HC Deb 30 June 1998 vol 315 cc260-6 'After subsection (6) of section 38B of the Capital Allowances Act 1990 (which provides for expenditure excluded from the application of the Chapter), there shall be inserted the following subsection:— "(7) For the purposes of subsection (3)(a) above, a ship shall not be an offshore installation if it is a floating production storage and offtake unit or drillship being a mobile vessel engaged in the exploration, exploitation, storage or transportation of mineral resources".'.—[Mr. Burnett.]

Brought up, and read the First time.

Mr. Burnett

On this melancholy evening, I beg to move, That the clause be read a Second time.

The object of the new clause is to remove the uncertainty and discrimination that have impacted on the British shipping industry and our shipyards since the Finance Act 1997—the last Conservative Finance Act. That Act reduced from 25 to 6 per cent. the rate of writing-down allowances on what are defined as long-life assets.

I am delighted to declare a constituency interest. My constituency is fortunate enough to contain Appledore Shipbuilders. The company has a skilled and dedicated management and work force; it is a company of not just regional but national and, indeed, international importance. The House will be surprised to learn that it is one of only two medium-sized shipyards left in the country, the other being Ferguson in Port Glasgow. I am happy to see that the hon. Member for Greenock and Inverclyde (Dr. Godman) is present: he has a great interest in, and much knowledge of, the shipbuilding industry, and many of his constituents work at Ferguson.

British shipyards need orders, and they need them now. In February 1997, when he was shadow Minister for energy and industry, the current Minister for Science, Energy and Industry—the hon. Member for Leeds, West (Mr. Battle)—spoke of the Labour party's positive vision for the United Kingdom sector of the continental shelf, and of the vital industries and jobs that support that sector. One of those crucial industries is shipbuilding, which is heavily dependent on the construction of floating production storage and offtake facilities—FPSOs—and other assets such as drill ships.

The capital allowance rules in the Finance Act 1997, which reduced capital allowances for long-life assets to 6 per cent., are on machinery and plant which, when new, are expected to have a useful economic life of at least 25 years. Sea-going ships continue to qualify for the 25 percent. writing-down allowances. Unfortunately, for these purposes "sea-going ship" excludes any ship that is or would be an offshore installation under the Mineral Workings (Offshore Installations) Act 1971.

According to the previous Financial Secretary, the right hon. Member for Fylde (Mr. Jack), ships and railway assets were to be excluded from the long-life assets rule to promote investments in shipping and the rail industry. Before the Finance Act 1997, British shipyards were becoming increasingly dependent on the offshore oil and gas industry for work. Last year, Harland and Wolff was constructing one FPSO, two drill ships and two rig conversions. Appledore was constructing two offshore vessels, Ferguson four offshore vessels and Kvaerner in Govan six offshore vessels. A total of 17 offshore vessels were under construction last year in British shipyards.

That is important work, but it is in jeopardy as a result of the restricted capital allowances for offshore sea-going vessels. Under the new rules, capital allowances on long-life assets are extremely meagre—6 per cent. on a reducing-balance basis. Therefore, for every £100 invested, 6 per cent., or £6, is claimable in year one. In year two, it is not the £6 again; it is 6 per cent. of what is left over—£94. It takes an age to write off the cost of the asset for tax purposes. It is not done even on a straight-line basis—that is, 6 per cent. of the total sum in each year.

Therefore, although bringing the allowances for the offshore vessels back to the old basis would be far better, it would still be only 25 per cent. on a reducing-balance basis—in year one, for every £100 invested, £25 would qualify; in year two, 25 per cent. of the residual sum, which is £75, would qualify, and so on. With my new clause, it is still going to take at least eight years or so to write off the asset for tax purposes.

Mr. John Wilkinson (Ruislip-Northwood)

The hon. Gentleman is making an important point and a significant speech because the long-life asset provisions of the Finance Act 1997 are damaging the offshore rig industry, and so on, and also doing considerable damage to the air transport industry. He will be aware that I introduced an Adjournment debate on that subject. I hoped that the Liberal Democrat party might have pursued that area of interest, which is crucial not just for air transport, but for the air manufacturing industry.

11 pm

Mr. Burnett

I am grateful to the hon. Gentleman for making that point. He is correct, and I am delighted to associate myself and my party with his concerns about further problems in relation to the aircraft industry; but the new clause relates to sea-going industries. If he wishes to table an amendment—I am afraid that it is probably too late now, but it might be possible for next year's Finance Bill—I am sure that we will see fit to support it.

The Institute for Fiscal Studies has cast doubt on whether the projected yields from the introduction of long-life assets would ever be achieved. In any event, the new clause will account only for a small fraction of the anticipated revenue. I hope that the House will support it.

Dr. Norman A. Godman (Greenock and Inverclyde)

I offer my compliments to the hon. Member for Torridge and West Devon (Mr. Burnett). Speaking as an ex-shipyard worker, a shipwright by trade, I confirm that the yard in his constituency, Appledore, is first class. Unfortunately, from time to time, it has won orders at the expense of shipyards in my neck of the woods—the lower and upper Clyde—but it is an important new clause.

My hon. Friend the Economic Secretary knows well the two yards on the Clyde that the hon. Member mentioned—Ferguson on the lower Clyde and Kvaerner in Govan, Glasgow; some of her constituents work in both yards. I reckon that some several hundred of my constituents, highly skilled workers, are employed at Ferguson and Kvaerner. For that constituency reason, I am keen to offer my sympathy to the new clause.

It is important that owners of offshore supply vessels such as those that the hon. Member for Torridge and West Devon mentioned, are given support because, in fairness to them, they almost always place their orders in UK shipyards, unlike many other UK vessel owners, who go overseas, where there are often hidden subsidies that enable those yards to secure orders against our yards. Those offshore support vessel owners have a fine record in placing their orders in our constituencies. I wish that they would place more orders in mine than in the hon. Gentleman's, but we defend our own corners.

The hon. Gentleman mentioned 17 such vessels. Kvaerner, which is notable for its specialist skills in the building of liquefied petroleum gas tankers, is now building these vessels. If I had had the opportunity, I would have tabled an amendment to the new clause to the effect that no support should be given to shipowners who place their orders overseas. The House will have to forgive me for being ethnocentric about this, but I think that we should look after our own shipyards. Whenever I have met shipowners, I have told them that, if they are seeking our assistance to argue the case in the House for the kind of financial help that they receive in other countries—especially the Scandinavian countries—they have to give us an assurance in return that they will make every attempt to place their orders in our yards.

The new clause refers to a floating production storage and offtake unit". The hon. Gentleman mentioned Harland and Wolff in Belfast, which is an important employer in that bedevilled Province. It employs about 1,800 men and women, I think. In my constituency, UIE of Clydebank is converting such a vessel—and it is a vessel. The hon. Gentleman is right to say that it is more than a production platform. I hope that my hon. Friend the Minister will take that on board—I should not have said that, but I hope that the House will forgive the pun—because these contracts are superb contracts to win. Let me give an example. The vessel being built now in Greenock is employing upwards of 1,000 highly skilled men. I hope that UIE of Clydebank will secure more of those orders.

I can see that the Government Whip is getting a bit anxious. Perhaps he is gloomy because his team went down tonight. I cannot do anything about that, being a Scots Member of Parliament, but he has my commiserations.

Surely some sympathy must be shown to shipowners who place their orders in UK shipyards. We all benefit if they do. It should be emphasised that it is not only maritime communities that benefit from these orders but communities miles away from the coastline—for example, the communities that provide the electronic equipment that goes into making these vessels. I simply plead for sympathy from the Minister, and I hope that my brief speech pleases the grumpy Whip.

Mrs. Liddell

This has been a brief but very interesting debate. I commend the hon. Member for Torridge and West Devon (Mr. Burnett) for raising this issue. I especially commend my hon. Friend the Member for Greenock and Inverclyde (Dr. Godman) for his contribution. As he knows, I live but two miles from the Ferguson yard in Port Glasgow and about six miles from the Kvaerner yard in Govan. My constituents do indeed work in both yards.

The first few years of my working life were connected with trying to secure the long-term future of shipbuilding on the Clyde. As a young economist, and with my right hon. Friend the Secretary of State for Defence, I spent probably two to three years dealing with the problems being experienced on the Clyde as a consequence of the rundown of shipbuilding and with the problems of Upper Clyde Shipbuilders. I therefore approach the issue with some sympathy, but I am not able to accept the new clause. [Interruption.] I hope that hon. Gentlemen will allow me to finish this serious point. I am not able to accept the new clause, but I hope that I may be able to provide some information that is of comfort to the hon. Member for Torridge and West Devon and to my hon. Friend the Member for Greenock and Inverclyde.

The aim of the long-life asset measure was to improve the neutrality of the tax system by bringing the tax treatment of such assets more closely into line with the actual rate of depreciation. Ships and railways were both exempted until 2010 because of the special circumstances in each of those sectors. Long-life assets qualify for capital allowances at a rate of 6 per cent. a year, whereas, as the hon. Gentleman said, other plant and machinery qualify for allowances at a rate of 25 per cent. a year.

The exclusion was aimed at the merchant shipping sector, and it would be very difficult to extend it to cover floating production storage and off-take units or drilling rigs. Annual capital allowances at 25 per cent. would write off nearly half the cost of an asset in the first two years, and three quarters of the cost in the first five years—which clearly is not neutral treatment for assets that have a working life of more than 25 years. The capital allowances would outstrip by far the actual depreciation rate.

If a floating production storage and off-take unit or a drilling rig has an expected economic life of more than 25 years, it is clearly right that it should not qualify for the 25 per cent. capital allowances. Conversely, if the asset has an expected economic life of less than 25 years, it will already be outside the scope of the long-life asset rules.

This may be where I can give the hon. Member for Torridge and West Devon some comfort. We have not seen any current evidence that the provisions are discouraging investment in the North sea. However, the Inland Revenue has made it clear to the oil industry that it is prepared to agree in advance the economic life of assets that are used in the industry, and that each asset will be considered individually, to arrive at a reasonable estimate of expected economic life. Given the overall aim of the long-life asset rules, that is an appropriate way of dealing with the units that he mentioned—floating production storage and off-take units and drilling rigs.

I hope that, with that comfort, the hon. Gentleman might choose to withdraw his new clause. If not, I regret to say that I shall have to ask the House to resist it.

Mr. Burnett

Liberal Democrat Members are grateful for the Minister's comments. The problem is that, even using my amended capital allowance system, it would take a considerable time—eight years—to ride out for tax purposes the cost of an asset. That is a long time. Even with my amendment, the allowances available in the United Kingdom compared with those available abroad put us right at the back of queue. We do not sufficiently encourage our shipbuilding and shipping industries. It is with regret that we have to force the matter to a vote.

Question put, That the clause be read a Second time:—

The House divided: Ayes 37, Noes 272.

Division No. 321] [11.12 pm
Allan, Richard Hughes, Simon (Southwark N)
Baker, Norman Jones, Nigel (Cheltenham)
Ballard, Jackie Kirkwood, Archy
Brake, Tom Livsey, Richard
Brand, Dr Peter Llwyd, Elfyn
Bruce, Malcolm (Gordon) Michie, Mrs Ray (Argyll & Bute)
Burnett, John Moore, Michael
Campbell, Menzies (NE Fife) Morgan, Alasdair (Galloway)
Chidgey, David Öpik, Lembit
Cotter, Brian Rendel, David
Davey, Edward (Kingston) Russell, Bob (Colchester)
Ewing, Mrs Margaret Sanders, Adrian
Fallon, Michael Smith, Sir Robert (W Ab'd'ns)
Foster, Don (Bath) Swinney, John
George, Andrew (St Ives) Tyler, Paul
Hancock, Mike Wallace, James
Harris, Dr Evan Webb, Steve
Harvey, Nick Welsh, Andrew
Heath, David (Somerton & Frome)
Tellers for the Ayes:
Mr. Andrew Stunell and
Mr. Donald Gorrie.
Adams, Mrs Irene (Paisley N) Browne, Desmond
Ainger, Nick Buck, Ms Karen
Ainsworth, Robert (Cov'try NE) Burden, Richard
Alexander, Douglas Burgon, Colin
Anderson, Janet (Rossendale) Byers, Stephen
Armstrong, Ms Hilary Caborn, Richard
Ashton, Joe Campbell, Alan (Tynemouth)
Atkins, Charlotte Campbell, Mrs Anne (C'bridge)
Austin, John Campbell, Ronnie (Blyth V)
Banks, Tony Cann, Jamie
Beard, Nigel Caplin, Ivor
Begg, Miss Anne Casale, Roger
Bennett, Andrew F Chapman, Ben (Wirral S)
Benton, Joe Chaytor, David
Bermingham, Gerald Chisholm, Malcolm
Berry, Roger Clapham, Michael
Betts, Clive Clark, Rt Hon Dr David (S Shields)
Blears, Ms Hazel
Blizzard, Bob Clark, Dr Lynda (Edinburgh Pentlands)
Boateng, Paul
Borrow, David Clark, Paul (Gillingham)
Bradley, Keith (Withington) Clarke, Charles (Norwich S)
Bradley, Peter (The Wrekin) Clarke, Tony (Northampton S)
Bradshaw, Ben Clelland, David
Brinton, Mrs Helen Coaker, Vernon
Brown, Rt Hon Nick (Newcastle E) Coffey, Ms Ann
Cohen, Harry
Brown, Russell (Dumfries) Coleman, Iain
Connarty, Michael Hoon, Geoffrey
Cook, Frank (Stockton N) Howarth, Alan (Newport E)
Corbyn, Jeremy Howarth, George (Knowsley N)
Corston, Ms Jean Hoyle, Lindsay
Cousins, Jim Hughes, Ms Beverley (Stretford)
Cranston, Ross Hughes, Kevin (Doncaster N)
Crausby, David Humble, Mrs Joan
Cummings, John Hutton, John
Cunliffe, Lawrence Iddon, Dr Brian
Cunningham, Jim (Cov'try S) Illsley, Eric
Dalyell, Tam Jackson, Ms Glenda (Hampstead)
Davey, Valerie (Bristol W)
Davidson, Ian Jackson, Helen (Hillsborough)
Davies, Rt Hon Denzil (Llanelli) Jamieson, David
Davies, Rt Hon Ron (Caerphilly) Jenkins, Brian
Davis, Terry (B'ham Hodge H) Jones, Mrs Fiona (Newark)
Dawson, Hilton Jones, Dr Lynne (Selly Oak)
Dean, Mrs Janet Jones, Martyn (Clwyd S)
Denham, John Keeble, Ms Sally
Dismore, Andrew Keen, Alan (Feltham & Heston)
Dobbin, Jim Keen, Ann (Brentford & Isleworth)
Donohoe, Brian H
Doran, Frank Khabra, Piara S
Dowd, Jim Kidney, David
Drew, David Kilfoyle, Peter
Eagle, Angela (Wallasey) King, Andy (Rugby & Kenilworth)
Eagle, Maria (L'pool Garston) Kingham, Ms Tess
Ellman, Mrs Louise Kumar, Dr Ashok
Ennis, Jeff Ladyman, Dr Stephen
Etherington, Bill Lepper, David
Field, Rt Hon Frank Leslie, Christopher
Flint, Caroline Lewis, Terry (Worsley)
Flynn, Paul Liddell, Mrs Helen
Foster, Rt Hon Derek Linton, Martin
Foster, Michael J (Worcester) Livingstone, Ken
Foulkes, George Lloyd, Tony (Manchester C)
Galbraith, Sam Lock, David
Gapes, Mike Love, Andrew
Gardiner, Barry McAllion, John
George, Bruce (Walsall S) McAvoy, Thomas
Gibson, Dr Ian McCabe, Steve
Gilroy, Mrs Linda McCafferty, Ms Chris
Godman, Dr Norman A McCartney, Ian (Makerfield)
Goggins, Paul McDonagh, Siobhain
Golding, Mrs Llin McDonnell, John
Gordon, Mrs Eileen McFall, John
Grant, Bernie McGuire, Mrs Anne
Griffiths, Jane (Reading E) McKenna, Mrs Rosemary
Griffiths, Nigel (Edinburgh S) McLeish, Henry
Grogan, John McNulty, Tony
Gunnell, John MacShane, Denis
Hain, Peter Mactaggart, Fiona
Hall, Mike (Weaver Vale) Mahon, Mrs Alice
Hamilton, Fabian (Leeds NE) Mandelson, Peter
Hanson, David Marsden, Gordon (Blackpool S)
Heal, Mrs Sylvia Marsden, Paul (Shrewsbury)
Henderson, Ivan (Harwich) Marshall, David (Shettleston)
Heppell, John Marshall, Jim (Leicester S)
Hewitt, Ms Patricia Marshall-Andrews, Robert
Hill, Keith Martlew, Eric
Hinchliffe, David Maxton, John
Hoey, Kate Meacher, Rt Hon Michael
Home Robertson, John Meale, Alan
Merron, Gillian Sheerman, Barry
Michael, Alun Short, Rt Hon Clare
Milburn, Alan Simpson, Alan (Nottingham S)
Miller, Andrew Singh, Marsha
Mitchell, Austin Skinner, Dennis
Moffatt, Laura Smith, Rt Hon Andrew (Oxford E)
Morgan, Ms Julie (Cardiff N)
Morgan, Rhodri (Cardiff W) Smith, Miss Geraldine (Morecambe & Lunesdale)
Morris, Ms Estelle (B'ham Yardley)
Smith, Llew (Blaenau Gwent)
Mudie, George Soley, Clive
Mullin, Chris Southworth, Ms Helen
Murphy, Jim (Eastwood) Spellar, John
O'Brien, Bill (Normanton) Squire, Ms Rachel
O'Brien, Mike (N Warks) Steinberg, Gerry
Olner, Bill Stevenson, George
O'Neill, Martin Stewart, Ian (Eccles)
Organ, Mrs Diana Stoate, Dr Howard
Osborne, Ms Sandra Stott, Roger
Palmer, Dr Nick Strang, Rt Hon Dr Gavin
Pearson, Ian Stringer, Graham
Pendry, Tom Stuart, Ms Gisela
Pickthall, Colin Sutcliffe, Gerry
Pike, Peter L Taylor, Rt Hon Mrs Ann (Dewsbury)
Plaskitt, James
Pope, Greg Temple-Morris, Peter
Pound, Stephen Thomas, Gareth R (Harrow W)
Powell, Sir Raymond Timms, Stephen
Prentice, Ms Bridget (Lewisham E) Touhig, Don
Trickett, Jon
Prentice, Gordon (Pendle) Truswell, Paul
Primarolo, Dawn Turner, Dennis (Wolverh'ton SE)
Prosser, Gwyn Turner, Dr Desmond (Kemptown)
Purchase, Ken
Quin, Ms Joyce Twigg, Derek (Halton)
Quinn, Lawrie Vaz, Keith
Radice, Giles Vis, Dr Rudi
Rammell, Bill Walley, Ms Joan
Reed, Andrew (Loughborough) Wareing, Robert N
Reid, Dr John (Hamilton N) Watts, David
Robertson, Rt Hon George (Hamilton S) White, Brian
Whitehead, Dr Alan
Roche, Mrs Barbara Wicks, Malcolm
Ross, Ernie (Dundee W) Williams, Alan W (E Carmarthen)
Rowlands, Ted Winnick, David
Roy, Frank Wood, Mike
Ruddock, Ms Joan Woolas, Phil
Russell, Ms Christine (Chester) Wright, Anthony D (Gt Yarmouth)
Ryan, Ms Joan
Salter, Martin Wright, Dr Tony (Cannock)
Savidge, Malcolm Tellers for the Noes:
Sedgemore, Brian Jane Kennedy and
Shaw, Jonathan Mr. Jon Owen Jones.

Question accordingly negatived.

Further consideration adjourned.—[Mr. Robert Ainsworth.]

Bill to be further considered tomorrow.

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