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Mr. Nelson : The Government have, over successive years, done things to help the British Merchant Navy. They are doing things in this Budget and they have an open mind for the future, as and when the opportunity arises, to continue to sustain and help the industry. Let me set out the facts.

Since 1979 we have introduced a number of measures, including some on the tax front, to help the industry. First, in 1985 we brought forward the point at which allowances for machinery and plant could be claimed by businesses. Since then, shipping companies have consequently been able to claim relief for new ships from the date when the money was spent rather than from the time when the vessel is brought into use. This is particularly valuable to ships which take time to build.

Secondly, we have specifically helped shipping companies by giving greater flexibility in the use of writing down allowances. Before 1985, allowances for new ships could be postponed and taken in later years whenever it suited the shipowner to do so. In 1985, following

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representations from the shipping industry, we extended this important concession to cover purchases of second-hand ships. No other industry receives such concessions.

Thirdly, we have twice loosened the requirements which seafarers must meet to be able to claim exemption from United Kingdom tax. They need now spend only six months abroad to qualify for this concession--an arrangement which is more generous than that enjoyed by any other United Kingdom citizen working overseas.

Fourthly, on corporation tax, we have greatly reduced the rates of tax on company profits, from 52 per cent. in 1984 to 33 per cent. We have also introduced very generous arrangements enabling the carrying back of profits to be set against losses over the previous three years.

As for non-tax measures, we have put in place a succession of changes aimed at helping shipping businesses to compete internationally : grants towards the cost of merchant officer training ; the funding of the Merchant Navy reserve ; and financial assistance with the cost of transporting British crews to and from distant waters. As the Committee will know, next week a very important Bill--the Merchant Shipping (Registration) Bill--will come before the House of Lords which will substantially complete the implementation of the measures agreed by the 1990 joint Government-industry working party.

That list demonstrates the help that we have given to all businesses, and the additional further assistance that we have given to shipping. What we have not been prepared to do is to give concessions at an unjustified level. This amendment, clearly in our view, is just such a measure. There are a number of reasons which I must enunciate for saying that. The arguments so ably presented by my hon. friends deserve the response of the Government, and I will seek to put the Government's arguments.

First, the Government argue that the amendment would be very expensive, costing, on the Chamber of Shipping's own figures, between £80 million and more than £100 million each year in terms of tax revenue forgone-- and this of course would fall in the years when finances were at their tightest and taxes generally were having to be raised.

Secondly, the extent to which it would achieve the industry's objective of stimulating increased levels of investment is highly questionable. It is worth remembering that when 100 per cent. first year capital allowances were previously available for investment in shipping, between 1970 and 1984, they did nothing to prevent a significant decline in the size of the United Kingdom merchant fleet--from 32.2 million gross registered tonnes in 1975 to 13.3 million in 1985.

Since our changes to the business tax regime in 1984, we have seen an increase in investment in ships by United Kingdom-owned companies. It is very important to appreciate that. We hear a great deal about the rundown of the British merchant fleet, but on the money side the fact is that in 1988 investment in the shipping fleet was some £45 million, but it rose to £402 million in 1991. This suggests that the remedy for the industry's difficulties must lie outside the fundamental changes to the tax treatment which the industry is seeking.

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Thirdly, the amendment would do nothing to stop flagging out. That is because tax allowances are tied to ownership and not to registration, so there would be nothing to stop United Kingdom companies taking the subsidy and continuing to operate the ships from offshore registers. Moreover, such a measure would clearly run counter to the thrust of general tax policy.

Tax breaks for shipping alone would distort the market and resources would be diverted from inherently more profitable investment, which, taking the economy as a whole, might not be a sensible use of the limited financial resources available. Other countries may choose to subsidise their shipping industries, although it has to be said that none of those countries does so to the extent of giving 100 per cent. first year allowances for capital investment. Our priorities are to ensure that the tax system is fair, that it provides a favourable climate for all businesses to operate in, and that profitable investment is properly rewarded.

Even under the current system, the United Kingdom has a particularly generous system of capital allowances. When the first year allowance for machinery and plant reverts to 25 per cent. in November, expenditure can be written off for tax purposes over seven to eight years, and will still be significantly higher than the rate of economic depreciation for most business assets, particularly for ships, which generally last for much longer than the tax system allows.

The industry, therefore, is already getting a particularly good deal from the present system, and the tax it pays on its profits is the lowest in Europe ; it is also lower than that in Japan and the United States.

I turn briefly but specifically to the contributions of my hon. Friends. My hon. Friend the Member for Pudsey said that time is of the essence. He and my hon. Friend the Member for Bexleyheath (Mr. Townsend) stressed the defence implications and the importance of the shipbuilding industry, a point emotionally and justifiably made by the hon. Member for Newcastle upon Tyne, East (Mr. Brown) on behalf of his constituency and the official Opposition.

The hon. Member for Barrow and Furness (Mr. Hutton) called for a strategic overview. I acknowledge the importance of the industry in his constituency, which I know well, and point out the help that is available through the home shipbuilding credit guarantee scheme and the shipbuilding intervention fund to assist the industry. The hon. Gentleman and the House should acknowledge that there are three related but quite separate issues : the shipbuilding industry, the shipowning industry, and the British register of shipping.

Dame Elaine Kellett-Bowman (Lancaster) : On a point of order, Mr. Lofthouse. It is utterly impossible to hear a word that is being said.

The First Deputy Chairman : Order. I have appealed to the Committee twice to give the Minister the opportunity to be heard. My appeal appears to have fallen on deaf ears. Once again I appeal to all hon. Members, especially beyond the Bar. If they want to talk, they should leave the Chamber. Those on both Front Benches are not setting a great example.

Mr. Nelson : I am anxious to address with expedition but with courtesy the points raised by those who contributed to this important debate.

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My right hon. Friend the Member for Worthing (Sir T. Higgins) rightly referred to the high initial capital cost of ships. We have a generous system of writing down tax allowances, especially with the 40 per cent. enhanced tax allowance introduced in the clause. It will enable people to claim back more than 60 per cent. over two years and, in any case, the writing down allowance of some 25 per cent. is much faster than the rate of depreciation of the real value of the ships. With regard to the difficulties that my right hon. Friend and others flagged up about differences between the computations of the Chamber of Shipping and the Government, our assessments of the yields forgone and the cost of the measures are based on the figures presented by the Chamber of Shipping which suggested to us that the net cost per annum would be about £30 million to £45 million a year over five years. That is on a net basis, taking account of the guesstimate assessment of income that would accrue from the investments that were made discounted back to a present value basis. If that is not done, the yield cost rises to between £80 and £115 million a year. I believe that the Chamber of Shipping would agree those figures.

The measure adds up to a significant cost, about £380 million over and above the £700 million relief which the Government are providing.

I am the Treasury Minister whose prime responsibility is to sell gilt-edged securities and raise funding through the Department of National Savings. Given the size of this year's PSBR, I have a big enough job on my hands without adding to it significantly. We are providing some £700 million of relief ; an additional cost of some £380 million over the next five years would be difficult to sustain. The hon. Member for North Devon (Mr. Harvey) said that we must act. Like others, he spoke of foreign competition and the balance of payments. I acknowledge that the balance of payments, and the gross inflows of money that have been so important to us in the past, provide the basis of one of the most persuasive arguments in favour of the amendment.

10.15 pm

My hon. Friend the Member for Eastbourne (Mr. Waterson) spoke of the shipping industry's importance to the economy, reminding us that some 30,000 people were indirectly employed in it. He and others pointed to its association with professional industries in the United Kingdom ; but they, too, rely not only on indirect capital allowances to the British merchant fleet, but on the health and vibrancy of the British economy--on low tax rates and sensible management. They rely on Government to provide a climate in which they can prosper and attract professional business from all over the world.

The hon. Member for Ashfield (Mr. Hoon) also spoke of international competition. He asked why the British fleet had declined. I can provide no better reference than the speech of my hon. Friend the Member for Dover, who cited some of the reasons for that decline. My hon. Friend the Member for Sevenoaks (Mr. Wolfson) said that the country's defence strategy would be gravely at risk unless we acted now by providing enhanced capital allowances to help the industry. As was pointed out during a debate in July in which my hon. Friend took part, Operation Granby in the Gulf was extremely successful : we were able voluntarily to charter some 109 foreign vessels, and only five United Kingdom vessels. My hon.

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Friend the Minister of State for Defence Procurement has made it clear on behalf of the Government that we can mount such operations, that we have been successful, and that we believe that, if necessary, we could do so again.

My hon. Friend said that, nevertheless, the industry had declined over 10 years, and that that must not be allowed to continue ; and he asked me for a commitment that I would listen. I hope I have shown that I have done that. He also asked me for a commitment that I would be prepared to speak to the Chamber of Shipping about the matter in the immediate future. I am more than happy to extend such an invitation, and to meet the Chamber of Shipping.

It is not for me to determine what issues come up on Report, but I am more than willing to concede that it is my responsibility to listen, learn and pay attention to consultations, as I have done during the debate.

For all those reasons and more, I urge all my hon. Friends to understand that we must concentrate on tackling the state of our public finances to ensure that the deficit is tackled without hindrance to recovery. We cannot do that if, in clause after clause, we add to the amount that we must borrow : that is to put off until tomorrow problems with which we must deal today. Although we may not be able to go as far as some would like in helping the industry today, we have a creditable record.

Sir Giles Shaw : I have listened carefully to the speech of my hon. Friend the Economic Secretary. He has agreed to meet the industry. Will he agree to examine the question of the maritime enterprise zone and other measures to see whether they are acceptable ? Provided that he discusses a wide range of issues with the industry, the meeting will be helpful. That is what the industry wants.

Mr. Nelson : I shall be more than happy to entertain any suggestions and ideas that are presented. The Treasury's doors are open. I must point out, however, that, according to our estimates, the three elements of the maritime enterprise zone package would cost between £300 million and £500 million, of which the 100 per cent. allowance would be by far the largest part. It would be quite improper to raise hopes. I must be straight with the Committee, but I will listen to sensible proposals. There may be other times and possibilities. Certainly I give the undertaking that my hon. Friend seeks.

Sir Giles Shaw : I am glad that my hon. Friend recognises that this issue is of extreme importance and one that requires extreme care, good listening and good discussion. In view of the urgency of the matter, I hope that he will agree to do that quickly. If it is possible to make a further statement on Report, or to bring further proposals before the Committee, I hope that he will so do. In view of these assurances, I beg to ask leave to withdraw the amendment.-- [Interruption.]

Mr. Nicholas Brown rose --

The First Deputy Chairman : No.

Question put, That the amendment be made :--

The Committee divided : Ayes 244, Noes 279.

Division No. 267] [10.20 pm

AYES

Abbott, Ms Diane

Adams, Mrs Irene

Ainger, Nick

Ainsworth, Robert (Cov'try NE)

Allen, Graham

Alton, David

Anderson, Donald (Swansea E)

Armstrong, Hilary

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Ashdown, Rt Hon Paddy

Ashton, Joe

Austin-Walker, John

Barnes, Harry

Barron, Kevin

Battle, John

Bayley, Hugh

Beggs, Roy

Beith, Rt Hon A. J.

Bell, Stuart

Benn, Rt Hon Tony

Benton, Joe

Bermingham, Gerald

Berry, Dr. Roger

Betts, Clive

Blair, Tony

Blunkett, David

Boateng, Paul

Boyce, Jimmy

Boyes, Roland

Bradley, Keith

Bray, Dr Jeremy

Brown, Gordon (Dunfermline E)

Brown, N. (N'c'tle upon Tyne E)

Bruce, Malcolm (Gordon)

Burden, Richard

Byers, Stephen

Callaghan, Jim

Campbell, Mrs Anne (C'bridge)

Campbell, Menzies (Fife NE)

Campbell, Ronnie (Blyth V)

Campbell-Savours, D. N.

Canavan, Dennis

Cann, Jamie

Carlile, Alexander (Montgomry)

Chisholm, Malcolm

Clark, Dr David (South Shields)

Clarke, Eric (Midlothian)

Clarke, Tom (Monklands W)

Clelland, David

Clwyd, Mrs Ann

Cohen, Harry

Cook, Frank (Stockton N)

Cook, Robin (Livingston)

Corbett, Robin

Corston, Ms Jean

Cousins, Jim

Cryer, Bob

Cunningham, Jim (Covy SE)

Cunningham, Rt Hon Dr John

Dafis, Cynog

Darling, Alistair

Davidson, Ian

Davies, Bryan (Oldham C'tral)

Davies, Rt Hon Denzil (Llanelli)

Denham, John

Dewar, Donald

Dixon, Don

Dobson, Frank

Donohoe, Brian H.

Dowd, Jim

Dunwoody, Mrs Gwyneth

Eagle, Ms Angela

Eastham, Ken

Enright, Derek

Etherington, Bill

Ewing, Mrs Margaret

Fatchett, Derek

Field, Frank (Birkenhead)

Fisher, Mark

Flynn, Paul

Foster, Rt Hon Derek

Foster, Don (Bath)

Foulkes, George

Fraser, John

Fyfe, Maria

Gapes, Mike

Garrett, John

George, Bruce

Gerrard, Neil

Gilbert, Rt Hon Dr John

Godsiff, Roger

Golding, Mrs Llin

Gordon, Mildred

Gould, Bryan

Graham, Thomas

Grant, Bernie (Tottenham)

Griffiths, Nigel (Edinburgh S)

Griffiths, Win (Bridgend)

Grocott, Bruce

Gunnell, John

Hain, Peter

Hall, Mike

Hanson, David

Harman, Ms Harriet

Harvey, Nick

Henderson, Doug

Heppell, John

Hill, Keith (Streatham)

Hinchliffe, David

Hoey, Kate

Hogg, Norman (Cumbernauld)

Home Robertson, John

Hood, Jimmy

Hoon, Geoffrey

Howarth, George (Knowsley N)

Howells, Dr. Kim (Pontypridd)

Hoyle, Doug

Hughes, Kevin (Doncaster N)

Hughes, Simon (Southwark)

Hutton, John

Illsley, Eric

Jackson, Glenda (H'stead)

Jackson, Helen (Shef'ld, H)

Jamieson, David

Janner, Greville

Jones, Ieuan Wyn (Ynys Mo n)

Jones, Jon Owen (Cardiff C)

Jones, Lynne (B'ham S O)

Jones, Martyn (Clwyd, SW)

Jowell, Tessa

Kaufman, Rt Hon Gerald

Keen, Alan

Kennedy, Jane (Lpool Brdgn)

Khabra, Piara S.

Kilfoyle, Peter

Leighton, Ron

Lestor, Joan (Eccles)

Lewis, Terry

Livingstone, Ken

Lloyd, Tony (Stretford)

Llwyd, Elfyn

Lynne, Ms Liz

McAllion, John

McAvoy, Thomas

McCartney, Ian

Macdonald, Calum

McFall, John

McKelvey, William

McLeish, Henry

Maclennan, Robert

McMaster, Gordon

Madden, Max

Mahon, Alice

Mandelson, Peter

Marek, Dr John

Marshall, David (Shettleston)

Marshall, Jim (Leicester, S)

Martin, Michael J. (Springburn)

Martlew, Eric

Maxton, John

Meacher, Michael

Meale, Alan

Michael, Alun

Michie, Bill (Sheffield Heeley)

Milburn, Alan

Miller, Andrew

Mitchell, Austin (Gt Grimsby)

Morgan, Rhodri

Morley, Elliot

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