WITHDRAWAL OF INITIAL AND FIRST-YEAR ALLOWANCES (Hansard, 11 July 1984)

§ Mr. Wallace
I beg to move amendment No. 152, in page 43, line 3, after `(1)', insert `Except as provided in subsection (3) below'

§ Mr. Deputy Speaker (Mr. Ernest Armstrong)
With this, it will be convenient to take the following amendments: No. 153, in page 43, line 20, at end insert—p '(3) Subsection (1) above shall not apply in respect of capital expenditure for the purchase of a fishing vessel by a person solely engaged in fishing .

§ Mr. Wallace
I shall try to be as brief with fishermen as I was with whisky.
The effect of the amendment would be to retain capital allowances in respect of expenditure on fishing boats for persons who derive their income solely from fishing.
I should like to say a few words about the background of the industry against which the amendment must be seen. Most vessels in Scotland, particularly in the islands, are part or wholly owned by the working skipper and operated by working fishermen. The ownership is often shared with other members of the skipper's family, and, in some cases, by young fishermen investing their capital in a small share in the boat.
The essence of the share fishing system is that all who participate in the venture participate in the proceeds. There is also a reasonably well understood ladder whereby skippers go on to bigger and better boats so that younger fishermen have the opportunity to acquire the older boats and thus establish themselves. That is the dynamic nature of the industry, which, despite many problems, has done 1313 a great deal to modernise itself. Nowadays, if one goes on board a fishing vessel, one sees extremely sophisticated electronic equipment.
That is the background against which I argue for the retention of capital allowances. Two points stand out. First, share fishermen are almost invariably self-employed. Under the Bill as it stands, they would lose their allowances without benefiting from lower rates of corporate taxation available to the corporate sector. Secondly, even allowing for grants from local, national or European sources, the purchase of a new boat involves an enormous capital outlay, usually assisted by substantial bank borrowing.
Under the system of capital allowances which operated before the Budget, the skipper of a new vessel could use the first-year allowance to set off against the balancing charge arising on the sale of his former vessel because he was allowed to claim up to 100 per cent. If he is restricted to 25 per cent., as the Bill proposes, the tax loss to be set against the balancing charge will be such that many skippers will face substantial liability to income tax. Consequently, a bank overdraft will be required to meet not just the balance of the purchase price but the substantial tax demand.
It is feared that the result will be that many skippers will be deterred from buying new boats or that the banks will not be prepared to grant the additional overdraft facilities. Similar considerations apply to younger fishermen coming up through the industry. If the older boats do not come on to the market and they have only a small share in an existing vessel, they will not have the advantage of the first-year allowance when they seek to become skippers themselves.
In short, it is feared that the restructuring of capital allowances will be a disincentive to modernisation of the fishing fleet and a barrier to subsequent generations of skippers and fishermen on whom the industry depends —an industry on which in turn many local communities in my area depend. We believe that the Bill is a recipe for a less efficient fleet.
I appreciate that the industry was very late in recognising the full impact of the proposals, and representations have been made to the Treasury only in the past two or three weeks. However, the purpose of the amendment is to highlight a serious threat to the industry in the hope that, even if the Government are unwilling to accede to the amendment, as drafted, the Minister will acknowledge the problem and express his willingness to discuss it with representatives of the industry and to try to find a way to mitigate the serious effects of the Bill, as drafted

§ Mr. Albert McQuarrie (Banff and Buchan)
I apologise for not being present for the start of the speech made by the hon. Member for Orkney and Shetland (Mr. Wallace) as I was occupied in the Scottish Grand Committee. I support amendment No. 153 in the name of the hon. Gentleman and myself because clause 57 as drafted is causing great concern to fishing vessel owners.
Around the coast of Scotland, and especially in my area, there are more than 1,500 fishing vessels, mostly owned or operated by working fishermen with the skipper either owning all the equity or joining in a partnership with a number of crew members. More often than not, the crew will include family members. This will cause added 1314 difficulty if capital funding is taken away because it will be harder for a family member or a young fisherman to acquire a first interest in a vessel.
The vessels are operated entirely on the share fishing system in which everyone participates in the success or failure of the voyage. That is an indispensable element in the progression and development of the modern fishing fleet in Scotland. At the appropriate time, the skipper can acquire a new or larger vessel, thus creating opportunities for young men to purchase their first vessels. Such a step requires a major investment decision. In the past, the free depreciation on fishing vessels has helped to enable people to take that decision. If clause 57 is not amended, it wall halt the progress in fishing vessel ownership and investment, which has brought the Scottish fleet to the forefront in Europe, and the industry will be left with an ever-ageing fleet.
11.15 am Withdrawal of the present free depreciation will have a serious knock-on effect for the boatbuilding industry, which depends entirely for its survival on an adequate supply of orders for new building and modernisation work. I therefore trust that amendment No. 152 will be accepted and that fishermen will continue to benefit from free depreciation without the restrictions that clause 57 as it stands would impose. We must support the fishing industry and not penalise it. The amendment would have the effect of allowing exemption from section 1 of clause 57 where the asset giving rise to income and profit remains the main, or part of the partner's business activity. I commend the amendment to the House

§ Mr. Moore
I shall be brief, but the brevity of my response will not mean that I underestimate the importance of the fishing industry.
Amendment No. 152 in the name of the hon. Member for Orkney and Shetland (Mr. Wallace) and my hon. Friend the Member for Banff and Buchan (Mr. McQuarrie) is incompatible with our basic Budget corporation tax strategy, but I would not wish hon. Members to be unaware of our commitment to the fishing industry. The Government have worked hard within the European Community to negotiate the common fisheries policy, which is a broad framework within which the industry can plan for the future, and which will help to bring about a better balance between fishing capacity and the market.
In addition, we have made a full range of grants, worth up to £85 million over the next three years, available from Community and Exchequer funds. Those funds will help to remove from the fleet some vessels that are no longer viable, while at the same time we are encouraging building and the modernisation of the remaining fleet.
We should not accept the claim that the impact of the Budget on the fishing industry will be as widespread as has been suggested. I fully understand the ownership relationship in parts of the fishing fleet, and I recognise the difficulties surrounding unincorporated business. However, I believe that other aspects concerned with the balancing charges have not been fully appreciated. I shall write to the hon. Gentleman and will make sure that the industry receives copies of the correspondence, because it is important that the dialogue should continue. I remind hon. Members who have not been present throughout the night—I do not need to remind the hon. Member for Orkney and Shetland — that we have made major and 1315 substantive changes to clause 34, in relation to the increased flexibility in the use of writing-down allowances and the commitment to continue free depreciation for shipping, which of course includes fishing vessels. Recognising the difficulties but bearing in mind the additional assistance that the Government have sought to give, I hope that the hon. Member will not seek to press the amendment to a Division

§ Mr. Wallace
Having listened to the Minister I am particularly grateful to him for saying that he will continue the dialogue. The important point is that fishing is not within the corporate sector. It is its incorporate nature that causes the problem. As the Minister has undertaken to continue the dialogue, I beg to ask leave to withdraw the amendment.