Clause 25 - Tonnage tax

Part of Finance (No. 2) Bill – in a Public Bill Committee at 2:00 pm on 14 December 2021.

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Photo of Abena Oppong-Asare Abena Oppong-Asare Shadow Exchequer Secretary (Treasury) 2:00, 14 December 2021

I thank the Minister for her explanation of clause 25, which makes amendments to the tonnage tax regime. Tonnage tax is a special elective corporation tax regime open to operators of qualifying ships that fulfil certain conditions. The amendments will have effect from 1 April next year. At the autumn Budget in 2021, the Government announced that they would introduce a package of measures to reform the UK’s tonnage tax regime from April 2022, which they say aims to ensure that the British shipping industry remains highly competitive in the global market. As part of the package, the Government say these amendments support their aim of simplifying the operation of tonnage tax legislation and making it more flexible following the UK’s departure from the European Union. Clause 25 gives effect to some of these measures by amending the tonnage tax legislation contained in schedule 22 to the Finance Act 2000, as the Minister said.

In his Budget speech on 27 October, the Chancellor of the Exchequer said:

“When we were in the old EU system, ships in the tonnage tax regime were required to fly the flag of an EU state, but that does not make sense for an independent nation. So I can announce today that our tonnage tax will, for the first time ever, reward companies for adopting the UK’s merchant shipping flag, the red ensign. That is entirely fitting for a country with such a proud maritime history as ours.”—[Official Report, 27 October 2021; Vol. 702, c. 282.]

Unfortunately, TaxWatch has pointed out that the proposed reforms will do no such thing. In fact, TaxWatch has described them as a retrograde step. As the Minister mentioned, the clause will remove the flagging requirement that requires ships to be registered in EU registers, but it does not replace it with anything. Companies will qualify for the tonnage tax regime regardless of where they register their ships, whether it be in Panama, Libya, Bermuda or any other flag of convenience. Can the Minister explain why that is the case? Moreover, we find it deeply regrettable that the Chancellor of the Exchequer, as Mr Speaker put it, ran “roughshod” over Parliament in briefing the press on the tonnage tax before informing Parliament.

I would be grateful if the Minister could respond to two points. First, can she comment on whether she personally feels it is acceptable for a Government Minister, or officials acting on their behalf, to brief the press on Budgets before the House of Commons? Secondly, what assessments has she made of the consequences of this premature briefing, in terms of whether any private company or individual could have profited from advance knowledge of legislation before it was presented to Parliament?