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Assessable Profits And Allowable Losses

Volume 888: debated on Wednesday 19 March 1975

The text on this page has been created from Hansard archive content, it may contain typographical errors.

I beg to move Amendment No. 3, in page 3, line 10, leave out ' one-half of' and insert:

' the cost or if lower'.

No. 4, in line 17, leave out ' one-half of the said ' and insert' the said cost or'.

No. 5, in line 37, leave out ' one-half of' and insert:

' the cost or if lower'.

No. 94, in page 29, line 17, Schedule 2, after first' the ' insert' lower of cost and'.

The amendment deals with valuation of stocks. In our view, the normal economic basis for valuing stocks is convenient for PRT. It also operates in the case of corporation tax, and the Opposition see no reason why there should be a change for PRT.

We take that view because we believe, in the first instance, that a departure from this system will involve a tax liability on unrealised stock profits whenever the cost is less than 50 per cent, of market value and, secondly, because any approximation to costs will be purely coincidental.

We also believe that there is no possibility of any saving in time or effort, because the market value of all stocks will require to be established for the purpose of the formula laid down in the Bill and, in addition, the cost of all stocks will need to be determined for economic and corporation tax purposes, anyway.

I read the Committee proceedings on this part of the Bill, and I was extremely impressed with the contribution made by my hon. Friend the Member for Barkston Ash (Mr. Alison). He went into the matter very thoroughly, and, despite the fact that the Minister of State tried on several occasions to convince the Committee otherwise, a great many of my right hon. and hon. Friends felt that the case made by my hon. Friend was not answered satisfactorily by the Minister. The argument put forward by my hon. Friend in Committee illustrated the weakness of the Minister's case.

We believe that it would be a positive incentive to companies to hold their stocks at a higher level if the Bill remained as it is drafted at present. Any company would be attracted, purely for tax purposes, by a system which, to use my hon. Friend's words, provided a built-in, substantial and measurable incentive to maximise stocks. We were happy about the Government amendment in Committee reducing the proportion to one-half from the original two-thirds, but we still believe that the existing system would be of benefit. Surely the lower cost or market value is so much simpler. It has been tried and tested. It is accepted by the profession, and it is generally acknowledged in tax law.

Even at this stage, I hope that the Government will be prepared to reconsider the position.

Like my right hon. Friend the Paymaster-General, I am very happy to welcome the hon. Member for Ross and Cromarty (Mr. Gray) to his new position, speaking on these matters, and I assure him that the manner in which he made his case was the way in which the Government's proposals were investigated in Committee.

The hon. Gentleman wants to see stocks valued as they are valued for corporation tax purposes. He gives as one of his main reasons his wish to see oil companies maintain a high level of stocks. However, the Government do not see why there should be this distortion, by means of taxation, of what might be a natural commercial judgment. In devising the tax and in our subsequent amendment, that was not our intention. It was not to take into account the value to the country, according to the hon. Gentleman, of companies keeping high oil stocks.

That was not what I meant to imply. I was saying that the system which the Government were imposing would be an incentive to companies to keep high stocks of oil instead of distributing them.

A number of factors are involved. The present Government obviously are concerned about the levels of stocks. Then there is the likely position at some future date.

In devising the PRT it was our expectation that we would produce a tax tailored to the needs of one industry. In doing that we felt that it would be possible to take into account the details of the industry which corporation tax, covering all industries, could not take into account in quite the same detailed way.

There is no question of any deterioration of stocks. There is no question of the doubtful nature of the market. Oil has a certain market. Because of that, the valuation of it can be determined more precisely than any valuation of the wide range of different commodities produced in the country. We can say that there is a value at any time, that it is not dependent on fluctuations in demand of the kind seen elsewhere. If we take cost, we have to consider the difficulties of the allocation of overheads, which is a part of the cost, and the frequency of the valuations, to which I shall refer later.

At least one of the complications arising from a consideration of the frequency

5' "initial storage ", in relation to oil won from an oil field, means the storage in the United Kingdom, the territorial sea thereof or a designated area of a quantity of oil won from the field not exceeding ten times the maximum daily production rate of oil for the field as planned or achieved (whichever is the greater), but does not include—
(a) the storing of oil as part of or in conjunction with the operation of an oil refinery; or
(b) deballasting; or
(c) conveying oil in a pipe-line;

of valuations and the frequency of attributing overheads leads the hon. Member for Ross and Cromarty and several other hon. Members to doubt whether this needs to be given the high level of priority which has been attributed to it in the amendments. We started with the idea that there was no reason why the valuation should not be the same for stocks as for ordinary production, but the oil industry objected. It made representations, and as a result the Government understood that the industry would be content with a market value substantially less than the flat rate written into the Bill originally. Therefore, we reduced it by one-third and subsequently to a half. This is a reasonable compromise and shows great willingness by the Government to meet objections made by the oil industry and by the Committee.

At the end of the day we are concerned with timing. The amount of tax will be the same, but the timing will vary slightly. We have made valuable concessions, and I hope the House will accept that we have dealt with it in the best possible manner.

Amendment negatived.

I beg to move Amendment No. 182, in page 3, line 13, leave out appropriated to refining or other processing ' and insert relevantly appropriated'.

Government Amendments Nos. 183 to 189.

Amendment No. 70, in Clause 8, page 15, line 9, after above ', insert:

'and oil used for the purposes of carrying on drilling and production operations and pumping to storage'.

Government Amendment No. 204.

Government Amendment No. 190.

Government Amendment No. 191, in Clause 10, page 16, line 33 [ Clause 10], at end insert:

10" initial treatment ", in relation to oil won from an oil field, means the doing, at any place in the United Kingdom, the territorial sea thereof or a designated area, of any of the following things, that is to say—
15(a) subjecting oil won from the field to any process of which the sole purpose is to enable the oil to be safely stored, safely loaded into a tanker or safely accepted by an oil refinery; or
(b) separating oil so won and consisting of methane gas from oil so won and consisting of gas other than methane, but does not include—
20(i)the storing of oil even where this involves the doing to the oil of things within paragraph (a) or (b) of this definition; or
(ii)any activity carried on as part of. or in association with, the refining of oil; or

Amendment ( a) to Government Amendment No. 191, exceeding ', insert:

in the case of storage in a quantity equal to '.

Amendment ( b) Amendment No. 191, in line 19, leave out ' even where this involves the doing to the oil of things within paragraph ( a) or ( b) of this definition '.

Government Amendment No. 233.

Government Amendments Nos. 192 to 196 ; and further Government amendments.

Amendment No. 182 is not as important as amendments with which I shall later deal. This amendment provides a clearer definition of what is meant by oil being appropriated. We wish to insert the words "relevantly appropriated" as clarification.

Amendments Nos. 183 to 185 deal with the cost of initial treatment and storage as well as other related matters.

Amendment No. 185 is a drafting amendment. I shall be happy to answer any questions that hon. Members may wish to ask.

Amendment No. 186 covers the cost of the initial treatment and storage that will be allowable for the petroleum revenue tax. Amendment No. 187 is consequential. We are concerned with the costing of selling the oil which is now to be allowable for PRT. This was represented to us as being inherently an allowable charge. Although the expenses involved in the selling of the oil are not large, we accepted the point made.

7.15 p.m.

Amendment No. 188 is consequential. Amendment No. 189 deals with a point raised by the hon. Member for New Forest (Mr. McNair-Wilson). It deals with fuel gas—the gas which is used as power for actual production, possibly on a platform, perhaps for driving compressors. Gas that is sold to the British Gas Corporation has a de minimus quantity not greater than 5 per cent. If it is not greater than 5 per cent. that amount is still exempt from PRT. The difficulty arises because part of that 5 per cent. could be used for its own production purposes in producing the gas originally.

As a result of representations made by hon. Gentlemen, we have produced an amendment which will go a long way towards satisfying that point.

Amendment No. 204 is a technical amendment dealing with a weakness in the rule that expenditure related to exempt gas is not allowable for PRT.

Amendments Nos. 190, 191, 192 and 193 are the most substantial of the amendments before us in this group. They cover the initial treatment and storage allowable. We have accepted from the start a need to distinguish between all the expenses that would be allowable for producing the oil and the expenses that would not be allowable for the downstream activities such as refining. We were concerned with the valuation of the oil at the most reasonable point of landing. It was held that storage facilities are bound to be required, which we accept. It was a question of how much these could be allowed and what the size of such facilities might be.

We tried to meet the representations of the oil industry by settling for a five days' capacity, which is frequently employed. We have gone further into this and, bearing in mind the expensive installations which are being built at Sullom Voe in the Shetlands and at Flotta in the Orkneys, we are prepared to allow initial storage as an expense for PRT up to a capacity of 10 days' supply. This is a valuable concession and we hope the House will approve it.

We have made concessions on initial treatment. We have introduced a new definition of "initial treatment" which is the appropriation to refining or any use except production purposes. Production purposes "is defined in Amendment No. 192, to cover any use of (a) production, (b) transportation to the United Kingdom, or (c) initial treatment.

The exemption from PRT will apply to initial storage either in the United Kingdom or in the offshore sector of the United Kingdom. I should warn hon. Members that at present there are no optional alternatives available for storage. There is the possibility that technical changes might be introduced in the future. We shall have to look at the requirements of the situation in the future if alternatives are available to the industry for storing the oil. For example, if some process otherwise qualifying as initial treatment is carried out on the oil while it is in store, the cost of this, so far as it is distinct from the cost of storage, will not be disqualified by the words the amendment would delete.

If there were to be technical changes which radically altered the way in which storage was carried out we could not bind successor Governments to retain the present arrangements. That covers most of these amendments. If there are any points which hon. Members wish to raise I should be happy to take part in further discussion.

I am happy to welcome the amendments tabled by the Government, particularly those dealing with initial treatment and storage. The liquid hydrocarbon that comes out of the ground is not in a usable form. It requires stripping immediately to get it into a form in which it would normally be sold. It is this initial treatment which we have always believed should be an allowable cost against PRT. I am glad that the Government have agreed with our suggestions.

I do not know whether the Minister of State is aware of this, but I was given a figure the other day suggesting that the annual cost of storing a barrel of crude oil is $3. This is an expensive capital overhead. The Minister quoted a 10-day supply, which is a substantial quantity. I very much agree that this may be a matter which needs re-examination when we have a clearer idea of the quantities which will be coming ashore and of the demand.

The Minister's right hon. Friend was good enough to write to me on 10th March about fuel gas. This is something about which we felt strongly, because compressors have to be used for a number of purposes, not the least being to keep up the pressure within the gas reservoir so that the gas can be delivered to the British Gas Corporation at the pressure contracted for. That is a sensible and welcome concession. We welcome these concessions and feel certain that they will make this part of the Bill better.

Amendment agreed to.

Amendments made: No. 183, in page 3, line 33, leave out from ' was ' to ' without ' in line 34 and insert:

relevantly appropriated by him in the period '.

No. 184, in page 3, line 40, leave out appropriated to refining or other processing '

and insert

`relevantly appropriated '.—[ Mr. Sheldon.]

I beg to move Amendment No. 6, in page 4, line 22, leave out from ' is ' to end of line 34 and insert

the sum of the amounts mentioned in subsection (9) below '.

No. 7, in page 4, line 35, leave out '( a)'.

No. 8, in page 4, line 36, leave out paragraph ( a).

No. 11, in page 5, line 9, after 'allowable', 'insert for the period '.

No. 12, in page 5, line 10, leave out from field ' to ; and ' in line 14.

No. 15, in page 5, line 15, leave out from ' as ' to ' for ' in line 16 and insert ' qualifies '.

No. 16, in page 5, line 22, after ' allowable ', insert ' for the period '.

No. 17, in page 5, line 23, leave out from ' Act ' to end of line 27 and insert for which allowance may be claimed under Schedule 6 to this Act ;

No. 20, in page 5, line 39, leave out from beginning to ; and ' in line 45 and insert

' for which allowance is claimed on a claim made by him in the period under Schedule 7 to this Act, so far as that expenditure has not been taken into account in any previous assessment to tax '.

No. 21, in page 6, line 3, leave out from beginning to end of line 9 and insert

'for which allowance is claimed on a claim made by him in the period under Schedule 8 to this Act, so far as that expenditure has not been taken into account in any previous assessment to tax '.

No. 27, in Clause 4, in page 8, line 45, leave out 'claim' and insert 'chargeable'.

No. 28, in page 9, line 12, leave out 'claim' and insert 'chargeable'.

No. 30, in page 9, line 23, leave out 'claim' and insert 'chargeable'.

No. 31, in page 9, line 24. leave out 'claim' and insert 'chargeable'.

No. 32, in page 9, line 27, leave out second 'claim' and insert 'chargeable'.

No. 33, in page 9, line 44, leave out 'claim' and insert 'chargeable'.

No. 34, in page 9, line 46, at end insert:

'Provided that, where the asset was not used for any purpose in the period between the incurring of the expenditure and the asset's first use in connection with the field, the expenditure shall for the purposes of this subsection be treated as having been incurred on the date when the asset was first used in connection with the field '.

No. 36, in page 10, line 3, leave out 'claim' and insert 'chargeable'.

No. 37, in page 10, line 7, leave out 'claim' and insert 'chargeable'.

No. 38, in page 10, line 7, at end insert:

' Provided that, where the asset was not used for any purpose in the period between the incurring of the expenditure and the asset's first use in connection with the field, the expenditure shall for the purposes of this subsection be treated as having been incurred on the date when the asset was first used in connection with the field '.

No. 39, in page 10, line 10, leave out first 'claim' and insert 'chargeable'.

No. 40, in page 10, line 10, leave out second 'claim' and insert 'chargeable'.

No. 42, in page 10, line 17, leave out 'claim' and insert 'chargeable'.

No. 43, in page 10, line 20, leave out 'claim' and insert 'chargeable'.

No. 44, in page 10, line 21, leave out first 'claim' and insert 'chargeable'.

No. 45, in page 10, line 21, leave out second 'claim' and insert 'chargeable'.

No. 46, in page 10, line 23, leave out 'claim' and insert 'chargeable'.

No. 47, in page 10, line 27, leave out 'claim' and insert 'chargeable'.

No. 48, in page 10, line 27, leave out second 'claim' and insert 'chargeable'

No. 49, in page 10, line 31, leave out 'claim' and insert 'chargeable'.

No. 50, in page 10, line 35, leave out 'claim' and insert 'chargeable'.

No. 51, in page 10, line 37, leave out second 'claim' and insert 'chargeable'.

No. 52, in page 10, line 43, leave out second 'claim' and insert 'chargeable'.

No. 53, in page 11, line 14, leave out 'claim' and insert 'chargeable'.

No. 54, in page 11, line 17, leave out 'claim' and insert 'chargeable'.

No. 55, in page 11, line 20, leave out 'claim' and insert 'chargeable'.

No. 77, in Clause 10, page 16, leave out lines 26 and 27.

No. 116, in Schedule 4, page 43, line 39, leave out second 'claim' and insert 'chargeable'.

No. 117, in page 43, line 44, leave out 'claim' and insert 'chargeable'.

No. 120, in page 44, line 33, leave out 'claim' and insert 'chargeable'.

No. 121, in page 44, line 41, leave out 'claim' and insert 'chargeable'.

No. 122, in page 45, line 7, leave out 'claim' and insert 'chargeable'.

No. 123, in page 45, line 13, leave out 'claim' and insert 'chargeable'.

No. 124, in page 45, line 21, leave out 'claim' and insert 'chargeable'.

No. 125, in page 45, line 24, leave out from 'in' to second 'period' in line 25 and insert 'that chargeable'.

No. 127, in Schedule 5, page 46, line 9, leave out paragraph 1.

No. 128, in page 46, line 30, leave out second 'claim' and insert 'chargeable'.

No. 129, in page 46, line 32, leave out 'claim' and insert 'chargeable'.

No. 130, in page 46, line 37, leave out second 'claim' and insert 'chargeable'.

No. 131, in page 47, line 10, leave out 'claim' and insert 'chargeable'.

No. 132, in page 47, line 11, leave out 'claim' and insert 'chargeable'.

No. 133, in page 47, line 13, leave out 'claim' and insert 'chargeable'.

No. 134, in page 47, line 41, leave out second 'claim' and insert 'chargeable'.

No. 135, in page 47, line 46, leave out 'claim' and insert 'chargeable

No. 136, in page 48, line 42, leave out from ' allowed ' to end of line 43 and insert

'for the chargeable period in which the expenditure was incurred '.

No. 137, in page 49, line 29, leave out ' on the date on which the notice of appeal was given '

and insert

' for the chargeable period in which the expenditure was incurred'.

No. 138, in page 50, line 9, leave out from ' allowed ' to end of line 10 and insert

' for the chargeable period in which the expenditure was incurred '.

No. 139, in Schedule 6, page 50, line 44, leave out 'claim' and insert 'chargeable'.

No. 140, in page 50, line 46, leave out 'claim' and insert 'chargeable'.

No. 141, in page 51, line 3, leave out second ' claim' and insert 'chargeable'.

This amendment, together with the others grouped with it, seeks to alter the confusing method of timing allowable expenses. The amendments range over several clauses and schedules and result from the refusal of the Government in Committee to concede the point made by my hon. Friend the Member for Barkston Ash (Mr. Alison) that the formula adopted in the Bill, although calculated to produce early revenue, was so unfair and complex that the result could only be confusion and the undermining of the cash flow situation of oil companies during the crucial early years of a marginal field.

During the debates in Committee on 23rd and 28th January it will be remembered that the Minister of State was unable satisfactorily to explain the ramifications of his proposals for deferring allowable expenditure until that expenditure has been allowed by the Board of Inland Revenue. Further to that, the expenditure does not then become deductible from the income of that period for which it was incurred, but instead is deducted from the income of the period in which it is allowed "finally and in writing" by the Board.

Here we have a novel United Kingdom tax concept of "allowable expenditure" as defined under the provisions of this complicated piece of tax legislation, being allowed only following the making of a formal claim to the Board of Inland Revenue. The company then has to wait until it receives through its defined "responsible person" the board's decision in writing stating the amount allowed by it in the claim and the amount qualifying for supplement.

Instead of the usual system of taking what is laid down in our tax system as allowable and making the usual computations on that basis, with an adjudication in the case of a dispute being made by the Special Commissioners, we have this other system. In Committee we asked the Minister of State why this time-consuming additional procedure was necessary. We asked what was the purpose behind such a bureaucratic and unnecessary system. We received a pretty confused answer from the Minister, who battled manfully with complexities that were totally unexplainable by normal human beings.

He tried to provide for our use a hypothetical example. Instead, he got himself into a deal of a mess. I shall not read out any part of the summary he gave. He admitted that it was complicated and that perhaps we ought to come back to it after further consultations. In view of what appeared to be some degree of "give" on the Minister's part my hon. Friend withdrew his amendment, to allow the Government to come back on Report with a simplified and we hoped, a redrafted arrangement. It does not seem to have materialised.

My right hon. Friend the Member for Wanstead and Woodford (Mr. Jenkin) during our Committee deliberations presented some calculations on the effect of the Government's proposal upon three successive half-year periods of these representative allowances. The figures showed that under the system in the Bill there would be a loss of £26 million in period A, a profit of £8 million in period B followed by a profit of £27 million in period C. After the delaying and time apportionment inherent in this system these figures turned instead into a PRT charge showing for period A a profit of £28 million, for period B a profit of £45 million, and for period C a profit of £14 million. Instead of having as under normal taxation laws, £36 million taxable PRT profit, there will be a massive tax bill on 87 million in the first 18 months.

The effect of that massive taxation increase on the cash flow situation of a marginal field would be highly significant. We are not arguing against the principle of a tax on windfall profits. We are arguing against an unnecessary and complex system of delayed allowances and against all the paperwork and bureaucracy involved. The amendments seek to eliminate the requirements for these formal claims in respect of allowable expenditure. We do not believe that there will be any substantial delay in payment of taxation.

The Bill could certainly cause problems to companies which could result in delays in development. In Committee the Minister showed a willingness to examine this question and to have the fullest consultations before Report. I hope that he can accept these amendments which simplify and tidy the Bill without depriving the Revenue of income. In the light of what are now known to be the immense difficulties facing the oil companies operating in the North Sea the amendments will assist in the normal taxation way with allowances at the proper time for the proper period.

Amendment No. 34 was not raised in Committee, and refers to a defect in Clause 4 dealing with the allowance expenditure on long-term assets. Where there is a delay between the first incurring of expenditure on an asset and its first use in connection with a particular field, for example, during construction or modification—which takes some considerable time before the equipment is put into use—the effect of Clause 4 seems to be to deny relief for the full cost in such cases where the full cost is not allowable in the period of first use but is to be spread. The amount for which there will be no relief will he a proportion of the cost equal to the proportion which the period between the first expenditure and first use bears to the period between the first expenditure and the end of the asset's useful life.

The Amendment seeks to correct this defect by adding a provision that expenditure incurred some time previous on an asset which has not been used should be taken as having been incurred on the date of the first use on the field.

7.30 p.m.

The hon. Member for Exeter (Mr. Hannam) moved the amendment in terms not dissimilar from those used in moving similar amendments in Committee. He explained the procedure for obtaining agreement on corporation tax. I find it difficult to know why the Opposition are getting so worked up about this matter. On my reckoning, they have put down 58 amendments. Admittedly, there are slight variations. However, I find the number surprising.

We are dealing with the basic procedure for the prompt flow of the tax. The Government believe that the British people have a right to consideration here. They have the right to a proper share of the income that will flow from the North Sea. The two considerations which arise —one to the oil companies and the other to the country—need to be compared one with the other. I believe that this kind of balanced view has not been put forward sufficiently, if at all, as it ought to have been put forward by the Opposition.

I am glad that the right hon. Member for Wanstead and Woodford (Mr. Jenkin) is now present, because he put forward certain figures which have been referred to by his hon. Friend the Member for Exeter. Those figures have been the subject of correspondence between the right hon. Gentleman and myself. I am not sure whether he wishes to press the original figures quoted by his hon. Friend, because substantial changes were made as a result of our subsequent correspondence. I am not sure that those changes were known by the hon. Member for Exeter.

Mr. Hannam indicated dissent.

I see that the hon. Gentleman did not realise that. These figures have been overtaken by events, so perhaps they may form little part of our discussion.

One matter should be made clear. There is no need for the oil companies to suffer as a result of this legislation in its present form. Most of the capital expenditure incurred long before any oil is produced will qualify for the uplift of 75 per cent. As a result of that and, therefore, the long period between the capital expenditure and the payment of the PRT, there will be plenty of time to settle the assessment of the value of that expenditure long before PRT is payable.

There is no problem about large amounts of expenditure. We are really talking about the much smaller incremental amounts of expenditure which may be made at any time after operations have begun and the 5 per cent. provisional allowance which is more closely related to the smaller increases in expenditure at this time. The 5 per cent. provisional allowance for expenditure is not unreasonable. We have a procedure which will permit the oil companies to satisfy the Inland Revenue.

Again, we are concerned with the question of timing. When we look at the matter later and can take a more balanced, distant view, I think that we shall all come to the same conclusions as the Government—that this matter has been adequately dealt with previously.

Before the hon. Gentleman sits down, may I ask him to deal with Amendment No. 34, which seeks to deal with a defect in the Bill?

Amendment No. 34 relates to a defect dealing with the allowance of expenditure on long-term assets where there is a delay between the first incurring of expenditure and the use of the assets in connection with the field. For example, some time may elapse between construction or modification of equipment and its use. Clause 4, as drafted, seems to deny relief for the full cost in cases where the full cost is not allowable in the period of first use but is to be spread. The amendment seeks to correct that defect by adding the provision that expenditure incurred previously on an asset which has not been used should be taken as having been incurred on the date of first use on the particular field.

I understand that the amendment seeks to remove an unintended restriction on the expenditure allowable on long-term assets where there is a gap between the incurring of the expenditure and the using of the asset for the field.

I can best illustrate this by an example. Let us assume that an asset which has an estimated total life of 10 years, six years of which it will be for use in the field, is bought in year one but is unused for the field until year three. Without amendment, the proportion of allowable expenditure would be restricted to six-tenths. I see that I carry the hon. Gentleman with me. The amendment, in calling for the expenditure to have been incurred on the date when the asset is first used in connection with the field, would have the effect of increasing the proportion of allowable expenditure to six-eighths. The same principle would apply, first, to those long-term assets, which come under subsection (5)(b), where no reasonable estimate could be made of their future use, and, secondly, to mobile assets which come within the scope of subsection (6). This could arise in the unpredictable conditions of the North Sea. A company may buy a piece of equipment outright but, because of some setback—perhaps the weather—be unable to bring it into use immediately. In such a situation there would be a limit on the proportion of expenditure allowable by bringing into account the time when the asset could not be brought into use.

More seriously, if we left subsections (5) and (6) unamended, it would mean that, even where an asset is to be used solely for the field, the expenditure allowable could be inappropriately restricted. This would happen where an asset—for example, a platform—has a long construction period and there is, therefore, a gap between incurring the expenditure and actually using the asset for the field.

I apologise to my hon. Friend the Member for Exeter (Mr. Hannam) for not being here when he moved the amendment. I apologise, too, to the Minister of State for not hearing the whole of his reply.

The Minister quite rightly said that we have been in correspondence on this matter. However, the letter of 13th March does not resolve the difficulties which, as no doubt my hon. Friend the Member for Exeter said with considerable force, stem from the fact that the Government have chosen a bizarre way of dealing with expenditure claims which may be set against revenue to arrive at the amount to be charged for tax.

With every form of tax we have always been able to set expenditure over a given period against revenue for that period. However, with PRT we have an astonishing and convoluted procedure of setting the expenditure against the revenue of an entirely different period quantified and fixed by the date at which the expenditure is finally allowed.

The Government's defence of this astonishing way of proceeding is that the Inland Revenue will be prepared to allow expenditure in advance and that if claims are put in ahead of time or in time it will be possible for them to be scrutinised and the necessary notices served on the responsible person in time for the expenditure to be allowed in the first period or, if not, very soon thereafter.

That may be all right for the bulk of the initial development expenditure of a field, but it certainly will not be all right for all of it, because expenditure will go on being incurred after the field is in production, and it certainly will not be all right for the case that I put to the Minister in my letter of 17th February, with figures attached—the case of substantial additional expenditure which is added to the field after it goes into production.

The obvious case is not a little item, as the Minister of State seemed to think. Suppose that, after a period, it was necessary to establish a new platform in a field. Platforms cost tens of millions of pounds and one cannot know what the expenditure is until it is in place, the necessary bills have come in and the claim can be submitted to the Inland Revenue. In that case it will be very difficult for the company to submit its claim for expenditure so that it can be allowed in the period in which there will be substantial revenue accruing to the company from its existing production on the field.

There is bound to be a delay because of the way in which this has been done before it can be fixed. No doubt it will be allowed eventually, but in the meantime the company will be paying PRT on revenue with no allowance for the expenditure. This kind of additional expenditure was not provided for originally in the Bill—neither to be allowed nor for any uplift. Amendments made in Committee allowed for additional expenditure which enhanced value and so on. Now, we have accepted in the amendments to new Clause 1 amendments to allow uplift for that additional expenditure, but we still have the problem that it will not qualify as an allowance until a claim has been made.

In that part of his speech that I heard, the Minister of State did not begin to answer this case. He seems to be labouring under the delusion that we are talking only about small additional items. We may be talking about very large chunks of expenditure, at a time when tax is being paid. The argument in Committee was that tax will not be paid for the first two or three periods, that one will be spending money for some years in advance and that the claims can be submitted and allowed before any tax is allowed. With this kind of supplemental capital expenditure at a time when perhaps the original allowances and the oil allowance have all been exhausted—when, therefore, substantial sums of tax are being paid—it seems impossible for the companies to do this.

That is why we say that the idea of spreading the timing of returns of revenue and of claims of expenditure is bizarre and is bound to make the financing of North Sea oil more difficult. It is financing, after all, which will determine whether these fields are developed.

I am sorry that the right hon. Gentleman thinks that I was talking about the small expenditures. I was also concerned with the larger ones. What I was most interested in was the use to which the new unit would be put in processing these claims rapidly. It is this element, rather than the size of the claims, which could give rise to much speedier resolution of these problems than I think the right hon. Gentleman has realised.

The right hon. Gentleman has a touching faith in the capacity of the Inland Revenue to move quickly. I was interested in what the Paymaster-General said about this new unit. No doubt those who set it up will be doing their best, but just as the Government clearly failed to appreciate what they were taking on in this Bill—namely, the number of amendments that they have had to make—so one seriously wonders whether the Inland Revenue realises what it will be dealing with in the claims for expenditure under this clause and the related schedule.

7.45 p.m.

This matter must, clearly, be looked at again. With all these amendments, the tax will not become operative for several years yet and there will be time to look at the operation before any serious harm has been done. I am sure that that would be right.

Amendment No. 34 and Amendment No. 38, which is taken with it, raise the same point. I should like the Minister to look at his brief fairly carefully because, through the channels of which one knows, I received some indication that the Government would consider those two amendments sympathetically. Since that rumour started winging on its way from the Treasury to the House, perhaps intentions have been changed but now that the wording in the amendment has been put right—" printing error "is the term usually used—so that it is in a form acceptable to parliamentary draftsmen, it could be accepted.

My hon. Friend the Member for Exeter made the point absolutely clear, but it was not answered by the Minister of State. In the situation in which the two provisos represented by these amendments would apply, it would be right to treat the expenditure as having been incurred on the date when the asset was first used in connection with the field and not on the other, more artificial, date which applies for purposes that we can understand in the rest of the Bill.

Perhaps the Minister could look at this again and give a more encouraging reply.

Division No. 150.]


[7.50 p.m.

Aitken, JonathanBeith, A. JBoyson, Dr Rhodes (Brent)
Alison MichaelBell, RonaldBrittan, Leon
Amery, Rt Hon JulianBenyon, W.Brotherton, Michael
Arnold, TomBerry, Hon AnthonyBrown, Sir Edward (Bath)
Atkins, Rt Hon H. (Spelthorne)Biffen, JohnBryan, Sir Paul
Awdry, DanielBiggs-Davison, JohnBudgen, Nick
Baker, KennethBody, RichardBulmer, Esmond
Banks, RobertBowden, A. (Brighton, Kemptown)Burden, F. A.

Even if he does accept those amendments, however, the main point dealt with in Amendment No. 6 is such a serious flaw that I hope that my hon. Friend will be reluctant to withdraw the amendment.

If I may speak again by leave of the House, I gave the Government's considered view on these amendments and pointed out their advantages. The right hon. Gentleman is correct about the need to remove the unintended restriction on the expenditure allowable on the long-term assets where there is a gap between incurring the expenditure and using the asset in the field. I said that I accepted the point, and I am happy to accept Amendments Nos. 34 and 38.

That is indeed valuable. We shall come to those amendments in due course. However, as I said, what the Minister has just said does not deal with the problem to which I referred earlier of the main defect in the machinery of the Bill. It is a strange proceeding that companies are bound to pay tax on revenue flowing into them and only subsequently can set off the expenditure against that revenue and then not have it set off against the revenue of the same period in which it is incurred but only against that in a period 6, 12 or even 18 months later. If there is an appeal, it is set off against the period in which they actually appeal. At one time there was an enforced delay of six months after notice of appeal had been given, but, happily, that has been removed. We are still left with a serious flaw. If my hon. Friend catches your eye again, Mr. Deputy Speaker, perhaps I could say that I think he would be well advised to press the amendment to a Division.

Question put, That the amendment be made:—

The House divided: Ayes 189, Noes 247.

Butler, Adam (Bosworth)Howell, Ralph (North Norfolk)Percival, Ian
Chalker, Mrs LyndaHowells, Geraint (Cardigan)Peyton, Rt Hon John
Churchill, W. S.Hunt, JohnPrior, Rt Hon James
Clark, Alan (Plymouth, Sutton)Irvine, Charles (Cheltenham)Pym, Rt Hon Francis
Clark, William (Croydon S)James, DavidRathbone, Tim
Clegg, WalterJenkin, Rt Hon P. (Wanst'd & W'df'd)Rawlinson, Rt Hon Sir Peter
Cockcroft, JohnJessel, TobyRees, Peter (Dover & Deal)
Cooke, Robert (Bristol W)Johnson Smith, G. (E Grinstead)Renton, Tim (Mid-Sussex)
Cope, JohnKaberry, Sir DonaldRhys Williams, Sir Brandon
Cordle, John H.Kellett-Bowman, Mrs ElaineRifkind, Malcolm
Cormack, PatrickKershaw, AnthonyRoberts, Michael (Cardiff NW)
Costain A. P.Kimball, MarcusRodgers, Sir John (Sevenoaks)
Crouch,'DavidKing, Evelyn (South Dorset)Ross, Stephen (Isle of Wight)
Crowder, F. P.King, Tom (Bridgwater)Rossi, Hugh (Hornsey)
Dean, Paul (N Somerset)Kirk, PeterRost, Peter (SE Derbyshire)
Douglas-Hamilton, Lord JamesKnight, Mrs JillSt. John-Stevas, Norman
du Cann, Rt Hon EdwardKnox, DavidShaw, Michael (Scarborough)
Durant, TonyLamont, NormanShelton, William (Streatham)
Dykes, HughLawrence, IvanShepherd, Colin
Eden Rt Hon Sir JohnLawson, NigelSilvester, Fred
Edwards, Nicholas (Pembroke)Le Merchant, SpencerSims, Roger
Eyre, ReginaldLloyd, IanSkeet, T. H. H.
Fairbairn, NicholasMcCrindle, RobertSmith, Cyril (Rochdale)
Fell, AnthonyMacfarlane, NeilSpeed, Keith
Fisher, Sir NigelMacGregor, JonnSpence, John
Fletcher-Cooke, CharlesMacmillan, Rt Hon M. (Farnham)Spicer, Jim (W Dorset)
Fookes, Miss JanetMcNair-Wilson, M. (Newbury)Spicer, Michael (S Worcester)
Fowler, Norman (Sutton C'f'd)McNair-Wilson, P. (New Forest)Sproat, lain
Fox, MarcusMadel, DavidStanbrook, Ivor
Freud, ClementMarshall, Michael (Arundel)Stanley, John
Fry, PeterMates, MichaelStokes, John
Gardiner, George (Reigate)Mather, CarolStradling Thomas, J.
Gardner, Edward (S Fylde)Maude, AngusTapsell, Peter
Gilmour, Rt Hon Ian (Chesham)Maudling, Rt Hon ReginaldTaylor, Teddy (Cathcart)
Gilmour, Sir John (East Fife)Mawby, RayTebblt, Norman
Goodlad, AlastairMaxwell Hyslop, RobinTemple-Morris, Peter
Gow, Ian (Eastbourne)Meyer, Sir AnthonyThatcher, Rt Hon Margaret
Gower, Sir Raymond (Barry)Moate, RogerThomas, Rt Hon P. (Hendon S)
Grant, Anthony (Harrow C)Monro, HectorTownsend, Cyril D.
Gray, HamishMontgomery, FergusTrotter, Neville
Griffiths, EldonMore, Jasper (Ludlow)Tugendhat, Christopher
Grimond, Rt Hon J.Morgan, Geraintvan Straubenzee, W. R.
Grist, IanMorris, Michael (Northampton S)Vaughan, Dr Gerard
Grylls, MichaelMorrison, Charles (Devizes)Wainwright, Richard (Colne V)
Hall, Sir JohnMorrison, Hon Peter (Chester)Wakeham, John
Hamilton, Michael (Salisbury)Neave, AireyWalder, David (Clitheroe)
Hampson, Dr. KeithNelson, AnthonyWalker-Smith, Rt Hon Sir Derek
Hannam, JohnNeubert, MichaelWeatherill, Bernard
Harvie Anderson, Rt Hon MissNewton, TonyWells, John
Hastings, StephenNormanton, TomWiggin, Jerry
Havers, Sir MichaelOnslow, CranleyWinterton, Nicholas
Hawkins, PaulPage, Rt Hon R. Graham (Crosby)Wood, Rt Hon Richard
Heseltine, MichaelPardoe, John
Hicks, RobertParkinson, CecilTELLERS FOR THE AYES:
Holland, PhilipPattie, GeoffreyMr. Russell Fairgrieve and
Hooson, EmlynPenhaligon, DavidMr. Richard Luce.
Howell, David (Guildford)

Abse, LeoCanavan, DennisDell, Rt Hon Edmund
Allaun, FrankCant, R. B.Dempsey, James
Armstrong, ErnestCarmichael NeilDoig Peter
Ashley, JackCartwright, JohnDormand, J. D.
Ashton, JoeCastle, Rt Hon BarbaraDouglas-Mann, Bruce
Atkins, Ronald (Preston N)Clemitson IvorDunn, James A.
Bagier, Gordon A. T.Cocks, Michael (Bristol S)Dunnett, Jack
Bain, Mrs MargaretCohen, StanleyDunwoody, Mrs Gwyneth
Barnett, Guy (Greenwich)Coleman, DonaldEdge, Geoff
Barnett, Rt Hon Joel (Heywood)Colquhoun, Mrs MaureenEllis, Tom (Wrexham)
Bates, AlfConlan, BernardEnglish, Michael
Bean, R. E.Cook, Robin F. (Edin C)Ennals, David
Bennett, Andrew (Stockport N)Cox, Thomas (Tooting)Evans, Gwynfor (Carmarthen)
Bishop, E. S.Craigen, J. M. (Maryhill)Evans, loan (Aberdare)
Blenkinsop, ArthurCrawford, DouglasEvans, John (Newton)
Boardman. H.Crawshaw, RichardEwing, Harry (Stirling)
Booth, AlbertCrosland, Rt Hon AnthonyEwing, Mrs Winifred (Moray)
Bottomley, Rt Hon ArthurCryer, BobFernyhough, Rt Hon E.
Bradley, TomCunningham, G. (Islington S)Fitch, Alan (Wigan)
Bray, Dr JeremyCunningham, Dr J. (Whiteh)Fitt, Gerard (Belfast W)
Brown, Ronald (Hackney S)Davidson, ArthurFlannery, Martin
Buchan, NormanDavies, Bryan (Enfield N)Fletcher, Ted (Darlington)
Buchanan, RichardDavies, Denzil (Llanelli)Foot, Rt Michael
Callaghan, Jim (Middleton & P)Davies, Ifor (Gower)Ford, Ben
Campbell, Iande Freitas, Rt Hon Sir GeoffreyForrester, John

Fraser, John (Lambeth, N'w'd)Mackenzie, GregorShore, Rt Hon Peter
Freeson, ReginaldMackintosh, John P.Short, Mrs Renee (Wolv NE)
Garrett, John (Norwich S)Maclennan, RobertSilkin, Rt Hon John (Deptford)
George, BruceMcMillan, Tom (Glasgow C.)Sillars, James
Gilbert, Dr JohnMcNamara, KevinSilverman, Julius
Ginsburg, DavidMadden, MaxSkinner, Dennis
Golding, JohnMagee, BryanSmall, William
Gould, BryanMahon, SimonSmith, John (N Lanarkshire)
Gourlay, HarryMarks, KennethSnape, Peter
Graham, TedMarshall, Dr Edmund (Goole)Spearing, Nigel
Grant, George (Morpeth)Marshall, Jim (Leicester S)Spriggs, Leslie
Grocott, BruceMeacher, MichaelStallard, A. W.
Hamilton, James (Bothwell)Mellish, Rt Hon RobertStewart, Donald (Western Isles)
Hamilton, W. W. (Central Fife)Mlkardo, IanStewart, Rt Hon M. (Fulham)
Hardy, PeterMillan, BruceStoddart, David
Harper, JosephMiller, Dr M. S. (E Kilbride)Stott, Roger
Harrison, Waller (Wakefield)Mitchell, R. C. (Soton, Itchen)Strang, Gavin
Hart, Rt Hon JudithMorris, Alfred (Wythenshawe)Strauss, Rt Hon G. R.
Hattersley, Rt Hon RoyMorris, Charles R (Openshaw)Summerskill, Hon Dr Shirley
Hatton, FrankMulley, Rt Hon FrederickSwain, Thomas
Hayman, Mrs. HeleneMurray, Rt Hon Ronald KingTaylor, Mrs Ann (Bolton W)
Healey, Rt Hon DenisNewens, StanleyThomas, Jeffrey (Abertillery)
Henderson, DouglasNoble, MikeThomas, Mike (Newcastle E)
Hooley, FrankOakes, GordonThomas, Ron (Bristol NW)
Horam, JohnOgden, EricThompson, George
Hoyle, Doug (Nelson)O'Halloran, MichaelTierney, Sydney
Huckfield, LesO'Malley, Rt Hon BrianTinn, James
Hughes, Rt Hon C. (Anglesey)Orbach, MauriceTomlinson, John
Hughes, Mark (Durham)Ovenden, JohnUrwin, T. W.
Hughes, Robert (Aberdeen N)Owen, Dr DavidVarley, Rt Hon Eric G.
Hughes, Roy (Newport)Padley, WalterWalnwright, Edwin (Dearne V)
Hunter, AdamPalmer, ArthurWalker, Terry (Kingswood)
Jackson, Colin (Brighouse)Park, GeorgeWard, Michael
Jackson, Miss Margaret (Lincoln)Parker, JohnWatkins, David
Janner, GrevilleParry, RobertWatkinson, John
Jay, Rt Hn DouglasPeart, Rt Hon FredWatt, Hamish
Jeger, Mrs LenaPerry, ErnestWeetch, Ken
John, BrynmorPhipps, Dr ColinWeitzman, David
Jones, Alec (Rhondda)Price, C. (Lewisham W)Wellbeloved, James
Jones, Barry (East Flint)Price, William (Rugby)Welsh, Andrew
Jones, Dan (Burnley)Radice, GilesWhite, Frank R. (Bury)
Kaufman, GeraldRees, Rt Hon Merlyn (Leeds S)While, James (Pollok)
Kelley, RichardReid, GeorgeWhitehead, Phillip
Kerr, RussellRichardson, Miss JoWhitlock, William
Kinnock, NeilRoberts, Albert (Normanton)Wigley, Dafydd
Lambie, DavidRoberts, Gwilym (Cannock)Williams, Alan (Swansea W)
Lamborn, HarryRobertson, John (Paisley)Williams, Alan Lee (Hornch'ch)
Lamond, JamesRoderick, CaerwynWilliams, W. T. (Warrington)
Lee, JohnRodgers, George (Chorley)Wilson, Alexander (Hamilton)
Lestor, Miss Joan (Eton & Slough)Rooker, J. W.Wilson, Gordon (Dundee E)
Lewis, Arthur (Newham N)Roper, JohnWise, Mrs Audrey
Lewis, Ron (Carlisle)Ross, Rt Hon W. (Kilmarnock)Woof, Robert
Lomas, KennethRowlands, TedWrigglesworth, Ian
Loyden, EddieRyman, JohnYoung, David (Bolton E)
Luard, EvanSandelson, Neville
Lyons, Edward (Bradford W)Sedgemore, BrianTELLERS FOR THE NOES:
McElhone, FrankSelby, HarryMr. John Ellis and
MacFarquhar, RoderickShaw, Arnold (Ilford South)Mr. Laurie Pavitt.
McGuire, Michael (Ince)Sheldon, Robert (Ashton-u-Lyne)

Question accordingly negatived.

8.0 p.m.

I beg to move Amendment No. 9, in page 4, line 44, leave out from ' time ' to ' and ' in line 45.

With this we may discuss the following amendments:

No. 10, in page 5, line 4, leave out from ' time ' to end of line 6.

No. 75, in Clause 10, page 16, line 20, leave out from beginning to ' the ' in line 21.

No. 76, in page 16, line 22, leave out have ' and insert ' has '.

No. 78, in Clause 12, page 19, line 22, leave out from ' to ' to end of line 23 and insert:

'the price the oil might have been expected to fetch had the parties to the transaction been independent persons dealing at arm's length!

No. 79, in page 19, line 38, leave out from ' it' to end of line 40 and insert:

'the price the oil might have been expected to fetch had the parties to the transaction been independent persons dealing at arm's length

No. 80, in page 20, line 5, leave out from ' to ' to end of line 6 and insert:

'the price the oil might have been expected to fetch had the parties to the transaction been independent persons dealing at arm's length'.

Government Amendment No. 214.

No. 81, in page 20, line 7, leave out subsection (5).

Government Amendment No. 215.

No. 82, in page 20, line 22, leave out ' not '.

No. 92, in Schedule 2, page 28, line 44, leave out from time ' to and ' in line 45.

No. 93, in page 29, line 9, leave out from time ' to and ' in line 10.

No. 95, in Schedule 3, page 37, line 7, at end insert and '.

No. 97, in page 37, leave out lines 12 to 15.

No. 98, in page 37, line 26, leave out from ' time ' to requires ' in line 28 and insert which '.

No. 99, in page 37, line 37, leave out sub-paragraph ( b).

No. 100, in page 38, line 5, leave out (with sub-paragraph (2)( b) above applying accordingly) '.

No. 101, in page 38, line 14, leave out calendar month' and insert

' delivery or appropriation of oil '.

No. 102, in page 38, line 17, leave out in that month '.

No. 103, in page 38, line 19, leave out in that month '.

No. 104, in page 38, leave out lines 22 to 28 and insert

' "the material time" means the time in the chargeable period at which each delivery or appropriation takes place '.

No. 105, in page 38, line 28, at end insert—

' Provided that when on any day in a calendar month there is a material change in the market value of oil as ascertained in accordance with the provisions of this Schedule, the period up to the day preceding each such day of change and the period commencing on each such day of change shall be treated as separate calendar months '.

The object of the Opposition's amendments is to secure that in the computation of petroleum revenue tax liability all deliveries, not just arm's-length sales, are valued at market value on the specific date of delivery. Thus, there would be two virtually identical regimes of valuation—first, the stated price in an arm's-length sale, and, secondly, market value on the date of sale or disposal in other cases. As both would usually be fairly close, if not identical, there would be a single method of valuation for disposal both at arm's-length and at non-arm's-length.

The best argument for the Government's accepting the amendments is that the Government have already substantially moved in the direction which we indicated by the amendments. They took note of what we said in the debate in Committee on Clause 10 about the unsatisfactory character of the original six-monthly valuation basis. They moved over—and we give them full credit for this—from a six-monthly to a monthly basis of valuation, using the mid-point in a calendar month rather than in a chargeable period.

Logic dictates that the Government should move further and adopt the formula which we propose. "1 he first element in this logic is that the original change was made, I believe, because the Government recognised that the risk of a disparity between the notional date of valuation, the mid-point date in the six-monthly period, and the actual value was too great if there was a wide spread of time on either side of the fixed point.

They recognised the risk that companies would have to pay tax on an artificially inflated oil price, possibly substantially inflated, which bore no relation to what the oil would sell for when the disposal occurred.

If the Government were prepared to shorten the period to one month, it is illogical and ineffective not to go the whole hog. After all, if the Government hold that the risk of a disparity between an artificial or notional price and the real price is a hazard which should be avoided if possible, there is no point in trying to cut down the risk from a chance of one in 180 to a risk of one in 30. The risk is still very much alive and kicking, although substantially reduced.

I believe that there is a far more substantial and potent reason, following the Paymaster-General's statement— [Interruption.]

On a point of order, Mr. Deputy Speaker. Would you consider asking the Tribune Group to hold its protest meeting elsewhere, perhaps in a Committee room? It is difficult for hon. Members to follow the important argument in the debate.

Mr. Skinner rose—

Let us not have a "Further to that point of order ". I do not know what the hon. Members concerned are discussing, and I do not want to know. They may be discussing the next amendment. As long as we are able to conduct our proceedings and each hon. Member can hear what the hon. Member for Barkston Ash (Mr. Alison) is saying, they are quite in order in staying in the Chamber.

As long as I have the Minister of State's ear and the Tribune Group does not, and as long as that situation continues, I shall be content.

I now emphasise the second ground of the logic of accepting the argument, which emerges clearly from the Paymaster-General's statement on 25th February. The Government have shown their sensitivity to the possibility that oil exploration and development may be discouraged, and that oil may not flow as freely as they hope and expect. So sensitive are they that they introduced the special safeguard known as the overriding limit on PRT chargeable.

I digress briefly to show the relevance of the new overriding limit proposal which was announced earlier this year and which is now introduced in the Bill. The nuts and bolts of the proposal are set out in an extremely interesting example given in paragraph 10 of the Paymaster-General's Press statement. If, in the example given, the PRT burden for a 12-month period rose to £9 million on a profit of £41 million, the overriding limit would operate to reduce the PRT payable to £6·4 million.

We see that it is worth while in the Government's view that a reduction of £2·6 million a year should be made in a particular tax burden. They are dealing with such sensitive margins that that figure is held to be an important and measurable concession to the oil companies —and that in a 12-month period.

This means that for every chargeable period, a six-month period, the Government are prepared to effect a reduction of £1·3 million. If they are prepared to make concessions as small as that in a chargeable period, how ludicrous it is that they should continue to insist on a monthly valuation basis, the effect of which may be to produce a disparity between an actual sale and a notional sale far in excess of figures such as I have suggested.

For example, if the price of oil dropped from £40 a ton to £35 in a chargeable period, on a turnover of 10 million tons in that period the difference in tax liability will be about £25 million. There would be a differential of that amount in the valuation of the taxable yield of the field in question.

The sum of £25 million is almost 25 times the size of the concessions that the Government are prepared to make for one chargeable period in the overriding limit charge. Why are they prepared to expose companies to the possibility of tax variations of as much as £25 million, as a result of choosing an artificial basis for valuing the stock, when they are prepared to make concessions of £1·3 million in the overriding limit factor?

The Government have shown themselves so sensitive to the effect of PRT that they are prepared, on the overriding limit formula, to make a concession worth just a couple of million pounds in each chargeable period. That concession could be swept away by the haphazard and chance feature of a difference in price between the artificial mid-month valuation date and the date on which disposal occurs.

It no longer makes sense to pretend that the Government are trying to help the industry by measures such as the overriding limit formula, while they persist with all the hazards that might arise in the monthly valuation formula.

I ask the Government to accept the logic of what we propose and to carry their reform further, to use the formula which will apply to arm's-length sales. spare the oil companies this additional hazard, and allow valuation of non-arm's-length sales on the basis of market value on the date when they occur, instead of having the artificial and haphazard formula which is now proposed.

8.15 p.m.

The hon. Member for Barkston Ash (Mr. Alison) made his point very well in Committee, and has repeated it with some embellishment. The hon. Gentleman spoke about the necessity to get the right market value at the date of delivery, and referred to a number of concessions made by the Government in Committee on this point. I accept that there has been some movement, in a way that I think is of general benefit to the oil companies and the Government. Having made the concessions, so that the valuation is now to be at the mid-point of each month, we have reached the best available solution.

The hon. Gentleman and others have pressed for more frequent valuations. At one time it was even suggested that there should be daily valuations. I am not sure whether that is suggested now, but it would be impossible to work. Continuous valuation produces the most exact result, but it throws an intolerable burden on not only the Inland Revenue but the oil companies. It is therefore essential to find a compromise between the frequent fluctuations in oil prices and the need to have a practical tax system.

I suppose that this is the ideal area in which men of good will and common sense need to meet to work out a solution. I believe that the compromise proposed in Committee, of as frequent a valuation as could practicably be entertained by both parties, and frequent enough to meet the legitimate point put by the hon. Gentleman, represented a sensible solution.

The Minister is not speaking on behalf of the oil companies when he suggests that they would prefer a monthly valuation for reasons of convenience. They would tolerate the inconvenience caused by moving over to a valuation at date of disposal.

But I doubt whether the oil companies have changed their mind sufficiently to start talking about a daily valuation of a kind that is not possible.

Concessions have been made on the petroleum revenue tax. The hon. Gentleman pointed out one, the safeguard concession, whereby the overriding limit was established. He talked about £2·6 million, which is an important and measurable difference. I have a great respect for such figures. The sum of £2·6 million is large, even in comparison with the sums with which the Government frequently deal.

We have made concessions which we believe clearly give a positive benefit, in that they will help to produce oil quickly, with the maximum advantage to the companies and the people as a whole. I am afraid that I do not see a sensible alternative here. I think that the concessions that we made were valuable and that if they had been agreed more wholeheartedly by the Opposition we would have heard rather less about this matter than perhaps we have heard subsequently. This is something on which we shall need to insist. I hope that the House will take that point.

Perhaps I may deal with Government Amendments Nos. 214 and 215. These apply the PRT valuation rules to oil which, because it has been disposed of other than at arm's length, has to be valued for corporation tax in the particular circumstances in which the PRT charge on the oil falls on the licensee but the corporation tax falls on someone else. I hope that the House will accept those amendments.

The Minister of State has not met our points entirely. Certainly we are a great deal more satisfied with the monthly concept than with the twice-yearly concept. But, of course, it is this degree of artificiality which exists in this part of the Bill to which we have always objected so strongly. We simply cannot see why it is necessary. My hon. Friend the Member for Barkston Ash (Mr. Alison), in his usual persuasive manner, has asked the Government to recognise that in a world in which oil prices can change, and have been shown to change, dramatically and quickly such a situation could have the most deleterious effects.

I wonder whether the Minister of State would like to address his mind to this possibility. If he is not prepared to budge away from the monthly concept now before us, would he be prepared to look at the possibility of suspending this system in the period during which substantial changes in the price of oil were taking place? To some extent this would get over the artificiality of the problem. My hon. Friend gave us some idea of the sort of sums which could be involved.

Rather than have what still remains a totally artificial concept for valuation and appropriation, if the Minister would care once again, Mr. Deputy Speaker, to try to catch your eye and let us know that he would suspend this system for the period in which a substantial oil price change was taking place, that might have a very real effect on the Opposition's views.

However, in the absence of that assurance, I must ask my right hon. and hon.

Division No. 151.]


[8.23 p.m.

Adley, RobertGray, HamishNormanton, Tom
Aitken, JonathanGriffiths, EldonOnslow, Cranley
Alison MichaelGrimond, Rt Hon J.Page, Rt Hon R. Graham (Crosby)
Amery Rt Hon JulianGrist, IanPardoe, John
Arnold, TomHall, Sir JohnParkinson, Cecil
Atkins, Rt Hon H. (Spelthorne)Hamilton, Michael (Salisbury)Pattie, Geoffrey
Baker, KennethHampson, Dr. KeithPenhaligon, David
Banks RobertHannam, JohnPercival, Ian
Bell, RonaldHarvie Anderson, Rt Hon MissPeyton, Rt Hon John
Berry, Hon AnthonyHastings, StephenPrior, Rt Hon James
Biffen JohnHavers, Sir MichaelPym, Rt Hon Francis
Biggs-Davison, JohnHawkins, PaulRathbone, Tim
Body, RichardHeseltine, MichaelRawlinson, Rt Hon Sir Peter
Boscawen, Hon. RobertHicks, RobertRees, Peter (Dover&Deal)
Bowden, A. (Brighton, Kemptown)Holland, PhilipRenton, Tim (Mid-Sussex)
Boyson, Dr Rhodes (Brent)Howell, David (Guildford)Rhys Williams, Sir Brandon
Brittan, LeonHowell, Ralph (North Norfolk)Rifkind, Malcolm
Brotherton, MichaelHunt, JohnRoberts, Michael (Cardiff NW)
Brown, Sir Edward (Bath)Irving, Charles (Cheltenham)Ross, Stephen (Isle of Wight)
Bryan, Sir PaulJames, DavidRossi, Hugh (Hornsey)
Buck, AntonyJenkin, Rt Hon P. (Wanst'd & W'df'd)Rost, Peter (SE Derbyshire)
Budgen, NickJessel, TobySt. John-Stevas, Norman
Bulmer, EsmondJohnson Smith, G. (E Grinstead)Shaw, Michael (Scarborough)
Burden, F. A.Kaberry, Sir DonaldShelton, William (Streatham)
Butler, Adam (Bosworth)Kellett-Bowman, Mrs ElaineShepherd, Colin
Chalker, Mrs LyndaKing, Evelyn (South Dorset)Silvester, Fred
Churchill, W. S.King, Tom (Bridgwater)Sims, Roger
Clark, Alan (Plymouth, Sutton)Kirk, PeterSkeet, T. H. H.
Clark, William (Croydon S)Knight, Mrs JillSmith, Cyril (Rochdale)
Clegg, WalterKnox, DavidSpeed, Keith
Cockcroft, JohnLamont, NormanSpence, John
Cooke, Robert (Bristol W)Lawrence, IvanSpicer, Jim (W Dorset)
Cope, JohnLawson, NigelSpicer, Michael (S Worcester)
Cordle, John H.Le Marchant, SpencerSproat, lain
Costain A. P.Lewis, Kenneth (Rutland)Stanbrook, Ivor
Crouch,'DavidLloyd, IanStanley, John
Crowder, F. P.Luce, RichardStokes, John
Dean, Paul (N Somerset)McCrindle, RobertStradling Thomas, J.
Douglas-Hamilton, Lord JamesMacfarlane, NeilTapsell, Peter
du Cann, Rt Hon EdwardMacGregor, JohnTaylor, R. (Croydon NW)
Durant, TonyMacmillan, Rt Hon M. (Farnham)Taylor, Teddy (Cathcart)
Dykes, HughMcNair-Wilson, M. (Newbury)Tebbit, Norman
Eden, Rt Hon Sir JohnMcNair-Wilson, P. (New Forest)Temple-Morris, Peter
Edwards, Nicholas (Pembroke)Madel, DavidThatcher, Rt Hon Margaret
Elliott, Sir WilliamMarshall, Michael (Arundel)Thomas, Rt Hon P. (Hendon S)
Emery, PeterMates, MichaelTownsend, Cyril D.
Eyre, ReginaldMather, CarolTrotter, Neville
Fairbairn, NicholasMaude, AngusTugendhat, Christopher
Fell, AnthonyMaudling, Rt Hon Reginaldvan Straubenzee, W. R.
Finsberg, GeoffreyMawby, RayVaughan, Dr Gerard
Fisher, Sir NigelMaxwell Hyslop, RobinWainwright, Richard (Coine V)
Fletcher-Cooke, CharlesMeyer, Sir AnthonyWakeham, John
Fookes, Miss JanetMiscampbell, NormanWalder, David (Clitheroe)
Fowler, Norman (Sutton C'f'd)Moate, RogerWalker-Smith, Rt Hon Sir Derek
Fox, MarcusMonro, HectorWeatherill, Bernard
Freud, ClementMontgomery, FergusWells, John
Fry, PeterMorgan, GeraintWiggin, Jerry
Gardiner, George (Reigate)Morris, Michael (Northampton S)Winterton, Nicholas
Gardner, Edward (S Fylde)Morrison, Charles (Devizes)Wood, Rt Hon Richard
Gilmour, Rt Hon Ian (Chesham)Morrison, Hon Peter (Chester)Younger, Hon. George
Gilmour, Sir John (East Fife)Neave, Airey
Goodlad, AlastairNelson, AnthonyTELLERS FOR THE AYES:
Gow, Ian (Eastbourne)Neubert, MichaelMr. Russell Fairgrieve and
Gower, sir Raymond (Barry)Newton, TonyMr. W. Benyon.
Grant, Anthony (Harrow C)


Abse, LeoAtkins, Ronald (Preston N)Bates, Alf
Allaun, FrankBagier, Gordon A. T.Bean, R. E.
Armstrong, ErnestBain, Mrs MargaretBeith, A. J.
Ashley, JackBarnett, Guy (Greenwich)Bennett, Andrew (Stockport N)
Ashton, JoeBarnett, Rt Hon Joel (Heywood)Bishop, E. S.

Friends to press the amendment to a Division.

Question put, That the amendment be made.

The House divided: Ayes 189, Noes 250.

Blenkinsop, ArthurHatton, FrankPrice, C. (Lewisham W)
Boardman, H.Hayman, Mrs. HelenePrice, William (Rugby)
Booth, AlbertHenderson, DouglasRadice, Giles
Bottomley, Rt Hon ArthurHooley, FrankRees, Rt Hon Merlyn (Leeds S)
Boyden, James (Bish Auck)Horam, JohnReid, George
Bradley, TomHoyle, Doug (Nelson)Richardson, Miss Jo
Bray, Dr JeremyHuckfield, LesRoberts, Albert (Normanton)
Brown, Ronald (Hackney S)Hughes, Rt Hon C. (Anglesey)Roberts, Gwilym (Cannock)
Buchan, NormanHughes, Mark (Durham)Robertson, John (Paisley)
Buchanan, RichardHughes, Robert (Aberdeen N)Roderick, Caerwyn
Callaghan, Jim (Middleton & P)Hughes, Roy (Newport)Rodgers, George (Chorley)
Campbell, IanHunter, AdamRooker, J. W.
Canavan, DennisJackson, Colin (Brighouse)Roper, John
Cant, R. B.Jackson, Miss Margaret (Lincoln)Ross, Rt Hon W. (Kilmarnock)
Carmichael NeilJanner, GrevilleRowlands, Ted
Cartwright.'JohnJay, Rt Hn DouglasRyman, John
Clemitson IvorJeger, Mrs LenaSandelson, Neville
Cocks, Michael (Bristol S)John, BrynmorSedgemore, Brian
Cohen, StanleyJohnson, James (Hull West)Selby, Harry
Coleman, DonaldJones, Alec (Rhondda)Shaw, Arnold (Ilford South)
Colquhoun, Mrs MaureenJones, Barry (East Flint)Sheldon, Robert (Ashton-u-Lyne)
Conlan, BernardJones, Dan (Burnley)Shore, Rt Hon Peter
Cook, Robin F. (Edin C)Judd, FrankShort, Mrs Renée (Wolv NE)
Cox, Thomas (Tooting)Kaufman, GeraldSilkin, Rt Hon John (Deptford)
Craigen, J. M. (Maryhill)Kelley, RichardSillars, James
Crawford, DouglasKerr, RussellSilverman, Julius
Crawshaw. RichardKinnock, NeilSkinner, Dennis
Crosland, Rt Hon AnthonyLambie, DavidSmall, William
Cryer, BobLamborn, HarrySmith, John (N Lanarkshire)
Cunningham, G. (Islington S)Lamond, JamesSnape, Peter
Dalyell TamLee, JohnSpearing, Nigel
Davidson, ArthurLestor, Miss Joan (Eton & Slough)Spriggs, Leslie
Davies, Bryan (Enfield N)Lewis, Arthur (Newham NStewart, Donald (Western Isles)
Davies, Denzil (Llanelli)Lewis, Ron (Carlisle)Stewart, Rt Hon M. (Fulham)
Davies, Ifor (Gower)Lomas, KennethStoddart, David
Davis, Clinton (Hackney C)Loyden, EddieStott, Roger
de Freitas, Rt Hon Sir GeoffreyLuard, EvanStrang, Gavin
Dell, Rt Hon EdmundLyons, Edward (Bradford W)Strauss, Rt Hon G. R.
Dempsey, JamesMacCormick, tainSummerskill, Hon Dr Shirley
Dolg PeterMcElhone, FrankSwain, Thomas
Dormand, J. D.MacFarquhar, RoderickTaylor, Mrs Ann (Bolton W)
Douglas-Mann, BruceMcGuire, Michael (Ince)Thomas, Jeffrey (Abertillery)
Duffy, A. E. P.Mackenzie, GregorThomas, Mike (Newcastle E)
Dunn, James A.Mackintosh, John P.Thomas, Ron (Bristol NW)
Dunnett, JackMaciennan, RobertThompson, George
Edge, GeoffMcMillan, Tom (Glasgow C.)Tierney, Sydney
Edwards, Robert (Wolv SE)McNamara, KevinTinn, James
Ellis, John (Brigg & Scun)Madden, MaxTomlinson, John
Ellis, Tom (Wrexham)Magee, BryanUrwin, T. W.
English, MichaelMahon, SimonVarley, Rt Hon Eric G.
Ennals, DavidMarks, KennethWainwright, Edwin (Dearne V)
Evans, Gwynfor (Carmarthen)Marshall, Dr Edmund (Goole)Walker, Terry (Kingswood)
Evans, loan (Aberdare)Marshall, Jim (Leicester S)Ward, Michael
Evans, John (Newton)Meacher, MichaelWatkins, David
Ewing, Harry (Stirling)Mellish, Rt Hon RobertWatkinson, John
Ewing, Mrs Winifred (Moray)Mikardo, IanWatt, Hamish
Fernyhough, Rt Hon E.Millan, BruceWeetch, Ken
Fitch. Alan (Wigan)Miller, Dr M. S. (E Kilbride)Weitzman, David
Fitt, Gerard (Belfast W)Mitchell, R. C. (Soton, Itchen)Wellbeloved, James
Flannery, MartinMorris, Alfred (Wythenshawe)Welsh, Andrew
Fletcher, Ted (Darlington)Morris, Charlas R. (Openshaw)White. Frank R. (Bury)
Ford, BenMulley, Rt Hon FrederickWhite, James (Pollok)
Forrester, JohnMurray, Rt Hon Ronald KingWhitehead, Phillip
Fraser, John (Lambeth, N'w'd)Newens, StanleyWhitlock, William
Freeson, ReginaldNoble, MikeWigley, Dafydd
Garrett, John (Norwich S)Oakes, GordonWilliams, Alan (Swansea W)
George, BruceOgden, EricWilliams, Alan Lee (Hornch'ch)
Gilbert, Dr JohnO'Halloran, MichaelWilliams, W. T. (Warrington)
Ginsburg, DavidO'Malley, Rt Hon BrianWilson, Alexander (Hamilton)
Golding, JohnOvenden, JohnWilson, Gordon (Dundee E)
Gould, BryanOwen, Dr DavidWilson, Rt Hon H. (Huyton)
Gourlay, HarryPadley, WalterWise, Mrs Audrey
Graham, TedPalmer, ArthurWoof, Robert
Grant, George (Morpeth)Park, GeorgeWrigglesworth, Ian
Grocott, BruceParker, JohnYoung, David (Bolton E)
Hamilton, W. W. (Central Fife)Parry, Robert
Hardy, PeterPavitt, LaurieTELLERS FOR THE NOES:
Harrison, Walter (Wakefield)Peart, Rt Hon FredMr. James Hamilton and
Hart, Rt Hon JudithPerry, ErnestMr. Joseph Harper.
Hattersley, Rt Hon RoyPhipps, Dr Colin

Question accordingly negatived.

Amendments made:

No. 14, in page 5, line 14, leave out ' 50 ' and insert 75 '.

No. 19, in page 5, line 29, leave out 50 ' and insert ` 75 '.

No. 145, in page 6, leave out lines and 2 and insert:

( e) any unrelievable field losses allowable in the case of the participator under section ( Allowance of unrelievable loss from abandoned field) of this Act'.[ Mr. Dell.]