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Oil activities: transferable tax history

Part of Finance (No. 3) Bill – in a Public Bill Committee at 11:00 am on 4th December 2018.

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Photo of Kirsty Blackman Kirsty Blackman Shadow SNP Spokesperson (Economy), SNP Deputy Leader 11:00 am, 4th December 2018

The SNP position and the Government position is to maximise economic recovery. Oil extraction does not have a particular impact on carbon levels. It is not about oil extraction; it is about what is done with it afterwards. Carbon capture and storage, for example, has a major impact on reducing the emissions that are produced when oil and gas are used. We have been pushing very hard on carbon capture and storage. If the extracted oil is made into tarmac or plastic products, it would not cause the emissions that would be caused if it is put into a car or turned into heating oil.

The Government have taken steps on electric vehicles and the Scottish Government are doing incredible things to promote them. They are increasing insulation in houses, because domestic heating is a significant contributor to climate change. A lot is being done in this space, and it has been recognised that Scotland has the most ambitious climate change targets in the world.

All of our oil and gas fields will be decommissioned at some point. That is how this works. It was always going to be a time-limited industry, because eventually the oil and gas that can be recovered economically will run out. Once an oil and gas field is decommissioned, there will be no jobs associated with it anymore, and there will be none of the anciliary services, so it reduces the amount of employment. A new player may come into the market and want to take on a field that is not a major asset for a big oil and gas company—it would rather decommission the field because it has had enough of it and cannot be bothered with it anymore. Transferring the asset on to the new company means that, however much technology it uses, jobs will be associated with the asset—there will be no jobs if it is decommissioned. We will still get the decommissioning spend and the jobs associated with decommissioning—we will just get it later. The continuing jobs on the asset will be a good thing.

Vision 2035 is the Oil and Gas Authority’s vision, which has been picked up by the industry. It is still not talked about enough, particularly by parliamentarians. We are doing our best to raise its profile, but more hon. Members could do more. Vision 2035 is about what we want the oil and gas industry to look like in 2035. Hon. Members will understand that it is hugely important for the north-east of Scotland because of the significant percentage of jobs supported by the oil and gas industry, but it is important throughout the UK. A huge number of companies throughout England provide widgets—I tend to call goods widgets—that are used in oil and gas. If we do not have a successful North sea operation, those widgets will not be bought or used in the north.

Vision 2035 is about anchoring the supply chain. It is about a system where, once there is no viable oil and gas left in the North sea, we can continue to have oil and gas jobs anchored in the north-east of Scotland and throughout the UK. The only way we can do that is if we support the industry now and support the jobs that there are now. The Oil and Gas Authority states that the North sea and the UK continental shelf are seen as a gold standard. If a technology is trialled and works in the North sea, other countries will be happy to roll out that technology if it suits their sea conditions, because they know it has been tested in one of the most rigorous regimes and by some of the best people—they will know that the technology works.

For us to continue to have a viable oil and gas industry and a viable anchored supply chain, we need to ensure that we continue to be at the forefront of any technological changes. What we are doing on enhanced oil recovery is genuinely world leading. There are few fields in the world that are at the supermature stage of the North sea, so we are doing some of the most amazing things with technology. We can see by the increase in productivity in the North sea that technological advances have been made. If the companies making the widgets that improve production continue to be anchored here in the UK, we will be able to export those technologies and the services that sit alongside them around the world even when there is no recoverable oil and gas in the North sea.

Many of the companies that I have spoken to in Aberdeen and Aberdeenshire are providing widgets and, yes, they are exporting them, but they are also exporting the people power and the services that go with them through ongoing maintenance contracts, which are a big revenue stream for the region. It is important that we do not talk only about the amount of money oil and gas generates for the Exchequer through petroleum revenue tax and the money that comes in because oil and gas comes out of the ground. We should also talk about the wider impact on the economy, which can be felt particularly in the north-east of Scotland.

When the oil price went down, we had a massive issue with house prices and redundancies in the north-east of Scotland. Very real change took place not just in those jobs directly involved with operating assets in the North sea, but in those jobs working in supermarkets in Aberdeen or in hotels. We saw the knock-on impact on the economy. It is important for the entire economy that we pursue Vision 2035.

As I have said previously, and I think the Minister covered this, this has been a good example of the UK Government and industry working together. I particularly thank Mike Tholen and Romina Mele-Cornish from Oil & Gas UK, who worked incredibly hard on this. Romina had a particularly difficult time trying to explain transferable tax history to a room full of MPs and managed to get there eventually, but that was not an easy task because it is quite complicated. If people do not understand particularly how decommissioning liabilities work, we have to explain that first before explaining why TTH makes a big difference, which I think it really does.

Regarding the amendments tabled by the Labour party, there is a suggestion that companies will try to inflate the cost of decommissioning or will be disincentivised from reducing the cost of decommissioning as a result of TTH. I do not believe for a second that that is the case; the point the Minister made in relation to the increase and potential fluctuation in decommissioning costs is well made, but the other thing is that companies do not want to have to spend that money. They want decommissioning not to cost a huge amount of money. I am clear that when decommissioning is done, it must be done right, and the Oil and Gas Authority must be on top of that. I am not in favour of companies being able to drive down costs to the very furthest reaches. I want them to drive down costs, but I want the decommissioning to be done properly and at the right time.

I have an issue with the Labour party’s amendments. The Government are trying to level the playing field between new entrants and those already operating in the North sea. The amendments seek to create a two-tier system whereby new entrants to the industry will be required to have different conditions around jobs and capital investment, but the big oil companies that already operate a large number of assets in the North sea will not be asked to make the changes that the Labour party will ask new entrants to make. It concerns me that that would create a two-tier system.

I would be interested to see an assessment of how many jobs would be lost. I am concerned that the Labour party is giving up on the north-east of Scotland. As I said, a huge number of jobs are supported by this.