Examination of witnesses (Questions 160
WEDNESDAY 27 JANUARY 1999
and MR MARK
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.
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
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
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.
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.
168. So £360 million over five years?
(Mr Lusted) It could be, it could be.
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
(Sir Christopher Morgan) Not immediately.
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
(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.
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
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.
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?
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.