[Sir Nicholas Winterton in the Chair] — Oil and Gas

Part of the debate – in Westminster Hall at 3:25 pm on 29th October 2009.

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Photo of Robert Smith Robert Smith Shadow Deputy Leader of the House of Commons, Opposition Whip (Commons) 3:25 pm, 29th October 2009

Perhaps as a member of the Procedure Committee, I should write to myself to see how today's procedure has unfolded, and whether any lessons can be learned for future Westminster Hall debates.

I welcome the fact that the report has come before the House today. Paddy Tipping, in introducing the report and the Committee's findings, put the case that the Committee had found for the industry's needs. It was the Committee's first inquiry, and it was welcome that it shone the spotlight on such an important industry.

I declare my entries in the Register of Members' Interests, as a shareholder in Shell and as someone who recently visited a carbon capture and storage pilot project in France, funded by Total. Of course, my main interest is a constituency one, however, as my constituency is just outside Aberdeen, in the north-east of Scotland, where the heart of the industry is based-although not the whole of it; it is UK-wide. The jobs that we speak of affect the whole of the UK.

I pay tribute to the history of the industry, and its contribution to our security of supply and balance of payments. It has benefited our climate change agenda. This country met its Kyoto commitments because of the lower carbon outputs from gas generation, and could well meet its future climate change commitments if, as has been talked about, carbon capture and storage is further developed. The industry has made a phenomenal contribution to the country's tax revenues, and I am sure that the Treasury is aware of that, and does not need the Minister to remind it. As we have said, there has also been a massive contribution in the form of jobs. The Minister rightly paid tribute to the sacrifice that has been made, because the industry operates in an extremely hostile and dangerous environment, and lives have been lost over the years in making sure that this country has benefited from the resource.

The nature of the oil and gas industry will always lock Government and the private sector together, because the resource under the ground belongs to the nation and for the nation to benefit from it we need the private sector to use its skills and initiative to get it out of the ground. That inevitably means a far closer link between Government and industry than there is in many other sectors of the economy. I pay tribute to PILOT for its work in bringing together the industry, the Department and the wider Government in dialogue to build a common purpose for the benefit of society.

To deal now with the recommendations of the Committee, I think that the fiscal regime is still at the heart of the effort to unlock that full potential. The Minister may not be a Treasury Minister, but the Department's crucial role is to make sure that the Treasury understands how much it needs to engage, if the Department is to achieve its full objectives on security of supply and promoting the industry in this investment climate. There has been a welcome improvement in that engagement, through the field allowance discussions, but the Treasury still shows too much caution at this time in the life cycle of the North sea. Understandably, the phrase "a dead weight" is brought up. To explain to the layman, if the Treasury gives a tax incentive that encourages an activity that would have happened without the incentive, it will lose out. However, the Treasury needs to recognise that this time, given the maturity of the North sea, the age of its pipelines and platforms, and the costs of investment, if there is a real downturn in the North sea and we lose that core infrastructure, it will not come back.

During past downturns, there have been enough large fields to tempt people back, so the Treasury could err on the side of caution in respect of the dead weight argument: it could afford to be cautious about incentives because it knew that if it got it wrong it could up the incentive and bring people back. However, at this time in the North sea, in the context of the downturn in the world economy, when the North sea is hitting maturity and there is an expensive operating environment and much smaller fields with which to compete for global investment, in the dialogue that the Treasury says it will continue with the industry, it needs to work fairly quickly to ensure that it maximises the incentives. There may be a bit of loss of future tax revenue because the Treasury has incentivised something that was going to happen, but a more important outcome will be if, globally, we still have a sustainable industry and are still maximising recovery from the North sea.