Oil and Gas Industry
Good morning. The first item of business is a debate on the oil and gas industry. I should tell members right away that the debate is heavily oversubscribed. As a result, the Presiding Officers ask that members who want to take part press their request-to-speak buttons now, because what matters are the names on the list, not the names on the advance notice. We know from the start that it will not be possible to call everyone. I also appeal to the opening speakers to cut the time of their speeches.
On a point of order, Presiding Officer. Will you explain the procedure behind the selection of amendments to the motion, in particular the selection of an amendment to an amendment? Is this the first time that an amendment to an amendment has been selected in the Parliament? Furthermore, will you explain the voting procedure and tell us at what point we will have to vote on what amendments to what amendments?
I am sorry: the member is wrong. This is not the first time that we have had an amendment to an amendment. Furthermore, I never explain the reasons behind the selection or non-selection of amendments, because otherwise we would spend a lot of time every day doing so.
We must proceed, because we are short of time. I call Iain Gray to speak to and move motion S1M-3155, in the name of Lewis Macdonald.
The location of the debating chamber makes no difference to our ability to govern the length and breadth of Scotland, but I wanted this debate to be held here in Aberdeen, the energy capital of Europe, because it provides an opportunity to debate the oil and gas industry's considerable contribution, not just to the economy of the north-east but to the whole of Scotland. More than that, it gives us a chance to debate the potential for Aberdeen and the energy industry to prove themselves exemplars of how Scotland can make itself both smart and successful.
We can achieve that by driving innovation through science and skills; creating growth through the combination of research and commercialisation; and building an industry on ideas and entrepreneurialism. The industry and this city are at the cutting edge of Scotland's 21st century economy.
Oil and gas has a future in Scotland for many years to come. There remains as much oil and gas in the North sea as has already been extracted. However, we will fail future generations if we do not prepare and plan for the time when fossil fuels run out. We can open enormous opportunities for Scotland's economy, and we have within our grasp the chance to be a world leader in the development and generation of renewable energy.
Scotland's future economic development must be sustainable if we are to leave a smaller imprint to future generations. We know that a much greater proportion of our future energy needs must be met from renewable sources. The very nature of our country means that we are almost uniquely placed to diversify our oil industry's knowledge and expertise into the emerging renewables generation industry.
It is 640 years since the Parliament met in Aberdeen. That might be only the blink of an eye in the geological time that the oil and gas industry sometimes works in. It is, however, a long time in this city's proud history, which stretches from its early beginnings as a fishing settlement, through its status as a university city, to being a player in the industrial revolution and its present position as oil capital of Europe. Furthermore, a strong and diverse north-eastern culture, from the great universal themes of Lewis Grassic Gibbon's literature to—and it hurts me to say this—the great European exploits of Aberdeen Football Club has gone out to build an international reputation.
The ideas and skills in the north-east have reached out into the world. However, the discovery of North sea oil and gas in the 1960s has made Aberdeen what it is today. The first North sea oil arrived onshore in 1975 and, for 30 years, the economy of Aberdeen and the north-east has thrived on the development of the offshore oil and gas industry.
Now there are 900 oil-related firms in the north-east of Scotland, serving all stages of oilfield development: exploration, development, production and maintenance, and more recently, decommissioning. In the north-east of Scotland, 23,000 people work in onshore oil and gas-related jobs, with another 18,000 offshore jobs.
Will the minister explain why, when more than 90 per cent of UK oil and 52 per cent of UK gas comes from Scottish waters, only 31 per cent of UK offshore jobs are based in Scotland?
The oil and gas industry looks out from Aberdeen into the world. We must grasp the great opportunity to build those companies that are based here in Scotland so that they can provide equipment and services for the oil industry, not just in the North sea, but all around the world. There are good examples of how we can do that.
The industry has brought prosperity to Aberdeen and the surrounding towns and villages. Low unemployment, high employment, high consumer spending, a construction boom and opportunities for investment make Aberdeen a great place to live, work and study. However, the industry also brings problems and challenges. There is pressure on infrastructure, social differences are exacerbated and house prices are high. We must face those problems by working with the oil and gas industry.
Does the minister accept that another problem facing the industry is the fiscal regime within which it operates? Does he believe that this Parliament should express a view on that fiscal regime or that it should, like the Liberals, stay silent?
This Parliament and Executive do not have power over the fiscal regime, although we have something like a 40 per cent tax take, which continues to compare favourably with countries that the SNP often uses as exemplars. In Norway, for example, the tax take is 88 per cent.
The contribution to the wider Scottish economy of the wealth and prosperity generated by the oil industry cannot be underestimated, with 110,000 jobs—6 per cent of our work force—in employment related to oil and gas production. The benefits of the industry will continue, as only half of the oil and gas reserves have been extracted. The only way to support that process and maximise production is in co-operation with the industry: Government and business must work in partnership to secure the continued success of Scotland's oil and gas industry. The forum for that partnership is Pilot, which has Lewis Macdonald as its vice chair. Lewis will say more about that later.
The most pressing concern for the industry is the potential for a serious skills gap in the labour market. The existing work force is highly skilled, but we know that 50 per cent of current offshore workers were approaching the age of 50 two years ago and that the situation is predicted to get worse. We must take action to recruit more young workers into the industry and to equip them with the skills and knowledge that will retain our global competitive edge. It is a hugely important industry and we must make it an attractive one for young people to work in.
I agree with the minister's point about the skills gap, but will he say more about how we can attract women into high technology, engineering and science fields?
The work of delivering improvements in skills and attracting young people to the oil industry is being led by Cogent, an important and powerful sector skills council. Marilyn Livingstone makes an extremely important point. If we are to develop the potential of our oil and gas industry, based here in Aberdeen, we must develop the potential of all those who have skills to offer. In the past, we have been bad at attracting women into the industry. That is our loss and the industry's loss, and attracting more women to such jobs must be a priority.
Cogent brings together the disparate threads of the upstream and downstream parts of the industry, and was one of only six emerging sector skills councils to be awarded trail-blazer status. The whole industry now benefits from a dedicated sector skills council, which is based in Portlethan and which will set the future direction of skills and training within the industry. Cogent, with Government and industry support, will help to bridge the skills gap and influence the effective delivery of relevant learning and training. That partnership approach can show a lead to other sectors of the Scottish economy facing similar skill shortages. That is exactly what must be done to prepare Scots for tomorrow's jobs.
However, if the north-east is to obtain maximum benefit from the opportunities that are available, we need to take account of the fact that supply opportunities are changing. In the long run, we must rely on more sustainable renewable energy sources. In April, Ross Finnie introduced the Renewables Obligation (Scotland) Order 2002 (SSI 2002/163), which is already creating a massive demand for new and clean sources of energy. He has worked extremely hard to put the obligation in place and his passion for and commitment to renewables is shared by all of us in the Executive. We now want to consider the potential to expand our output of renewable energy to at least 30 per cent, and even beyond that. The target is ambitious.
I am glad that the minister recognises the potential of renewable energy in Scotland. Does he condemn the fact that, since the Blair Government came to power, there has been a 50 per cent reduction in spend on research and renewable development funds that are available for the renewables field?
Our support for renewables is demonstrated by the renewables obligation order, and even more by the fact that we want to consider pushing the output target beyond 30 per cent. Such targets drive the effort that we must put in. That is the agenda that has been set. The target is ambitious, but some key elements are already in place. The market is ready, the legislative framework is right, the resource is plentiful and the economy is ready to welcome the concept of sustainable businesses.
Scotland's oil and engineering businesses have already proved their ability to meet new challenges and exploit available opportunities in the difficult and marginal fields of the North sea. They are well placed to take advantage of the tremendous synergies between the oil and gas and renewables sectors. Renewable energy equipment manufacture provides a key opportunity for diversification in the UK offshore oil and gas industry.
Scotland's potential for generating renewable energy is renowned. We have the capacity to meet our own energy needs twice over from wind power alone. We are home to the world's leading innovators and developers of marine energy technology and our academic research base in the field is second to none.
The boom in renewable energy provides Scotland with an economic opportunity that mirrors the arrival of North sea oil 30 years ago. We must exploit that opportunity. Major players such as Shell and BP have already voiced their commitment to renewables development. They believe that the manufacturing requirements of the renewables industry for onshore and offshore wind turbines and marine energy devices can be met in large part by the skills that have been built up in the North sea oil and gas industry. We know of one oil company that has plans to develop a major offshore renewable energy project in the Moray firth. That demonstrates the industry's belief that diversification is a real and viable option. Members know that we have been working closely with partners to establish a marine energy test centre in Orkney. Ross Finnie will make a further announcement on that shortly.
The links to our vision of a smart, successful Scotland achieved by growing businesses and global connections are crystal clear. Research, innovation and knowledge are the key to our success. The strength of our academic research base is a clear advantage over many of our international competitors. Aberdeen itself has two renowned seats of learning and Heriot-Watt University in my constituency in Edinburgh carries out research in the oil and gas sector. We must not allow the lack of a critical mass of sophisticated technology-based companies to mean that resultant technology transfer opportunities are missed.
Scotland's academic science base has improved its commercialisation activities, but more needs to be done. Companies create wealth. If we are to capitalise on the opportunities that are offered by the strengths of our science base, it is imperative that there is a significant and sustained increase in the number of companies in Scotland that exploit our competitive advantage. We must capitalise on our strengths in Scotland and maximise the impact of science and technology on the Scottish economy.
Does the minister agree that the time between academic findings and their translation into commercial enterprises is the key to success? Why, therefore, has the gestation of the oil and gas centre of excellence that Nicol Stephen and I discussed in November 1999 taken so long? The minister has still not announced the planned energy institute and I gather that he is unlikely to make such an announcement today.
The time between research being produced and commercialisation happening is key. The most important thing is to get that pipeline right. It is not true to say that there have been no initiatives in this area. The proof of concept fund, for example, is part of that process. As I will say in a moment, this is about long-term thinking. Our proposals must be robust and we must ensure that they deliver exactly what we need. That takes time, but progress is under way. I will comment on that later in my speech.
The motion highlights an exciting and important development—to which Brian Adam referred in his intervention—in the way in which Government can act as a catalyst in creating business opportunities in the energy industry.
Scottish Enterprise has drawn up innovative proposals to create a technology institute for energy. The institute will be a new, powerful link between research and commercialisation. It will spot market opportunities by linking with energy companies and identifying their future commercial needs. The institute will link with the pure research that is going on in universities and, potentially, commission new work. The new intellectual property that is created will be in the ownership of the institute, but it will be there for commercial exploitation by business.
This groundbreaking initiative is exactly what good government should get itself involved in: creating a body that can intervene and plug the gap between pure and applied research, that is well versed in the most effective exploitation of intellectual property, and that is familiar with the worlds of academia and the venture capitalist. The institute will be a shopfront for all that a smart, successful Scotland can be. It will create a focus that will enable high-growth technology companies to work together and channel ideas into a company-building programme.
Scottish Enterprise has outlined proposals for a further two technology institutes. All three institutes will focus on areas of science where we have a clear global competitive advantage, so it is no surprise—especially given the thinking that has been done, to which reference has been made—that energy is the first sector in the detailed development of plans.
The work is being undertaken in a way that will benefit from, and link in to, existing initiatives, such as the proof of concept fund and the thinking that has gone into the centre of excellence idea. Detailed proposals, which will also include the criteria for determining the location of the institute and its work, should be completed by the autumn.
Will the minister give way?
Sorry. I have to move on now.
Scottish Enterprise will announce the plans in detail tomorrow, when it publishes its operating plan for 2002-03. This is ambitious, long-term thinking. The initiative is groundbreaking and has enormous potential value for Scotland's economic growth. I expect all the stakeholders in the energy, technology and academic sectors to respond positively to Scottish Enterprise's proposals for the operational model. I expect Aberdeen to be at the forefront of that positive response.
This is an important moment in defining where Scotland is placed in new energy developments. We can fall behind and follow the lead of others—as we have seen happen in previous technology shifts—and watch technology develop with the big power companies buying the equipment to generate renewable energy from elsewhere. On the other hand, we can grasp the opportunity to enable scientists in Scottish universities to develop the ideas and indigenous companies to translate the technology into commercial equipment and services and to make global connections to compete in the world market. Our aspiration is the latter and Aberdeen is the place to dedicate ourselves to that.
I move,
That the Parliament welcomes the decision by Scottish Enterprise to work up detailed plans for an Energy Research Institute in Scotland to commercialise the work of Scotland's universities across the energy field; endorses the policy of support for offshore renewable energy developments on the part of the Executive and the Enterprise Networks, and notes the significant potential for the oil and gas industry to diversify into marine renewable energy technology.
I thank Iain Gray for taking less than the allotted time.
The minister is to be congratulated on his timeousness, given what he said about geological time. Most members feel sometimes that that is what we are living through when we listen to some of the speeches in the chamber—from members of all parties.
I endorse the minister's comments in that I welcome the honour of being here and speaking during this historic visit to one of Scotland's great European cities. I also welcome the debate, although the Government runs the risk of being seen to propose a relatively vacuous motion. The sentiments are fine, but by the Government's own admission we will not see any policy detail until the end of the summer. In that case, why are we debating the matter now?
That said, it is fitting that the Parliament is meeting this week in the north-east of Scotland. As the minister said, the north-east has led the Scottish and UK economies for three decades. It has been a shining example of confidence and success, which should inspire the rest of us to move out of our complacency in the face of Scotland's mediocre economic performance. The industries that have grown here are at the top end of the quality chain.
Aberdeen is also a leader in education. The fine and ancient university that has been such a gracious host to us has welcomed students from around the world and prepared them for excellence in all disciplines. The north-east is well endowed with further education colleges. For example, Banff and Buchan College of Further Education welcomes students from around the globe to study the science and practice of modern fishing. The north-east leads Scotland in much of what it does, right down to the excellent performance of the SNP in the polls in the region, which is a trend that should be encouraged by all free-thinking Scots with ambition for their country.
Today we are focusing on the energy sector. In that field, the north-east has led Scotland and the UK and, in many respects, the world. As the minister said, the sector has a potentially vibrant future, but that future is jeopardised by the occasional interference of London Governments. As Sir Ian Wood wrote recently, there is almost as much resource to come out of the North sea as we have already taken out of it. There are 121 fields in production, nine under development and a further 110 due for development in the next 10 years. The sector could outlive us all. The industry is rightly beginning to diversify into overseas markets, in which its expertise is marketable, and into new energy sectors.
The development of renewable energy engineering is a logical next step as Scotland looks to harness the great wind and wave power that we enjoy. We must ensure that the maximum economic benefits of that power are captured for our domestic economy. From the Borders to the Western Isles and from Ayrshire to Shetland, all of Scotland can benefit from that sustainable new win on the natural lottery.
We wholeheartedly support the sentiments of the Executive's motion. It would be churlish not to, given that for some time the SNP has called for the measures in the motion. Brian Adam and Richard Lochhead have raised those issues in the Parliament during the past three years. However, the motion lacks substance and detail on the plans to implement the measures. The Government can help—many of the measures in which Scottish Enterprise and other agencies are involved will help diversification—but the Government can also hinder, which is the substance of our amendment, to which I will come in a few moments.
We welcome the work that is being done to make the case for an energy research institute. The debate is not helped by the fact that we do not know the Government's plans for the institute, such as where and how it will work, where it will be based and what its budget will be. Those reasonable questions are, as yet, unanswered, but we await the Government's plans with interest. We also greatly welcome what support the Government can give to the development of and investment in renewable energy research. My colleagues will develop those points, particularly Mr Lochhead and Mr Adam, who have led many of the Parliament's deliberations on the matter in the past.
Renewable energy is an area of technology in which Scotland can lead the world. As a starting point, a national consensus has been built up in the past couple of years that we should focus our efforts on science and skills to drive our work to the top of the value chain and to give our industry a competitive advantage. As Universities Scotland recently pointed out in a briefing note—I am sure that all members have read and digested it—Scotland has a number of assets that give us a competitive advantage in the world market. The first is our physical environment. The upside of our terrible weather is the potential for renewables, which is arguably the best in Europe. The second advantage is our research and development track record and the research excellence that is there to be harnessed. Finally, the industrial infrastructure is in place and the skills are available to do the job.
The world renewables market is worth trillions, which, for the hard of learning on the benches opposite, is a million to the power of three, or a 1 with 18 zeros. That is a lot of money; it is more than David Beckham earns in a month. Oil and gas in the North sea still have a great future, but there is no doubt that public sentiment across the globe will require that an increasing share of the energy market be taken up by renewables. Estimates that I have seen suggest that Scotland could have 10 times its population share of the world renewables market. Scotland should unite behind the efforts to secure leadership in the field, which could energise and fund the nation and provide jobs for generations to come. Denmark has stolen a march on us, but if we act together now, we can catch up.
My main concern is that we should not allow a centuries-old Scottish economic problem to affect the oil and gas sector—that of providing the innovation and creativity only to see the profits and commercial success enjoyed elsewhere. Too often, we train people to be the best only for them to travel abroad to practice their skills. To guard against that, we must ensure that there is a vibrant commercial and corporate sector in Scotland that will employ people's skills and invest the resources that are required. To that end, we need the financial independence to ensure that our economy has a competitive advantage over the rest of the UK and Europe, across all industries.
In the energy sector, we must act now to tackle the damage that has been caused to investor confidence, to trust in the Government, to sustainable investment in jobs and to the health of the industry by the Government's recent tax hike. It is clear to everyone who takes an interest in the energy sector that the Labour chancellor has made a monumental error in imposing a 10 per cent hike on North sea energy taxation. He did so with no signal in his green budget, no consultation with the industry, no consultation with the unions, no consultation with the Department of Trade and Industry, no consultation with the Secretary of State for Scotland—no wonder—and no consultation with the Scottish Executive, all of whom found out about the increase only on the day of the budget. Yet that tax decision affects directly what the Executive has chosen to debate today. The Parliament must express a view on it.
Does Andrew Wilson recognise that two further fiscal changes were introduced in the budget, one of which was designed to support the abolition of royalties to support older fields—which has been welcomed by the industry—and the other of which was a tax relief on capital charges to encourage investment in new, smaller fields of the kind that are left in the North sea?
I am delighted to accept the point that the member makes. If those measures had been introduced in isolation, they would have been welcomed. The problem is that the budget represented 17 strikes to the head and only one cuddle from the chancellor. The balance of it was wholly negative for the industry, as almost every observer would confirm. The deputy minister is shaking his head, but as a local constituency member he should take more interest in what is going on in the energy sector.
Will the member give way?
I have to move on. I will be happy to give way in a moment.
Over the next eight years, £8 billion of potential investment will be lost and the squeeze will be felt not just by global oil players, but by the small and medium-sized enterprises, the contractors and the suppliers that serve the industry. That is the lesson of downturns in recent years. Those companies are the life-blood of any effort that we can make to diversify our skills into renewable energy sources. If they are hit, where are the domestic skills, enterprise and investment in growth going to come from? The Government cannot take £8 billion out of a sector and expect that to have no impact. The fact that that has been done all of a sudden, without consultation and with no assessment of the economic impact on employment and on future investment in the sector, proves that it was a last-ditch attempt to settle Government books that are looking increasingly dodgy. It is yet another example of a London chancellor looking north-east and seeing nothing but pound signs. All the parties in London have viewed the North sea as nothing more than a cash cow to be milked. If the minister can tell me anything different, I would be delighted to hear it.
The reaction from the industry has been well publicised in the press. Does Mr Wilson accept that, since 1998, it has been well known that the fiscal regime required restructuring and that, of the two possible ways of doing that—the petroleum revenue tax and the supplementary tax—the supplementary tax that has been introduced was regarded as preferable by far? Does he also accept that the industry's reaction has been couched in terms of the need for fiscal stability in the industry over the longer term? Can he explain how the Scottish National Party's plans to tear Scotland out of the United Kingdom would provide fiscal stability over the longer term for the oil and gas industry?
The minister makes my point perfectly. The actions of London Governments over the years have created instability in the sector. By treating the North sea as a cash cow to be milked, they have bred investor uncertainty and a lack of investment. An industry that was led by a Government in Scotland would have stability and the Government would focus its concern on nurturing the industry over the long term.
Neither the industry nor the SNP oppose tax changes as such—we oppose what has happened. A review was set up in the first two years of the Labour Government and reported its conclusion, after two years, that no changes were necessary. Then, after that two-year review and with no consultation, preview or linking to the Government's green budget, the chancellor comes out with a tax change on the day of the budget without telling any minister or consulting with the DTI or the Secretary of State for Scotland. The industry never knew that the tax hike was happening. That is instability and driving a wedge between Government and industry and is precisely the sort of uncertainty that we do not want and that damages investment.
I hear from the back of the chamber a blast from the past that ought to be acknowledged with due respect.
I know that Andrew Wilson takes a particular interest in the economics of oil and the tax revenues that they generate. I also know that he takes a particular interest in the work of Chantrey Vellacott DFK. Its estimate is that when the value of a barrel of oil swings by $3 in its central range that leads to a variability of £1 billion in tax revenue. I wonder whether Mr Wilson agrees with that estimate. If he does not, can he tell us, given his interest in oil economics, what his estimate is for the variability in tax revenues when a barrel of oil swings by $3 in its central range?
I think that what the minister points to, quite rightly, is the vulnerability of the sector—[Interruption.] Did I say minister?
There are so many of them.
I must be hankering for a bygone age.
I think that what the former minister referred to, quite rightly, is the vulnerability of the oil sector to instability, not only in fiscal regimes, but in the oil price and the impact that that can have on Government revenues. That is why the SNP suggests establishing a fund for future generations to balance the fluctuations in oil prices in the same way that the Norwegian Government has done. Again, that points to the fact that the SNP, and Scotland as a country with a focus on oil and gas, could introduce a regime that would be far more stable and that could allow us to protect the industry and public finances from the vagaries, rather than accentuate them.
London causes an accentuation of the problems of a sector that has not been helped or well served—
It is one a minute from the Government benches. It is delightful to see them so agitated about a debate. I will take the minister in a few moments, but I must move on.
The simple point is that if the DTI, the Secretary of State for Scotland and the ministers were not told about the tax hike—I would be delighted to know when ministers found out about the measure—how can it possibly be said to help rather than hinder the sector? Even Helen Liddell has admitted that the measure's effects are deleterious. It is not acceptable in a regime or province such as ours, which is high cost and has done so much to fund London Governments, that the tax instability is introduced at a time of great fragility. That link to the debate on renewables must be recognised. Diversification cannot be sustained if we are potentially cawin the feet from under the very businesses and industries that will do that diversification.
You are on your last minute, Andrew.
I am grateful, Presiding Officer. [Members: "So are we."] I was sure that many members would be grateful too.
I had hoped that the Liberals and the Conservatives would back our inclusive amendment. They seem, however, more concerned with saving face and petty point scoring. I thought that those tactics had been left behind in student union debating chambers. The Liberals back our amendment in principle—their colleagues in London voted on their behalf. Here, however, the Liberals lodged an amendment to ours that seems to say, "The Liberals are against the tax—honest. But it's not for the likes of us to discuss it."
That is an utterly bankrupt position that says that the Parliament cannot express views on matters that are currently external. That is utterly wrong, hypocritical and is a wasted opportunity to show the industry, the work force and the country that the Parliament can unite across parties in the public interest. It is a missed opportunity, but par for the course. That position is unsustainable.
I welcome, however, the opportunity for this morning's debate. The tax question is the key one affecting the sector and the future potential for diversification. It is a national debate that is not just for the north-east, but for Scotland's economic future, so that we can seize today's opportunities compared with the way that London squandered those of the past.
There is much to be optimistic about. There is a national consensus on the need for skills and investment. However, what appears to be in the way is a London Government—and, I have to say, its mouthpieces on the Executive benches—which is either complacent or indifferent to the impact of what remote government has meant for the oil and gas sector. We must send out a unified message from Parliament by a unified vote for an amendment that I think is reasonable, calling for a moratorium on the tax measure until an assessment of its impact can be made. I hope that the chamber will unite behind that decision when decision time comes.
I move amendment S1M-3155.1, to insert at end:
"but is deeply concerned by the potential economic impact of the Chancellor of the Exchequer's recent announcement of a 10% increase in taxation on the North Sea oil and gas industry; is further concerned that this announcement, without any consultation or published assessment of the potential impact it will have on jobs and sustainable investment in the sector, could jeopardise employment levels, the survival of many companies involved in servicing and contracting to the industry, and the future success of a vital Scottish industry which in turn could place at risk any plans for effective and sustainable diversification, and therefore calls for a moratorium on the imposition of this tax until a full assessment is made, and published, of the sectoral and overall economic impact it will have including its impact on investment in diversification."
I now call on Mike Rumbles to move his amendment to the amendment.
I am delighted to be speaking in this debate during the Parliament's visit to Aberdeen. It is a great opportunity to address the issues that are important to the north-east of Scotland.
The North sea boasts Europe's largest oil and natural gas reserves and is one of the world's key oil producing regions that is not part of the Organization of the Petroleum Exporting Countries. As recently as two years ago, North sea oil production reached new heights, with more than 6 million barrels a day being produced for the first time. However, the oil industry in Scotland is increasingly mature and, although there is a high level of production, fewer exploration and appraisal wells are being drilled in the North sea than in any year since the 1970s.
Up to 100,000 jobs or 6 per cent of the work force are dependent on the oil and gas industry—the vast majority of those jobs are in the north-east—and more than 2,000 companies are involved. Therefore, the challenge for the industry is to engage all stakeholders in targeting efforts to exploit fully our oil and gas reserves, including the development of smaller fields and diversification of the industry.
Before I consider the Executive's actions in promoting diversification and before I address the detail of the motion, I must address my amendment to the SNP amendment, which I have lodged on behalf of the Liberal Democrats. It is unquestionably right to highlight the industry's grave concern about recent proposals in the Chancellor of the Exchequer's budget for a 10 per cent supplementary charge on North sea oil profits. The North sea is an expensive place in which to operate. It is physically challenging because of the deep water and the hostile climate. It therefore requires the use of leading technology, which does not come cheap. It is important to acknowledge that there is cheaper competition elsewhere, such as in the Gulf of Mexico, Azerbaijan and Venezuela. There are, in those places, larger fields from which it is easier to extract oil and gas. That is why they can be more attractive places for investment by oil companies that operate in a global market.
The 10 per cent tax on profits that the chancellor is to levy appears to the unenlightened to be simply a hit on London big businesses that charge the motorist a lot at the petrol pump, but that is the wrong way in which to consider the matter. At a time when oil companies are striving to be more competitive and are making redundancies to reduce the cost base, the chancellor hits them with a 10 per cent tax on profits. As has been said, the tax proposal came out of the blue—there was no consultation with the industry, just a quick and easy hit. The industry needs stability and a long-term investment programme. We are witnessing Government short-termism at its worst.
Mr Rumbles makes some well-informed and positive points. However, will he say whether the points that he is making are his personal views or those of the Liberal Democrats and, by implication, the Executive? Does the Liberal Democrat minister Nicol Stephen, who is sitting in front of him, agree with him or is there a split position?
The Liberal Democrats in Westminster and the Scottish Parliament are united on the matter. As my Westminster colleague, Sir Robert Smith, said in the House of Commons during the budget debate,
"If we get it right and encourage investment in the North sea, we will make more revenue in future … It can pay for future health care, but it will be lost if the Chancellor does not get it right, work properly with the industry and acknowledge the need for investment.
The Budget was meant to be enterprising and fair. For those who have lost their jobs to make competitive an industry that the Chancellor, by taking tax out of it, is now making even more uncompetitive, it is neither enterprising nor fair."—[Official Report, House of Commons, 22 April 2002; Vol 384, c 66.]
The Liberal Democrats, in Westminster and the Scottish Parliament, are completely opposed to the proposed tax on jobs and the threat to the sustainability of the North sea oil and gas industry.
Can we therefore assume that the four Liberal Democrat ministers will vote for Mike Rumbles's Liberal Democrat amendment at 5 o'clock tonight?
I am speaking on behalf of the Liberal Democrats. I say to the member that he should wait and see with regard to the vote tonight.
It is misleading for MSPs to pretend that the reserved matter of tax can be overturned in this devolved Parliament when it cannot be. The proper place for opposition to the tax is the House of Commons and I know that the members of Parliament who have the interests of the north-east at heart will do all that they can to have the proposal overturned in the House of Commons. I have lodged my amendment to the SNP amendment to ensure that it is clear that the mistake that was made in the House of Commons should be rectified in the House of Commons.
If Mike Rumbles feels such passion about his amendment, why was not it lodged as an amendment to the Executive's motion? Mr Rumbles is keen to talk about which areas are reserved and which are not reserved, but is he aware of the Executive's role in dealing with the Scottish economy and employment and in retraining and replacement of jobs?
That intervention was not particularly helpful or terribly constructive. On David Davidson's amendment, I am astounded that the Conservatives are trying to remove the support for offshore renewable energy developments that is mentioned specifically in the Executive motion. I, and the Liberal Democrats, support the Executive motion.
My amendment covers renewables.
It does not. David Davidson should look at the business bulletin.
Removal of that support would be a gross mistake and one that the industry would not forgive—it certainly would not forget it—very easily.
Will the member give way?
I have given way enough.
I will speak about the Executive motion and examine what the Scottish Executive can do to help to secure the future of the industry by assisting in the diversification that is so necessary to the industry's success. The Executive must provide financial backing for new research and development to be carried out in our academic centres and in industry in order to develop wave and tidal current technologies towards full commercial viability. I know that Scotland has the potential to be a world leader in that field, but that will happen only with the Executive's support.
Such development should include construction and testing of full-scale prototypes. Meeting a challenge on that scale is ambitious and, as with all ambitious projects, there would be setbacks to endure along the way, but I have no doubt that Scotland can lead the world in such activity. We have in this country an enormous wealth of engineering and construction expertise that is often underused and under-appreciated. The Executive must give the manufacturing sector its full support to enable Scotland to become a key player in the world market of manufacturing and installing renewable energy devices.
In the short term, Scotland has the potential to win a considerable share of the wind energy market. In the longer term, Scottish industry must take the lead in the construction of wave energy and tidal stream devices. The nation that has the courage to invest in the infrastructure that is necessary for mass production of large-scale units in that sector will reap the rewards—that nation should be Scotland. It is also essential that the Executive address the problems that are associated with power transmission. That will require the development of a balanced renewable supply from all Scottish renewable sources in order to meet and exceed Scottish and United Kingdom targets.
No short-term or medium-term dividends are to be gained by such investments, but we have simply no choice but to invest; indeed, we have a responsibility to future generations to do so. If we are to develop Scotland's renewable energy resource, we face two problems. The first is that the energy that is to be tapped is concentrated largely around the northern and western peripheries of Scotland, but demand is concentrated in the centre of Scotland and south of the border. The second problem is reliability of the supply. I fear that even the Scottish Executive cannot ensure that the wind will blow for 24 hours a day, 365 days a year.
Is not the real problem that we need to invest heavily in renewable energy storage systems?
I say to Bruce Crawford that the Executive definitely cannot ensure that the wind blows.
The difficulties are not insurmountable.
On supply—
I have given way four or five times already.
Advanced research is required to solve transmission issues and to examine greater use of local networks for remoter communities. It should be shown that the grid has some capacity to allow for current renewable systems, but new capacity is needed if Scotland is to meet its full potential.
The second problem—reliable supply—can be contained. Wind power should form only part of an integrated renewable energy strategy. Even the European Wind Energy Association admits that, although wind energy could in theory supply all Europe's electricity, technical constraints mean that it would be sensible to use wind energy to meet only up to 20 per cent of our needs. If wind energy is used to form part of the total supply along with less variable sources, it can have a hugely important role to play. The real energy resource—wave power—lies offshore. The long oceanic swell provides a steady and reliable resource that is waiting to be harnessed, particularly in winter when demand is highest. Tidal power is even more reliable. It would provide predictable power all year round.
In combination, those three renewable energy resources can provide a balanced, reliable supply with output that rises in winter when demand is highest. However, that is dependent on a long-term commitment from the Executive. What better place to announce the decision to locate a new energy research institute to harness the expertise of the North sea oil and gas industry than in the great granite city of Aberdeen?
I believe that the case is strong for siting in Aberdeen the headquarters of a new energy research institute. My colleague, Nicol Stephen first proposed such an initiative, when he was Deputy Minister for Enterprise and Lifelong Learning. Now we need to get on with it.
The Executive's motion is right to acknowledge
"the significant potential for the oil and gas industry to diversify into marine renewable energy technology."
At the same time, it is important to set demanding, but achievable, goals. We need to launch a major, realistic diversification programme for renewable energy. We must utilise the expertise in the North sea oil and gas industry for the benefit of the whole United Kingdom economy. We should locate the headquarters of the new energy research institute here in the city of Aberdeen.
The Liberal Democrats will support the Executive's motion on diversification of the industry. Although we feel that it is important to combat threats to the industry such as the 10 per cent tax hike, my amendment to the SNP's amendment makes it clear where the responsibility lies for that tax proposal and where it needs to be fought—in the House of Commons.
I move, as an amendment to amendment S1M-3155.1, amendment S1M-3155.1.1, to leave out from "is deeply concerned" to end and insert:
"notes the Liberal Democrats' opposition to the 10% increase in taxation on the North Sea oil and gas industry, and recognises that this is a reserved issue and the responsibility of Her Majesty's Government."
I thank the member for completing his speech under time while still accepting many interventions.
Our amendment
"supports the development of renewable energy research".
I, on behalf of my party, am happy to support the proposal to base the proposed energy research institute here in Aberdeen, which is the obvious place for it.
I wish to focus more on what is the major concern for this area. I am amazed at the deafening silence from the Executive on the major threat to employment and the future prosperity of the north-east of Scotland from the actions of the Chancellor of the Exchequer. The Executive has done some embarrassed ducking and diving on that issue this morning without hitting the mark. Regardless of what Mr Rumbles thinks, the Parliament has, under the Scotland Act 1998, the right to discuss anything that affects Scotland.
Will David Davidson take an intervention?
No, thank you.
I let you in.
In time, and when I choose, thank you. I am surprised at the furore that Mr Rumbles is displaying this morning. It is more important that we channel our attentions and that the Parliament demonstrates that it understands what is going on, which is a hit on employment in a major industry in this area.
I am glad, but not surprised, that Mr Davidson raised that issue. The Tories are responsible for one of the most ludicrous press releases that I have seen in my life. That release calls for the setting up in Aberdeen of a task force similar to the Motorola task force that was set up for West Lothian, on the basis of concern about jobs. The difference, of course, is that the workers at Motorola lost their jobs. Here, we are talking about hypothetical and potential job losses. I make it clear that I do not accept that premise. Mr Davidson's remarks constitute scaremongering that is so comprehensively spun that it has passed through the space-time continuum and time-travelled to some hypothetical point in the future. It is ridiculous, and does the industry no good at all.
I always thought that good government was about looking forward, seizing opportunities and recognising threats.
There are three Labour MPs and two Labour MSPs in this city. The Deputy Minister for Enterprise, Transport and Lifelong Learning is also the deputy chairman of Pilot. Pilot was set up—so the industry thought—to be the talking shop for all things to do with the industry, including interface with Government and the future. In the last term, the industry delivered totally on its investment promises, only to have that thrown back in its face and ignored. Perhaps the minister does not realise that, in the past five years, £23 billion has been invested in good faith by an industry that believed that there would be reasonable fiscal stability. That is something that I called for two years ago, it is something that the Government has called for and it is something the industry has called for at every opportunity over the past 10 years.
Will Mr Davidson acknowledge something that Mr Andrew Wilson was unwilling to acknowledge, which is that the decision not to proceed with the supplementary charge in 1998 was based specifically on the low price of oil at the time? Will he accept that there was a sustained, low oil price at that time, and that the present market position is quite different?
To put it simply, the oil price is not likely to remain at its recent average. Even if the oil price were to drop to $15 a barrel, £4 billion extra tax from the North sea would be unavailable for investment. The tax is a supplementary tax against which the industry cannot set its finance charge—it could do so with corporation tax. The Executive is, through its ministers in London, cutting back opportunities for the industry to invest. The situation is worse than that—it is about investor confidence.
Will the member give way?
Not at this time.
If the North sea, Scotland and the UK are not perceived to be good places in which to invest, how many other industry sectors might be affected? We are talking about short-termism such as we have not seen in a long time and about which many of us are anxious. The rammy that went on up here about the Inland Revenue's IR35 guidelines being applied to subcontractors was bad enough.
Will the member give way?
In a moment.
Last year alone the industry initiated 21 new projects—twice the number for the previous year—worth £2.55 billion. That tells us that the industry did not expect this bolt from the blue.
There is talk of royalties and how they will be removed—Elaine Thomson came out with that a few minutes ago—but it is all talk. Why does the minister down south not acknowledge the damage that he has done and simply abolish royalties now? I urge Iain Gray to take the message back to everybody at Westminster that the situation is a nonsense that just goes on and on.
The economy in north-east Scotland is tied to oil and gas. When I was a young man in Aberdeen and oil came, farming, fishing and the food industry were in good order. Oil was an added benefit that spun out to the universities and provided training and job opportunities; the European centre of excellence that is Aberdeen developed. What do we have now? Other industries are going down the pan as farming and fishing are struggling to cope. Oil is now a major plank. The terrible trouble is that although the oil industry is such an important part of the economy here, we know that it will die eventually. At the moment there are huge opportunities; half the gas and oil have not been taken out of the North sea. That means that we need new technology, which is expensive. The old rigs are expensive to run and are not so efficient.
The economy is inter-linked. If the Executive runs it down naturally over time and brings in new industry to take its place, that is fine. However, if the Executive cuts short the investment just like that, with what will it fill the gap in the short term? Will it commission two new nuclear power stations to fill the energy gap?
I am enormously grateful to the member for giving way. The Parliament should assure him that although he spent his youth in Aberdeen, he is still in his prime.
The SNP agrees with David Davidson; there has been an utter breach of the industry's faith by the Government. Does the member agree that the Parliament would do its job as the voice of Scotland if it were to unite behind the industry against the tax decision? Of course we could not change the decisions at Westminster, but we could ensure that London has a unified Scottish Parliament position to take into account.
I agree that we should spell out the position very clearly. Members in all parties at Westminster sometimes lose clear sight of what is happening. We have to get across the message that the oil and gas industry is a major driver of the Scottish economy and, through that, the UK economy. I have no wish to go down the route of nationalism and be isolated on the fringes; I can tell members what that is like and we do not want to go there.
Other aspects of the economy have spun out of the industry, such as the universities, not just in Aberdeen—I refer to Heriot-Watt University for example.
Will the member take an intervention?
No—Elaine Thomson does not normally take interventions.
A huge exercise is going on—new technologies are being developed to get to the peripheral fields, the products of which will be transported abroad. There is terrible geology to deal with; we have fractured fields and mixes of oil and gas within the different strata. That situation requires a rapid response, new technology and heavy up-front investment. The investment that has been made to date will no longer have the same net present value, because it will take longer to get payback because of the stupid tax. No one is arguing about a fair tax regime, but it would be far better if we had discussed the tax with the industry.
I have never seen such a response from any industry. The industry is united in thumping out the numbers, which are all here, but the debate is about principle, not numbers. The Executive has been hung out to dry and no matter how much the Liberal Democrats squirm and pretend that they are the white men up here and are doing wonderful business down south, the fact is that the Executive, which includes the Liberals—
Will the member take an intervention?
I will finish the point and will come to Mike Rumbles in a moment.
The Executive must take responsibility for what will happen. The figures that say that 18,000 jobs in Scotland are at risk are not my figures, nor are the figures that say that 7,500 jobs are at risk in the north-east. Those figures come from academics, accountants and economists who watch the industry. If one does the sums, those job losses are the potential effect.
When the tax was first announced, it was fairly obvious that the cost was being minimised—it was going to be only £4 billion. The figure went up to £6 billion and now the projected figure over the first few years is £8 billion. If one examines the situation more closely and takes into account the knock-on effect on different parts of the industry, the real cost will be more than that. The minister's responsibility is to tell members how he will make good the job losses and how he will diversify the industry in the north-east. Perhaps Mr Rumbles can help him.
I thank the member for eventually giving way. He has repeatedly misrepresented the Liberal Democrat position. Our position is absolutely clear—we oppose the tax and we oppose it where it is most important to oppose it. The member suggests that we say that the matter cannot be discussed. That is simply not the case. Our amendment indicates that we should discuss the matter. We are discussing it, but the point is that we need to change the taxation increase on the industry in the House of Commons.
We must invest in the Scottish economy part of the money that rolls back. Why has half the money that it was promised would go straight into the national health service—Gordon Brown's funds—not been put into the infrastructure in Scotland, which creates the jobs, the employment and the wealth? It is from the wealth that we pay the tax, which pays for the public services. One cannot do one without the other.
When the deputy chairman of Pilot—Lewis Macdonald—winds up, I want him to tell us how he will explain to the members of Pilot how they can diversify. I am not knocking diversification into renewables—we need that as well—but why cannot we have both? Why do we have to hit the oil industry so quickly? We will not have time to get the renewables centre on stream and delivering jobs and investment because the United Kingdom Offshore Operators Association will not sign any cheques to put into renewables; its members are struggling to find out what investment they have left.
I have made it clear that I do not accept that the change in the fiscal regime will have the impact on employment that has been described. Labour members are clear that a growing Scottish economy is necessary to fund public services and to deliver social justice. I want to clarify whether Mr Davidson thinks that the Conservatives would have slashed in half the record additional increases for health, which were announced recently by the Minister for Health and Community Care. Would they have invested those sums elsewhere in the economy? I thought that that was what the member was saying.
I was not saying anything about what we would do; I was asking why the minister did not do that.
I will conclude, because I appreciate that other members might wish to shed new light on renewables. We encourage the development of renewables, but we know that that will not happen overnight. The tax increases on the oil industry represent a silly way of milking a cash cow and biting the hand that feeds us in this part of the country. Thousands of small companies that offer high technology and added value are at risk. Their opportunity to employ people is at risk. If fewer people invest offshore, there will be fewer jobs offshore. About 3,000 jobs are produced by £100 million of investment. If the future investment plans are removed—it takes only nine months to a year to make such plans nowadays—and investment is removed in chunks of £100 million, 3,000 jobs will vanish just like that.
When Jack McConnell comes to the chamber tomorrow to give his big statement about where he wants the Government to go, I want him to bin his statement and instead tell us how he will make good the damage that the chancellor has done to the economy of north-east Scotland.
I move amendment S1M-3155.3, to leave out from "endorses" to end and insert:
"supports the development of renewable energy research in Scotland, and expresses concern that investment by the oil and gas industry in the North Sea province will be severely undermined by the 33% increase in corporation tax which will lead to a projected 18,000 job losses in Scotland."
We move now to open debate. Speeches should be of four minutes plus time for interventions.
The offshore oil and gas industry is an integral part of the economy of Aberdeen and the north-east. I worked in the industry for many years. Over the past decade, the industry has driven the huge expansion of Aberdeen's industrial base, has provided thousands of jobs and has made Aberdeen the energy capital of Europe.
The economic importance of the oil and gas industry to Aberdeen, Scotland and the UK cannot be underestimated. Indeed, I argue that the creation of Pilot, which was set up when the oil price was low, shows that its importance has not been underestimated. The investment that the oil and gas industry has put into the UK is immense. Over the past decade, the industry has been responsible for some 18 per cent of total UK industrial investment.
Undoubtedly, we now stand at a crossroads, but we have as far to go down the road as we have come. We know that the North sea is a mature oil-producing area, but 50 per cent of the oil and gas reserves remain to be exploited over the next 20 to 30 years. There are still huge opportunities and there is still a lifetime career for today's graduates. One feature of the oil and gas industry has been that people have constantly predicted its premature death, whereas it is one of the UK's raging successes.
Pilot, to which I referred earlier, has successfully brought together Government and industry to define a new vision for 2010.
The member has mentioned Pilot, which is the industry-Government initiative. Before proceeding with the 10 per cent tax, should the UK Government have consulted Pilot and others in the industry?
Pilot brings many people around the table including, I understand, Treasury officials. Over the next period of time—
Should Pilot have been consulted before the tax was introduced?
I have dealt with Richard Lochhead's question.
Pilot will no doubt consider how to proceed with further developments in the oil and gas industry. Pilot has set clear objectives for the next few years for opening up smaller fields, maintaining production in older fields and encouraging sustained investment of about £3 billion a year.
It is undoubtedly true that continued investment will require stability and confidence. Some of what we hear from the SNP is therefore quite strange. I can think of nothing more destabilising than taking Scotland out of the UK, which has provided a stable base for the oil and gas industry.
Will the member take an intervention?
No thank you.
I am sure that Lewis Macdonald, who is the deputy chair of Pilot, will consider how to take forward discussions within Pilot.
Instead of talking down the industry, as David Davidson did this morning, we should recognise the opportunities that exist. From my discussions with the oil industry, I know that no projects have been cancelled and that all current investment is going ahead. No jobs have been lost. We need to celebrate our successes rather than talk them down.
Future exploration and production in the UK continental shelf will be underpinned by developments in innovative technology, such as that which could be supported by the new energy institute. Aberdeen has a huge reputation for developing technology and has much expertise in the offshore oil and gas technologies. Undoubtedly, the added support of an energy institute could help us to grasp global opportunities by encouraging companies to diversify into other oil and gas markets around the globe and into renewables.
I make no apologies for calling for the energy institute's headquarters to be located in Aberdeen. Aberdeen has the industrial base and the critical mass both of industry and of academic expertise, which includes much important research into renewables. Renewables UK was recently established in Aberdeen to support the development of a renewables supply chain. Locating in Aberdeen will be vital to the success of the energy institute. I hope that I can look forward to a positive announcement on that in due course.
The north-east of Scotland is absolutely furious with new Labour following the recent budget announcements. There has been an utter breach of faith. As the minister well knows, the industry was just recovering from the 1999 slump. Things were beginning to get back to normal and investment was coming back on stream.
Will the member give way?
The minister did not wait long, but I am delighted to give way.
Can Mr Lochhead give us an example of an investment that has been cancelled since the budget?
Members of the industry contacted me a few days after the announcement to say that, had the tax been announced a few weeks previously, many investments that they had just committed themselves to would not have happened. That means that, in the foreseeable future, many investments will not take place, because of the 10 per cent tax announced in the budget.
All the good will that has been built up between the industry and the Government in recent years was ripped up overnight. All the commitments and all the pledges were not worth the paper that they were written on. The members of Pilot are furious. The Government was committed to dialogue and consultation, but the 10 per cent tax came out of the blue.
In 1997, when new Labour won power, it consulted on possible changes to the industry. The consultation lasted more than 24 months, after which Labour decided not to make any changes—to the relief of everyone in the north-east of Scotland. What happened then should be contrasted with the 10 per cent tax increase now. This time the industry was not consulted; Scotland's Parliament and Government were not consulted; and poor wee Brian Wilson, who spent so much time building bridges with industry, probably was not consulted by Gordon Brown. Brian Wilson builds the bridges and Gordon Brown burns them down. No doubt poor wee Lewis Macdonald, the MSP for Aberdeen Central, many of whose constituents depend on the oil and gas industry for their jobs, was not consulted by the UK Government on the potential impact of the 10 per cent tax on his constituency and the north-east of Scotland. Perhaps he will confirm that when he winds up. Lewis Macdonald's views simply do not matter to Gordon Brown who, as Andrew Wilson said, sees only pound signs when he looks north.
Will the member confirm that a number of oil companies have taken a view that is quite contrary to the one that he has expressed? Talisman Energy (UK) Ltd, for example, said that, on balance, the capital allowance changes were beneficial in allowing new investment and Venture Production Company (North Sea) Ltd has announced a £90 million investment in the Sycamore field. Does the member accept that the balance of the budgetary changes differs depending on the nature of the company and the fields that they seek to exploit?
I draw the minister's attention to recent headlines from the north-east of Scotland, such as "Gas giant says new tax will cost £90 million" and "North Sea Investment At Risk Warns ExxonMobil". There have been dozens of similar headlines. Dozens of experts have said that the tax is detrimental and will have a negative impact on the economy of the north-east of Scotland.
Will the member give way?
I am sorry, but I am running out of time.
You have two minutes.
There will be long-term damage to the industry if the 10 per cent tax is imposed without proper assessment. We may not see that damage next week or the week after, but there will be long-term damage. That concern is widespread in the industry and in our communities in the north-east of Scotland. We will be less competitive. I do not know whether the minister has seen UKOOA's graph, produced by Wood Mackenzie, showing that we are only the 30th most competitive province in the world—and that analysis was carried out before the 10 per cent tax.
This is a global business: people are considering the Mexicos, the west Africas and the Russias. Global decisions are being taken. People in Aberdeen have to bid for investment from Houston and elsewhere in the world. How will they do that now that they have an extra 10 per cent tax? We are now less competitive and there is a lack of confidence. Industries will look around for places to invest knowing that there is now fiscal instability in Scotland. That is detrimental to the industry and to the north-east of Scotland.
The minister must take on board an important point. We are talking not only about the massive global companies and the multinationals, but about local companies in the supply chain. It will not always be the multinationals that suffer because of the tax change. Like many large businesses, the multinationals will pass on costs to their suppliers. The suppliers employ tens of thousands of people in the north-east of Scotland and they will bear the brunt of that. If the multinationals decide to turn their attention to provinces elsewhere in the world, companies in the supply chain in this part of the world will follow suit. They will have no choice. That will be detrimental to attempts to prolong the life of the oil industry in the North sea.
Will the member give way?
No, he is in his last minute.
I will turn briefly to diversification.
Very briefly.
In the north of Scotland, we cannot have all our eggs in one basket. We should learn lessons from elsewhere in Scotland and from Scottish economic history. We have the opportunity to transfer skills from oil and gas to the renewable energy sector. That is why it is so important that the energy institute be established in Aberdeen. The critical mass in both public and private sectors is in Aberdeen and the energy institute must be in Aberdeen to allow us to achieve diversification.
The Government and the Scottish Parliament must stand up for the communities of the north-east and for the Scottish economy. That is why we are here and why the people of Scotland elected us. For the Liberals to argue that we cannot make representations to Westminster, while in the same breath saying that we should make European representations for agriculture—
You have finished your speech, Mr Lochhead.
The Liberals should hang their heads in shame for not standing up for the north-east of Scotland's offshore industry.
You have had your say, Mr Lochhead.
I ask the Parliament to support the SNP amendment and stand up for the offshore industry in Scotland.
The north-east is undoubtedly doing its best to ensure future prosperity and it is now looking to the Scottish Parliament and the Scottish Executive to take a more active role in achieving that dream. As in all such enterprises, support is necessary in order to be competitive worldwide. We need improved transport links in Scotland and to markets overseas. I understand that there have been calls for a bypass round Aberdeen.
The planned energy research institute is to be controlled by Scottish Enterprise, but as yet its location has not been confirmed. Perhaps I am being overly suspicious, but I wonder whether there is a difficulty in locating the institute in Aberdeen. The energy institute should be in Aberdeen, but I will not hold my breath.
In his speech, Iain Gray said that the details of the energy institute would be announced at a Scottish Enterprise press conference in Glasgow. Is it not a disgrace that we are to have another fanfare from Scottish Enterprise tomorrow, but the details are being kept from the Parliament today? Does John Young agree that the minister should be announcing the details today in Parliament, rather than with a fanfare in Glasgow tomorrow?
It is rare for me to disagree with Alex Neil and I fully agree with every word he said in the last two seconds. The deputy minister should give the Parliament an explanation when he sums up.
The oil and gas industry is a major contributor to the Scottish economy, employing some 6 per cent of the work force. The United Kingdom and Denmark are the only countries in the European Union that are net exporters of energy oil reserves. However, at current production rates, that situation will last for only 15 years, whereas the projection for the OPEC countries is some 80 years. The emergence of the oil and gas industries over 30 years is to be applauded, but some difficulties have arisen. Local members will be particularly aware of problems such as large increases in property prices and a wage imbalance. Nevertheless, the advantages outweigh the disadvantages.
In this part of Scotland, we have several institutes, such as the Macaulay Institute and the Rowett Research Institute. According to UKOOA, more than 50,000 jobs could be at risk as a result of the tax increase. That estimate is based on the rule of thumb that every £1 million removed from the industry takes with it 32 jobs and on a forecast that investment may fall by 20 per cent. Roy Hall of UKOOA's economic advisory group said that there had been no consultation before the tax hike. He said that the decision was strange and short-sighted, given that the North sea is now a mature oil province where production is beginning to decline.
Perhaps Mr Hall felt even more ferocious than his comments suggest. He has every right to be upset. We have a Labour Government and Labour politicians in the Scottish Parliament who mouth-wise and word-wise give one message, yet definitively fail to take action. Some people ask why the industry should not pay more, but that might cause an unholy row between Gordon Brown and the industry, which would benefit no one. A degree of stability is necessary and that is not what we have been hearing about this morning. I hope that, when he sums up, the deputy minister will give us the further information and detail that have been lacking.
I have given you a 50-second credit, Presiding Officer.
We are profoundly grateful.
I welcome the minister's statement and the opportunity to discuss the future of the oil and gas industry in Europe's oil capital. The Executive is totally committed to maximising the life of Scotland's oil and gas sector and maintaining jobs both onshore and offshore. I agree with my colleague Elaine Thomson about the success story of oil and gas in Scotland. There is no doubt that the oil and gas industry is a major player in the Scottish economy, with 100 offshore fields already developed. The industry employs more than 40,000 people in the north-east and, across Scotland, 100,000 jobs are related to offshore oil and gas production. The oil and gas sector makes a significant contribution to the Scottish gross domestic product.
Promotion of innovation in the industry is the key to the sector's development. The proposed energy research institute, about which we have heard much this morning, is an important initiative, as is the investment of £50 million. Set in the framework of "A Smart, Successful Scotland", the institute will have a sustainability agenda. There is also an innovative proposal, which I hope will be implemented, to create a centre of excellence in renewable energy.
Diversification into renewable energy, infrastructure, transport and logistics is estimated to afford £33 billion in opportunities to UK industry. The oil industry is well placed to benefit from that development and take advantage of synergies between the oil and gas and renewables sectors. For example, the industry could diversify into the manufacturing of renewable energy equipment. Companies such as Shell and BP have already indicated that the manufacture of onshore and offshore wind turbines can be carried out using the skills to be found in the North sea.
Using and exploiting the skills base is one of the key dynamics of any diversification strategy. As the minister indicated, the level of skills in the industry is high, but skills shortages are the most significant constraint that the industry faces. That was highlighted by the Foresight study that was published in 2000 and by a Royal Bank of Scotland survey. The sector skills councils that cover the oil and gas industry have recently been launched and one of them was awarded trail-blazer status. That has boosted skills levels in the industry.
Key questions for the industry arise from the focus on human capital. Today's debate should be about getting more engineers into the sector. When we speak to representatives of the sector in Aberdeen, Fife or any other area, we are told of their concerns about the lack of engineers, the lack of people coming into engineering and the average age of people who work in the sector. We must bring more women into the sector. We must also start encouraging young people between the ages of eight and 12 to think about engineering as a career.
How can we further develop the quality and quantity of the labour markets and transfer the skills base into new and dynamic growth sectors? The interim report on the Enterprise and Lifelong Learning Committee's inquiry, which will be concluded later this year, makes substantial recommendations to the minister on work force development and technician training, which seems to be the major area in which the sector finds it difficult to recruit. We must also encourage access and, if Scotland is to remain a world leader in the industry, we must consider career and development paths for research staff.
I add my support to the Executive's vision for the industry's future. However, the Executive must ensure that diversification is focused on skills and people if it is to guarantee Scotland's position as a major centre for the oil and gas industry. We have a fantastic opportunity ahead. As Elaine Thomson said, we are at a crossroads. It is vital that we grab the opportunities with both hands.
Today we have heard that the minister is enthusiastic about the idea of an energy institute. He has even given a broad hint that Aberdeen might be seriously considered as its location. However, I am disappointed that, although it has taken so long to reach this stage, we have still not had the announcement. An opportunity has been missed. Today is the day and this is the place where we should have heard about the institute. Parliament should have been informed about it. Scottish Enterprise should not have been left to make an announcement about the principle in Glasgow tomorrow. The announcement should have been made here, because the minister is accountable to the people through the Parliament, not through an agency.
Alex Neil raised the same point as I was coming back into the chamber. Scottish Enterprise will announce its operating plan tomorrow. The operating plan will outline the process whereby Scottish Enterprise will develop plans for the three intermediate technology institutes, of which the energy institute will be one. In other words, Scottish Enterprise will be announcing its work plan, a significant core of which relates to work towards the plans for intermediate technology institutes.
I thank the minister for that helpful comment. I gather that we are still at the blueprint stage—we are still at the drawing board. That is the point that we were at in November 1999 when, in response to a point that I made in a debate, the then Deputy Minister for Enterprise and Lifelong Learning, Nicol Stephen, suggested that the establishment of a centre of excellence for the oil and gas industry was a possibility. I pursued that with the then Minister for Enterprise and Lifelong Learning, Henry McLeish, and I have pursued it with subsequent ministers.
I regret that Wendy Alexander is no longer in the chamber. I discussed the institute with her following her appearance at a meeting of the cross-party group in the Scottish Parliament on oil and gas. I have written to the current Deputy Minister for Enterprise, Transport and Lifelong Learning on the issue and I have been holding discussions with Scottish Enterprise for some time.
We have had mixed signals. Sometimes we are at the point of an announcement and then we find that we are still at the blueprint stage. The point that I made earlier is that we need to receive quick responses. I have been raising the issue for more than two years, but still there has been no announcement on the institute, let alone where it will be based.
We need to develop the skills that we have. Significant new technology is coming out of the North sea. The space industry spawned a series of benefits for society in general, not least of which was Teflon, and we ought to look more broadly at the benefits from the oil and gas sector. Rather than just move our engineering skills to the renewable energy sector, we should look in a much broader way at how we can transfer technology for the benefit of mankind in general. That will bring the benefits that we want in terms of jobs.
Does Brian Adam agree that the oil and gas industry needs to address the fact that it is sending out mixed messages while it has skills shortages and is having difficulties in recruiting engineers? One minute it lays people off and the next it says that it requires people. That is not helpful in trying to attract young people into the oil and gas industry.
The tax changes that were announced in April will do nothing whatever to help that. The number of students who are signing up for science and technology courses in our higher and further education institutions is reducing. That is a major disappointment. We have to make changes and the Government can influence that.
I would like a more positive approach to be taken to the development of the institute. I have raised the issue consistently over the past two years. I am delighted that the industry is behind the establishment of an institute. Here in Aberdeen, there is a strong commitment to an energy institute. We have all received representations from the local economic forum. I welcome the paper that the forum provided. There is no doubt that locations are available and that the academic institutions and the industry support the establishment of an institute.
I cannot understand why on earth we have not today heard an announcement on the establishment of the institute. I thought that that was the whole point of the debate. If we are to go through the exercise again in the autumn, which is what seems to have been indicated, that is well and good, but let the announcement be made then. Let us have the institute and let us get on with developing the skills and the advances that exist in this highly skilled technological area, so that we have sustainable jobs for the future, not just in renewables, but in the wider engineering field.
Before I call Nora Radcliffe, I inform members that, on three occasions in Aberdeen, members have left the chamber within one minute of making their speech. If explanations are not given, that is disrespectful to the Parliament. The Presiding Officers will be writing to the members concerned.
As has been said, it is appropriate that we should debate the future of the oil and gas industry in Aberdeen, because this city is the oil capital of the UK. As Iain Gray said, the people and prosperity that have been brought to the north-east through the exploitation of the oil and gas reserves under the North sea have made Aberdeen the city that it is today.
However, as other members have said, we should not forget that Aberdeen and its hinterland formed a prosperous and thriving area before oil and gas were exploited and had a successful economy based on shipbuilding, trading, textiles, farming, fishing and education. Aberdeen has been a centre of academic excellence since medieval times. We are in King's College, which was one of the two universities—the other was Marischal College—that flourished in Aberdeen when the whole of England had only two universities. Aberdeen has two universities today—this ancient University of Aberdeen and the Robert Gordon University, which developed from the world-renowned Robert Gordon Institute of Technology.
Aberdeen has other academic and research institutions that lead the world in their fields, such as the Rowett Research Institute, the Macaulay Institute and the marine laboratory at Torry. Aberdeen College is the largest further education college in Scotland and Banff and Buchan College of Further Education, which has been mentioned, augments the provision of skills training. All those positive factors add up to a strong case for siting the proposed energy research institute in Aberdeen.
I do not disagree with the member, but if the proposed tax increase goes ahead—as appears likely—it will raise about £7 billion in additional revenue between now and 2010. Does the member accept that a large chunk of that £7 billion should be earmarked for investment in the north-east of Scotland's infrastructure?
I do not disagree, but it is not in my power to deliver that.
The other element of the motion that we are allegedly debating concerns the potential benefits to the Scottish economy of diversification of the offshore oil and gas industry. Some of those benefits will be felt in the oil and gas sector in other parts of the world, as we export the knowledge, skills and expertise that have been developed in the North sea. Other benefits will be felt in extending the industry's innovative technical solutions to other industries. For example, having developed the ability to drill horizontally at depth to exploit the further reaches of pockets of oil and gas, we were able to use that solution in the gasification of coal seams.
We have debated at length the transferability of the skills and expertise that are needed to exploit oil and gas to the development of renewable energy. We should not forget that part of that expertise is on venture funding, which is available in great measure in Aberdeen.
The arguments for the potential of renewables have been well rehearsed. The Danes have felt the economic benefits of taking up and developing wind technology. Similar prizes are available for us through other renewable energy options, but they will not fall into our laps—we must reach and work for them.
Existing offshore installations show what has been done, but they are built to cope with the power of wind, waves and tides, not to capture it. Therefore, much work must be done on the development of installations that are robust enough to perform a different function in a hostile marine environment. The area of greatest potential—the Pentland firth—is as hostile as it gets. However, we were once famous for our heavy engineering and shipbuilding skills. We are uniquely placed to cope with the situation.
Yesterday morning, I attended a seminar at the RGU on the future of the oil and gas sector in the next 20 years. Brian Wilson's remarks at that seminar indicated some impatience with the long time that it is taking to translate research and development on wind and wave technology into commercial application. At least in part, that long time frame relates to the level of investment that the Government has made into research on renewable energy. Brian Wilson may be able to do something about that.
Scotland's economy will benefit directly from oil and gas production for many years and from the opportunities that are offered by diversification into the export of knowledge and skills to oil and gas sectors overseas and into the development of the new renewable energy technologies. Private enterprise can and will progress that, but the public sector must ensure that the infrastructure exists to enable private enterprise to do so, including physical infrastructure, the grid, road and rail, information technology and the provision of training opportunities to ensure that the skilled labour force exists. That infrastructure also includes decent support for research, preferably in part through an institute that is based in Aberdeen.
In May 1959, I was sitting in this very library at the University of Aberdeen. I was probably revising, no doubt desperately, for my economic history examination—
Was it a resit?
Not in May—come, come.
At that time, I could not have imagined that I would return to the library as a member of the Scottish Parliament for a debate on energy. I relish the occasion.
When I listen to people expressing the opinion that all the parties seem to share that we should be stripping the North sea of its assets as quickly as possible, I find myself becoming a little bit nervous. There seems to be a lack of policies to deal with depletion worldwide. We seem to be keen on getting out as much oil as possible, as quickly as possible and making as much money out of it as possible. That does not square with our commitment to Rio, to reducing dependency on fossil fuels and to reducing the amount of CO2 that we are putting into the atmosphere. That, however, is by the by.
Nora Radcliffe referred to the two debates on energy and renewables that the Smith Institute held this week. Following one of the debates, I asked Brian Wilson about the £260 million that Westminster is to make available for research and development into renewables and perhaps for capital costs. It could be said that £260 million is not a lot of money—indeed, if we were prepared to economise on energy efficiency, landscaping, public access and sourcing of materials, we could probably build a Parliament for £260 million. However, if the oil companies were prepared to chip in just 1 per cent of the money that they are prepared to put into North sea investment, the amount of money available for renewables would be doubled.
Does Robin Harper agree that the recent increases in taxes will make that less likely, especially as many of the oil majors now regard themselves not just as oil companies but as energy companies as they look to the future and consider depletion?
No, I do not agree. I have listened to what Labour has said on the subject. The arguments, particularly in relation to royalties, suggest that the tax increase will be relatively neutral in its effect on the oil companies. The SNP is jumping up and down in panic on the subject.
Perhaps Mr Harper will acknowledge that, following the renewables obligation, the private sector has invested something like £1.5 billion into renewables. Does he acknowledge that the measures that have been taken are leading to exactly the sort of levels of investment that he and we want to see in the new developments in energy?
I can do nothing other than accept the information that Iain Gray has given to me. However, I want to ask the oil companies—the BPs, Amocos, Essos, Shells and Texacos of this world—whether they are consulting their shareholders with a view to becoming energy companies over the next 30 years. I want to ask them whether they will take a much greater part in the development of renewables than they are doing at present. I would love to have heard Wendy Alexander deliver Iain Gray's speech three years ago—we are still slow off the mark.
I would swap all the extra work that the oil companies are putting into small environmental projects and into developing environmental education for investment in the development of renewables. After all, education and small-scale environmental projects are the responsibility of the Scottish Executive. If the companies put the same effort and commitment into developing renewables, I would be happy to dispense with the welcome assistance that they have given to education and small-scale environmental projects.
I would like to see evidence of an effort to bring together wind, wave and tidal power. That is another issue that the energy institute could address. From my work with the Scottish Parliament renewable energy group, I know that those forms of energy have been developing separately. I would welcome the construction of giant installations out in the North sea that would combine wind, wave and tidal power. I hope that such imaginative and aspirational ideas will emerge from the institute, which is itself a welcome development.
Finally, I ask the Executive to come up with a strategy to recruit more engineers from schools into universities, because the lack of engineers is a serious problem.
It is lovely to be in Aberdeen, which has strong links with my constituency. Falkirk East includes Grangemouth, which is the heart of Scotland's petrochemical cluster and refines much of the oil that Aberdeen's oil and gas industry helps to extract. As in Aberdeen, the level of oil and gas-related employment in my area is much higher than the Scottish average, with several thousand jobs directly—and many more indirectly—dependent on Grangemouth's petrochemical industry.
Furthermore, like Aberdeen, there is also a large multiplier effect in the local economy. When BP cuts hundreds of jobs, thousands of jobs are lost locally.
My question is similar to the one that I asked Nora Radcliffe. Given that the additional tax will raise £7 billion between now and 2010, does the member support the proposal that a percentage of the money should be earmarked for the implementation of the Falkirk action plan?
Although I have no reservations about social taxation—it is a good way of gathering money—it is a reserved matter.
That was not my question.
Well, that is my answer.
Like Aberdeen, my area needs to diversify in the interests of long-term economic stability. It might seem paradoxical that oil companies are shedding workers at a time when there is also a skills shortage. We need to improve training opportunities for workers. I do not mean that we should simply encourage more people to take scientific and engineering degrees and other academic qualifications; there is also a pressing need to expand craft-orientated training to provide us with fitters and techies. We have to find out how we can get people in overalls on to sites. Indeed, as people in industry tell us, that is where the problem lies.
We must also think about the messages that we give our children about looking for careers in the industry, and we need more opportunities for people to develop skills through job-related training programmes such as modern apprenticeships. We must also ensure that such opportunities are accessible and attractive to women. Despite all the work that has been done, we still exclude half the potential work force. We should appreciate the tacit skills that people gain through experience and ensure that they are not wasted through the vagaries of the job market from redundancies to early retirement. The oil industry in my area has a long tradition of making people redundant when they reach 50. What is the point of losing skills that we need to keep in the industry? Instead of the casualisation of the work force and the increasing numbers of contractors and subcontracted labourers, we need a stable work force with a continuity of knowledge and experience and the health and safety benefits that that brings.
As effective diversification has to build on the tacit knowledge of the work force, I welcome the Scottish Executive's plan for an energy research institute and hope that the scope of its activity will include the broader considerations of diversification policy and the impact of changes in energy policy. That will ensure the future well-being of areas such as Grangemouth and Aberdeen.
Unaccustomed as I am to speaking in oil and gas debates, I want to make three very brief points. I dare say that, over the past two decades, members will have become aware of the SNP's claims that oil revenues to Scotland are phenomenally wonderful and stable, and form a basis for independence or separation.
The final page of the Scottish Parliament information centre briefing paper illustrates how taxes and royalties attributable to UK oil and gas production vary and what a volatile source of revenue they are. The figures for 1985, which are often used by the SNP, show that the revenues were more than £12 billion. The figures for 1992 show that the revenues were just over £1 billion. When we are debating in a mature and professional manner the royalties from UK oil and gas, I ask the SNP to take as the basis for its argument an average over 10, 20 or even 30 years rather than simply the high revenues of 1985.
Does Mary Scanlon agree that the instability in the oil market is created by the fact that the United Kingdom Government is not a member of the OPEC? If we were a member of the OPEC, that would create stability in the market.
The one thing that would not create stability is an SNP policy based on variable and volatile oil revenues.
If Mary Scanlon wishes to talk about aggregates and averages, does she accept the figure that her own minister in Westminster gave, showing that Scotland had given a net contribution of £27 billion to the Treasury? That was William Waldegrave; she may remember him.
Alasdair Morgan may care to look at the figures in the SPICe briefing paper that I am looking at. We can agree or disagree about them, but I have the Inland Revenue figures as well.
My second point is about the Highlands. In the first year of the Parliament, there were 3,500 redundancies from the Barmac yards at Nigg and Ardersier. I noted that Iain Gray mentioned Motorola. Although we all have sympathy for people in the central belt, 3,500 redundancies can have an enormous impact on a remote and rural area. The rate of unemployment in the Highlands may not look too bad at around 4 per cent, but there is undoubtedly hidden unemployment and underemployment in the Highlands and Islands, given that many people are not using the skills that they have. In addition, many of the former Barmac workers are on short-term contracts abroad. The Ardersier yard is still in mothballs, but the expertise would be there if the contracts came back to the Highlands. That is an important point that is not necessarily shown in the unemployment figures.
My final point is that there is enormous investment, innovation and creativity in the oil industry in Aberdeen. There is also scope for diversification and for the work that the planned Scottish energy research institute will do. None of us can doubt the expertise that has been gained in the north-east and throughout Scotland. Last week, a cross-party delegation of MSPs went with Baroness Smith to the very poor region of Smolensk in Russia. I would like to think that we could export our skills and expertise to countries with natural oil resources to allow them to gain the revenue streams to build their infrastructure and build economic prosperity.
I begin by making two points about the proposed energy institute and the other two institutes that are to be set up. First, I want to put down a marker with members of the Parliament, and indeed with every politician. The whole purpose of those institutes is that they are long-term projects that operate in high-risk ventures. If they are operating in high-risk ventures, some of those ventures will fail. I hope that, when the first failure comes along, members will not condemn the institutes out of hand because they have had a failure.
The whole purpose of the institutes is to take risks, innovate and do something that no one else is doing. There is all-party backing for the institutes, but as politicians, we should not be small minded when it comes to having to back them if, for example, the Daily Record and others are baying for their blood because they have lost £1 million here or £1 million there on failed ventures. We must back the institutes to the hilt to get real value for money over 10 to 20 years.
My second point is that Brian Adam is right. We have talked about the institutes for far too long. If I were Iain Gray, who is the new minister, I would send a memo today headed "Action this day" to Bob Crawford at Scottish Enterprise. The time for talking and planning is over; it is time for action. Time is moving on. All our international competitors are investing rather than talking. They are doing. They have institutes up and running and will outpace us if we do not move quickly. I am sure that the minister will have the support of every member if he tells Scottish Enterprise to get its finger out and get things moving—in Ayrshire parlance—in respect of the institutes.
I want to talk about the oil and gas sector. With all due respect to Mary Scanlon, whom I love dearly, I say that I have never heard so much hypocrisy in the chamber. She is a Thatcherite who is complaining about oil revenues. If it had not been for oil revenues, Thatcher would never have been able to subsidise the south-east and do all the things that she did in those miserable 18 years.
I did not complain about oil revenues. I pointed out that the SNP is selective in choosing years to suit its purposes. I asked the SNP to take an average over 20 years—I certainly did not complain.
On Wednesdays, the lottery jackpot is £3.5 million. It is usually £6 million or £7 million on Saturday nights—in fact, this Saturday, there is a jubilee-guaranteed £10 million. If I win the jackpot on Saturday night, I will not turn it down because it has varied since Wednesday.
I remember the arrival of the first drop of North sea oil. The unionists told us that it would not last a year or two years. Then they spoke of five years. When it started to flow, they said, "You can't go independent because Scotland will be too rich if it is independent. There will be too much money, the exchange rate will go through the roof and the Scottish economy will be destroyed." They then said that the oil would last only 30 years. This morning, they admit, 30 years after production started, that there is as much oil left in the North sea to exploit in the next 30 years as was exploited in the previous 30, and that is without taking into account reserves in the Atlantic ocean. We are the mugs of Europe. What other nation has discovered oil and become poorer as its oil flowed faster?
Mary Scanlon was in Russia last week. She should go to Norway, which is a wee, independent country with a population of 5 million. It is rich in oil and has nearly full employment.
Will Alex Neil give way?
Unfortunately, I do not have time. I would love to take Rhona Brankin on on this matter.
The health service in Norway is so well off that if someone has a bronchial condition or a skin condition that would benefit from a period in the sun, the health service sends them to Portugal or Spain for a fortnight. I give fair warning to the unionist parties that if we put that in our independence manifesto, they are finished for ever.
I am delighted to be in Aberdeen this week. Like Robin Harper, I studied in Aberdeen for four years and I lectured at Northern College in Aberdeen. It is particularly appropriate that we are having this debate in Aberdeen. As many members have said, of the 110,000 jobs in the gas industry in Scotland, 75,000 are in the north-east.
Not only is Aberdeen a production centre, it is gradually turning into a global centre of excellence for oil and gas related technologies. We keep predicting the demise of the Scottish oil and gas industry, but its lifespan keeps on disappearing over the horizon. Developers now predict that there will be viable production until 2040. Huge improvements in geophysics and new seismic techniques make it possible to exploit what were previously difficult fields. Measures that Brian Wilson has introduced will enable smaller companies to exploit reserves in which the bigger players have lost interest.
Oil and gas are set to continue to play a vital role in energy policy for the foreseeable future. The Cabinet Office energy review document recognises that. However, there are challenges ahead for the sector. More than 50 per cent of the North sea reserves remain to be recovered and many of the reserves require hugely complex technologies to access them. In addition, concerns exist about the potential environmental costs of oil extraction west of Shetland. If we are to benefit from oil and gas self-sufficiency in the future, we must develop ways of measuring the profile of any projects, both in financial and economic terms and in social and resource terms.
The member talks about impact assessments of new projects and so on. Does that not reinforce the case that the introduction of the 10 per cent tax should be delayed until an economic impact assessment of it has been carried out?
Is the member aware that UKOOA welcomes the proposed abolition of royalties, which benefits old fields, and that it welcomes tax relief on capital, which helps new fields? Will Richard Lochhead stop his persistent bickering? Last year, the oil and gas industry produced record revenues. It is a vital industry for the future. The Government, at a Scottish and UK level, recognises that.
There are challenges ahead for the future. We need to benefit from oil and gas self-sufficiency, but we need to consider the implications in terms of financial, environmental, social and resource costs. I draw the attention of the Parliament to the pioneering work that is being done at the University of Aberdeen by Professor Jan Bebbington, along with BP and Genesis Oil and Gas Consultants. Professor Bebbington is an expert in social and environmental accounting. She and her team have come up with something called the sustainability assessment model. It is important, in the context of the Government's commitment to putting sustainability at the heart of policy making, to examine that pioneering work. It is also essential that a future energy institute considers sustainability issues.
Like my colleagues, I welcome the Scottish Executive's commitment to develop an energy institute in Scotland. The challenge is to develop sustainable energy polices for the future, because oil and gas reserves will not go on for ever. We could face a significant energy gap in Scotland in the medium term, with the closure of coal-fired power stations and Hunterston B. The challenge for all of us in Scotland is how to bridge that gap.
Will Rhona Brankin give way?
No, thanks.
The recent research that was commissioned by the Scottish Executive has demonstrated the massive potential of renewable energy. The stunning statistic is that there is enough potential energy from onshore wind power to meet Scotland's peak winter demand for electricity twice over. The potential renewable energy resource is around 60 gigawatts, a great majority of which would come from offshore and onshore wind power and wave and tidal energy.
Scotland has a massive role in energy issues. World-class research is being done in our universities. I pay tribute to the quality of the research that is being done in Aberdeen. Our challenges are to support the research and development, to get projects piloted and to get them commercialised. I welcome the Executive's support for the marine energy test centre in Orkney.
Aberdeen is uniquely placed to diversify into the renewables sector. Research on renewables shows that offshore wind power alone could contribute up to 25 gigawatts of the total of 60 gigawatts that could come from renewable energy. The expertise on oil and gas in Aberdeen provides a huge opportunity to develop that potential.
Scotland must aim to be a world leader in renewable energy generation and to be a global centre of excellence for innovative energy techniques. Aberdeen is uniquely placed to lead in that field.
The MSPs who attended yesterday morning's Smith Institute seminar at Robert Gordon University could not help but be impressed by the message from key players in the oil industry. There is no doubt that the surprise budget announcement on taxation of the oil industry will have a dramatic effect on the energy sector in Scotland, particularly in Aberdeen. That message was absolutely clear. I do not understand some of what has been said by members who obviously have not heard that message. Senior figures in the oil industry, including the chief executives of various companies, said that the instability that the Chancellor of the Exchequer's package injects into the industry will have serious long-term implications for Aberdeen and Scotland. The impact will be not only on jobs but on strategic investment, decision making and research and development, in particular in relation to diversification and the capacity to enter new energy fields. There will be a particular impact on the diversion of capital investment into the marine renewables sector.
Is the member aware that Chris Freeman, who is the chief executive of Leading Oil & Gas Industry Competitiveness—LOGIC—has said about the tax change that the industry is big enough to realise that the targets are still achievable?
For every chief executive who says that, there are 10 who say completely the opposite and talk about the damage that Labour has done to the sector.
The renewables sector's capacity for energy production and sustainable job creation in Scotland is truly outstanding. The Garrad Hassan & Partners Ltd report that was produced for the Executive, and to which Rhona Brankin referred, suggests that there is capacity for 25,000 megawatts from offshore wind power, 14,000 megawatts from wave power and 7,500 megawatts from tidal sources. Together, that represents about nine times more than Scotland's peak demand. We have no energy problems in Scotland. When Cockenzie and Hunterston B power stations shut, we will still have no energy problems.
I accept the figures on the potential for renewable energy, but does the member share my concern that there is a considerable gap between the prices that consumers demand and the possible cost of renewables to business and domestic customers?
That is a reasonable point, but we must remember the huge subsidy that has been put into nuclear energy over the years. If a similar subsidy is given to renewable energy, no cost factors will be involved.
The only way in which to describe Scotland's potential for renewable energy is that it is truly awesome. Progress is being made towards realising some of that potential, including the work of Robert Gordon University in the Pentland firth, the work in Islay, where hydrogen fuel that has been generated from wave power is stored, and the offshore wind facility that is based in the Solway firth. Iain Gray mentioned earlier the on-the-horizon development in the Moray firth. Those developments are exciting, but the industry is really only in its embryonic stage. The instabilities that the chancellor and his Government's fiscal policies have created will deter oil companies from putting much-needed investment capital into the young industry. If we are not careful, we could strangle the industry in the cradle before it gets going.
Additional instability has been created by the Crown Estate and the DTI, through proposals to impose taxation on future marine wind and wave power developments. The Crown Estate proposes to tax companies that operate offshore at 2 per cent of their turnover. It might have been appropriate to examine the forms of taxation that could be introduced when the industry was established and mature, but to introduce taxation of that sort in an industry that has hardly begun its life is, frankly, cack-handed and potentially destructive.
We hear that there are proposals from the DTI to introduce a licensing system in the North sea sector for companies that are involved in offshore wind energy development. In effect, the Government is scaring off potential investors and stalling potential development. That policy and the instability are causing problems for people who are involved in the renewable energy sector. The danger signals are there for all to see. The young marine energy sector could be killed off by ill-thought-out Government fiscal policies before it gets a chance to breathe.
The Executive can beaver away and be as effective as it likes in the renewables sector, only for the UK Government to kick the legs from under it. That is what has happened following the chancellor's announcement. If there was ever an argument for passing responsibility for fiscal policy to the Scottish Parliament, it lies right here in the oil and gas sector and in the potential for renewable energy in Scotland.
In his opening speech, the minister used a time-honoured phrase in describing Aberdeen as Europe's energy capital. I am just old enough to remember what the north-east was like before oil was discovered and how the economy was run. It was dependent on primary industries. I was one of the few members who made the trip down to the fish market at half past 7 this morning, to see the current state of that primary industry. That explains where the smell of fish is coming from—excuse me.
When we consider the economy of Aberdeen and the wealth that is here, we must be aware of what the economy would have been like if oil had not been discovered. The primary industries have hit the skids over the past 30 years. We must think carefully about how the economy will develop in the north-east and how we can maintain the level of economic activity that exists here in the face of an oil industry that will, ultimately, decline.
In the 1970s and 1980s, we saw how local educational institutions were able to react to the need to train local people to work in the new oil industry. The Robert Gordon Institute of Technology—as it was then—led the field in that training. I commend RGU for the work that it is doing in developing not only the technology, but the training that is required for renewables in the longer term.
What concerns me most is how we fund the development of renewables in the economy of the north-east. We cannot talk about that before addressing the tax that has been dumped on the energy industry. It is estimated that £1,000 million a year will be drawn out of the North sea oil industry over the next eight years. I was amazed to hear Labour members suggesting that the 100 per cent first-year allowances against investment might, in some way, offset that. If anything, that taught me that the Labour party does not understand—and never has understood—how businesses work.
Will the member give way?
The member will be aware that the extension of allowances to 100 per cent in the first year only brings forward allowances. Over eight years, it will deliver nothing for the industry.
Will the member give way?
I am sorry; I have limited time and there are a couple of points that I want to make.
If renewables are to be developed in the north-east, we must accept that the development of wind and wave power will have to be financed somehow. The tax increase is likely to deter companies that would be willing to invest in new research and development on a private basis. As Mr Crawford said, we have an enormous opportunity because, in the potential for wind and wave power—of which we have so much—we are surely the equivalent of Saudi Arabia with its oil industry.
If we are to achieve the transition from an oil-based economy to a renewables-based one, we must realise that oil companies must be willing to invest in technology changes. We have heard that renewables projects in Scotland are manufacturing hydrogen for use as a combustible fuel. However, to make that and fuel-cell technology, which is critical to the north-east, succeed, we must accept that in the transitional phase the fuels for fuel cells will be based on hydrocarbons from fossil sources. The transitional phase depends on the oil industry making a huge development.
We have said a great deal about the north-east economy, but Parliament must remember that the north-east contains not only the third-biggest city in Scotland, but the fourth biggest. The Dundee and Angus economy has been largely missed out of the debate, but it also depends on the oil industry. I suggest to ministers that we should consider the impact on the economy of the whole north-east, not only on its wealthiest part, which is Aberdeen.
Robin Harper conjured up the wonderful image of fantasy speeches, which gives the chance to choose someone to give someone else's speech. I was certainly tempted to join in, given Mr Johnstone's speech, but if Robin Harper does not mind—and as he is not here, he cannot—I will give my own speech.
It is apposite that the first democratic Scottish Parliament—not lairds or bishops—to meet in Aberdeen should do so in the University of Aberdeen. As we read Mike Watson's rather lengthy letter today on the Euro 2008 bid, we should bear in mind the important work on Scottish-Irish links that is delivered in the university by Professor Tom Devine and his team. Tom knows how proud of him his family is.
Alex Neil—who I think has also quit the scene, although I think that that is not because of his lottery application for the weekend but because he has departed for elsewhere—made an important point about innovation and diversification for the proposed institute. I, for one, join him in taking on board the issues around risk aversion and not immediately running to judge when industries fail, particularly in innovative areas. I ask the minister to bear in mind the fact that the protection of international property rights for universities, research groups and participants from the oil and gas industry should sit at the centre of the proposed institute.
The debate has been interesting. David Davidson spoke about his concerns over job losses. There are serious concerns about the impact of decisions. Of course, his party has a lengthy list of previous convictions on job loss scares, so we will perhaps pay slightly less attention to anything from that quarter. The minimum wage would cost us 1 million jobs, the Conservatives said. One million extra jobs later, no apology is forthcoming. As we rolled forward our welfare-to-work agenda, the Conservatives said that the working families tax credit was an expensive gimmick that would not encourage people into work. Of course, that came from a party that said, to its eternal shame, that 3 million unemployed was a price worth paying.
Today is supposed to be about the oil and gas industry and the renewables centre. We can go through the history if Mr Fitzpatrick likes, but my concern is the future of this great area of Scotland and of the Scottish economy. Instead of telling us about history, perhaps Mr Fitzpatrick will tell us what he thinks of the massive tax hike that his chancellor has inflicted on the industry and its future effects.
I am sure that we will get a belated apology at some stage, but obviously not from this particular shadow front bench.
Government is about tough decisions—there is no doubt about that. We have heard and acknowledged concerns. However, balances need to be struck for any project. The moneys that are being secured will not disappear. They are going into infrastructure across the UK—schools, hospitals, roads and the kind of innovative projects that we are talking about in relation to research and development in the North sea.
On the proposed energy research institute, I impress on ministers—with due reference to my entry in the register of members' interests—the fact that health and safety must remain a top priority for the offshore oil and gas industry. We know that health and safety improvements have been made since the Piper Alpha disaster in 1988, but there is a need for further improvement even against the backdrop of improved industrial relations.
I call David Mundell to wind up for the Conservatives. You have five minutes.
I join everyone who has spoken in saying that I am pleased to be able to debate this subject in Aberdeen. It would have been appropriate if more had been said about the proposed energy research institute. We got only confirmation that there will be a further announcement about the announcement, which will be followed by a further announcement, giving the media as many hits as possible in the run-up to next year's Scottish Parliament elections. For the sake of the Labour party, there will have to be a positive announcement in the north-east, because it will have a lot of explaining to do in respect of the chancellor's imposition of what is, in effect, a 33 per cent rise in corporation tax. As many members have noted, the rise arrived without any consultation and probably without any discussion with members of the Cabinet.
Will the member clarify how he arrives at the figure of a 33 per cent rise when corporation tax has been increased by 10 per cent? I was confused when I read that in the amendment.
As I have only five minutes, I will respond to Andrew Wilson in writing, noting that he did not respond to Wendy Alexander's detailed question. Of course, he never responds to any questions about the instability that the SNP would bring to Scotland's economy. I know that the SNP says that if the oil and gas industry can cope with Azerbaijan, it can cope with an SNP-run Scotland, but that is not a basis for putting forward economic policies and promoting the industry. Although Mr Quinan might have some contacts in the Arab world that would get us into the OPEC, Alex Neil repeated the SNP's old 1970s slogan, "It's oor oil," as if that will sort everything out. That will not sort everything out and the oil and gas industry has no confidence in the SNP's ability to do any better than the Labour Government.
Today, our friends in the Liberal Democrats have perpetrated one of the most cynical acts that I have ever seen. No wonder the expressions of many Labour members show clearly that they are thinking, "Why are we in coalition with these people?" What did the Liberal Democrats do? They did not have the guts to stand up for their beliefs and lodge an amendment that might—
Will the member give way?
Not at the moment. Tavish Scott can deal with the point when he winds up.
In lodging his amendment to the SNP amendment, Mr Rumbles has ensured that his amendment cannot be passed, because the SNP will have to vote against it. It will not be voted for by a majority of parliamentarians who might well share its sentiments. The lodging of the amendment is a cynical ploy to make a gesture to the Liberal Democrats' supporters in the north-east and it is a clear manifestation of the party's inability to stand up for its principles. If the Liberal Democrats truly believed—
Will the member give way?
Tavish Scott can deal with the points that I am making when he winds up.
The member is feart.
I am not feart of Mr Rumbles and to prove it I will give way.
Has David Mundell read the amendment in my name? It notes
"the Liberal Democrats' opposition to the 10% increase in taxation".
That opposition is shared by Liberal Democrats in Westminster, the Scottish Parliament and in the north-east. We are doing everything that we can to oppose the tax rise in the place in which it should be opposed, which is the House of Commons.
Mr Rumbles is not doing that. If he had wished to do that, he would have lodged an amendment to the Executive motion. He has lodged an amendment to the SNP amendment to ensure that it cannot be passed and to ensure that Liberal Democrat ministers can remain in office, despite the fact that the minister rubbished everything that has been said about the impact of the tax on the industry. Such cynicism is typical. I hope that, for once, people in the north-east, rather than reading Mr Rumbles's press releases, will read the text of what has been said in the Parliament, so that they will know the true duplicity of the Liberal Democrats on the issue.
During their 18 marvellous years in Government, the Conservatives fully supported the oil and gas industry and were against the Labour policies of the time, which would not have given the industry the degree of support that it has. That is why the oil and gas industry is in a positive position. However, that position is hard, because the industry competes in a global economy and decisions are made on a global basis. In Scotland, we must create the most attractive environment to encourage investment. By the chancellor's budget provisions and by its failure to invest in infrastructure, Labour is failing to deliver that environment.
I support Mr Davidson's amendment.
As a Shetlander, it is a great pleasure to be in Aberdeen. Normally, Shetlanders in Aberdeen are known by the Marks and Spencer bags that they are carrying back to the boat at 10 minutes to 5 every night.
The other side to being a Shetlander in Aberdeen on which I must comment is the "oor oil" stuff, although Winnie Ewing has left and she will probably be slightly taken aback or annoyed by what I have to say. In the 1970s, I distinctly remember her standing in a Lerwick hostelry pronouncing firmly on the importance of oil to Scotland and how it was "oor oil". A Whalsay fisherman tapped her on the shoulder and said, "Winnie, it's no your oil; it's wur oil." The SNP never recovered from that in Shetland.
There are a number of good reasons to be in Aberdeen. It is a great pleasure to join other members in commenting on what a fine job the University of Aberdeen and the other bodies that are hosting us have done this week.
The debate is important. To debate oil and gas in Aberdeen is right, as other members have said. It is the energy capital of Europe, and I hope that it will become the energy capital of the world, although I acknowledge Houston's role as that. Local members have made much of Aberdeen's credentials on that point, and I will not repeat those credentials.
I will make the technical point that, when considering how investment matters to the oil and gas industry, it is important to acknowledge that, 20 years ago, the Forties field in the North sea had an oil recovery rate of 42 per cent. Today, the Forties field has an oil recovery rate of 63 per cent. That shows how much the oil and gas industry has changed and how much future investment matters. We are not debating investment for today, we are debating investment for the future.
Does Tavish Scott, as a member of an Executive party, share my concern that, although we are in Aberdeen—the oil capital of Europe—and having a debate about energy, we have had no announcements about Government action on jobs or on the much-mooted energy institute?
I would certainly like such action to be announced quickly. However, I heard on BBC Radio North East at 10 minutes to 7 this morning that Brian Adam was leading the debate, not just that he was opening the debate for the SNP, when he did neither. I see that he is speaking from the back benches. David Mundell has criticised others for their press releases. Brian Adam's press release yesterday was perhaps a little presumptuous in saying that he was leading the debate.
Mr Gray, in his opening speech, made a number of important points. He also had to deal with a bizarre intervention from Richard Lochhead on Scottish jobs in the oil industry always being in Scotland. It is important for Scotland that groups such as the Wood Group and Halliburton have Scottish jobs.
Will Tavish Scott give way?
No. Richard Lochhead has made his point. It was a terrible point. I will deal with it. It is important that the Wood Group and others are based in Houston and Venezuela. Those are Scottish jobs and Scottish companies doing really well throughout the world. I am proud of that.
The member misses the point entirely. The point that Richard Lochhead was making was that, although the industry was located in and comes from the north-east, many of the key decision-making jobs are in London because that is where Government and industry are predominantly based. Does the member not agree that we should reverse that tilted playing field, which works against the interests of the Scottish economy?
I do not think that the playing field tilts against the Scottish economy, given the importance of oil and gas to Aberdeen. The decisions that the Wood Group makes, for example, are made in Aberdeen. We should recognise that and we should, as Alex Neil did, seek to celebrate what we do well here, instead of running down various aspects of the industry.
Will the member take an intervention?
I ask Rhona Brankin to forgive me. I would like to push on.
One minute.
The skills gap, as Marilyn Livingstone and other members have mentioned, is important, but, as you said "One minute", Presiding Officer, I will skip all that.
Let me deal with the politics. I take no lectures on cynicism from the Tories or from David Mundell. The Parliament has a way of dealing with such issues. The issue of National Air Traffic Services—NATS—for example, on which I distinctly remember Mr Tosh speaking rather forcibly, was one on which the various parties had different views. That is the way it should be on reserved matters.
It is entirely right that Labour back benchers speak in favour of the chancellor's budget—the chancellor is a member of their party, and they should speak to the matter accordingly. I am not clear, however, about whether ministers have come to a collective view on the effects of the budget on the oil and gas industry. Those effects need to be borne in mind.
This is an important opportunity to raise issues relating to the oil and gas industry in Aberdeen and in Scotland—and in my constituency of Shetland. Representatives of the industry have said important things about the budget, which need to be taken into account. Other members have referred to the Smith Institute seminar, which some of us attended yesterday. John Browne, the chief executive officer of BP Amoco, made specific reference to those factors. Brian Wilson was sitting next to him, and I am sure that the points made were taken on board.
The matter is reserved, and it is the responsibility of our Westminster colleagues to take it forward. That is why we have lodged an amendment, which is what the Parliament should vote for.
I will refer briefly to oil tax revenues, which were mentioned by Mary Scanlon and others. Apparently, they have gone up and down over the years. I find it rather strange that that should be seen as a negative. Presumably, Mary Scanlon would like to close the stock market, because that goes up and down too. I am sure that Tommy Sheridan would like that. At least we heard an admission from Alex Johnstone that Tory policies smelled of fish.
Will Alasdair Morgan give way?
No, I must press on.
One thing is certain: as Alex Neil said, Scotland as a whole has not benefited from North sea oil to the extent that it should have done, although manifest advantages have come to the particular area. Too much has gone to bankroll successive Westminster Governments over the years.
We have spoken quite a bit about diversification, but we should not forget about the main industry. UKOOA estimates that about £26 billion barrels have been produced; another 19 billion barrels have been discovered but are yet to be produced; and an estimated further 12 billion barrels have not yet been discovered. We are not even halfway in exploiting the resources in the North sea area—and that is not taking the continuing enhancement of recovery techniques into account.
I am surprised that the Minister for Enterprise, Transport and Lifelong Learning, in his opening speech, made virtually no reference to the subject of our amendment. That was left to back benchers from other parties. I am surprised because the future development of the oil industry and the prospects for its diversification surely depend on its economic health, now and in the future.
I will pick up briefly on Robin Harper's point about depletion policy. I suggest that if we did not produce oil from the North sea, the effect would not be a reduction in our national consumption of oil; it would simply be an increase in production elsewhere.
On the costs of producing in the North sea, we must be aware that we are not operating in an environment that automatically gives businesses lots of profits. The chair of ExxonMobil recently said:
"I can confirm that unit costs for our UK North Sea production are at the upper range of ExxonMobil's worldwide portfolio".
The UK has high costs of development compared with other places. Wood Mackenzie ranks the UK continental shelf as 58th out of 59 operating provinces in terms of cost.
We cannot take investment and new developments in the North sea as a given. Many of the more innovative developments in recovery techniques are undertaken by small Scottish companies. They often depend crucially on venture capital and are therefore much more likely to be hit by any measure that diminishes investor confidence.
As Andrew Wilson pointed out, the lack of consultation on the chancellor's proposals and the fact that no assessment was made of the economic impact or the impact on employment in the industry are major problems. The minister said that the industry needed fiscal stability, which is a strange way to describe a sudden tax increase after a two-year review that said that change was not necessary.
Will the member give way?
No, I must press on.
Some members of the Government seek to minimise the effect of the tax changes. In that case they should agree with our amendment. If they are right, let us have a moratorium, let us have a full assessment and let us go ahead on the basis of that. To not agree to the SNP amendment would be to miss an opportunity.
To prosper in the conditions that we have, we need stability and the greatest possible certainty. World factors make oil production difficult to plan ahead for anyway, without Governments compounding those difficulties. Not only do we not have stability, but we do not have certainty about the Government's proposals, in the light of the uncertainty caused by what it has said about royalties.
The minister said—I think when he intervened on Andrew Wilson—that some firms said that the changes would benefit them. It is hardly surprising that, in an industry as complex as that of North sea oil, not all firms are affected identically. Is the minister saying that, on balance, the tax is neutral? Is he saying that the majority of industry is wrong? I think not, but I am interested to hear what he will say in his conclusion. If he says that the tax is relatively neutral, I will be interested to hear what that means.
Brian Fitzpatrick said that hard choices have to be made and that, even if the industry suffered, we would get the benefits back in infrastructure investment—I hope that I did not paraphrase him too much. Most of the suffering will be in Scotland, but only about 8 per cent of the resulting infrastructure investment will take place in Scotland.
I turn to the Liberal Democrat amendment. I think that we are all agreed that the tax is a vital matter, no matter what view we take on it. Clearly, no industry will welcome a tax increase, but the industry's views deserve our attention. In response to that, we have a curious attempt by the Liberal Democrats to face both ways. Their amendment "notes" the position of their colleagues at Westminster.
We normally use the word "note" when we are against something, but want to be diplomatic and not say so. The Liberal Democrats say that they note the views of their party colleagues, but they do not support their views, far less support them enthusiastically. So keen are the Liberal Democrats to ingratiate themselves with their coalition masters that they cannot even support their party colleagues.
Will the member give way and let some facts come in?
No. Mr Rumbles should sit down.
We hear pathetic statements such as "It is not our business" or "It is a reserved matter." We wait for Sir Robert Smith et al to change Gordon Brown's mind. Whatever influence Scottish members have at Westminster, it would certainly be enhanced if the Scottish Parliament were to give them its full backing, instead of the mince that is in the Liberal Democrat amendment.
I turn to renewables, which the minister and others have mentioned and which are a major opportunity in the long run. I will make a parochial point about my constituency. I wonder whether we have the full support of the UK Government on renewables. I cite the Ministry of Defence's attitude to wind farm developments. Almost the whole of Dumfries and Galloway is under a blight as far as wind farm development is concerned, because the MOD thinks that it will interfere with the low-fly training for which the area is prime.
I hope that Saddam Hussein never finds out about that, because clearly the way to deter the Royal Air Force and any other air force that wants to fly into Iraq is to build a few wind farms. The situation is ludicrous and it is time that someone told the MOD that we need to develop renewable energy in Scotland, rather than hearing the MOD planes fly over our heads every second day. We must make progress on renewable energy. Other countries, especially Denmark, have reaped the benefits of it and Scotland should do likewise.
Several mentions have been made of the desire of oil companies to become energy firms. I worked for Shell in Aberdeen in 1979 and went on a course and at that time it was saying that it wanted to become an energy firm. All I can say is that it has taken a long time to get here.
I do not know whether I am in my final minute.
You have actually gone past your final minute. I would appreciate it if you would wind up.
I will miss out a high-quality page of my speech in order to conclude. On a positive note, I welcome the progress that has been made towards setting up the energy research institute. However, as many members, including Brian Adam, have said, it is disappointing that we are not getting an announcement after all this time. Some members were under the impression that we would get the announcement tomorrow. It turns out that all we are getting tomorrow is an announcement about the plans that might lead to a full announcement being made at some time in the future. Some members will grow a bit grey waiting for the desired announcement.
I am delighted to have the opportunity to respond here in the heart of my constituency to a debate on a subject of such central importance to the Scottish economy. I share with Robin Harper a particular sense of place in participating in the Scottish Parliament's first debate on oil and gas in this ancient building. Unlike Robin, I arrived in Aberdeen only in 1974, at which time this building was still part of the university library. It was a place in which one was well advised not to raise one's voice. Voices have been raised all round the chamber in a lively debate on the future prospects and potential of the offshore oil and gas industries.
Will the minister give way?
The member may rest assured that I will do so shortly, but not quite yet.
That debate has been going on in this city throughout the 28 years for which I have lived here and I fully expect that it will continue for many years to come.
King's College has seen many changes over the centuries, but few have been more profound than the changes that we have witnessed since 1974. At that time, oil was a newcomer to the north-east; it was unknown and was often unwelcome or distrusted. It was widely expected that oil would last only a decade or two and would leave no trace after it had gone.
As members from all parties have indicated, oil and gas are the drivers of the regional economy and they play a key role in the economies of Scotland and the United Kingdom. They are major employers, directly and indirectly, in Aberdeen and the north-east and throughout the country. Oil and gas are as much a part of the local scene for the city's present generation as trawling and whaling were for past generations.
The story of North sea oil is far from over. We are only halfway through the process of recovering the reserves of oil and gas that lie off Aberdeen's shores. At least one more generation can look forward to the benefits of that activity for years to come. As well as acknowledging that, we should focus on what the Parliament can do to secure the benefits for enterprise and employment in Scotland of extracting the remaining resources. We should also look ahead to what we can do to support the diversification of the offshore industries to secure future benefits from the resources that we have only begun to tap.
I thank the minister for giving way. The minister indicated that voices have been raised during the debate. Voices were being raised about the 10 per cent tax that Westminster imposed on oil and gas profits. I ask the minister to answer a simple question. Was he or any of his counterparts in the Executive consulted by the Treasury in London before that tax was announced in Westminster?
I will certainly address the tax issue before I conclude my remarks and will comment on the member's particular question in the context of those comments.
Offshore renewable energy is essential in seeking the diversification of the industry. Part of that process of diversification is about exporting the expertise and intellectual capital that have been built up in the north-east over the past 30 years. It is not unusual for Aberdonians to work in the Caribbean one year and in Kazakhstan the next. We must ensure that our businesses continue to have opportunities to operate in the global economy, so that we are well placed to provide a base for the international energy industries even when our exploitable reserves of oil and gas have been used up.
Offshore renewable energy is central to the prospects for diversification. Mention has been made of the initiatives that the Executive, the Westminster Government and the enterprise networks have taken to progress that. As Mike Rumbles said, transmission and security of supply are important considerations in relation to renewable energy. Along with the UK Government, the industry regulator and the power companies, we are addressing those issues and are keen to see them resolved.
I am sorry that Bruce Crawford, who raised a question about charges on offshore wind generation, is not present at the moment. I want simply to say that the charge to which he referred is a fee rather than a tax. The fee is identical to that which is charged on onshore wind operations.
The third area of opportunity for diversification is in the translation of academic excellence into commercial opportunity. As several members mentioned, there is every prospect of the proposed intermediary technology institute achieving that. As Iain Gray said, Scottish Enterprise is developing the plans for that institute. We are all familiar with the litany of lost opportunities that the Scottish economy has experienced through the failure to turn inventions and innovations into commercial success. The energy institute will be designed to avoid such an outcome.
I hope that the energy institute will also cement the links between the oil and gas and renewable energy sectors. By addressing the energy industries as a whole, the institute can help put us ahead of the game in supporting oil-related enterprise to make the transition to a broader and more sustainable energy base.
Can the minister today give us the date on which he will announce the setting up of the institute? What will be the process for choosing the institute's location so that those with an interest can make the appropriate bid?
Brian Adam is not alone in raising that issue. Elaine Thomson was among those who raised the call for an early decision to locate the institute here in Aberdeen. As Brian Adam suggested, the issue should be addressed in the Parliament at a later occasion. Clearly, we want that project to move forward. The energy institute should be the beginning of a process of rolling out Scottish innovations in high-risk areas of the economy. I am not in a position to give members a date, but we have today set in context tomorrow's announcement on Scottish Enterprise's work plan. We wanted to set that announcement in the context of our approach to the energy industry as a whole.
When the oil industry arrived in Aberdeen a generation ago, the perception was that it might not be here for long. The industry was therefore not entirely welcome. The change in public perception that has happened over the past 30 years has not come easily.
As Brian Fitzpatrick mentioned, no one who lived in Aberdeen in the 1980s will ever forget the devastating impact of the 1988 Piper Alpha disaster, when many men lost their lives. The Cullen inquiry into Piper Alpha marked a turning point not only in the safety culture of Britain's offshore industries but in the Government's role in the industry. That issue was at the centre of many of the questions that have been raised during the course of today's debate. Anger over Piper Alpha compelled both Government and industry to take safety issues seriously and it compelled them to work together.
Such compulsion has not been required in recent years as the picture today is very different. The engagement between industry and government in the Pilot partnership over the past three years has been neither reluctant nor grudging. The oil and gas industry in the UK has worked closely with ministers in agreeing priorities and targets for the future. Pilot can already claim some notable achievements. Last year's targets for capital investment were exceeded by £0.5 billion while the targets for oil production were exceeded by almost 50 per cent. I believe that those successes can be built upon and continued.
When the minister is discussing with colleagues in Pilot how plans can be set and adhered to, he must presumably be able to bring to the discussion the fiscal context in which the industry must operate. Will the minister therefore do the job for which he is paid so handsomely by being accountable to the Parliament? Will he let us know whether he was consulted or warned or given any indication that the 10 per cent tax hike would be introduced?
Mr Wilson will be familiar with the normal procedure in the setting of budgets, which is that they are not discussed in any public forum. Mr Wilson will also be familiar with the confidentiality that governs the discussions that take place between the industry and Government in the forum of Pilot.
I was pleased to chair the recent Pilot meeting in London, which was attended by officials from the Treasury and the DTI and by representatives from oil industry. We work closely with the industry.
What expectation is there that the oil and gas industry will contribute to the setting up and running of the energy institute? Have discussions gone well? What is the minister's target for investment from the oil and gas industry? Has that changed since the tax hike, and has he had representations on that?
We certainly expect the engagement of the oil and gas industry, along with the public sector, in the development of the institute. Partnership discussions must go ahead with all the players and that is precisely why we are not in a position to predict precisely the date on which conclusions will be reached. I expect the industry—innovative and enterprising as it is—not to miss the opportunity to play its part in the proposals, which will benefit the industry as well as the wider economy.
Important issues of taxation have been raised today. As has been said, the budget contains benefits for the oil companies as well as what some perceive as disbenefits. As has been said, some companies are keen to take early advantage both of the capital allowances and of the opportunity to express their views on the other issue of royalties.
Will the minister give way?
No, the minister is on his last minute.
In an industry dominated by a fluctuating global oil price, the level of tax and profits is only one part of the wider picture. It is important that all who engage in the debate should bear that in mind. It is also important to acknowledge the underlying force of one of the issues that dominates discussions in Pilot and elsewhere—the need to attract to the industry the bright, young and enthusiastic people who can continue the industry for a generation to come.
The industry has every right to express its views—and different companies hold different views. It is reasonable to make those views known, but it is also important that nobody with a concern for the oil industry should talk down its prospects or talk down the future security of employment of graduates—from this university and other universities in Scotland—who wish to enter the energy industries. To do that would be to do the oil and gas industry and the energy industries a grave disservice.
A generation in Scotland has made a living from the oil and gas industry; another generation will make that living too. I would like that idea to be the basis for a Scottish energy industry many generations into the future. If that is to happen, we have to secure the future of oil and gas in the short, medium and long term.