Memorandum by P&O (FUS 35)
THE FUTURE OF THE UK SHIPPING INDUSTRY
We are pleased to have been invited to give
P&O's views to the Sub-committee. P&O welcomes the DETR
document "Charting a New Course". We also endorse the
memorandum presented by the Chamber of Shipping.
P&O accounts for approximately 40 per cent
of UK merchant shipping. We are one of the world's three leading
cruise ship companies. We are the UK's leading ferry operator,
a division which includes our 60 per cent share of the short sea
cross Channel operator P&O Stena Line. Our 50:50 joint venture
P&O Nedlloyd is one of the largest container logistics companies
in the world. "We also have a joint venture with the Chinese
company Shougang to operate our bulk carriers, and a joint venture
between our Australian subsidiary and Farstad of Norway to operate
offshore supply vessels."
We operate approximately 270 ships worldwide.
Our various shipping concerns employ some 4,000 officers and 15,000
ratings of whom 2,600 and 4,800 respectively are British. We are
the largest training company for seafarers in this country. We
currently have 162 British cadets.
In all of our operations perhaps the single
most important issue within the Sub-committee's terms of reference
is international competitiveness. Our field of endeavourworldwide
shippingis open to virtually anyone. We have to compete
against the strongest international shipping groups, many of which
benefit from financial and other kinds of support. In the interests
of our shareholders we have to locate our businesses in those
places where we can best compete.
The Chamber of Shipping's memorandum states
that in terms of the general corporate tax regime and incentives
to invest in shipping, the UK is at the bottom of the league in
Europe. For P&O the most important issue in "Charting
a New Course" is the proposal concerning a tonnage-based
tax regime. Such regimes have been adopted in Holland, Norway,
Greece and Germany and are under consideration in Denmark, Finland
and Sweden. They have explicit approval by the European Commission.
It is disappointing that action point 23 in the DETR document
is not drafted more positively in the light of proposal 25 by
the Shipping Working Group.
A tonnage-based tax regime would apply corporation
tax to a level of profit calculated by reference to tonnage. This
level should be well below an accounting profit although the regime
will impose tax if a loss is made. The important point to note
is that this does not necessarily mean a reduction in the overall
tax take since the existing tax regime permits the deferment of
tax liabilities through accelerated depreciation allowances. The
cash effect of the two regimes can therefore be similar but the
tonnage-based regime brings certainty and flexibility for management
and clarity for investors.
In Holland a tonnage-based tax was introduced
on 1 January 1996 as the central element of a package of measures
to stimulate shipping. It has proved highly effective, resulting
in a major increase in Dutch ownership of ships, a significant
expansion of their registry and the location in Holland of more
shipping companies. This has not resulted from any linkage of
tax regime to flagindeed we strongly maintain that there
should not be such linkagesbut is a natural consequence
of the measures taken. In P&O's case we have two major interests
with a presence in HollandP&O Nedlloyd, our container
shipping joint venture, and P&O North Sea Ferries. The tonnage-based
tax regime provides strong encouragement to base investment and
management of those companies in Holland while crew related subsidies
are also available if the ships are flagged there.
A positive decision to introduce a tonnage-based
tax regime is urgently required if the UK is to make itself a
more attractive location for shipping.
These issues are also of considerable importance
to us. The cost of employing foreign crews from, say, the Far
East or Eastern Europe is often only half or less than that of
a British crew. With proper training their competency is high
while their application to the job is excellent. Wherever possible
our competitors do not hesitate to employ such crews. These factors,
together with the UK's lack of attractiveness as a location for
shipping relative to other centres, mean that levels of training
have come down significantly.
The main proposals in "Charting a New Course"
that could make a real difference are:
(i) an increase in the current Support for
Maritime Training scheme (SMarT);
(ii) extension of the Crew Relief Cost Scheme
to continental ports; and
(iii) the ability to pay voluntary employee
Class I national insurance contributions on non-UK registered
ships with a non-UK employer.
Action point 6 in the DETR document, which responds
to (i), does little more than allow for inflation. This would
be a disappointing response to the Shipping Working Group proposal
4, although we acknowledge the commitment to provide sufficient
funding if and when the number of trainees grows significantly.
Whilst (ii) is accepted at action point 13, we understand it will
take two or three years to introduce the necessary primary legislation.
We had thought that the logic behind (iii) had been accepted,
as implied by action point 12. This can only bring in more revenue
for the DSS and is therefore not a cost item. We now understand,
however, that this will form part of a general welfare reform
exercise which will take one or two years to complete.
In the short term, one issue of great importance
to us is the proposed abolition of intra-EU duty free sales. This
is dealt with briefly at action point 22. Despite having had seven
and a half years' notice, the European Commission and Member States
have made no progress towards a workable arrangement for mobile
outlets for the sale of goods that are currently duty and tax
free. Simply removing the present duty and tax free concession
would lead to chaos. For example, one of our ferries on the Dover/Calais
route would have to change pricing twenty times each day and conduct
10 stock takes. There would also be adverse employment implications.
We strongly welcome the UK Government's recent
support for a five year extension of the present arrangements.
It is essential that there should be such an extension in order
to allow for an orderly transition to a duty and tax paid environment.
21 January 1999