Clause 4

Finance (No. 2) Bill – in a Public Bill Committee at 12:00 pm on 19th October 2010.

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Question proposed, That the clause stand part of the Bill.

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

We move now to an entirely different matter; I will be surprised if any Member can find a link between clauses 1, 2, 3 and clause 4, so there will be a prize for the committed Member who manages it. Seafarers’ earnings are an important matter for those who work at sea. The clause will extend to seafarers who are resident in the European economic area the same 100% deduction from income tax on earnings from employment that is enjoyed by seafarers who are wholly or partly outside the UK during that eligible period; I understand that at present the tax relief is only available to those seafarers ordinarily resident within the UK, but clearly there are seafarers resident in other EEA states who are not ordinarily resident in the UK who might also warrant the seafarers’ earnings deduction.

Would the Minister answer a few specific questions on that change? Would he tell the Committee a little more about the eligible period? I assume that the navigation of waters beyond the UK continental shelf is our main geographical consideration in that regard, and the length of time a seafarer is away from the UK continental shelf presumably has something to do with the definition of the eligible period. Would he set out for the Committee what that is and how many seafarers are involved in that concession, as it is difficult to envisage the point on which we are legislating without a better feel for the number of people affected? I presume that we are talking about merchant seamen, fishermen and so forth, although I want to ask him about other seafarers and whether that will apply to those serving in the armed forces, whether they are in the Navy or not. It is not clear what is and is not included in the definition of seafarer.

In particular, I want the Minister to address a specific and contemporary issue that has been the subject of recent controversy: what discussions have the Government had with the Norwegian and Icelandic Governments in the drafting of that provision? As I understand it, it is a specific clause that is extending to their resident seafarers a set of tax relief arrangements that will be relevant for them. I ask that because, presumably, we will have to require some sort of reciprocity for UK seafarers who may be resident in those countries. To what extent have those Governments offered such reciprocity in tax arrangements?

Has the Minister had an opportunity to speak to his counterparts in the Department for Environment, Food and Rural Affairs and, perhaps, the Scottish Executive and the Foreign and Commonwealth Office about the impact the change might have on the current sensitive negotiations between the European Union and Norway and Iceland over the mackerel quota? Obviously, all hon. Members will be familiar with those. I gather that it has been the recent practice of the Icelandic fishing community to make unilateral changes to the fishing and mackerel quotas. That has caused considerable consternation in some quarters, potentially risking the sustainability of fish stocks and disrupting previously settled agreements. Some people have characterised it as the “mackerel wars”. Representatives of the trades within those countries are undertaking sensitive negotiations, with which the Minister will be familiar. It strikes me as something that needs further thought. When there is such great sensitivity, is this an appropriate moment for the Treasury to grant a tax concession to Icelandic fisherman?

Photo of Jim Shannon Jim Shannon Shadow DUP Spokesperson (Health), Shadow DUP Spokesperson (Transport) 12:15 pm, 19th October 2010

The hon. Gentleman is absolutely correct in his interpretation; the fishing community are deeply annoyed and many feel that their quota has been taken away from them. “Steal” may be too strong a word, but they certainly feel strongly. I have asked for a meeting with the Minister with responsibility for fisheries, the hon. Member for Newbury (Richard Benyon), which is happening next Monday, so there will be an opportunity to raise the matter then. There is a lot of anger, dismay and concern, which the hon. Member for Nottingham East has put forward clearly.

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

The hon. Gentleman raises the point that this is about not simply the Scottish Executive, but Northern Ireland, and all those seafarers and fishermen and women who may come into contact with fishermen from Iceland in particular. I would like the Minister to update the Committee on those negotiations, as well as say whether a tax concession is the right thing at this juncture. It may upset the balance and, in the process, perplex fishermen in our country. Why are we giving a tax concession now to those whom they perceive as having taken unilateral actions that cut across international agreements?

Given changing technologies that broaden the classification of those involved in maritime navigation, does the Minister plan to change the definition of “seafarer”? Some of those who work in mobile drilling rigs, including semi-submersibles, jack-ups and similar vessels, perhaps in the oil and gas industry, and operate vehicles that could be used in navigation do not fall within the definition of “seafarer”. Why are those seafarers excluded?

Photo of Chris Evans Chris Evans Labour, Islwyn

Does not my hon. Friend think that “seafarer” is too general in this case? Perhaps we should be more specific about what a seafarer is. I think that he was developing that point, so I shall leave it there.

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

Indeed. It is the sort of issue that may pass the vast majority of the British public by. It is not something that they will be concerned with, but those  who are involved in that category of industries may fall within or without an arrangement because the definition of “seafarer” may be inadequate. I would like to press the point about the mobile drilling rigs arrangement, for example. I know that, in the past, early-day motions have noted concern about the different treatment of seagoing vessels. Such treatment can result in some seafarers becoming ineligible in certain circumstances, particularly when it comes to exploiting mineral resources, and consequently, financial hardship can occur. For the moment, I want to press the Minister on those specific points.

Photo of David Gauke David Gauke The Exchequer Secretary

Clause 4 amends the provisions for deductions from seafarers’ earnings. The change will put seafarers who are resident for tax purposes in a European economic area state but who are not ordinarily resident in the United Kingdom on the same footing as UK residents.

It may be helpful if I provide some background. The seafarers’ earnings deduction allows a UK resident to claim 100% deduction from their earnings from employment as “a seafarer”. The definition of seafarer includes merchant seamen and fishermen, but Navy personnel do not qualify and never have. The deduction was claimed by 16,000 UK ordinarily resident seafarers in the tax year 2007-08. The duties of the employment must be performed wholly or partly outside the United Kingdom during an eligible period, which the hon. Member for Nottingham East has asked about. The eligible period can be 365 days outside the UK in one period, or a combined period in which 183 days are spent outside the UK.

The European Commission decided to challenge the compatibility of seafarers’ earnings deductions with the UK’s treaty obligations by way of a formal reasoned opinion, which was issued in June. The Commission takes the view that the relief is strictly limited to those who are ordinarily UK residents.

Photo of Jim Shannon Jim Shannon Shadow DUP Spokesperson (Health), Shadow DUP Spokesperson (Transport)

Will the Minister clarify a point in relation to fishermen and their earnings? There is a difference between ordinary fishermen and share fishermen and, particularly in Northern Ireland, share fishermen have a different role. Is there a different category for them? Do they fit into different criteria or are they all treated the same?

Photo of David Gauke David Gauke The Exchequer Secretary

Assuming the qualification of those fishermen on eligibility and geographical fronts, there is not a further distinction, as I understand it. Potentially, depending on those conditions being met, the deduction may well apply in the circumstances that the hon. Gentleman has outlined. I add that there are questions as to the definition of ship and what constitutes a ship for such purposes. The hon. Member for Nottingham East rightly recalled some of the controversy that has existed in recent years relating to oil and gas platforms that are not seen as ships. That has been an ongoing debate that I know the previous Government were very much engaged in.

We have a difficulty that we are seeking to address. I should also add, as inspiration arrives, that share fishermen are generally counted as self-employed. The seafarers’ deduction only applies to employees, so it is possible that if they are self-employed, some of the individuals  that the hon. Member for Strangford has asked about will fall outside the availability for seafarers’ earnings deduction.

The Commission takes the view that the relief is strictly limited to people who are ordinarily UK residents. To avoid any uncertainty for taxpayers, the Government have decided to amend the provisions to enable seafarers who are resident for tax purposes in an EEA state and who meet the eligibility criteria to claim the deduction. The criteria require duties to be performed on a ship wholly or partly outside UK waters for an eligible period of at least 365 days. I set out the circumstances of combined trips.

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

On the point about being ordinarily resident in the UK, would Irish passport holders who are resident in Northern Ireland and who may be defined as GB citizens also come under the definition of ordinarily resident in the UK?

Photo of David Gauke David Gauke The Exchequer Secretary

That would depend on the particular circumstances of those passport holders, but if they are ordinarily resident in the UK they would be ordinarily resident in the UK for tax purposes. That is not a definition that is dependent upon nationality. There is obviously a difference between nationality and residence.

The hon. Gentleman also raised the issue of Norway and Iceland. This is not part of those discussions. It is necessary to bring in this clause to comply with our EU and EEA obligations. Iceland and Norway are members of the EEA; I am not sure that there is an issue with the third member of the EEA, Liechtenstein, in this context. We wait to see. It is worth pointing out that UK citizens will be free to make similar claims in other EEA countries where there are similar rules to support seafarers. This is about bringing consistency of treatment for all EU and EEA citizens. As has been pointed out, there is an Adjournment debate on the fishing rights issue, but this is very much a different debate. I do not intend to detain the Committee on that point.

This clause has not been driven by our negotiations with Norway and Iceland. This is a pragmatic response. It provides greater clarity and is helpful here. Again, we do not expect this to have a substantial impact on the Exchequer. We think that something in the region of 5,000 individuals would benefit from the extension of seafarers’ earnings deductions. We have had consultations with the relevant parties such as the British Chamber of Shipping and unions such as Nautilus International, Unite and NUMAST, on behalf of employees. No particular concerns have been raised with us, so I suggest that the clause should stand part of the Bill.

Photo of Chris Evans Chris Evans Labour, Islwyn

My major concern, as I said in my intervention, is about the definition of a seafarer. The hon. Member for Strangford referred to share fishermen and there are all sorts of definitions that cover everything. Could the Minister define exactly what he means by seafarer as there needs to be a clear definition of the people who will be affected?

I am deeply concerned about mackerel wars. The Minister talked about consultation with the various unions. The British Ports Association has also been  involved. Has anything been said in those consultations about mackerel wars and the possibility that we might be seen as coming down on one side or another? If he could clarify those points it would be marvellous.

Photo of David Gauke David Gauke The Exchequer Secretary

As I said earlier, this clause does not relate to the mackerel wars. This is a separate issue. I do not intend to get into that matter. This is an issue that the hon. Gentleman would most effectively raise with DEFRA and DEFRA Ministers. This is on a narrow tax issue.

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

I understand that the Treasury wants to pull the blinkers over its face and say that it is not something that affects the Treasury, but it does affect the Treasury. The Government are supposed to be one Government, although I know that they are fragmented in any number of ways, depending on the time of day.

If sensitive negotiations are going on between people who feel deeply aggrieved because their carefully divided quota arrangements on long-standing fishing settlements have been violated by the unilateral actions of one country—in this case, the allegation is against Iceland—and if those fishermen feel that they must regain their position and settle the situation properly, how does the Minister think they would feel about the British Government’s giving a tax concession at the same time to those very Icelandic fishermen? It would feel difficult to understand, would it not?

Photo of David Gauke David Gauke The Exchequer Secretary 12:30 pm, 19th October 2010

It would, but that matter is not related to the clause. The clause has not been brought in as a consequence of lobbying by the Icelandic or Norwegian Governments. It is a consequence of the view taken by the European Commission about the operation of the seafarers’ earnings deduction and the belief that the rules, as they currently apply, do not comply with our treaty obligations.

We are providing clarity. There is no evidence to suggest that it will be Icelandic or Norwegian nationals who will benefit specifically from the extension, although of course if they are ordinarily resident in the United Kingdom they will be able to benefit from it, just as those seamen who are ordinarily resident in Norway or Iceland will be able to benefit from comparable arrangements.

Perhaps I may also respond to the point about the definition. It is a broad definition: someone who works on a ship. There has been some controversy before, to which I alluded, about the definition of “ship”, because that does not include offshore installations. The original policy purpose behind the seafarers’ earnings deduction was to assist the merchant navy and to ensure on strategic grounds that we have capability in the area in question. The seafarers’ earnings deduction continues to achieve that. I hope that that provides some useful clarification for the Committee.

Photo of Chris Evans Chris Evans Labour, Islwyn

On another related point, about the mackerel wars, I do not think that the Bill should be presented in isolation from the world view. We have already seen that theoretically the Government want to close loopholes. Theoretically the measure could aid Norwegian and Icelandic seafarers. In view of the fact that it is a live issue, we should not act as if we are  isolated from it. Have there been discussions, or are there plans for any discussions, with DEFRA about that related issue?

Photo of David Gauke David Gauke The Exchequer Secretary

It is not a related issue. I am finding it hard to resist making a pun and calling the Opposition’s argument a bit of a red herring. It is the Finance Bill, and such moments come all too rarely.

The issue of the mackerel wars is important, but it is not relevant to the clause. We need to make the change to comply with our EU duties and to prevent infraction proceedings. That should not be seen as some great concession to Iceland or Norway. It is necessary to enable us to comply with our European Economic Area obligations. It provides clarity. In practice, it will probably not benefit large numbers of individuals, but nevertheless it puts the clause on a good and sustainable footing.

It is worth pointing out that we think that most of the individuals who will benefit will be east European nationals. As I have said, the representative bodies and unions that have strong views on our relationship with Norway and Iceland in the relevant areas have no objections to the clause, because they recognise that it is not part of those negotiations. It is something that we need to do.

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

It was interesting to hear the Minister’s points. I understand the situation he is in and, despite the levity of his red herring joke, I can see how this  would be of relevance to the people involved in those negotiations. Certainly, the fact that we have put the spotlight on this question suggests that it will be returned to at a later stage.

I am not quite content that I have had sufficient clarity from the Minister about the reciprocity of arrangements, or the point at which the Icelandic and Norwegian Governments will also be enacting mirroring tax provisions and ensuring that they also apply to UK seafarers in a contemporaneous scenario. Constantly reiterating that this is not relevant to the discussion does not actually make that the case—the controversy over mackerel quotas is of great concern to many people.

For the time being, however, I can see the broader strategic justification for clause 4. I will not divide the Committee at this stage, although I may return to it later.

Question put and agreed to.

Clause 4accordingly ordered to stand part of the Bill.

Ordered, That further consideration be now adjourned. —(Mr Goodwill.)

Adjourned till this day at half-past Four o’clock.