Clause 183 - Relief in respect of decommissioning expenditure

Part of Finance Bill – in a Public Bill Committee at 5:15 pm on 19 June 2012.

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Photo of Chloe Smith Chloe Smith The Economic Secretary to the Treasury 5:15, 19 June 2012

The hon. Lady is only a micro step ahead of me. I will do just that in a moment and on clause 184 too. I suspect we have common interests in the principles, which are to ensure that the UK continental shelf performs to the best of its economic ability.

The clause restricts the relief available for decommissioning expenditure for SC purposes to 20%. In doing so, it seeks to ensure that the principles governing the restriction of decommissioning relief are applied consistently to fields that pay petroleum revenue tax and those that do not. It also provides that losses arising from mineral extraction allowances in relation to decommissioning expenditure are eligible for the same loss carry-back periods as apply to losses arising from plant and machinery capital allowances in respect of decommissioning expenditure.

The point I want to take forward in answer to the hon. Lady’s question is how to encourage maximum production from appropriate fields, and how to incentivise smaller companies. The point is absolutely clear. The clause goes hand in hand with a much broader piece of work that the Government have done to provide the sort of certainty on decommissioning relief that I suspect she wants to hear about. That work began last year, and has continued into this year.

We announced in the 2012 Budget that the Government will legislate in 2013 on a contractual approach to provide further long-term certainty on decommissioning tax relief. Perhaps those of us who are lucky enough to be here again on the 2013 Finance Bill will enjoy every moment of that—if we are not put on the libraries committee in the meantime. The announcement in the 2012 Budget followed close engagement with the industry, which has warmly welcomed our proposed approach to provide greater certainty for the investment that we all want to see on the UK continental shelf. We believe that it should result in billions of pounds of additional investment and production over the life of the basin at no net cost to the Exchequer.

We will discuss further points on clause 184 that relate to how we can incentivise smaller companies to take part. They have been very much part of the discussions that I and my Department have had, and of the work that I outlined. Indeed, they can be discussed with field allowances.

I want to make it clear that we value consistency between the definition of decommissioning expenditure used in the clause and schedule, and in any contract in respect of the wider certainty work. However, I think it will be one of the issues covered in the consultation on decommissioning certainty that the hon. Lady asked about and which will be published later this year. Because of that ongoing consultation process, the clause includes a power to amend the definition of decommissioning expenditure through secondary legislation.

In conclusion, the clause and the schedule will ensure that companies remain eligible for tax relief worth half, or in some cases three quarters of their decommissioning costs. Losses arising from those costs will continue to qualify for generous carry-back provisions, and the clause seeks to ensure consistency of treatment for different types of decommissioning expenditure. We believe that restricting the rate of relief in that way is the most sensible way to address the risk that companies  might otherwise be incentivised to accelerate the decision to decommission mature fields on tax grounds. The clause and schedule also complement the Government’s wider ongoing work to ensure that companies have long-term certainty on decommissioning relief, which will be the subject of consultation in due course.