The UK is drawing up plans to turn London into a rival for Singapore as a hub for shipping companies to register their vessels following the end of the Brexit transition period, according to people briefed on the proposals.
Industry bodies and unions have been canvassed over the reform of the shipping industry’s so-called tonnage tax after January 1 2021, when the UK is no longer subject to the EU’s state aid regime on subsidies.
The proposals, described as “blue-sky thinking” by one person familiar with their contents, are being worked on as EU-UK trade talks reach a crunch point in Brussels — with the issue of managing UK regulatory divergence the biggest bone of contention.
According to calculations provided to the government, revamping the UK’s shipping tax and regulation regime could be worth £3.7bn to the economy over three years and create 2,500 high-quality jobs directly, and 25,000 in related companies.
Plans due to be submitted to ministers at the Department for Transport last week included expanding the scope of the UK scheme by counting oil rigs as “ships” for tax purposes — which is not allowed under EU rules controlling the subsidy of maritime transport — in order to attract more business.
A £30m government-funded scheme to train cadets directly on behalf of shipping companies has also been mooted.
A spokesperson for the Department for Transport said: “We do not comment on leaks.”
Since the Brexit vote, the tonnage of ships registered under the UK flag has declined by a third, according to a report prepared for the government, because of Brexit uncertainty. The proposals say this could partly be addressed with a “hearts and minds” campaign to persuade shipping companies to register their vessels under the UK flag.
Such a campaign would chime with Mr Johnson’s post-Brexit rhetoric of restoring Britain’s greatness as a maritime nation. Last February he chose the Painted Hall of the Royal Maritime Museum in Greenwich to deliver a speech in which he characterised Britain as once again on the “slipway”, waiting to forge a new future as a global trade power.
Among the plans being discussed is enabling floating production storage and offloading vessels (FPSOs) and drilling rigs to be included in the UK tonnage tax regime, in order to give the UK a competitive advantage over current EU regimes.
David Blumenthal, a tax partner with Clyde & Co, who handles tonnage tax issues, said the UK’s departure from the EU was an opportunity. “The idea is that if we’re not constrained by EU state aid, we could have more ability to do things that would make the UK more attractive to shipping companies,” he said.
In the EU, tonnage tax regimes are signed off by the bloc’s state aid authorities. They offer shipping companies a route to avoid corporation tax in exchange for registering and managing their vessels in an EU country.
Another suggestion is companies that choose to flag their vessels in the UK could face a “lighter touch” test for how much of their shipping is managed in the UK — a key requirement under EU tonnage tax regimes. The proposal seen by the FT repeatedly references Singapore as a benchmark for the UK’s post-Brexit aspirations.
The UK tonnage tax scheme, set up in 2000 under John Prescott, the former Labour deputy prime minister and transport secretary, also includes a requirement for companies to train cadets, which the proposals suggested could now be taken on by the government — a form of subsidy.
Research for the government has shown this training requirement makes the UK tonnage tax up to 14 times more expensive than Singapore and between eight and 10 times more than permissive EU jurisdictions such as Malta and Cyprus.
The shipping and wider maritime industry employs more than 200,000 people and contributes over £46bn a year to the UK economy, according to the UK Chamber of Shipping.
The chamber confirmed it was working with the government to explore options to enhance the UK as an international shipping hub. “As we leave the EU we have the opportunity to develop our national shipping regime as we will no longer be bound by EU rules,” a spokesperson added.