Examination of Witnesses (Questions 141-159)
23 JUNE 2004
MR DAVID
JAMIESON MP, MS
THERESA CROSSLEY
AND MR
PHILIP DONLAN
Q141 Chairman: Could I just congratulate
you, Minister, on being the first delegation to deal with this
particular industry which has one woman on your team!
Mr Jamieson: Well, Mrs Dunwoody,
if we had been prompted we could have arranged to have had even
more women on the team.
Q142 Chairman: We do not require artificial
arrangements for our benefit, Minister, thank you. Could I firstly
begin by saying how grateful we are to you. I am sorry we are
late but yours and my Government is not too good at managing what
goes on on the Floor of the House, as you know, and it may be,
of course, that we have to rise rapidly to our feet and run, but
I am sure you do that with lithe and gazelle-like movements! May
I ask you firstly to identify yourself for the record.
Mr Jamieson: I am David Jamieson,
Maritime Minister.
Q143 Chairman: Thank you, Maritime Minister,
and would you introduce your colleagues.
Ms Crossley: I am Theresa Crossley
from Shipping Policy Division in the Department.
Q144 Chairman: You are most warmly welcome,
Ms Crossley.
Mr Donlan: I am Philip Donlan,
tax policy adviser in the Inland Revenue.
Q145 Chairman: Well, you are also welcome,
Mr Donlan, even if you are not wearing the right clothes! Minister,
do you have something you want to open the batting with or can
we have a go at you straight away?
Mr Jamieson: Well, Mrs Dunwoody,
if I may, with your permission, be permitted to make a few opening
remarks. Firstly, could I just thank you for inviting us here
again today on this particular matter. The Government is very
proud of its record supporting the United Kingdom shipping industry.
Before the publication of British Shipping Charting a New Course
(which I will just refer to as Charting) in December 1998 there
was very little by way of support for the industry. The measures
that were proposed in Charting and the subsequent introduction
of the tonnage tax were introduced to help reverse the decline
in the United Kingdom shipping industry and in the three years
to the end of 2003 the deadweight tonnage has indeed increased
from 5.2 million to 11.5 million tonnes. There has also been a
healthy trend in the profile of a UK register of larger, younger
ships. The introduction of the tonnage tax and the efforts made
to increase the United Kingdom register are both about increasing
commercial employment opportunities for the United Kingdom, but
these two measures approached their shared aims in different ways.
If I may just specify the difference between the two. There is
in some people's minds confusion between being on the flag and
being in the tonnage tax. Firstly, the tonnage tax is aimed specifically
at improving the fiscal environment and increasing registration
is about raising standards and maintaining a world-class reputation
for quality. They overlap but they are clearly different issues.
Although the tonnage tax undoubtedly has played an important part
in the increase in the United Kingdom merchant fleet—after
all, 53% of the tonnage tax vessels are United Kingdom flag—it
is only one of a package of measures and other factors have also
helped to create a highly favourable environment of United Kingdom
shipping including the registration reforms that were initiated
and instituted by the Maritime and Coastguard Agency. Now, we
cannot say that there is a direct link, a causal link between
the tonnage tax and the growth of the United Kingdom register
but what we can say is that the tonnage tax with its unique training
link has increased the number of cadets from an average of 61
in 2000-01 to 905 in 2003-04 and this has to be, of course, good
news for British shipping. This is nothing to be complacent about.
We do recognise that we are still short of the number of cadets
that has been estimated as necessary to meet the current needs
both at sea and on shore. We accept there is still work to do
and we are keen to continue working in partnership with the industry
and the trades unions to raise the maritime profile amongst their
potential trainees, but how do we translate the success in increasing
the number of cadets into employment opportunities? We have an
opportunity this year and next to take a fresh look at what we
can do in reviving maritime employment and the requirement for
training incorporated in the tonnage tax regime has been very
helpful in injecting life into our efforts but on its own that
requirement will not be quite enough. I do not believe that we
can solve this purely on a national basis. Our share of the international
shipping trade necessarily competes globally and if we are to
stay in those trades protectionism and subsidy are unrealistic.
We need to think in terms of quality and reputation as giving
us that edge. The Government reformed the tax base for the shipping
industry in the first place because we always believed that the
United Kingdom could compete in this global industry but in terms
of quality and reputation. We now need to review our progress
across all aspects of Charting in the same spirit in order to
ensure the long term survival of our maritime expertise.
Q146 Chairman: Well, that sounds excellent.
If it were any other Minister than you I would say it sounded
ever so slightly priggish because quality and excellence do not
do you a lot of good if somebody else is getting a hidden subsidy
from somebody else, do they?
Mr Jamieson: Well, Mrs Dunwoody,
the assistance through the tonnage tax that has been given to
the shipping industry has made sure that many of those companies
have kept their businesses actually here in the United Kingdom.
Q147 Chairman: Yes. So let me be quite
clear. Is the primary aim of the tonnage tax to get more ships
on to the register or is it to increase employment of British
seafarers?
Mr Jamieson: The tonnage tax was
mainly introduced to keep the companies who are operating their
ships in the United Kingdom and by doing so they create many land-based
jobs. They also, by being in the United Kingdom, thereby take
up other related industries such as insurance and sometimes ship
repair. Many other industries benefit from the company actually
being based here. What we could see before we brought in the tonnage
tax is that there has been a long haemorrhage of ships from the
flag but also from being registered in this country as companies
running ships.
Q148 Chairman: I do not think we doubted
that because in fact that is what we said in our original report,
Minister, which I am sure you recall. What I really want to know
is how does tonnage tax increase the size of the register when
it is not flag-linked?
Mr Jamieson: Well, it does not
directly, and that is what I said in my opening remarks. There
is no causal effect between being in the tonnage tax and being
on the flag. They are two separate issues and that is why I was
at pains to separate them out in my opening remarks. Being in
the tonnage tax, the companies thereby are based and have their
strategic management in this country and by doing so they are
employing people in this country, mainly shore-based. They are
also paying other taxes in this country and they are making access
of other industries shore-based in this particular country. The
whole of the industry is estimated to bring in somewhere in the
region of £1 billion worth of trade in this country, so it
is a very substantial industry and I suspect had we not introduced
the tonnage tax many of those companies would have left and made
their base in another country, not ours.
Q149 Chairman: Are you concerned then
about the number of states who got registered and classified as
Flags of Convenience who are actually benefiting from the tonnage
tax?
Mr Jamieson: I think we need to
look at the definition of Flags of Convenience as well.
Q150 Chairman: I think there is a generally
accepted definition of Flags of Convenience. Let me put it another
way round. Are you concerned that Liberia, which has a total of
64 ships, entered into the tonnage tax regime?
Mr Jamieson: Well, my concern
would be not necessarily who the flag is but the actual quality
of the ship and if that ship was unsafe or was unsound in some
way, and many of the so-called Flags of Convenience actually have
high quality ships on their register. Some, on the other hand,
do not.
Q151 Chairman: That is not the sort of
reputation that leaps to mind, is it? We are talking about Bermuda,
the Bahamas, Panama, Malta, St Vincent. You are quite convinced
that there is a justification for these particular countries being
involved in the tonnage tax?
Mr Jamieson: If they come on to
our flag then they are vigorously inspected by the Maritime and
Coastguard Agency and they have to go through that very rigorous
inspection, and as we know the ships on our flag are the best
in the world. They are the best fleet in the world in terms of
port state inspections. If they are going into the tonnage tax
the Inland Revenue then have certain criteria that they have to
meet and it may be helpful if the Inland Revenue set those out.
One of the criteria, as I have said earlier, is that the strategic
management is in this country, and of course that reflects to
some extent on the quality of the operations the ships have, but
it may be appropriate to ask the Treasury that particular question.
Q152 Chairman: Has the drive to increase
the number of ships on the register led to a reduction in standards
of employment?
Mr Jamieson: When you say "the
register" you mean the tonnage tax register rather than the
flag?
Q153 Chairman: Yes.
Mr Jamieson: No, I do not think
it has. I do not think in any sense at all has it shown that.
Many of them have flagged in but not all. Those that have flagged
in are of very high quality generally. As I say, we are right
at the top of the Paris Memoranda of Understanding White List.
We are the best at the moment in terms of our flag and I have
no reason to believe that the other ships that are actually in
the tonnage tax have led to any lowering of standards.
Q154 Chairman: Well, it is quite interesting,
is it not, that the out-going IMO Secretary General said that
he had cause to specifically record his concern over the low standards
of employment on the UK flag. Is that usual?
Mr Jamieson: I am not quite sure
what you mean. I have not heard that comment before and I am not
sure quite what he means by that.
Q155 Chairman: I should have thought
it was fairly straightforward. This is the international organisation
which has always in the past accepted the very high standards
of British shipping, has never had cause to question the UK in
this way, and he is now saying that he is concerned—this
is the Secretary General—about the low standards of employment
on the UK flag. That must be a matter of concern, must it not?
Mr Jamieson: Well, I had not heard
that comment from the Secretary General, but those ships on our
flag are inspected by the Maritime and Coastguard Agency. They
inspect not just the safety of the ship, the quality of the ship,
but they also look at the social conditions of those people working
aboard the ships; in other words the quality of life—
Chairman: Minister, I am afraid that
much as I am enjoying this, I must suspend the Committee and there
may be more than one vote I am told, so the Committee is adjourned
for ten minutes in the event of one vote and 20 minutes in the
event of two.
The Committee suspended from 4.30 pm to 4.53
pm for a division in the House
Mr Jamieson: Mrs Dunwoody, the
interlude occasioned by the votes has given me an opportunity
just to look a little further into the comments you say were made
by the Secretary General of the IMO. I have to say I am in regular
contact with both Bill O'Neil (as was) and the new Secretary General.
I understand that in the comments he made regarding the UK flag
and the quality of employment on the ships he was referring, I
believe, to Taiwanese people and ships and he had made some comments
regarding the possible quality of conditions on board those ships.
I think this was a comment made in very good faith. Perhaps some
intelligence had been provided to him. But I understand that the
MCA then inspected those ships and firstly found out that the
actual quality and structure of the ships themselves was not just
good but it was very good. They found then that the quality of
life aboard and the social conditions were not just good but they
described them as "exemplary". So those Taiwanese ships
that have come on to our flag are actually meeting very high standards.
If anybody thinks that that argument cannot be sustained, I would
certainly want that investigated most carefully.
Q156 Chairman: Are you considering increasing
the scope of the tonnage tax to include the vessels that were
previously excluded?
Mr Jamieson: Probably the Treasury
might be the best place to respond to this, but when the Treasury
brought in the tax there was the view then of doing the review
and than having a look to see if any expansion would be appropriate,
but it may be best that Philip Donlan just expands a little bit
on that.
Mr Donlan: The two examples that
are quoted here, aggregate carriers and North Sea specialist vessels,
fall into two slightly different categories. Aggregate carriers
were originally within the scope of vessels that the Government
intended to include within the tonnage tax. However, it was the
then existing EU state aid guidelines which prevented their inclusion.
As a number of our earlier witnesses commented, the state aid
guidelines have recently been revised. I think it is in large
part due to the lobbying efforts of the UK shipping industry and
also officials from the Department of Transport as well as from
the Inland Revenue which have occasioned a change of mind at the
European Commission.
Q157 Chairman: So aggregates are in,
is that what you are saying?
Mr Donlan: Aggregate carriers
as from the new guidelines published in January of this year can
be included in state aid schemes. As part of the review we are
discussing with the industry precisely how we take that forward
and obviously ministers will be making a statement in due course.
Q158 Chairman: What about off-shore specialist
vessels?
Mr Donlan: Again, as part of the
review of tonnage tax that we are undertaking we have received
a number of representations that more North Sea engaged vessels
than were originally included should be brought within the scope.
Q159 Chairman: How many ships are we
talking about?
Mr Donlan: I think the number
could be up to perhaps 100 or slightly more.
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