House of Commons - Transport - Written Evidence

Select Committee on Transport Written Evidence

Memorandum by Dr David Glen (TT 04)

TONNAGE TAX

THE QUESTIONS

The questions posed for the hearing of 23 June address the following:

— Is tonnage tax succeeding in increasing the number of vessels on the UK register?

— Is tonnage tax increasing the number of cadets?; and

— Once qualified are the young officers gaining maritime employment, particularly under the UK flag?

— Are there changes which could be made to make the regime more effective?

EVIDENCE

The evidence submitted in this memorandum is derived from work carried out by staff at the Centre for International Transport Management, and published in the UK Seafarers Analysis over the years 1997-2003.

Using the data provided in the summary table 1 below, it is clear that:

1. Cadet numbers have improved significantly since the Tonnage Tax was introduced in 2000. Table 1 clearly shows an increase in numbers of new trainees (the annual intake) in 2002 and 2003.

2. Officer numbers are more difficult to comment on. As Table 1 indicates, numbers have oscillated, but this appears to be primarily due to the widening coverage of certificated officers post implementation of STCW'95, which has offset the effects of an ageing officer population.

EVIDENCE ON CADET NUMBERS

The annual publication of the UK Seafarers Analysis has monitored the numbers of new cadets entering training programmes over the past seven years. There have been significant changes in the way such training is supported. At present the government supports most UK cadet trainees through the SMaRT scheme, which provides a grant towards the cost of training. The other incentive to train for certain companies, is the existence of the Tonnage requirement that all companies electing for the Tonnage tax regime should be training one cadet officer for every 15 officer employees.

Table 1

SUMMARY OF UK SEAFARER NUMBERS, 1997-2003

	Cadets		Officers	Ratings	Total Active
Calendar Year	Total in Training	Annual Intake	Actual Totals		Seafarers
1997	1,130	450	17,620	10,860	29,610
1998	1,158	544	17,356	10,795	29,309
1999	1,127	425	15,897	11,409	28,085
2000	1,031	480	16,464	10,331	27,826
2001	1,086	468	14,395	9,707	25,188
2002	1,175	631	15,125	10,360	26,660
2003	1,045	603	17,126	10,037	28,208
Average		514
% Change (1997 =100)	-7.52		-2.80	-7.58	-4.73

Source: Derived from UK Seafarers Analysis, 1997-2003

It is clear from the above Table that there has indeed been quite a significant increase in the numbers of new trainee cadets. The figures for 2003 in the above Table are probably an underestimate, given the time that the data was prepared. An estimate of 620-630 would not be unreasonable.

CAN ALL OF THE INCREASE BE PUT DOWN TO THE TONNAGE TAX CHANGE?

This is a difficult question to answer. There has been a much greater proportional increase in the numbers of UK registered vessels, reflecting company shifts to take advantage of the tonnage tax provisions, but it does not follow that we should expect a directly proportional response. This is because many companies may have already satisfied the training requirements prior to their election of the tonnage tax, and this would imply that no significant change in cadet recruitment need be observed. In my opinion, the shift is probably primarily related to the new regime, and in that sense the tonnage tax can be regarded as improving the viability of future UK officer numbers.

IS THE INCREASE ENOUGH TO ALTER LONG TERM PROSPECTS FOR OFFICER NUMBERS?

Probably not. The latest projections made in UK Seafarers Analysis 2003 is presented in Annex 1 below. The critical element to notice is the assumed cadet entry rate of 600 per year, plus wastage rates of 8% per year during training, and 6% per year during the ages of 20-30 as officers. Table 2 reveals an expected decline in officer numbers (assuming a retirement age of 65) from 17,126 (the number of officers for which full information was available in the databases) to 15,031 in 2008, a decline of some 12.2% over the period. There is a more dramatic decline projected in the officer stock when the retirement age is taken to be 57; from 14,311 in 2003 to 10,690 in 2008, a decline of the order of 25% in the same period. These short-term declines will occur irrespective of changes in government policy, although they are still subject to errors in the assumptions about cadet entry and wastage rates, which may have an impact. Taking the projections to 2018 simply extends the decline on both retirement age assumptions. Officer numbers are expected to fall further to 9,817 from the 2008 figure of 15,031 a 34.6% reduction over the ten year interval. The "57" officer stock declines from 10,690 in 2008 to 6,650 a 37.8% reduction in total.

Table 2

PROJECTIONS OF UK OFFICER NUMBERS 2003-18 (Most Likely Scenario)

Age 65 Year 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Total Numbers 17,126 16,706 16,295 15,887 15,487 15,031 14,530 14,040 13,493 12,848 12,279 11,775 11,286 10,815 10,317 9,817

Deck 0.56 9,591 9,355 9,125 8,897 8,673 8,417 8,137 7,862 7,556 7,195 6,876 6,594 6,320 6,056 5,778 5,498

Engineer 0.44 7,535 7,351 7,170 6,990 6,814 6,614 6,393 6,178 5,937 5,653 5,403 5,181 4,966 4,759 4,540 4,319

Age 57 Year 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Total Numbers 14,312 13,403 12,617 11,931 11,288 10,690 10,084 9,494 8,963 8,435 8,009 7,614 7,289 7,022 6,819 6,650

Deck 0.56 8,015 7,506 7,066 6,681 6,321 5,986 5,647 5,317 5,019 4,724 4,485 4,264 4,082 3,932 3,819 3,724

Engineer 0.44 6,297 5,897 5,552 5,250 4,967 4,703 4,437 4,178 3,944 3,712 3,524 3,350 3,207 3,090 3,000 2,926

Wastage Rates

20 < 30 0.06

30 < 50 0.06

50 plus 0.01

Cadet Entry Rates

Input 600

Wastage 0.08

Output 430

Source: UK Seafarers Analysis 2003, Table 3.8

It is clear that this projection does not give an encouraging prospect for the long term careers prospects of officers, even if cadet numbers have increased.

It should be noted that the above projection is for all certificated officers. Throughout the period 1997-2003, an estimated figure of 9% was used to allow for the numbers of shore-based workers who hold valid STCW'95 certificates of competency. This figure has recently been challenged by a number of other research studies, who put the estimate considerably higher. It is clear that UK active officer numbers are therefore verging on the "optimistic" side if the 9% figure is an understatement.

The increase in officer numbers seen in 2002 and 2003 might be read as reflecting a rise in employment of UK officers as UK registered ships have also increased in this period. There are no firm grounds for believing this to be the case. First, officers and ratings employed on UK registered tonnage do not have to be UK nationals. EU nationals have the same employment rights under European employment law. Second, if it were the case that a large increase in officer employment had occurred, NUMAST and other unions would no doubt have been celebrating this fact. As stated earlier, the author is of the opinion that the fluctuation in officer number observed in the past few years is more likely to be due to the widening implementation of STCW'95.

RATINGS EMPLOYMENT

It is clear from Table 1 above that ratings numbers have not altered significantly in the past two years. There is a caveat to be read into these figures however. They are based upon the UK Chamber of Shipping Fleet and Manpower survey for 2002. The results of this survey are affected by the differential non-response of certain companies who are members of the chamber, and of course, do not include any ratings employed by companies which are not Chamber members.

CONCLUSION

The author is of the opinion that the tonnage tax has had a significant impact upon the cadet intake in the past two years. There is also evidence that there has been an increase in the number of certificated officers in the 20<25 and 25 <30 year age groups. Their numbers rose from 799 to 908, and 1,127 to 1,203 respectively. The overall change in the numbers in this age group since 1997 was 36.5% and 10% respectively (see Table 3). Whether these young officers are employed by UK companies is not possible to ascertain from the data.

The long term prognosis for UK active officer numbers is still not very good however.

Table 3

COMPARISON OF UK OFFICER AGE PROFILES IN 1997, 1999 and 2003

Age(years)	Total 1997	Total 1999	Total 2002	Total 2003	% Difference 2002-03	% Difference 1997-2003
15	0	11	0	9
20 <25	666	708	799	908	13.6	36.3
25 <30	1,089	1,231	1,127	1,203	6.7	10.5
30 <35	1,238	1,007	1,115	1,241	11.3	0.2
35 <40	1,975	1,727	1,278	1,282	0.3	-35.1
40 <45	2,876	2,716	2,132	2,234	4.8	-22.3
45 <50	2,905	2,766	2,812	3,122	11.0	7.5
50 <55	2,977	2,775	2,628	2,986	13.6	0.3
55 <60	2,108	1,978	2,249	2,828	25.7	34.2
60 <65	1,303	978	894	1,313	46.9	0.8
Age 15 <65	17,137	15,897	15,034	17,126	13.9	-0.1
Age to 57	14,599	13,895	12,997	14,312	10.1	-2.0
All Ages	17,137	15,897	15,114	17,408	15.2	1.6
Under 40	4,968	4,684	4,319	4,643	7.5	-6.5
Over 40	12,169	11,213	10,715	12,483	16.5	2.6
Source: Table 7.2 UK Seafarers Analysis 2003 Dr David Glen Reader Centre for International Transport Management London Metropolitan University June 2004