Clause 183 - Relief in respect of decommissioning expenditure

Part of Finance Bill – in a Public Bill Committee at 5:00 pm on 19 June 2012.

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Photo of Cathy Jamieson Cathy Jamieson Shadow Minister (Treasury) 5:00, 19 June 2012

I need some additional minutes to speak to some of the broader issues arising from the clause, because I heard the Minister on an earlier clause refer to the plan for the future of the oil and gas industry. It is fair to say that at the time of the 2011 Budget, there was some consternation among the industry  at the outset regarding some of the measures announced. I have several pages of quotes—I will not read out every one—but suffice it to say that at that stage, a whole range of industry spokespeople felt not only that the Government had not consulted them in advance, but that some of the tax measures, which were described as a tax grab, a tax hike, and so on, would be particularly problematic for the industry. I may say a little more about that when I ask the Minister some particular questions.

Clause 183 and schedule 21 restrict to 20% the relief available for decommissioning expenditure for supplementary charge purposes by increasing the profits liable to the supplementary charge when decommissioning expenditure is taken into account in computing those profits. Where such expenditure reduces the amount of petroleum revenue tax chargeable, the schedule also reduces the profits liable to the supplementary charge, where the profits resulting from the reduction in PRT would be subject to the supplementary charge at a rate of more than 20%. The schedule further provides that losses arising from mineral extraction allowances given in respect of decommissioning expenditure are brought within the scope of the provision, which extends the period in which loss relief may be given.

The Minister has already referred to the timing of the implementation and introduction of the charges. In this case, the charge is effective from 24 March 2011, and the supplementary charge, therefore, increases from 20% to 32%.

At Budget 2011, it was announced that legislation would be introduced in the Finance Bill 2012 with effect from Budget 2012 to restrict the rate of tax relief from decommissioning expenditure for the purposes of the 20% supplementary charge. The schedule simply seeks to ensure that the principles that govern the restriction of decommissioning relief are applied consistently to PRT and non-PRT fields. The schedule also ensures consistency of treatment on decommissioning expenditure with regard to the restriction of relief and access to the extended period for which losses may be carried back.

An explanation of why restricting relief on decommissioning expenditure to 20% is fair when a rate of 32% is applied to profits might be helpful, because there has been some discussion on that point. The heat from the original debate has subsided, but the point I hear most often from people in these industries is that they need certainty to plan for long-term investment. The industry, therefore, is focused on the legislation required to ensure the contractual entitlements to such relief. In other words, each company wants to be certain of the relief’s future so that it can plan accordingly. I understand that the Minister will further consult the industry on that. Will she say a little more on the timing and scope of that consultation? How will the position be monitored?

Will the Minister also indicate how she intends to use legislation and policy to incentivise new activity by ensuring that smaller companies are able to operate at the margins of those areas where the larger companies work? How will she ensure that companies have the certainty they are looking for?

A response to those questions from the Minister would be helpful. We all want to see the future of our oil and gas industry in the UK, and we also want  security of supply. Concerns have been raised that if we do not get the investment infrastructure right—again, there are concerns both offshore and onshore, particularly for the petroleum refining industry—the cost of building, creating and modernising the infrastructure are not necessarily incentivised by the taxation regime.

I appreciate that not all of that can be addressed by this one schedule, or indeed by this Bill, but it would be a helpful signal to the Committee and the industry if the Minister explained how she intends to take matters forward.