House of Commons - Transport

Select Committee on Transport Second Report

2 Effect of tonnage tax on the UK shipping register and the UK-owned fleet

30. There was agreement among all parts of the shipping industry that the Government's maritime policies had had a welcome impact in reversing what seemed to be the terminal decline of the UK merchant fleet.[40] Mr Michael Parker, President of the Chamber of Shipping, said that the tonnage tax had attracted a lot of companies to "grow their businesses here or move into this country to set up operating bases to own and operate ships."[41] Mr Jamieson told us that although the tonnage tax was flag neutral, it had undoubtedly played a part in an increase in the UK merchant fleet as 53% of the tonnage tax vessels were on the UK register.[42]

31. Flag neutrality means that there is no requirement for ships in tonnage tax to be linked to any particular flag. However they must be 'strategically and commercially' managed in the UK. The Department for Transport explained that there is no standard guidance on the meaning of this term but that the Government adopts a common sense interpretation, "taking into account the various different strands of management activity that can be carried out in respect of a ship." Companies must demonstrate elements of both 'strategic' and 'commercial' types of UK-based management.[43]

32. The increase in the number of ships on the UK register since the introduction of the tonnage tax was illustrated by figures produced by the Chamber of Shipping. Table 1 shows that the number of trading vessels on the UK register increased by 54.9% between 1999 and 2003, from 379 to 587.[44] There was also a small increase in the number of UK-owned trading vessels of 5.2%, from 617 to 649. Table 1

Total trading fleet on UK Register (vessels of 100 gt and over)

End Year Number 000 gt 000 dwt

1999 379 3,200 2,740

2000 417 4,579 3,757

2001 427 5,035 4,269

2002 497 7,114 6,686

2003 587 9,971 9,830

% change to 1999 to 2003 54.9 211.6 258.8

Total UK-owned trading fleet (vessels of 100 gt and over)

End year Number 000 gt 000 dwt

1999 617 6,530 7,196

2000 624 8,536 10,499

2001 594 9,480 12,013

2002 590 9,752 12,273

2003 649 12,654 14,972

% change 1999 to 2003 5.2 93.8 108.1

33. Dr Heather Leggate of the Centre for International Transport Management (CITM) at London Metropolitan University (LMU) provided figures for the number of ships entered into the tonnage tax scheme and the proportion of these on the UK register: [45]Table 2: Tonnage Tax Vessels 2000-2004

Year No. of tonnage tax vessels Of which UK Register % UK Register

2000-01 187 0%

2001-01 522 300 57%

2002-03 718 337 47%

2003-04 490 263 54%

Note that the 2003-04 figures are based on returns from 49 out of the 64 companies registered in that year.

Figures in the Treasury Review showed that by the end of September 2004 there were 816 ships in tonnage tax but did not identify the number of these on the UK register; although 57% were flagged either in the UK or another EU member state.[46]

34. The Chamber of Shipping acknowledged that the number of ships in the UK-owned fleet appeared to show only a small increase over this period; but it suggested that the increase in the number of ships might actually have been larger. The Register in Cardiff had reviewed all ships on the register over the last five years and removed a substantial number it found were no longer in operation, suggesting that the earlier figures were an overestimate.[47] Nevertheless as table 1 shows, the increase in deadweight tonnage (dwt) has been much larger than the increase in the number of ships; an increase of dwt of 258.8% on the UK register and an increase of 108.1% in UK owned dwt. Mr Parker explained that this was because new ships were much larger.[48] It should be pointed out that the basic criteria for employment is number of vessels, as each trading vessel will employ similar crew numbers virtually regardless of the ship size (cruise vessels being the obvious exception). Larger ships do not have a correspondingly higher number of officers. This is significant in the context of the scope for cadet training, considered in chapter 3, because the number of cadet trainees is directly related to the numbers of officers in tonnage tax companies.

Scope for increase in the tonnage tax fleet

Window of entry into tonnage tax

35. Although elections to join the tonnage tax regime for already eligible companies or groups had to be made within 12 months of Royal Assent of the Finance Act 2000, shipping companies who only qualified later (such as foreign companies setting up in the UK or new start-up companies) could enter tonnage tax on qualification. The Government has decided that all shipping companies should be able to reassess whether they should elect into tonnage tax and intends to create a further window of opportunity for new elections into the regime. This opportunity is expected to be between 1 July 2005 and 31 March 2006.[49] The draft clauses for the Finance Bill give the Treasury the power to make regulations prescribing periods within which companies may make an election to tonnage tax. We support this. The tonnage tax has been successful so far; there may well be scope for allowing further elections at some point after 2006.

Scope for increase in the UK register

36. Mr Parker was confident that the tonnage tax would continue to increase its impact as companies already in the tonnage tax regime would add further ships to their fleet.[50] He also thought that the proportion of the tonnage tax fleet on the UK register would grow as shipping companies were reassured about the usability of the British flag:

"A huge change has taken place in the last few years in parallel with the tonnage tax, which was part of the Government policy, and I think the fact that we have got 65 per cent now of the tonnage that is controlled in the UK, two-thirds effectively, on the British flag is actually a remarkably good achievement and I think that proportion will grow as people grow in confidence in the improvements that have been made with the British flag."[51]

37. The Chamber of Shipping suggested that more could be done to increase the size of the fleet; it contended that there was a strong demand from couples to get married on board ship and that there should be legal recognition for marriages performed on ships registered in the UK.[52] Current legislation in England and Wales does not recognise marriages celebrated on board ship.[53] P&O has placed their Grand class ships, which were built with wedding chapels, on the Bermudan rather than the UK register because marriages on Bermudan registered ships are legally recognised. The Chamber thought that the ability to offer onboard weddings would also be of value to operators of shorter-haul ferries and locally-operating cruise boats. They were, however, unable to give an estimate of the number of ships which might be attracted to the UK register as a result of this change and we doubt that this would attract a significant number. Even though we are not convinced that legal recognition of marriages celebrated on United Kingdom ships would have a significant effect on the size of the register, we support a change in the law. Couples now have more freedom to marry where they wish. It seems illogical to exclude ship board weddings from the general relaxation of the law relating to places of marriage and we recommend that such weddings should be legally recognised.

40 Ev 25, Ev 42, Ev 54 Back

41 Q 37 Back

42 Q 145 Back

43 Ev 58 Back

44 Ev 46 Back

45 Ev 33 Back

46 Post implementation Review of Tonnage Tax , para 4 Back

47 Ev 43 Back

48 Q 79 Back

49 Post Implementation Review of Tonnage Tax , para 58 Back

50 Q 78 Back

51 Q 37 Back