Shipowners ready to give UK tonnage tax a wide berth

Source: Lloyds List

SHIPOWNERS are losing faith in Britain’s tonnage tax regime at a time when London’s status as a global maritime centre is under considerable pressure.

The tonnage tax system contributed greatly to the revival in the number of ships operated from the UK, a resurgence that also benefited the country’s professional services and other related activities.

But several shipping companies contacted by Lloyd’s List today said they had no plans to enter any more ships into the UK system, because of the risk that the government may try to tamper with the rules again.

“There is a general viewpoint that there are other more stable tax regimes than the UK’s,” said one major owner who has ships both flagged in the UK and enrolled in the tonnage tax system. “Uncertainty is never good.”

Another expressed almost identical complaints about rule changes that have dented confidence in the UK system.

Even if the government now promised there would be no further attempts to adjust the tax, “the damage is done”, he said.

Evergreen Marine UK’s honorary chairman Maurice Storey said today that this loss of support could reverse the trend that has brought so many new ships to the UK since the tonnage tax was introduced in 2000.

“That would be very sad because if we lose them this time, we may not get them back,” he said.

Evergreen Group chairman Chang Yung-fa warned last year about the risks to British shipping of tax uncertainty when he said that his company would be prepared to switch ships to Singapore if the UK system lost its competitiveness.

The Taiwanese group still has 11 ships under the UK flag and entered into the tonnage tax system, and currently has no ships on order.

But when it does resume its building programme, new ships that might otherwise have come to Britain could be placed under other tax jurisdictions that offer more stability, said Mr Storey.

The airing of these grievances about Britain’s fiscal environment coincides with an acknowledgement from Chamber of Shipping president Martin Watson that the UK’s status as a global maritime centre is being threatened by a number of factors including tax policy, the banking crisis, legal issues and competition from other cities.

In an interview with Lloyd’s List, Mr Watson said the shipping industry needed “consistency, continuity and stability in our fiscal and regulatory regime”.

Shipowner complaints do not extend to the UK register, which is managed by the Maritime and Coastguard Agency that came in for considerable criticism from the National Audit Office earlier this month.

“If we are going to place ships with a European register, the UK would be our flag of choice,” a major container line said.

“We have no issue with the MCA,” said another.

Mr Storey, a former chief executive of the MCA, also defended the agency. “Evergreen has a good relationship with the MCA, and we have no complaints,” he said.

Ships can be entered into the tonnage tax system without having to be flagged in the UK. Nevertheless, business leaders are concerned the growing unpopularity of the UK scheme could have wider repercussions at a time when all sectors of the country’s maritime industry are under so much pressure.

Mr Watson raised the issue a few weeks ago when he told guests attending the chamber’s annual dinner that two inward-investing members had decided that 70 large ships originally intended for the UK would go elsewhere instead, because of inconsistent government policy.

“Changes over the last year to the business environment for UK-based shipping — both actual and threatened — have given rise to instability and uncertainty that has led to a major slowing of growth in the UK-based fleet,” he said.

At the same time, the full impact of the decision to impose a £30,000 ($44,000) tax levy on non-domiciles will not be known for another year, when those affected have to elect whether to stay in the UK. But Mr Watson said some have already left the country, with others likely to follow.

The departure of individuals would almost certainly affect corporate activity, he predicted.