Thursday, March 4, 2021

Freeports, Fuel Duty and Tax Changes Delight for Some and an Anathema to Others

UK Logistics Sector Gives a Variable Reaction to Budget
Shipping News Feature

UK – The logistics sector drew breath this week and then released a torrent of words to comment on the Budget measures, taken as they are in the light of chaos caused by both the Covid pandemic and the exit from Europe.

Whilst some see Freeports as the road to Damascus, others are sceptical of the advantages or downright hostile, seeing them as an excuse to lower employment standards. Measured comments come from such as Robert Keen, Director General of the British International Freight Association (BIFA), who welcomed some of the macro-economic announcements in the UK Budget that will offer ongoing support to businesses in the freight and logistics sector that have been hit hard by the double whammy, saying:

“The additional £126 million announced for apprenticeships and the raising of the cash incentive for employers to £3,000 may help BIFA’s campaign to encourage companies to consider recruiting youngsters and enrolling them on the International Freight Forwarding specialist apprenticeship, which BIFA helped to create in 2018.

“However, there was no mention of the issues facing the aviation sector in either the announcement of the roadmap out of recovery, nor the Budget. This is a concern because a recovery in the passenger sector with an increasing number of flights carrying belly hold cargo will be necessary to allow the air cargo sector to fully recover.”

“Our members will welcome the news that the freeze in fuel duty will remain. However, they would have preferred to see an outright cut, the introduction of an essential user rebate and some form of fuel duty stabilisation mechanism. To date, BIFA has been indifferent to the proposed development [of Freeports], and queries whether they will provide new advantages compared to the existing Customs Special Procedures, which from 1 January 2021 no longer need a guarantee to operate"

Legal groups smelt blood in the water as soon as the Freeports announcement came, doubtless sensing a range of future opportunities and pointing out the enthusiasm that many vested interests have for their development. Jonathan Moss, partner and head of Marine and Trade at DWF, commented:

"Freeports underline their dual economic contribution, locally through job creation and in stimulating investment in regions across the country that need it, and more widely in facilitating the expansion of the UK's trade with the rest of the world. This is achieved through tariff and documentation exemptions, oiling the wheels (or the hulls) of the shipping sector, with a cautious optimism to reinvigorate the UK's economic position in a post-Brexit and post-Covid international marketplace.

"The Chancellor's proposal in today's Budget aims to set in motion not only a revival of, but also an improvement on, the UK's historic maritime trade capabilities, providing an opportunity for competitive advantage as a trade and logistics platform. The creation of special economic zones could act as a catalyst for international trade and regional regeneration. With more than 30 areas of the country reportedly bidding for these Freeports, it seems many share the Chancellor's optimism."

Meanwhile that frozen duty rate on fuel was understandably uppermost on the list of priorities for the Road Haulage Association (RHA) whose chief executive Richard Burnett said:

“This has been a Budget that is good for business and good for people. The Chancellor’s announcement of a fuel duty freeze for the 11th year in succession comes as very good news for the hundreds of thousands of commercial vehicle operators who have been struggling as a result of the pandemic. As with every Budget, it contains much more detail than first meets the eye but overall, we consider it to be a Budget based on optimism and right now, that’s something that we all need.”

While supporting the view of the fuel duty announcement Logistics UK spokesperson Alex Veitch, General Manager of Public Policy, said there is a need for greater investment in training programmes to help fill the growing vacancies in the industry, explaining:

“Funding to train new entrants to the logistics sector is particularly welcome at a time when the industry is suffering significant skills gaps and the loss of EU workers, and a more flexible approach to apprenticeships will also assist the sector in recruiting the next generation of logistics employees.

“However, the industry needs new recruits now, and a more flexible method of providing direct support to those looking to retrain and reskill into vital operational roles like HGV drivers and transport managers would help that transition.  The average cost for a 12-month apprenticeship training and license acquisition is £7,000. Logistics UK would like to see more immediate government support, in the form of interest-free loans or grants, to be made available now to help switch those affected by the pandemic into the vacancies which are open now, and help with the economic recovery from Covid-19.”

Logistics UK is one of those to give uninhibited support to the announcement of the eight new English Freeports saying it is confident these will support business and industry in these locations and urging the government to consider expanding the programme, a view vehemently opposed by maritime workers union RMT whose General Secretary Mick Cash said:

”On Freeports, national insurance relief on new jobs will create a two tier workforce and turn these regions into bargain basements for multinational companies to enjoy increased profits at the expense of workers’ safety, employment rights and public services. This is no model for sustainable economic growth and handing control of ports to international conglomerates is casino economics.”

The RMT was also quick to shed doubts on the validity of the planned future rise in Corporation Tax, asking how this will affect the Tonnage Tax scheme, the levy on notional profits based on the weight of the ship. KPMG has estimated that it results in a nominal Corporation Tax rate of 1-2%. To date, company groups in the Tonnage Tax have enjoyed tax relief amounting to £2.165bn since 200-01. Training of UK seafarers is provided in return but, according to the RMT, not on the scale required to relieve seafarer skills shortages.

One group clearly unimpressed by the Chancellor’s announcement on Freeports and beyond was the United Kingdom Warehousing Association (UKWA), with CEO Peter Ward expressing his organisation’s disappointment that there was little done to support the warehousing and logistics sector, which he says has supported the economy through the global pandemic and is now faced with the costs of massive transformational change, continuing:

“While we all recognise that these are unprecedented times and the government is negotiating unchartered waters, we note continued support for those businesses that have been closed temporarily in the sectors that have been hardest hit, such as hospitality and tourism. In contrast, our own industry, which has largely continued to operate, but under incredibly challenging conditions, has once again been overlooked.

”We understand the principle behind restart grants, but question how many of these businesses will ultimately reopen and thrive. Those in the hospitality and non-essential retail sector have benefited from 100% business rates holidays, and will continue to do so until June, our own pleas on behalf of warehouse owners operating in the ‘non-essential’ arena, whose businesses have become unprofitable long-term storage facilities, have fallen on deaf ears.

”The exponential growth of ecommerce as consumers are locked down at home has driven major changes, and concomitant costs, in our industry, as has the necessity to implement Covid-secure working practices, which keep warehouses open. These measures represent not only capital investment for a low-margin industry, but also impact on productivity and therefore profitability.

”Over the last year, logistics has demonstrated its vital importance to public life as well as to the economy as never before. Yet, there are no Government measures on offer to help the industry recalibrate to the needs of the ‘new normal’ post pandemic. Of course, the industry is also contending with the additional cost burden of Brexit and with further process change ahead coinciding with the anticipated ‘big bang’ of pent-up consumer demand as restrictions lift, we would have expected recognition of the need for support from the Government.

”We remain skeptical on the value of Freeports, particularly to UK based industries such as the automotive sector, where most manufacturers already have well-established supply chain infrastructure. On the positive front, we welcome the announcement of further funding for apprenticeships, training, and education, to help address the well documented skills and labour shortage in our sector; also, we welcome improved R&D tax incentives and ‘super deduction’ for companies investing in new technology.

"On behalf of SMEs, we will be looking closely at the Government’s new ‘Help to Grow’ digital scheme, which we hope will support warehouse and logistics businesses in taking the necessary giant leap to embrace latest digital technologies. Investment in robotics and automation has become a ‘must-have’ in the new world and it is essential that the Government commits to doing more to support this.”