§ In paragraph (b) of subsection (1) of section two hundred and eighty-one and in paragraph (b) of subsection (1) of section two hundred and eighty-two of the Income Tax Act, 1952 (which relate to methods of calculating annual allowances on machinery and plant), far the references to five-fourths there shall be substituted, in the case of ships, references to five-thirds.—[Mr. Peyton.]
§ Brought up, and read the First time.
§ Mr. John Peyton (Yeovil)
I beg to move, That the Clause be read a Second time.
I admit straight away that the present circumstances of the debate, combined 1104 with the fact that we have recently had a full day's debate on the problems of the shipping industry, make it possible to cut the discussion very short indeed. While it is not necessary to repeat the full arguments, I hope that the Government are fully aware and cognisant of the difficulties of the industry and that day by day their determination to do something about these problems will grow. I admit that the new Clause is not any great remedy. While its acceptance would be most welcome, it would be idle to suggest that it contains the key to all the difficulties which now face the industry.
I hope my right hon. Friend will take the opportunity of assuring us that this very difficult problem, this web of difficult problems, is receiving the constant, energetic and unremitting consideration not only of one Department, but of all those Government Departments which are directly and intimately involved.
As my right hon. Friend knows, there is on the Paper a Motion, signed by more than 100 of my right hon. Friend's own supporters, requesting the Government to take measures to put the British shipping industry on terms of parity—
§ Mr. Peyton
I accept your Ruling, of course, Mr. Deputy-Speaker. It is towards that parity that the Clause proposes a small step.
The Clause, which is designed to increase the annual allowance for depreciation, is particularly germane to what I hope will be the whole approach of the Government. There are two particular advantages which are enjoyed by those who compete with the British shipping industry under flags of convenience—apart from the fact that they have the general advantage of paying virtually no taxation. The first of those advantages is that an owner is free to depreciate his ships in his own time and as he will, so far as he is allowed to do it by the profits he is earning. The second is the certainty that his taxation will not be increased over a period of twenty years—and I appreciate that that is a very difficult point.
I readily agree that that brings us up against great constitutional difficulties, 1105 and it may be that one is asking too much. Nevertheless, one is entitled to remind the Government that there is a remarkably non-partisan approach from both sides of the House towards shipping. I remind my right hon. Friend that my right hon. Friend the Member for Monmouth (Mr. P. Thorneycroft) followed the example of the Labour Government by giving exceptional treatment to the shipping industry.
I wonder whether there is not some possibility of the Government now accepting that it is highly necessary that the decline in the British share of world tonnage should be arrested, and whether it is not possible for the Government to say that they will approach the matter with a view to giving those two very great advantages, the certainty of no increase in taxation over a period of years, which would make an immense difference to the ease with which a ship owner could finance his building, and that an owner should be free, so far as his profits allow, to depreciate his ships in his own time according to his own choice.
In these days, when costs have been rising, it is not possible to exaggerate how valuable a boon it would be to the shipping industry to have the certainty of its capital being returned in order that it could be re-employed in new building as soon as possible.
I have said all that is necessary on this occasion, but I hope that my right hon. Friend will not mistake my brevity as indicating any lack of conviction of the seriousness of the problem. Some hon. Members opposite have taken a great interest in this matter, and I hope that my right hon. Friend will not be allowed lightly to disregard the undoubted importance of the matter, which far transcends any party considerations and whose importance for this country it is hard to exaggerate.
§ Mr. C. R. Hobson (Keighley)
I support the Clause. As the hon. Member for Yeovil (Mr. Peyton) said, this is not a party matter. While both parties have been in power, hon. Members from both sides of the House have shown concern about this vital industry and have sought to obtain special relief for it. I make no excuse for that. Shipping is in a 1106 unique position. The industry is already suffering great disabilities because of flags of convenience, to which it would be out of order to refer and which were debated about a fortnight ago. Flags of discrimination are equally objectionable. At least 50 per cent. of American aid was carried in United States ships, and that was discrimination of a very bad kind.
We are concerned to get extra relief for the industry, and I should have thought that the Government could have accepted this Clause. The industry is vital and earns large invisible exports. It has served the nation very well in peace as in war. The Clause asks for something which should be readily acceptable to the Government. There will be no "come back" from other industries, because most other industries appreciate the unique position of shipping, so that there would be no queue for special treatment for other industries.
I have a word of warning. Failure to treat shipping in a special way can result only in something which we would all deplore, the use of the flag of Bermuda. It is true that the ships would still be British, but it could be argued that that would be a flag of convenience even though it would be the Red Duster. We do not want such a situation to arise. Whatever may be the difficulties of existing shipowners about transferring to the flag of Bermuda, new companies could be begun and could use that method to avoid taxation.
I appreciate the narrowness of the debate, and also the fact that I am sailing very close to the wind, to use a nautical metaphor. All I am concerned with is, knowing the narrowness of the debate, to put in a plea from those of us on this side of the House who realise the vital importance of shipping that at least the Treasury and the Government will see some way to give this vital industry special treatment, because we think it rightly deserves it and that the country owes it to the industry.
§ 8.0 p.m.
§ Mr. John Cronin (Loughborough)
All of us on both sides of the House feel sympathy with the new Clause moved by the hon. Member for Yeovil (Mr. Peyton), who spoke to it with great moderation. There is no doubt that the shipping industry has had severe difficulties in 1107 recent years as a result of the loss of tonnage in wartime and of the necessity to replace ships in times of rising costs, but I feel that there should be a limit to the extent to which the shipping industry receives preferential treatment in taxation.
The House must be aware that the shipping industry is now in the almost unique position of receiving substantial investment allowances. While many hon. Members on both sides of the House have suggested that shipping has been the Cinderella of industry, one feels that successive Chancellors of the Exchequer have probably played the part of Prince Charming to a much larger extent than was really necessary. The shipping industry is going through some temporary difficulties at present, but the problem is a temporary one. It is in the nature of the industry that it goes through considerable fluctuations of fortune.
§ Mr. C. R. Hobson
I am sorry to interrupt my hon. Friend, but he is talking about the temporary nature of the difficulty. Would he not agree that as long as it is legal to operate under flags of convenience for the countries that are using them, the industry is bound, willy-nilly, to run into difficulties, principally because of the flags of convenience?
§ Mr. Cronin
I entirely agree with the point made by my hon. Friend. Obviously, the shipping industry will always be up against ships flying flags of convenience, but will this new Clause be a complete answer or any answer at all? It is a very limited problem in regard to flags of convenience.
The hon. Member for Yeovil pointed out that the industry is having difficulties on account of the rising costs of replacements, but there is at least some sound prima facie evidence that it is not the difficulty of rising costs altogether. It may be that costs will level up or even decrease in the immediate future, and I do not think that the long-term outlook for the shipping industry is so unsatisfactory.
In fact, some companies are expected to do quite well now. I will not ask hon. Members opposite to accept my word for it, but perhaps I may refer to Mr. Westropp, of the Sunday Express, who, on the 29th of June, recommended 1108 that the shares of the P. & O. Company should be bought.
§ Mr. Peyton
I am sorry to interrupt the hon. Gentleman, but he made a very similar speech during the course of the Finance Bill last year, in which he showed that he had not really considered this problem very seriously, and he is revealing the same thing now. What we are concerned about on both sides of the House is the continuing decline of British shipping's share of world gross registered tonnage. We are saying that that decline is now at a point which is positively unsafe. The hon. Gentleman has shown very clearly this year, as last year, that he has not given the slightest consideration to that aspect of the matter.
§ Mr. Cronin
If the hon. Member will permit me, I will deal with that point later. It is not germane to the argument I am raising now.
I was saying that Mr. Westropp recommended his readers to buy P. & O shares. He said:A fine return for so fine a security.On 6th July, he said:Now that the terms of trade have turned temporarily against the shipping companies, Colonel Bates's conservative policy pays off. Cunards' immensely strong cash investments of £21 million"—
§ Mr. Cronin
I am not suggesting that that is the position of all shipping companies, but it does appear at least that some shipping companies are in a strong position. My hon. Friend the Member for Keighley (Mr. C. R. Hobson) says, No liner on the stocks," and I accept that, but will this proposal necessarily induce the company to put a liner on the stocks? It is obviously a question of a long-term possible profit.
I think the most important question here is why should the shipping industry receive this special preferential treatment as opposed to other industries? If I might refer to the Report of the Royal Commission on the Taxation of Profits and Income, I find that in paragraph 359 it said this:It is, for instance, no ground for selecting the shipping industry for special tax reliefs to say that it must maintain large quantities of capital equipment that is subject to rapid obsolescence. That would be quite true of some other industries. Nor can shipping be 1109 distinguished because a very large unit has to be replaced at one operation. Other industries, notably the steel industry, must also be faced periodically with large-scale replacement of fixed assets. Actually, if a company owns a large fleet of ships it is to be expected that it will only replace a proportion of its fleet in any one year and to that extent it is in the same position as any other industry.The hon. Member for Yeovil pointed out that he felt that I had not studied the question of flags of convenience with sufficient care. We all appreciate the difficulty of flags of convenience, but what is the real reason for this large increase in the use of flags of convenience? Is it because to a considerable extent, the fleets of other countries, such as America and Greece, are very substantially increasing because they have the capital available? They are able to use flags of convenience, and a large proportion of these ships are actually owned by Americans who have the capital and can make the profits. Is it not the case that a large part of the problem of flags of convenience arises from the advance of the shipping industry as owned by the Americans and other nations, and is not specifically a taxation point?
I do not wish to prolong the discussion, but it seems to me that the case for further preferential treatment for the shipping industry has not been satisfactorily argued, and I think that the Paymaster-General will have to think very carefully before he accepts this new Clause.
§ The Paymaster-General (Mr. Reginald Maudling)
My hon. Friend the Member for Yeovil (Mr. Peyton), who moved this new Clause, and the hon. Member for Keighley (Mr. C. M. Hobson), have often spoken about these subjects in this House with great knowledge and considerable interest, and, naturally, one pays great attention to what they say. I cannot say the same thing about the hon. Member for Loughborough (Mr. Cronin). I have often wondered from which journals he drew his financial opinions, judging from the speeches he makes, and, having discovered the answer, I am not surprised.
Turning to the issues raised here, there are two points. First, should the shipping industry have special taxation treatment, and, secondly, if so, should it be in the form now proposed? On the first point, there is no doubt at all that the shipping industry does need special taxation treatment because it is subject to a 1110 form of competition which is entirely special. Flags of convenience are things which cannot apply to other industries. One can operate shipping from Panama or Liberia under flags of convenience, but one cannot oparate a motor car factory, and the two are quite different circumstances.
I would not agree with the hon. Member for Keighley in his censure of the Americans about carrying half their aid goods in their own ships. What the Americans are saying is, "If we give our stocks away, we reserve the right to carry half of them abroad in our own ships," and I would not think there is anything particularly wicked in that. It is not a matter of principle.
If someone is giving things away I do not think that it can be said to be very wicked of him if he wants to carry half of them in his own ships. It is true that the problem of flags of discrimination may be no less important than the problem of flags of convenience. But it is because of the latter problem that this House has for many years accepted the fundamental fact that the shipping industry is entitled to receive special taxation treatment.
Although no one can bind successive Governments over the years—and my hon. Friend clearly would not expect that—even if they are of the same political colour there has been so much agreement on both sides of the House about the position of the shipping industry that the leading people in that industry should have considerable confidence that they will continue to receive that treatment in tax matters to which they are entitled in the light of the competition facing them from other countries, particularly countries where no tax is paid.
As to the method of giving special treatment, there is the investment allowance, which, last year, was doubled, from 20 per cent. to 40 per cent. That is a substantial increase. The figures I have been given show that over a period of five years people in the shipping industry can write off about 88 per cent. of the cost of dry cargo vessels and 95 per cent. of the cost of tankers. That is a fairly substantial percentage. We had a rather impromptu discussion about these matters in Committee, and I then said something which was a little too sweeping, as I have since been 1111 told by friends of mine in the industry. I said that an undertaking which regularly ploughs part of its profits into new construction, and gets the benefit of this 40 per cent. additional investment allowance, is left better off than it would have been if it had paid no tax at all. That was a somewhat too sweeping statement. There are certain circumstances in which it would occur, but I should have said that under the investment allowance system not only do people in the industry write off, against their profits over a period, 100 per cent. of what they spend—and therefore they are investing from their gross and not their net profit—but there is also the 40 per cent. to be set off against other profits. That is the true position.
As my hon. Friend pointed out, the difficulty arises because these allowances cannot be taken at the discretion of the shipowner, at the time which suits him. In certain circumstances he may either be unable to take full advantage of capital allowances or may be able to take advantage of them only by buying ships, or placing orders for ships, at a time when prices are high. I recognise that that is a disadvantage, and that it falls more heavily upon the owners of small rather than large fleets which have regular, steady replacement programmes.
There is certainly a point worthy of consideration in the Clause, but I am afraid that we cannot accept it at the moment. It would cost £11 million this year, rising to £17 million. Eventually it would fall again, but it would be a very large additional deduction from the revenue accruing to the Exchequer, and in those circumstances my right hon. Friend could not accept it.
Nor does the Clause necessarily represent the best way to meet the problems of the shipping industry. I think that my hon. Friend is aware that since he last spoke on this subject the shipping industry has presented to the Government a memorandum on this matter, which is now being thoroughly studied. It is too early to give any reactions to it, and all I can say tonight is that I hope my hon. Friend will realise from my previous remarks that the Government are sympathetic to the position of the industry, and are fully aware of its problems; that we have made a very great deal of pro 1112 gress; that the investment allowance is a very great help to the industry—as has been generously recognised by the shipowners—and that the Government are willing and ready at any time, in consultation with the industry, to consider whether it is possible, within the bounds of what is fair as between one industry and another, and in the general national interest, to meet the difficulties which are still facing our maritime industry. We all share a belief in the fundamental importance of maintaining the British Mercantile Marine.
§ 8.15 p.m.
§ Mr. Mitchison
I have three comments to make upon the right hon. Gentleman's speech. First, I read through the debate on shipping the other day with great interest, and I am sorry that I did not hear it all. My impression was that the general feeling of the House was that there were undoubted and peculiar difficulties in the shipping industry, largely in connection with flags of convenience. It seemed that the House also felt that the best way to meet the difficulties, if it were possible—and we do not yet know that it is impossible—was by some international agreement rather than by any fiscal concession. I say no more about it than that the investment allowance is obviously an exceptional concession, which is of very considerable value to the industry, having regard to the way in which the business of shipowning and shipbuilding is carried on.
Secondly, I thought that the right hon. Gentleman was a trifle hard on my hon. Friend the Member for Loughborough (Mr. Cronin), the more so when, in almost the next passage of his speech, there was an appeal from the "Paymaster-General Maudlin'" to the "Paymaster-General Sober". He had to correct his own mistake.
Thirdly, no promises have been made about the next Budget. I seem to remember that Parliaments have a life of five years, and what is now appearing on the horizon is a larger and larger crop of prospective carrots, held sometimes before one taxpayer and sometimes before another. I would say generally that the outlook for the next Budget is as fertile, as promising, as rosy—if one likes to call it so; for carrots are red, except the blue ones—as one would possibly expect in a Budget in an Election year.
§ Mr. Peyton
I would like my right hon. Friend to know that every word he has said is written on my heart; that I shall remember it; that I have noted the tone with which he spoke, and that I understood him to express great sympathy with the case of the industry. In view of the assurance that he has given, however, I beg to ask leave to withdraw the Motion.
§ Motion and Clause, by leave, withdrawn.