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Clause 1

Volume 888: debated on Wednesday 19 March 1975

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Petroleum Revenue Tax

Amendments made: No. 1, page 2, line 5, leave out

' such rates as Parliament may hereafter determine'

and insert ' the rate of 45 per cent '.

No. 2, in page 2, line 8, at end insert:

' and under section (Oil allowance) of this Act by reference to his share, if any, of the oil allowance for that period, subject however to the limit imposed in his case by section (Annual limit on amount of tax payable by participator) of this Act '—[Mr. Dell.]

I beg to move Amendment No. 153, in page 2, line 28, at end insert:

' and, in connection with certain gas sold to the British Gas Corporation, to section 8 of this Act '.

With this amendment it will be convenient to take Amendment No. 69, in Clause 8, page 15, line 4, leave out from ' gas ' to ' shall ' in line 6.

Government Amendments 154 to 158.

Amendment No. 90, in Clause 16, page 22, leave out lines 41 and 42 and insert ' natural gas; '

Government Amendment No. 159.

Amendment No. 153 is a tidying up amendment which replaces the present subsection (6) of Clause 8, which is deleted by Amendment No. 154.

Amendments Nos. 155 to 159 deal with the corporation tax ring fence and are consequential on the exemption of certain gas from PRT, under clause 8.

Amendment No. 159 deletes the word "natural" from the expression "natural gas" in the provision for determining PRT payments on account. This brings the expression into line with other references to United Kingdom gas in the Bill.

I wish to address my remarks to Amendment No. 69, which seeks to remove gas from the scope of PRT.

The natural gas produced in the United Kingdom sector of the North Sea must be offered to the Gas Council. Most of it is therefore sold to the British Gas Corporation on fixed contract. It is true that the Minister has exempted gas supplied on contracts which were signed before the end of June 1975. However, it is our belief that natural gas in total should be exempted. The reason for that is simple. The price of gas has not increased in line with the price of oil. The oil companies have seen the quintupling of oil prices during the past 12 or 14 months, but the gas price has not moved, for the simple reason that it is sold to a monopoly customer on a long-term contract. Natural gas is now beginning to take an even bigger share in the energy market of the United Kingdom. I should like to quote from the Statistical Bulletin of the Department of Energy. The headline reads:
" Natural gas consumption 20 per cent. up in 1974 ".
The article reads:
" The provisional figures show that natural gas consumption increased in absolute terms by 8 million tons and nuclear electricity by 2 million tons of coal equivalent, each representing a 20 per cent. increase, which together offset a reduction in petroleum consumption.…as sent out in 1974 was about 16 per cent. higher than in 1973 and within the total, natural gas supplied direct to consumers accounted for more than 85 per cent. of the supply. Town gas, manufactured principally from coal, oil and reformed natural gas declined by 35 per cent. compared with the previous year and now amounts to only 12 per cent. compared with 90 per cent. five years ago."
Natural gas is now a signfiicant element in our energy equation. The price of gas is to a greater or lesser extent dictated by the British Gas Corporation, which is a Government agency. It therefore cannot move its price in the same way that oil prices are moved.

The petroleum revenue tax is designed to tax profits. Our contention is that there are no profits where natural gas is concerned, for the reasons I have given. The petroleum revenue tax is designed to attract a tax to windfall profits. Here we have a situation in which a product which is of significance to the energy needs of Britain is treated in the same way as a tax on oil—liquid hydrocarbon—which is subject to wide price fluctuations.

The Government have gone a long way to meeting the problem of the Southern gas field. We recognise that. Indeed when the Bill was first introduced all contracts made before 1st July 1975 would have attracted PRT. I cannot see the objection to going the whole distance and taking natural gas out of the tax.

The Paymaster-General indicated to us in Committee that he was considering the possibility of excluding gas from the scope of PRT. I should be grateful if he would let us know why he has not decided to do so, since the consequence of imposing PRT on gas is necessarily an increase in the price of gas.

My quotation from the Statistical Bulletin explained that a large amount of natural gas was being used commercially and domestically. If petroleum revenue tax is now attached to contracts made after July 1975, gas prices will necessarily rise steeply. That is inevitable. Therefore the Minister, in taxing natural gas contracts made after 30th June, will directly contribute to an increase in the price of natural gas.

The Government have made it clear that they want to see nationalised industries' prices coming into line with the commercial needs of industry. I do not quarrel with that. To do so in this totally artificial and unnecessary manner will give an additional twist to the inflationary screw. Many contracts will be signed before the end of June, while current contracts are operating in respect of fields having a considerable life. We are concerned that future contracts should take account of the commercial needs of the country. I do not believe that it is sensible to add unnecessarily to the price of a commodity by means of legislation when there is no way in which production of that commodity can become more profitable.

I hope that Amendment No. 69, which seeks to exempt natural gas from PRT, will have the support of the Paymaster-General. At any rate, I trust he will repeat his assurance to consider the exclusion of natural gas from the legislation. We regard this matter as of great significance, since gas consumers will otherwise find that the price of gas will have been dramatically increased.

I indicated that I would consider the possibility of exempting gas from the scope of PRT. In the end, I proposed to the Committee that contracts made up to 30th June 1975 should be exempted. In dealing with a difficult situation, I think that was the right compromise solution.

The situation is different in respect of the future. I proposed the exemption because contracts would have been negotiated in ignorance of PRT. It is therefore wrong to subject such contracts to PRT, and therefore they will be exempted. Nevertheless, the situation has changed since the days when those contracts were made. It is a matter for discussion and thought—not on a partisan basis—whether, in a situation in which the United Kingdom has resources of oil and gas, the price of one should be fixed artificially low in relation to the other. That is a matter which warrants consideration, and to decide at this point to exempt gas would pre-empt such an examination.

7.0 p.m.

What we have done is to say that contracts made after 30th June 1975 should be liable to PRT. The prices negotiated with the British Gas Corporation for gas supplies after 30th June 1975 will be negotiated in the knowledge of PRT. Gas after 30th June 1975 will benefit from the marginal field provision. There are existing contracts which will help for a long time to limit and to delay any impact on the housewife from the decision to include such contracts within the scope of PRT.

This is the best way of handling matters at the moment in the changed situation in which we have both oil and gas supplies, and we must see in due course that they are subject to a pricing mechanism which plays some part in the competition between them.

There is the technical difficulty about the allocation of costs in fields in which there are both gas and oil supplies. This is a difficulty that the Government have accepted in relation to the decision to exempt contracts up to 30th June 1975. That is not a good reason for continuing with the difficulty thereafter. The provision that we make in the Bill will at any rate dispense with that technical problem thereafter.

This is not really an occasion on which the relative pricing of oil and gas is appropriate for discussion. It is a matter which will have to be considered nationally and by Governments in the future. Therefore, I suggest that on this matter the Bill should be left as it stands.

Amendment agreed to.