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

Memorandum by P&O (FUS 35)


  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 endeavour—worldwide shipping—is 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 flag—indeed we strongly maintain that there should not be such linkages—but is a natural consequence of the measures taken. In P&O's case we have two major interests with a presence in Holland—P&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

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