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


Examination of witnesses (Questions 160 - 179)

WEDNESDAY 27 JANUARY 1999

MR DAVID COBB, VICE-ADMIRAL SIR CHRISTOPHER MORGAN, MR JOHN LUSTED and MR MARK BROWNRIGG

Mr Stevenson

  160.  How would that apply? Would it apply to all UK registered tonnage or would it apply to any tonnage?
  (Mr Cobb)  It would apply to all tonnage owned by a British shipping company.

  161.  Would that not tend to drive them away if there is an additional tax?
  (Mr Cobb)  No, we do not think so.

  162.  How can that be? If I am a shipowner, which I am not, and you said to me "I am going to put a tax on your tonnage" and I do not have to pay that tax somewhere else, I may do in the Netherlands but I do not have to pay in Singapore or wherever, why should that encourage me?
  (Mr Cobb)  A British shipping company pays tax on its worldwide earnings and this tonnage tax is a different form from the current Corporation Tax.

Chairman

  163.  But is it advantageous? I think the Committee is slightly confused. Are you telling us that it would be advantageous to most British companies because it would in effect repatriate their tax? You will realise, Mr Brownrigg, we had a session on this last week and we would welcome any clarification.
  (Mr Brownrigg)  Basically international shipping operates in a low or nil tax environment, that is the starting point.

  164.  They are high class pirates!
  (Mr Brownrigg)  Maybe 150 years ago, I do not know. That is the environment, it is basically nil tax. It is possible to set up off-shore structures wherever you are in the world to operate your ships essentially in a low or no tax environment. What the Netherlands, Norway, Germany and Greece have tried to do is enable their operators to match the conditions of those international markets. So basically what a tonnage-based tax regime does is send a signal to observers and to analysts and to the market that shipping operations from a country where that operates are subject to very low tax and are, therefore, on the same sort of conditions as the international market. Formally speaking, in the Netherlands, that tax remains within the corporate tax regime, so that double taxation agreements and other things like that apply, and basically, as has been explained, a notional profit is assessed against which the corporate tax levels apply. One of the major benefits lies in the sending of that message that this operation is taking place in the same context as its main competitors.

  165.  It makes them legitimate. That is the word you are finding difficulty with. It actually makes the companies legitimate within their own tax systems.
  (Mr Brownrigg)  And enables them to compete on the same sort of basis as their main competitors.

Mr Stringer

  166.  I think you started to answer the question I was going to ask you. What changes would you like to see in government policy to enable you to regain some of your market share? You have said that the fiscal regime is not conducive to your business and employment law, but what possibly would you like the Government to change in order that you could thrive?
  (Mr Cobb)  Well, it comes back to the tonnage tax or the fiscal arrangements, and the fiscal arrangements that we have proposed, be that a tonnage tax similar to the Dutch system, is the single most important factor we are looking for.

  167.  If the Government were to change to the Dutch system, what would you estimate would be the benefit to the economy over five or ten years?
  (Mr Lusted)  Well, it depends on how you compute it, but over a period of about five years there could be an increase in gross national product of perhaps £300 million and in terms of increased activity, perhaps another £60 million to the Treasury and that sort of thing.

Chairman

  168.  So £360 million over five years?
  (Mr Lusted)  It could be, it could be.

Mr Stringer

  169.  And you think that by changing this tax regime so that people pay less tax, in actual fact the receipts to the Treasury would be higher?
  (Mr Lusted)  We do indeed, yes, for some and over a period.
  (Sir Christopher Morgan)  Not immediately.

Mr Bennett

  170.  Why does the tonnage tax work better than the various measures that the United States have got in place to ensure that far more incoming goods into the United States come in American-owned ships?
  (Mr Cobb)  The United States has an Act called the Jones Act. It has been there for a very long period of time and it is cabotage, down and out cabotage, and it really means that you can only pick up and drop cargoes between two United States cities, picking up in New York and dropping in Houston, if you are an American-flagged ship built in America and crewed by Americans. We in this country do not support that sort of business, no cabotage systems at all.

  171.  Does that get around World Trade Organisation rules?
  (Mr Brownrigg)  Cabotage is outside of the WTO. I think, in particular, in America also there is a massive subsidy programme which takes, I think, something like 47 ships and applies for a ten-year period 2.1 million dollars for each ship of direct subsidy each year. In Europe, the approach has been different; it has not been to go down the subsidy route, but to adjust the fiscal arrangements and the tonnage tax in the Netherlands led that approach which is indeed completely endorsed and approved by the EU state aid authorities.

  172.  And it does not in any way infringe World Trade Organisation rules?
  (Mr Brownrigg)  There are no World Trade Organisation rules on fiscal or subsidy matters at this time.

Mr Donohoe

  173.  What are you doing to increase the number of ratings that there are from Britain itself?
  (Mr Cobb)  We have a task force operating with the unions. The shipping working group has set up a series of task forces and we have a task force of RMT representatives, NUMAST representatives and ourselves, looking into what is available for ratings. Our main thrust at the moment is that we really believe that the way forward for ratings rests in reviewing their career structure and I think maybe someone better than me to explain that position would be Christopher.
  (Sir Christopher Morgan)  Yes, I think there are problems over employing ratings at sea. Our ratings tend to be probably almost twice as expensive, so we have to look at some value-added—

Chairman

  174.  Twice as expensive as?
  (Sir Christopher Morgan)  As, say, a Philippine crew or an East European crew, so we have to look at value-added ways of allowing for British rating employment and we also want to look at methods where we can offer a better career path for ratings. What we are particularly looking at is seeing if we can recruit people who perhaps have slightly better academic qualifications and then give them a career path that allows them to move from rating to officer and this is a system which works very well in the Royal Navy where a third of the officers come up from the lower deck and I think this is worth exploring.

Mr Donohoe

  175.  Why bother if you can pick up labour elsewhere? As a company that is international, why would you bother about the idea of bringing in ratings and training more ratings from this country when you can pick them up in the world market?
  (Sir Christopher Morgan)  Well, we still need ratings. We have them employed on the ferry routes, we have a lot of specialist ratings who are employed in cable-laying ships and ships of that nature where we want specialist skills. We have people employed in the offshore world where conditions are very tough and also quite technical. So there are a number of areas where quality British ratings are required, and how nice to be able to add to that and give them an interesting career path as well.

  176.  But in real terms the only interest that you have is to make sure that these people perhaps for a start speak English.
  (Sir Christopher Morgan)  Yes, that is obvious. Did you say they start to speak English?

Chairman

  177.  He is just assuming that, in theory, British ratings would speak English.
  (Sir Christopher Morgan)  Yes.

  178.  It does not seem an unreasonable assumption.
  (Sir Christopher Morgan)  It is not unreasonable.

  179.  Could we ask you about the figures. Have you actually got 450 new cadets in training?
  (Sir Christopher Morgan)  I think the latest figures this year are 470.
  (Mr Lusted)  If I could answer that, Mrs Dunwoody, we think we have got about 560 new cadets. That is including a few Irish nationals which we recruit and those recruited for the Royal Fleet Auxiliary Service as well as those going through the SMART scheme funded by the Government, and that, we think, will turn out something over 560 by the time the figures are all in. Some cadets have just joined this January.


 
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