§ 4.5 p.m.
§ Debate resumed.
§ VISCOUNT RUNCIMAN OF DOX-FORD
My Lords, in declaring, as is my duty, my interest in the subject of this debate, I should like to say that, though it is probably closer and more intimate than that of many of the Members of your Lordships' House, it is one which is and should be shared by every inhabitant of these islands, as the noble Lord, Lord Winster, had so convincingly shown us. I should like to say how fully I find myself in agreement with nearly everything that fell from the noble Lord's lips during the course of the interesting and comprehensive speech he made in introducing his Motion. I wish, however that I could feel as confident as he seems to be about the prospects of British shipbuilding; and I should be unwilling to enter too far with him into the tortuous and controversial labyrinth of maritime æsthetics.
If I do not attempt to match what the noble Lord has said by anything like an equally comprehensive review, it is simply because he has covered the ground so admirably already and I should not wish to weary your Lordships more than 339 necessary. But I hope your Lordships will forgive me if I detain you for a little while upon a question with which the noble Lord did deal, that of flags of convenience, because I think it is the most important single question which confronts certainly the British mercantile marine and probably the mercantile marines of all the traditional countries of the world at this time. If I should repeat some of the things the noble Lord has said, I hope that I may be forgiven.
As the noble Lord, Lord Winster, said, the tonnage operated under these flags now amounts to considerably over 14 million gross tons; and it represents, I believe, rather more than one-sixth of the total active tonnage of the world. About half of it, roughly speaking, is tanker tonnage, and the other half dry cargo tonnage. But the proportion of tankers to dry cargo ships under those flags has increased, and is increasing, which is in keeping with the other point made by the noble Lord: that these are modern fleets, on the whole, and that their increase is not due to the purchase of second-hand tonnage from traditional maritime fleets but is brought about by the construction of modern and, indeed, quite first-class tonnage on their own account. In fact, more than half their tankers are under five years old. All that shows, if indeed the figures did not show it on their own, how rapid has been the growth of these fleets, from—I was going to say nothing, but I will say negligible proportions, at the close of the war, to something like one-sixth of the, world's tonnage in twelve years. That is a rate of increase which, if I may use the word without being misunderstood, one can regard only as highly unnatural.
The noble Lord had something to say about the true ownership of the ships operating under these flags—for nobody supposes that they really belong to the nationals of Panama, Liberia or Honduras. About 80 per cent. of them are known fairly certainly to be in the ownership of either the United States or United States citizens, or of persons (I should hesitate to call them quite shortly "Greeks") of perhaps somewhat uncertain nationality, but with Greek connections or antecedents. Of the tanker fleet rather more than 3 million tons belongs to such Greeks, and nearly half of that to 340 the two brothers-in-law whom the noble Lord has already named. It is a very remarkable achievement—and let us say so frankly—that two individual persons should control between them more than 1½ million tanker tonnage and should have acquired that control in such a very short time. Something over 3 million tons of the tanker tonnage is owned by United States nationals, and of that amount, getting on for two-thirds is directly owned or controlled by the American oil companies. That is a point to which I shall return in a moment or two. Of the dry cargo tonnage, about 2 million tons is under United States control and about 4 million tons under Greek control. A very high proportion, I think, of that has been, and probably still is, employed in the North Atlantic coal trade, though ships of these flags have certainly penetrated quite deeply into a number of other trades as well.
I think it is proper to consider why we feel, as obviously we do, that the growth of these fleets is harmful. If it were merely a question of their being a nuisance, or even a menace, which they certainly are, to the British mercantile marine alone, it would still, I submit, he a proper subject for your Lordships' consideration. But I think, in fact, that the evil goes further than that; and I think that it is quite proper for us to consider them as an undesirable element, to put it no higher, in the merchant shipping of the world at large. And since merchant shipping is, above all else, an international undertaking, I believe that we are justified in looking at it to some extent from an international point of view.
Why do the people who own these ships find it worth while to own and operate them under these flags? In the case of the United States, I think that tonnage cost (a matter already touched upon by the noble Lord, Lord Winster) is probably the prime consideration. We all know that on a free and open market it would be virtually impossible for ships flying the United States flag, and operating under United States conditions, to compete in terms of prices with ships of the other great maritime Powers. We have accepted, and I think shall continue to accept, as a matter of reality and practical politics, whatever one may feel of it in terms of economic theory, that the 341 United States will wish to have, and will continue to wish to have, under their control substantial quantities of tonnage for purposes not only of their national defence but also as some safeguard to their national economy. Even if we wished that they did not feel like that, I do not think that it is any of our business; and we shall get nowhere by reproaching them for it.
I do not myself, therefore, feel that the same dangers are run by the rest of us from the fact that 2 million tons of tanker tonnage is plying under the flags of Panama and Liberia, so long as the ultimate control remains with the United States. They have a very direct link with a. very responsible Power, and I think I am right in saying that the United States have retained powers under which, in the event of emergency or hostility, they can require at any rate the greater proportion of these ships to be re-registered under the American flag. I feel, therefore, that, taking a realistic point of view, we are bound to sonic extent to omit from our consideration of the problem that block of tonnage. The same may be partly also true of the dry cargo tonnage under United States ownership. Indeed, I think it would be quite difficult for us in this country to complain unduly of people using other flags than their own for the purpose of reducing their costs of operation. I have only to remind your Lordships of the considerable volume of Canadian-owned tonnage which is registered in this country at present for precisely that reason—a fact of which I do not think any of us is likely to complain. After all, to a certain point we must recognise that "fair's fair."
It is the question of the tonnage owned by people who do not appear to have any very direct connection with any major Power which I think is rightly causing us the anxieties that we feel. After all, the countries in which these ships are registered are not in a position, even if they thought fit to try, to exercise any noticeable degree of control over how the ships are operated, how they are manned, the conditions under which they are used, or to bear any part in those general international arrangements by which shipping throughout the world is being regulated, in the interests alike Of those who use shipping services and. in the long, run certainly, of those who provide them. In this connection, perhaps 342 your Lordships will allow me to quote briefly from a Report on a survey by the Maritime Transport Committee of the Organisation for European Economic Co-operation which was issued early in this year. Touching on this same point, the Report speaks of one of the results of the growth of these fleets as giving rise:to a diminishing degree of importance on world shipping on the part of the maritime countries with their generally accepted standards of maritime jurisdiction and authority.That is an impartial statement, my Lords, and I have not the slightest hesitation in endorsing it thoroughly.
Then again, attempting to look at this matter as objectively as one can, is there a case for saying that the standards under which these ships are operated are, in fact, very much lower than those of the traditional maritime countries? I think we have to say, quite fairly, that the answer is that they are not. Those in United States ownership have, after all, that degree of guarantee behind them. The underwriters, the classification societies and, to some extent, the customers who use the services of these ships are all bound to say that the ships are, at any rate, satisfactorily maintained and fitted for their job. Although (and I think it is regrettable) there are few agreements of a binding or wide character between the owners of these ships and the crews who serve in them, it is nevertheless the fact that the unions have succeeded—and they are, I think, to be warmly congratulated on the results of their efforts—in securing that, with very few exceptions, the conditions of pay and employment in these ships are maintained at a level which, if it does not in some cases even surpass, certainly in the main equals, those of the traditional maritime Powers.
It is true that, certainly in the case of manning, they have what one might call a parasitical characteristic. The owners, or their countries, do not go to the trouble that the rest of us do to provide proper training for officers and engineers; they merely come along and "pinch" (if the word may be permitted) the skilled men who have been produced by the traditional maritime Powers in the ordinary course of their business and for their own purposes. They have a certain bulge there, and they are not slow to take advantage of it. That same O.E.E.C. survey which I quoted a 343 moment ago refers to the possibility of the cutting of freight rates in bad times through a reduction of standards. That course is open to them, it is true, but so far there is no evidence, I think, that they have adopted it. There can be no guarantee, however, because nobody can stop them from doing so if they feel so disposed. In times, if such should come, of widespread world unemployment of seamen, it might be a good deal easier for them in the future than it has been in the past to take advantage of a lack of organisation among their crews to do exactly that thing.
Their operations have up to now been confined mainly to the tanker and tramp trades. In the liner trades, they have intruded to only a limited degree. But again, lest I should be giving a prejudiced view, I should like to read one final quotation from the O.E.E.C. survey, which, speaking of liners—and it is a point of general interest which is well worth bearing in mind—says this:These trades, the liner trades, are organised in a way which ensures an even and stable service for traders irrespective of fluctuations in the availability of cargoes. Attempts by outside ship owners to enter these trades in an irresponsible way to cream off valuable cargoes in good seasons and to leave trade to its own devices when times are bad are against the general interests of merchants and traders.That really is the point which I should like to emphasise to your Lordships this afternoon. It is the merchants and the traders whose interests, in the long run, we believe are menaced by the growth of these fleets. The menace to the traditional providers of shipping services is in a sense incidental.
I think that if one has to find one term to summarise the nature of that menace it is simply this: that these fleets are enabled to an almost unlimited degree to behave irresponsibly. It is the irresponsibility which, over a long period, is I think the most dangerous element. How, then, is such irresponsibility to be controlled? It will not be controlled, I think we may be fairly certain, by the countries whose flags these ships fly. I am extremely doubtful how far it can be directly controlled by any action taken by the Governments of other countries. It is, as the noble Lord has said, certain that no such action can be effective unless it is combined action and includes virtually the whole of the major shipping Powers of the world.
344 Certain suggestions in that direction led very early on to a clear indication that Japan, for one country, was unlikely to fall in. I think it is improbable that the United States would be willing to accept any measure of control which would be satisfactory to the rest of us. I fear, therefore, that the possibilities of getting international agreement for control are remote, and even if we could get it the practical problem of exercising it in the ways in which it should be exercised is immensely difficult and immensely complicated. I will not attempt to lead your Lordships through even the by-paths of that labyrinth this afternoon, or I fear that none of us would get any dinner tonight. Suffice it to say that, as a practical problem, of the many solutions which have been from time to time considered by shipowners in this and, indeed, in other countries, very few have offered any hopeful possibility of a cure which would not probably be, in a different way, almost as harmful as the disease.
There is only one line of country on which, though I am not hopeful that it will be, I think progress might be made. I said a few moments ago—and I had the feeling that your Lordships agreed —that the growth of these fleets was in the long run against the interests of all the users of shipping services throughout the world. Now it is a simple truism that the shipowner exists to carry the cargoes that somebody else wants carried and, moreover, wants carried in his ship rather than in somebody else's.
That leads me on to the word "discrimination." I hope your Lordships will not think that I am trying to make a play on words if I say that there are two very different meanings to that word. The first is the discrimination which is exercised by a customer or a purchaser of any goods or services—the choice which he exercises in the goods and services which he will buy and from whom he will buy them. That is a discrimination of which I think many of us in many connections would like to see more than we have sometimes seen in the past. Certainly nobody who is providing services can complain—he should, indeed, be glad—if he finds his customers highly discriminating in their choice. Discrimination by Governments, on the other hand, is discrimination by third parties, 345 not parties to the bargain, and it has the effect, as the noble Lord so clearly pointed out, of restricting the ability of the customer to discriminate in the former sense. It limits his choice. The whole reason for its existence is in fact to enable people to compete in the provision of shipping services who would not be able to do so without discrimination either in their favour or against somebody else. It must, therefore, in its essence, be harmful to the general progress of the transport of goods about the world by sea.
We might well feel that, although that view is correct, as I believe it to be, this case is so exceptional that governmental discrimination should be exercised against ships flying the flags of convenience. For the reasons I have just given, I do not believe the attempt is likely to succeed., but I am quite certain that if the major users of the services provided by the ships were persuaded that their own best interests over a period of time would not be served by using them any more than they had to, quite a noticeable change of climate would shortly be felt.
In this connection, I should like to quote some words which fell from the lips of Mr. Tennant, of the British Navigators' and Engineer Officers' Union towards the end of last year. He said in a public speech:I think that if charterers got together internationally and agreed among themselves to stop chartering these ships, and public utility corporations did the same, the effect would soon be felt.I entirely agree with him, except perhaps that he may be going a little too far when he said "stop chartering." I would say: Do not use them if you can get tonnage from one of the traditional maritime countries. For, after all, in the past few years when, generally speaking, the supply of tonnage in the world has been considerably less than the demand for it, it would have been unreasonable and, indeed, stupid to fail to take advantage of any tonnage that was available. But at the present time, when something like the opposite is taking place, I think the charterers and the merchants and traders, if they chose to take advantage of their market superiority, could do something which would, in the course of time, work strongly in their interests.
346 Though it is a dangerous thing ever to suggest to anybody else how he should conduct his affairs, it seems to me that the oil companies, if they were so minded, would be in a particularly strong position at the present time to take that precise action. If they were to say that they would not renew any charter with a ship flying the flag of Panama, Liberia or Honduras so long as they were able to find a vessel flying almost any other flag in the world, then I think you would find a noticeable shift of tonnage from those particular flags--I will not say to which, but, at any rate, to flags whose control over them would be more effective and more salutary. That is the only attempt at a concrete suggestion which I can make to your Lordships, but I say, quite frankly, that I have not any great hope that the enlightened self-interest of the merchant traders and oil companies of the world has yet reached the point at which they are likely to adopt it. I think it is worth trying, and I make no apologies for suggesting it.
There is only one other thing, of a more general character, that I would say before I sit down. We are debating this subject, for the first time, I think, in your Lordships' House of recent years, when the prospects for the shipping trade are bad. Of how bad they are the noble Lord, Lord Winster, gave us some examples. I think that they are even worse than he said in the North Atlantic coal trade, where I believe the more recent rates have been about 22s. per ton, instead of the 30s. he mentioned. What that means in practical terms is, roughly speaking, this. It has been calculated fairly accurately that a Liberty ship can just about pay her way on a cash basis in that trade at a freight rate of 40s., and the more modern bulk carriers could perhaps do the same, on a cash basis, and again without proper allowance for the increased capital cost of the ship, at about 30s. Below that rate any tonnage making, a charter is bound to do so at a considerable loss. And that is not a unique case. It is perhaps worth noting, in passing, that a great deal of tramp tonnage which used to come on the open market has been taken off that market in recent years, as is also the case with tankers, which are being either taken on long-term charters or employed directly by the owners of the goods which it is required to carry. I think, too, that 347 the habit of chartering in bulk has had something of the same effect in reducing the area of the open market.
That being so, changes in demand show their effect upon a much smaller number of ships nowadays than they used to, and consequently the movements up and down become very much more marked. A large number of ships in the world are still carrying cargoes on contracts arranged before the present fall in freight rates. It is not, therefore, a universal fall, and the fact that it is not universal makes it more marked where it does show. I do not know what moral to draw from this. The moral I should like to draw, though it may not appeal to some of your Lordships, is that open market economy has a very great deal to be said for it, whatever views may be held to the contrary. But that, again, is, I think, a tendency unlikely to be reversed in modern trading conditions.
This is my final point. I do not believe that you can overcome wide fluctuation in the demand for tonnage, and consequently in the remuneration which from time to time it can command, by any form of planning or any form of international agreement. The thing is not forecastable. A ship will last for twenty years, and in the ordinary experience of life during that time there will be a mixture of good years and bad years. The good years, I am sorry to say, are frequently occasioned by the failure of politicians to preserve the prospects for peace as constantly as we should like. The last two notable booms in shipping resulted, first, from the Korean war, and secondly, from that train of events which followed the Egytian seizure of the Suez Canal. There will always be geographical variations and variations in extent. There must, therefore, be some surplus of tonnage if the world is not much more frequently than it ought to be starved of the tonnage it requires for its daily needs. If that is true of the world, it is even more true of this Island. There has, therefore, been a recognised obligation on the part of shipowners of all countries to build up to what they think the probable maximum demand, rather than to attempt to restrict tonnage in case demand should fall off. That is part of the Faith with which the noble Lord credited us. I 348 think it comes also with the other Christian virtues of Hope, and I dare even suggest Charity.
But you can only do that, and this country above all can only do that, if you are in a position when times are good to make sufficient provision not only for the general replacement of your fleet but also to carry through your day-to-day operations without undue strain when times are bad. The man who is operating his ship at a cash loss may still feel it better to do that than lay her up at a greater cash loss. I am sure it is in the interests of employment among seafarers, the maintenance of the vessel, and the traders of the world, that he should do so; but he cannot do that if he has no fat to live upon. One of the reasons—I think the main reason—why British shipping has, as the noble Lord was generous enough to say, come back again after the immense losses of two world wars is not only because of the schemes of war risk insurance but also because of the fact that for many years before each event shipowners have, frequently to the annoyance of their shareholders, thought it proper to plough back large sums of money rather than distribute them. The real risk I see to British shipping in future is that it may be unable to do that. If it becomes completely unable to do it, I do not think the people of this country will be able to count in the future, as they have in the past, upon an adequate, stable and efficient mercantile marine.
§ 4.37 p.m.
§ LORD SALTER
My Lords, when the noble Viscount who has just sat down stated his association with the shipping industry. I naturally reflected, as doubtless many of your Lordships did, upon how great in shipping history is the name he bears, from a time earlier than that which is within the memory of any one of us As I reflected upon that fact and also looked at the names of some of those who are to follow me to-day, I thought perhaps that I, on the contrary, ought to begin with a declaration of no interest in shipping in the technical Parliamentary sense in which that term is used. I have to confess—with shame and regret—that I have no responsibility for, or financial association with, any shipping company. I think it worth saying at this moment because one or two things 349 that I shall say later on—sorne modest proposals in regard to taxation, for example—perhaps come better after one has made that declaration.
In the ordinary and popular sense of the term "interest", however, I have indeed a very deep interest, deepened by an association through official duties which started more than fifty years ago and which has at times been a very intimate one. I happened to be at a central point in the merchant shipping control during each of the two great wars of this century, and I saw from that angle of vision—and it has left an indelible memory upon my mind—how, in each of those wars, not only success but survival depended upon the adequacy of the British mercantile marine and upon the courage and skill of those who manned it.
Having said that, I feel that I ought at once to add that the arguments by which I am about to support the theme which I shall put before your Lordships to-day are not derived from that war experience. Had I been speaking in any other than a nuclear age I should have put, first and foremost, the argument of the necessity for having an adequate mercantile marine in case of war and as part of our preparation for war. I say frankly that I do not propose to use that argument to-day, because I find it difficult to picture a global, nuclear all-out war in which the chance of our having to face, and being able to sustain, a long-term blockade is sufficient to be the basis of present policy. The theme that I shall put before your Lordships to-day, therefore, is related solely to the position of merchant shipping under ordinary peace conditions.
Both the noble Lord who introduced this Motion and the noble Viscount who has just spoken, have set out the character and some of the consequences of the flag of convenience system, and that enables me to dispense with something of what I should otherwise have said. I will make only this comment: I agree with the noble Viscount, Lord Runciman of Doxford, that the prospects of an international Governmental agreement which is likely to solve the problem are remote; certainly it is a very distant prospect, even if it is not very doubtful. I can hardly think of any kind of principle or phrase as the basis of an international agreement 350 which would be more likely to give opportunities for procrastination in negotiating and evasion if any agreement was ever reached, than the "genuine link" principle of which we have heard a good deal.
The noble Viscount, however, made another suggestion, though not with any great optimism about its chances of success, which was novel and interesting—namely, not Governmental discrimination but what might be called "consumer" discrimination. There is, of course, some possibility of that as a basis of a solution, but because that prospect is neither near nor certain, I should like to qualify a little something which was said by the noble Lord, Lord Winster: that we must be careful to proceed only on an international basis.
So far as the noble Lord was thinking of Governmental flag discrimination I entirely agree with him. Unilateral flag discrimination by the British Government would be contrary to our tong-term conditions and, I believe, to our real interests. But I believe that in the long period, in which dangers and difficulties resulting from flags of convenience may increase, and in which no international agreement is possible, it may be necessary for Her Majesty's Government to consider what is within their own control in the sphere of finance and taxation policy with a view at least to alleviating the position and, doing so, in some respects, to a greater extent than they have in the past. Action of that kind is not subject to the difficulties of a country acting without international agreement which, doubtless, the noble Lord. Lord Winster, had in mind.
Of the various consequences of this system, I propose to speak only now of the difficulties of other owners in replacing their tonnage. A good deal has indeed already been done to enable and encourage our shipowners to replace. In particular, the most important step of all was the increase in the investment allowance to 40 per cent., which was done by the Budget of last year. That is a very substantial concession, and a very great help in the solution of this problem. But it is subject to two limitations. In the first place, it does not do much for the small owner who cannot plan his replacement programme in such a way as to take full advantage of it and in the second place—and perhaps even more 351 serious—it does not enable any owner, large or small, to make plans on a confident basis for a longish-term future.
In contrast to the advantages and immunities which the Liberian owner has, in the assurance that the charges on him will not be raised for a period of twenty years (in some cases twenty-five years), the British shipowner cannot rely on the investment allowance for any such period. The future of that allowance is as uncertain as its past history has been fluctuating and irregular. Though I know the difficulties of the British taxation system, I would suggest that it might be possible for Her Majesty's Government to give an assurance, in some suitable form, that investment allowances will not be played about with in the future as they have been in the past. Without such an assurance I believe that one of the main disadvantages under which the British shipowner is now suffering, as compared with the flag of convenience owner, cannot really be dealt with.
I understand the point of view of the Treasury about doing, for a particular industry, anything which, if extended widely beyond that industry, would hopelessly upset the whole of their policy and programme; and I can understand the reasons why last year the Chancellor of the Exchequer, having that in mind last year, was unwilling to make a change in the depreciation allowance, which could then be claimed by those engaged in other industries altogether. It is an advantage that, apart from the actual enjoyment of the 40 per cent. investment allowance given last year, the Chancellor of the Exchequer, in making that concession, recognised, and said explicitly, that he was taking what he recognised to be a unique step for a unique industry which is the lifeline of our country. I believe that it is from that position we have to start if we are to see any solution which will be of real help through action in this matter by Her Majesty's Government, and I would briefly remind your Lordships of one or two reasons why I feel that it is fair to claim that the British shipping industry is unique, in the sense that something done for it cannot properly be claimed as equally a right for other industries.
In the first place, I would refer to the very important place which shipping 352 work plays in the maintenance of our balance of payments position. Of course, there are two respects in which the services of British shipping help our position. First of all, there is the foreign exchange, the invisible earnings of foreign exchange, which we earn by providing shipping services to foreigners; and, secondly, there is the carrying of our own imports and exports in our own ships, whereby we avoid what would otherwise be the necessity of buying foreign exchange to transport those imports and exports in foreign ships. This is really a very big and very vital factor in the whole of our economy. It is an extremely intricate and complicated question to calculate exactly the contribution that is so made, but I am prepared, for the purpose of indicating the order of magnitude, to take the figures given in the Chamber of Shipping's last Annual Report, in which they estimated the net contribution of shipping earnings to the British balance of payments to be £221.4 million. My Lords, that figure approximates very closely to what is and has recently been the margin in our balance of payments, upon which so largely depends our ability to invest in the Commonwealth and abroad, to maintain the exchange value of our currency and to continue our function in holding the central reserve of the sterling area. It is therefore a very big factor indeed in the economy of this country.
Thirdly, I should like just to refer to a point which will perhaps be developed more fully by the noble Lord, Lord Geddes, who is to speak a little later. Lord Winster rather doubted whether it was worth going on with the encouragement of very large tankers—he doubted whether they were economical. I believe that the large tanker can be, and is, profitable in certain circumstances, which will perhaps be explained to us by Lord Geddes. If that is so, the possession of an adequate number of these large tankers, which can profitably and economically go round the Cape instead of through the Canal, is a very considerable extra safeguard, not only against the danger of the Canal being closed, as it has been for a time, but also against the closure of the Canal being aggravated by the cutting off of a main pipeline through which has come a large proportion of our oil from the Middle East.
353 If you take those three considerations together, my Lords, I think that a very strong case is made for being prepared to give special encouragement by concessions to shipowners to enable them to replace ships which they would not otherwise be able to do. Those concessions need not be admitted to be applicable to other industries, even other export industries, which cannot claim those very special reasons which I ventured to put before your Lordships, added to the very special danger which has now arisen for the British shipping industry (in a way that it does not arise in any other industry) through the development of this system of flags of convenience. It is not only the extent to which flags of convenience have developed that has to be considered, but also the rate at which they are developing. From a figure of only about three-quarters of a million tons gross before the war, I think, there has been a rise now to some 14½ million tons, of which about half are tankers; and the rate of progress is terrifying. Some kind of solution will have to be found, but while a real and permanent solution is being found, possibly in some international form, I think that some intermediate assistance of the kind I have suggested may also have to be given.
As I intimated earlier, I have not, in putting these arguments before your Lordships, dwelt upon the importance that shipping has had in the past in the case of actual war; but it must be recognised that, in the ordinary and inevitable economic competition to which we are subject, the replacement of our shipping is of absolutely vital importance.
During the last half-century the proportion of our tonnage has fallen from about half of the tonnage of the world to a little less than one-fifth. It is, I suggest to your Lordships, absolutely vital that that process of decline, which was to some extent inevitable for other reasons, should not be now accelerated and aggravated by the special difficulties which have been referred to to-day, without some adequate consideration and relief in the Government's financial and taxation policy.
§ LORD FRASER OF NORTH CAPE
My Lords, I agree that the bigger the ship the more economical it is; but the difficulty which I would put to the noble Lord is this: where do you berth such ships in this country?
§ LORD SALTER
My Lords, I quite agree that the development of these large tankers on a big scale would necessarily have to be followed by some development of port facilities or other arrangements for transhipment and so on. That is a technical difficulty on which perhaps Lord Geddes may be able to add a word in a few moments. But I had that matter fully in mind when I made my remarks
§ 4.57 p.m.
§ VISCOUNT SIMON
My Lords, I should like to add a few observations on some of the matters which the noble Lord, Lord Winster, spoke about in his comprehensive and interesting speech. Before doing so, I ought, if the noble Lord has not already done it for me, to declare an interest as a director of several shipping companies.
It is obvious to me that it is not necessary in this House to stress the importance of the mercantile marine to our country; it is fully recognised and has been referred to by several noble Lords in the course of this discussion. But, following what the noble Lord, Lord Salter, said, I think it would perhaps be helpful to try to evaluate that importance in order that it may be seen how tremendously we in fact depend upon our merchant shipping. The noble Lord spoke of some figures produced by the Chamber of Shipping, showing that the contribution of British shipping to our invisible earnings was of the order of £220 million in a year. I think that the noble Lord, Lord Winster, mentioned an even larger figure. In fact, the last time that a complete analysis was made by the Chamber of Shipping was as long ago as 1952. Another analysis would have been made last year, but it was felt that the distortion in the pattern of trade caused by the Suez crisis would have made an analysis; last year less useful than it might otherwise have been.
But, my Lords, I suggest that that is not the whole of the story. The noble Lord, Lord Salter, mentioned that in addition to the direct earning of foreign exchange we also employed our own ships to bring necessary imports to this country. If we did not have those ships performing that service, we should be compelled to employ foreign ships, because our imports of food and raw materials are necessary for the economic life of our country. In that same year, 355 1952, when it was estimated that the foreign earnings of our ships were £220 millions, the actual gross freight which was paid to our own ships for foreign imports to this country was no less than £218 millions. If we had had to engage foreign ships for that purpose, although there would have been some offset in respect of their expenditure in this country—I do not think it unreasonable to estimate that that would not have been more than, say, 10 per cent. of their freight—we should have had to pay out to those foreign ships another £197 millions. So that, should some mortal disease attack our shipping industry and should it completely wither away, the Bill that would be presented to us in respect of foreign exchange would be £221 million loss of earnings and £197 million expenditure on imports—a total of over £400 million. It is a staggering figure. It is obvious that we could never be reduced to that position, but I think it is worth quoting the figure to show how really vital this matter is to our country.
A visitor from outer space, knowing these facts, might say, "If this is so vital, how is it possible that the shipping industry is languishing?" Is it because of bad management? That is a rhetorical question which I suppose I should not address to myself, but I have had the privilege in the last year of acting as President of our Chamber of Shipping, and in that capacity I felt it to be my duty to look into this matter objectively, even critically, because I am sure that no industry can come to your Lordships' House or to the country and suggest what ought to be done unless they put themselves through a very searching self-examination. I looked at this matter as objectively as I possibly could and, as I say, with quite a critical attitude, and I think that I can assure your Lordships that there is nothing much wrong with the management of British shipping to-day. There is always the danger, when we have been in the position of being very much the "top dog," as the noble Lord. Lord Winster, reminded us, of running our business on traditional lines and getting into a rut; but I am certain that that is riot happening in the British shipping industry. In fact, some of the abortions in the way of ships which the noble Lord mentioned are partly the result of our not getting into a rut.
356 What, then, is it that is wrong? As the noble Lord, Lord Winster, said, there is nothing much wrong with our labour relations. I am happy to take this opportunity of paying a tribute to Mr. Tom Yates, now Chairman of the Trades Union Congress, the leader of the National Union of Seamen, who has shown great statesmanship for many years in handling, along with his fellow unions engaged in the same business, relations with the shipping industry. It is not the costs of operation, because, although these may be rather higher than some, they are certainly lower than others; they are about a happy mean.
I think it is perfectly clear that there are only two things which are really responsible for this languishing position. One is unavoidable. It is the fact that shipping is an international business in which the British shipping industry is in competition with the whole world, and therefore the rate of reward must be less than the rates in more sheltered industries. And because the reward is less, it is more difficult to attract capital; therefore, it becomes more necessary to plough profits back, as has been done. All that makes it an industry which is living all the time, even in good years, remarkably near the border line. As I said, we cannot do much about that, unless we are to seek protection, and that is something which I. for one, hope will not happen, and other noble Lords have already expressed the same view.
The other difficulty under which we languish is the burden of tax. It is not merely the level of taxation but the system as applied to industry. As already pointed out, this system does not allow replacement of assets to be provided for out of savings—that is, out of untaxed savings—in a period of rising prices. Of course, this affects all industry, but it has hit the shipping industry harder and faster than other industries, because in the shipping industry the cost of capital assets is very high and their life relatively short. This is a problem which I am certain is going to face all other industries in due course, when they come to replace fixed plant; but, as I say, it has hit the shipping industry harder and faster than any other.
The grant of an investment allowance at the rate of 40 per cent. did not bridge 357 the gap. The noble Lord, Lord Winster, made the calculation, which is a simple piece of mental arithmetic, that with the original cost written off and a 40 per cent allowance on a new ship, if a new ship costs five times as much as the old—and that is about the figure—the shipowner has got out of untaxed earnings only three-fifths of the cost of the new ship. I could not possibly add to what the noble Lord, Lord Salter, has said, out of his great knowledge and experience of these matters, about the need for some adjustment in our taxation position as it relates to the shipping industry.
The position would clearly be serious enough, even if there were not the matter of flags of convenience, to which reference has been made. The existence of this form of exploitation by people who are able to exploit the position makes the position even worse. I do not think I could possibly add to what the noble Viscount, Lord Runciman of Doxford, said so convincingly in explaining how this system works and how it injures the interests of British and other traditional maritime nations. I would make only two observations about flags of convenience. I am not sure whether it is sufficiently understood by people who just read about it in the newspapers that the competition from flags of convenience is not in the least like the foreign competition which every manufacturer has to meet from time to time.
If a gentleman with Greek antecedents decides to set up, shall we say, a woollen mill in Liberia, while escaping taxation in the same way as a shipowner cousin he would be faced immediately with a whole number of counteracting difficulties. He would be going to an undeveloped country and would not have a supply of skilled labour; he would either have to import it or make do with unskilled. He would be far away from his markets, both for buying raw materials and selling his products. In fact, the advantages he might gain in the taxation field would almost certainly be wiped out in other ways.
The shipowner does not have any of these difficulties. In the first place, as has already been said, he does not have to go to Liberia: he can sit in his office, provided he keeps it outside any place where the tax collector holds sway. Then, as 358 has already been mentioned by my noble friend Lord Runciman of Doxford, he can engage all the skilled staff he likes, having done nothing whatever to pay for their training or, indeed, to contribute to the social services which sustain them. So far as the markets of the world are concerned, his ship sails the seas just as freely as anybody else's, and he has exactly the same access to markets as any owner in one of the traditional countries. That is the first observation I wish to make about these flags of convenience.
The other observation is this—and here, with great trepidation, I am going to differ from the noble Lord, Lord Salter. I think it is quite conceivable that circumstances may arise in which shipping will again be vital to this country and our Allies in the event of war. It is to be observed that these owners who have succeeded in attaching to their ships the flags of Liberia and Panama will be outside the net of requisition I have no doubt that British and Allied owners, as they did in past years, will submit to requisition and will co-operate to the best of their ability in whatever has to be done. But these gentlemen, with their strange flags flying from the back end of their ships, will be in a position to bargain and accept the offer of the highest bidder. I would say that they will be in a position to bargain with either side to the conflict, or, indeed, to bargain with neutrals; and they might well prefer to do the latter, knowing what the dangers of being a belligerent may be. I think that that is a serious consideration, particularly in the matter of tankers, when we consider that in such conditions the supply of oil would be one of our most vital needs; and this large proportion of the tanker tonnage of the world might well escape our service altogether, or impose quite impossible terms if it was to be employed.
So much has been said already that I do not think there is anything I wish to add, except this. It may sometimes have seemed to people that the shipping industry was crying "Wolf", because they will say that they have been hearing this for a long time, yet, here we are, the industry is still going and, in fact, the total of British tonnage is higher to-day than it was in 1939. It is true that the total tonnage has been increased by about 14 million tons; but when that figure is analysed we find that it is made up of over 2½ million tons of tankers, offset 359 by a reduction of just under 1 million tons of dry cargo shipping. The 2½ million tons of tankers is not in equal proportion to our figures of imports of oil; therefore, we are, in fact, carrying less oil in our own ships than we did before. And I might add that that 2½ million tons includes 2 million tons built by the great oil companies for their own use, operated on what one might call a "C"-licence basis, and the provision of capital for that programme is not affected in the same way by the considerations that influence the investment of capital in ordinary commercial shipping for hire. It seems to me that, in spite of this increase, our position is really worse. And if it is serious now, it will be critical in the near future.
I hope we can be assured, perhaps by the noble Lord who is to reply, that Her Majesty's Government understand the gravity of the situation and the need to take further steps, and take them soon, to put British shipping in a more competitive position. I hope they will be ready to discuss ways and means and to undertake, as the noble Lord, Lord Salter, has suggested, a reappraisal of the tax system as it applies to shipping. I can assure your Lordships that the shipping industry, with which I have been closely associated for a long time, does not like coming cap in hand; and it does not wish to grow rich at the expense of the community. But this is really not a sectional matter at all; there is no sectional interest involved. I do not think it would be an exaggeration to say that the whole future of our country depends on establishing conditions in which our shipping industry can survive.
§ 5.16 p.m.
§ LORD HURCOMB
My Lords, like my noble friend Lord Salter, I have no interest in the Parliamentary sense, in shipping, but, like him, I was closely associated with the use and control of the mercantile marine during both world wars, and I think there is no national interest which needs more earnest consideration. Our shipowners, who I agree are extremely efficient, are also very farsighted, and this problem of replacing their tonnage has oppressed their minds for a long time past. I cast my own mind back to the autumn of 1939 when I was engaged in negotiating with an earlier generation of shipowners than 360 those who now represent that interest in this House the rates of requisition hire; and I remember how strongly I was then pressed to recognise as the basis of compensation for loss through war risk, not the actual historical cost of the ship in question but the replacement cost. I had to argue, as I was bound to in the circumstances of that time, that that was not possible in that particular connection. But as to the importance of somehow finding the funds to meet the inflated replacement costs which were inevitable there was no dispute.
I had at the other end of the war another question, to which little reference has been made in this debate to-day; that is, the aspect of discrimination according to flag, which I always felt to be most unfortunate. Even in the later years of the war, it was obvious at meetings of the Allied shipowners that this demand that any exporting country should have its exports carried "fifty-fifty" in its own ships was going to be pressed; and it was most disturbing to see the sympathy with which the Americans viewed that approach. Of course, later on, after I ceased to have anything to do with these matters, our own Government—I think very weakly and unfortunately—accepted the stipulation from the Americans that certain financially aided cargoes should be carried to the extent of 50 per cent. in American bottoms, the Americans thus taking back with one hand sonic part of what they were giving with the other. That is the kind of action in which I think our own Government could take the most vigorous line, even at the cost of refusing aid offered on such conditions. In general, however, your Lordships would, I am sure, agree, having listened to the realistic exposition of the situation by the noble Viscount, Lord Runciman of Doxford, that we cannot alone attempt successfully or wisely discrimination of any sort, and we are unlikely to persuade the countries which are the homes of these, ships operating under flags of convenience to amend their ways.
If, then, there is an urgent problem, as I believe there is, what is the possible line of approach? We can, of course, appeal, or our shipowners can appeal, to our oil companies or other large quasi-monopolistic charterers not to take ships under flags of convenience if they can get any other. That seems to me a good 361 sound approach, to which no possible exception can be taken. All I doubt about it is the measure of success such an approach is likely to meet.
Are we not brought back to what our own Government can do, keeping quite clear of any question of discrimination according to flag? That surely brings us to the issue to which the noble Lord, Lord Salter, has drawn such marked attention—a change in our own financial approach. Last year, the Chancellor of the Exchequer, in making what no doubt was a difficult concession for him, and a valuable one to shipping, said that he was doing what he did as a recognition of a unique position. Once a position has been recognised as unique—and in the light of the facts just adduced by the noble Viscount, Lord Simon, it cannot be denied that the position of the shipping industry is unique—it seems to me that you have to go to the necessary length to achieve the result you are seeking to get: the half-measure is not enough. I am driven to the conclusion that the only line of approach likely to meet with early success is some further adjustment of the taxation burdens of the shipping industry; and that can be done in a way that does not give rise to claims from other industries which are not in the same position.
Having gone, as I say, through two wars, I feel that I ought to be impressed mainly by what is going to happen to the country if, unfortunately, we ever get into a third emergency and our shipping is not adequate. I would not, therefore, go to the whole length with my noble friend Lord Salter in saying that this matter should be settled with that consideration entirely set aside. I think it may well still have force. If one were to speculate about the needs of the country for shipping in the event of another war, it would lead to the most interesting discussions, such as were held between the noble Lord who introduced this Motion and the noble Lord who was such a distinguished member of the Board of Admiralty when the last war broke out. I agree, of course, that the Navy is in no way open to criticism for what it did to defend the Merchant Navy; it ought to have had more escort ships; and that matter, perhaps, was fairly laid to the charge of previous Governments rather than to the Board of Admiralty.
362 One thing I hope the Board of Admiralty will not do in another war, and that is to rely on the Merchant Navy for many naval units which, in the last resort, are not much good to them. They take far too large a proportion of the mercantile marine for purely naval purposes when trouble comes, and the Merchant Navy is not large enough to stand it. I might mention one fact about which there is no secret; at the beginning of the last war, over fifty of our fastest and best cargo liners were taken over to be converted into armed merchant cruisers or the like. They cannot stand that, as I think everyone must admit.
§ LORD HURCOMB
With what results? With many results. In the last resort, we were forced to charter a great deal of neutral shipping at extravagant prices, and to rely largely upon America for building. We ended up the war with our resources of merchant shipping enormously depleted, and our recovery in the early years of the post-war period was seriously handicapped. However, those are issues which I do not think are substantially relevant to this particular issue this afternoon. The issue is on the importance of shipping in the make-up of our general economy and its immense importance in our balance of trade. It is upon the considerations that we cannot afford to see or risk any further decay in our ability to carry our own goods and hold a predominant or large share in the general carrying trade of the world that decisions should rest. They point to the need for some action by our own Government which is both effective and swift; and no attempt simply to deal with the matter by international agreements will do.
§ 5.27 p.m.
My Lords, may I also open my remarks with a declaration of interest? I had not intended to address your Lordships this afternoon on the economics of the very large tanker. These very large ships, although still unfamiliar in this part of the world, are already, trading in the Far East and in the South Atlantic. There are quite a number over 85,000 tons, and the 103,000-ton tanker is spoken of as something quite easy to attain. I suggest that the idea that there is a bogy about these big ships should 363 be forgotten. As regards the question raised about whether they can be received in this country, perhaps the first thing that ought to be said is that it must be remembered that a tanker does not have to come alongside. It is so easy, when one thinks of other ships, to think of ports where they must go. In the Persian Gulf, if you go down to Umm Said, in the Qatar Peninsula, you will see these huge tankers lying a mile or two offshore loaded with twenty, thirty, forty or fifty thousand tons of oil. I suggest that the question of the port facilities need not be considered overriding. In fact, already in the United Kingdom, in the ports of Finnart and Milford Haven, plans are in hand for their reception.
There is one further point here that should be mentioned, and that is the question of building berths and dry docks. Throughout the history of the Merchant Navy, nobody ever built a berth or a dry dock to take ships much greater than those of his day. The shipowner always had to demand the facilities: it was not the builder or the repairer who provided the facilities, in the hope that somebody would build a big ship to make them economic. I think it can be assumed that there are already both berths and dry docks where these 85,000-ton and 103,000-ton tankers can be handled in this country. It would not be in the first days, when there were only a few of them, that it would be impossible to handle them. They would not be as big as the "Queens" and they could be berthed in dry dock. So I suggest that we need not hesitate to go ahead with the big tanker if she is right—and I believe she is—merely because we hear that we have not yet got the facilities needed.
§ LORD FRASER OF NORTH CAPE
With either the Mersey, Southampton or Newcastle, it would not be possible to allow a 100,000-ton tanker to lie a mile offshore and put a pipeline ashore.
It is out of the question that these tankers should go into any of the ports that are suggested. After all, this is a tiny island. I suggest, when we are talking of oil which is pumped from Northern Iraq or from the Persian Gulf to the Mediterranean, that surely it can be pumped from the Mersey, or wherever it is.
They are part of the facilities. Noble Lords who have spoken already have stressed the menace of the fleets of flags of convenience. It is right that they should do so, because this is the greatest problem at present facing the mercantile marine. On the last occasion when the noble Lord, Lord Winster, called the attention of your Lordships' House to matters in connection with the shipping industry, the full menace of those soulless fleets was not yet fully obvious. Before I proceed further, it might help to demonstrate the rapidity of their growth if I remind your Lordships that in the interval since that debate those fleets have grown by 50 per cent.; in October, 1955, the figure was 9¼ million tons and to-day it is 14¼ million tons.
In October, 1955, world trade was, broadly speaking, providing employment for the merchant shipping of the world, and though the shipowners of the traditionally maritime Powers were beginning to show signs of alarm at the growth of these soulless fleets, it was then fair to ask why they were making such a fuss when their own ships continued to trade. In his excellent speech on that occasion the noble Viscount, Lord Runciman of Doxford, said that it might seem slightly odd that at a time when the shipping industry was doing so well and the shipbuilding industry was extremely full of orders it should be thought necessary to bother our heads about practices which, though irritating, could not be said to have arrived at the state of a major menace, but he went on to remind your Lordships that big things have small beginnings, and warned that they might become very formidable. In the shipping industry much has happened in the two and a half years since that debate. Contrary to the forecasts both of the experts and of the crystal-gazers, the volume of world trade has ceased temporarily to expand; indeed it now seems to be in a period of contraction, and in a period of contraction or recession or depression, it is the trader with the lowest costs who lasts longest.
365 My Lords, I would ask you briefly to consider, with a minimum of figures, the costs of operating a merchant ship. These fall into three main headings: direct operational costs, capital charges and taxation. It is important to see in each of those three categories how we stand in relation to our Liberian competitors. Under the heading of operating costs there are included such items as wages, provisions, stores, repairs and so forth, many of which are directly proportional to the number of men on board. Ships registered under the flags of convenience are bound by few rules or agreements or understandings. It will suffice to illustrate the gravity of the competition to say that the 103,000-ton tankers, to which I referred a few moments ago, under the Liberian flag carry a crew of fifty-two men, which happens to be exactly the number carried on the British 18,000-ton tanker. It is to the financial implications of this comparison that I would particularly draw your Lordships' attention, but it is of equal importance to bear in mind the social implications as they affect our merchant seamen. There are no Party politics in this problem, and it must be borne in mind that if we lose this war against the flags of convenience the loss will far most heavily on the men in the Merchant Navy.
The second heading is the cost of the capital charges, which is, of course, directly related to the price charged by the shipbuilder. During the shipbuilding boom of the last ten years the shipbuilders of the world have been able to call the tune and, on the whole, the shipowners have had to dance to it, though there was little difference in price between the different shipbuilding countries of the world. To-day, however, in this respect also a very different state of affairs is developing. The order books of the shipyards are not so fat as they were two years ago, and one finds that the foreign owners, many of whom in the past have built their ships in Great Britain, have discovered that tonnage is cheaper in other countries; and while it is broadly true that the British shipowner has thus far remained loyal to the British shipbuilder, it is difficult to see how long he can allow his competitor this further advantage. It may be useful to develop this particular point a little further.
366 I have been fortunate recently to obtain some first-hand knowledge of shipyards both on the Continent of Europe and in Japan, and have been impressed by two major points. The first, and by far the more important, is that there is only one trade union per shipyard, and there is a consequent freedom both from the cost of demarcation and from the menace of the demarcation dispute. The second point is, administration, which can organise the building of a 103,000-ton tanker in five months, from keel to delivery, and a 40,000-tanner in four months. That is competition which we are not yet ready to face. Moreover, certainly in Japan, the final bill is ready the day your ship sails. The result, so far as the shipping industry is concerned, is beyond dispute. The soulless shipowner who is untrammelled by loyalties to his shipbuilders and is free to shop where the ships are cheapest can to-day obtain a fixed price of roughly 80 per cent. of the best basic price obtainable in a British yard. Your Lordships will realise that basic price remains subject to unpredictable increases based on the cost of labour and materials. This difference in costs means that a large tanker built in Britain at current prices must throughout her entire life earn £200 per day more than her foreign-built competitor in order to meet the increased capital cost.
I have tried to demonstrate that the ship of the flag of convenience already has an advantage over the British ship both in respect of operating costs and in respect of capital charges, though both of these are, at least to a small extent, within the control of the owner. I come now to the third category of costs, which has been already well discussed—that of taxation—and about that the owner can do nothing. It cannot be said that any department of Her Majesty's Government remains unaware of the menace not only to our Merchant Navy but to the nation of the flags of convenience. I have well in mind the increase in the investment allowance granted last year, and we know that in his Budget speech the Chancellor of the Exchequer recognised that unique position to which reference has already been made. But, as the noble Lord, Lord Salter, has already said, no one can really suggest that an insecure investment allowance, which can be withdrawn without notice, is the whole solution of the matter. In this connection I 367 would repeat that Liberia has undertaken not to increase registration fees or taxes for twenty years, Costa Rica for twenty-five years, and Honduras for thirty years, from the date of registration of the vessel. Furthermore, so long as taxation is related to allowances which in turn are based on the historic cost of the ship, just so long will the tax-gatherer suck the lifeblood progressively from the very bunting of the Red Ensign.
Your Lordships are well aware that the taxation in the countries to which we have been referring is derisory, and many shipping companies, whether or not they foresaw the present decline in world trade, did recognise the menace of the flags of convenience; and when they saw that Her Majesty's Government would not seriously help them they went stealthily to British Colonies where the burden of taxation was less than in the Home Country. I use the words "went stealthily". Surely something has gone quite wrong with government when the shipowners of this country, great and small, must conspire with their lawyers and with specialists in the West Indies to set up companies by means of which they hope to remain alive in a trade which is of primary importance to the nation. The atmosphere of such negotiations is one of conspirators preparing for some dark deed rather than of adult business men struggling to survive in their legitimate trade.
It is not even as though the powers were lacking to enable Her Majesty's Government to help shipowners in this respect. If the nursery games of colonial registration are to be the answer, then under Section 468 of the Finance Act, 1952, Her Majesty's Government could open the door and help shipowners in the realignment of their business rather than build a maze and invite them to try to find a way through. The shipping industry has had many fair words from Her Majesty's Government. In 1955, it was urged that the British shipowner should be allowed to meet international competition on equal terms, but as soon as an attempt is made to do so all that he finds is niggling bureaucracy. It is no good going on pretending that there can be any compromise in this matter. If we want to carry our own goods in our own ships and have the benefit of cross freights as an invisible export in peace 368 time, and have a dependable merchant fleet in time of war, and if we want to give our sons a chance to do likewise, British shipping must be made as free of tax as are the ships that are registered in Monrovia.
§ 5.43 p.m.
§ LORD MANCROFT
My Lords, the Motion of the noble Earl, Lord Winster, reads:To call attention to matters concerning the Mercantile Marine …He might well have added the words:and one problem in particular";because it is, of course, the problem of the flags of convenience that has loomed large in every speech in your Lordships' House this afternoon. From the speeches to which we have listened—very well-informed speeches, too—we are now in no doubt whatever that the growth of what the noble Lord Lord Geddes, in a powerful speech called the "soulless fleets", operated under flags of convenience, is a serious problem, a problem that might well menace the whole prosperity of the British merchant marine.
Let me assure the House at the outset that Her Majesty's Government are powerfully aware of the anxiety with which the rapid growth of tonnage operated under these flags is regarded by British shipowners and by British seamen. Your Lordships are now well aware of all the facts and I will not repeat them. The total tonnage operated under flags of convenience, under what started this evening as "Panlibhonco" (an unattractive word whichever way one looks at it), is greater than that of any active fleet in the world except that of the United Kingdom. There are also large numbers of ships on order for shipowners who probably register and operate them under these wretched flags of convenience. It is difficult to be precise about the extent of these orders, especially at the present time, with the current state of the freight and tanker charter markets, but they probably amount to twice the tonnage on order for operation under the British flag.
The noble Viscount, Lord Runciman of Doxford, drew attention to the advantages which encouraged foreign shipowners to operate ships under these flags of convenience. First, it is easy for foreign-based companies to register their 369 ships under these flags; the legislation and machinery are in themselves probably inadequate for the enforcement of proper standards of safety and of crews' wages and conditions; in many cases, costs of operation are not so high; and, lastly, the taxation imposed in "Panlib." countries on shipping enterprises is unrealistically low.
Most of the tonnage registered under the flags of Liberia and Panama belongs to owners of United States and Greek origin. For the Americans, the costs of operating under flags of convenience are very much lower than under their own flag. A great deal of the new construction for these flags since the war has been financed from American sources. Much of this capital has been obtained from sources which are not traditional shipping sources because, owing to conditions of operation under these flags, the shipowners have been able to promise a quick return, particularly if they already held time charters for new tankers from oil companies. This has been the way in which much of the tanker tonnage under flags of convenience owned by independent tanker owners has been built up during a period of shipping profits.
This, then, is the problem, and your Lordships are asking, and have frequently asked this afternoon, what Her Majesty's Government are going to do about it. I believe that the House is also well aware by now that there is no easy or quick solution to this threat. Because of the nature of the British merchant fleet, we have to be very careful lest any action taken by Her Majesty's Government may harm British shipping more than "Panlibhonco" owners. The British merchant fleet exists and prospers on the free exchange of shipping services. It is therefore most important that we should not take any action against flags of convenience which is in any way discriminatory or restrictive, because in the long run that might, by a chain effect, lead to the placing of restrictions elsewhere on the operation of British ships. In this respect, as the noble Lord, Lord Winster, pointed out, we are in much the same position at Governments of other traditional maritime countries who are also most worried about flags of convenience problems. They also see the danger of taking any discriminatory action, and they have had just as much difficulty as we have had in proposing any real practical solution
370 ant to make the point as clearly as I can that it is essential that anything we may do should not hurt the long-term interests of British shipping. Nevertheless, although your Lordships do not seem to think it was quite enough. Her Majesty's Government have already done a great deal to help British shipping firms to withstand competition from the flags of convenience. It was this competition—which, of course, is totally different from the foreign competition which other sections of British industry have to withstand—that was a major factor in persuading Her Majesty's Government to increase the investment allowance for new ships from 20 per cent. to 40 per cent. of their initial cost. As your Lordships know, this further measure of taxation relief was given in the 1957 Budget. It should enable the British merchant fleet to compete on more equal terms with ships sailing under flags of convenience.
As a result of the increased investment allowance, shipowners now receive tax-free allowances over the life of a ship, including wear and tear allowances, equivalent to 140 per cent. of its initial cost. With this increased investment allowance, a United Kingdom shipping firm which has a fairly continuous programme of replacement and new building is substantially relieved of most of the disadvantage at which it would otherwise operate in competition with companies sailing their ships under flags of convenience.
I agree with the noble Lord, Lord Winster, and with my noble friend Lord Salter that a company which has only a small fleet and has no regular programme of replacements does not derive so great an advantage from the increased investment allowance. It is, however, relevant to the problem, I think, that shipping companies with small fleets which are not part of larger combines own only a small proportion of the tonnage on the United Kingdom register. Your Lordships will see therefore that, however optimistic or pessimistic a view may be taken of the results, the increased investment allowance has been designed to help British shipowners to compete with owners operating under flags of convenience. It does this by aiding the growth and expansion of the British merchant fleet through helping those 371 companies who have a programme of expansion and replacement. I hope that the effect is to reduce considerably the competitive advantages, of which we have heard so much this evening, previously enjoyed by flag of convenience owners.
The increased investment allowance has been in force for less than a year. It will be some time, I think—and by that I mean a number of years—before its full effects become clear. I do feel that the extent of this assistance which has already been given to the British shipping industry is not quite as fully appreciated as it might be. I must, however, make one qualification. The benefits of the increased investment allowance, and indeed of any other tax-free allowances, are felt only when profits are being made. I realise that in the present state of the shipping market it may be argued that many companies are not at the present time in this position; and that may well be true. Nevertheless, I must point out that, from the point of view of taxation when profits are not being made, a British shipping company is in the same position as a shipping company operating under a flag of convenience, except possibly in so far as the latter may have managed to save more money during times of abundance. I shall come back, if I may, in a moment to the question of the present shipping slump and its possible effects on the flags of convenience problem.
In the meantime, let me add that Her Majesty's Government will pay most careful attention to the expert advice they have received this afternoon. But I must add that I am in a slightly embarrassing position. As my noble friends Lord Simon and Lord Hurcomb are aware, this is the close season for financial crystal-gazing; and if there is one thing that is not going to come out of this debate it is a Budget leak. My lips, I am glad to say, are completely sealed; indeed, not only what I say but also what I do not say should not be considered of any significance in that connection on any problem at all.
My Lords, we are also considering this problem from an international point of view. The United Nations Conference on the Law of the Sea, which is at 372 present in session at Geneva, is considering the problem of the relationship between a ship and the flag it flies. This question has been mentioned by nearly every speaker this afternoon, and it brings to the fore one of the more tiresome aspects of the question, since the ships operating under these flags generally have only the flimsiest connection with the State concerned. I should dearly like to see the face of the captain of a Liberian tanker if you suddenly retired him on half-pay into the middle of Liberia. I well remember travelling on the maiden voyage of the liner "Olympia", built, and built well, by Scotsmen on the Clyde for Greek owners, flying the Liberian flag with a German crew, plying between English, Irish and Canadian ports—and the head barman born in Skegness!
Another international aspect is this. The Maritime Session of the International Labour Organisation, whose affairs we debated yesterday on a Motion of the noble Lord, Lord Lawson, and which will be making its decisions in April and May of this year, is to consider a resolution about the conditions in the ships sailing under flags of convenience. The purpose of this resolution is to ensure, so far as possible, that certain standards of safety and crew conditions are maintained in these ships. Her Majesty's Government are giving, and will give, careful consideration to the proposals which come before these two conferences. The other traditional maritime nations are as concerned as we are about this problem, but I must remind your Lordships that, like us, none of them has been able to come to a satisfactory solution.
Questions of crew conditions on flag of convenience ships can, of course, as I have explained, be dealt with internationally through the International Labour Organisation. But my right honourable friend the Minister of Transport and Civil Aviation would certainly use his powers to prevent unsafe ships, descendants of the unlamented "coffin ships," whatever their flag, from sailing from ports in this country. In this he would have the support of British shipowners and the unions.
§ LORD SHEPHERD
My Lords, may I interrupt the noble Lord to ask whether that would apply to ports within the Commonwealth or our Colonies?
§ LORD MANCROFT
My Lords, I cannot answer that question without notice, but I think that most of the ports in the Commonwealth and Colonies have much the same rules as we have. I do not know whether that applies to all of them, but I think most of them have. But there is a point which arises here: not all these ships, by any means, are "coffin ships" such as we were used to in the past. Many flags of convenience ships are fast and of modern tonnage, in which conditions are reasonably good. There was certainly room for improvement, but that is just another aspect of the problem.
The Government are keeping in close touch with the General Council of British Shipping and the trade unions about this threat to the British merchant fleet. We are more than ready to give careful consideration to any proposals put forward to enable us to come to a satisfactory solution. I think your Lordships will now realise how difficult it is going to be to find a satisfactory answer. I gather that shipowners themselves have been having some difficulty in suggesting any really satisfactory solution. Nor, indeed, to be quite frank, have your Lordships been unanimous this afternoon in your solutions. It is an additional complication, as several noble Lords have pointed out, that most measures, to be effective, must secure a wide degree of international acceptance; and this is not always forthcoming. Nevertheless, as I have said, we are prepared to examine any serious proposal which may be made to us to solve this problem.
The Government, as I hope I have made perfectly clear, are most concerned about the whole question. As the noble Lord, Lord Geddes, reminded us, some United Kingdom shipping companies have set up associated shipping companies in Bermuda and the Bahamas. No one was very happy about that. But I think that the increased investment allowance has caused some companies to think again about their intentions. In any case, the extent to which such associates may be set up is governed by the provisions of the Income Tax Act, 1952. This, therefore, is another problem about which, for obvious reasons, I do not want to say any more at the moment. But I need hardly add that we are most anxious to see British tonnage increased and modernised, and holding its own with foreign competition.
374 Before I leave the flags of convenience problem there is one further comment that I wish to add. A considerable amount of tanker tonnage operating under flags of convenience belongs to American oil companies: it is rather more than one-quarter of the total tanker tonnage under these flags. In recent years some of these companies have, with the encouragement of Her Majesty's Government, built up various British subsidiary tanker companies, which now operate more than one million deadweight tons of tanker tonnage under the British flag. These British companies now have on order a large number of ships whose delivery will greatly increase this total. This is another factor which must be taken into account when considering what is to be done to combat the growth of tonnage under flags of convenience.
Your Lordships will have seen photographs in The Times, the Manchester Guardian and the Daily Telegraph in the last few weeks of the depressing spectacle of ships laid up in many of the rivers and estuaries around the country—the noble Lord, Lord Winster, drew our attention to that matter. The world total of ships laid up at the present time is rather more than 4 million gross tons, and the British share of this is over half a million tons, mostly tramps, but including quite a few tankers. The reason for this state of affairs is the sharp drop during 1957 of the freight and tanker charter rates, due to the reduced demand for shipping services. This situation is serious and must certainly be a matter of concern to the shipping industry. However, shipping as a world industry is notoriously subject to booms and slumps. White it is difficult to say what the immediate future may hold, I do not honestly believe that the present conditions will continue indefinitely. I feel sure that in the long run world trade will have an increased need of increased British tonnage. Ii certainly seems that in the next few years there may be a surplus tonnage of tankers, but it also appears probable that early in the 1960s the demand for tankers may overtake the supply.
I know that it has been argued that one cause of the present shipping slump is that too much tonnage, especially of tankers, has been ordered by owners who are able to operate under flags of convenience unhampered by taxation. I am 375 not certain that that argument is not a little misleading. The fact that a great deal of tanker tonnage has been built in the world was, as I think noble Lords have pointed out, most useful to us during the Suez crisis, and its existence is to some extent an insurance against future troubles. Taking a long-term view, tonnage on the present world scale is needed, and will continue to be needed. The question at issue is rather who should own this tonnage. British shipowners, and Her Majesty's Government, would naturally prefer to see more of it owned and operated under the British flag and less—much less—under the flags of States which have little or no real connection with the shipowner.
The present shipping slump has another bearing on this flags of convenience problem. At the present time, there are considerable quantities of tonnage on order both for the British flag and for operation under the flags of Liberia and Panama. In recent months, owing to the depressed state of the freight and tanker charter markets, there have been a number of cancellations of orders, though I cannot get much definite information about their extent. Some of them have probably been cancellations of potential rather than firm orders. I am glad to say that the proportion of orders cancelled in United Kingdom shipyards has been relatively small. It does seem, however, that a considerable amount of the cancellations in recent months may have been cancellations of speculative orders which had been placed by owners, particularly independent tanker owners, who operate under flags of convenience.
It would be rash to forecast what the future may hold in this respect, but it is certainly interesting to note that much of the tonnage on order for the British merchant fleet has been ordered by well-established companies, and that the greater part of the tanker tonnage is on order for the oil companies. I hope that much of this new British tonnage is less liable to cancellation than some of the new tonnage on order for operation under flags of convenience.
My Lords, I think that I must now say, in answer to several questions put to me, something about the shipbuilding industry. I believe that not less than £50 million has been spent in the ten years 376 ending 1956 on the modernisation of shipyards in the United Kingdom. Further programmes of capital expenditure will be completed within the next few years and they will cost about £70 million more. The industry has obviously been active in development schemes to meet the needs of the day. These major modernisations are being carried out in a manner which minimises the effect on current production. The present capacity of our shipyards, given adequate supplies of labour and materials, is about 1¾ million gross tons of shipping a year. When the various schemes of modernisation have been completed, this should amount to about 2 million gross tons a year. The supply of steel, particularly plate, has been one of the restricting factors in present-day shipbuilding. The additional needs of the industry, in order that it may bring its capacity up to this 2 million tons, has been calculated and phased into the development plans of the iron and steel industry. The target date is 1961, but I suspect that there may be some difficulties in meeting it.
Our ships continue to be built to the highest possible quality and we have nothing to fear in this respect. We sometimes hear criticism, however, about the speed of building. It is always dangerous to draw conclusions from a purely statistical exercise, without taking account of the nature of the order book. Our shipbuilding industry has always aimed at a well balanced order book.
Our industry excels, of course, in the building of liners, which involve much highly skilled finishing work. Liners inevitably take longer to build per gross ton than, say, tankers. At present no fewer than ten passenger and passenger-cargo liners of 20,000 tons and upwards are under construction or on order in United Kingdom shipyards, including the biggest liner to be built here since the "Queen Elizabeth". As a very modest shareholder in the P. and O. Company, I was delighted to listen to no fewer than three of our Directors this afternoon. I should like to congratulate them warmly on the new liner "Canberra" which they are building for me, even though she does look like the first cousin to a Norwegian whale-factory ship. I listened with interest to what the noble Lord, Lord Winster, said about that. All I can say is that marine architects seem 377 no more successful in solving the problem of what to do with funnels on the too of ships—particularly, I am sorry to say, on top of P. and O ships—than land architects in solving the problem of lift machinery on the top of new buildings Fortunately, however, this is one of the controversies for which I do not have to answer in your Lordships' House. I would only suggest earnestly that my noble friend Lord Simon should get back into his rut again.
May I say a word about labour relations? The industry has suffered from a considerable number of disputes of various sizes, including the national strike of shipyard workers last spring. The noble Lords, Lord Geddes and Lord Winster, both drew our attention to the troubles about demarcation, and I think that the public has been bewildered by the triviality of some of these disputes It is obviously important from every point of view to secure closer working relations in this industry. The Government have always taken the view that this cannot effectively be dealt with by any general approach equally applicable to all industries. It should rather be tackled by the two sides of each industry concerned in the light of its own special needs.
In April. 1956, my right honourable friend the Minister of Labour and National Service referred the whole question of restrictive labour practices, under the wider reference of more efficient use of manpower, to the National Joint Advisory Council. The Council agreed to draw the attention of employers and trade unions concerned to the urgent need for a new and positive examination of practices which impeded the full and efficient use of manpower resources. Each industry was asked to send a report to the Council on the action it was taking or proposed to take. The whole matter has since been under continuous study by the Council, and its Joint Consultative Committee's replies to the Council's inquiries have show much evidence of willingness over a considerable part of industry to deal with problems in a practical way. We hope to issue a statement later in the year showing what progress has been made. The Government are satisfied that this is the right way to tackle the problem.
378 We hope that the shipbuilding and ship-repairing industry will itself be able to resolve its difficulties. We do not feel it would be appropriate for the Government to intervene. We do not think that the legislative approach on restrictive practices would be helpful. Legislation, which in any case would be very difficult to draft and enforce, would not correct restrictive attitudes where they exist but might even tend to confirm them. Its probable effect on production might be more marked than the effects of the practices against which legislation might be aimed. We do not need to be told that British shipping is one of the most important industries in this country. It is vital to our survival in peace and war and it makes a most important contribution to our balance of payments. It is a free enterprise industry and it has to withstand intense competition from foreign shipowners and, in particular, from those who operate their ships under the flags of convenience.
I have tried to give your Lordships the Government's views on this problem and on the future outlook for the British Merchant Navy as a whole. The threat from flags of convenience is a tortuous and tricky one and it is hard to see what action would be the best to take. Nevertheless, the Government are well aware of the significance of this. They have already done their best to help British shipowners and seafarers. The Government are very ready to consider any other responsible courses of action which may be suggested to us by the industry, by the unions and by your Lordships.
§ 6.10 p.m.
§ LORD WINSTER
My Lords, I feel that in introducing this Motion I made a speech of intolerable length for which I apologise, and I thank your Lordships for the patience which was shown to me. I have only a few brief remarks to make now. Although the noble and gallant Admiral of the Fleet, Lord Fraser of North Cape, did not take part in the debate, he reproached me for not knowing something about the protection from our Fleet. I now understand from him that when there is a failure to protect our shipping it is the Government of the day, and not the Admiralty of the day, which is responsible. I would accept that correction on one condition: that is, that the noble and gallant Lord is willing 379 to give the Government of the day the benefit when things go well. My recollection of the First World War is that we did not get convoy until Mr. Lloyd George intervened and insisted upon it over the head of the First Sea Lord. To come to the Second World War, I shall be happy to tell my noble friend Lord Alexander of Hillsborough that the noble and gallant Lord, Lord Fraser of North Cape, is willing to give him and his Government the entire credit for the victory which we won in the Battle of the Atlantic.
§ LORD FRASER OF NORTH CAPE
I said that the Government were responsible before a war, but the Admiralty are responsible during a war.
§ LORD WINSTER
Then we come back to my original point: that during two world wars the Admiralty, as it is now admitted, failed to afford adequate assistance to our merchant shipping.
As regards what has been said about the berthing of large tankers, which is an important point, I think it has been adequately replied to by the noble Lord, Lord Geddes. I believe there are on the Clyde alone some eight projects for the reconstruction and improvement of yards and then, of course, we are promised new developments at Milford Haven and Finnart. I think we may say that that problem is being foreseen and adequately taken care of.
The noble Viscount, Lord Runciman of Doxford, referred to the crews of flags of convenience ships. I am sorry if I gave any impression that the crews of all these ships are sub-standard. I have every reason to know that they are not, because an official from the Association with which I am associated was seconded to the International Transport Federation to take care of that very point, and although he has been successful in taking measures to stop certain ships where the crews have been sub-standard, yet I know from his reports that those ships are the exception and there is little to complain of in the great run of flags of convenience ships. I much appreciated and admired the moderate nature of the noble Viscount's criticism of the United States in this matter of flags of convenience. I thought he put his case in a manner least calculated to ruffle the feelings of our American friends. As to the cure for 380 this evil, upon which the noble Viscount touched, I feel that the Government will have to help, although I am well aware that shipowners do not want any "feather-bedding" on the part of the Government. While, in that respect, other industries might resent any particular help given to the shipping industry, yet those other industries must remember that their own prosperity rests in no small part upon the shipping industry; and if the Government assists that industry it is assisting many other industries as well.
Although the attention of the debate has been mainly concentrated upon flags of convenience, I feel that the evils of flag discrimination are also most serious; and flag discrimination runs completely contrary to the accepted general principles upon which business is carried on. As regards what the noble Viscount said about laying up, I think nothing is sadder in that respect than the dispersal of old, tried and trusted personnel which has to follow when ships are laid up. The noble Lord, Lord Salter, put the figure of invisible services at £220 million. I do not wish to argue the point, but my latest information is that it might be more accurately put at something in the nature of £250 million. I appreciate, of course, the point about the £218 million which we save by carrying our imports in our own bottoms.
§ LORD SALTER
I accept that. I quoted the figure in the Annual Report of the Chamber of Shipping, which sufficed for my purpose.
§ LORD WINSTER
I make the point only because it shows that the figure of invisible exports tends to grow. I have already referred to the remarks of the noble Lord, Lord Geddes, about the accommodation for these mammoth tankers, but as regards what he said about their size, I would say that a 15,000-ton tanker takes a crew of about 40-odd men, and when the size goes up to 40,000 or 45,000 tons it means a matter of only another seven men. There is no doubt that up to a reasonable figure of size, operating costs diminish with the larger ship. With regard to the noble Lord's remarks about shipbuilding, I would point out that, although it may sound very fine to say that we have a £1,000 million order book and five years' full employment 381 guaranteed, that is not altogether an advantage; there are disadvantages about having a very large, five-year order book to work off.
I must sincerely thank the noble Lord, Lord Mancroft, for his most helpful reply. I never cease to be amazed by the versatility of the noble Lord. He is indeed the handyman of the Government, yesterday replying with the greatest ability upon labour questions and to-day handling the mercantile marine as if he had been at sea all his life as well as in a shipowner's office.
§ LORD WINSTER
When I listen to the noble Lord, I am reminded of two lines:… and still the wonder grewThat one small head could carry all he knew.Not only is the noble Lord most versatile, but he has the delightful quality of being able to make even the commonplace sound agreeable and informative. He spoke about flags of convenience as if all the traditional maritime countries would like to see something done about them. But I cannot quite accept that, because it is clear from what has been said this afternoon that America has no wish to see this system ameliorated, but, on the contrary, is at great pains to encourage it.
The great point that has to be remembered now is this. In the past I have heard many speeches and discussions on this subject in which people have spoken hopefully about some method being devised which would put an end to flags of convenience. I am sorry to say it, but I think we have now to recognise the fact that the flags of convenience are here to stay, and the Government, who are, I am sure, doing everything they can to ameliorate the ill effects of them, must recognise that fact. At any rate, it is quite clear, from what the noble Lord, Lord Mancroft, has said, that, as a result of debates which have taken place in this House and speeches made elsewhere, the Government are now fully alive to the mischief which is being done, even if perhaps we must admit that they have no particular ideas at the moment on what to do about it.
I am glad that something was said about demarcation I thought nothing 382 was sadder last year than to read of 1,800 men fatalistically awaiting dismissal because of a demarcation dispute which had nothing whatever to do with the employers or the conditions of their employment. I welcome the information about the amount of money that has been spent in reconstructing and improving the yards, and I repeat what I said in my speech; that I hope that great expenditure will be rewarded by the working of the new machinery and equipment to something like full efficiency. I hope, too, that the great leaders of the shipping industry will in future be fully backed up by what happens in the ports, because slowness of turn-round is another great difficulty with which the shipping industry has to contend.
It only remains for me to thank, as I do very sincerely, all those noble Lords who have taken part in this debate. I think, if they will allow me to say so, they have made it a thoroughly valuable debate, which will give great encouragement to all connected with our Merchant Marine and with the shipping industry. It will show them, as in many other ways, that noble Lords have a habit of bringing very expert advice and experience to bear upon any subject which comes before this House. With those few remarks I beg leave to withdraw my Motion.
§ Motion for Papers, by leave, withdrawn.