---

Budget Resolutions and Economic Situation

I am afraid that the Chancellor’s Budgets are always rather mysterious and arcane, and it takes great armies of accountants, tax advisers and lawyers to establish what he means. My hon. Friend will agree that there is outrage in the smaller business community at what happened yesterday, and an explanation from the Government is urgently required. May I turn to the question of energy security and the taxation of North sea oil? The Financial Secretary dealt with the subject in an Adjournment debate, and I have read the Treasury discussion paper. It is a hugely important matter, and the reaction to the Budget demonstrates that there is genuine concern about the declining base in the North sea. The Chancellor has spoken at length about the vulnerability of our energy security in an era of geo-political instability. Natural hazards, too, are a difficulty, as well as the technical problems that arise in this area. UK domestic fuel sources have been depleted, and we are moving inexorably from being a net exporter to being a net importer. Objectively considered, some countries that supply our energy are not among the most stable in the world. The capacity for production is at the upper limit—the oil supply from OPEC is often at full capacity—so any hint of instability in the middle east means a sharp rise in prices. Indeed, the middle east accounts for 65 per cent. of the world’s oil reserve, and in periods of instability we have seen the consequences for oil and energy prices, and have experienced the impact in the UK on prices, inflation and the consumer. The issue is therefore hugely important, given the nature of the world and, indeed, terrorist activity. We are very much beholden in Europe to Russian supplies, particularly natural for gas. Many people have asserted that Russia will exploit its ability to supply Europe with energy, and use its influence to make political decisions about that supply. There have been instances of such behaviour in the past 12 months in eastern Europe, and the director of the strategic studies centre at the Russian Academy of Sciences said:"““What has changed is that Russia has begun using energy as a political tool””." That is important from Britain’s point of view. The pattern of production in the UK demonstrates that there are huge questions about the future viability of production in the North sea. Oil and gas remain vital to the UK for the foreseeable future, and account for 75 per cent. of the UK’s primary energy supplies. The UK oil and gas industry has spent more than £370 billion—all of it private capital—to recover the nation’s offshore hydrocarbon reserves, and it has generated huge sums of money for the Treasury, so it is in everyone’s interests, not only geopolitically but economically, that production is sustained and encouraged. We remain a significant oil and gas producer, but the United Kingdom Offshore Operators Association has repeatedly said—indeed, it stressed this after the Budget—that high-cost inflation, combined with typically small opportunities and increased tax rates make it harder to attract investment into the North sea. Margins are shrinking, and some of the fields are becoming quite old. In neighbouring countries such as Norway, a different, more competitive tax regime has emerged. Yes, the oil and gas industry is an important contributor to our economic life and to the Treasury coffers. It is hugely important for our geopolitical stability, but the real shock, if there was one, in the Budget presentation was the decline in revenues from North sea oil. There is one thing that I do not understand, and I hope the Financial Secretary will be able to explain it to the House. The Government have known for some time the pattern that is emerging. The current situation is one thing; looking down the track the situation is extremely serious for us, yet what we have is yet another discussion paper. All the right questions may be there and it is a complicated tax matter, but urgent action is required. It is a matter of great disappointment that all we get is more talk on the subject. I hope the Treasury will be provoked into taking sharper action. In conclusion, we have seen a massive increase in public expenditure, which is beginning to tail off. Parallel with that there has been a huge increase in the monstrous bureaucracy in the public services. It affects the morale of teachers, the numbers who wish to retire early, and the turn-over of young teachers who come into the profession wanting to teach but are twisted up in form-filling and bureaucracy. There are only a small number of police officers on patrol at any given time, and they all say that they are caught up in a web of bureaucratic interference by Government that makes their jobs impossible. I have touched on the situation in the health services. We must understand that unless we get a grip on the environment of regulation and interference overtaking our country, which the Chancellor has allowed to happen, however much money we pour into the public services, we will not get a commensurate improvement. That is the Government’s legacy—a huge increase in taxation to the highest levels ever, a massive increase in public expenditure, and public services that have not improved remotely as much as they should have.