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Mr. Nicholas Winterton (Macclesfield) : On a point of order, Mr. Speaker. In the debate that has just finished, the hon. Member for Islington, South and Finsbury (Mr. Smith) made an unwarranted attack on me without giving me notice that he intended to do so. His attack was wholly unjustified. The archaic views that he attributed to me have never been mine and have never been expressed by me. Perhaps he will come to the Dispatch Box and apologise.

Mr. Chris Smith : Further to that point of order, Mr. Speaker. The hon. Gentleman is entirely correct. I mistook him for the hon. Member for Northampton, North (Mr. Marlow), although how I could have done so I fail to understand. My mistake reflected badly on the hon. Member for Macclesfield (Mr. Winterton). As you know,

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Mr. Speaker, I have already apologised to you and sent a note to Hansard to ensure that the record of my intentions is correct.

Mr. Speaker : On that happy note, we should move on.

New Clause 18

Special car tax

All motor vehicles subject to the 10 per cent special car tax shall when sold with exhaust systems complying with the relevant EC Directive on emission standards be eligible for a rebate of up to 20 per cent of the said special car tax.'.-- [Mr. Roger King.]

Brought up, and read the First time.

10.15 pm

Mr. Roger King (Birmingham, Northfield) : I beg to move, That the clause be read a Second time.

Environmental matters give rise to much concern these days and have attracted a wide range of attention and many remedies as how best to tackle the challenge that they pose. One of the foremost examples of our determination to tackle some of the problems of the environment is the introduction of lead-free petrol, which is now widely supported and used by most motorists--probably as a result of the financial incentives that the Government have seen fit to introduce, amounting now to about 10p per gallon. About 20 per cent. of the motoring population now use lead-free petrol, and I warmly welcome that.

There is a great deal of argument about how effective this simple measure has been in reducing pollution. A few years ago it became a requirement to remove most of the lead from leaded petrol anyway, but we shall all reap the benefits from this small but significant step forward. There is no doubt that encouragement in the form of a reduction in the price of petrol has played a significant part in persuading the motorist to make the change.

The introduction of lead-free petrol is a small step along the road to an environmentally cleaner atmosphere. European legislation is making it mandatory for most cars built after 1992--we brought that date forward by one year--to have catalytic systems fitted to their exhaust systems to remove further exhaust impurities. That has been agreed by all the member states and there is nothing now to stop us fitting those systems to cars as early as we can. Some countries within the European Community have already done so, notably Germany, which has been seeking in the past few years to change to cars equipped with those exhaust emission control devices by offering very strong financial incentives to the purchasers of cars fitted with them.

The increase in the cost of the vehicle when fitted with proper exhaust emission devices is significant. Of course, it will vary depending upon the size of the engine fitted, but it will, for instance, cost about £289 to fit a single stage catalyst on the exhaust system of a Rover Group Mini, whereas on bigger cars it will cost much more, and sums of £800 have been commonly put about as being the extra cost involved.

New clause 18 gives further encouragement to the purchasers to specify that they want cars fitted with the catalytic devices sooner than when required under the

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Europan legislation. Most United Kingdom manufacturers can produce cars with those exhaust systems fitted--which, of course, they will have to do in any case within a short period. There is no need for us to delay any further. We need not wait until 1992. We can start to sell those cars now. In fact, many manufacturers are already offering cars fitted with such devices. However, customers have to pay a penalty for cleaning up the atmosphere and playing their part in reducing exhaust emissions.

Surely a Government who have taken such a significant lead in environmental measures and in reducing the price of lead-free petrol would wish to extend that lead into encouraging the fitting of these far more elaborate devices to cars so as to tackle the problems of pollution once and for all. Some of us would take the view that we were merely moving the goalposts a little, because even with catalytic converters all that cars do is to convert various poisonous gases into so-called harmless carbon dioxide. Yet we all know that the carbon dioxide build-up in our atmosphere, which is possibly creating the greenhouse effect, is probably just as disadvantageous as other exhaust emissions which occur without catalytic converters being fitted to cars. Nevertheless, it is a step in the right direction as carbon dioxide is significantly less damaging to the environment than other pollutants that come out of car exhaust systems.

If we offer that modest financial incentive of 20 per cent. of the special car tax, which is a penalty that the British car purchaser has to pay, that would be a small but not insignificant factor in encouraging motorists to specify that catalytic converters be fitted to their cars when they buy them. The special car tax is something that the motor industry imagined-- perhaps in error--was to be a short-term measure when the original purchase tax was phased out. The Government of the day decided that they wished to maintain their revenue and introduced a 10 per cent. car tax. On top of that, 15 per cent. value added tax was added. The motor industry has long hoped that that special car tax, which is more or less unique within Europe, would be phased out gradually over the years so that we could establish a regime of taxation on motor vehicles similar to that which obtains throughout most of the European Community. As 1992 approaches, of course we shall wish to harmonise our tax regime with those in the rest of Europe.

The rebate is a small step, but on a £10,000 car the sort of concession that the new clause advocates would cost perhaps £200. It would cost, for instance, £289 to fit a catalytic converter to a Mini. By allowing that 20 per cent. on the special car tax, the Government will in effect be giving the consumer £80 to encourage him or her to buy a car fitted with a converter. That is not a generous amount, but it is a significant indicator that when it comes to environmental issues the Government mean business.

Such a sweeping change may mean that the Government will have to consider at length the desirability of adopting such a measure, which would be widely encouraged by the motor industry. Many European car manufacturers already fit catalytic exhaust systems--certainly they do in Germany--and if British manufacturers could be encouraged to fit them sooner rather than later, economies of scale would be geared up for the time when the fitting of such devices is mandatory, in 1992. The Government should consider carefully this modest

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measure, which carries on from the bold initiative of reducing the cost of lead-free petrol and should be widely supported.

Sir Hal Miller (Bromsgrove) : Now is not the time, although certainly it is the place, to debate the motor industry's detailed complaints about the special car tax and the way that the industry has, in its view, been singled out for the most unfair and prejudicial treatment. I shall not rehearse those arguments, except in supporting my hon. Friend the Member for Birmingham, Northfield (Mr. King), whose initiative in proposing the new clause I value highly, as it makes a significant contribution to the debate on motor vehicle pollution.

Value added tax is based on the basic price of the car plus the special car tax, so it is a tax on a tax. As we move towards 1992 and the approximation of motor vehicle taxation, I shall use the debate on the proposed new clause to explore the mind of my hon. Friend the Minister as to how the future motor vehicle tax regime will operate. The Commission proposes that we should move to a regime of value added taxes and dispense with other and, in many cases, higher taxes. The suggestion is that value added tax should be levied at the rate applying in the purchaser's country, which would be determined by the vehicle's country of registration.

Britain's special car tax is a form of sales tax and should be included in the VAT, which may need to be adjusted for that purpose. As we move towards 1992, it is important to decide how motor vehicle taxation is to operate. Manufacturers need to proceed on the basis of certain assumptions, because their model policy is determined some years in advance.

My hon. Friend the Member for Northfield referred eloquently to the environmental benefits of catalytic converters, to the precedent set by the lower excise on unleaded petrol, and to the efforts of other European countries--notably West Germany--to expedite the fitting of converters. There has been a good deal of propaganda from catalytic converter manufacturers that their cost is not at all what others state it to be, and that it has been greatly exaggerated. It is a matter not just of the cost of the metal in the catalyst box. One cannot run a catalyst without an engine management system, which is where a large element of the expenditure comes, quite apart from the later costs to the consumer arising from maintenance and fitment. There is much uncertainty about the cost of maintaining the catalysts and their lifespan. On a recent visit to a car manufacturer that had fitted catalysts, I was given lifespans ranging from 25,000 miles to 100,000 miles. There is much uncertainty about the frequency with which they need to be replaced. It is worth bearing in mind that they cannot be serviced ; they must be junked and then one starts again. That means taking off the whole exhaust system, and those of us who have had to replace those systems know what is involved. My hon. Friend the Member for Northfield and I are trying to encourage our friends in the Government to consider the introduction of some incentive in the shape of a reduction in the additional cost incurred by fitting catalysts. We carefully did not pitch the amount of the incentive but gave a band that could be considered. Such an incentive would encourage the earlier and wider use of catalysts. It would be for the benefit of the environment

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and would be a powerful incentive for our manufacturers to bring themselves up to date on a fully competitive continental basis. 10.30 pm

Dr. John Marek (Wrexham) : I listened with interest to the hon. Member for Birmingham, Northfield (Mr. King). The Opposition would welcome it if he put his name down for the Finance Bill Committee next year. We have discussions year in, year out on excise duties and other taxation on vehicles and not a Conservative Back Bencher who has any knowledge of the subject will stand up and take issue with us so that we can make the policies and duties better suited to Britain. I hope that the hon. Gentleman will take that request seriously. The hon. Gentleman is wrong when he says that the Government mean business on environmental issues. If it had been left to the Government, we would not have had an agreement on catalytic converters or clean car engines. That was forced on the Government by the European Community, and we must get that point clear. The Opposition are passionately pro-environment, and we sympathise with the basic aim of the new clause. We take issue, however, with the method chosen. As we must change our exhaust systems and introduce catalytic converters in a few years' time, what is the point of having an incentive? I do not understand the rationale behind the speeches of the hon. Members for Northfield and for Bromsgrove (Sir H. Miller). The incentive is unnecessary. The difficulty is--I am sure that the Economic Secretary will say the same--that if an allowance is made for catalytic converters, the Treasury will be inundated with pleas for allowances for all sorts of additions to cars. Many kinds of transport systems will be fair game for different people with different interests.

Sir Hal Miller : I am sorry to interrupt the hon. Gentleman, but the logic of his argument escapes me. I do not recollect his opposing the incentive of the reduction in the excise duty to encourage the greater use of lead-free petrol. I am sorry if, in my anxiety to be quick, I did not make it plain that the purpose of the new clause is to speed up the introduction of catalysts.

Dr. Marek : The two issues are very different. There is always a choice between leaded and unleaded petrol, at least for some cars. I have recently seen something called "super leaded" in garages. It costs the same as unleaded, but I wonder whether petrol companies will continue to rip off motorists by charging high prices. There is no question of providing an incentive to fit catalytic converters. It has to be done. We have agreed it with the EC. There are cases for incentives in certain circumstances, but they should be argued on their merits. I regret that I have to say that I do not think that the case has been proven here. I would rather that the money which would be lost to the Treasury were spent on other environmental concerns.

How much does the Economic Secretary think the Treasury would lose if the new clause were accepted? Can he think of better environmental uses for the money? I sympathise with the new clause, but I think that it is the wrong approach.

Mr. Lilley : I am sure that the House joins me in paying tribute to my hon. Friends the Members for Birmingham, Northfield (Mr. King) and for Bromsgrove (Sir H. Miller),

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who have always been lively advocates of the interests of the British motor car industry and who today have wedded that interest to their concern for the environment.

My hon. Friend the Member for Northfield mentioned the success of the increased reliefs and changes in the treatment of two-star petrol in the Budget. It has been immensely successful--more successful than I expected at the time. The latest figures, at 14 June, show that unleaded petrol sales account for 20.6 per cent. of the whole as compared with only 5.5 per cent. the month before the Budget, and that more than 50 per cent. of filling stations sell it as against about 22 per cent. earlier this year.

My hon. Friend drew an analogy between that and the tax relief proposed in new clause 18, but I do not think that the analogy is valid. Excise duty applies to all cars, not just new ones, and there is no mandatory use of unleaded petrol in the offing. Those are my reasons for suggesting that the House should not accept the new clause. The benefit that is proposed offers a remission of an element of car tax which is levied only on new cars. The incentive would therefore apply only to the installation of catalytic converters in new cars. In 1992, however, such installation will be compulsory for all new cars sold in the EC, and I imagine that before then it will be normal for them to be fitted as producers gear up with new models. We are being asked to introduce a tax relief for a short time only, and one which applies only to new cars. Tax reliefs should always be introduced with caution and I am not minded to recommend to the House a relief with a short life and relatively little coverage. Both my hon. Friends, but especially my hon. Friend the Member for Bromsgrove, mentioned their resentment at the existence of a special car tax. At least 10 EC countries have a higher rate of value added tax, or a registration tax, if not a special car tax like ours, so the tax is by no means abnormal. Our VAT and the special car tax is similar to what is charged in other countries.

Sir Hal Miller : While my hon. Friend is dealing with the practice of our EEC partners, will he answer my question about what is to happen in future? Will the car tax be subsumed in VAT?

Mr. Lilley : I apologise for not responding to that specific point without prompting. The Commissioner has put forward proposals which are being considered by the Government. They acknowledge that special consider-

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ation will have to be given to items such as car tax on motor vehicles. The general presumption is that they would be rendered uniform. However, we have tried to work out proposals in general which will not require central bureaucratic determination of tax rates in individual countries and will leave as much discretion to individual countries as possible while removing any unnecessary fiscal controls at frontiers. That is the line that we are pushing, but we are a long way from achieving the unanimity that is required on that issue in the Community.

The hon. Member for Wrexham (Dr. Marek) asked what the proposal would cost. It would cost about £3 million in revenue forgone for every 1 per cent. of motor cars which took advantage of the incentive and had the equipment fitted. Obviously, one has no idea how many would do so, but as 1992 approached a great many cars would be so fitted, not in response to the incentive but in anticipation of the time when it would become mandatory. We should thus have to bear the cost with no extra benefit. That is one reason why I am not urging the House to accept the new clause.

We accept that the new clause seeks to encourage producers and car drivers to recognise the value of such equipment from an environmental point of view and seriously to consider voluntarily insisting on their incorporation in any new vehicle which they may buy ahead of 1992. I welcome that spirit, but I hope that the new clause will not be pressed to a vote.

Mr. Roger King : I have listened, as my hon. Friend the Member for Bromsgrove (Sir H. Miller) will have done, with a great deal of interest in the hope that my hon. Friend the Economic Secretary would give us some encouragement to the effect that our proposals met with some enthusiasm. I understand the problems of introducing a further tax incentive such as this. The aim of the new clause was simply to give some added impetus to what will obviously happen anyway in 1992. It would have shown clearly that we wished to proceed faster rather than slower along the lines of the EEC proposal.

Despite the unbridled optimism of my hon. Friend the Member for Bromsgrove and myself that we would have the Opposition's support in this matter, it is clear that they have no bottle for a fight on this. I beg to ask leave to withdraw the new clause.

Motion and clause, by leave, withdrawn.

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Clause 20

First-year allowances for ships

In paragraph 2(1) of Schedule 12 to the Finance Act 1984 after sub- paragraph (b) there shall be inserted the following sub-paragraphs :--


(with respect to capital expenditure incurred on or after 1st April 1989 on the provision of ships, the words one-half' ;)

and before the words no first-year allowances' there shall be added the words subject to sub-paragraph (c) above'.


(in its application to capital expenditure incurred on or after 1st April 1989 on the provision of ships section 44(4)(a) of the Finance Act 1971 shall have effect as if the word or' at the end of sub-paragraph (i) were omitted and as if sub-paragraph (ii) were omitted.".'.-- [Mr. Shore.] ) Brought up, and read the First time.

Mr. Peter Shore (Bethnal Green and Stepney) : I beg to move, That the clause be read a Second time.

I know that new clause 20 has support in all quarters of the House. That is self-evident from the names of the right hon. and hon. Members who have joined me in tabling it. Anxiety about the disastrous decline of the British merchant fleet has been expressed in the Chamber on many occasions in recent years. No fewer than 234 hon. Members have put their names to early-day motion 429 which, among other things, urges

"the primary importance, with an ageing fleet, of the early provision of fiscal and other measures to encourage British shipping companies to undertake the substantial re-investment in ships which will be needed if the decline of the British-owned and controlled merchant fleet is not to accelerate again over the years immediately ahead."

New clause 20 proposes the reintroduction of a 50 per cent. first-year allowance for capital expenditure on new ships. The much-reduced British- owned shipping fleet is steadily aging, and assistance with the heavy cost of replacement is essential if we are to avoid a further decline, let alone reverse the trend of the past decade or so.

10.45 pm

With a record Budget surplus that is likely to be

repeated--certainly this year--I do not think that the cost is of real concern to the Treasury. According to the Inland Revenue's own gloomy estimates, with which the Select Committee on Transport was provided last year, the cost of an additional 50 per cent. investment allowance was expected to rise to a maximum of £200 million a year for a two-year period, and then to decline to about £90 million by 1995-96. Our proposal is more modest : it is not additional to the existing 25 per cent. allowance, but in place of it. That will cost not £200 million a year at the peak, but more like £140 million. The principal objection rehearsed by Treasury spokesmen on previous occasions when help for the shipping industry has been discussed is that the introduction of investment allowances runs counter to the general thrust of the Government's corporation tax policy, the general effect of which has been to reduce the rate of corporation tax on profits substantially and at the same time to abolish allowances against capital expenditure. I do not propose to challenge that general philosophy tonight, but I should like to state as strongly as I can why I believe that shipping should be the exception to the corporation tax rule.

First, world shipping markets are not free. Governments intervene, in varying degrees, in capital and crew costs, and many reserve some part of their trade for

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their own nationals. Third world countries have their own special shipping regime ; the Soviet Union, eastern Europe and China subsidise their shipping on a massive scale ; the United States protects its own merchant navy. In the European Community there is no common shipping policy. Most European Community countries assist their own shipping industries with many forms of subsidies, grants, tax concessions and the like. Let me give just one example : German shipowners have the benefit of accelerated depreciation, investment grants and very low interest rates. Not surprisingly, there is twice as much tonnage on order for the West German register as for the United Kingdom register today.

There is, therefore, no level playing field in European or world shipping. To refrain from assisting our own shipping industry with its replacement costs is not to operate a hands-off,

non-interventionist policy, but positively to discriminate against our own shipping. It is a profound paradox that the United Kingdom, an island nation more dependent on shipping for its imports and exports than any other European country, should--virtually alone among the west European nations--offer no protection or assistance to its merchant fleet.

My second reason for urging the Government to accept the new clause is the direct contribution that British-owned shipping makes to the country's overseas earnings. When the 1984 Budget removed the British shipping industry's main tax incentives to invest, the balance of payments was remarkably healthy. Unhappily, that is no longer the case. We now face massive deficits. The shipping industry is still a major earner of foreign exchange--the third largest invisible earner after financial services and tourism--and there is a close correlation between its foreign exchange earnings and the size of the fleet. An enlarged United Kingdom-owned fleet would generate, or save, much of the additional foreign exchange that the country so badly needs. My third reason is that our Merchant Navy is essential to the nation's defence during a period of tension or war. It gives direct support to the military, it is essential for the rapid reinforcement of Europe from North America, and is crucial for the continuing economic re-supply of the civil population and industry in a period of conflict. The United Kingdom fleet has already shrunk to a level where all three tasks can no longer be undertaken. This was broadly the conclusion of the Select Committee on Defence in its report last year and is the subject now of a major NATO study.

There is one other negative argument that the Minister may be tempted to deploy : that investment allowances, before their abolition in 1984, did not prevent the rapid rundown of the United Kingdom's Merchant Navy. True ; but it is difficult to think of any measure that would have prevented a substantial decline in United Kingdom and, indeed, in world shipping in the decade of severe recession that is now ending.

At the end of 1985, the year after the abolition of capital investment allowances, 7.5 per cent. of world shipping was laid up. Today that figure is down to 1 per cent. Freight rates are improving ; shipbuilding capacity has, tragically, been sharply reduced ; the world fleet is aging ; and it is clear that a large part of the existing world fleet will have to be replaced over the next decade. The effects of this can be seen in the sharp rise in the price of both new and second-hand ships. The key question for the shipping entrepreneur is how the

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enormous capital costs of replacement can be financed--which depends in turn on the fiscal re gimes applied by the Government for such investment, because this is the major variable in capital costs. We have now a major opportunity to revive our merchant fleet. Strengthening the incentives to invest in ships will enable the United Kingdom to gain a substantial share of new shipping to overcome the handicaps of unfair competition, to strengthen the balance of payments and to help maintain the credibility of our defences against the threat of conventional war.

The maintenance of a large, modern and efficient Merchant Navy is essential to the well-being and security of an island nation. I do not believe that the Government would dispute that assertion. I urge them therefore to accept the proposal in new clause 20.

Sir William Clark (Croydon, South) : I support the right hon. Member for Bethnal Green and Stepney (Mr. Shore). He has pointed out the importance of the shipping industry to our invisible earnings. I have no vested interests in the shipping industry. The United Kingdom is unable to compete with other countries in many ways. At one time the shipping industry benefited from the free depreciation allowance, but it has now disappeared. The 25 per cent. depreciation allowance has taken its place.

I well understand why my right hon. Friend the Financial Secretary to the Treasury will say that because corporation tax has been reduced to its present level capital allowances must be reduced, too. The shipping industry, however, is in a slightly different position. It is one of the most competitive international commodities, if it be a commodity, that there is. Shipowners in other member states of the European Community are provided with far better allowances. The new clause provides for a 50 per cent. capital allowance. There would be no loss of revenue. The shipping industry faces a cash flow problem. If one cannot obtain a capital allowance of 50 per cent., the capital that is required to buy a ship will put British shipowners at a disadvantage vis-a -vis their foreign competitors. In 1992 the United Kingdom's capital allowances will probably be the least advantageous of all.

The Government should take another look at shipping. It may be too late at Report stage of this Finance Bill to do something about it, but I hope that my right hon. Friend the Minister will give some assurance that the Government are seized of the importance of the shipping industry and are aware that our competitors are far more generous to their shipping industries than we are, although our corporation tax has decreased.

The right hon. Gentleman referred to the surplus in our domestic budget. I am not suggesting that we should spend that, but the shipping industry has a cash flow problem. If our shipowners could buy a ship with a 50 per cent. rather than a 25 per cent. allowance, it would put the nation in a better competitive position. I urge my right hon. Friend to consider the new clause sympathetically. The size of our merchant fleet has continued to decrease and I can give the statistics to show that. As an island nation we depend on our shipping industry for more than our defence. Let us encourage British shipping rather than allow foreign shipowners to move our goods in and out of our ports because they have better fiscal arrangements than we have. For those reasons, I support the right hon. Gentleman.

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Mr. Julian Brazier (Canterbury) : As is often the case, we find ourselves late at night discussing important matters, but if the hour is late, the quality of the first two speeches makes up for it. I am honoured to follow the right hon. Member for Bethnal Green and Stepney (Mr. Shore) and my hon. Friend the Member for Croydon, South (Sir W. Clark).

I used to work as a management consultant and many of my clients were shipyards. As I spoke at length in Committee I shall add only a few brief points. Other countries provide advantages for their shipping industries in many ways that we do not. Besides the visible methods of assistance, including capital allowances, tax-free reserves, advantages in personal taxation to seafarers, and direct Government subsidies and grants, which together ensure that we have a higher effective rate of tax on shipping, whatever the nominal rate, than most other countries, there are three hidden ones.

First, safety is expensive and many of our competitors are not interested in it. That immediately gives an unavoidable handicap to our shipowners because no one wants dangerous British ships. Secondly, some seafarers in foreign merchant navies are disgracefully badly paid. That is another unavoidable handicap for us. Thirdly, considerable amounts of cargo reservations are sometimes legally enforced and at other times achieved through back-door arrangements. Our shipowners operate with considerable fiscal and other handicaps. It is sad that as a result of those considerable handicaps the British merchant fleet has not only declined-- nearly every merchant fleet has--but declined compared with other fleets. The Greeks have by far the biggest fleet in Europe, but there is no taxation on Greek shipowners, except a minuscule tonnage tax. I share the Government's distaste for capital allowances as a normal medium for industry. I wrote a pamphlet calling for the abolition of capital allowances and all forms of regional capital grants some years before it became the fashion. However, it seems to me inescapable that shipping is a special case. If we want to restore British shipping to even part of its former standing, we must face up to these handicaps and to the enormous difference between the way in which we treat our shipowners and the way in which other countries treat theirs.

11 pm

I do not want to go into all the reasons why it is important to restore shipping, because they have already been well covered by the two previous speakers, but I will mention two reasons briefly. First, besides the immediate effects of shipping, there are many peripheral areas that bring in considerable foreign exchange, such as the Baltic exchange and the shipping insurance side of Lloyd's. They require a captive domestic market if they are to continue to bring in the considerable export earnings they bring in at present, which are over and above the export earnings mentioned for shipping itself. Secondly, I echo again the defence considerations--my right hon. Friend the Financial Secretary would be surprised if I did not-- which are real. The arrival of the NATO report on strategic shipping is becoming rather like the second coming. However, it will come at some point and it is common knowledge that it is certain to show that NATO has insufficient for its needs in times of tension, let alone war.

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I sum up by saying that two early-day motions--one in the previous Parliament and one in this--have shown that the majority of Back Benchers of all political persuasions are concerned about the issue. Two Select Committees--on Transport and on Defence--have expressed real worries on the matter. I put it to my right hon. Friend that if he finds new clause 20 unacceptable for one reason or another, we must look at what we can do for our shipping. If we stand back and do nothing and, in effect, say unilaterally that we believe in the free market and not in intervention--while almost every other country with a significant fleet is intervening and supporting its fleet--the little temporary recovery we have in shipping, which gives us a bit of a breathing space, will disappear and our merchant fleet will continue to decline.

Sir Charles Morrison (Devizes) : It may be surprising that an hon. Member representing a wholly land-locked, largely rural constituency receives two or three letters a year expressing concern about the inadequate size of our merchant fleet, yet that is my lot. I have several constituents who are still well aware that we are an island race and that we depend to a considerable extent for our existence on shipping and overseas trade. If our country were a vast, land-locked area which was entirely self-supporting, we could perhaps disregard the need for a merchant fleet and even go further and say to ourselves that not having a merchant fleet of our own would help developing countries. That concept, however, does not exist for us. As my hon. Friends the Members for Canterbury (Mr. Brazier) and for Croydon, South (Sir W. Clark) and the right hon. Member for Bethnal Green and Stepney (Mr. Shore) have pointed out, we are all aware that we remain an island. We may soon be attached more closely to continental Europe by means of the Channel tunnel, but a huge proportion of the basis of our national existence will still depend on shipping.

I do not think that my right hon. Friend the Financial Secretary can argue that a merchant fleet is unnecessary. Indeed, he has not argued that. As my hon. Friend the Member for Croydon, South pointed out, it is important in terms of allowances that we should be able to compete with the assistance that shipping receives in other countries. There has been a pretty continuous deterioration in the size of our merchant fleet. That in my view is shameful, but, regardless of that, I believe that from a strategic point of view we are putting ourselves in an increasingly weak and dangerous position.

I hope that my right hon. Friend the Minister will take full account of the new clause. For all I know, it may not be properly drafted and may need further thought, but I hope that my right hon. Friend will at least express some sympathy with the proposition behind it.

Mr. Nicholas Brown : My right hon. Friend the Member for Bethnal Green and Stepney (Mr. Shore) was right to remind the House of the strategic importance of shipping and, indeed, shipbuilding to our country. As a number of hon. Members have perceptively pointed out, our country is an island, and the conveyance of goods by sea is therefore important to us- -indeed, 92 per cent. of our trade is carried in ships. I should have thought that it was fairly clear to everybody, therefore, that shipping has a unique place in our island's economy. My right hon. Friend the Member for Bethnal Green and Stepney asks

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the Treasury to recognise that unique place. I suspect that the Treasury will not do so. I say that because we have explored this matter before.

Help for shipping, needed though it is, is not the same as help for domestic shipbuilding, needed though that is. Although the EEC has no common policy on shipping, it certainly has one on shipbuilding. That is embodied in the sixth directive on shipbuilding, which provides for intervention funding for some merchant yards in the different member states.

The new clause would not necessarily mean that those who availed themselves of the tax concession would order new vessels in British yards, because they could purchase abroad or purchase secondhand ships. The new clause would not necessarily help the domestic merchant shipbuilding industry, which is certainly in need of help. Just about the only chance of survival for our merchant shipbuilding industry lies in relocating to Northern Ireland.

The shipping industry is deserving and worthy of support, and the new clause has considerable merit. I was taken by the statement of the hon. Member for Canterbury (Mr. Brazier) that he had acted as a consultant for a number of shipyards. That alone does not explain the serious crisis that British shipbuilding faces ; the explanation has to be sought elsewhere. I am able to name the guilty man--the man responsible for closing down merchant yards when he was at the Department of Trade and Industry and for starving warship yards of defence orders when he was Minister of State for Defence Procurement. That man is, of course, the Financial Secretary, and he will no doubt reply to the debate by telling the shipping industry that it will not receive the assistance that every hon. Member who has spoken in the debate says it so badly requires.

Mr. Norman Lamont : The right hon. Member for Bethnal Green and Stepney (Mr. Shore) has a long-standing interest in shipping and speaks with great authority. Some months ago, he came to see me about a specific tax matter, which might have been dealt with in this Bill. The right hon. Gentleman argued vigorously against the proposal because of the effects that he thought it might have on the shipping industry. Having listened to representations from the right hon. Gentleman and others, we decided not to proceed with that tax change. I hope that that experience will at least have confirmed him in the view that we try to listen and are not indifferent to the plight of the United Kingdom shipping industry.

The new clause would introduce a special 50 per cent. first year allowance for capital expenditure incurred on or after 1 April 1989 in the provision of a ship, whether new or second hand. It would permit also a writing-down allowance to be taken for the same period, thus providing allowances totalling 62 per cent. in the year of acquisition instead of the 25 per cent. that would otherwise normally be available.

As the right hon. Member for Bethnal Green and Stepney well knows, the issue of accelerated depreciation for ships is by no means new. It was discussed at considerable length in the Finance Bill debates in 1984 and 1985. Clauses with the same objective were tabled in 1986 and 1987. There was a further debate when last year's Finance Bill was considered in Committee, when a nearly exactly similar proposal to that in the new clause was not accepted. As we had the issue raised in almost exactly the

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same form from 1984 to 1988, it is not surprising that the right hon. Member for Bethnal Green and Stepney was able to anticipate many of the arguments on which I rely.

We also debated these issues when my hon. Friend the Member for Canterbury (Mr. Brazier) introduced an amendment that sought that a balancing charge arising on the disposal of a ship should be rolled forward and relieved from tax provided that the proceeds of the disposal were reinvested within up to four years. As the right hon. Member for Bethnal Green and Stepney has recognised, relief on these would reintroduce to the system a significant measure of accelerated depreciation. The new clause would go further still by allowing the entire cost of a ship to be written down to a residual 10 per cent. over five years or so. As ships are long-life assets with working lives greatly in excess of five years--perhaps 18 to 20 years, on average--a depreciation system that provided allowances on the scale that is proposed would constitute a substantial element of acceleration.

The right hon. Member for Bethnal Green and Stepney recognised that our reform of corporation tax is based on the reduction of allowances to 25 per cent. per annum, combined with the reduction in the rate of corporation tax, with the result that the rate of corporation tax is the lowest in Europe and one of the lowest in the industrialised world. That is something that very much affects most industries, including the shipping industry.

My hon. Friend the Member for Canterbury and I debated these matters extensively when the Bill was being considered in Standing Committee. He argued that perhaps the more marginally profitable shipping industries were better off under a system of allowances than a lower rate of corporation tax combined with smaller allowances. I in turn argued that the Government believe that the purpose of the tax system should be to encourage profitable investment and profitable industries and not merely the marginally profitable or the near loss makers.

Sir William Clark : The fact that these matters were debated from 1984 to 1987 is completely irrelevant. Why is it that the merchant fleet continues to decline? It is far better from a fiscal point of view to have a ship under a foreign flag. Corporation tax is lower here than in many other countries, but the shipping industry is being penalised in Britain when comparisons are made with competitor countries.

Mr. Lamont : I cannot agree with my hon. Friend's analysis. I do not believe that the period of the greatest decline in British shipping, to which the right hon. Member for Bethnal Green and Stepney referred, was linked to the tax system. The right hon. Gentleman acknowledged that, even when we had 100 per cent. first-year allowances, that did not halt the dramatic decline of the fleet between 1975 and 1986 from 33 million gross registered tonnes to under 11 million tonnes. Fundamental factors--not tax factors--were in operation, and they were connected with excess capacity and, obviously, with the structure of the British fleet. They played a large part in the decline of the fleet during that period when we had 100 per cent. depreciation allowances, and they were unable to stop the decline at the time. There have been structural and capacity factors.

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Sir William Clark : On the 100 per cent. allowance, does my right hon. Friend recollect what our corporation tax was?

Mr. Lamont : People were able to use the 100 per cent. allowance and go on investing, and the actual effective rate of corporation tax was much lower. My hon. Friend is looking extremely puzzled. I am not saying that tax matters are unimportant or have no part to play, but the decline of the British fleet has been due to much more deep-seated reasons than tax alone.

Mr. Brazier : My right hon. Friend is absolutely correct, but his remark does not detract from the new clause. Surely the reasons for the great decline which occurred in every merchant fleet in the world in the 1970s were the deep-seated factors of overcapacity and overinvestment to which my right hon. Friend referred. Now that we have come out of that period of overcapacity, which the right hon. Member for Bethnal Green and Stepney (Mr. Shore) described, the precise reason why other fleets are now expanding while the British one is static--and we are falling as a percentage of the EEC fleet--is this country's fiscal factors, which are different from those in other countries.

Mr. Lamont : That is open to argument if we say that the reduction in the fleet in the past was due to non-tax reasons, but today we believe that it is due to tax reasons. I do not believe that our tax system leaves shipping at a massive disadvantage. We must look at the tax system in the round. We must compare allowances and rates and also look at local taxes. We must look at the overall fiscal position of one country compared with another. It is not proven that British shipping is at a tax advantage compared with all its competitors. I have given my view of the fundamental factors that have been responsible for the decline in shipping. I do not believe that one can suddenly say that they are different, even though those were the reasons for the decline in the past.

Sir Charles Morrison : My right hon. Friend is missing the point. He is speaking from the Government Front Bench. I put it bluntly that there is no point in arguing a Treasury brief. Hon. Members are concerned about the steady decline in the British merchant fleet. That is what perhaps surprisingly concerns my constituents. They are more and more worried that we are living on an island and our merchant fleet is getting smaller and smaller, as my hon. Friend the Member for Canterbury (Mr. Brazier) pointed out. We probably could not even mount a Falklands-type campaign. The situation is getting worse, not better. It is all very well arguing the details from the Treasury Bench, but the Government must consider whether or not we are to have a merchant fleet. What is the answer to that?

Mr. Lamont : I apologise to my hon. Friend the Member for Devizes (Sir. C. Morrison) if I sound too like a Treasury Minister. I have great difficulty in disguising myself on occasions. It is difficult to disguise myself when I am replying to comments about tax and the Finance Bill. It is utterly astonishing that I should sound like a Treasury Minister. I apologise unreservedly to my hon. Friend for the disguise that I have put on.

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Of course, I accept what my hon. Friend the Member for Devizes has said about the strategic importance of merchant shipping and about the importance of the British merchant fleet for defence reasons. My hon. Friend the Member for Canterbury raised that in Standing Committee when we discussed his amendments. I assured him that we shall bear in mind the recommendations and remarks of the Select Committee on Defence and that the matter will be kept under review. I shall draw the attention of my colleagues in both the Ministry of Defence and the Department of Transport to what has been said. The Ministry of Defence very much disagrees with what my hon. Friend the Member for Devizes has said and believes that it would still be possible today to mount an out-of-area operation involving the British fleet. As my hon. Friend has said, I am a mere Treasury Minister and I can assure him that I should not make that statement without having had some advice from those who know about these matters.

I have dealt with the fiscal problems as I see them. It has been said that shipping is a slightly different case. I am afraid that all sorts of industries also regard themselves as different, especially capital- intensive industries and the chemical and engineering industries. Even the film industry has a great attachment to capital allowances. I believe that the lower rate of corporation tax, combined with the lower allowances, has been of great benefit to British industry overall. That does not mean that substantial sectors of heavy industry do not raise these issues all the time, but, despite what my hon. Friends have said, it would be extremely difficult to distinguish between shipping and other industries. As in the measures that we have taken in other Finance Bills, we have shown here that we are not indifferent to the problems of the shipping industry. Indeed, we made a special relief, through our changes on foreign earnings deductions, to meet some of the problems that had been raised about low-wage seafarers and low-wage competition. We leant over backwards to try to have a tax system that would minimise the disadvantages.

We have also used the business expansion scheme for both chartering and investment in ships. I have already referred to the representations that we received from the right hon. Member for Bethnal Green and Stepney and to the fact that we have listened to those representations as well as to those from shipping when we discussed residence.

As my hon. Friend the Member for Devizes said, this is not just a tax issue ; it is also a defence issue. We are keeping the matter under review, particularly because other Departments are looking at the Select Committee's recommendations. However, I am afraid that, although we will look at the matter in that way, I cannot recommend the acceptance of the new clause, which would go sharply against the thrust of our business tax reforms.

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