HC Deb 05 July 1965 vol 715 cc1307-18

(1) Subject to the following subsections, annual (or writing-down) allowances under Chapter II of Part X of the Income Tax Act, 1952, in respect of capital expenditure incurred after the beginning of the year 1965–66 on the provision of a new ship shall be computed in accordance with Section 281 of that Act (normal method of computation) as if, instead of requiring such an allowance for a year of assessment to be five-fourths of the percentage therein specified of the relevant capital amount, that section required it to be so much of that amount as is specified by the person to whom the allowance is to be made in making his claim for the allowance; and accordingly (but subject as aforesaid) neither Section 282 or 285 of that Act (alternative method of computation, and adjustments for abnormal use) nor section 35 of the Finance Act 1963 (rules for determination of rates of allowances) shall apply in relation to such allowances.

(2) Subsection (1) above shall not apply to allowances falling to be made to a person in respect of expenditure on the provision of a ship treated as incurred by him by virtue of Section 299 of the Income Tax Act 1952 (allowances to lessees), unless the contract of letting provides that he shall or may become the owner of the ship on the performance of the contract; and where the contract so provides, but without becoming the owner of the ship he ceases to be entitled (otherwise than on his death) to the benefit of the contract so far as it relates to the ship, subsection (1) above shall be deemed not to have applied to allowances falling to be made to him in respect of the ship.

(3) Where subsection (1) above is to be deemed not to have applied to allowances for any period, there shall be made all such additional assessments and adjustments of assessments as may be necessary.

(4) For the purposes of this section—

  1. (a) "new" means unused and not secondhand, but a ship shall not be treated as secondhand in relation to a claimant for an allowance in respect of it by reason of the property in the ship or any part thereof having previously passed to a person other than the claimant, if the ship has not been taken over from the builder by any such person; and
  2. (b) "relevant capital amount" means the amount specified in Section 281 (1) (a) of the Income Tax Act. 1952, as the amount by reference to which an annual allowance is to be computed.

(5) Expenditure shall not be treated for the purposes of this section as having been incurred after the beginning of the year 1965–66 by reason only of Section 279 (2) of the Income Tax Act, 1952 (which relates to expenditure incurred by a person for the purposes of a trade before he begins to carry it on).—[Mr. Diamond.]

Brought up, and read the First time.

12.15 a.m.

Mr. Diamond

I beg to move, That the Clause be read a Second time.

This arises out of my right hon. Friend's endeavour to help the shipping industry, an endeavour frequently expressed by both him and myself, and since the Committee stage we have been searching for ways and means by which that help can be afforded through the machinery of the Bill.

We have two methods by which that aid can be given. I will refer to one only very shortly, because it is not now before us and that is by an Amendment to Clause 80. I am bound to refer to that because it puts the matter into perspective. When we reach Clause 80, we shall move an Amendment which will help the shipping industry in the short term, but, having found a method satisfactory to the industry for helping it in the short term, we are now able to help it in the long term.

The way in which we do that is by providing, as the new Clause does, for free depreciation; that is to say, the method whereby an operator buying a new ship can write off the whole cost as he desires, so that 140 per cent. of the cost of the ship can be written off in the first year it puts to sea. We are here dealing with a new ship or any major new part of a ship such as a completely new set of engines.

That is the proposal and it may well fit the needs of the shipping industry, because although there is at present the problem that the industry has accumulated a large figure of investment and capital allowances which it has not used because of the low level of profits, in years to come those profits may increase and, having dealt with the short-term problem by the Amendment to Clause 80 and having covered two or three years ahead, we hope that shipping profits will rise considerably over the years further ahead when free depreciation will then be very relevant, indeed. Having, as my right hon. Friend did, found the key to the solution of the short-term problem, we hope that this solution, which would not be of assistance in the short run, will be of great assistance to the industry in the long run.

Mr. Simon Wingfield Digby (Dorset, West)

I welcome the new Clause. I am glad that the Government have recognised the special position of the shipping industry in this way. In Committee, we were at pains to suggest a number of Amendments designed to that end and we put forward a new Clause, No. 33, which had almost exactly the same end as this. I also welcome the Amendment to Clause 80 which the Government are to move. However, we shall have some criticism to make of that Amendment, because we feel that it might have gone a little further in selecting more favourable years as the test years. I agree that the new Clause will mitigate the effects of Corporation Tax on shipping. I have always regarded it as one of the worst features of Corporation Tax that it would have a bad effect on shipping.

The Clause will provide interim help for the industry in its immediate problems and difficulties. However, although it will help the industry in its temporary difficulties, it is not the long-term solution for the problems of the industry which still faces very fierce competition from flag discrimination and flags of convenience. I hope that the Chancellor of the Exchequer will not feel that now that he has done this in this Finance Bill this is all that is needed for the industry and that it will not be necessary to hold further conversations to see what can be done to help the industry to face its problems and continue to make a very big contribution to our balance of payments in future as it has in the past.

In Committee, when we raised new Clause No. 33, we discussed a lot of these points. At that time the Chief Secretary was very much less benign to us than he has been tonight. He complained that under existing circumstances, no less than 55 per cent. of a new ship was allowed to be written down in the first year, whereas under the Clause, as he rightly told us, it will be 140 per cent. I am glad that we have seen some considerable conversion in his attitude, because I am sure the new approach is the right one.

Some firms will be able to draw immediate advantage from these new conditions, and others at a later stage when the shipping industry is able to improve its profitability, as we believe it will. I would like to remind the Chief Secretary of something he said, looking rather sternly at me, during the Committee stage: Although he is trying to help the industry he is not doing SO."—[OFFICIAL REPORT, 23rd June, 1965; Vol. 715, c. 1900.] That was when I was talking in favour of a Clause which was almost identical to this one.

I am glad that he agrees that I was trying to help the industry and that I was trying to help it effectively, and I am delighted that the Government have come round to the same view. I hope that when shipping comes up on future occasions, we shall be able to look forward to their co-operation.

This applies not only to new ships laid down after the beginning of the financial year, but to expenditure from the beginning of this financial year on ships which may be on the slipway, laid down, or may be fitting out. That portion of the expenditure which falls from the 5th April will be covered by the Clause. It will apply to capital expenditure on ships already afloat if it comes to replacing their machinery or if they have a major refit. Although I believe that to be the intention of the Government under the Clause it is not absolutely clear on a first reading and I wanted to get this on the record.

I welcome this Clause, which will be of benefit to the shipping industry and I am glad that, with the persistence of my hon. Friends we have managed to secure this concession. We have long believed the Chancellor had sympathy with the industry and we are very glad that he has shown it. I am glad that the Government have, like previous Governments of all parties, recognised that in an island like ours, dependent on trade, the shipping industry is in a special position.

Dame Irene Ward

I, also, want to add my thanks and to support the points put forward by my hon. Friend the Member for Dorset, West (Mr. Wingfield Digby). I noticed that he mentioned the question of capital expenditure on ships in the case of a refit, but rather tossed it off and did not really state in clear and precise terms, by making use of the phrases "ships afloat" and "ships existing before the passing of this particular Finance Bill". It is always a little difficult when these things are not written clearly into the Clause. We want to make clear what the shipping industry wants, what we want and what I understood the Chief Secretary to say. I want it to be spelled out in conclusive terms.

We are all very pleased that we have been able to help the shipping industry, but occasionally, just occasionally—and I say this in the nicest possible way—it would be pleasant if the Government would acknowledge the help which they have had from the Opposition. When the Bill was introduced the shipping industry was not mentioned in it at all. It would, therefore, be pleasant if the Chief Secretary would refer to the substantial part which the Opposition have played in having the shipping industry included in the Bill. I do not mind being hit on the head for doing nothing, but when something is done I fail to see why the Government cannot say how delighted they are that the Opposition have taken so much interest in the shipping industry that they have been able to help the Government with their proposals.

I hope that the Chief Secretary will clear up the points which have been raised. I know that sometimes he enjoys my speeches. I also hope that he will acknowledge that he listened to the words of wisdom from this side of the House in Committee.

Mr. Stanley R. McMaster (Belfast, East)

May I add a few words in support of my hon. Friends the Members for Dorset, West (Mr. Wingfield Digby) and Tynemouth (Dame Irene Ward) in welcoming the Clause. But I would stress that although the Clause will be of some help to a certain number of shipping companies, it is not a long-term solution.

I notice that the Minister in charge of shipping partly agrees with me. I draw his attention to the words of the Chief Secretary when we were considering new Clause No. 33. The Chief Secretary then rejected the idea that free depreciation would help. In close argument, he said that many companies did not make profits but were gathering so many certificates in capital allowances that they could paper walls with them. This is true. A number of companies have made progress in the past 10 years, but a number have not, and the new Clause will not help them.

I hope that the Chief Secretary and his Treasury colleagues will consider carefully whether some additional assistance besides the new Clause and the Amendment to Clause 80, which provide only short-term relief, will be necessary to enable our shipping companies to face the kind of competition to which my hon. Friend the Member for Dorset, West referred.

Mr. Edward M. Taylor (Glasgow, Cathcart)

I, too, welcome the new Clause. In the words which the Chief Secretary used in Committee, it will give the shipping companies more paper for their walls, and they will be able to remove it a great deal faster. To that extent, it is welcome. Certainly, when better times return to the industry it will be of great value.

I should like clarification of two small points which have arisen in the debate. First, what is a new ship? Will the Clause cover the "jumbo" job in which a tanker is brought in and fitted with a new centre section to increase the capacity? This was done very successfully by the Blythswood Shipbuilding Company, on the Clyde. There is a great deal of scope for work on similar jobs. For example, a small tanker which is not economic can be made economic by additional capacity in this way. I should like to know if this would come within the scope of the definition of "a major overhaul".

Secondly, could I ask about the overhaul of a passenger liner which does not change the character of the ship but does change the kind of traffic it takes? Two jobs have been undertaken by John Brown's on Clydebank in which there was a major conversion to improve passenger accommodation and to cater for a trade not possible with the ship in its previous form. Would it be possible for the allowance to be claimed here? This is a major concession but, from the point of view of the shipyards which undertake this type of work, I would seek an assurance that it will apply in the cases to which I have referred.

12.30 a.m.

Mr. Peter Emery (Reading)

Although late in the day, I, too, would like to say that this is an important matter for the shipping industry. I think that it would feel most constrained if this Clause, or something very similar, had not been tabled by the Government. I say, without any political aspect at all, that it is a sign of constructive opposition that we have this concession because, whether the Government like it or not, our new Clause 33 moved during the Committee stage was almost identical to this new Clause. I would remind the Chief Secretary of what he said during our discussion on 23rd June: I therefore suggest that although the Clause has been put forward with great sincerity, it is of no help to the shipping Indus- try we all desire to assist."—[OFFICIAL REPORT, 23rd June, 1965; Vol. 714, c. 1901.] That is the way in which the Chief Secretary summed up our discussion on that new Clause which, I must emphasise, is all but identical to the one before the House tonight. It is obvious that the Chief Secretary and his right hon. Friends must have read our arguments and found that they were quite sound. Therefore, we congratulate the Government in no small measure on their wisdom in having seen the folly of their former ways and having as a result tabled this new Clause.

I would like to ask two questions. It is important that we should realise that so far as shipping is concerned this does not go all the way toward meeting the criticisms which had been made about Corporation Tax. I ask the Chief Secretary whether he intends to carry out—and I believe that discussions have been going on—any sort of investigation to see what further ways can be devised specifically to help the shipping industry through the Treasury. I should like in to be made quite certain that the Government do not suggest that there is finality in any further consideration they may give to the industry.

The second point is that I should like to reinforce what has been said by my hon. Friends the Members for Dorset, West (Mr. Wingfield Digby) and Tynemouth (Dame Irene Ward) about the definition of a new ship. I think this necessary in view of the wording in subsection (1) and the reference to the Income Tax Act, 1952. I suppose that any major refit taking place after 6th April this year would be liable for the free depreciation which the new Clause allows. I should think that this is a correct understanding of the Clause, but because of the wording of the Schedule there is misunderstanding. Could we have a comment on that?

The last point I would ask is whether the right hon. Gentleman can say that he realises that, although we fully welcome this and, indeed, say that it will go much further than the Government spokesman have previously suggested, the Chamber of Shipping has said that the grant of free depreciation is of first importance in the long term, but asks about the smaller companies. The Government must realise that it is the large companies which will be most able to benefit from this free depreciation concession, and I would ask the right hon. Gentleman what provisions the Government have in seeing that the smaller companies will, in fact, be able to benefit. That goes back to an earlier question which I asked during our previous discussions.

If we could have answers on these points which have been raised by my hon. Friends we would say that we think the Government have done wisely in bringing this new Clause, but we must, after all, take credit for it, as it is the Clause we moved in Committee.

The Chancellor the Exchequer (Mr. James Callaghan)

As I conducted, with the Chief Secretary, most of the negotiations with the shipping industry perhaps I should say a word about this. I am grateful for the way in which this new Clause has been received, though I did not wholly recognise the versions of history which are now going to appear in HANSARD. The answers to the particular questions which were asked are these.

First of all, as far as the "jumbo-ised" ship is concerned, that would certainly, in my understanding of the way the Clause is drawn, rank for free depreciation. I am not quite so certain about the passenger liner. I do not think hon. Gentlemen should press me too far on that one, although it would depend not so much on the purpose for which the ship was being run as on the nature of the reconstruction which was done. But I should not care to give an authoritative answer on an individual ship. I think that that must be allowed to be worked out between the Inland Revenue and John Brown's or whichever firm is concerned.

With regard to a ship on the slipway—to answer the hon. Lady the Member for Tynemouth (Dame Irene Ward) and the hon. Gentleman the Member for Dorset, West (Mr. Wingfield Digby)—expenditure, if incurred after 6th April, would rank, as would major refits, for free depreciation. So I hope that answers most of the detailed questions which were raised.

As regards the problem of the shipping industry, the hon. Gentleman the Member for Reading (Mr. Peter Emery) has claimed credit for the new Clause, but in order to get the history in perhaps a slightly different focus I ought to say that I discussed the questions of the future of the shipping industry with the industry long before the Budget—in January—because the problem of the shipping industry is not, frankly, the problem of Corporation Tax. It is the problem of the lack of profitability of the shipping industry. It is that which is causing these problems and not that there is a Corporation Tax; but because, with the change-over in the tax system, the industry is unable to take advantage of practices—on which I shall pass no judgment, but merely state they are practices—which enable the industry to reclaim a lot of tax it had not paid and which in future it will not be able to. This is what is causing the problem in the shipping industry. If it had had a higher profit ratio it would not be faced with this problem. I pointed this out to the industry in January. I said, "Come to me with an agreed solution. Tell me what you think is the way to handle this problem in the industry." We have had discussions at various stages since.

Free depreciation does not solve the industry's problem. Only greater profitability will solve that. Otherwise it would only have bits of paper to stick to its walls. Not till it becomes more profitable will this be of advantage to the industry.

Meantime, there is a problem remaining. I would be the first to come to its support if the industry were to come to the point when it wants Government intervention in its affairs, but it will have to decide that, though it must be a matter of balance between the industry and the Government. This is such a great national asset that if it looked as though it were going to be a burden on our balance of payments I told the industry that if it wanted Government intervention—I did not say assistance, for one would need to know what form it would take—I should be glad to consider that in continuing discussions, and these have been going for some time. I think that basically their problem is that because of its cyclical nature the shipping industry has not been profitable. Perhaps it will become profitable, I do not know. It looks a little more like it, but it has not been profitable for many years.

The hon. Gentleman asked why the Chief Secretary had rejected the new Clause in Committee but was prepared to accept it now. My right hon. Friend gave the answer to that. It must be looked at in conjunction with Clause 80, because they go together. Clause 80 provides a measure of transitional relief. That is to say, it provides for a larger set-off of tax to shipping companies for a short period of some years, and then the free depreciation will be geared and will take up the advantage.

Dame Irene Ward

I think that "co-operation" is a happier word than "intervention". There is a great difference between intervention, which has a possible political content, and co-operation.

On the general question of Corporation Tax, is it not a fact that Sir John Hunter, who plays a distinguished part in Government circles as well as in private industry as Chairman of Swan Hunter, has said—and we on the North-East Coast would never doubt his word—that Corporation Tax is a disadvantage to the shipbuilding and shipping industries?

Mr. Callaghan

There is bound to be disadvantage if it destroys the prerogative which has been enjoyed so far of getting a repayment of tax which has not been paid. But that was the object of the change-over, and to that extent he is right.

As regards the semantics, I shall adopt any form of words which the hon. Lady cares to suggest. Shall I say, "Co-operation to intervene at the moment when it is asked for"? If we could conclude on that basis, perhaps I might say that the shipowners welcome this idea of free depreciation which I put forward to them at an early stage. I think that it is medium-term help of a considerable nature, but the basic profitability of the industry is going to be the test in the long run. I am grateful to the House for the way in which the new Clause has been received.

Question put and agreed to.

Clause read a Second time, and added to the Bill.

Further consideration of the Bill, as amended, adjourned.—[Mr. Ifor Davies.]

Bill, as amended, to be further considered this day.

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