NORTH SEA OIL
The Prime Minister (Mr. James Callaghan)
With permission, Mr. Speaker, I wish to make a statement on the White Paper “The Challenge of North Sea Oil” presented to Parliament this afternoon. Copies of the White Paper are in the Vote Office.
First, I thank all those whose research work, technology, skill and enterprise often carried out in hazardous conditions, have made this great new resource available to our country.
The purpose of the White Paper is to give Parliament and the country an account of this new resource, its consequences for the economy and how the Government believe that it should be used.
The development of North Sea oil has given us a new industry—the offshore oil industry—which has brought over 100,000 new jobs, including some 60,000 to Scotland. This industry is now beginning to build on the success of British technology in the North Sea by pursuing similar outlets in other parts of the world, where there is evidence that countries are interested in buying the technology and expertise that this new British industry can offer.
North Sea oil will make Britain independent of imported energy for the next decade or more. The rate at which it is pumped ashore will help determine the time the oil will last. Agreements already made govern this policy for the next [column 1325]few years, but there will be important decisions to be taken to determine depletion policies of the 1980s and 1990s.
The oil will increase Britain's resources in three ways. It will increase our national income by about £6 billion a year by the mid-1980s. Secondly, it will help our balance of payments by about £8 billion to £9 billion a year by the mid-1980s. Thirdly, thanks to the action taken by the present Government to offset the effect of the policy we found on coming into office, under which a high proportion of oil is in the hands of overseas owned companies, it will in future add substantially to the national revenues. The estimate is that total revenue yield from the North Sea, including gas, will approach £4 billion a year by the mid-1980s.
In considering how best these benefits should be used, the Government have been conscious, above all, that the oil is a valuable, but temporary, bonus. It will last for many years, but not indefinitely. Our objective is that when the yield begins to decline, the British economy and British society will have been strengthened by its use and not weakened.
The Government's conclusion is that the benefits should be concentrated in four main areas.
First, there will be more resources for industrial investment to re-equip our industries so that they can meet the competition of the next two decades and create new jobs. The full value of such new investment will be realised only if it is coupled with higher productivity to enable us to compete successfully in the world.
The Government have an important role to play through the system of investment incentives, selective assistance and the work of the National Enterprise Board and development agencies.
Most of the new investment will be financed by industry itself through the renewed confidence that will result from greater economic stability, so maintaining a steady and consistent growth in the economy.
Secondly, we shall increase the funds devoted to energy conservation and to new energy investment—our immensely valuable coal reserves, nuclear and other energy sources—to be ready for the time when the flow of oil diminishes. [column 1326]
Thirdly, the Government will reduce the level of personal taxation to increase take-home pay and work incentives.
Fourthly, we shall improve the standard of certain essential services, rebuild the inner cities, train and retrain more people to equip them with the necessary industrial skills and improve our social services.
The Government very carefully considered a proposal to create a separate fund for North Sea oil revenues and expenditure. On the surface it is an attractive idea, but, for the reasons explained in the White Paper, we conclude that there is no satisfactory way of separating and identifying the public spending of the tax reliefs specifically made possible by North Sea oil.
The Government will, however, present to Parliament an annual progress report showing how the priorities set out in the White Paper are being observed, and setting out the revenues received.
To sum up, the Government's purpose is to use the proceeds of North Sea oil to strengthen the country's industrial and social base and to bring to fulfilment the national recovery that has already begun.
Mrs. Thatcher
May I put two points to James Callaghanthe Prime Minister? The White Paper is called “The Challenge of North Sea Oil” but is the Prime Minister aware that the real challenge was not in spending the proceeds of the oil but in exploring for it, producing it and bringing it ashore—a task which was completed almost exclusively by private enterprise?
Is he aware that he took an unnecessary swipe at overseas companies who are helping in that process? Without their technology, he would probably not have been in a position to make his statement about how the revenues would be spent. If other countries made the same strictures on BP as the right hon. Gentleman has made on overseas companies, this country would be very much the poorer for it. [Hon. Members: “Stand up for Britain.” ] I am standing up for BP, which is more than some hon. Members opposite will do.
Secondly, is the Prime Minister aware that the document states again the arguments and courses of action that have already been well rehearsed and that there [column 1327]is only one choice facing the Government—whether the extra revenues are to be spent by the decision of the Government and Whitehall or according to the wishes of the people through cuts in taxation? Is he aware that we believe that the lion's share should go to cuts in taxation so that people may decide how to spend or save their money? In that way, they will contribute to greater profits of British companies, and if we get the profits we shall get the investment, and if we get investment we shall get the jobs.
The right hon. Gentleman referred to the recovery that has already begun, but is he aware that according to figures published yesterday——
Hon. Members
Too long.
Mr. Speaker
Order. These constant interruptions are very unfair.
Mrs. Thatcher
Is the right hon. Gentleman aware that, according to figures published yesterday, production in our manufacturing industries was lower at the end of 1977 than at the end of 1976?
The Prime Minister
The right hon. Lady correctly referred to the efforts that have been made in exploring for and bringing the oil ashore. That is why I began my statement by thanking
“all those whose research work, technology, skill and enterprise, often carried out in hazardous conditions, have made this great new resource available” .
There is a great place for private enterprise, which has played a great part in this initiative, but there is no reason for using that as a stick with which to beat the Government. We are trying to ensure that overseas companies, at whom I have not taken a swipe, get a fair return, but not an excessive return, on their investment—that is to say, a return sufficient to satisfy their shareholders and to provide for their new investment, but not the return they would have had if we had not introduced the petroleum revenue tax, a situation that would have left far too much revenue in their hands.
Mr. Tom King
Not so.
The Prime Minister
If that is denied I do not know why the hon. Gentleman supported the Bill, why he did not vote against it. He knew that a deficiency had been left behind by his Administration. [column 1328]
I am delighted to hear the Leader of the Opposition say that she is standing up for BP. I am always in favour of something that is partially publicly owned receiving some approval from the right hon. Lady, but how does she reconcile her statement with the statement by the right hon. and learned Member for Surrey, East (Sir G. Howe) that he wants to sell off the shares?
Mrs. Thatcher
We do not.
The Prime Minister
We do not take the view that the proceeds should go wholly to cuts in taxation. I am interested that the right hon. Lady takes that view. I believe that it will be regarded as quite imprudent to make total cuts in taxation in respect of this when we clearly should provide additional resources to find new energy investment against the day when the oil starts to run out.
I believe also that there will be a substantial feeling in the country that it is right to refurbish our social fabric which would mean the rebuilding of some of our great cities including the east end of Glasgow—[Hon. Members: “Hear, here.” ]—and other such great cities as that—[Interruption.]
Mr. Speaker
Order. Hon. Members should wait for more.
The Prime Minister
—and there is——
Hon. Members
Hear, hear.
Mr. Speaker
Order. When the right hon. Lady met with similar noise I protested. The Prime Minister should be heard to the end of his reply.
The Prime Minister
I believe that there is in the country a much better understanding than was shown by the right hon. Lady of the need to cut taxation and to have a proper balance of public expenditure.
As for her third point about the levels of production in this country, I must point out that from the beginning of 1973 to the beginning of 1974 production fell quite substantially under her Government.
Mr. David Steel
Is not one of the most important sections of the White Paper that which acknowledges the fact that we have not made the most effective and efficient use of our manpower and [column 1329]material resources in the post-war era? Is it not the case that the North Sea oil resources provide only a breathing space and not a cure-all for internal problems such as under-investment and over-manning? Does the Prime Minister accept that we should use these resources sensibly in order to try to overcome the basic problems and secure a better future economy?
The Prime Minister
Yes, I do. The whole emphasis of the White Paper is that these welcome additional resources provide no more than a breathing space. I hope that the priorities that the nation will, under the guidance of Parliament, select year by year can be reviewed in the annual report so that we can see whether those priorities are regarded as correct. It is not possible artificially to divide up the actual amount paid out, but there can be a general indication of the priorities being followed.
Mrs. Castle
Is my right hon. Friend aware that one of the major causes of this country's industrial weakness and its lower levels of production than some of its competitors over the years is that the people who own the wealth in this country, to whom the Leader of the Opposition would give more wealth, have a much greater propensity to export their capital than to invest it in development at home? This country needs the capital but it exports it to a far greater extent than, for example, West Germany. Is my right hon. Friend aware, therefore, that we welcome the emphasis in his statement on the need to provide, with Government aid, the investment that we need here at home?
The Prime Minister
Yes, there is the need both for improved and additional investment and for the better use of investment, especially as this country has inherited a number of industries that we regard as traditional, but the viability of which is now being challenged by other countries that can produce better—and more cheaply than we can—the goods we have traditionally produced. That situation demands a substantial change in our approach to investment and in the nature and training of our people, and both of these things can be helped by the bonus of North Sea oil.
[column 1330]Mr. Powell
In order to keep in proportion the contribution of North Sea oil and the scope for the use of it, will the Prime Minister confirm the estimate made by the Government in the Public Expenditure White Paper that North Sea oil will account for approximately 1 per cent. of the anticipated increase in revenues during the next three years?
The Prime Minister
During the next three years the figure that the right hon. Gentleman quotes might be correct, but I was basing myself on the middle 1980s. We are asked to look ahead in these matters. However, the figure I have for 1980 is an increase in our national income of about 3 per cent.; the effect on the balance of payments will be equivalent to an increase of about 12 per cent. in the volume of exports, and that is pretty substantial. Thirdly, the revenue yield by the mid-1980s would be about 5 per cent. of the revenue we now secure——
Mr. Tom King
Do not count on it.
The Prime Minister
The hon. Gentleman should not underrate it. It is a substantial and worthwhile bonus. If he got a bonus of 5 per cent. on his income every year he would regard it as worth while even though he did not deserve it.
Mr. George Grant
Is my right hon. Friend aware that I welcome his statement, especially in its reference to the restructuring of the regions, where heavy unemployment exists? However, will my right hon. Friend take a closer look at the proliferation of development authorities in the regions, perhaps taking the Northern Region as an example? At the moment we have the National Enterprise Board, the North-East Regional Development Council, the Northern Economic Planning Council, the county councils and the local councils. Can we not have a more co-ordinated effort to tackle the problems?
The Prime Minister
That machinery can by all means be looked at, but the major impact of North Sea Oil on these affairs is that it ought to restrict some of the constraints under which the economy has laboured. For example, there have been a number of occasions when Governments of both parties have had to cut growth because of balance of payments constraints. If we can escape from that by prudent growth, that should [column 1331]enable us to obtain much more stability with much less change in our economic policies than we experienced in the 1950s and 1960s. That in itself will induce confidence and lead to more investment and the better use of resources.
Mr. Maurice Macmillan
The Prime Minister referred to the need for industrial investment and increased productivity. Would he accept that this implies a movement of labour into service industry? He also referred to the need for further energy investment with the intention of exporting energy. Does he accept that this implies a fairly rapid decision about the future of the fast breeder reactor? Will the right hon. Gentleman also accept that he has made no reference to the potential use of any extra wealth from the North Sea to be put to the defence of this country and to the expansion of our defence industries?
The Prime Minister
It is true that the labour force has grown substantially during the 1970s and will continue to grow at a rate of about 170,000 a year. The rationalisation of a number of our larger industries has resulted in their slimming rather than taking on labour. This leads to two conclusions. First, we should encourage small firms as, indeed. Government policy does, and I believe that the measures we have taken are already beginning to show results. Secondly, as the right hon. Gentleman said, there will be more of a movement into service industries. But it still follows that it is important to restructure and modernise—I think “regenerate” is the word that is used—our basic manufacturing industries to meet the challenge of overseas.
With regard to the right hon. Gentleman's second question, I do not think that I referred to the intention of exporting energy. That is not in my statement. Perhaps the right hon. Gentleman misheard me. The future of the fast breeder reactor will need to be considered in the early 1980s. But for the moment the two AGRs, for which we have given permission, are sufficient to occupy the industry. I do not think that we can take a decision on the fast breeder for some time yet.
We have increased the amount to be spent on defence by 3 per cent. over the next year. This has been done in [column 1332]conjunction with our NATO allies. We shall continue to look both at the nature of the threat that we face and at the economic consequences of assuming bigger burdens.
Dr. M. S. Miller
Is my right hon. Friend aware that not least of importance in the points that he mentioned in his statement was his reference to the necessity to use part of the benefits of North Sea oil revenue to investigate the other sources of energy that we might bequeath to a future generation or even to the generation that is born today? Can we expect a Government Green Paper or some kind of discussion or statement on this at an early date?
The Prime Minister
I shall look into that. We did produce a Green Paper on energy, as my hon. Friend will remember, and there was reference in it to major new sources of energy. What is important is that we should account to Parliament in due course for the resources that we are devoting to the subject and for the nature of the new kinds of energy that we are researching and investigating. Perhaps my hon. Friend will put down a Question to the Secretary of State for Energy.
Mr. Peter Walker
Is the Prime Minister aware that the electorate of Ilford will be distressed that their by-election came too early to benefit from his statement? Is he not rather concerned that the revenue from North Sea oil in 1978 will be equivalent to only one-third of the increase in the public sector wage bill, one-quarter of the revised public sector borrowing requirement and about equal to the deficit of two of our nationalised industries?
The Prime Minister
I am not sure what the right hon. Gentleman wants me to conclude from that. That question seemed to demonstrate what I was saying, that this is a useful bonus but that it will not solve our problems. If that is what the right hon. Gentleman meant, I agree with him.
Mrs. Bain
In a Scottish context, does the Prime Minister accept that the 60,000 jobs to which he referred in his statement have now shrunk to 56,000 because of their temporary nature? In view of this, and against a background of 191,000 unemployed in Scotland plus a 30 per [column 1333]cent. shrinkage in our manufacturing base, does he accept that there will be bitter disappointment in Scotland that no special oil fund is to be set up as promised in the Labour Party's manifesto? Many people will feel that, while he himself may have been piped into the Labour Party conference at Dunoon, Scotland's oil resources are being piped very quickly from Scotland? There will be no control under which we can monitor the way in which the Scottish Exchequer spends the oil revenues in Scotland.
The Prime Minister
I recognise that that is the standard formula of the Scottish National Party. I hope that the hon. Lady will read the White Paper objectively and apply her mind to whether it would be possible to set up an oil fund that would be meaningful. It would be wrong to deceive the Scottish electors into believing that it would be possible to do this. I hope that the hon. Lady will not allow her party to do so.
I agree that Scotland is one of the areas—like my own area of South Wales—which is particularly affected by the shrinkage of the traditional industries. Scotland has made a great start by getting into electronics and is doing well in a number of new industries. Indeed, it is hoped that these revenues will regenerate industry there.
Mr. Robert Hughes
Does my right hon. Friend accept that there will be a great welcome in Scotland, as well as in the whole of the country, for the emphasis which he has put on the need to use North Sea oil revenues for investment in future prospects and future industry? Is that not in stark contrast to the attitude of both hon. Ladies who have asked questions—the Leader of the Opposition and the hon. Member for Dunbartonshire, East (Mrs. Bain)—whose only concern seemed to be to get their snouts in the trough quickly and early?
The Prime Minister
I believe that the country wants us to look ahead on these matters and would not accept the view of the Conservative Opposition that the proceeds should be spent solely on tax reductions. That was the only thing that I heard mentioned. I did not hear anything else. If the Opposition are saying that they agree that money must be [column 1334]applied to the regeneration of industry, for the investigation of new energy sources and for the rehabilitation of our great cities, they agree with us entirely and I do not know what all the noise was about during my statement.
Mr. Forman
Is the Prime Minister aware that the basic flaw in all predictions such as that which he made about the spending of North Sea oil revenues is the attempt by this Government to get a quart out of a pint pot? If he is to concentrate on one or two purposes, surely he ought to have mentioned the repayment of overseas debt, for which this Government are so severely responsible.
The Prime Minister
The hon. Gentleman is quite right about the flaw in all predictions. I wish that was always remembered by his colleagues when they talk about forecasts. But as the House is always interested in the future, the Government must try to provide the best forecasts that are available at the time. Clearly, they are subject to review as the years go by.
The hon. Gentleman was also right to talk about the repayment of debt. Debt repayments will be required in the 1980s. There will be a hump in the early 1980s. But if we can show that there is a steady period of growth—not a sudden boom, not everything put into the pot and forgetting about tomorrow—and a return of confidence, I believe that it will be possible to roll over some of these debt repayments and even them out so that we get an even flow during the 1980s.
Mr. Alexander W. Lyon
Does my right hon. Friend agree that growth is our greatest need and that it has always been frustrated in the past by our balance of payments constraints? Is not the 12 per cent. import saving of the greatest importance with regard to offshore oil, because that will allow us to grow faster than we would otherwise have been able to? Is not that a message which the Chancellor of the Exchequer ought to take on board in his Budget in April?
The Prime Minister
My hon. Friend is quite right about the balance of payments impact. If we had had this in the 1950s and 1960s I believe it would have affected the prospects for growth very considerably and favourably. In the early [column 1335]1980s we shall have something like £8 billion or £9 billion at least at current prices on the credit side of our balance of payments. I am sure that the Chancellor of the Exchequer is taking that into account. But I warn my hon. Friend that this has still to come. I am talking about the position in the future. This year the impact will be nothing like as great. It will not work up to this major figure until the early 1980s or thereabouts.
Mr. Skeet
Is the Prime Minister aware that the Shetland Islands appear to be making better use of their oil revenues than the British Government? Is he also aware that he has insufficient funds for the many grandiose schemes that he has available? Will he tell the House, of the four categories that he outlined, which percentage or which sum of money he will allocate to the National Enterprise Board? Will he give it £1,000 million? Finally, will he tamper with the depletion allowance before 1985?
The Prime Minister
I should not be surprised if the Shetland Islands are doing rather well. I always think that small areas do very well indeed in these matters. But I think that, on the whole, the United Kingdom is the best unit for this basis. I hope that the hon. Gentleman agrees with me.
As for insufficient funds for these priorities, I am not sure what the hon. Gentleman means. I have already indicated that there will not be a North Sea oil fund. This releases certain constraints. We cannot indicate that particular funds will be allocated to particular purposes. It will be part of a much larger pool. It would be artificial to separate it. As regards the percentage to the National Enterprise Board, that is an indication of policy. Precise sums will be placed before Parliament if we wish to increase the allocation to the NEB in due course.
Several Hon. Members
rose——
Mr. Speaker
Order. I propose to call four hon. Members from each side of the House.
Mr. Roy Hughes
To follow the nineteenth century economic logic of the Leader of the Opposition, will the Prime Minister indicate how the British economy will benefit if we proceed to import even greater quantities of Japanese transistors, [column 1336]hi-fi equipment and so on, plus more cars from Western Europe? Does he agree that, in addition to the proposals that he has made this afternoon, we should introduce a selective programme of import controls to take 1½ million people out of the dole queue?
The Prime Minister
My hon. Friend is taking me rather wide on economic policies. I agree that to import greater quantities of goods does not help our balance of payments. That is why we should buy British, make British and sell British. I hope that that will be the motto.
A selective programme of import controls already exists with the agreement of the EEC and our other international partners. I hope that my hon. Friend will not go overboard on this matter. He should remember that some foreign trade accounts are about 21 per cent. of our GNP. If there are repercussions, our export trade will suffer, too.
Mr. Rost
What is there about the Government's shameful record that qualifies them to be entrusted with the distribution of this North Sea oil bonus in more vote-catching measures when the bonus is desperately needed to repair the ravages of four years of Socialism?
The Prime Minister
If for no better reason than the sight of right hon. and hon. Members opposite.
Mr. Higgins
Is there not a danger that the effect of North Sea oil revenues on the balance of payments and exchange rates will result in a progressive deterioration of the position of our existing export industries? Therefore, is it not important that a substantial flow of funds should go across the exchanges? Will the Prime Minister assure the House that there will be some move towards relaxation of exchange controls and particularly a more rapid repayment of overseas debt?
The Prime Minister
The hon. Gentleman is right in his analysis that the strength of our balance of payments could result in upward pressure on sterling. A great deal depends on our level of costs and on many other matters which would affect the oil price and a number of other considerations. It is imperative that the Government, in so far as they can prevent it, do not allow sterling either to rise too [column 1337]high or to sink below a competitive level. That is the object of Government policy at the moment. It is easier to state frequently than to achieve.
I cannot undertake either a relaxation of capital controls or that there will be a greater flow of funds across the exchanges. The remedies required in the world are more fundamental than would be achieved by that process.
Mr. Raphael Tuck
Is my right hon. Friend aware that Labour Members are glad that he has noted that the Leader of the Opposition, while paying lip service to investment, brushes the whole thing aside by demanding that all the money be spent on a reduction of taxes? We hope that he will never be deflected from his course by that sweet, siren, seductive voice.
The Prime Minister
I think that, until the Opposition make an official correction, there is obviously a substantial difference between us. As I understand it, their principal priority is the reduction of taxation—[Hon. Members: “Hear, Hear.” ]—and to use the oil funds in that way. There is a substantial difference. Obviously both official spokesmen for the Conservative Opposition agree that that is the principal objective. I shall be very happy to argue that out in the country. I am sure that the country will take the view that it is extremely imprudent, especially as the oil is only a temporary bonus and would raise our standard of life beyond what we could permanently sustain.
Mr. Viggers
Is the Prime Minister aware that this is a mouse of a statement? Does he recognise that the oil and gas minerals are capital assets which should be reinvested as capital, not spent as income? Is he aware that references to income, to revenue and to bonus and, above all, a throw-away line reference to East Glasgow show that the Government have a facile approach? Why did the Prime Minister not even mention the energy shortfall at the end of this century?
The Prime Minister
If the hon. Gentleman will look at the White Paper—I realise that he has not had time to read it yet—he will see that Appendix II at the end discusses the problem that he raised—the shortfall in energy. It is [column 1338]not for me to intervene between the hon. Gentleman and the Opposition Front Bench. However, I would, on the whole, agree more with him than with his Front Bench that this asset should be used as an investment to regenerate our industrial system. The hon. Gentleman should not be more purist than I am on this matter. In other words, it should be possible to find a bonus by way of tax cuts out of it. But to devote the whole of it to tax cuts would, in my view and in his, be totally absurd.
I should have thought that, if the hon. Gentleman agrees with me about the need for capital investment, he will agree that there should be investment in our great cities. For example, investment in the docklands of London or of Merseyside, the centre of Liverpool or the East End of Glasgow, which aroused such laughter when I mentioned it earlier, is absolutely essential if we are to have a modern society which is worth living in. I do not understand the laughter of the Opposition about that matter.
Mr. Gould
How does my right hon. Friend propose to ensure that the oil revenues will not be used up in paying for increased imports of manufactured goods and in spacing industrial production at home, as happened with North Sea gas?
The Prime Minister
We cannot ensure that unless we have such an enclosed economy that many other weaknesses would follow from it. We must follow an economic policy which will make it more likely than otherwise.
Mr. Ian Lloyd
Is the Prime Minister aware that his right hon. Friend the Secretary of State for Education and Science, in evidence to a Select Committee upstairs the other day, said that it would be reasonable to claim 10 per cent. of the proceeds from North Sea oil for the development of British science and that, if she got such money, she would allocate at least £100 million per annum to the development of British science? In that context, in the context of his remarks on the micro-processing industry and on the importance of regenerating British industry, is it not deplorable that a statement of this kind should contain no mention of British science or scientific effort whatsoever?
[column 1339]The Prime Minister
This is not a total review of the Government's economic policy. Many other matters could have been put into the White Paper. I have many colleagues in the Cabinet who will find very good reasons for spending this money on their own projects. I am sure that there is a very good argument for devoting money to science. These priorities will have to be worked out, as they are now, with each priority looked at against another. That is the argument against having a separate oil fund.
Mr. Ioan Evans
Does my right hon. Friend realise that this plan for national recovery will be widely welcomed? As he is likely to be Prime Minister for many years, will he again look at the proposal for an oil fund, because there are those on this side of the House who believe that we should monitor the use of this resource so that it will benefit future generations as well as the present generation? Will he, as a postcript, have a word with the Chancellor of the Exchequer to see what can be done to help overseas aid so that we share this bonus with the rest of the world?
The Prime Minister
I am grateful to my hon. Friend for condemning me to this long sentence. I assure him that we did not dismiss easily the idea of an oil fund. As the SNP knows, it has a superficial political attraction. But when the people of Scotland or of England and Wales come to look at it they will see that it is only a superficial attraction. We [column 1340]entered into this matter with open minds. We decided that, on balance, it would have been rather deceptive and cosmetic to say that we would establish an oil fund. Therefore, I cannot undertake to review it in that way.
As regards the developing countries, a strong Britain will, I hope, carry out its responsibilities. Let us get our own industries going and our unemployment down and we shall be in a better position to meet much of the poverty in the rest of the world.