reinvestment relief provides that when a company disposes of assets used for the company’s UK or UK continental shelf oil and gas trade, it can claim that any gain arising shall not be a chargeable gain, subject to certain other conditions being met.
The existing legislation was designed to ensure that the relief applied to circumstances where the new asset was acquired by a different company in the group to which the company disposing of the old asset belonged. The clause has been introduced to ensure that that result will be achieved.
The legislation was badly drafted in the first place and did not achieve the effect that was intended. I would appreciate it if the Minister outlined whether that has had consequences. I understand that the new provision will be backdated to the date of the original legislation and that people will therefore be able to rely on it as if it had taken effect on that date, but are there other consequences that we need to address?
Can the Minister tell the Committee a little more about the revenue implications of ring fence reinvestment relief more generally, given the importance of the UK oil and gas trade and in view of expected trends that may occur as the industry changes over time? What modelling of the costs of the tax relief has been done? Will she elaborate a little on that?
Will the Minister tell the Committee how many asset disposals we are talking about? Are there frequent changes of ownership or many asset acquisitions that fall under the terms of this tax relief, and does she expect that picture to change in the months and years to come?
As the hon. Lady pointed out, we need to have an oil and gas tax regime that ensures that investment continues in the North sea oil continental shelf. The amendment corrects an anomaly that should never have been there in the first place. We are aware of one transaction by a company that thought group relief was available when in fact it was not. It is easy to understand why it would have been caught. When we were in opposition, we tabled an amendment to the Finance Bill 2009 to ensure that groups would be covered. In fact, the then Economic Secretary to the Treasury was very sure that the Government’s amendment would ensure that
“the grouping rules, which apply more widely to reinvestment reliefs outside the North sea ring fence, apply equally to the new North sea reinvestment relief.”––[Official Report, Finance Public Bill Committee, 18 June 2009; c. 502.]
So we are aware that one company was unwittingly caught by the bad drafting of the law.
Reinvestment relief is important. That is why we are continuing to work with the industry and Oil & Gas UK to see how we can ensure that our tax regime supports continued investment. In fact, I was in Aberdeen a couple of months ago and I visited the Forties Alpha oil rig. That is a particular example—it had been owned by BP, but its licence has now been bought by a company called Apache, which has in many respects given it a new lease of life. As a result, the reserves that we continue to get out of Forties are probably far more than if that licence had been retained by BP. Such changes are important because they remove the barriers that stop licence trading transactions from happening.
As the hon. Lady will be aware, in the final couple of years of the previous Administration, a number of changes were made to facilitate continued investment in North sea oil and gas. As an incoming Government, we are continuing to work with the industry to consider what we can do not only to unlock investment in new fields but to enable investment to take place to unlock incremental investment in existing fields.
Clearly, when we brief on changes such as this, we know that there is only an upside—in other words, we are unlocking transactions that would not have otherwise taken place. As for putting a value on that, that is something for the future—we will have to wait and see. However, we do know that the industry has welcomed some of the changes that we introduced, some of which were proposed by the previous Government. The changes make it more likely that continued investment can take place, which will mean a continued stream of tax revenues into the Exchequer.
Will the Minister write to the Committee, so that we have some figures to put on the record? I appreciate what the Minister says about unlocking such a situation and how difficult it is to quantify exactly what the impact would be. However, projections and having some idea of the benefits of introducing such changes are important when looking at the bigger picture of whether more can be done to unlock further investment and commercial activity. If there are any figures or projections available on the importance of giving such relief, that information would be valuable.
Broadly, it is estimated that 20 billion barrels of oil that could potentially be retrieved are left in the North sea. The hon. Lady will be aware of a range of industry analyses, including those by consultants such as Wood Mackenzie, who have looked at the potential future stream for petroleum revenue tax. Those analyses are clearly in the public domain. The key thing is to ensure that our tax regime enables investment in the North sea to continue.