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11.18 am
Mr. Bob Blizzard (Waveney): I am grateful for the opportunity to raise a subject of enormous national importance and of special relevance to my constituency. I refer to the review of the fiscal regime that is applied to our offshore oil and gas industry, which is being carried out by the Government. I am not a taxation expert and I do not intend to take the House this morning through a mass of complex financial data, which the Treasury is no doubt evaluating.
My purpose is, first, to draw attention to the wider repercussions for the United Kingdom of applying significantly higher taxes to our oil and gas industry. It is essential that the Treasury does not simply take a narrow fiscal view. My second purpose is to explain that the industry no longer offers the easy pickings for the Treasury that many long thought there would be.
The review has been delayed. The Government announced early on that they would review the industry. Many people felt that some proposals would be announced in the last Budget, but the review is taking a long time. I hope that that signals a recognition that this is a complex issue and that the industry is not a simple
cash cow. However, the delay is creating some drawn-out uncertainty for the industry that is not good, especially as the latest round of applications for licences to explore parts of the sea around our shores is taking place. Companies are having to bid almost blind. To that, we have to add the current moratorium on gas-fired power stations. I understand why that has come about. We have to consider the coalfield communities and the future of coal, but I remind the House that there are what might be termed oil and gas communities, too.
First, let me talk about the importance of the oil and gas industry to our country. It may be true that only 31,000 people are directly employed by oil companies, but 350,000 people are employed in the industry if one includes all the contractors and suppliers and many small and medium enterprises, right down to the tiny family firms that are involved in the business.
Shell alone is investing about £2.5 billion a year in the industry. We hear from time to time of £200 million, £300 million and £400 million investments by Japanese corporations and we rightly get excited about them, but let us put that beside the enormous annual investment by the oil companies. Three quarters of the investment is spent in the United Kingdom, benefiting the country. The oil and gas industry represents about 20 per cent. of national industrial investment. We are dealing with something big. So it is clear that the review requires extreme care. We must be careful not to damage the industry.
It is probably fair to say that the review is being driven by three commonly held views. The first is that big companies can afford to pay more tax. The second is that they were let off lightly by the previous Government, especially in the Thatcher years, and that an opportunity was missed for the nation to reap the fruits of our national resource. The third and most important is that the current fiscal regime is the most benign tax regime applied to the oil and gas industry in the world. I shall deal with those three in reverse.
It is true that the tax regime is the most benign in the world, but North sea oil and gas is also the most expensive to explore and produce in the world. We have deep water, deep drilling and hostile weather and sea conditions. It is also important to say that new higher taxes will not be retrospective but will apply only to new extraction. If ever there was a treasure boat, the previous Government missed it. I do not want to get into that argument; the important point is that the industry is now different from the one of the heady days of the past. The oil and gas industry around our shores is now at a mature stage. There are no great numbers of big fields to come on stream. What is happening is the mopping up of relatively small puddles of oil and gas.
Mr. Deputy Speaker (Mr. Michael Lord):
Order. I wonder whether the hon. Gentleman would like to move a few feet along the Bench. Apparently, the microphone into which he is speaking is not working and people cannot hear him.
Mr. Blizzard:
Thank you, Mr. Deputy Speaker. I have never known anyone to suffer that before.
Oil and gas extraction in the North sea is continuing because we have developed new technologies that give access to those reserves of oil and gas that it was
previously thought impossible to obtain economically. That is being done on the back of the existing infrastructure. The areas now being explored to the west of Shetland are extremely difficult to access. The conditions are very adverse.
As we approach the 30th anniversary of the industry, it is worth remembering that, 10 years ago, it was thought that, by now, the industry would be packing up and leaving. The fact that it is not is due to the benign tax regime that we have been discussing. If the industry were pulling out now, we would be leaving behind valuable natural resources. We would be wasting a finite resource. We would be leaving behind most of those 350,000 jobs. So taking out from the earth what was previously thought uneconomic to extract is good eco-management. That would not have happened if we had had a much harsher tax regime.
As things stand, we have a bright future. We can look to 30 more years of the industry and of high value to our national economy. That is good news for constituencies such as mine, but it can be achieved only as long as we do not jeopardise it by introducing a new fiscal regime that could have the effect of shortening that period and bringing forward the time when the oil companies pack their bags and move on.
The present level of tax has encouraged the extension of the life of the industry. The Exxon Corporation, through Esso, in its worldwide operation has invested a disproportionately high amount of its capital in the United Kingdom, matching that of Shell, with which it is a partner in exploration. That has been good for the United Kingdom.
As for the view that the large companies are easy targets and big international organisations, increased taxes would not hit those companies. They could simply change their investment pattern. There are plenty of other places in the world where they could go and find oil and gas. The people who would be hit are British contractors, and that means British jobs and companies large and small such as those in my constituency.
The British contractors in the oil and gas business have been a huge success story. What was once thought unextractable is now in production. That is as a result of the development of new technology such as floating production and storage vessels, innovative drilling, remote control drilling and advances in health and safety and environmental issues. Our contractors have become leaders in the world. They have had to be in response to the difficult conditions to be found in the North sea. Their expertise, skill and technology are now being exported all over the world. British companies are winning contracts all over the world. There are jobs for British people all over the world. There is a great opportunity to continue that for up to 30 years to come as long as we do not have a fiscal regime that discourages it.
I said that the subject was of special relevance to my constituency. The mainstay of the local economy of Lowestoft, my main town, is the oil and gas industry. We have lost our traditional industries. We all know what has happened to fishing. Where once we had dozens and dozens of trawlers and hundreds of small boats, we are now down to no more than 10 trawlers and a few dozen small boats. Lowestoft once had two shipyards. Brooke Marine was a famous one. The last famous vessel built there was Richard Branson's Virgin Atlantic craft. We
had two canning factories--one called the Co-Op, with its brand name of "Waveney", the river which gives the name to my constituency. We had Eastern Coachworks, which used to build Leyland coaches. That has closed. We had Bally shoes. That has closed. Our only gain has been the oil and gas industry, which has been a saviour locally.
We have the headquarters of Shell's southern fields operation, which provides high-quality white-collar and high-tech work and is one of only two high-volume sources of such employment in my constituency. We have Odebrecht SLP, a fabrication company: people who come to Lowestoft ask what the blocks of flats being built in the harbour are and the answer is that they are accommodation modules for oil platforms. The benefit of that industry is that it has taken up some of the skills that were previously used in the shipyards. We have a company called KYE, which is a real local success story, having grown from being a family business into a company employing hundreds of people. It provides all sorts of services to the oil and gas industry and now exports its products and people all over the world. All those businesses are highly competitive, but we also have a college of further education that is submitting a bid to become an information technology centre of excellence, to provide high-tech training in the oil and gas industry. That is an exciting prospect and a successful bid would be good news for our town.
However, all those opportunities have not replaced all the jobs that were lost and we still have an unemployment rate of about 9 per cent. We look to the new Government to regenerate our area, especially through the regional development agency. We shall, in due course, apply for assisted area status and European funds. Since my election, I have pressed for improved roads to help increase the competitiveness of local industries. All that is a difficult task but we must not put at risk what we already have. Across the country, there are towns that, like Lowestoft, have little else but the oil and gas industry and, without that industry, the Government would face problems such as increased benefits payments to add to the already high bill. I hope that the Treasury will take the big picture into account when it makes its tax calculations.
It is not only my constituency that has this interest. A map has been drawn up showing all the constituencies colour coded according to employment levels in oil and gas. The black constituencies are those with more than 5,000 employees and the red are those with more than 1,000 jobs in the industry. The map has a lot of red, some black and a lot of orange, for areas with more than 500 jobs; there is not as much red as on the political map of the country, but the map shows that the industry spreads across hundreds of constituencies and throughout the country.
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