Select Committee on Transport Written Evidence


Memorandum by the British Tugowners Association (TT 08)

TONNAGE TAX

SUMMARY

  The British Tugowners Association represents the port towage industry in the UK. Of the 160-odd tugs operated by its 15 operating group members, a large majority are currently operating within UK Tonnage Tax—virtually all are on the UK register and have fully UK crews. Newly published rules on maritime state aids from the European Commission have unequivocally ruled that seagoing harbour tugs cannot be included in such schemes; the UK scheme will therefore be modified to exclude our members and their vessels. Department of Transport and Inland Revenue officials have confirmed that this exclusion is not desired by them; they are working with us to ensure that the arrangements for exclusion are the least harmful available. While it is too early to identify specific effects on UK maritime employment and support for the UK Register, undoubtedly these will be threatened, and the effects on training may be more direct. This short memorandum is to inform the Transport Committee of those unfortunate circumstances.

BACKGROUND

  The BTA's membership of 15 towage company groups runs 160 modern state-of-the-art tugs providing vital safety services at all the UK's major ports and beyond. Virtually all these tugs are sea-going vessels, registered in the UK and employing British seafarers—about 1,200 in all. These vessels, while primarily assisting vessels entering or leaving ports and terminals do spend part of their time at sea beyond port limits and are available immediately when required to assist with marine casualties. Furthermore, it is important to note that the towage industry has developed its own NVQ-based training schemes, fully within the STCW system recognised by the MCA and the Merchant Navy Training Board.

  The towage companies currently with Tonnage Tax alone have about 60 cadets currently under training in accordance with their commitments. Of the members' 160 tugs, more than 100 are operated by tonnage tax companies.

  In 1999, it was clear that operators of sea-going tugs were eligible to elect into UK Tonnage Tax, and the major operators did so. Unfortunately, since then, cases before the European Court of Justice concerning Dutch tugs operating in Germany have established that port towage operations are not encompassed by the special state aids rules for maritime transport, and the European Commission has had little option but to reflect that in the redrafted Maritime State Aids Guidelines published in January 2004. In order not to be in breach of these Guidelines, the UK Government must implement the required changes in its statutes by mid-2005; this will of course fall to Treasury rather than Transport legislation.

  Over the last five years, most of the towage companies have made major investments based on the certainty that the 10-year commitment to Tonnage Tax brought. Furthermore, during this period, the ownership of two major companies changed hands on terms reflecting that commitment. All those economic decisions would have been assessed differently if exclusion had been foreseen. The implications are therefore serious for the economic viability of the operators and their value to investors.

  This major development follows the equally unexpected changes last year in the arrangements for seafarers' national insurance contributions which have hit the industry with an additional £4 million per annum in its operating costs.

  We accept that, in relation to Tonnage Tax, the Government's hands are tied by the EU's state aid regime. Furthermore, we are assured by Department of Transport and Inland Revenue officials that they will seek legislative changes that will do the least damage possible to the industry. Nevertheless, a reduction in training places can be foreseen and consideration will undoubtedly be given to any possible benefits that might flow from economies in the flagging or operation of the fleets.

  Taken overall, we invite the Transport Committee to take note of these developments with concern and to urge the Government to take all possible steps to ensure that the inevitable damage to this important sector of British shipping is minimised.

8 June 2004





 
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