Select Committee on Environment, Transport and Regional Affairs Appendices to the Minutes of Evidence

Supplementary Memorandum by the Chamber of Shipping (FUS 21C)


  The Chamber has been asked to comment on its reactions to the Chancellor's Budget on 9 March. In this, the Chancellor said: "The shipping industry has put to me the case for enhanced training incentives and for a lower rate ring-fenced tonnage tax. While I am attracted to these options, I have to be satisfied that lower tax rates will not become a vehicle for tax avoidance and I am grateful to Lord Alexander of Weedon for agreeing to conduct an independent study of the national and international tax issues involved."

  The Chamber is of course disappointed that the Government has not agreed to adopt a tonnage regime at this critical time. However, we welcome the fact that the Government is continuing to give serious consideration to the joint industry call for a tonnage-based tax for shipping in Britain.

  The Chamber looks forward to presenting its case to and working with Lord Alexander as "independent" adviser. We have every hope that we shall be able to persuade him of the value of a tonnage regime—not just for our shipping industry but for the wider economic interest of Britain plc. We hope that the Government will soon be in a position to act on the vision displayed in its Manifesto and acknowledge that a strong shipping industry is a good business proposition for this country.

  The case for aligning the fiscal and employment conditions facing British companies with the conditions in the international shipping markets is a strong one and has been endorsed in principle by the EU. The industry's proposals follow closely precedents in several other countries, including particularly the Netherlands, Germany and Norway.

  Our specific proposals regarding the establishment of a tonnage-based tax regime in the UK were set out in the two-page note sent to the Committee Chair on 1 February (slightly revised version sent to the Clerk of the Sub-Committee on 11 February).


  The Chamber wishes, however, to stress again the urgent need for action by Government. This is a critical and historical time for British shipping and for the extensive range of our maritime-related, shore-based businesses. It is essential that a tonnage-based regime be adopted—for re-investment in the British fleet, the revival of training for new British seafarers, and maritime skills generally. A tonnage regime in this country will provide considerable opportunities in terms of increased earnings, increased GDP, high-value training for youngsters, skills and employment generally, inward investment by international maritime enterprises, and defence. Conversely, failure to adopt a tonnage regime at this time will increase the competitive pressures on many British shipping companies and drive them even further towards international solutions and towards regimes and registers away from the UK.


  We believe that the introduction of a tonnage regime along the lines of the Dutch model will, together with the other proposals in the December White Paper:

    —  reverse the decline in the numbers of British seafarers, the UK-owned fleet, and the UK register;

    —  stop the migration of shipping companies and investment overseas and create growth, both in shipping and our shore-based maritime industries (including the maritime services in the City, our shipbuilding and repair yards, our marine equipment suppliers, and our ports). Attached is a sheet which shows the highly successful experiences in the Netherlands and Norway since those countries introduced their new regimes in 1996;

    —  many shipping companies would come back to onshore structures in the UK, if this country became known—once again—as a good base for doing shipping business. We believe that there would also be substantial inward investment from international companies;

    —  the link to a "minimum training commitment" would create a huge expansion in new seafarer training. The industry has given a commitment to make every effort to increase numbers of new officer and rating trainees recruited by 25 per cent per year for four years. This would increase our intake to the target identified by two recent independent Government-sponsored surveys.

  We expect the great majority of British shipping companies to opt for the tonnage-based regime. Examples of likely practical impact are:

    —  Lord Sterling has already placed on record P&O's commitment to bring 50 vessels back to the UK register (with a 75 per cent increase in registered tonnage) and to boost its numbers of new cadets substantially;

    —  James Fisher plc will bring a number of ships back to the UK register;

    —  another major company is planning—with the right fiscal and employment climate in the UK—to enter a substantial number of vessels on the UK register, some repatriated from a dependent territory and some large newbuildings;

    —  a middle-sized entrepreneurial company, which has not tried to raise capital in the UK recently, believes that—because it would become a more attractive investment vehicle—it would be easier to raise additional capital from both UK and foreign investors. It would seek to raise say US$ 100 million to finance an increase in its fleet;

    —  a small shipbroking/consultancy company, based in Bristol, ceased to own ships in the early 1980s and became a time-charter operator in order to remain competitive. With a tonnage-regime, it would come back into operating ships. It is also currently building two sophisticated self-unloading barge units for sort-sea trading in Europe which will go to Germany. The new regime would bring these large and innovative vessels to Britain;

    —  a large American company operates 300 ocean-going tugs and supply vessels out of Rotterdam. The American citizens in its management are uncomfortable with the Dutch language, culture, schooling, etc. The UK offers English as mother tongue and a good general business environment. With a tonnage regime, this operator might well be persuaded to base in Britain.

  These effects are not "pie in the sky" aspirations, but a reality—as evidenced by the total commitment of companies like P&O and James Fisher and by the experiences of other countries in Europe.

  The Chamber recalls that all the industry's proposals reflect measures widely available in other countries, particularly in Europe, and approved by the EU.


  The Chamber believes that the task facing Lord Alexander should not be seen as a fact-finding exercise, but as one of verification and evaluation. All the facts have been assiduously identified by DETR and Treasury officials together with the Chamber and the unions. We hope therefore that Lord Alexander's independent study can be undertaken speedily—so that the real economic and training opportunities which are on offer to Britain and the vision shown in Labour's pre-Election Manifesto and followed through in the Deputy Prime Minister's transport white papers can be realised.

  In view of the urgency, ideally, a decision should be taken in time for the new regime to be incorporated in this year's Finance Act. If that is not possible, it is essential that it should be backdated to a reasonable point during the 1999-2000 tax year.

15 March 1999

Examples of Success

19951998 Percentage

Ships on register—nos383 525+37
—mn gt2.83.9 +38
Value added to GDP—mn Guilders1,8471 2,200+19
Employment in shipping industry—posts 22,781128,000 +23
Shipbuilding: Dutch owners' orders in Dutch shipyards (proportion of total output)—nos 33 (40 per cent)166 (63 per cent) +403
—mn dwt0.15 (41 per cent) 0.64 (65 per cent)+352
Shipping businesses—nos280X 320X+14

199621998 Percentage

Norwegian-controlled fleet—nos1,393 1,622+16
—mn dwt47.052.5 +12
Fleet market value—US$ billion18.6 20.1+83
Employment—nos of seafarers15,600 17,800+14
Shipbuilding: Norwegian owners' orders in
Norwegian yards—nos
—000 dwt251270 +8
—value (US$ bn)0.7 1.3+82

1. Information as at end-year, except 1 indicates 1994 figures and 2 mid-year 1996.
2. 3 Understatement since second-hand values have fallen steeply.

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