Finance (No.2) Bill

As we have heard, amendment 1 seeks to remove clause 4 on the seafarers' earnings deduction from the Bill. Doing so would prevent the extension of seafarers' earnings deductions to EEA resident seafarers. By way of background, it is worth pointing out that in November 2008 the European Commission sent a pre-infraction letter on this matter. The Commission stated that the rules for seafarers' earnings deductions are incompatible with the EU rules because the deduction is available only to seafarers who are ordinarily resident in the United Kingdom. After due consideration of the Commission's letter, the previous Government decided to respond by enacting a change in the law. Consequently, last year they said that they would legislate to extend the rules for this deduction, enabling European economic area resident seafarers from outside the UK to claim. The previous Government committed to implementing the change from April 2011. Given the expectations that were set by the previous Government, we decided that it was better to enact the changes this year. After the election, we decided to follow the same approach as the previous Government in response to the Commission's letter, although we postponed the legislating until this second Finance Bill of the Session. In July, the draft clause and explanatory notes were published along with the rest of this Bill. Only one response was received, from a professional body, and it did not raise any concerns about competition effects on UK seafarers. Other discussions with interest groups exposed no objections to the extension of the rules because it was felt that it would not have a significant impact on UK resident seafarers. Opposition Members are concerned that making such a change will benefit Icelandic and Norwegian fishermen, who compete with UK fishermen for their catch. In particular, the hon. Member for Nottingham East (Chris Leslie) raised the matter of the so-called mackerel war. Although I understand such a position, the clause will make no significant difference. The Government estimate that a maximum of 1,500 EEA resident seafarers will become entitled to claim seafarers' earnings deduction, at a potential cost of £5 million per annum. The numbers and amounts involved are relatively low because few non-UK resident seafarers pay income tax on their earnings in the United Kingdom. Non-resident seafarers are liable to UK tax on earnings in UK waters—that is within 12 miles of the shore—or if they visit a UK port. In reality, that means that they would probably be working in the UK or for UK businesses. Even if there were a liability to UK tax for such individuals, most double taxation agreements would give primary taxing rights to the home state, making the application of the deduction redundant. In practice, we estimate that about 4,000 non-UK resident seafarers pay income tax in the UK. As many of those are not EEA residents, we estimate that the extension of the entitlement to EEA residents would enable a maximum of 1,500 non-resident seafarers to claim the deduction. The Icelandic mackerel fishermen are most unlikely to be subject to United Kingdom taxation. First, many fishermen are self-employed, and so outside any entitlement to the deduction. Secondly, Icelandic fishermen would be entitled to claim the deduction only if they were employed to fish in UK waters or if they visited a UK port. It is unlikely that there are many Icelandic fishing vessels operating within 12 miles of the UK or landing their catch at our ports. Even if they did so, such individuals would still be subject to the double taxation agreement, which in almost all cases gives Iceland primary taxing rights over its resident seafarers. This Government take the mackerel fishing issue extremely seriously. The Under-Secretary of State for Environment, Food and Rural Affairs, my hon. Friend the Member for Newbury (Richard Benyon) has been engaging with his counterparts on this matter across Europe. We are disappointed that no agreement has yet been reached and we find the continuing action by Iceland unacceptable. We will consider further action in due course. The hon. Member for Nottingham East seems to have forgotten why this measure is being put in place and what the consequences are of not enacting it. If we passed amendment 1, the Commission would certainly take a significant and immediate interest, which could result in substantial uncertainty for UK seafarers. If we lose before the European Court of Justice, the result could be a fine from the European Commission of at least €11 million, and we would still have to enact the measure. To reject the amendment will mean an estimated cost of no more than £5 million per annum, with few —if any—consequences for the UK fishing fleet. I therefore ask the hon. Gentleman to withdraw his amendment.