Finance (No. 2) Bill — Capital allowances for sea going vessels — 30 Jun 1998

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.

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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.

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

The House divided: Ayes 37, Noes 272.

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