Tonnage Tax shows shipping's multi-billion-pound impact on the UK economy

Since its introduction in 2000, Tonnage Tax has helped boost the UK fleet, seafarer training and investment from overseas - and is now worth billions to our economy.

In September, a delegation of shipping industry leaders visited 10 Downing Street to take part in a round-table debate with government ministers to discuss the challenges and opportunities facing the UK's maritime industry.

A review of the current Tonnage Tax (TT) regime was one of the key areas in which the delegation asked for change, although specifics of the meeting remain private.

For its part, the UK Chamber of Shipping wants to increase the attractiveness of TT and make the UK more open to investment from international shipping businesses.

TT may not have made its way into the Autumn 2017 Budget, but it remains a valuable initiative for the UK’s maritime industry and the wider economy, which was quantified in a formal study earlier this year.

The TT regime, which is a fully approved EU State Aid, was introduced in 2000 as a means to support the UK shipping industry. Its aims were to boost the size of the declining UK fleet and to increase the levels of training of UK seafarers.

It also aims to create a more competitive fiscal environment for international shipping businesses located in the UK, by bringing the tax burden in line with other major maritime countries throughout the world.

Economics consultancy CEBR this year undertook a study (downloadable here) of the economic value of Great Britain’s shipping industry on behalf of Maritime UK, the industry’s promotional body.

The consultancy said that, though it may be impossible to quantify how well the UK shipping industry would be performing if the regime was not in place, “it is clear that given the marked reversal in the performance and size of the UK shipping fleet followed the introduction of the Tonnage Tax regime, and the contemporaneous macroeconomic conditions and experience of other European countries, the impact of Tonnage Tax is highly unlikely to be coincidental”.

Since TT was introduced in 2000, the UK-owned fleet has averaged 5.1% year-on-year growth in terms of combined deadweight tonnage, although there has been a decline since 2011.

The UK’s trade balance has also improved since 2000, with exports exceeding imports in 2003 and the trade balance peaking at £2.7 billion in 2008.

To put a monetary value on TT’s economic impact, CEBR modelled upper, lower and central scenarios to estimate the gross value added (GVA) by the regime.

Under a central scenario, the consultancy estimated without the TT regime, the UK shipping industry would have directly contributed 73% less in GVA during 2015 – equivalent to around £3.1 billion.

Without TT, there would be 37,000 fewer jobs, £410 million less in tax contributions and £3.7 billion in exports of seaborne transport services, the study found.

And that’s just the direct contribution. Once the indirect and induced channels are considered, without TT the reduction in GVA and employment would rise to £11.6 billion and 451,000 jobs respectively in 2015, CEBR found.

“The CEBR study clearly shows the positive economic effects of TT – and long may this continue,” says Gavin Simmonds, the UK Chamber’s policy director, commercial.

“We’re hoping to increase this contribution and the attractiveness of UK TT and make the country more open to international shipping investment. This should include bringing new companies into the regime.

“We’re also looking at the details of the TT training commitment and want to increase the flexibility for UK seafarers who are at the beginning of their careers and to help them progress to higher levels of qualification,” he continues. In 2015, the Government amended TT regulations to allow ratings to be trained under the Core Training Commitment, in response to lobbying from the UK Chamber.

In addition, TT could help the UK Ship Register (UKSR) achieve its strategic goals. In September, the Government announced its ambition to double the size of the UKSR to 30.0 million GT after the country leaves the European Union. If successful, this would propel the UK into the world’s top 10 flag states.

“TT is a key element in our wider ambition with the UK Government to make the UK flag one of the world’s top 10 in terms of tonnage,” says Gavin Simmonds.

Gross tonnage on the UKSR has increased by almost 12% over the past two years and over 6.0% since 2017 began, which has helped the registry move up one place to become the world’s 14th biggest in terms of tonnage.