Clause 57 - Tonnage tax: capital allowances in respect of ship leasing

Finance (No. 3) Bill – in a Public Bill Committee at 4:30 pm on 7th June 2011.

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

Photo of Bill Esterson Bill Esterson Labour, Sefton Central

The clause deals with tonnage tax capital allowances in respect of shipping, amending various provisions of the Finance Act 2000 on the writing down allowances available on the first £40 million of expenditure on a ship, bringing them into line with the rate available on a ship used by a company that has not elected for tonnage tax.

Companies operating ships subject to the 2000 Act were encouraged to train one UK rating for every 15 crew employed; my understanding is that there was a voluntary agreement. The aim was to encourage shipping companies to employ UK staff. The measure was introduced because of widespread and long-standing concerns about the underemployment of UK staff by shipping companies running ships from the UK, often at low pay rates, thus undercutting the wages that they would pay UK staff.

The low employment of UK staff is a long-running issue, and the issues around flags of convenience are extremely complex. Can the Minister consider whether there are ways of supporting the UK shipping industry and, in particular, how the Bill and the clause might be used to secure increased employment of UK staff in the shipping industry? Of course, at such a time, anything that can generate jobs is to be welcomed.

On Merseyside, the growth of the economy will be strongly linked to the success and development of the port of Liverpool. Many of my constituents would love the opportunity to work in the shipping industry, and to take advantage of the potential expansion of the docks.

Photo of Ian Mearns Ian Mearns Labour, Gateshead

I am taken with the point my hon. Friend is making. If we want to see rebalancing of the economy—in particular towards manufacturing, leading to exports—we certainly need a healthy shipping economy, to facilitate our expansion. I hope that Ministers will look favourably on what my hon. Friend is saying.

Photo of Bill Esterson Bill Esterson Labour, Sefton Central

My hon. Friend is absolutely right: we need to use ports and the shipping industry as an important component in rebalancing the economy. An export-led recovery is an element in achieving that—if not, indeed, the crucial element. Ports such as Liverpool and those in the north-east that my hon. Friend represents are an essential component of that recovery and regeneration, and I welcome measures such as those proposed in the clause.

Photo of Ian Mearns Ian Mearns Labour, Gateshead

I apologise, because I should have said earlier that when rebalancing the economy, and hopefully moving towards exports driven by manufacturing, we must take into account the favourable rate of the pound sterling compared with other currencies. A lot of people in my region tell me that that is an aid to them in terms of the export market they are trying to tap into. The whole picture must be sorted out so that shipping—British shipping in particular—is able to receive the benefit of that rebalancing of the economy.

Photo of Bill Esterson Bill Esterson Labour, Sefton Central

My hon. Friend is absolutely right again. [ Interruption. ] He is almost inevitably always right. His point about the value of exports is important, and that is where the clause will be beneficial. It is worth bearing in mind that as of a few days ago, the pound stood at $1.64; a year ago it was $1.45. The concern is that that moves against helping exporters. [ Laughter. ] It is the other way round; it helps exporters. Ministers must be mindful that we need to avoid sterling being overvalued. We must get our heads around these technical points—[ Interruption. ] I am sure that other hon. Members will happily intervene to give lessons on such matters.

The point about the number of jobs available on UK-run ships is important, and I would be interested to hear the Minister’s comments on how the Bill might be used to achieve those ends. On Merseyside, as in many other places, the level of cuts in jobs—particularly in Her Majesty’s Revenue and Customs, the police service, the NHS, schools, colleges, universities and councils—means that new jobs are desperately needed. Any measures would be welcome.

The port of Liverpool is potentially the single biggest investment opportunity for the north-west in terms of growing the economy and providing high-quality jobs and opportunities for industry and trade. As the far east becomes an important trading partner, and as China and India rapidly grow their economies, Liverpool will achieve growing importance due to its geographical location and ability to provide trade links with that part of the world.

Photo of Alison McGovern Alison McGovern Labour, Wirral South

My hon. Friend will know that the historic port of Liverpool now involves several ports, including those on the Wirral in my constituency. There is a huge opportunity to develop jobs in the shipping industry and support our manufacturing industry. Does he agree that that is one of the biggest transformational actions that we would like to see on Merseyside, and that it has the possibility to contribute a huge amount to skills and levels of employment?

Photo of Bill Esterson Bill Esterson Labour, Sefton Central

Being another Merseyside MP, my hon. Friend is well aware of the situation. She has explained well the importance of the port in generating opportunities for business, and the jobs that come from it. She has  been a strong advocate for the development of business across Merseyside generally, as well as in the Wirral particularly.

I invite the Minister to consider a suggestion. I mentioned earlier the current voluntary process whereby shipping companies are asked to train one UK rating for every 15 staff employed. Is there a way to link that idea to the clause, so that we can support UK jobs and the shipping industry, by requiring UK-run shipping operations, if they want to qualify for the allowance, to adopt that approach, being allowed to employ only 15 overseas staff for every UK rating that they train? That is already available as a voluntary approach; including it as a requirement in the clause would be an opportunity. I welcome the Minister’s thoughts on that opportunity to create jobs in the shipping industry.

Photo of Mark Hoban Mark Hoban The Financial Secretary to the Treasury

It is a pleasure to serve under your chairmanship, Mr Hood. I understand the motivation behind the hon. Gentleman’s question. He did, indeed, table an amendment that was not selected for debate this afternoon.

In my constituency, which I have represented for 10 years today, we have Warsash Maritime Academy, one of a small number of training centres across the country devoted to training cadets and others for work in the Merchant Navy. It has a long and successful tradition of recruiting and training staff at all levels. It is important; I have a particular interest in ensuring that ships, wherever they are flagged, continue to employ people trained in the UK, particularly at Warsash Maritime Academy.

Photo of Bill Esterson Bill Esterson Labour, Sefton Central

I will not detain you much longer, Mr Hood. My dad was responsible for the Merchant Navy college when he was an Inner London Education Authority inspector some years ago, so there is a shared interest. Will the Minister comment on how we address the matter of flags of convenience as well as the other issue that I raised?

Photo of Mark Hoban Mark Hoban The Financial Secretary to the Treasury

I do not want to wander too far off the point of tonnage tax, for all sorts of reasons, not least to try to remain in order. I want to tackle the issue of the link between clause 57 and the training commitment that the hon. Gentleman proposes. The Government do not wish to dilute the training incentive that exists within the tonnage tax regime. In order for companies to benefit from the regime, they must commit to train one cadet for every 15 officers employed by the company. We think that that commitment strikes the right balance between ensuring the UK skills base is maintained, and having a simple regime that provides certainty for companies.

It might be helpful to say a couple of words about the effect of clause 57, to give some backdrop. Clause 57 reduces the level of writing-down allowances that can be claimed within tonnage tax to the same level as that for ships outside the regime. That change is required under EU law. We do not expect the impact of clause 57 to be such that it would affect a company’s ability to carry out training. I do not think that the argument made by the hon. Gentleman, which is reflected in his amendment, would have the desired impact in practice. Capital allowances are available to companies outside the tonnage tax regime, such as banks and financial institutions that own ships that are then leased to shipping companies within the regime.

In effect, what the hon. Gentleman suggests would benefit the banks, which are not involved in the training of cadets on a ship that has been leased. The benefits would shift from the company that leased the ship to the bank, and I am not sure that the hon. Gentleman wants the banks to have more tax benefits than they already have. Furthermore, exempting certain companies from the effect of clause 57 would mean that they received more state aid than had been agreed with the European Commission. We would have to approach the Commission to make such a change, and we believe that such an approach would be unsuccessful.

As I said earlier, I share the idea that seafarers’ skills and training are important, but these things are policed and dealt with not by the Treasury but by the Department for Transport, which is responsible for all matters relating to the training of seafarers. I am sure that the hon. Gentleman knows that the UK tonnage tax is very different from that of many other countries, as it includes a requirement for training. The best way to improve training opportunities in the UK is for the unions, the shipping companies and the Department for Transport to work together; that direct route would be far more effective than trying to link the capital allowances to training through the tonnage tax. The latter would be a more convoluted route and less likely to have the impact that the hon. Gentleman desires, which is to improve opportunities for UK assistance in training for the Merchant Navy and for sail on other ships.

Question put and agreed to.

Clause 57 accordingly ordered to stand part of the Bill.

Clauses 58 and 59 ordered to stand part of the Bill.