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Orders Of The Day

Volume 975: debated on Monday 10 December 1979

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Petroleum Revenue Tax Bill

Order for Second reading read.

7 pm

I beg to move, That the Bill be now read a Second time.

This modest Bill is designed to advance the payments of petroleum revenue tax. It was foreshadowed in the announcement of my right hon. and learned Friend the Chancellor of the Exchequer on 15 November, and an Inland Revenue press release of the same date was issued giving the broad approach that the Government adopt to this problem. The House had an opportunity to consider, although not to debate in any detail, the Ways and Means resolution on this topic last Thursday.

Consideration of this problem was triggered—I say this candidly—by the Government's cash flow problem, which was largely due to arrears of telephone bills caused by industrial action and involving £1 billion or more, and delayed payments of VAT.

The right hon. Member for Llanelli (Mr. Davies) has had some experience of these matters, and I am surprised that he takes such a cavalier attitude to the matter. Whether or not this is grubbing around for money, Governments, as well as individuals and bodies corporate, also require cash. The prospect was of the public sector borrowing requirement increasing from £8·3 billion to £9 billion. Inevitably, the Government reconsidered the position, and the proposal before us represents the fruits of their reconsideration.

In view of the flippant and cavalier comments from the Opposition Front Bench, I should explain that the proposals are justified on their merits, in that they will bring the regime for payment of PRT into line with that for the payment of royalties on North Sea oil revenues. In this regard they will also bring this country into line with other oil-producing countries. If one has to look around for additional money, it is fair to say that the oil industry is perhaps the most buoyant sector of the United Kingdom economy.

The House will recall that PRT is payable by reference to accounting periods, normally running from 1 January to 30 June and from 1 July to 31 December. An account has to be submitted by an oil company two months after the ending of the accounting period, and payment has normally to be made four months after the end of the accounting period. In other words, accounts have to be submitted by 1 March and 1 September and payments made on 1 May and 1 November in any year. Interest is payable on payments of tax that are in arrears at the rate of 9 per cent. That is provided for by the Oil Taxation Act.

Our new proposals in the Bill are designed to ensure that a payment on account will be made by the oil extracting companies when they submit their accounts—in other words, by 1 March and 1 September in each year. Payment of PRT will therefore be accelerated by two months. If Parliament enacts the Bill, the first payment under the new regime will be in respect of the accounting period from 1 July to 31 December 1979. It will bring the payments of PRT into line with the royalty regime, because royalties are paid two months after the end of each six-months period.

The new regime is more rigorous than the corporation tax regime because corporation tax is paid nine months after the end of a company's accounting period. It will also be more rigorous than the schedule D income tax regime since that tax is payable on 1 January and 1 July following a tax year, although the payment is based on the preceding year's profits.

Why, if in normal circumstances payment of income tax is one year later and of corporation tax nine months later, will the time for PRT payment be reduced to two months?

That is a perfectly fair point. I do not think that my hon. Friend has quite taken the point on income tax, because under case 1 or case 2 of schedule D income tax is payable on 1 January in the course of the year to which it relates and on 1 July thereafter. The PRT regime will therefore be, as it is at the moment, more stringent than the income tax regime, but I am not certain that that is an entirely fair measure of comparison.

The regime that we have so far operated and that which we now propose is not more rigorous than the regimes of other oil-producing countries. In Nigeria, Oman and Abu Dhabi, payments are made during the course of the year. In Malaysia and Brunei, part is to be paid during the course of the year and part thereafter. In Norway and the United States, payments are normally made by four instalments during the course of a year, although on estimated amounts.

By comparison with what other oil-producing countries are doing, therefore, our proposals are not over-stringent although, no doubt, in due course my hon. Friend will, if he gets the chance, deliver his usual powerful address about the difficulties that the oil industry is facing. I certainly remember my hon. Friend's interventions in the debates last summer on the increases in PRT that we then introduced.

If the House passes the Bill, £700 million will be brought forward from 1980–81 into the current financial year 1979–80. In addition, £300 million will be brought forward into 1980–81. So as to show the effects of this provision in its true context, I should explain that the previous estimates for the current year were that the Government would receive royalties of £520 million, PRT of £730 million and corporation tax from the oil companies of £140 million. The provision will therefore make a substantial contribution to the Government's cash flow. I could weary the House with many other statistics but I do not propose to do so unless pressed.

I hope that it will be accepted that our proposals conform with the assurances given by Mr. Edmund Dell when he was speaking on the original Oil Taxation Bill in 1974. He indicated then that it was important that the rate should endure and that it should not be a matter for fine tuning. His words were echoed at that time by my right hon. Friend the Member for Wanstead and Woodford (Mr. Jenkin). I should stress in that context that nothing that we are proposing in the Bill is designed to alter the quantum of the oil companies' liabilities. The Bill is designed purely to accelerate the payments of PRT to which they would in any event have been liable.

I do not think that I need weary the House with further details at this point. With your permission, Mr. Deputy Speaker, and that of the House, I hope to speak again to deal with any points that arise during the debate and that require an answer.

I do not know whether the Minister of State is proposing to summarise the clauses, but, if he is not, will he say something about the statement that the oil companies will have to deliver to the Board of Inland Revenue under clause 1(1)(a)? What is to be the nature of that statement?

The proposal is that the oil companies should deliver a statement, within two months of the end of the accounting period, giving a computation of their liability to petroleum revenue tax. That is set out in clause 1. Should they underpay tax because they have underestimated the liability, under clause 2 the oil companies will be subject to interest at 9 per cent. However, if the oil companies have been over-generous and have over-calculated their liabilities, interest will be payable on the tax repaid to them.

Does that mean that the Inland Revenue will accept a statement as it stands and not challenge assessments made by the oil companies?

It is difficult to make a detailed challenge within two months of the end of an accounting year. To that degree the Inland Revenue will depend on the accuracy of the oil companies' estimate. The companies must produce an account at the end of the period. There can be no absolute accuracy in these matters. However, there will be a sanction. Interest will be payable if the liability is underestimated. If more expenses are allowable tax will be repaid with interest. That sanction has applied up to now.

Have we not achieved, through complicated techniques—including the use of computers and micro-electronics—a high degree of accuracy in estimating the flows of oil and gas from the production platforms? Is not the allowance pretty generous either way?

I hope that it is generous. I like to believe that our tax regime is reasonable and generous. It is possible, to a degree, to monitor the extraction of oil. However, it is a question not only of the volume of oil that is extracted but of complex calculations of uplift, oil allowance, and so on. I do not pretend that absolute accuracy will be achieved by the oil companies, or even by the Inland Revenue, two months after the end of an accounting period. It will be a slightly rough and ready regime. There will always be scope for recalculation. If the oil companies under-calculate, there will be the sanction of the interest that they will have to pay—and that is non-deductible. If the oil companies are over-optimistic and underestimate their allowable expenses, tax will be paid to them with interest. I hope that the broad balance that we always hope to find in our tax system will be struck. That is in the interests of the oil companies and of the Government, through the Inland Revenue.

Will altering the period trigger off the payment of interest at 9 per cent. at an earlier date?

We can deal with that in Committee. Clause 2 deals in some detail with interest. Currently, interest is paid at the end of a four-month period. Although an account must be submitted two months after the end of an accounting period, the tax becomes payable four months after the end of that period. Interest provisions are geared to that four-month gap, but under the Bill they will be geared to a two-month gap. There is much technical fine print in clause 2 and I have no doubt that my hon. Friend the Member for Bedford (Mr. Skeet) will want to examine it in detail if he is lucky enough to be made a member of the Committee. We have shortened the period to two months.

If any other points arise in the debate, with your permission, Mr. Deputy Speaker, I hope that I may deal with them. I hope that I have explained the purpose and main provisions of the Bill. I commend this useful and modest measure to the House.

7.15 pm

When the Chancellor of the Exchequer announced this measure on 15 November to require oil companies to make payments of PRT on account so as to advance the date of collection, he said that it woud reduce the public sector borrowing requirement by £700 million this year and thus bring the PSBR back to the original Budget level of £8·3 billion. He said that it would also ensure that the PRT reached the Exchequer with the minimum of delay when oil prices increased.

We had an extensive discussion on the PSBR in the debates on 28 November and 5 December. In the course of those debates the PSBR was proved to be an elusive concept. It has been maintained that there is no public deficit at all, but a surplus. It has been said that at a time of declining economic activity the PSBR inevitably will rise, in spite of the Government's policy of progressively reducing it. It is not clear whether the target is still £8·3 billion, or 4½ per cent. of GDP, which amounts to £9·5 billion.

Confusion was worsened by the observation of the Chief Secretary that the PSBR figure had to be adjusted in "real terms". We could conclude only that he meant that it must be indexed in some way when the policy was to reduce it year by year. It is clear that this measure will make an increased contribution to the Exchequer and thus to the PSBR. It is as well to bear in mind that the real burden falls upon public services, employment, the standard of living and the quality of life, the community at large and particularly the poor.

The alteration in the payment of PRT has the advantage of achieving three PRT payments in the 1979–80 fiscal year instead of two. When the Government made their announcement, BP was reported as saying that it would not be affected to an embarrassing extent and that it was not an insuperable problem. Shell said that it would make little difference.

The Times of 16 November reported that the general attitude of the oil companies was that the Government were being reasonable. However, the companies feared that as a result of the 100 per cent. increase in oil prices over the past 12 months, and the certainty of further oil price rises, an increase in the rate of North Sea taxes might be made in the 1980 Budget.

The history of PRT is one of the Government continually trying to catch up with the profits of companies operating in the North Sea and usually lagging well behind. Given the enormous profitability of oil companies and the prospect for further massive increases in profits consequent upon the rise in world oil prices, it is not clear that we have caught up with them yet. Calling for this advance payment seems to be an expedient, but it leaves open the major question whether our community is receiving its fair share of the profits gusher in the North Sea.

The hon. Member for Norwich, South (Mr. Garrett) asks whether the community is getting its fair share. Does he not admit some complicity on the part of his party in the previous legislation, under which the level of PRT was fixed at too low a rate?

The origins of PRT lie in a report from the Public Accounts Committee in 1972–73. The Committee considered whether there were adequate financial arrangements for securing for the Exchequer and the economy a fair share of the results of the exploitation of North Sea oil and gas. It concluded that though the major oil companies incurred worldwide tax of thousands of millions of dollars, hardly any of that money found its way to the United Kingdom Exchequer. That was because their liability to United Kingdom corporation tax was extinguished by credits for tax paid elsewhere.

If that situation continues, the United Kingdom can expect little tax from the profits of the continental shelf, even by 1980. The Committee concluded that unless a new tax regime was introduced the United Kingdom would not obtain anything like the share of the take of oil companies' operations on the continental shelf that other countries were obtaining from oil found in their territories. The Committee called for Government action substantially to improve the tax yield from North Sea oil and gas.

The Times report on the PAC said that it revealed a horrifying story. It said that the British taxpayer, investor and worker had lost unnecessarily and that a national asset had been given away. The then Chancellor of the Exchequer, Lord Barber, said in March 1973 that the situation was no longer justifiable. He referred to artificial losses incurred by oil companies from their trade in other parts of the world which they used to offset against British tax.

During the Second Reading debate on the Oil Taxation Bill setting out the principles of petroleum revenue tax, in November 1974 Conservative spokesmen—notably the right hon. Member for Wanstead and Woodford (Mr. Jenkin)—attacked the concept of PRT. They said that the Treasury was greedy for cash and that smaller oil companies might be driven to the wall. However, after consultations with the oil companies the then Paymaster General announced safeguards for marginal fields, including the discretionary waiving of royalties, an oil allowance per field of 1 million tons per year free of PRT to a cumulative total of 10 million tons, and a safeguard waiving PRT if the charge reduced the rate of return on a field before corporation tax to less than 30 per cent. of capital expenditure on a historic cost basis. In addition, capital expenditure by companies qualified for an uplift of 75 per cent., making an allowance of 175 per cent. of capital spending before the tax was levied.

The rate of PRT was fixed at the surprisingly low level of 45 per cent.—the bottom end of Treasury forecasts. The rate had been widely expected by the industry to be 60 per cent. or more. When that was announced, the right hon. Member for Wanstead and Woodford doubted whether the reliefs were adequate and would be enough to restore confidence in an industry that had been badly shaken by the introduction of the Oil Taxation Bill.

There was no sign of shaken confidence in the industry. Oil shares rocketed, and the Petroleum Times of 7 March 1975 said that oil companies could chalk up another victory. It contrasted the soft deal that had been obtained from the British Government with the tough time that those companies were having at the hands of OPEC Governments. During the Committee stage of the Oil Taxation Bill the Conservative Opposition fought hard for the oil companies. The right hon. Member for Wanstead and Woodford asked whether the Government were aware of the damaging blow to confidence that PRT had caused. He asked the Government whether they were aware of the grave risk that PRT might drive firms away from the United Kingdom continental shelf. However, the fears of the Conservative Party were not realised. By 1978 the tax had been proved to be too favourable to the oil industry and had to be substantially tightened up.

In August 1978 my right hon. Friend the Member for Heywood and Royton (Mr. Barnett), who was then Chief Secretary, announced new rates and allowances for PRT. He said:
"we are in a position to take stock and it is apparent that some companies are obtaining very large profits from the natural resources of the nation. We believe that the public share of these profits can and should be increased without endangering the exploitation of the less well placed fields."—[Official Report, 2 August 1979; Vol. 955, c. 754.]
He proposed to increase the rate of PRT from 45 per cent. to 60 per cent. on 1 January 1979 and to reduce the uplift for capital expenditure from 75 to 35 per cent. He also proposed to reduce the oil allowance from 1 million tons to 500,000 tons a year.

The right hon. Member for Bridgwater (Mr. King), then an energy spokesman for the Conservative Party, was fairly scathing. He maintained that the increases in revenue would add only something under 10 per cent. to the present yield. He said it would have little effect on major discoveries that had already been made but would be very damaging to smaller discoveries that were likely to make up the bulk of future discoveries in the North Sea.

A study by Odell and Rosing of the profitability and output of the Forties, Piper and Montrose fields said that the improvement in Government revenues would be less than 12 per cent. over the life of a field, and that even that depended on the assumption that all corporation tax from a field's development would be paid and not postponed as a result of new investment elsewhere in the North Sea.

The then Chief Secretary's reason for raising PRT and reducing allowances against it was that the balance had been wrong between the public interest and the return to the companies. Clearly the present Government agree that the balance was wrong, because they have implemented the proposals of my right hon. Friend.

The right hon. Member for Bridgwater at least welcomed our belated recognition that North Sea oil revenue was likely to fall below estimates. He questioned whether even the proposed tax changes went far enough for the most profitable fields. Calculations reported in the Financial Times of 4 August 1978 and based on the proposed tax regime—adopted by this Government—showed that the discounted cash flow rate of return on BP's Forties field would be 42·5 per cent., on Shell /Esso's Auk field 52·9 per cent., and on Occidental's Piper field 49·1 per cent. For smaller fields, returns were significantly lower—Amoco's Hutton field return represented 22·4 per cent. and Phillips' Maureen field 14·7 per cent. These calculations provided the basis for oil industry protests about the raising of the tax. All those calculations were carried out in August 1978, when the new PRT proposals were announced. They were made on the basis of oil being $14 a barrel, rather than the price levels of today of around $23 to $26 a barrel.

The Government adopted our proposals for reducing the allowances against PRT and implemented them in this year's Finance Act. We now have a proposal to bring PRT payments forward. However, we must still ask the key question: are there adequate taxation arrangements for securing for the Exchequer and the community their due share of profits from the exploitation of the assets of North Sea oil and gas, particularly in respect of the largest and most profitable oilfields?

Oil companies operating in the seas round Britain have a uniquely favourable economic and political environment. The Financial Times of 4 August 1978 said:
"There is hardly anywhere in the world where companies could find such an attractive combination of oil producing potential, a stable political regime and comparative freedom of operation and profit-making."
In addition, those companies are producing some of the most valuable oil in the world. Due to its lightness, and therefore its suitability for refining into high-value products, and its low sulphur content, that oil commands a premium price and is exceptionally profitable.

We still have some problems in assessing the yield from PRT. That yield was nil until the end of the 1978 financial year. For 1978–79 the yield was estimated at £170 million by my right hon. Friend the Member for Heywood and Royton. He estimated an additional yield, arising from his changes in the tax, of £150 million in 1979–80. The Treasury's economic report of last August forecast the revenue from PRT for 1979–80 at £730 million. The present measure increases that by £700 million. The Minister has told us that tonight, but even he appears unsure whether the take will be based on the estimates given by the oil companies.

When the Labour Party was in power, Conservative hon. Members complained that while the Government produced five-year expenditure forecasts they produced revenue forecasts for only one year. They said that it was reasonable to ask the Treasury for at least an indication of the expected revenue from PRT for the coming five years.

Given the effect of world oil prices on oil company profits, those questions become yet more important. The oil companies are on a never-ending profit escalator. The issue appears to be much more widely discussed in the United States than in Britain. Last month Exxon announced that its profits had more than doubled to $1·1 billion in the July to September quarter. Texaco announced a quarterly profit increase of 211 per cent. Standard Oil of Ohio announced a profit increase of 194 per cent. and Conoco announced an increase of 134 per cent. One reason for Exxon's spectacular profit increase was said to be a one-time bonanza of $200 million from a change in British tax law. Perhaps the Minister can explain whether that claim has any validity.

Profits in Europe were said by American oil companies to be the main source of their windfall profits. President Carter has proposed a windfall profits tax on the oil companies to produce $292 billion in revenue over the next 10 years. The President warned that he would introduce punitive legislation against the oil companies if the Senate failed to produce a tax Bill that he considered to be tough enough. The American Council on Wage and Price Stability, beginning an investigation of profit margins on oil products, alleged that only half of product price increases were due to higher crude and product costs. The rest was due to profits by the oil companies.

A few days ago British Petroleum declared third quarter profits of £562 million—described in The Guardian as "embarrassingly large". Cumulative profits for the first three quarters came to £1,184 million, as compared with £292 million for the first three quarters of last year. That increase by BP was attributed to a 60 per cent. increase in crude oil prices in nine months. Indeed, industrial analysis points to the direct correlation between crude oil prices and oil company profits.

I spoke earlier of crude oil prices at levels of $23 to $26 a barrel, but spot market prices are reaching $40 a barrel. A week or so ago the National Iranian Oil Company demanded $50 a barrel for some oil that had been put on the spot market. NIOC also announced a cut of 5 per cent. in deliveries for the last three months of 1979, and other countries are considering reductions. OPEC meets in Caracas on 17 December. Already Algeria and Libya have pushed their prices beyond the ceiling set by OPEC in June, and it is thought that the official OPEC ceiling could go to $25 to $30 a barrel this month. Ten years ago, that oil would have commanded $3 a barrel.

The outlook is for ever higher crude oil prices and ever higher oil company profits. On the workings of this tax, it is clear that an important feature is allowable expense. That is a matter of negotiation between the companies and the Inland Revenue. What scope is there for the transfer of costs from pipeline to production so as to minimise PRT on production? Parliament has no access to these negotiations, yet the technical complexity of the production systems must make for an imbalance between the negotiating parties. I shall refer later to President Carter's call in his energy plan for complete openness in all tax assessments of oil company operations.

In respect of a limited number of oil companies not competing with each other and working in a highly complex tax-cost-price situation and with many international aspects, should not Parliament know more about the processes of tax assessment? We know that the Government are in favour of increasing open government, as we can see from their decision to drop the Protection of Information Bill. Apparently that Bill had been drawn up by civil servants and was more repressive of information than the Ministers had intended.

For example, to what extent has the collection of this tax been delayed by difficulties facing the Inland Revenue in assessing allowable expenditure or by delays in the provision of the information from a multiplicity of fields and operators? We know of lengthy disputes between the United States Government and the companies on the cost of pipeline transport from the Alaska oil fields.

Much more fundamental questions on oil taxation, including PRT, are raised by a report placed in the Library of the House in July by the present Minister of State, Department of Energy. This report, entitled "The development of oil on the United Kingdom continental shelf", was prepared for the Department of Energy by Professor Peter Odell when he was an adviser on oil policy to the last Government. Professor Peter Odell is a widely acknowledged international authority on oil matters and a consultant to international bodies.

The Odell report reconsiders the entire question of the system of concessions and taxation used by British Governments in respect of North Sea oil. He considers the present arrangements
"basically a system in which all the positive initiative—except the granting of the concessions in the first place—lies with the companies, to whose actions the Government can respond only in a neutral or a negative way. It is, moreover, a system in which the State's collection of revenues from the exploiters of the resources is seen as a 'burden' on the company. In other words, it is a system which, in politico-economic terms, hardly seems compatible with the concept of the national ownership of a country's oil and gas resources."
On the question of taxation, the Odell report says:
"Oil pricing is a key element in determining tax liability. This is because the price declared (received) for the oil produced determines the value on which PRT calculations are based and of course, it also helps to determine corporation tax liability. However, the nature of the world oil market is such that the value of oil which is not sold at 'arm's length' is not an objectively determinable element. The market for oil is essentially one of negotiated transfer prices (between company and company of the same or of different groups and between companies and Government in respect of most OPEC and some non-OPEC oil-producing countries) in which the value of a barrel of oil to one company is different from its value to a second or third company. Similarly, the value attached to a barrel of oil is different as between companies and Governments.…In this sort of situation, almost all Governments depending on or expecting revenues from oil production have found…in order to safeguard Government revenues it became essential for a set of tax reference prices to be unilaterally determined by the Government as the sole means of valuing the oil produced. Such tax reference pricing is required in respect of the United Kingdom's oil production to replace the valuation procedure as set out in the Oil Taxation Act of 1975 for, although this Act allowed the Inland Revenue to substitute its assessment of market value for that declared by the licensee in respect of sales between affiliates, this can be challenged on appeal by the company concerned: a situation which must inhibit the valuation assessment by the Inland Revenue.
The report goes on:
"The evaluation and the incidence of costs is, of course, also critical for the tax calculations—as recognised in the Oil Taxation Act of 1975 and its Schedules. Yet we do not, and indeed cannot, know if it is being monitored/controlled effectively as the question of allowable costs in respect of specific operations for a specific oil company is a confidential one for determination by the Inland Revenue alone on the basis of the general rubric whereby secrecy for individuals' tax returns is maintained. Is it reasonable in respect of the very large revenues expected by the Government from a limited number of companies, which have been specifically allocated rights by the Government to exploit the nation's oil resources, in the context of a highly complex technico-economic situation with many international aspects, that the tax assessment should be a secret one?…In his 1977 Energy Plan, President Carter insisted that there must be openness in the evaluation of the oil companies' responsibility for paying taxes."
In a very telling passage, the report concludes:
"If the United States, with its relatively much lower degree of financial dependence on the oil tax-take, with the relatively much higher degree of domicility in that country of the oil companies concerned, and with its much longer experience of trying to tax oil companies effectively, thinks that the oil companies must be subject to special rules over tax assessments, then the need for such a requirement in the case of the UK appears to be almost self-evident."
Finally, the Odell report examines the case for greater emphasis on royalties and considers the case for a wholesale change in concession and taxation agreements to a basis of production sharing between the Government and the companies in which bids
"should not be for a concession to explore for and to produce oil on the basis of the success (or otherwise) of which the company making the bid will eventually pay taxes (as well as relatively minor sums in respect of lease rentals etc). Instead, the company will bid for the right to retain a share of the production of any oil which it discovers and produces."
All of these questions raised by Professor Odell are important, especially in the context of a review of oil taxation. In a statement reported in The Oilman of 14 April of this year, the right hon. Member for Bridgwater, then an Opposition energy spokesman, said:
"Britain's North Sea licensing and tax policies will be reviewed once again if a Tory Government is elected on May 3."
On taxation, he claimed that Labour's policies were
"cobbled together in a hurry without any consultation as a gimmick for the election from which they shrank in October."
He said that the Tories would not over-tax marginal oilfields and would work
"to restore the confidence of the oil industry in the fair dealings of British Governments."
On that point, he said:
"It needs a clear assurance that there will not be countless changes in the rules, and that there will be full consultation. As a possible means of reducing the uncertainty we shall examine whether a more predictable formula could be incorporated in the tax system to take fuller account of changes in the real price of oil and in interest rates, without the need to introduce further legislation on each occasion."
Here we are with more legislation. So much for the pledge to avoid changes in the rules. We should like to know whether the rest of that statement holds good—that the Government are reviewing oil taxation—and, if so, to what purpose. Is it to reduce PRT on smaller fields, as they have always insisted they would? Is it to boost further the confidence of the oil industry? Do the Government think that the balance between the public and the oil company interest is right? Or is the proposal that we are discussing simply cobbled together in a hurry?

We are now operating the third tax regime for North Sea oil and gas. The first, up to 1975, produced the prospect of minimal tax revenues for the nation as a result of the exploitation of this resource. That was the day of the give-away. In those days, of course, the prospect was for a low price of oil, enormous costs of exploration and production in the North Sea and the possibility of a price collapse which would make North Sea oil of doubtful value.

The second tax regime, from 1975 to 1979, at a time of rapidly rising oil prices, produced a low tax return, though this was expected because of the heavy initial tax allowances. But clearly, on the basis of forecasts of future revenues, the Labour Government thought that PRT was at too low a rate and that the allowances against it were too advantageous to the oil companies. We now have the present tax regime, still in operation for only a few months, but now against the background of a wholly unforeseen rise in oil prices and little prospect of an amelioration in their level.

Are oil companies in Britain getting over the garden wall with their windfall of golden apples, as they are alleged to be doing in the United States, because our taxation in general and PRT in particular is insufficiently effective? Clearly the Government now believe that the oil companies could make a greater contribution to the Exchequer. At least, now they are casting around for a means of reducing the public sector borrowing requirement. The conversion is welcome, though the cause is of doubtful validity.

The Conservative Party has always been resolute in defence of the oil companies—those poor, misunderstood, beneficent enterprises. It has tended to believe the protests of the oil companies that our taxation damages their confidence. What does the Minister of State say to the issue raised by the Public Accounts Committee seven years ago and as valid today as it was then? Are the Exchequer, the economy and the community receiving a due and fair share of the benefits of this great, irreplaceable natural resource? Future generations may put us on trial on this question.

7.38 pm

We have heard, as we expected, a speech from the hon. Member for Norwich, South (Mr. Garrett) depicting the industry as one which was buoyant but which was not making its necessary contribution to the Exchequer.

The hon. Gentleman was right to indicate that the price of oil has risen. Prior to 1973, it was about $2 a barrel. In the first instance, it rose to $11 a barrel. Today in Saudi Arabia, with the market crude 43API, it is of the order of $18. It is about to rise again. But let it be known that a State corporation in the United Kingdom was quite prepared to advance the price, even against OPEC, to $26 a barrel here.

Let it be understood by people who may not have followed the hon. Gentleman's argument that the Government's take is 80 per cent. of the profits of the oil companies and that, if one adds royalty, the figure rises to 84 per cent. Left with the companies, therefore, is the difference between 84 and 100. Let it be recognised also that the cost of equipment in the North Sea has risen by leaps and bounds. What is more, the companies, including the BNOC, are expected to operate in very much deeper water.

Before I leave that argument, I ask the hon. Gentleman to consider the price of oil. I advise him to read schedule 3 to the Oil Taxation Act 1975. The schedule sets out at length that the oil companies are paying exactly the base that the Government anticipated.

The Labour Government set the public sector borrowing requirement at £10 billion. However, due to Budget remissions of £1·2 billion and payment shortfalls of £0·7 billion, the total came to £11·9 billion. The Budget target for the public sector borrowing requirement is £8·3 billion. If we subtract that target from the £11·9 billion, we are left with £3·6 billion. That is the reduction that the Government require. Of that, the oil industry is expected to contribute no less than 42 per cent. to 44 per cent. If we include the transfer from the national oil account in October 1979, the figure is as high as 50 per cent.

Does the hon. Gentleman agree that the Government do not have much of a clue as to how much money they will get in this year? The Minister of State has said that that is dependent on the accounts submitted by the oil companies. It may suit them to submit a low figure and to pay the extra interest.

A calculation has been made. As reported in Hansard on 4 December 1979, my hon. and learned Friend stated that he expects royalties of £520 million and as much as £730 million from PRT. It is quite clear what he expects to obtain from this source. It is more difficult to calculate the revenue that will be obtained from other sources.

The contribution that is coming from the North Sea is giving me the impression that the Labour Government were saying and the present Government are saying "If their revenue is buoyant, let us take it all away from them." That is the wrong rationale for the future.

The Budget raised petroleum revenue tax from 45 per cent. to 60 per cent. In 1979–80, that contributed £110 million. The forward sales of oil to be delivered in 1980–81 by the BNOC, largely to local refiners, are between £400 million and £500 million. The sale of a 5 per cent. interest in BP—for example, 80 million at £3·63 pershare—has provided another £290 million. Accelerated PRT payments under a House of Commons resolution of 5 December 1979–we now have the Bill—has brought another £700 million. If we add the transfer of a £300 million surplus from the national oil account to the Consolidated Fund in October 1979, the total is well in excess of £1·16 billion.

It is apparent that the oil industry, of which BNOC is a part, is being milked to enable the Government to lower the public sector borrowing requirement. I agree that the Government wish to control the money supply. I also agree that that is important. However, should the oil industry have such a heavy burden put upon it?

We were taught by the previous Government, and we are being taught by the present Government, that North Sea revenue is required for the rejuvenation of British industry. I see little indication of that in performance so far. I have always advocated that a separate fund should be established for North Sea payments to prevent them from being dissipated on current spending as opposed to capital account.

The statement on monetary policy was made on 15 November 1979. The Bill was published on 6 December 1979. That was last Thursday. Second Reading is now being taken, on 10 December. We were given precisely two working days to examine the Bill's implications. It is extraordinary that the Government expected the Bill to pass through the House in one day. However, its passage is to be divided. We shall probably deal with its concluding stages next week. Is it right to break the traditional practice of the House that gives us two clear week-ends before we have a debate on Second Reading?

There is no urgency. It would have sufficed if the Bill had come before the House in late February 1980. Surely it would have been desirable for the Bill to make a later appearance in view of all the technical problems that are raised. There has been no opportunity for consultation with anybody in the industry. Surely it would have been satisfactory to consider whether the Provisional Collection of Taxes Act 1968 provided a suitable route that should have been followed.

It is worth bearing in mind the debates that took place when this matter was considered in 1975. When the Oil Taxation Bill 1975 was being considered in Committee, my right hon. Friend the Member for Wanstead and Woodford (Mr. Jenkin), who is now Secretary of State for Social Services, moved a new clause that read:
"Section 1 of the Provisional Collection of Taxes Act 1968 shall apply to this Act; and accordingly, in subsection (1) of that section after the words 'income tax' there shall be inserted the words 'petroleum revenue tax'."
If the Labour Government had been wise enough to foresee that requirement, it probably would have been totally unnecessary to introduce the Bill. However, the Labour Government did not use their judgment and my right hon. Friend's new clause was rejected.

There have been three milestones in the treatment of the oil industry in recent years. I regard them as three millstones because they have been dragging the industry down. The Oil Taxation Act 1975 brought in the new tax regime. Sections 18 to 22 of the Finance (No. 2) Act 1979 have raised the rate of tax from 45 per cent. to 60 per cent. The uplift was reduced from 175 per cent. to 135 per cent. That was secured at a time of rising interest rates. Record levels have been reached. The uplift was a form of compensation, 75 per cent. of it being compensation for not allowing interest to be deducted. The third millstone is that the oil allowance was reduced from 500,000 long tons to 250,000 metric tonnes. A limit of 10 million long tons was reduced to 5 million metric tonnes. A similar provision was made for gas. Within four months we have the Bill.

My hon. and learned Friend has said that the rate should endure and that the Government have made no attempt to alter the quantity of tax that the companies are expected to pay. However, it was only four months ago that the rate was increased from 45 per cent. to 60 per cent. Therefore, he can say that with the greatest assurance.

The period of grace for payment has been reduced from four months to two months. What is the next possibility? Is the period to be reduced to one month? The chargeable periods are six months. I have already received an answer that is out of line with many other payments. Schedule D and corporation tax have been mentioned, but they are applicable to longer periods. Is the next steps to reduce chargeable periods to three months?

One of the principal arguments that should be balanced against the Bill is that PRT is being used as a short-term economic regulator. That is not appropriate for a fundamental tax. It is appropriate to consider the words of the right hon. Edmund Dell when the Oil Taxation Bill 1975 was being considered in Committee. The then Opposition spokesman was my right hon. Friend the Member for Wanstead and Woodford. I quote the words of the Minister. It is an edifying statement, which reads:

"The industry has emphasised again and again the importance to it of some assurance of stability in the rate of tax, that it will not be used for demand management purposes nor as a short-term regulator. The right hon. Gentleman referred to that, and I have been at some pains to assure the industry that we intend this to be a stable tax and not as a short-term regulator…there is no intention here that this should be anything other than a stable tax, which will not be used for demand management purposes nor as a short-term regulator."

Surely the case is that the rate of tax was not increased by the previous Government for use as a short-term regulator of the economy. They did it simply because they had got the figure wrong—they were not raising enough money.

On this occasion it is being used in the Bill as an economic regulator. It is bringing into account in this year an extra payment to the Government of £700 million. They require it desperately as they want to reduce the public sector borrowing requirement. On that basis, the end justifies the means. The end is reasonable, but are the means right? The Minister of State may say that he is not bound by what Mr. Dell said. My right hon. Friend the Member for Wanstead and Woodford said in that same debate:

"I, too, want to stress on behalf of the Opposition what the right hon. Gentleman said about the manifest undesirability of a tax of this sort, which is solely for revenue raising purposes in a specific circumstance, being used in any sense as a short-term regulator. He and I both know that we cannot bind our successors, whoever they may be. I say this with, so far as I can do it, the full authority of the Opposition Front Bench."—[Official Report, Standing Committee D, 6 February 1975; c. 727–30.]
If the Government and the Opposition indicated at that time, in 1975, that PRT would not be used as a short-term economic regulator, why are they using it in 1979 for just that purpose?

It is ironical that the industry, after having experienced such a change, was told that there would be stability in the rate of the tax. That was altered and was used this year to provide additional moneys. There was cutting back on companies' liquidity. In those circumstances, they may ask whether that will give confidence.

If I may be so immodest as to make a quotation from my own speech on Second Reading of the Oil Taxation Bill on 27 November 1974, I said this:
"What I fear is this: the petroleum industry may be quite prepared to concede the lion's share of the profits it is likely to make from the North Sea. It may well be in the vicinity of 80 per cent.…
I fear that the petroleum industry will become a veritable Gulliver, tied down by the Lilliputians of Whitehall; in the end they may be unable to operate successfully and instead of extracting the oil from the North Sea it will be left there because of constant slippages in the programme."—[Official Report, 27 November 1974; Vol. 882, c. 516.]
That certainly occurred during the period of the Labour Government.

I ask this question about the Bill: why was it not termed the Oil Taxation (Amendment) Bill to amend section 2 and the second schedule to the Oil Taxation Act 1975, especially as clause 3 mentions that the Act and the Bill are to be construed as one? I can only come to the conclusion that when we move into Committee the Government want the clause to be narrowly drawn so that amendments are limited.

I also ask why the Bill was not called the Finance (No. 3) Bill to cover several anomalies in PRT. May I mention several of those? Extending petroleum revenue tax to cover the windfall profits of the British Gas Corporation would be satisfactory now. From answers to parliamentary questions, I discovered that under the Gas Act 1972 there is no way in which the Government can transfer the windfall profits of that industry over to the Consolidated Fund. Therefore, this is an opportunity which has now been missed. Probably it has gone for some time.

For the purpose of PRT, expenditure should be deductible during the period covered. It is allowed only when it is agreed with the Inland Revenue—and there are long delays. That is another matter that could be rectified.

There are also problems with the national oil account.

There are technicalities which I must indicate to the House. Allowance for expenditure is descretionary, but the assessment of PRT—of income—is not. Unfortunately, under section 2(9) of the Oil Taxation Act 1975 the basis for allowances is not what is spent but what the Inland Revenue allows. The Revenue may defer matters which come within certain areas for a time, creating problems for the responsible person—that is, the claimant or the participator.

Paragraphs 2(4) and 2(6) of the schedule to the Bill relate to allowances of expenditure other than abortive exploration expenditure. Schedule 6 to the 1975 Act is similar but relates to a claim by a participator. Schedule 7 relates to activities for abortive exploration. Schedule 8 relates to allowances for unrelievable field losses. They are treated as having been allowed, but only for the purpose of making a payment on account. Subsequent disagreement by the Revenue will leave the issue unresolved to be carried forward to a further charging period, but interest will run after two months instead of four as now.

Accelerated PRT payments under the appeals system are unsatisfactory. There is no right of appeal until a negative decision—an unequivocal decision—on expenditure claims has been made. Thus, if the matter is left in abeyance there is no appeal procedure. Yet the date of appeal is relevant for tax and interest calculation purposes, as under schedules 2 and 5 to the 1975 Act items allowed on appeal are regarded as allowed for the period during which the appeal was made.

These matters are of some importance. They have all been introduced under this Bill. It is right that they should be pursued when the matter goes to Committee, albeit for a short period.

This industry has been successful in the North Sea. We must count among those involved the BNOC, which under a recent Act must pay PRT. Are all these companies—including the State company and British Petroleum, in which the State has a large investment, and including the British Gas Corporation, which is 100 per cent. State-owned—to be bled because the land is in difficulties, because people are not prepared to work and because of other difficulties that have supervened? Why put all the burden on the one successful industry? I make a plea that in future the Government—when they go ahead with a project of this size, small as it may be—consider having consultations with the industry before they attempt to put such a measure on the Statute Book.

8 pm

The Bill is an example of the tinkering that has been taking place in the oil taxation structures that have evolved over the past 10 years. As the hon. Member for Norwich, South (Mr. Garrett) said, until 1974 very little had been done by way of preparation for the taxation of the windfall values of oil in the North Sea.

I am probably one of the few Members here, at least in terms of the speech made by the hon. Member for Norwich, South, who are blameless in relation to the level of taxation. During proceedings on the 1975 Bill I endeavoured to get the rate of PRT increased from the then 45 per cent. to 75 per cent. I was shot down for my pains by the Treasury Bench, which, since then, has had to confess that it made mistakes all the way through.

I agree with the hon. Member for Bedford (Mr. Skeet) about the way in which the taxation resources are being used by the Treasury. We have here an example of a short-term expedient to reduce the public sector borrowing requirement, but at the end of the day the revenues which are accruing will go to swell the general mass of taxation going into the Treasury. Many hon. Members on both sides of the Chamber wanted a capital fund set up to make sure that this capital asset was used for future benefits and development. A good example can be found in legislation passed by the Province of Alberta to make sure that the benefits from its oil and gas were passed on to future generations. Unfortunately, we do not have that provision.

I want to ask the Minister of State some questions about the Bill and its impact. In a parliamentary answer on 4 December to the hon. Member for Norwich, South there is reference to the calculation of estimates of revenue—royalties, petroleum revenue tax and corporation tax—totalling £1,390 million. If I heard correctly, the Minister is keeping to that estimate, but that estimate is for the financial year to the end of March. I should like to know what the total amount of additions to revenue will be by the advancement of payments. If there are benefits other than those by reduction of PSBR, will the Minister spell them out?

In another parliamentary answer on 5 December, in reply to the hon. Member for Grimsby (Mr. Mitchell), who
"asked the Chancellor of the Exchequer whether he will circulate in the Official Report the effect, in terms of the real and the money economies, of bringing forward the payment of £700 million of petroleum revenue tax".
the Minister of State, in a somewhat elliptical answer, said
"The bringing forward of PRT payments will have no immediate effect on output. It will directly reduce the PSBR in 1979–80. The resulting effects on the money supply depend on how the oil companies finance the payments. It is likely that they will reduce to some extent their holdings of liquid assets including their bank deposits, and that the money supply will therefore be reduced. In the longer term, the reduction in the PSBR and rate of monetary growth will contribute to reducing the rate of inflation which will be beneficial to private sector output."—[Official Report, 5 December 1979; Vol. 975, c. 214–5.]
I ask the Minister to expand on that answer and to indicate the revenue advantages to the Treasury of getting its income ahead of schedule as advanced by this legislation.

In that connection, if I understood the percentage of interest correctly, the rate of interest to be charged on moneys not payable by the oil companies will be 9 per cent. That seems a good way for the oil companies to retain more money if they have to pay out only 9 per cent. in view of the current minimum lending rate. Will the Minister indicate why he has chosen 9 per cent. rather than 17 per cent., which is the current MLR, or, indeed, any figure between 9 per cent. and 17 per cent., which was adopted more recently?

The taxation structure in connection with North Sea oil has been full of holes for many years. Only recently the chairman of the Inland Revenue, Sir William Pile, admitted to the Public Accounts Committee that tax evasion by employees, both British and foreign, working in the United Kingdom sector of the North Sea was costing the State £10 million to £20 million in lost revenue annually. He said that the rate of evasion of tax had now reached £50 million to £60 million.

According to a statement in the most recent edition of The Oilman news bulletin, the Norwegians have managed to patch up these evasions, and tax officials in Stavanger have indicated that they have the continental shelf under control. That is a different kind of taxation from the one with which we are dealing in the Bill, but will the Minister indicate what the Revenue is proposing to do about the millions of pounds of tax being lost?

I think that the time has come for an overall review of the oil taxation structure. In the debate on the Finance Bill on 10 July, the hon. Member for Bedford indicated that the whole structure should be reviewed. The Minister of State then said that that would introduce an element of uncertainty against which long-term investment and development were not feasible. That was in July. Of course, he has now produced another Bill, which, even though I accept its contents and the advantage of bringing forward payments of tax, thereby bringing us into line with other oil-producing countries, shows some volte-face on the part of the Minister of State, in that he is prepared to keep on tinkering with the system and to cause uncertainty that way. In view of the remarks made by the hon. Member for Norwich, South, perhaps he would agree to a complete review of the taxation structure.

In this respect, I refer to the latest edition of Energy Economics, for October 1979. From page 224 onwards, Mr. Alexander G. Kemp and Mr. D. Crichton conduct an analysis of the effects of the July changes on different fields. They say:
"It is found that the new tax scheme will considerably alter the structure of the tax burden and will increase the overall tax take. Marginal tax rates will also increase, not least for some fields with low expected returns. The new scheme will, however, continue to favour capital intensive exploitation techniques."
They go into a substantial computer analysis of the set-up and point out that in a computation of PRT the factors that determine the variable effects, which are quite complicated, are the size of the field, the timing of the exploitation of a field and the profitability of a field. They say:
"The legislation was designed to obtain more revenue from the large, profitable fields."
In the tables that they present, they found indications
"that for the Forties and Piper fields (which must have been the main ones in the UK government's thinking) this objective is to some extent likely to be achieved. Thus the total tax bill on the Forties field is increased by $895 million or 4·8 per cent. in nominal terms. In real, present value, terms the increase is 6·4 per cent. It is interesting to note, however, that the expected increase in revenues is proportionately greater from a field such as Dunlin which is being developed at a later date than Forties. The increase in total government revenue from Dunlin is 6·4 per cent. in nominal terms and 9·2 per cent. in real, present value, terms."
There we have an example where one of the more recent and less profitable fields will end up paying a higher proportion of the tax bill.

Again, looking at PRT changes and profitability, they have considered the effect of the changes on marginal fields. They saw, again from tables that they had computed,
"that the Heather field can expect an increase of 1·86 per cent. in its total tax bill in nominal terms while the Cormorant and Argyll fields should escape any net increases. This net result conceals some other influences at work."
They then bring in the fact that oil allowances at certain stages have a considerable impact.

This article is most interesting because of the critical way in which it looks at the existing PRT structure. It says
"As a result of all these factors the overall tax take has not only generally increased but there is now more variety in tax burdens across fields which is not always directly related to profitability. This variation is especially pronounced in real, present value, terms. The fields which are being exploited relatively early will not suffer such a large increase in their tax takes as those being developed later, when the disadvantages of the reduced 'uplift' in oil allowance will be more keenly felt. This effect is exhibited by the case of Dunlin and Murchison whose tax take becomes greater than that of the more profitable Forties and Piper fields."
I could go on at greater length quoting the analysis that has been made, but it seems to me that the time has come for a more critical look at the whole structure with which we experimented—if I may use that term—in 1974–75. We experimented with a new structure, although there were plenty of examples to be found for the rest of the oil-producing wells that we could have adopted with less difficulty than has perhaps come to light.

It is a pity that the Government have not seen the opportunity to announce an overall review. There are deficiencies in the tax regime. I dispute what the hon. Member for Bedford said, namely, that the oil companies are being hit adversely. The profit figures that those companies are producing certainly suggest that their shoulders are immensely sturdy. Surely, if the economy is running through difficulties it is those with the broadest shoulders who should bear the heaviest part of the burden. I have no hesitation, therefore—having seen the figures that were announced for stock appreciation profits, which are very ruthlessly enjoyed by the oil companies every time the price of oil increases—in placing additional domestic burdens on their shoulders.

I am not seeking to defend the oil companies, but the return on capital investment for the oil companies is virtually 11 per cent. or 12 per cent. in their worldwide operations. A lot of exploration has to be done elsewhere, and nothing that they can draw from the North Sea in the way of profits can be utilised. That is for the purpose of tax because of the ring-fence operations. What I am suggesting is that we must get some facts right before we start plundering industry.

I most certainly agree that we must get the facts right, although I suspect that when it comes to the interpretation of those facts there will be several views about what they mean.

My main contention is one that I hope the hon. Member for Bedford will accept, from his point of view, that after five years of experimentation of petroleum revenue tax with the peculiarities and anomalies that each change throws up, and the effect that this might have on marginal fields in particular, the time has come for a cooler look at the structure to see whether we can change it, whether marginally or radically, to make sure that it is fairer in its impact on the given fields, and above all fairer in respect of the people whom we represent.

8.12 pm

I was interested in the comments of the hon. Member for Dundee, East (Mr. Wilson) about ensuring that we obtain a fair return from oil companies. My principal concern is quite different. We should use these finite resources in a manner that will ensure that they give benefit to future generations and not just to our own. I am far less concerned about being fair to oil companies than I am about being fair to future generations.

I must declare an interest, which is known to those who have been involved in energy debates. For many years I have had a connection with an oil company that pays a small amount of PRT. The amount is very small compared with the size of the company, which principally operates overseas, but it is right that I should declare that interest.

As my hon. and learned Friend the Minister of State knows, I am one of his greatest admirers. I believe that we could substantially reduce the public sector borrowing requirement by selling tickets for the Gallery when he is due to make a speech in the House. He is well known for his wit and the manner in which he inserts the dagger between the ribs. Nevertheless, this evening I wish that my hon. and learned Friend was not here but at home with his carpet slippers in front of the television set or, perhaps, in his case, chewing tin tacks, gargling with sulphuric acid and sharpening up with a few more mental gymnastics, because—my hon. and learned Friend knows my view—this subject concerns energy and oil and we should be shaping the regime on petroleum revenue tax having regard to our concern for the long-term depletion of our energy resources and not because of any short-term demand or need by the Treasury. The value of the assets that we have been given in the North Sea is immeasurable. The way in which we have so far measured up to our stewardship of these assets is, in my view, deplorable.

Let us look at the record and what has happened so far. My criticism is impartial of Governments. Looking back, I see that on 15 December 1976 the previous Chancellor of the Exchequer said in his Budget speech:
"There is one further step which we propose to take to reduce the public sector borrowing requirement".
He went on to say:
"We now…intend to sell some shares in British Petroleum."—[Official Report, 15 December 1976; Vol. 902, c. 1532.]
The then Chancellor of the Exchequer made it clear that he intended to do that to reduce the public sector borrowing requirement.

Similarly, on 28 March 1977 the then Secretary of State for Energy, the right hon. Member for Bristol, South-East (Mr. Benn), when talking about gas prices, said in reply to a question:
"I think that any increase in prices is regrettable, but my hon. Friend will know that this increase derived from the necessity to reduce the public sector borrowing requirement in connection with the IMF loan."—[Official Report, 28 March 1977; Vol. 929, c. 3–4.]
So again we have another use of our energy resources to give the Treasury another financial shot in the arm.

It goes on. On 14 September 1979 we had had a change of Government but we had the same policy. The Secretary of State for Energy, my right hon. Friend the Member for Guildford (Mr. Howell), when talking about the British National Oil Corporation and saying that he intended to arrange payment in advance from the sale of some of the Corporation's oil, went on to say in a press statement:
"This will reduce the Corporation's financing requirements, and so help the Government to meet its public sector borrowing requirement."
Again—the Treasury spokesman is very keen on this particular phrase—on 5 November 1979 my right hon. and learned Friend the present Chancellor of the Exchequer said during his statement on monetary policy:
"further action is required to bring the PSBR down. In the light of this, we shall require oil companies to make a payment on account of petroleum revenue tax at the time when they make their returns… The Bill to achieve this will be introduced shortly. It will reduce this year's PSBR by 700 million and thus bring the estimated level back to the orginal Budget figure of £8·3 billion. It will also yield an extra £300 million next year, in addition to £400 million or so from the deferred payment of telephone bills."—[Official Report, 15 November 1979; Vol. 973, c. 1514.]
So we bracket the development of the North Sea with the payment of telephone bills.

I feel very strongly on this subject. The development of the North Sea is a subject of great importance, the like of which this nation has not seen since the Industrial Revolution when we developed our coal and other resources. It really requires us to bring a mature and long-term judgment to it. I certainly do not oppose this proposal that the Government now bring forward. I support it. In terms of what it seeks to do it is fine, but it is right that we should give more thought to energy planning on a long-term basis.

As an immediate issue we should—as was mentioned in the dialogue between the hon. Member for Dundee, East and my hon. Friend the Member for Bedford (Mr. Skeet)—look at the effect of this measure upon the oil companies, because they do the work in the North Sea. We should look at their profitability, their rate of production and their rate of exploration. My view is that the companies are well able to withstand a further impost at this time. I do not question that.

What we as a House and as a nation should be looking at, and in a completely different way, is the way that we want the exploration and production profile in the North Sea to proceed. We must find out, decide and discuss the profile of exploration and production and what it will do to the reserves that we have left in the North Sea. The key question is: how can the Government encourage the degree of exploration that will enable us to delineate the fields so that we know what there is in the North Sea yet at the same time hold back on production so that there are resources left for our children and our children's children?

My hon. Friend has already declared an interest in an oil company. Would he, as a director, be interested in putting more money into development in very deep waters in the North Sea if he were told that twice in a year the Government had altered the rules of the game and that they would probably alter them again?

In spite of the view implied in my hon. Friend's question, my conversations around the world with those involved in the oil industry lead me to believe that the United Kingdom is an attractive sector for the operation of oil companies. I think that that remains so. For representatives of any oil company to seek to give the impression that the British Government are behaving less than properly by changing tax rates is simply disingenuous. These things happen. I therefore take issue with my hon. Friend on that point.

What is the Government's plan? There are those who say that planning is impossible because there are too many imponderables. This is a massive subject, and one which it is almost impossible to shape up to in some ways—hence perhaps the attendance at debates on this important subject—but I refute that view.

There is another view, that if we can give free rein to the oil companies and the gas development companies, to those involved in energy, private market forces will bring forward new types of energy, and that we do not need to worry because even if the oil runs out at the end of the century those private enterprise forces will bring forward alternative energy sources. It is said that that is the way that the market works.

That view also I must refute. Oil and gas resources are finite. Even that statement needs to be qualified to some extent, because at the moment we leave about 50 per cent. of the oil in the ground, and if we brought on new production techniques more oil and gas would become available, and if the price went up enough it would be worth developing new resources which at the moment are not worth developing.

Nevertheless, the clear statement is true, with qualifications, that the resources are finite. I am reluctant to see finite resources used at speed. Oil is part of our heritage, like our land, and we must have a policy of conservation which limits its exploitation. The worst of all worlds is to use energy as a kind of milch cow—or whatever the equivalent is for hydrocarbons: I am sure that the Minister of State will know the exact mot juste—to benefit the British people on a short-term basis and to be milked whenever the Government need another financial shot in the arm.

Tax is part of the planning of the development of the North Sea—along with physical limitation of development. Those are the two pillars of the Government's policy towards the North Sea, and I think that the planning of tax should fall largely within the regime of the Department of Energy. Therefore, I should like to express some thoughts on planning. First, the oil and gas are, with limitations, finite. Secondly, it is impossible to overestimate the fragility of the oil supply and demand picture at the moment.

Who would have thought, two years ago, that the situation in Iran would develop as it has? A fortiori, who would have thought two months ago that it would be possible that it would take two whole weeks for the Saudi Arabian forces to expel some insurgents from the world's largest mosque? Pondering these things shows the fragility within these regimes and the risk now facing world supply and demand.

Thus, although some oil will be found, it is unlikely that it will supplement to a considerable extent the oil currently being developed, and it is unlikely that oil which is discovered will be produced as cheaply as present resources. Taking this chain of logic, the conclusion must be that the price will increase.

There will, of course, be bumps in the upward pattern—perhaps the price will drop on the spot market for a while; perhaps, on a very long-term basis, someone will invent the energy equivalent of the wheel and energy prices will come down—but, subject to those things, the price will go up.

One should bring some judgment, then, to the rate at which we should be developing our oil and gas resources. My own completely subjective judgment is that we should be restricting our production to about the level that we currently need in the United Kingdom. Of course one could argue and quibble with that. The hon. Member for Dundee, East would no doubt have a view about the amount that should be devoted to Scotland as opposed to elsewhere in the United Kingdom, but my personal view is that we should take roughly self-sufficiency as a pattern and that that is less likely to be wrong than most other ways of developing our oil and gas.

I see that it is now projected that Britain will be a net exporter of 5 million long tonnes of oil in 1985. That is wrong and should be reconsidered. To export oil in that quantity will of course improve our balance of payments in the short term, but that means that the value of sterling will rise and we shall make ourselves less competitive in other fields. That is exactly the Dutch disease. We should reconsider that export intention.

Moreover, despite all that has been said by Governments, despite all the pious platitudes, there is so far no sign at all that the benefit of North Sea oil is being used as capital and for capital replacement. It seems to continue to be used as income. Unlike any prudent citizen or commercial company, the Treasury in its wisdom does not distinguish between capital and income: it muddles them all up together.

The faster we exploit our oil resources, the greater is the risk that the North Sea inflow will distort our economy. Of course we need to preserve our supplies of oil at a certain level, and the Government's duty is to tread a careful path between conservation and inspiring confi- dence, which will allow oil and gas to continue to be developed.

Then—very much last in my list of priorities—comes the question of the tax take, the amount that we should be trying to recover from North Sea operations. I believe that the proposal in the Bill is a neat and elegant way of introducing a windfall tax. It is nicely conceived. It makes the minimum alteration to the present pattern, and from my own study of the rate of PRT and the uplift provisions and allowances I think that the draftsman who dreamt up this way of producing this tax should be congratulated.

However, in congratulating the Government on the Bill, I must say that we cannot go on much longer without a more comprehensive statement of the way in which we intend to use our North Sea oil resources. Governments have continued to pay lip service to the need to plan, but as I have shown, the practice is ad hoc all the way.

As a short-term measure, the Bill should commend itself to the House. It is entirely suitable and appropriate, but the big question is, where do we go from here? I hope that the more long-term and fundamental points which have been raised today will be taken on board by the Government. We cannot go on much longer without a clear statement of their intentions over the use and challenge of our North Sea oil.

8.28 pm

I do not intend to follow the hon. Member for Gosport (Mr. Viggers) in the generality of his remarks, but I should like to deal with one or two matters raised by him and other hon. Gentlemen.

Hon. Members on the Government Benches are in difficulty. They have to decide whether to support a Government who want to reduce and/or contain the public sector borrowing requirement, and whether to support a Government who foolishly and imprudently embarked on tax changes, including cuts in income tax. The Government have allocated a certain flow of funds and have to find a way of replacing that flow to the Exchequer, and they are raking around to do that.

There is £500 million from the sale of oil forward by BNOC, and it is extremely difficult to discover the exact terms of that sale and whether it is in the national interest. This Government have shares in a winner and it is foolish for them to sell the shares in BP. The public's shareholding is being crucified on the cross of holding down the PSBR and fulfilling the Tory Party's dubious economic and fiscal election promises.

I share some of the concern of the hon. Member for Gosport. This is a simple little Bill, designed to accelerate the payment of petroleum revenue tax, but, as I have indicated, it is born out of a specific need of the Government. Although in itself the Bill might be considered harmless, the attitude manifest in it is extremely harmful.

Taxation of oil and operations of companies in the North Sea can be examined under two broad headings. Here I am indebted to the thinking of Christopher Johnson in a recent issue of "Fiscal Studies". A system of taxation can be devised that maximises gas and oil exploration in keeping with an agreed production depletion profile. On the other hand, the Government take in the short run can be maximised, to the detriment of the industry as a whole and the reserves. The present system does neither. It is a piecemeal system of stops and starts, particularly in regard to exploration. A tax revenue system that is ostensibly designed to obtain a Government take of over 70 per cent. in the life of a field is felt by many distinguished observers to produce only a take of under 60 per cent. Those are matters for debate and discussion.

However, I share the view of the hon. Member for Gosport and may be in conflict with my Front Bench. I apologise to my hon. Friend the Member for Norwich, South (Mr. Garrett), who made an excellent speech. The Government's first duty on energy is to ensure security of supply over the longest possible period, particularly for indigenous resources.

We have presented to the House a production profile that shows that over a few short years we shall have an excess of supply over demand, particularly for oil, but that will come to an end around 1985, and the production pattern is being determined now. The question of crucial importance is, how is the Government's tax system designed to extend the production profile, particularly for oil and gas? It does the Minister no credit to produce this little Bill without indicating how it relates to security of supply.

With respect to my Front Bench, I take a firm view. We have had a decline in exploration activity in the North Sea over the past few years. The Government have come forward with another 70 or so blocks and there is likely to be a slight upsurge in exploration activity, but there is no indication that a system is being devised that will bring into production, post-1985, the smaller fields that have to be exploited to secure in particular the supply of oil for this nation.

The Minister knows that I have raised this matter in the House before. In my view, he has given inadequate replies. The system that we now have lacks progression in terms of the size of the field. The hon. Member for Dundee, East (Mr. Wilson) indicated that it lacks progression and sophistication in relation to the profitability of the field. The system mitigates against companies with only one field. As a whole, it benefits companies with a number of fields. They are able to offset capital expenditure from the less profitable fields against corporation tax paid, or probably payable, on other fields.

Other nations have a much more sophisticated system. The Norwegians in particular graduate royalties and graduate tax in relation to the size of the field. We know that it is difficult for any Government to keep abreast of the actvities of the oil companies. We know that oil companies are adept at tax avoidance. They employ extremely skilful accountants and pay them, rightly or wrongly, extremely high salaries. Governments are therefore at a disadvantage in trying to ensure tightness in the tax regime.

The major reason for lack of buoyancy in the revenues from the North Sea is related to delays in fields coming into operation. A second reason is the pound-dollar exchange rate and a third is the high level of inflation in this country. Government policies overall affect certainly two out of three of those items. My hon. Friend the Member for Norwich, South and others have spoken of the escalation in the price of oil internationally. The OPEC nations are due to meet in a few days' time. Some months ago I said, perhaps fool- ishly, that I would not take bets against a $30 barrel of OPEC oil by the end of the year. I do not know whether I shall be right. I suspect that I shall not be far wrong in suggesting that the price will be around that figure.

We also know what has been happening in the spot market. When a question was asked a few months ago about the amount of oil going on to the spot market, we were told that it was about 5 per cent. or 6 per cent. Nowadays, we are not sure whether 5 per cent. or 15 per cent. of oil is going on to the spot market. That oil is being sold at anything between $40 and $45 a barrel. One of the reasons for the take-up of the huge surplus of tankers is that there are more tankers at sea than ever before. We have an international rat race in terms of oil and the future of the world's economy. This revolves around the international oil market. No Government can afford to stand back and see these windfall profits accumulate to the companies.

Governments have to take action. I beg the Minister to inform the House when this Government intend to make a statement of taxation policy designed over a period of time—say, between now and 1990–to secure supplies, particularly from our own indigenous resources.

One of the most noisome aspects of what is happening is that we are pillaging the future. If ever there were a case for a definable fund to which the flow of resources was clearly identified, that case is made for setting up a national oil fund. I disagreed with my own party on this issue. I thought it essential that the nation should see the flows from these finite resources going to a fund that they could use purposefully to regenerate British industry. That was my considered view.

Now, unhappily, I see the Government of the day using these resources for short-term political gain. The Government must take a view between now and the next election. Governments of all colours do it. I hope that the nation as a whole will look further than the next election in terms of judging how we are wasting and misusing these resources.

8.40 pm

With the leave of the House, Mr. Deputy Speaker, I should like to speak again.

This has been an interesting, short debate on a crucial question. We shall no doubt return in Committee to a number of the questions which have been raised.

I ask the Minister of State to enlarge on his reply to my right hon. Friend the Member for Llanelli (Mr. Davies) on the Government's aim to secure an extra £700 million this year as a result of the proposal to accelerate the payment of the tax. It seemed to us that it was far from certain that the Treasury would realise such a sum. It is not necessarily true that it will be able to cover its telephone bills as a result of the measure.

Is the Treasury certain that that is the sum that it will realise in the coming year? Is it reviewing the oil taxation system? As my hon. Friend the Member for Dunfermline (Mr. Douglas), the hon. Member for Dundee, East (Mr. Wilson) and other hon. Members pointed out, we need a review of the oil taxation system to balance the need to secure supplies and to maximise the tax take.

The hon. Member for Bedford (Mr. Skeet) said that the Government's take of profits would be 85 per cent. Is that correct? I seem to recall that the forecast for the 1975–79 tax regime was that the take would be about 75 per cent. but that calculations showed that in the event it was about 59 per cent.

No. Excluding royalties, it was about 59 per cent.

The hon. Gentleman spoke of taxation as milking, even plundering, the industry. How different the debate in this country is from that in the United States! There it is clear that the bulk of opinion, from President Carter through the rest of the community, dwells particularly upon the windfall profits of the oil companies and the need to secure a fair share of those profits for the community. I also understand that in respect of the Groningen gas field in Holland the Dutch Government have introduced a windfall tax taking up to 95 per cent. of the profit. If the Minister of State could give us an idea of what he expects the incidence of the tax to be, in terms of what percentage of the profit will be taken, we should be very pleased.

Are there problems in the assessment of allowable costs? Are there inordinate delays in collecting the tax as a result of assessing allowable costs? No doubt in Committee we shall seek more details on the statement of the tax payable by the companies, referred to in clause 1(1)(a), and the computation set out in the schedule, which will certainly take us some days to master, the Bill only recently having been published.

In principle we are not opposed to the Bill, although we have doubts about a Conservative Government's ability, or willingness, to secure the greater return for the country out of the profits of North Sea oil and gas, given their hostility at any time when Labour Governments tried to secure a fair share for the community when introducing taxation.

8.44 pm

The hon. Member for Dunfermline (Mr. Douglas) was disposed to describe this as a simple little Bill. I do not dissent from that description. My hon. Friend the Member for Bedford (Mr. Skeet) complained that the House had not had sufficient time to consider all the Bill's implications. I apologise to the House if it is felt that there has not been adequate forewarning of the debate, but my right hon. and learned Friend the Chancellor of the Exchequer mentioned on 15 November that there would be such a Bill and stated clearly what the Bill's objectives were. The Inland Revenue published a press notice which, I hope, gave a clear idea of what would be contained in the Bill.

I hope that when the House has had the chance to digest the details—there are only three clauses and a schedule—my hon. Friend the Member for Bedford, with his customary assiduity, will be able to master it in its full complexity. There will be ample time for discussion in Standing Committee.

I will do what I can to clear up any of the knotty points that were raised during the debate. The hon. Member for Norwich, South (Mr. Garrett), who obviously devoted a considerable amount of thought to this problem and to the whole history of oil exploration in the North Sea—I congratulate him on the profundity of his research—posed the fundamental question which must exer- cise any Government, of whatever political complexion. The question is whether we have adequate tax arrangements to secure a proper share for the country of the revenue from oil reserves in the North Sea. I do not ignore the point raised by my hon. Friend the Member for Gosport (Mr. Viggers) that we must consider that question but that we must also have a long-term view of how North Sea oil should be exploited.

My hon. Friend has been honourably consistent in propounding his view. I recall that we had a debate 15 or 18 months ago about how the revenues from North Sea oil should be spent. My hon. Friend made his point then and I am sorry that we have not matched his expectations. I have been pressed from both sides of the House to say what the Government's depletion policy is. It may be that this is not the moment to deploy that policy in its full glory. I am not certain whether, even if it were in order for me to do so, I could deal with the question to the total satisfaction of the House. It is perhaps a matter for my right hon. Friend the Secretary of State for Energy, and I am delighted to have my hon. Friend the Minister of State, Department, of Energy supporing me on this occasion.

However, I am not certain that this Bill touches on the question of a depletion policy. The Bill is designed for one purpose only. Nor do I believe that it poses the essential question asked by the hon. Member for Norwich, South. Both the questions to which I have referred are legitimate in the context of a debate on petroleum revenue tax.

It has been asked on both sides of the House whether we have a windfall profits tax such as is being discussed in the American Senate. We should not be shy of our own system of petroleum revenue taxation. We do, after all, take a royalty and corporation tax. If we are looking for a windfall profits tax, I would say that this is it. My hon. Friend the Member for Bedford is pressing me on this point. He believes that we already have too onerous a windfall profits tax. This is the difficult question that I encountered last summer and will, no doubt, go on encountering as long as I am defending the position of the Government from this Dispatch Box. On the one hand, I am told that we are being too demanding and, on the other, I am, told that we are not taking enough. That leads me to conclude that perhaps the balance is just right. I am not complacent about this. There cannot be certainty in this context, because it is a matter of subjective judgment. Who can say what proportion we should be taking? For the benefit of those who want to know, let me say that I am told that the Government's take from the broad average of undiscounted profits, with royalties, corporation tax and petroleum revenue tax taken into account, is about 75 per cent., and the marginal rate is 83·5 per cent.

Again, this is a matter for debate. Some hon. Members might say that we should be taking 90 per cent. I know that that would not satisfy my hon. Friend the Member for Bedford, who would say that it should be 70 per cent.

Will the Minister be good enough to disclose the basis of these calculations? Are the figures calculated on the basis of one field or a range of fields?

I can reassure the hon. Gentleman at once. They are calculated on the basis of a range of fields. There is, of course, an element of speculation in these figures, but that is the best estimate that we have been able to make.

Against that background, the Opposition may say that we should be taking 90 per cent., but we are conscious of the other considerations. Attractive as we hope the North Sea is and will remain for investment, there must nevertheless be a basic incentive for the oil companies, which can be light of foot. They have only limited capital and limited expertise. If we press them too hard, they may choose to deploy their endeavours in Mexico or wherever else it might be—I know not. These are matters of fine judgment. It is easy for the Opposition to say that they would adopt a different regime.

I am sorry to intervene, but will my hon. and learned Friend concede that the taxation which he is getting from royalties, PRT and corporation tax is £1·4 billion, and it does not stop there? He is taking something also from the motorist in petrol taxation—50 per cent. of the cost of petrol. When he has taken all this from the industry and from con- sumer sources, he is receiving a very large part of his revenue, is he not?

I am certainly prepared to concede that a considerable contribution is made to the British Exchequer, but I do not know that I want to mix up the take from the consumer, from the motorist, with the take from the producer in the North Sea. There are slightly different considerations involved.

The hon. Member for Norwich, South pressed me about Exxon's one-time bonanza. I think that it would be improper for me to go too deeply into the affairs of any one company, although I recognise that the hon. Gentleman makes the point that all its tax returns should be, as it were, face upwards on the table. It has been a long-established tradition in the British Revenue that the taxpayer's affairs should be confidential, and there are good reasons why that should remain so.

As I understand the Exxon position, the company was in fact referring to stock relief, which, of course, is not peculiar to oil companies but spreads right across the board. I think that that is all that there was in mind, although I am not privileged to see into the company's mind.

The hon. Gentleman asked me a question about allowable expenses. This is a difficult and technical matter. It is not, as I think my hon. Friend the Member for Bedford suggested, purely discretionary. There are rules. There can be arguments on questions of fact, but the broad framework is laid down as a matter of law, and the oil companies have a right of appeal. One important point which I should make—perhaps it is well known to the House—is that these expenses are allowed only against the revenues of any particular accounting period when they are agreed with the Inland Revenue. So it may well be that they are not allowed against an accounting period to which, on an accountancy view, they are attributable.

They are carried forward, but they will not be lost. Reverting to what was said by the hon. Member for Norwich, South, I agree that this is a difficult area, but the framework is there. There is not, as it were, a total administrative discretion, but there is obviously always room for argument.

I hope that the House will forgive me if I re-emphasise that we are not here debating the Government's take or the quantum of the oil companies' liabilities. All we are concerned with here is to advance the Government's take.

I was pressed from several quarters—by the hon. Member for Norwich, South and his hon. Friend the Member for Dunfermline as well as by the hon. Member for Dundee, East (Mr. Wilson)—to say whether the Government were reviewing oil taxation. Of course, these matters are under constant review. Before I am told that that is the usual bland Treasury answer—I know the kind of point that is made—let me add that I do not see that there is a case for a fundamental overhaul and review.

While it may not cut any ice with the Scottish National Party, I hope that it will cut ice with the rest of the House, and in particular the hon. Member for Norwich, South. His former right hon. Friend, Mr. Edmund Dell, who had much experience and carried much weight in this field, gave an assurance to the oil companies, which was affirmed by my right hon. Friend the Member for Wanstead and Woodford (Mr. Jenkin), now Secretary of State for Social Services, that there would not be constant chopping and changing. We wanted to try to devise a framework that would be broadly right. But we were moving into a novel field. Mr. Dell and my right hon. Friend emphasised that, particularly if the price went up, we would have to look again at the rates.

That was the justification for the new package announced by the previous Administration in August 1978. It was also our justification, which I hope I explained to the satisfaction of the House in June and July of this year, for adopting it. We thought that it might have been a little harsh in the context of what was happening in August 1978, but the package was overtaken by events. I hope that the House will not press me to speculate on what may emerge at Caracas. That is not within my powers.

We want to keep the framework so that there is an assurance of stability in the North Sea. There can be no absolute assurance if the prices go through the roof that the rates cannot be reconsidered. The House will recall that when we debated the Finance Bill my right hon. Friend the Secretary of State for Energy said that he was setting up a review of marginal fields. I hope that that will reassure the House. To a degree we are considering the impact of our taxation policies on the marginal fields, but that may not completely allay the worries of my hon. Friend the Member for Gosport. He would like the Government to undertake a far more fundamental review. It is not that I do not wish to cross swords with him, in or out of carpet slippers, but I am not certain that such a modest Bill is the right measure by which to open up the area to which he rightly continues to draw our attention. Perhaps my hon. Friend the Minister of State, Department of Energy is a more appropriate person to debate that issue with him.

Various questions were put to me by the hon. Member for Dundee, East. He asked me to give esimates for 1979–80. I think that I gave them, and indeed the hon. Member for Norwich, South gave them. The royalties will be £520 million. The original estimate of petroleum revenue tax was £730 million. To that must be added the £700 million which we hope will be accelerated. There can be no certainty in such matters. Finally, there will be corporation tax, excluding advance corporation tax, of £140 million.

The hon. Gentleman asked whether the interest on arrears of tax—or, conversely, the interest on tax overpaid—is too low. The point that may have escaped his attention is that the interest payable by an oil company in arrears with tax will not be deductible for tax purposes. The net amount is different from the gross amounton a minimum lending rate.

We are considering the problem of avoidance or evasion of tax in the North Sea. The avoidance or evasion is not by the oil companies. It is perhaps by people who work for them. That is a matter that is engaging our attention, but I am not in a position to anticipate—and it would be wrong of me to do so—the Budget of my right hon. and learned Friend the Chancellor.

The hon. Gentleman also suggested an overall review of the tax structures. I hope that he will accept the points I made, although he will probably not agree with them entirely. He used that engaging phrase that used to trip so easily from the lips of the right hon. Member for Leeds, East (Mr. Healey) about "broad shoulders". It is not for me to say who has broad shoulders in or out of the North Sea, but we take his point.

The hon. Member for Dunfermline referred to the sale of BP shares. I do not know whether that arises on this Bill. The dispersal of a Government shareholding that no longer is of importance for security reasons will not be taken amiss by the country. It is a good thing for our fellow countrymen to have the chance to invest directly in the North Sea. The action should be viewed from that point of view, and if it makes a modest contribution to the country's finances it can be commended on that basis also.

The hon. Gentleman and others suggested that there should be some special fund into which North Sea revenue should be paid. That is, of course, attractive on the face of it, though whether it would quite meet the point made by my hon. Friend the Member for Gosport I do not know. I will leave my hon. Friend and the hon. Member for Dunfermline to debate that on another occasion. The difficulty will then be to define the purposes for which that fund will be used. Labour Members are apt to say that it should be used for capital purposes, and the hon. Member for Dunfermline suggested using it for the regeneration of British industry. That is an attractive phrase, but I am not absolutely certain that on rigorous analysis that would turn out to be a capital project. If it proved to be an annual subvention to certain major industrial companies, would that necessarily be regarded as a capital project? I am not certain that that formulation does not raise as many problems as it solves.

I accept that there might be some difficulty in establishing a division between capital and revenue, but most of us here are concerned that without provision for any such fund the money would be frittered away. I can give two examples to support my argument. The first concerns the Shetland Islands council, which has set up a fund to maintain the economy of the islands after the main oil development work has passed. The second example concerns Alberta in Canada, which is very rich in oil and gas. It has established by statute a heritage fund which it intends to use to help the economy of the province after the oil and gas begin to run out.

Mention of a heritage fund evokes an echo from these Benches. The heritage fund that we have sought to establish is not the same as the one mentioned by the hon. Gentleman in Alberta. I think that ours is of a somewhat more limited kind.

These are interesting suggestions I will not fob the hon. Gentleman off with the Gladstonian answer that this is not the way that we construct our accounts. I have always had slight reservations that in Government one does not make distinctions between capital and revenue. To me as a mere lawyer, as, perhaps, to other hon. Members with accountancy experience, that sounds a rather heretical view. I do not know whether it would be for the convenience of our debates if we did have a hard and fast fund of that sort, but it is for hon. Members to press on the Government of the day that we should divert more attention to capital investment. That opens up the whole interesting debate on Government expenditure and Government expenditure plans. I hope that hon. Members will forgive me if I do not cover that ground again. Important points of principle arise, but I am not certain whether they arise on this modest measure.

I commend the Bill to the House on the basis that it conforms with the assurances given by Mr. Dell and my right hon. and hon. Friends when petroleum revenue tax was devised. We are not tinkering with the structure of the tax, which remains as it was conceived. We are not tinkering with the rates of the tax, although no assurance was given that the rates would remain immutable for all time. Obviously, they must be conditioned to a degree by prices obtaining. We have advanced the payment of PRT, and in doing that we are putting it on roughly the same basis as the royalties. We are not putting ourselves out of line with the countries that I instanced in my opening remarks which have more rigorous regimes.

I have tried to tiptoe between the strictures of my hon. Friend the Member for Bedford and of the hon. Members for Dunfermline and Dundee, East. The Government have probably got it about right. We shall be happy to examine details in Committee. I agree that there are many technicalities. I hope that we can derive a measure of comfort from the broad measure of agreement and common ground that has been identified during the debate.

May we have an undertaking that we shall not move into Committee unless we have a reasonable time to consider these matters and until the Treasury has had the opportunity to conduct realistic negotiations with the industries involved? Are we to use all the North Sea revenue from royalty and other sources in current lift? Is that permanent Government policy, or is that policy intended to last for only a short time?

I would hate to say that the Bill is a short-term expedient, because it is not. We believe that it should be a permanent encrustation on the framework of PRT.

I am sure that it will not take a person with my hon. Friend's resources and agile mind more than a day or so to master the intricacies of the Bill. I am not saying that the Government will ask a Standing Committee to consider this in a day or so. I am sure that the timetable will not tax my hon. Friend or those who advise him so well. However, I shall bear in mind what he says. There will be ample opportunity for him and others who are interested to give the Bill full and proper consideration.

Will my hon. and learned Friend take his mind back to when he was talking about the distinction between capital and income? Is it part of Government policy to seek to find ways of eradicating current expenditure and to try to retain the more important parts of capital expenditure? If that is Government policy and the Treasury adheres to it, would it not be thoughtful and worth while to make a statement to the nation about how North Sea funds are spent? That would enable the Government to fulfil their aim of swinging expenditure from current to capital projects.

That is an awesome challenge to accept even from a perceptive hon. Friend. I am not in a position to give assurances tonight about the scope and range of Government expenditure over the life of this Parliament. My hon. Friend the Member for Gosport will have noted what my right hon. Friends have said in recent debates on public expenditure. I take my hon. Friend's point. I shall not fob him off with technicalities such as saying that I personally would like to see a system of double bookkeeping in Departments.

My hon. Friend asks a fundamental question. However, this is not the time for me to proffer a major commitment on public expenditure. That is a little out of the range of my responsibilities. I take note of what my hon. Friend says, as, I am sure, will my right hon. Friends.

I can understand why the problems that I identified alarm my hon. Friend the Member for Gosport, because in the short term they are current expenditure and cash flow problems. However, on reflection my hon. Friend will recognise that to give a major commitment on public expenditure is more than my narrow shoulders can bear on this occasion. I hope that we shall be able to return to that issue on a more appropriate occasion.

I think that I have established a measure of common ground that seemed to elude me for a minute. I hope, without being presumptuous, that I have manoeuvred the House back to the Bill and that the House will approve this modest measure.

Question put and agreed to.

Bill accordingly read a Second time.

Bill committed to a Standing Committee pursuant to Standing Order No. 40 ( Committal of Bills).

European Communities


That the draft European Communities (Definition of Treaties) (Multilateral Trade Negotiations) Order 1979, which was laid before this House on 5 December, be approved.—[ Mr. Parkinson.]

Highlands And Islands Air Services (Scotland) Bill

Order for Second Reading read.


That the Bill be referred to the Scottish Grand Committee.—[ Mr. Le Marchant.]

House Of Commons Members' Fund


That, in pursuance of the provisions of section 3 of the House of Commons Members' Fund Act 1948, the maximum annual amounts of the periodical payments which may be made out of the House of Commons Members' Fund under the House of Commons Members' Fund Act 1939, as amended by the said Act of 1948 and by the Resolutions of the House of 17 November 1955, 7 March 1957, 17 May 1961, 9 March 1965, 4 May 1971, 1 August 1972, 29 November 1974, 27 November 1975, 8 November 1976, 30 November 1977, 6 December 1977 and 30 November 1978, be varied as from 1 December 1979 as follows:

  • (a) for paragraph 1 of Schedule 1 to the said Act of 1939, as so amended, there shall be substituted the following paragraph: —
  • 1. The annual amount of any periodical payment made to any person by virtue of his past membership of the House of Commons shall not exceed £1,440 or such sum as, in the opinion of the trustees, will bring his income up to £2,655 per annum, whichever is the less:
  • Provided that if, having regard to length of service and need, the trustees think fit, they may make a larger payment not exceeding £2,780 or such sum as, in their opinion, will bring his income up to £4,000 per annum, whichever is the less;
  • (b) for paragraph 2 of the said Schedule there shall be substituted the following paragraph: —
  • 2. The annual amount of any periodical payment to any person by virtue of her being a widow of a past Member of the House of Commons shall not exceed £720 or such sum as, in the opinion of the trustees, will bring her income up to £1,935 per annum, whichever is the less:
  • Provided that if, having regard to her husband's length of service or to her need, the trustees think fit, they may make a larger payment not exceeding £1,390 or such sum as, in the opinion of the trustees, will bring her income up to £2,605 per annum, whichever is the less;
  • (c) in paragraph 2A of the said Schedule for the words 'the annual amount of any periodical payment' to the end of the paragraph, there shall be substituted the words—
  • 'the annual amount of any periodical payment made to any such widower shall not exceed £720 or such sum as, in the opinion of the trustees, will bring his income up to £1,935 per annum, whichever is the less:
  • Provided that if, having regard to his wife's length of service or to his needs, the trustees think fit, they may make a larger payment not exceeding £1,390 or such sum as, in the opinion of the trustees, will bring his income up to £2,605 per annum, whichever is the less.'.—[Sir Nigel Fisher.]
  • Commonwealth Youth Exchange

    Motion made, and Question proposed, That this House do now adjourn.—[ Mr. Le Marchant.]

    9.11 pm

    The occasion for this debate about Commonwealth youth exchange is the decision of the British Council to decline to make any grant to the Commonwealth Youth Exchange Council in 1980–81. That will bring all exchanges between young people from Britain and Commonwealth countries to an end.

    The Commonwealth Youth Exchange Council, of which I have the honour to be chairman, was formed in 1970 as an educational charity. Its aims are to promote among young people a wider knowledge and understanding of the Commonwealth, to provide information and advice on contacts and exchanges between Britain and other Commonwealth countries, and to grant aid for such projects. The CYEC constantly stresses the need for young people to be fully briefed about the countries that they will visit and about the Commonwealth in general.

    The activities of the council during the last nine years have led to firm contact being established with the youth ministries and other key agencies in nearly all Commonwealth countries with which one has to deal in order to arrange effective youth exchanges. The CYEC also liaises closely with Commonwealth high commissioners in London and British high commissioners overseas. The status of the CYEC as a "Government supported body" is very important, as it gives that body weight and helps it effectively to maintain its contacts.

    In the current year we have supported 2,158 young people on 96 exchange projects. An increasing number of those exchanges involve developing countries. Those countries are now given priority at the expense of previous substantial support for exchanges with Canada. The grants are merely a topping up, representing perhaps up to one-third of the total cost involved in an exchange. The amount is determined according to need.

    We also try to ensure that any exchange that is grant-aided carries a substantial educational content. In 1970 it was felt right to set up a separate body to deal with youth exchange with the Commonwealth, in order to identify the special characteristics of the Commonwealth and implant them in the minds of Britain's young people. It was felt that a body dedicated to this task alone was essential if we were to encourage an idea of the developing Commonwealth in young people in Britain.

    We believe that in nine years we have performed reasonably well, and we are anxious at present to pursue what I call the developmental role in Britain—the projectional role of getting across the idea of the Commonwealth to young people, encouraging them to get involved in exchanges with young people in Commonwealth countries. I believe that this is an extremely worthwhile exercise which should be expanded rather than be faced with contraction.

    The substantial bulk of the funds for the Commonwealth Youth Exchange Council is provided from the Exchequer through the medium of the British Council. In the current year the level of funding was £79,080. In addition to that we receive approximately £5,500 from voluntary sources, and perhaps some additional small amounts from local authorities and other supportive agencies. I have probably said sufficient on the financial side to make it clear that the activities of the CYEC depend almost wholly on the grant that has been received through the British Council.

    Early in October this year, in response to cuts that had to be made in public expenditure as a whole, the British Council found that it had to save some £5 million out of a budget of £46·6 million. Its response to this in part was to axe in total its grant to the CYEC.

    I have the strongest possible objection to the manner in which the British Council conducted its operation. I thought that we were living in a society in which consultation and participation were becoming more the orders of the day. But this was a peremptory decision conveyed in an almost brutal fashion by the British Council to the CYEC, and it has been received with shock and dismay not merely by those dedicated people who have given their time to the CYEC but also by the many agencies around the Commonwealth and by other voluntary agencies in this country.

    I am grateful to my hon. Friend for giving way to me because it gives me an opportunity to stress to the Minister the widespread support that is felt amongst youth organisations for what my hon. Friend is saying. The British Youth Council, of which I have the honour to be president, deplores very strongly the British Council's decision and regards the work of the CYEC as being extremely important, if not vital. It should continue, and I hope that my hon. Friend will be successful in persuading the Minister to intervene and ensure that this work can go on.

    I am grateful to my hon. Friend the Member for Wirral (Mr. Hunt) for drawing attention to the support that there is from the British Youth Council and many other quarters, for which the CYEC is most grateful in these difficult days.

    I find it extraordinary to see how the British Council has gone about this extremely difficult business. I have a great deal of sympathy for the Council and those who work for it, not only in this country but around the world. But I cannot help feeling that it was a somewhat easier decision for the Council to make to axe services in which it was not so much directly involved rather than those services in which it had its own employees. That may be a harsh judgment, but I am afraid that it shines through the manner in which the British Council dealt with this affair.

    In response to my protests, I must acknowledge that the British Council has said that it could find for 1980–81, without any hope of repetition for the future, the sum of £15,000, which might help the CYEC to survive and try to re-establish itself with voluntary support. However, I question the defence that the British Council has put forward to the manner of the cuts that it has made.

    In a written answer on 22 November my hon. Friend the Under-Secretary of State for Foreign and Commonwealth Affairs replied to my hon. Friend the Member for Leek (Mr. Knox) with figures in respect of British Council grants for youth exchanges in 1980–81. It appears that a total sum of £341,500 is to be expended through the medium of the British Council on exchanges: to Eastern Europe £50,000; to France £77,590; to Germany £114,800; to Western Europe £99,110, and to the Commonwealth nil. That was prior to the decision to allow £15,000 as a once-and-for-all gesture to CYEC in 1980–81. I find that order of priorities staggering. I do not understand on what possible rational basis that allocation could have been made.

    I am told by the British Council in defence of its actions that exchanges to Europe, East or West, are more cost-effective. That is because exchanges to Eastern and Western Europe are cheaper. Thus, more people can go for a given sum. That I understand, but that does not mean that it should be the basis upon which priorities for youth exchange should be assessed.

    I argue that it is relatively easy—I did it in my student days—to cross the Channel to the Continent of Europe. It needs less expertise and less finance—I am not saying that it needs none of those commodities—to establish an effective exchange. However, if there is to be an exchange of young people with the Commonwealth, especially with developing countries, to which I think it is right to give emphasis, there needs to be careful organisation and contact. In other words, those who make the arrangements have to be experts. The aim of CYEC is to provide expertise and to help young people, whose horizons stretch rather further than Western or Eastern Europe, to participate in effective exchange. I find the British Council's answer extraordinary.

    The Council also claims that by reducing the grant to CYEC virtually to nil it can save extra costs within its organisation. I am curious to know how those savings may be achieved. I shall explain the system. The vast proportion of the grant that is now made to CYEC is used for exchanges. In addition, there is an administration grant, which is paid directly to CYEC. The rest of the money is held by the British Council. The CYEC determines which applicants shall receive support. The names are sent to the British Council and processed through the computer. Cheques are received by CYEC. All the paper work for the participants is processed by CYEC.

    The staff of CYEC consists of one executive secretary full time and a full-time assistant who works in a secretarial capacity. It could perfectly well take on the work which the British Council has been undertaking. I see no reason why the grant for exchanges should not be paid directly to CYEC and handled by it without any increase in its staff, and presumably with some saving to the British Council. That would overcome one of the difficulties that the British Council has raised. If all that the Council is trying to do is save money, I can save money for it, because the devoted and loyal staff of CYEC will undertake all the work and will do so extremely efficiently. If that were allowed to take place, the operation could continue.

    I have three points to make. First, if we are to spend £341,500 on youth exchanges, it cannot accord with the priorities of Her Majesty's Government, or Britain generally, to spend nil on Commonwealth youth exchanges.

    Secondly, I am prepared to be open-minded about the need for some rationalisation of youth exchanges. It may be that we need a new form of organisation exclusively to handle youth exchanges involving Britain's interests. If we had an organisation that was exclusively concerned with exchanges involving young people, I am sure that we could introduce an order of priorities different from that which the British Council has achieved, which seems scandalously to neglect our traditional interests in Commonwealth countries.

    I hope that my hon. Friend the Minister will consider the fact that various moneys are expended by Government Departments—not only his own—which go through various channels into the business of youth exchange. Perhaps there is a better way in which we could handle these in the interests of the country, of efficiency and of having the widest possible spread.

    Thirdly, looking at these figures, if we are to save something for the Commonwealth Youth Exchange Council, is it all that unreasonable to ask that £5,000 might be shaded off exchanges with Eastern Europe? Are exchanges with Eastern Europe more important to us than exchanges with the Commonwealth—more important to the tune that there should be no money for the Commonwealth yet £50,000 should be spent on Eastern Europe? Might not £5,000 be shaded off the figure for exchanges with France, which, in any case, in money terms, is scheduled to rise between 1979–80 and 1980–81? Might not £5,000 be shaded off the amount for Germany, which is scheduled to rise from £104,600 to £114,800? Might not £5,000 be shaded off the total for Western Europe, which is scheduled to rise in money terms from £90,410 to £99,110? Would not that £20,000, together with the £15,000 that has been offered by the British Council as a latter-day gesture, together make up at least a kernel of an amount upon which the CYEC could survive in future? Even that would represent a 50 per cent. cut.

    I accept that even in these difficult times we must all accept cuts. However, it is a question whether these cuts are reasonable and whether they are fairly distributed in the particular environment in which they are being considered. As it is, the CYEC must take the begging bowl around private industry. It will do its best. It will redouble its efforts to raise money to continue work which we believe to be important and valuable. But it will be a sad day indeed if the Government put their imprimatur of approval on the work done by the British Council, which will effectively reduce the CYEC to a shell and ensure that the very minimum is done in the future to develop the contacts of young people in this country with young people in the Commonwealth. I think that such an answer will be widely regretted not only in the House, not only in the country, but throughout the Commonwealth.

    9.28 pm

    In raising this Adjournment debate my hon. Friend the Member for Saffron Walden (Mr. Haselhurst) has brought to the attention of the House two important areas that are of concern to the Govern- ment—the Commonwealth, and youth exchanges.

    I must make clear from the start that neither the Foreign and Commonwealth Office nor, I believe, the British Council wishes to see the demise of the Commonwealth Youth Exchange Council. The CYEC has performed a valuable task over the years in promoting and fostering exchanges between the United Kingdom and Commonwealth countries. I note the support that my hon. Friend the Member for Wirral (Mr. Hunt) also gave to what it has done.

    The British Council's decision to end the grant was taken because of the overriding need to reduce Government expenditure. My hon. Friend will know that for 1980–81 the British Council is having to reduce its spending by about £5 million. This is a regrettable necessity. My hon. Friend also knows that the Council is not alone in having to accept a cut of that severity. Because of the spending plans that the Government inherited, and because those spending plans were based on assumptions about economic growth that have proved wholly unrealistic, some very painful decisions have had to be taken in a number of fields. The Government decided—and, I am sure, rightly decided—that the British Council could not be exempt from making its contribution.

    Though the Foreign and Commonwealth Office is answerable for the British Council in the House, it does not dictate to the Council how it should run its day-to-day activities. The Council is an independent body, incorporated by Royal charter. The rule of the Foreign and Commonwealth Office is to give it broad guidelines on geographic priorities. In connection with the cuts for 1980–81, the Foreign and Commonwealth Office advised the Council that it should, where possible, try to avoid closing down its posts abroad. That being so, home-based activities have had to bear a proportionately higher share of the cuts than overseas activities. One of the home-based activities, according to the British Council's organisation, is youth exchanges.

    The responsibility for deciding originally to cut the Commonwealth youth exchange programme completely, to reduce the East European programme and to maintain spending on the programmes to Western Europe, was that of the British Council. Perhaps it will help my hon. Friend if I explain its reasoning as it has explained it to me.

    If staff savings were to be made and other programmes maintained at a viable level, the British Council considered it necessary to cut out an entire programme and drastically to reduce another, thereby trimming its administrative costs.

    The Council looked at the economics of the different programmes. France, Germany and Western Europe as a whole were the least expensive programmes run by the Council in terms of the numbers exchanged. In 1978–79 the average grant per head to France was £13, to Germany £12 and to Western Europe generally £16. For the Commonwealth and Eastern Europe the figures were £43 and £82 respectively.

    For £80,000 the Commonwealth programme grant-aided 1,700 young people, whilst for about £120,000 some 10,000 young people were assisted in exchanges with Germany. The Eastern European programme is also less cost-effective than those to Western Europe in these terms, but we have cultural agreements with many Eastern European countries where specific references to youth exchanges are made. The British Council, in reducing its Eastern European programme, will fund the less expensive exchanges, and it may be that future cultural agreements can have less emphasis placed on these exchanges. We shall be examining this point, subject to our commitments, bearing in mind the Helsinki agreement.

    In addition, successive Governments have concluded a number of cultural agreements with Western European countries, including France and Germany. These countries attach great importance to official support for youth exchanges—an interest to which Her Majesty's Government respond.

    We have an official special committee on youth exchanges with Germany. The committee meets annually to discuss the programme for the following year and looks at ways in which we can improve on the exchanges. A further group meets regularly with the French. There are less frequent but important contacts with the Netherlands, Italy, Belgium and Spain.

    These were the reasons why the British Council decided that the Commonwealth youth exchange programme should be dropped and the money for exchanges with Eastern Europe substantially reduced. They were the most expensive per head to finance. In addition, the Council calculated that by this course it could economise to the extent of one member of its staff.

    I should be interested to know who that member of staff is. I have attempted to work it out on the basis of the relationship between the CYEC and the British Council, but what that saving will be defeats me.

    I cannot identify the individual at the moment, but I am giving the House the explanation that was given to me in my discussion with the British Council.

    The Council also took account of the fact that there were other funds and organisations that encouraged exchanges and other forms of co-operation with the Commonwealth. For example, under the Commonwealth youth programme, assistance is provided to regional centres in India, Africa and Caribbean countries to assist in the training of youth leaders and to set up workshops to consider other youth problems in the Commonwealth.

    Her Majesty's Government meet 30 per cent. of the cost of the youth programme. We also provide broad assistance to the Commonwealth through the aid programme in education and give help to a large programme for Commonwealth scholars, since it is in the educational and developmental areas that the needs of the Commonwealth are best served. The Council also took account of the fact that exchange is a two-way process and that there are many difficulties in establishing truly reciprocal contacts with developing Commonwealth countries. Very often those countries do not have the machinery to support exchanges at their end.

    The CYEC has for many years concentrated at least 50 per cent. of its efforts on Canada. There are, of course, obvious reasons for this. Canada is a good friend, it has a strong administrative structure for its youth movements, and it can provide many contacts for identifiable British youth groups—for example, young farmers and the boy scouts. But the CYEC has, so far, not been able to develop exchanges with Commonwealth countries to anything like the same extent as it has with Canada.

    I have listened carefully to the points made by my hon. Friend in the House today and previously in the discussions I have had with him. I have been impressed by his arguments on behalf of continued Commonwealth youth exchanges. I am particularly impressed by the argument that Europe is nearby and that exchanges with it are relatively cheap and easy to arrange. Commonwealth countries, on the other hand, are mostly far away and more expertise and effort are needed to develop exchanges with them.

    As a result of my discussions with my hon. Friend, I have asked the British Council to review its decision in the hope that it can continue making a grant to the CYEC for the coming year. My hon. Friend knows—indeed, he told the House this evening—that a little while ago the Council indicated that it could find £15,000. However, I understand that this would have done little more than allow the CYEC to keep its own machinery ticking over and would not have allowed it to make any grants. As a result of a conversation I have had with the British Council more recently, I can now tell my hon. Friend that the Council informs me that it will reconsider the position and hopes to be able to do a good deal better than the £15,000 I have just mentioned and provide a sum which will enable the CYEC to give grants in the coming year, though not up to the level of the recent past. The Council will, of course, need time to work out the details.

    I feel sure my hon. Friend will welcome this news. I hope that he and the CYEC will bear in mind the comments on their programme that I have just mentioned. I hope also that the CYEC will pursue energetically the search for non-governmental funds. The Council had planned, as a consequence of cutting the CYEC grant, to save one member of its exchanges department staff from its total of seven. Now that the British Council is prepared to offer further assistance, I hope that the CYEC can take all possible steps, in co-operation with the British Council, to reduce the adminis- trative burden on the Council so that such a saving can still be effected. I should add that the arrangements that I have mentioned will apply only for 1980–81. What happens after that will be considered later.

    I recognise that there will still be a shortfall in the CYEC's budget for 1980–81 compared with this year. Nevertheless, our youth exchange assistance is only a "topping-up" process, as my hon. Friend said. The young people must pay a proportion of the cost themselves. Other money is already contributed by private sources, through fund raising, and some is provided by local authorities. If other sources of funds can be identified, and the expertise of CYEC in advice and development can be enlarged upon, I am confident that many of the exchanges mentioned by my hon. Friend can be continued.

    My hon. Friend called for a rationalisation of youth exchanges. We know that many organisations exist to foster and encourage these exchanges, but many of them are independent bodies with their own constitutions and they reflect the United Kingdom's pluralistic approach to youth exchanges. We do not wish to impose programmes from the top but prefer to respond to identifiable needs. The British Council supervises its exchange activities through a consultative committee based on youth workers, voluntary bodies, local authorities and representatives of central Government.

    That committee, although invited recently to comment on the future of youth exchanges, did not recommend that any rationalisation was required. We would, however, be pleased to respond to my hon. Friend's proposal, and I shall instruct my officials to arrange a meeting with the Department of Education and Science and to explore the possibilities. I hope that my hon. Friend can take comfort from the offers that I have made and that the CYEC can continue and expand its role as an adviser and organiser to help young people and their organisations to find contacts and increase their knowledge of the Commonwealth.

    Question put and agreed to.

    Adjourned accordingly at twenty minutes to Ten o'clock.