Orders of the Day — Merchant Shipping

– in the House of Commons at 10:52 pm on 29th November 1993.

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Motion made, and Question proposed, That this House do now adjourn.—[Mr. Arbuthnot.]

Photo of Mr Mark Wolfson Mr Mark Wolfson , Sevenoaks 11:17 pm, 29th November 1993

Mayday, Mayday, Mayday. This debate is a distress call of behalf on the British merchant shipping industry, and it is one in a long line of debates, amendments, committee reports and questions to Ministers that have for more than a decade —and certainly ever since I entered the House—sought to achieve Government action that would halt the catastrophic and unnecessary decline of the British merchant fleet.

I make it crystal clear that this is not a request for Exchequer handouts to an inefficient industry unable to compete on world markets. Our shipping industry is highly efficient and competitive. In several sectors, United Kingdom operators are among world leaders. The Department of Transport itself has stated that British companies have taken significant steps to rationalise their activities and to improve their competitiveness. Wage costs, thanks to a revolution in labour relations in recent years, are kept at competitive levels.

The Government have a policy to assist the industry, and on many occasions Ministers have spelt it out to the House. Why, then, is there still a problem and what is it? The difficulty arises because the Government's policy has not been successful in the past, it is not working now, and it shows no sign whatever of being successful in the future.

Other developed countries provide measures to encourage investment and to reduce crewing and operating costs that the British Government have steadfastly refused to contemplate for Britain's merchant shipping industry. Instead, the Government's policy has been to persuade our competitors to abandon their support measures and, in the meantime, to do nothing to enable our industry to compete on level terms, which is what the industry asks for.

I believe that those terms must now be provided. If they are not, as surely as night follows day, the merchant fleet will continue to decline and, by the time of the next election, we may very well see "the end of the Red Duster". That was to be the title of the debate when I applied to Madam Speaker for it. I suppose that, unfortunately, the Table Office must have intervened, and bowdlerised the title to the blander one of "Merchant Shipping". Either way, I am delighted to have the opportunity of the debate.

I ask again, is the end of the Red Duster—because that is what we are contemplating, for sure—what a Conservative Government wish to preside over? If it is, I believe that they should say so and we shall know where we are, but if it is not, the measures that I shall speak about are essential.

Let me first spell out several examples of what other Governments are providing. On the investment side, German shipowners are now allowed tax depreciation that gives, in effect, a 50 per cent. first year allowance, but that is in addition to a continuing depreciation allowance, reduced corporation tax rates on foreign earnings and existing operating subsidies—the continuation of those was confirmed, contrary to expectations in Britain, earlier this year.

In the Netherlands, shipowners receive ship investment grants, the scope of which was recently extended. Furthermore, shipowners may now elect for a reduction in the profits tax in place of the subsidy, and that gives further flexibility to owners.

Let us now consider crewing and operating costs and the way in which other countries' measures have helped their shipping industry. In France, the level of contributions that are made by the shipowner to the seafarers' social security fund was cut by 50 per cent. in October 1993, making the cost of employing French seafarers comparable to crew costs on the French second register.

In Sweden, shipowners receive the income tax that is paid by their seafarers and a portion of seafarers' national insurance contributions as a wage cost subsidy. That measure had been cancelled, but was reintroduced and extended indefinitely in October this year.

The Norwegian Government are considering increasing substantially the subsidy that they provide for the employment of Norwegian seafarers, and the United States Government are actively supporting a new maritime subsidy scheme for designated ships operated by US companies at a cost of $1 billion over ten years.

Those are all measures that were either recently introduced or confirmed. Unfortunately, they are a broadside—it gives me no pleasure to say this—which demolishes the Government's argument that working for level terms is the right way forward at this time. The Government are going backwards, not forwards, as the examples that I have given show.

Working towards level terms may be the right way forward in the long term, but at present all our European competitors and the United States are moving firmly the other way. If my hon. Friend the Minister can tell me otherwise to any significant extent and give me examples, I shall be glad to hear them. In addition to the countries that I have already mentioned, Belgium, Denmark, Finland, Greece, Ireland, Italy, Luxembourg, Portugal and Spain all provide some form of tax allowances and related benefits, which in most cases are superior to what is available in the United Kingdom.

My purpose tonight is to impress on our Government the vital importance of taking urgent action to stimulate the renewal of our merchant fleet, which is aging fast, and express the hope that that will be reflected at last in tomorrow's Budget. We must staunch the decline of our merchant fleet and encourage the training and employment of British seafarers.

In terms of investment—the specific point on which I want to focus tonight—the purpose of what the industry asks for is the fiscal treatment of British owners on level terms with those of their competitors specifically by introducing a 100 per cent. first-year allowance for investment in ships. Interestingly, there is a precedent for that. Effectively, a sectoral maritime enterprise zone would be created, following the precedent of regional enterprise zones, of which shipping companies cannot take advantage. I should also like to see extended to seven years the period of roll-over relief which currently applies to the balancing charges on the sale and purchase of ships.

Recent independent research offers both a negative and a positive scenario for the future. It was commissioned by the Chamber of Shipping, but it was carried out by Professor Douglas McWilliams. He used econometric modelling to predict the future of the shipping industry under, first, the current regime and, secondly, a regime of 100 per cent. first-year allowances. Under the current regime, the picture is extremely gloomy. The report estimates that the size of the United Kingdom-owned fleet will fall from its present level of almost 14 million dead weight tonnes to 8·5 million dead weight tonnes by the year 2000, and to 5 million dead weight tonnes by 2,010.

The number of seafarers would fall from its present level of 19,000 to 9,000 by the year 2000 and to 4,000 by 2010. The invisible earnings of the United Kingdom shipping industry would also be substantially reduced under the current regime. However, a policy of 100 per cent. first-year allowances would encourage greater investment in ships by United Kingdom owners. It is estimated that by 2010 the policy would have paid for the expected renewal programme and brought £360 million in overall additional tax revenues per year. It would maintain the size of the fleet at more than 11 million dead weight tonnes. It would also create or preserve 15,000 jobs in shipping and other industries. Most importantly, it would increase the invisible earnings of shipping to £6·6 billion from the present £3·7 billion.

That report was independent, but it confirms the arguments made by the Chamber of Shipping in the past five years. The prospects for world shipping are good. Estimates are that world trade will grow at about 4 per cent. compound until the year 2010. The Department of Transport supports that view. The demand for shipping services will expand, as the report recognises.

British companies are ready and able to take advantage of those opportunities in the right conditions, but unless the United Kingdom shipping industry is able to compete on an even footing with its rivals it will be unable to sustain its share of the market or its current contribution to our economy. If it sustains and improves its position in an expanding market, the benefits will feed into sectors other than shipping, especially the manufacture of shipbuilding and marine equipment and, most vitally, the various services in the City of London. That will help to keep Britain and London at the centre, where they are now, of the maritime world. We cannot expect that position to continue if we are not developing people with a maritime background, who then come ashore and work in the maritime industries later in their lives. That has always been the backbone of the strength of Britain's business contribution world wide to shipping activity.

One of the great difficulties in obtaining full recognition of the importance of these issues by Government may be the wide range of Departments and Ministries whose interests are affected, which include the Department of Transport, the sponsoring Ministry, on whose behalf my hon. Friend will reply. The Department of Trade and Industry is concerned, and the Department of Employment and the Ministry of Defence are involved. Key to all this, of course, is what I have to call tonight the baleful influence, so far, of the Treasury. That inevitably diffuse appreciation of the issues may dilute the real impact and urgency that Britain faces. It tends to result in a lower priority being given to the shipping sector than to other transport sectors.

I appreciate that, in making that point, I am not making a totally fair comparison. However, it is right to point out to the House the tiny proportion of the annual budget of the Department of Transport that is devoted to shipping matters. It is about 0·5 per cent. The annual budget is £6 billion and sea transport gets £30 million, which mainly covers safety and pollution control work. I ask my hon. Friend to ensure that shipping is given a higher priority in the Department than it has had in the past. It is surely essential to us as an island nation—to the carriage of our trade, to our economy, to our balance of payments, to our employment, to our skills and, not least, to our defences.

I know that Ministers argue robustly that the latest information makes them sanguine that if sea lift was required in an operation of the kind that we had to carry out in the Falklands or in the Gulf, in one way or another, ships and crews could be chartered and made available to do that sea lift. This is certainly not the view of Sir Julian Oswald, the recently retired First Sea Lord, who, addressing a meeting recently in another place, made it clear that he had deep concerns on the issue. I believe that current senior officers in the Royal Navy share those concerns. That issue too is of major importance.

I now turn to the most recent committee report—the report, produced by the Select Committee on Employment two or three days ago, containing its recommendations following a study into the decline of employment in the merchant fleet. It made a number of important points. It expressed its concern at the decline in the number of officers and ratings and said: The extra cost of employing British crews has been made harder to bear by the fact that the UK industry is forced to compete with countries which have introduced strong financial assistance for their own merchant fleets. It repeated what others have said when it reported: Britain is not training enough officers to meet either future demand or the needs of related industries. In uncovered an interesting point when it said: Furthermore, we are concerned that public funds intended to subsidise training opportunities for UK seafarers are being applied to train staff from competitor countries. That issue must be addressed.

The Committee also focused on the need for training enough officers to take their place in jobs ashore in the future. It also spoke about defence requirements. In conclusion, it reported: We welcome the modest support that the taxation system currently provides the shipping industry, but we believe that measures to encourage investment in ships and reduce employment costs are essential to safeguard the future interests of the merchant navy, of related industry, of our national defence and of those young people seeking a career in shipping. I rest my case, not on what I have just said, but on the long line of reports, amendments and discussions in the House and in Committee, and in the outside world, which have unfortunately demonstrated that the prognosis of decline has come true. That must not be allowed to continue.

Photo of Mr Steven Norris Mr Steven Norris , Epping Forest 11:36 pm, 29th November 1993

I congratulate my hon. Friend the Member for Sevenoaks (Mr. Wolfson) on his excellent speech on an important subject. My hon. Friends the Members for Lancaster (Dame E. Kellett-Bowman), for Worcester (Mr. Luff), for Ludlow (Mr. Gill) and for Hertford and Stortford (Mr. Wells), who listened to him, take a keen interest in this matter. My hon. Friend the Member for Gedling (Mr. Mitchell) is also present and he has told me of his specific interest in merchant shipping. They have greatly enjoyed what my hon. Friend had to say.

I hope that it is not too churlish to say that it is rather significant that there is not one member of Her Majesty's Opposition present to listen to this important debate on an industry that they purport frequently to hold dear. When push comes to shove at what is, after all, just after half-past 11, they cannot even find a Front-Bench spokesman to attend. When the crocodile tears are shed on future occasions, I shall remind the Opposition of how much they seem to care, in practice, about our merchant shipping.

My hon. Friend has a great future ahead of him in writing film scripts. His opening line of "Mayday, Mayday, Mayday" was dramatic enough and I am rather sorry that the Table Office chose to delete the rather dramatic title for the debate of "Death of the Red Duster" and substitute the anodyne, "Merchant Shipping". I hope to be treated to other examples of my hon. Friend's imaginative approach to this matter in the future. It certainly does a great deal to enliven our debates at this hour.

My hon. Friend made some important comments and I shall try to reply to some of them in the short time available to me. He quoted from the report of the Select Committee on Employment, which said: the percentage of the Department of Transport's budget … devoted to shipping … is a telling example of how low down the list of the Department's priorities shipping stands. If my hon. Friend will allow me to say so, that quotation is simply untrue, and it would be untrue even if the Committee had used the correct statistical data to support its conclusion.

I must make it clear to my hon. Friend that the Government are fully aware of the contributions that the British merchant fleet has made and continues to make to the country in times of peace and crisis. We are also well aware that there are associated maritime industries, which have grown up in the City, which serve the merchant fleet and which now exist to serve not only the British industry but the needs of a significant proportion of world shipping.

In the past, the British fleet developed and prospered by identifying opportunities and exploiting them. It should therefore come as no surprise that other nations, especially the newly industrialising nations, will follow a similar route in developing their own national fleets.

Inevitably, such competition will impact on the size and composition of our fleet. Over the past 20 years or so, we have witnessed a big reduction in British flagged and owned tonnage, and at the same time a significant restructuring which is reflected in the types of ships that now comprise our national fleet. But our experience is not unique. Other traditional maritime nations have faced similar and undoubtedly equally painful adjustments. Given that a large part of our shipping is international, we cannot insulate ourselves from international competition of the sort that I have described.

My hon. Friend was correct in claiming that we can all swallow hard and accept the consequences of fair competition, but it is a great deal more difficult to accept the pain caused by unfair competition. My hon. Friend had something to say about that which I thought was pertinent, but I hope that he will allow me to say that it is not the whole story. He gave the House some examples—and he was quite right—of areas in which some other European nations appear to offer more favourable practices, including fiscal practices, treatment of training and treatment of personnel, than perhaps is the case in the United Kingdom. I recall that the Select Committee report contains a tabulation listing the practices in each of the member states. I hope that I am not misrepresenting my hon. Friend when I say that he will undoubtedly have taken his information from that table. If he did, perhaps I may make it clear that there are also examples which tend to point in the other direction.

In Belgium, Denmark, France, Germany, Ireland, Italy, Portugal and Spain, seafarers are treated no differently from other employees for taxation purposes. By contrast, in the United Kingdom, seafarers who spend fewer than 183 days in this country in any 365-day period qualify for 100 per cent. tax relief on foreign earnings. Seafarers in Belgium, Denmark, Finland, Germany, Ireland, Italy, Luxembourg and Portugal, like their United Kingdom counterparts, make the same social security payments as other employees, and I know that some recent concessions have been made by France on this. As my hon. Friend will appreciate, we are seeking further clarification from the French Government on their move.

In Belgium, Denmark, France, Italy and Portugal, corporation tax is higher than the 35 per cent. levied in the United Kingdom. Of course, Germany's rate of 33·6 per cent. and the 35 per cent. levied in the Netherlands and Spain are exactly comparable with the United Kingdom. Unlike many other countries covered by the survey, we offer direct financial support for officer training. At present, that is in excess of £3 million a year—not, incidentally, the £0·7 million quoted on page 155 of the Select Committee's report. We also provide relief in the form of a subsidy of about £3 million per year to enable crews to be shipped or flown abroad to where they pick up the vessel.

In addition, as my hon. Friend the Economic Secretary explained during the debate on the Finance Bill earlier this year, shipping—together with the rest of industry—benefits from the Government's fiscal and monetary policies. While I am on this subject, I take the opportunity to acknowledge my hon. Friend's understanding that on the eve of the Budget he cannot expect me to say anything more specific on that matter; I aim to hold this office for at least another 24 hours, if not longer.

I have given those examples simply to demonstrate that there are two sides to the coin. My hon. Friend is right that there are some areas in which other European competitors appear to offer more advantage than that offered in the United Kingdom. As I hope that the illustrations I have given show, however, there are many ways in which the United Kingdom offers a competitive environment.

Our Government have evolved a package of measures tailored to suit the needs of our shipping industry. For example, training is high on our agenda, and that is entirely right. Some support measures serve only to distort the market and, as such, they represent unfair competition. It is that latter group that we targeted during our recent EC presidency, and which we shall continue to attack. I make no apology for that. We hope that our partners will be persuaded by our arguments. I do not claim that we are on the threshold of success, but there are signs that others are beginning to accept the force of what we say.

It is interesting to note that many of the EC countries which are often praised for the support that they give their national shipping have been unable to work the longed-for miracle. Within the Community, in the 12 months from 1 January 1992 to 1 January 1993, only France, Greece and the Netherlands could claim an increase in registered tonnage. All the other member states lost ground during that period.

I am sure that my hon. Friend will be the first to acknowledge that overt financial and/or fiscal support is not the only means whereby our competitors can gain unfair advantage. Over the years, we have made every effort to remove restrictions on trading opportunities. We were delighted that the debate on EC cabotage was brought to a successful conclusion during our presidency.

I shall not disguise the fact that the result was not so liberal as we should have liked. Nor do I ignore the fact that, regrettably, some member states are being selective in their implementation of the agreement. Nevertheless, even in its present form it is of considerable significance to British shipping and will open up new and potentially profitable opportunities, which will grow as the various derogations lapse. As I speak, my right hon. Friend the Secretary of State and my noble Friend the Minister for Aviation and Shipping met our EC counterparts in an endeavour to agree further measures, which we hope will redound to the benefit of the Community and, by extension, to our shipping industry, to those who work in it and to users.

It is of regret that many of the newer flag states regard shipping as a soft option and consequently pay little or no attention to their responsibilities. That is grossly unfair to seafarers, to passengers who sail on their ships and to manufacturers who, in good faith, entrust their cargoes to them. Nor is it fair to countries whose environment suffers the consequence of badly maintained vessels, or indeed those responsible ship owners, particularly those who fly the Red Duster, who maintain their ships to the highest standards at considerable cost in terms of time and money. The United Kingdom has recognised the problem and taken the lead in seeking remedies with like-minded Governments in the EC and International Maritime Organisation.

There are one or two points that my hon. Friend made on the detailed 100 per cent. ship allowance and roll-over relief that I have not been able to answer, together with his point about merchant shipping and defence. I hope that he will accept that the recent review allowed Ministers in the Ministry of Defence to announce that special measures on shipping were not considered necessary. If I may, I will write to my hon. Friend on any outstanding issues.

Question put and agreed to.

Adjourned accordingly at thirteen minutes to Twelve midnight.