§ (1) No balancing charge shall be made on the occurrence of the event of sale of a ship for scrap.
§ (2) This section shall not apply to an event of sale occurring before the sixth day of April, nineteen hundred and sixty-one.—[Sir L. Ropner.]
§ Brought up, and read the First time.
§ Colonel Sir Leonard Ropner (Barkston Ash)
I beg to move, That the Clause he now read a Second time.
When a ship is sold the taxation value may be less than the price obtained for it. In that case, a balancing charge is payable. The price which is obtainable for a ship varies considerably. A large number of factors enter into the calculation, but generally speaking a ship owner wishing to sell will receive in present conditions about twice as much from another British owner or a foreign owner if the purpose of the purchaser is that the ship should continue trading than if the ship should be sold for scrap.
As the House will be well aware, there is a large amount of surplus tonnage in the world, particularly in tramps and tankers. Hon. Members may argue that if this is the case no United Kingdom owner should sell his ship for anything other than scrap, but individual owners 1126 cannot be excepted, indeed they cannot afford, to refuse the higher price merely for the sake of benefiting shipping throughout the world and themselves only to a microscopic extent.
The abolition of the balancing charge, only in respect of the sale of ships for breaking up would probably mean that the net proceeds from the sale would be about equal in both cases. If that were so, and if the proposed new Clause were accepted, British owners would prefer to sell a ship for scrap and get the ship off the markets of the world.
I would point out to the House that the new Clause is not a "scrap and build" scheme. The sales which I have in mind are already determined. The owner has decided to sell. I hope that the Economic Secretary and, indeed, the Minister of Transport if a proposal of this sort comes their way will shun any scheme by which British owners are encouraged to build on condition that they scrap a ship. The logical conclusion of that argument would be that if it is good to build one and scrap one it would be still better to scrap one hundred and build one. That might please very much our foreign competitors—the Americans, the Greeks, the Panamanians, the Liberians, the Norwegians, the French and so on—but it would be at the expense of the British Mercantile Marine.
1127 9.15 p.m.
This is only a slight Amendment. It would not mean much either to shipowners or to the Treasury. But the House does not need me to remind it that the shipping industry is going through very difficult times and that this is something which the Chancellor can do in this very difficult case.
§ Mr. John Howard (Southampton, Test)
I support the modest Clause moved by my hon. and gallant Friend the Member for Barkston Ash (Sir L. Ropner). The Clause certainly is modest in relation to the problems of the shipping industry, especially if we look at it in relation to the international sphere. Difficulties at present are occasioned by flag discrimination, flags of convenience and building and operational subsidies.
The Clause gives the Chancellor an opportunity by fiscal means of affording some help to the shipping industry. In the case of the shipowner there will be the opportunity to remove from the market surplus and elderly tonnage which tends to depress freight rates, and in the case of the shipbuilder there should, as a result of scrapping the elderly tonnage, be an opportunity for more new ships to be built in our yards.
As my hon. and gallant Friend has indicated, the main purpose of the Clause is to encourage United Kingdom shipowners to scrap old vessels rather than sell them. The reason lies in our present taxation law and also in the market conditions at present ruling. Market prices at present for war-built standard type dry cargo ships are roughly twice what an owner could obtain by selling the vessels for scrap. Therefore, ships which are now reaching the end of their useful life tend to be sold for trading because the owner is unable to afford the wide discrepancy between the price which he can obtain for scrapping the vessel and the price which he can perhaps obtain when he sells the ship to, maybe, a foreign shipowner, thus enabling that shipowner to compete with British shipping. The Clause will bridge the gap.
At the present moment a balancing charge is levied on the excess of the price realised in the market over the written down value for tax purposes. The Clause seeks to do away with the 1128 balancing charge, and thus no tax would be payable on the sale price of a ship when it is sold specifically for scrap. When one takes the tax into account, the shipowner will be placed in roughly the same position financially if he takes advantage of the terms of the Clause, and at the same time British shipping will be assisted by the withdrawal of surplus tonnage.
Consequently, I ask the Financial Secretary to examine the Clause and see whether he can devise words which will have the effect of encouraging the scrapping of obsolescent tonnage to the advantage of both our shipping industry and our shipbuilding industry.
§ Mr. Stanley R. McMaster (Belfast, East)
I support the new Clause in the name of the British shipbuilding industry. It represents a small way in which the Chancellor of the Exchequer can help the industry.
There is no need for me to remind the House of the depressed state of the industry at the moment. There is no doubt that if this Clause were accepted by my right hon. and learned Friend it would help not only the Mercantile Marine but the shipbuilding industry, because it would, in a minor way, encourage shipowners to scrap boats rather than sell them for use and thereby help to create a better market and new orders for new boats. For this reason, I commend the Clause to the attention of the Chancellor.
§ Mr. Simon Wingfield Digby (Dorset, West)
I should like in a few words to support my hon. Friends and to ask the Financial Secretary to look sympathetically at the purpose of this new Clause, which is fairly obvious. We are living in a time of intense shipping competition that must be a matter of anxiety for an island nation. We know that a large number of ships are laid up. When we come to look at the incentive to owners to sell one for scrap, we are at once struck by the fact that we are creating additional competition to ourselves in foreign countries. These ships may well be bought by countries where the costs of operation are lower and add to the difficulties of our shipping industry.
The House will know quite well that although we have now just under 21 million tons of merchant shipping, the 1129 percentage of the world total has fallen somewhat alarmingly for a nation like ours. It has fallen to 16.6 per cent. against 41.6 per cent. in 1914 and no less than 21.6 per cent. even in 1939, so although world trade has been expanding and world shipping has been expanding very fast indeed our share of it has been reduced.
We are now seeing the same story repeated in the shipbuilding industry where we used to be the primary builders in the world. We are now being displaced and have to occupy a less prominent role. This Clause would probably help the shipbuilding industry as well.
I am convinced that, in the present phase of competition, anything that can be done to give an average younger age to our fleet will be very helpful indeed. At the moment, the average age of the merchant fleet is comparatively young, which is a good competitive factor, but I see a very real danger in selling our older ships to people who can operate them more cheaply than we can.
I hope that the Financial Secretary will see whether in this kind of way he cannot give some help to the shipping industry that is so vital to us from the point of view of invisible exports, which have fallen alarmingly, and when it is not easy to find methods of helping it.
§ Dame Irene Ward (Tynemouth)
This is an admirable new Clause for the Financial Secretary to accept. I shall not go into all the technical details because they have been admirably expressed by my hon. Friends, but I want to lay emphasis on the fact that by listening to the approach of the Financial Secretary to the new Clause I shall be able to judge the sincerity of the Government's oft-repeated assurances that they want to help shipping and the shipbuilding industry.
I try to be a realist in political life and I am getting a little tired of words. My hon. Friend the Member for Dorset, West (Mr. Wingfield Digby) has pointed out that the shipping industry is very difficult indeed to help, and several distinguished right hon. Members who are Members of the Government have said to those who are really interested in shipping and shipbuilding, "Tell us what you want." The implication is that when we have told them action will follow.
1130 I am not certain whether my right hon. and learned Friend wonders whether there is anything which can be put forward to help the industry, but there are two points that I want to make. First, I emphasise the importance of this proposal to our invisible exports. It is obvious that if old ships are sold to foreign countries they become trading competitors with our ships and they can therefore reduce our invisible exports. This provision offers a very small way of helping to redress the very disastrous fall in our invisible export earnings.
Secondly, if one is logical—and I try to be logical; I may not always succeed, but I make supreme efforts—one must take the view that the Government have done a great deal of boasting about the high rate of investment allowance. It has always been put forward by the Ministers concerned that the Government have acknowledged the difficult position of shipping by offering a very high rate of investment allowance. That being the case, there seems no logical reason why they should reject this Clause.
I do not wish to say anything further, except to hope that the Financial Secretary will prove that the views of the Government, so often expressed in different ways, are based on a desire to help the industry. This is a very modest request, which cannot possibly upset the structure of my right hon. and learned Friend's Budget. In a small way it would help the industry through a difficult period, and I hope that it would also help the shipbuilding industry.
Quite apart from that, it would give confidence to those engaged in shipping if the Government, by means of the Bill sought to give as much assurance and help to shipping as they were ready to give to horticulture. I am all for giving confidence to those who are fighting for the interests of British trade, and I look forward to the Financial Secretary's reply. It always seems a little unfortunate that on these most important problems of shipping and shipbuilding the Chancellor never answers. However, it does not really matter who accepts the Clause, so long as it is accepted, and I look forward with confidence to my hon. Friend, in his most charming and eloquent phrases, doing so.
§ 9.30 p.m.
§ Mr. Houghton
I rather think that the hon. and gallant Member for Barkston Ash (Sir L. Ropner), who moved this new Clause, failed to explain the proposal as fully as he should have done to the House. We on these benches are very sympathetic indeed to the difficulties of the shipping and shipbuilding industries at present, but I understand that the new Clause does not relate so much to the matter of taxation as to economic policy. It is a proposal to use taxation as an instrument to further certain economic aims.
We on these benches do not dissent from using taxation as an instrument of economic policy. We are sometimes criticised from the benches opposite when we make proposals of that kind. As I see it, the argument is that it is undesirable for the shipping industry to sell its old ships to other countries which will then operate them and compete with the British shipping industry. The aim is to keep our old ships out of the hands of possible competitors.
There is nothing to prevent the shipping companies from scrapping their ships now instead of selling them to possible competitors. If to sell ships to possible competitors is such a bad thing for the shipping industry of this country then, very simply, the shipping companies can decline to sell them and scrap them instead. What is it that is stopping the shipping companies from following that simply policy of scrapping rather than selling? What is stopping them is that they will get a better price for the ships if they sell them than if they scrap them.
The shipping companies will perhaps have to weigh in the balance the advantage of selling and getting a better price and facing ensuing competition, or of scrapping and getting a lower price but being relieved of the consequent competition. I do not know how the balance of that would lie and the hon. and gallant Member did not explain to the House just what that balance was.
§ Mr. Houghton
I thought that it was in the most general terms. The shipping companies say that, notwithstanding the possible competition from those to whom they sell their ships, they must still go on 1132 selling them, however bad it is, because they cannot afford to scrap them at a lower price. The shipping companies, in order to make it economic for them to scrap the ships, say will the Government please relieve them of the balancing charge so that their net proceeds from scrapping can just about balance their net proceeds if they sell? If they sell and pay the balancing charge and relate that to scrapping without the balancing charge, they probably strike even. Therefore, on that basis, they can afford to scrap.
I think that the House has first to be satisfied that the Chancellor must give up the amount of taxation involved in order to enable the shipping companies to pursue this policy—that it is in the national interest that he should do so—and, secondly, the shipping companies have to explain why they cannot scrap already. Do they want the best of both worlds, so to speak? Do they want to be relieved of possible competition but at the same time to suffer no loss by scrapping as against selling? We are entitled to know a little more about this before we are asked to assent to this new Clause.
What is the balancing charge? The hon. Member for Southampton, Test (Mr. J. Howard) explained that the balancing charge is the amount of tax charged on the proceeds from the sale of something which already has a written-down value for taxation purposes because depreciation—which has ranked for tax relief—has reduced the value of that asset in the books of the company to a certain figure. If the company sells that asset at more than the written-down value, quite naturally the Revenue says that it must have tax on the balance, the excess between the written-down value and the selling price.
The hon. and gallant Member for Barkston Ash has argued for the shipping companies to be relieved of tax on the excess between the written-down value and the selling price for scrap. That is the substance of the new Clause, and the hon. Member pleads that that is desirable because they can afford to scrap only if that is done.
What he has not explained to the House is where the balance of advantage to the shipping companies lies. Will it be better for them to sell at the higher 1133 price, possibly bringing foreign currency here and helping our balance of payments? Will it be better for the nation for them to do so and to face the ensuing competition? Or is it to the national advantage not to sell but to scrap and to deprive our possible competitors of the advantage of the ships? Should we say, "Let them go elsewhere or buy new ships"? Perhaps we should rather do that, and in that way indirectly help the shipbuilding industry. But how we can discover where the balance of advantages lies in these conditions, because the shipping companies have not said that they want one concession or the other; they have said that they want the best of both.
The House must be concerned to see whether there is a strong case for us to give up a very important principle of taxation which applies to all other industries. It must be borne in mind that this will be another special case—and the Chancellor was in great difficulty a short time ago in treating the tin mining industry as a special case. The shipping industry is already a special case in several directions for tax purposes. This is another concession which it wants.
I think that we need a grand inquest of the shipping industry, in respect of both taxation and economic policies, before we are asked to give one concession after another and to breach one principle of taxation after another on the ground that the shipping industry is in a bad way and that unless we do this it will be in a worse way. I do not think that we have had all the cards laid on the table.
§ Sir E. Boyle
I always listen to my hon. and gallant Friend the Member for Barkston Ash (Sir L. Ropner) with the respect due to one who was first elected to the House in the year in which I was born. I should like to congratulate him and some of my hon. Friends on the way in which they have spoken, concisely and persuasively. One must admit that this is one of the more difficult Clauses with which we shall deal this evening. I see that my hon. Friend the Member for Kidderminster (Mr. Nabarro) is in his place. He told us the other day that at an early age his son had learned the word "circumlocution". I think that had he been present tonight he would 1134 have regarded the discussion of this Clause as somewhat esoteric.
It is a difficult subject, and I will try to explain the point as clearly as I can and to explain why my right hon. and learned Friend, while sympathetic to the difficulties of the shipping industry, is unable to accept the Clause. The new Clause seeks to exempt ship owners from liability to a balancing charge when they sell a ship for scrap. As I understand it, where an asset which has ranked for capital allowances is sold for more than its written-down value for tax purposes, after initial and annual allowances have been calculated, any excess of the sale price over the written-down value is charged to tax by what is called a balancing charge.
The General Council of British Shipping has suggested to my right hon. and learned Friend that, in order to encourage some scrapping and rebuilding of ships, no balancing charge should be imposed when the proceeds of ships sold for breaking up exceed the written-down value for the purpose of taxation. The Council's argument is that while the balancing charge applies to sales of ships for scrap as well as to sales for further use, a sale for further use will normally produce more, after deducting the tax on the balancing charge, than a sale for scrap, and there is therefore no inducement to sell for scrap. The argument is that if a sale for scrap does not attract a balancing charge, there will be an inducement to sell for scrap instead of selling for further use.
There are three difficulties about this suggestion. My hon. Friend the Member for Tynemouth (Dame Irene Ward) made an eloquent speech but, although I respect her desire always for logic, I am not clear how this Clause can logically be derived from the fact that we have a 40 per cent. investment allowance. Since my hon. Friend said that she did not just want comforting, I will tell her that there are three reasons why there would be difficulties about accepting the Clause.
First, the inducement would be very much less, perhaps, than the General Council of British Shipping realises. It would often be virtually non-existent. For example, if one of the older postwar ships with a written-down value of, say, £30,000 were sold for scrap at 1135 £60,000, with no balancing charge, the net cash receipt would then be £60,000. If it could be sold for use at £95,000, the net cash receipt would also be roughly £60,000; that is, £95,000, less tax at 10s. 9d. in the pound on a balancing charge of £65,000. It produces the same result—£60,000 in each case. Therefore, there would be no inducement to sell for scrap, even if we were to accept the principle of the Clause. With any value for use higher than £95,000, to sell for use would still pay better than to sell for scrap. If one considers the figures and the exact consequences of accepting a Clause on these lines, I do not believe that the result would be as favourable as some people have supposed.
The second objection is that this proposal would involve rather complicated legislation. Unless the concession were to have a different value according to the basis on which the ship had been written down in the past, there would have to be involved and complicated provisions for rewriting past depreciation allowances on a uniform basis in all cases of sales for scrap. I do not say that this could not be done, but I do not believe that we should ever embark on rather complicated legislation cutting across the general run of our tax law unless we are absolutely certain that the results would be worth while. It is very difficult to feel that in this case.
The third and most important objection is that, quite apart from these practical questions, there are serious objections of principle to my hon. and gallant Friend's proposal. Our whole system of initial, annual and balancing allowances, coupled with balancing charges, is intended to secure that over the period for which a trader uses plant and machinery he is allowed to write off its net cost to him; that is to say, what it cost, less what he got for it when he disposed of it by sale or scrapping, or however it may be. If what he gets for it on sale or scrapping is less than its written down value for tax purposes after granting initial and annual allowances, there is a balancing allowance for the difference. If what he gets is more than the written down value for tax purposes, the natural corollary is that there should be a 1136 balancing charge in respect of the difference. On principle this is a perfectly reasonable provision of our tax law.
Further, the proposal of my hon. and gallant Friend would single out just one type of transaction, namely the sale of a ship for scrap, to give an aggregate tax allowance, through the ordinary system of capital allowances, in excess of the net cost of the plant to the taxpayer. It is quite true that the investment allowance does this. This is the whole point, in a sense, of investment allowances. However, we should remember that the investment allowance is given only for capital expenditure on the acquisition of new industrial assets. The most serious objection to the Clause is that it would in effect introduce a sort of backstairs indirect method of giving a new type of investment allowance in certain special circumstances which would depend, not on the taxpayer investing in new assets, but merely on the scrapping of old assets.
For those reasons, my right hon. and learned Friend does not feel able to recommend the House to accept the new Clause. We certainly recognise the special problems of the shipping industry, but we must not forget that the industry not only now enjoys the privilege of a 40 per cent. investment allowance for new ships but was almost the only body which retained the investment allowances during the years when they were suspended. I thought that the right hon. Member for Huyton (Mr. H. Wilson) was a little less than his usual accurate self when he talked of the investment allowance having been scrapped altogether in 1956; it was suspended, except only for shipping and fuel saving. In essence, I think that the present suggestion is tantamount to seeking an improved investment allowance un certain cases, and an investment allowance not limited to new ships
While my right hon. and learned Friend will continue to look at the special problems of the shipping industry, I must say, on reflection, that I cannot feel that this is the right way to proceed. I quite agree that it merited serious consideration, which is why I have taken some of the time of the House this evening to explain just why 1137 my right hon. and learned Friend cannot accept the proposal but, for the reasons I have given—partly practical, partly reasons of principle—I could not advise the House to accept the new Clause, and now that I have given that explanation I hope that my hon. Friends will not feel that they need press it.
§ Sir L. Ropner
The whole of this new Clause seems to raise highly complicated considerations, perhaps rather more complicated than I thought, and in view of what my hon. Friend the Financial Secretary has said, I beg to ask leave to withdraw the Motion.
§ Motion and Clause, by leave, withdrawn.