The hon. Gentleman raises a somewhat different point from the one that I am addressing, but if he writes to me in respect of the individual case—[Interruption.] If he has already written to me, I am delighted to hear that. HMRC may be better placed to respond to the particular case, but we are taking action in respect of intermediaries to ensure that the national insurance contribution system works fairly. This is another area where we are making sure that businesses that benefit from our natural resources make a fair contribution in tax.
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With regard to whether evidence of profit shifting constitutes tax avoidance, this measure is designed to provide a fair amount of taxation for activities carried out in connection with the UK’s valuable natural resources. The current arrangements result in significant profits from activity on the UK continental shelf moving out of the UK tax net. This measure is designed to prevent that. As for the argument that it could result in a loss of tax revenue, we expect it to raise £535 million over the scorecard period, on revenues of £1.75 billion, and that has been certified by the independent Office for Budget Responsibility.
We do not expect this measure to result in a decline in activity. The Government are fully committed to supporting investment in oil and gas. The work that we are doing with the industry, for example by introducing new allowances and providing certainty on decommissioning relief, as I mentioned earlier, has helped unlock billions of pounds worth of investment in the UK. That is the right way to support investment. I do not think that the right way would be to accept an unfair tax system that allows some highly profitable companies to pay almost no tax in the UK; there are better ways to ensure that we are competitive in this area.
With regard to the concern that this measure is somehow being rushed through, the Government have consulted widely with industry. Unlike many measures aimed at correcting unfairness, this one was not introduced with immediate effect in the autumn statement. We welcomed the industry’s responses to the consultation, which resulted in a number of changes to the approach adopted. As a result of the evidence received, the scope of the measure has been limited to drilling rigs and accommodation vessels and we have increased the deduction cap. We have also announced that we will review the measure in a year.
With regard to the concerns over fiscal stability, the tax rules that apply to contractors have been in place since 1973, and I think that we must look at this in that context. I think that it is right that we correct an unfairness. The Government are aware of the concerns about exploration, which is why the Chancellor announced in the Budget that one of the new oil and gas authority’s first tasks will be to report on how we can encourage exploration. The new allowance for ultra-high pressure, high temperature clusters, which was also announced in the Budget, is being designed specifically to incentivise exploration activity around new developments.
I do not accept that an unfair tax system that allows some highly profitable companies to pay almost no corporation tax in the UK is necessary to boost exploration. We are seeing no evidence of projects being cancelled. We are aware that there are marginal projects on the UK continental shelf, but that is why we have introduced the field allowances. That is the correct way to maximise economic recovery.
The hon. Member for Newcastle upon Tyne North (Catherine McKinnell) asked about setting aside the arm’s length principle for transfer pricing. The UK remains committed to the arm’s length principle. At the heart of transfer pricing is the requirement to find the price that would arise at arm’s length. However, very few transactions of the type targeted by this measure take place between unconnected parties. That gives rise to uncertainty over the allocation to specific jurisdictions of the overall global profits made by the contractor. I hope that those points of clarification on the matter are helpful.
A number of questions were asked about theatre tax relief. Let me seek to answer them. Members raised concerns that the relief could be abused and asked whether we will review the measure in future. We consider that effective anti-avoidance rules are critical to the long-term success and stability of theatre tax relief, a view that I think has been expressed on both sides of the House. The Government will include rules similar to those applied under film tax relief to prevent artificial inflation of claims. In addition, there will be a general anti-avoidance rule, based on the general anti-abuse rule, denying relief where there are tax-avoidance arrangements relating to the production. Of course, HMRC will monitor for abuse once the regime has been introduced.