HIGHLANDS AND ISLANDS (SHIPPING SERVICES)

HC Deb 11 December 1961 vol 651 cc99-170

7.1 p.m.

The Secretary of State for Scotland (Mr. John Maclay)

I beg to move, That the Undertaking between the Secretary of State for Scotland ad David MacBrayne Limited, a draft of which was laid before this House on 27th November, be approved. I understand that it will be for the convenience of the House if we discuss the three Undertakings standing in my name together. I hope that is agreeable, because I have understood that it is so.

Mr. Speaker

If that is the accepted course, that will be all right. It might avoid having to repeat the arguments later.

Mr. Maclay

The reason for the draft Undertaking with David MacBrayne, Limited, for which I seek approval tonight, is that the existing agreement with MacBrayne's, which was approved by the House in 1952, comes to an end on 31st December, and means must be found to enable these essential services to be continued after that day. The draft agreement with the Orkney Islands Shipping Company is to enable that company to take over and operate essential sea services from Kirkwall to the North Isles of Orkney. This new company is taking over from the Orkney Steam Navigation Company, which has maintained the services so far, but which, for a variety of reasons, has found itself unable to continue to do so. The second Orkney agreement, with the Orkney Steam Navigation Company, provides, in effect, for transitional arrangements between that company and its successor.

The Government's objective throughout, is having regard to the particular circumstances of each case, to negotiate arrangements which would answer the following criteria: first, the maintenance and improvement of essential services; secondly, the most effective form of management, having regard to the particular circumstances; thirdly, the needs of the area to be served; and fourthly, the protection of the taxpayer. The patterns which have emerged are not identical, but, as I hope to make clear, are those most suited to the circumstances of each case.

The Motion before the House continues the process begun with the High lands and Islands Shipping Services Act, which the House passed last year. That Act enables the Secretary of State to give assistance in various ways in order to maintain and improve shipping services in the Highlands and Islands. It requires him, if he proposes in any case to make advances exceeding £10,000 in any year, to do so only in accordance with an undertaking a draft of which has been laid before Parliament and approved by the House.

Dealing first with the draft MacBrayne agreement, this follows generally the agreement with that company in 1952. As hon. Members know, Government assistance has been given to MacBraynes to maintain certain approved services by sea and road in the Western Highlands and Islands since 1928. Up to now, assistance has been given under arrangements made jointly by the Minister of Transport and the Postmaster-General, but the 1960 Act provided that the Secretary of State should in future be the Minister responsible. Now that the Post Office is operating on a commercial basis, the carriage of mails will be undertaken by the company as an ordinary commercial transaction under a separate commercial contract with the Postmaster-General.

The main changes from the 1952 agreement are financial. Hon. Members will see in Clause 12 that, contrary to what was done previously, the amount of the annual grant is not now specifically mentioned. The reason for this change is that it is necessary in a contract like this, which is to run for ten years, to provide for variation of the grant in different circumstances. This means that any printed figure is liable to be out of date quite soon, and would, therefore, become misleading, and this has been the experience with the figure of £360,000 mentioned in Article 15 of the 1952 agreement. That figure included £60,000 in respect of the carriage of mails, which, as I have explained, is now being dealt with outside the subsidy. The comparable annual grant in 1952 was, therefore, only about £300,000, and in the last ten years it has varied between that figure and £260,000.

Mr. A. C. Manuel (Central Ayrshire)

Surely, the right hon. Gentleman is admitting, if that is the case, the Government's complete failure to hold prices and costs, for it would be the same figure each year.

Mr. Maclay

The hon. Member will realise that this figure is bound to vary each year, very often as a result of greater efficiency in operation.

Mr. Manuel

I wish I could.

Mr. Maclay

The hon. Member will do so when I have reached a further stage in my speech.

Because of such variations, it seems more sensible not to print a figure at this stage. The annual estimated grant will continue to be published in my Department's annual estimates. For the first year, it is likely to be of the same order as the grant has been running under the present agreement, but the grant can be varied, up or down, to take account of changes in services, and that is provided for in Clause 6 (7).

Mr. William Ross (Kilmarnock)

The right hon. Gentleman says, "More or less as it has been running at present". Does he mean in the last contract, or as it was in the last year?

Mr. Maclay

The figure is somewhere between what the grant was running at last year and that at which it was running at intervals during the whole period of the contract. The figure I have given is between £260,000 and £300,000, and until the Undertaking is through, and we have completed negotiations, we cannot specify what the figure will be.

I repeat, because this is part of the point which the hon. Member for Central Ayrshire (Mr. Manuel) put to me, that the grant can be varied up or down to take account of changes in services and changes in charges and of the financial results of the company's operations. An increase in the grant—and I will be quite frank about this—in the next few years seems unavoidable because of the high cost of ship replacement and operation.

Although no figure is printed in the Undertaking, Clause 12 of the agreement sets out the basis on which the grant is to be calculated. It will be an estimate, made at the beginning of the agreement, of the annual loss involved in maintaining the services, after allowing for depreciation of assets and for interest on the company's capital employed in the business. This estimate is reached after a close examination of the company's performance in previous years and an assessment of its future prospects. As I said, negotiations are now in progress about what the grant will be.

I have said that the grant has to allow for interest on the capital which the company employs in its business. We have considered carefully what the appropriate rate of interest should be, and have come to the conclusion that the company's capital should be remunerated at the same rate as if it were made available to the Government as a ten-year loan. The rate, which is provided in Clause 17 (1), is accordingly 6⅝ per cent., which was the appropriate Government borrowing rate prevailing at the date on which the agreement was provisionally concluded with the company. This is the rate that the Government would have had to pay if they had had to borrow the capital needed to run the services themselves for ten years.

There will be a change in the fifth year. There is to be a general financial review, as explained in Clause 20, but special provision, outwith the general review, is also made in Clause 17 (2) for the interest rate. For the second five years, the company has agreed that it should follow the appropriate Government borrowing rate prevailing on 1st January, 1967, as determined by the Treasury. The capital employed on which the company will receive this return is now just over £1 million, having increased from £726,000 in 1952.

This increase is attributable, in the main, to the ploughing back of profits by reason of dividend restrictions in the 1952 agreement and to tax allowances in respect of new ships. It has been used, of course, to finance capital requirements. I envisage that the company will achieve less capital growth in future, because it is unlikely that it will earn comparable tax allowances. Any capital growth is most likely to come as a result of the continued dividend restriction in the present agreement.

Clause 18 provides that dividends will continue to be limited. The limit will be 6⅝ per cent. in the first five years, and thereafter it will follow the figure then determined by the Treasury for interest. Dividends are payable only on the company's issued capital. Since 1952, the company's issued capital has remained at £500,000, but the company has now proposed to increase it to £800,000. It is competent for the company to do this, and it brings its issued capital more into line with the capital employed.

Mr. E. G. Willis (Edinburgh, East)

How does the company propose to increase its capital—by bonus shares?

Mr. Maclay

By capitalising some of the reserves. This means that under the new agreement the company will be allowed interest on about £1 million capital, although limited to paying dividends on £800,000.

The other main financial provision in the Undertaking is in Clause 16, which provides for the incentive arrangements. If in any year the company does well, and, after meeting the costs of operating the services, charging depreciation and meeting interest on capital, there still remains a balance of grant unspent, in other words, if the company has beaten the estimate, that sum, up to £30,000, is to be shared equally between the Government and the company. Any excess over £30,000 goes back to the Government. Similarly, if there is a deficiency, it will be shared equally by the parties up to £30,000 and any excess over that amount will be borne by the Government. This sharing arrangement is similar to that in the present agreement, but the range is now doubled, and will make the incentive to efficiency stronger and more effective.

Those are the main financial provisions, but I would now like to turn to the various controls over the company's operations. Control will be retained, as in the past, over the services provided—Clauses 5 and 6—but details of the services are not being printed in the agreement because the changes which have to be made in them from time to time mean that the printed list becomes out of date. Instead, the company will be required to maintain a list of approved services and to make it available for public inspection. The need to exercise control over the fixing of rates and fares is one of the most onerous and thankless tasks which Ministers have to undertake—I know quite a few others—and the Secretary of State is under constant pressure about the burden of freight charges to the Highlands and Islands. Clearly, the company cannot be given freedom to fix charges at will. On the other hand, the public purse must be safeguarded.

Past agreements have given no guidance—to the public, the company, or even to Ministers—as to how Ministers should exercise their discretion in this matter. In the new agreement we have set up signposts in Clause 19 (1, d) guiding the Secretary of State as to the factors which he should take into account in considering changes. The first of these is the level of other transport charges. It is impossible to consider charges in the Highlands without taking into account what is happening in other transport services to the Highlands, or in other parts of the country.

The second factor is the financial results of the agreement. Obviously, the company's interests have to be taken into account, as have those of the taxpayer, which are sometimes forgotten in these matters. Frankly, I would like, and the company would like, I am sure, to work towards the position where the subsidy becomes unnecessary and can be abolished, so far as that is compatible with our responsibilities for the Highlands. For, and this is the third consideration, the Secretary of State, has to take into account the effect of charges on the economy of the area. The new agreement also specifically provides in Clause 19 (2) that where, for the reasons I have given, the Secretary of State decides that it would be unjustifiable to agree to an application by the company to alter charges, he will be able to alter the grant instead.

There are two other points which should be mentioned. The first is the future provision of ships. As hon. Members are aware, the company, looking into the future, has made proposals for the introduction of new vehicle ferry services to the Western Isles. It is confident that these services will encourage a new kind of traffic which will be of benefit to the Islands. Vehicle ferry services will be a better investment from everybody's point of view.

The company's proposals are still under consideration, but I hope to announce a decision soon. If the proposals are approved, three new vessels will have to be built. As the House is aware, the Act of 1960 gave power for the Secretary of State to build and charter ships, and this is what will be done in this case. It seems to the Government that this is a much sounder method of providing for the company's main capital needs than by leaving it to finance its own requirements. The ships will be chartered to the company under separate commercial charter parties. The company will be charged a commercial charter fee, but the annual grant under this agreement will be adjusted as necessary to meet that fee. The reason for proceeding in this way—charging a full commercial rate and altering the grant to cover it—is, of course, to show the real extent of the charge on the public purse. There will be no hidden subsidy.

The second matter I want to stress is that the Government are concerned that the services should be operated with the utmost efficiency. I am sure that there will be general agreement on all sides that the company's masters and crews and its road vehicle staff deserve high praise for the way in which the services are maintained, often in very difficult conditions.

During the past ten years the company has disposed of many aged vessels with honourable names. The "Clydesdale", the "Hebrides" the "Lochinvar" the "Loch Ness" and the "St. Columba" have all gone, to the regret of many of us who have known them for many years—and that is quite a tribute to the age of some of the ships. New ships, such as the "Claymore" and the "Loch Ard", have joined the fleet. The company has also expanded its fleet of road vehicles. Bigger and faster ships, more and better road vehicles, and successful reorganisations of services to make the best use of them have all made a contribution to greater efficiency. I can assure the House that this effort will be continued.

Both the Government and the company have been fortunate in recent years in having the services of Sir William Robieson as Government director. He has given a great deal of time and energy to the company's affairs and, if the House approves this Motion tonight, I propose to reappoint him for a further three years. I propose also to appoint Mr. Frank Robertson of the Gem Line to serve for a period of four years. His sound experience of shipping will, I am sure, make him an invaluable member of the company's board.

Mr. Manuel

The Secretary of State has spoken of appointments to the board. He has power to nominate. Is he saying that that power to nominate is the same as appointing and that a nomination will not be turned down by the other directors?

Mr. Maclay

I understand that it is the same thing. It is a nice point which has not occurred to me, but I think that it is the same thing.

I turn now to the two Orkney agreements. These agreements represent the solution, so far as organisation and finance go, to the problem of the shipping services between Kirkwall and the North Isles of Orkney. It has been a complex problem to which there was no quick and easy solution. I need not detain the House too long by going into the details of the history of this problem. It arose in the first place from the inability of the company which provides these services to replace its two aged vessels.

It was clear that substantial Government assistance was necessary, and, as hon. Members know, the Highlands and Islands Shipping Services Act was introduced and passed last year. Neither the Orkney Steam Navigation Company nor the North of Scotland Company was prepared, however, to continue or to assume responsibility for these services, even with Government assistance under the Act of 1960.

After consideration of various possibilities, in all of which I had the advice of Sir Douglas Thomson of the Ben Line, to whom I am much indebted for help in these matters, arrangements were made by Colonel Scarth, the Convener of Orkney County Council, for a new company to be sat up, and I am extremely grateful for the support which this decision received in Orkney. The assistance to be given to this new company is governed by the agreement now before the House.

The agreement with the new company is broadly on the same lines as the MacBrayne agreement, though with the distinction that it is simpler because there is no private capital to be remunerated. It may be asked why we have not followed the MacBrayne pattern in Orkney, or vice versa. The answer is that we have followed the patterns that best fitted rather different situations. Generally, we would like to see all these services in the hands of experienced companies. On the West Coast we had an experienced company in being, but no existing company was available and willing to operate the Orkney services, and it proved necessary to set up a new company.

Under Clause 11, the company will receive an annual grant to meet its operating losses. To enable it to acquire the capital assets of the present company and to meet other capital requirements and also to provide working capital, it will be able to obtain a loan from the Government—that is under Clause 14 (1). Hon. Members will, however, note that under Clause 14 (2) the company itself will be able to raise loans from the public, up to a limit of £50,000, with Government support and subject to Government approval.

This provision has been introduced because it is desirable to foster local interest in the company and enable it to receive local support; and clearly, if successful, this could enable it to repay the loan from the Government. The company will operate only approved services and the Secretary of State will exercise the same control over rates and fares as in the case of MacBrayne.

We have been extremely fortunate in securing the services of Sir Douglas Thomson and Colonel Scarth as the Government-appointed directors and respectively chairman and vice-chairman of the company. They are supported by a strong local board, and I am confident that under their guidance the company will be able to arrange improved services from the islands. I should add briefly that the first new ship to be chartered to the company is now building in the yard of Messrs. Hall, Russell and Company of Aberdeen. The keel has been laid and the ship is expected to be in service in the early summer of next year. The question of a second ship is still under consideration.

The third agreement—that with the present company, the Orkney Steam Navigation Company Ltd.—deals with the transitional arrangements which have had to be put in hand while the new company was being set up. It was inevitable that the steps towards the solution of these Orkney problems were protracted. During this time it was necessary to ensure that the services were maintained. The present company was faced with heavy costs for keeping its ships in service and it also faced the liability of trading losses.

Faced with this situation it was necessary to offer assistance to the company to keep the services in being and, as the agreement shows, this was done by offering a grant towards the repair costs of one of the company's ships and towards the company's trading losses, if any, in 1961. In return for this assistance, the company undertakes, subject to the approval of shareholders, to sell to the new company for the sum of £26,500 those of its assets which will be needed to carry on the services.

The draft before the House, which embodies these provisions, has, of course, been formally agreed by the board of the company, but is still to be considered by shareholders at a general meeting to be held on 26th December. It is intended that the services and assets should be transferred to the new company at the end of the year, and it is appropriate to put on record the co-operation and public spirit shown by the present company in maintaining the services and in the negotiations that took place.

I have tried as briefly and as clearly as I can to explain what is not a simple subject on three different agreements, and I hope that the House will feel that I have given enough information to enable hon. Members to form a final decision, and to approve these Motions.

Mr. Ross

The right hon. Gentleman has given no information about the rate of the annual grant in relation to the winding-up company or the company that is to take over in relation to the Orkneys.

Mr. Maclay

I am not entirely certain of the point that the hon. Member is on.

Mr. Ross

The trading loss.

Mr. Maclay

I am not sure whether this will reach £10,000. It is a precaution to come to the House with that Motion, because it is conceivable that the figure might reach £10,000. It is below that amount at the moment, according to my advice, but it is just possible that it might reach £10,000, so that I am bound to come to the House in case it does reach that figure.

7.23 p.m.

Mr. J. Grimond (Orkney and Shetland)

At the outset it must be understood that these Undertakings cannot be amended. They have been agreed, as I understand it, at least as far as the two relating to the Orkneys are concerned, with the existing shipping company, the Orkney Steam Navigation Company Ltd., and with the new company, the Orkney Islands Shipping Company Ltd. Further, it will be noticed that while there is a substantial subsidy still to be paid to Messrs. MacBrayne for their services between the mainland of Scotland and the Outer Islands, there is no subsidy on the trunk route between the mainland of Scotland and Orkney and Shetland. The assistance offered under these Undertakings applies solely to the routes from Kirkwall out to the North Isles.

It would be wrong of me to look a gift horse too closely in the mouth. We have got to have these services. We are faced with accepting or rejecting these agreements, and I need hardly say that, as far as I am concerned, they must be accepted. But I have one or two comments to make upon them.

I do not wonder that the Secretary of State was rather reluctant to look into the history of the matter. It has a very long history and a great deal of trouble could have been saved had the Government been prepared to act rather sooner.

Mr. Willis

Shilly-shallying again.

Mr. Grimond

I notice that in the agreements there is no emphasis on improving the services or reducing the freight charges. This, I think, is a vital point. If the Secretary of State is serious about reducing the amount which the taxpayers will have to pay, it must come from a general increase in freight and passengers carried between the islands. This means tackling the economy as a whole, and certainly improving the services.

I should also like to express my thanks to the board of the existing company, to the new board and to those who have assisted in getting some sort of a scheme agreed. The Secretary of State will be aware that there has been some anxiety in the North Isles of Orkney about the representation from them. I hope he will keep this in mind. The board as constituted has certain shipping experts, but it also, rightly, has certain people who are there primarily because they are going to use the services. Some islands feel that they have been left out of this process, and, while we cannot do much about that tonight, I hope that the right hon. Gentleman will keep it in mind.

There is no mention of the draft of possible air services. Most people consider that ultimately the air may well be the most efficient way of carrying some of the passengers and some of the lighter freight. There is no mention of landing craft or hovercraft, although here again it has been suggested in one island that a landing craft would be the ideal vehicle. In general, I am afraid there is no effort to raise the level of the transport in the area.

I want to make a brief remark about the Undertaking between the Secretary of State and the Orkney Steam Navigation Company Ltd. I want to be clear about what is covered by the phrase "trading loss". The Secretary of State remarked on the very considerable expense that the company was put to over the survey and necessary repair to one of the vessels, and the Government are bearing £8,061 15s. of that expense. That is not taken into account in ascertaining the profit or loss. But does that mean that other expenses for surveying other vessels are to be taken into account? I should like to be assured that the financial provisions of the agreement are agreed with the company.

I turn to the other agreement, the Undertaking between the Secretary of State and the Orkney Islands Shipping Company Ltd., which will largely determine the services for the next five years. In Clause 5 in Part II it will be seen that, as I say, apparently the company is to be restricted to sea transport services. Personally, I think that is a pity. The Secretary of State informs me that he had taken the trouble to see that under its incorporation it is entitled to run air services and, as I say, I feel they might be very useful.

I also wish to draw attention to the fact that the Secretary of State is going to exercise very strict control. I feel that we should have rather more explanation of how the Government intend to exercise this control.

In Clause 6 hon. Members will see: …if the Company proposes to introduce any additional service, or to alter or discontinue any of the Approved Services or part thereof, the company must give written notice of such proposals to the Secretary of State, and such proposal shall not be put into effect by the Company without the prior consent in writing of the Secretary of State. This provision is amended lower down in paragraph (3), where it is stated: The Company may, at its discretion, operate any occasional excursion or service or any experimental or temporary service without giving prior notice… As I read it, that means that if the company wishes to undertake direct shipment from ports in Scotland to the North Isles of Orkney, it would require the express approval of the Secretary of State for every such service. Again, this might be a method of reducing substantially transport costs, particularly on bulk commodities. It is in fact used to some extent now and it may well be that the company would want to increase it. Is it really intended that for that type of service the company would have to have the approval of the Secretary of State? If so, can we be assured that it will get an answer to its request from the Scottish Office reasonably quickly?

I notice that under the financial provisions in Part III only losses are contemplated. At present, this may be unavoidably true, but I hope that we shall not embark on this new scheme of services to the North Isles in a mood of unrelieved pessimism. It should form part of a general policy by the Government to raise the trade of the islands. If that is done, and if new forms of communication are explored, I do not think that we should resign ourselves to a loss for ever, although I quite agree with the Secretary of State that at the moment there is no doubt that some, or a large part of it, will have to be met by subsidy.

It was suggested that, as well as the directors of the company, some local people should be asked to take shares in the company. Equity shares in this company are not very attractive because it is forbidden to pay dividends. Although the Secretary of State touched on a question of debentures, he did not in fact say anything about this matter. I should be grateful if, when he replies to the debate, the Under-Secretary would say whether it will be possible for people who use the services to take an active part in running the company. Will they be allowed even to take up a few nominal shares, or is it intended that there will be no equity shareholders whatever?

The debenture shareholders can, of course, have no direct say in or responsibility for the services. If the Government have come to the conclusion, and if it is the view of the company as well, that it is not possible to have equity shareholders and that it is unrealistic to expect dividends—I take it that that is the conclusion at which they have arrived—they should consider how the people of the North Isles can be associated with the company. I regard this as a matter of some importance. Perhaps they are able to suggest some other method by which they might be associated.

Under Clauses 13 and 14, the Secretary of State will exercise a very strict control over the company's financial arrangements. I make no complaint about the Government, when putting up a large sum of public money, taking very considerable control, but I hope that this control will be exercised in a businesslike way and that decisions which have to be made will be made with reasonable speed. The Secretary of State cannot object to my saying that, because he knows full well that up to now the reverse has been the case.

Finally, all this raises a doubt in my mind as to whether the Scottish Office is set up to exercise this type of control at all. We are now embarking on a new form of nationalisation.

Mr. Willis

Hear, hear.

Mr. Grimond

There is no question of the Government keeping out of the day-to-day running of the company.

Mr. Ross

It has full Liberal support this time.

Mr. Grimond

As I say, I am bound to accept the agreement or have no services at all. I have made it clear that I shall not oppose the agreement. There is no doubt that this is a new form of nationalisation in the sense—and it is an important sense—that the Government are taking very much greater powers than they have ever done before. They are not going to say, "We keep out of the day-to-day running of the business", or put people in charge and leave it largely to them. They are saying, "You cannot put on extra services or raise extra money without our written authority". It may well be that, after all the exploration that they have done, this is inevitable, but I should like an assurance that the Scottish Office, at its end of the business, so to speak, will operate this in a thoroughly businesslike manner and that we shall not be held up for decisions at every turn.

The first decision about which we want further information fairly quickly concerns the provision of boats. The Secretary of State told us—and I was very glad to hear that—that one boat is being built now. I hope that, not only will it be a boat suitable in the seamanlike sense for the islands, bearing in mind the difficulties over piers—I always stress the matter of piers because they are vital to these services—but that it will not be too overladen with overheads—for instance, through overstaffing. Some extra staff may be necessary in summer, but in winter it imposes a burden of overheads which could be avoided.

What about a second boat? Is the Under-Secretary of State able to tell us anything about that? The new company will take over the "Thorfinn" and the "Sigurd". These are coal-burning boats, very expensive to run and very expensive to survey and repair. They are not as old as the Secretary of State, whose age apparently is the age of the Western Isles boats. I was slightly horrified to hear this—unless he is very much younger than I am led to suppose.

Mr. Maclay

I must make it clear that some of the names have been with me all my life, not the ships.

Mr. Grimond

I had visions of the right hon. Gentleman being taken, as a babe in arms, to the Western Isles on some of these boats. Our boats are older than they should be, and we shall need a second boat. Is it intended to charter an existing ship until the Government are prepared to lay down a new one? There will be few better moments for laying down a second ship than now, when the shipyards are very anxious to get orders. I have made these points about the shipping services often before, but, if the Under Secretary of State would say a word or two about the standard of service which the Government intend the company to provide, that would be reassuring to my constituents.

I must warn the Secretary of State, as he full well realises, that every change in the North Isles services in Orkney is now a suitable subject for Parliamentary Question. There can be no doubt that there is direct Ministerial responsibility about every aspect of this company. I know that the right hon. Gentleman does not have a great deal of spare time and I suspect that this will add to his innumerable burdens. The Scottish Office is one of the most overladen Departments in the Government. I am concerned whether it will be able for very much longer to execute all its different duties.

I hope that the Secretary of State will regard this, not as the end of something that is finished, but the beginning of a new attempt to provide better and cheaper services—

Mr. Willis

More nationalisation.

Mr. Grimond

—from the Outer Isles to the mainland of Orkney.

7.39 p.m.

Mr. Malcolm MacMillan (Western Isles)

I doubt, Mr. Speaker, whether I left you with any great choice in the matter of calling the next speaker since no hon. Gentleman opposite rose to speak on this occasion. No hon. Member opposite has shown very great interest about what happens to the transport services in the Highlands and Islands of Scotland. I have no doubt that that will be noted. It has, in fact, already been noted. If the Secretary of State considers the voting figures for the last election, when the Government presented their election programme and policy to the Highlands and Islands, I think that he will agree with me that by far the majority of votes cast were not for Government supporters.

I am obliged to the Secretary of State for Scotland—as I am sure all hon. Members are—for bringing forward this agreement for discussion at a much earlier hour than usual. I think that perhaps what happened on the last occasion on which we debated a fairly important Highland Measure—the Crofters Bill—may have had something to do with this. I hope that the habit of starting a discussion on Scottish matters at eleven o'clock and ending at one or two o'clock in the morning has gone for ever.

I am sure that all hon. Members will join the right hon. Gentleman in paying tribute to the excellent work of the masters and crews of David MacBrayne Ltd. in the Highlands and Islands services, and also the Orkneys and Shetland services. Any criticisms that we have to make of the services, or those administering them, or the Government, do not apply to the people on shore and at sea who have to carry on very often with out-of-date and ancient vessels, inadequate equipment, poor landing piers and inadequate shelter. We thank the masters and crews and other workers for the way in which they have carried out their work from year to year.

I welcome, too, the extension to the Orkneys and Shetland service of the aid now familiar to us in the Western Isles. I do not think that anybody would criticise this gesture. I only hope that the right hon. Member for Orkney and Shetland (Mr. Grimond) will have less cause for complaint than I have had from time to time over the years about the way in which such a service has operated in the Western Isles.

We also welcome the reappointment of Sir William Robieson. He has given excellent service. He is well liked and respected, and in the years that I have known him he has shown a genuine interest in the welfare of the Highland people. I am less familiar with the second appointee. We can only wish him well and hope that that he will not be overwhelmed with his duties and not subjected too overwhelmingly to the influence of the MacBrayne shareholders when representing the public interest and the particular interests of the people of the Highlands and Islands.

In spite of the normal differences in political theories, we on this side of the House welcome the application of these powers which the right hon. Gentleman took under the 1960 Act to build and to own ships. He is familiar with that function in his private capacity, but now it is interesting to see him in this dual capacity of both public and private shipbuilder and shipowner. The right hon. Gentleman has gone further towards public control on sea—or perhaps I should say at sea—than the Labour Government did at the height of their "passion for nationalisation" as he used to call it at one time. For the rest, what he proposes follows very much the old familiar pattern, apart from the inclusion of the Orkneys and Shetland.

It was interesting and diverting today to find the right hon. Member for Orkney and Shetland, in his rôle of purely localised Socialist complimenting the National Liberal who is now no doubt a National Socialist as well, upon the measures he has taken to extend a measure of Socialism across the sea to the North-East and North-West, and to provide the benefits which only public ownership, public control, and public enterprise, can bring to those areas, where private industry has, unhappily, tried for only too long and lamentably failed.

I do not think that anybody will dispute that this demonstrates once again the need in the North of Scotland for applying measures of this kind by direct Government action if we are to sustain the economic and social life of those areas. This is one area in which the lesson has been learnt even by a Tory Government. I am only sorry that in other directions the same Government have gone in for a policy of dismantling public transport services, which can do only harm to that area.

I am talking about the dismantling of British Road Services, which were doing nothing but good for the Highlands and Islands. I hope that at this stage the Government will take the greatest care and the most effective measures to ensure that railway closures are not carried on in the Highlands and Islands in such a way as further to damage and dismantle the transport system in that area, because, more than is the case anywhere else, it depends on good communications, and upon transport by road, by rail, by sea and by air.

I am sorry that the policy of State assistance is not being more generously applied in one other direction, among the consumers of these island transport services, and that the consideration which has been shown to the shareholders of the steamship companies is not being shown to the fishermen who are buying their vessels and being charged between 6½ per cent. and 7 per cent. interest. This is almost a study in contrast between the treatment, on the one hand, of shareholders, and, on the other, of small men trying to make a go of it in difficult circumstances and showing great enterprise indeed.

Not only does this company have a subsidy but it has a mail contract. Not only has it a subsidy with that contract, but it is guaranteed against loss. Not only is it guaranteed against loss, but it is guaranteed a reasonable profit on increased capital. If anything goes amiss in the service, as the company has a profitable monopoly in the area and has nothing to fear by way of competition, it cannot complain of the sharpest possible public criticism, and it is my view that, now that we have ministerial responsibility, it should be brought under frequent public accountability in this House.

We can only say "Aye" or "No" to these proposals. We cannot amend them. There are many things we would like to add, and one or two things we would like to subtract, and we stand dismayed that the Secretary of State has not thought of including at least some of the things which I am sure must have passed through his mind from time to time, or at least been brought to his attention in correspondence from those who represent the Highlands and Islands.

In the meantime, we are put in the invidious position of having to go back to our constituents and say, "We let it go through. We did not vote against it or amend it" and then we have the difficult job of explaining why the House of Commons has no power to amend an agreement which comes before it and which demands the annual outlay of a large sum of public money. It takes much more time to explain that away than it will take the Secretary of State to get this agreement through. Therefore, I want to make it clear that we have no power to amend. If we had, we should exercise all our ingenuity to try to do it.

Because we cannot amend, and obviously cannot reject, this agreement—if we did we would get nothing at all. I regret all the more that the opportunities for a full review of this service in the Highlands and Islands occur so rarely. It may be that from now on we shall have a regular review of these services, apart from what the right hon. Member for Orkney and Shetland referred to, the questioning and examination of the Minister at Question Time when he comes up for his six-weekly interrogation and opportunity to explain the problems we set him. I hope that we will have more full, formal opportunities of discussing the services and their operation. During the last Session of Parliament we had the Highlands and Islands Shipping Services Bill, and we now have this debate. But that sort of thing does not happen every Session, or in every two consecutive Sessions. It is, therefore, extremely important that we should find some means of having a full, formal debate on these services more frequently in future.

Some of the local authorities in the Highland counties of which my constituency is a part have been suggesting that the Government should not give David MacBrayne Limited a ten-year run. Some suggest that there should be an annual contract only. While I respect their views, and have had reason to share their fears and doubts about a full ten-year run, that would create difficulties of its own, because it would destroy continuity in planning, make the shipbuilding plans difficult and, generally speaking, destroy the confidence of any company which wished to forge ahead and plan work over several years.

Nevertheless, it is a measure of the lack of full confidence among local authorities, speaking on behalf of the public in those areas, that they are very loath to see the company getting a ten-year run without annual accountability. Therefore, we ought to have the debates which I have suggested at least annually.

There is no reason why David MacBrayne and the new companies should not be under survey as frequently as the British Transport Commission is in its own Annual Report. After all, they are very closely linked. For example, every time rail freights and fares are increased, the freight rates and passenger fares of David MacBrayne go up proportionately, and presumably the same thing will happen in the North-East.

I know that the investment of British Railways in David MacBrayne does not give them a controlling interest, but for many years British Railways have had substantially half the investment capital in the company. At the same time, the company is run independently as a shipping company, and there is no real control of the operation of the company in respect of its shipping mangement.

Sir John Barlow (Middleton and Prestwich)

If British Railways owns half the capital, can the hon. Gentleman say who owns the other half?

Mr. MacMillan

Coastlines has sub-substantially half the capital, just a little more than British Railways have—the old L.M.S. interest taken over by British Railways. This question arose at the time of the transport nationalisation Measure after the war, and it was only then that I and most of us discovered that it was not possible to take over David MacBrayne under the nationalisation provisions, because the railway interest did not give the railways a controlling interest in the shipping company. That is a matter of regret to us, even if it is a matter of joy to the hon. Baronet the Member for Middleton and Prestwich (Sir J. Barlow).

I emphasise that it seems to me—I hope the Secretary of State will try to devise some method of doing this—that we should have a full, formal annual review of the operation of these companies' services.

It might be worth while having a joint users' consultative committee in association with the two projects—David MacBrayne Limited and the North Eastern services, and from time to time having before us a fairly full report from the Government directors, possibly with the comments of the shipping board of David MacBrayne and the other companies and the comments of the joint consultative users' committee. There is a precedent for the suggestion which I am now making. I feel that the stage has been reached when it would be useful to have something of that kind.

I regret I am sure that hon. Members of all parties also do; at least, hon. Members from the Highlands—that we have not before us tonight a scheme to establish a fully integrated public service of sea, road, rail and, indeed, air transport. All these things were discussed when we were debating the Highland and Islands Shipping Services Bill in Committee, the Measure which made the present scheme possible and authorised the Secretary of State to bring forward this agreement and these proposals.

We have reached the stage in this area when the State is heavily subsidising regional sea transport. Tonight, we are once again extending the subsidising of sea transport from the North-West to the North-East. British European Airways is also heavily subsidised, and some road services—including bus services—associated with the shipping services are also subsidised. It may be said that this is the time to call a halt. My view is, however, that, on the contrary, we are not doing enough and that a great part of what is being done is being wasted or inefficiently or insufficiently used because we have not gone further in providing, for example, inter-island ferries and, to some extent, rural transport, and rural bus services in particular.

Otherwise, we must face the fact that soaring transport costs are gradually emptying the region. When one looks at the depopulation figures, especially those for some of the outer Western islands and some of the Orkney northern isles, and certainly those for some of the villages of north-west Ross-shire and Sutherland, I do not think anybody can be left in doubt that the cost of communications factor is contributing very much to the depopulation of those areas.

We are often charged with enjoying, and demanding more enjoyment of, what are regarded as social services, which is a polite way of saying that we are at the receiving end of considerable amounts of Treasury charity. If that be true, I should like to think that that was confined to the Highlands and Islands, but there are costly and hopelessly uneconomic railway services throughout Great Britain, and this charge about the railways having to carry uneconomic services in the Highlands and Islands especially is obviously not true exclusively of the Highlands and Islands. It is quite unfair to say that the Highlands and Islands constitute the area which gives the Transport Commission its greatest loss.

Again on the subject of sea transport, it has become abundantly clear that David MacBrayne will not be lonely very much longer in having to go along and hold out its hat for Treasury assistance on the high seas. Indeed, the proud giant of the Atlantic, the Cunard Company, does not hesitate to come forward with its hat and both hands held out ready for Government subventions and support, though even choosing its own time and its own way for enjoying this public assistance.

Whichever way we look, we find that almost every concern connected with shipping and shipbuilding is in the same position. The very steel for the Secretary of State's new ships under these measures—the steel from Colvilles and the rest—enjoys special transport rates and special coal prices from the Transport Commission and the National Coal Board respectively and millions of pounds of direct and indirect public assistance from the Treasury and public investment. Therefore, public assistance, which is so often regarded as being a special right and a special claim of the Highlands and Islands, is enjoyed by the Highlands and Islands in common with some of the wealthiest and most powerful interests in the country and with other regions far more fortunately placed in respect of geography and distance than the Highlands and Islands.

The Toothill Committee has just reported. We have carefully studied its recommendations and comments. One thing that dismays us—it is only one among a number of such things—is that throughout the Report there is hardly a reference of any kind to the Highlands and Islands. It is extraordinary that at a time when several regional inquiries are being made, when complaints are rolling in and when the Secretary of State has to bring forward special legislation and new Measures of all kinds for the North and the Isles we find a committee concerned with the whole of Scotland reporting only, broadly speaking, on the industrial belt of Scotland. The Report contains nothing about Highland transport and sea services and totally ignores this northern part of Scotland. Surely the Report should have paid attention to areas for which the Government have had to legislate, particularly in the Local Employment Act and in other Measures.

It has been a matter of dismay because we looked forward to the Report with new hope and expectation. But these have all been sadly dashed. I am sorry that that has been the case and that the Report contains not a word about the transport needs of the general public in the North and not a word—worth mentioning, anyway—about Scotland's sea transport and Highland development. In that respect, the Report is not helpful to the Secretary of State. Indeed, on air services, it seems only to advocate that to the privilege of travelling free by air on business accounts, businessmen be given subsidised priority flying B.E.A.

Mr. Deputy-Speaker (Major Sir William Anstruther-Gray)

I am sorry to interrupt the hon. Member, but I do not think that he is in order in exploring the Toothill Report on these three draft Undertakings.

Mr. MacMillan

I will not quarrel with your Ruling, Mr. Deputy-Speaker, but surely I have the right to explore the Report and see whether reference is made to the Highlands and Islands sea and other transport services and to make critical comment of there being no such reference.

I was saying that the Report is not helpful to the Secretary of State, and that is as far as I am concerned with the Report now. It remains on record that it has shown absolutely no interest in the Highlands and Islands, offers no help and contains no suggestions which might have been embodied in proposals for improving sea transport and associated road and rail transport in the Highlands and Islands.

To those critics who say that the Highlands and Islands, and sometimes Scotland generally, expect from the Treasury more than they have the right to expect, that is by no means an attitude—born of necessity—confined to the Highlands and Islands. The Secretary of State is perfectly justified and is supported by all of us in the demands he is making on the Treasury now to extend the assistance we in the north-west Highlands and Islands have enjoyed to the north-eastern islands of Scotland.

It is no accident or coincidence that in the area of the Western Isles and, at times, in parts of Shetland and the North-West, unemployment, depopulation, transport charges and the cost of living are all at one and the same time by far the highest in the British Isles. Many people believe that transport and freight costs represent the single most important item that is increasing the already high cost of living and has indirectly caused the high unemployment and depopulation levels in the area.

One of the difficulties of any company operating in the outer islands, especially in areas where it must frequently break cargoes and make many local calls, is that it has far too little overall cargo and traffic, and particularly when it is mainly only seasonal traffic. The company, therefore, insists on raising its freight rates to make up for the lack of cargo. When that is done then, naturally, the tendency is for traffic to shy away from the higher freight rate. One of the effects of this spiral—of traffic and freight rates chasing each other— is that the cost of living is forced up. The result is that, in the smaller islands and remoter areas, with multiple handling, depopulation is at its worst and the cost of living at its highest.

My hon. Friends and I have many times offered the Secretary of State many ideas concerning the application of the Local Employment Act and other Measures to the Western Isles and to the Highlands and Islands generally, particularly to the outlying areas. We have suggested to the Secretary of State, to his colleagues in the Board of Trade and to the Government generally that they should introduce Measures for the equalisation of costs to induce industrialists to come to these areas, to produce there and thus to create employment and halt depopulation.

We have suggested various measures, from the assisting of private enterprise to initiating direct State enterprise. Among our suggestions and incentives has been that of transport concessions. In this direction we have suggested various ideas from direct subsidy to zoned transport equalisation and whenever an idea of that kind has been suggested one Government after another have turned us down. So we are left still with the difficulties of outlying places facing increasingly high transport costs—and all without any adequate measures being taken to try to cushion them against the impact of this endless spiral in transport costs.

The measures being taken now—the subsidy for McBrayne's, which is supposed to keep costs down and which, to some extent, does control transport costs, freight charges and transport fares—have proved, not utterly valueless but not nearly effective enough to equalise transport costs in these areas with what are regarded as reasonable transport costs in other parts of the country.

The people in these areas are not asking for special rates and concessions more than are necessary to equalise them with other areas. This is all that is being asked and from time to time that is all I have ever heard made as a request to Governments from local authorities' spokesmen and hon. Members who represent the Highland and Islands. I am glad that the Secretary of State did not tonight repeat what his predecessor said when introducing the 1952 agreement. I speak of the late Sir Gurney Braithwaite and of—in 1952—an occasion when he said that he found himself less afraid to face Scottish hon. Members because, he said, he came "laden with gold". I remember his words well. The occasion was not quite at this time of the year. Perhaps his words would have been more appropriate had they come nearer to Christmas, but I have yet to see the present or any other Secretary of State, under the eye of the Treasury, distributing, almost irresponsibly, largesse to the Highland and Islands.

The Secretary of State's attitude tonight was different from that of his English colleagues who sit on the Government Front Bench and imagine that they are dispensing some special charity to the places which the hon. Gentleman the Member for Chelsea (Captain Litchfield) recently called, "The bleak winter fastnesses of the Highlands and Islands". Considering past Ministers, I am grateful that the present Secretary of State at least understands the problems, whatever may be said about the right hon. Gentleman's effectiveness in dealing with them.

Having paid the right hon. Gentleman that compliment I cannot honestly say that Santa Claus's gifts rest very convincingly in the black bags under the Treasury-haunted eyes of the Scottish Ministers. The measures now before the House will not bring the Highlands and Islands' transport rates and the consequent cost of living and problems associated with them down to anything like the ordinary average level for the rest of the country. Knowing that, surely it must be on his conscience that he has not taken sufficient, efficient and adequate measures to deal with the problem which, I admit, is intractable in many ways, but about which we have had a hundred years' representation and discussion. It is high time that more effective measures were taken to solve it.

I shall not talk about the north-eastern Isles, which have been discussed by the hon. Member representing them, but, if the Hebrides were attached to the coast and sticking out in one piece in the Atlantic for 120 miles, probably they would have a trunk road from one end to another. It would be maintained 100 per cent. by the Treasury, costing many millions of pounds. That is not a new argument, but it still remains a fact that only because these areas have the open sea of the Minch as their "trunk road" everyone lifts his eyebrows as soon as the Government spend a halfpenny on keeping this "trunk road" open to traffic to and from the islands.

The Minch is our "trunk road" and it is highly desirable and vital that the cost of maintaining it should be met. The cost of maintaining a stone and tar-macadam road would be far greater than maintenance of the MacBrayne and other sea services under subsidy. As soon as we mention subsidy for the Highland areas people think that it is something in addition to and not instead of money for road access. We are not here giving something in addition to, but in place of a road.

There are one or two points I wish to address to the Under-Secretary, who recently, perhaps, has been a little more familiar with the area I represent than is the Secretary of State. I wish to ask him what is to happen under the new MacBrayne proposals and services in respect of South Uist. The Secretary of State has mentioned proposals for the new ferry service from North Uist and Harris to Skye and the mainland, but the people of South Uist are extremely anxious. I hope, therefore, that the hon. Gentleman will say a word or two about the maintenance of the direct link between Loch Boisdale and the mainland. At a minimum two services directly to the mainland weekly is needed and this applies particularly to the winter season.

The picture otherwise is that, under the arrangement we are providing, the people of South Uist will have to go from Lochboisdale through South Uist, through Benbecula and then to Loch Maddy. Then they will have to cross over to Skye; then over Skye, possibly in snow and ice in winter weather and get aboard a ferry boat again. Then they will have to go all the way down the coast southwards—when they might have gone directly across from Loch Boisdale to the mainland ports. For the people of South Uist that is not particularly attractive. Nor will it be attractive, especially in bad weather, for anyone, including the tourists whom we want to come there and use these services.

I should like the Under-Secretary to reassure the South Uist people that the Government will keep open the direct MacBrayne link across to the mainland ports. Has the Minister anything in mind about the Stornoway-Ullapool Ferry? Is that to be associated with MacBraynes, or is it to be in competition with MacBraynes, if one may be permitted to use such an expression? It has been mooted a number of times in the local authority meetings and local private enterprise people have discussed this question. The question is whether they can finance it without the assistance of a subsidy. Can we have some information?

Will the Minister also tell us if he has accepted for the purpose of all these discussions and these and other problems the rather new principle in that area of putting what are directly competitive services in competition with each other, each enjoying Treasury subsidy? We want to know more about that because so much doubt is cast on these ferry proposals and even on the future of the MacBrayne and other ferry services generally.

The Under-Secretary may cast his mind back to a year last summer when I asked him some questions about piers in Harris; and I may bring the reply to his mind if he will remember having coffee with me in the manse in the Island of Scalpay. A year later the local minister told us that he was still awaiting a reply about the local ferry service we discussed that day. What is to happen about that project? No doubt the new Under-Secretary will be invited again some year to coffee and will be shown the approved ferry site which he more or less approved last summer. Could we have an answer on that? We have waited for a long time and it is time that a move was made. It is good to know that at least, the Secretary of State is talking about it.

Mr. Maclay

We are going to start some time.

Mr. MacMillan

That is very nice, but the right hon. Gentleman has the responsibility of pressing the Government and the Treasury to take urgent action, if he cannot take it directly himself.

Will the right hon. Gentleman say something more definite about it so that we know exactly where we stand in relation to MacBrayne's new services, where the boats are to ply, where they are to tie up and how they are to work in relation to other services? On none of these things has he given an explanation. These are questions which local people are asking. They have a right to ask them, and they have a right to an answer.

The Secretary of State owns another island in the Hebrides, Vatersay, near Castle Bay. I see and can understand him shuddering at the thought of owning problem islands; but possibly that is a mutual reaction which the islanders are more justified in expressing than he is. They are living on an island dependent on sea transport to Castle Bay and the mainland. There is no regular timetable ferry. They are dependent on casual lifts by fishing boats at all times. The time has come when people, if they are to remain in those areas, should not be dependent on casual lifts in little fishing boats which happen to be passing to and fro. Something must be done about this if we are to attract tourists to the area and create a workable local transport service.

Can the right hon. Gentleman tell us something about what is to happen to the Island of Berneray? To solve their problem they want to build a bridge to North Uist. The Secretary of State could also consider the problem of local vehicle ferry arrangements. I do not know what it will cost to get a bridge built to North Uist, which would give direct access to Harris, but neither does the Secretary of State know that. Simply to say "No" in the absence of knowledge is a little unfair. Therefore, he should consider the proposal of the local people to build a bridge which should be no more difficult than the building of other bridges which have been constructed.

These are problems which the people living in these islands have to face. They are local questions, but these are vital local services. To take one point of view, this is a service provided in order to allow and assist the merchants of Glasgow to send goods to the Western Isles and for tourists to visit the Isles and for the shareholders of MacBraynes to enjoy a guaranteed profit. But I hope that the House will also view it the other way. It should be primarily a service which the Government wish to make efficient and adequate for the purpose of sustaining the economic and social life of the Western Isles people at a reasonable level.

I am asking that the Government should make these services adequate, so that the people may have a sense of full participation in the benefits of citizenship of our country and feel that they are treated in the same way as others when they pay the same Income Tax, rates, and other outgoings, that people pay at the same levels throughout the country. If we put them under every citizen obligation and duty, they have every right to enjoy every economic and social benefit at the same level as the average citizen.

That is all we are asking. We are asking for the equalisation of standards and the equalisation of services so that they may enjoy the same economic standards as the rest of the country. That is not asking for any form of charity, but that they should be given the same treatment as citizens everywhere else, who-have long taken it for granted. To the extent that the Secretary of State can make a more adequate contribution than his predecessors have made, his work will be appreciated—as in many respects, I must say in fairness to him. it is already appreciated in certain connections. I ask him, once again, to try to bring the services, particularly on the sea and the associated services by road—the bus services about which we have spoken tonight—up to the average normal standards in the countryside in the rest of the country.

Will he look at the Report of the joint inquiry held by the Scottish Tourist Board and the Highlands and Islands Panel and the recommendations about the need to sustain bus services, especially in the remoter areas because some of them are breaking down and passing out of existence? People are being thrown back in respect of transport, into the Middle Ages in certain areas. Unless they can thumb lifts from the driver of a passing van or a car they cannot have local transport. They are being deprived of bus services because the routes are uneconomic in certain areas.

There is a strong case for assistance to the local ferry man to put him on a regular timetable with controlled prices and decent rewards, and to the local bus service operator in some cases, so that he can be assisted to give a decent service to the people concerned.

8.22 p.m.

Mr. A. C. Manuel (Central Ayrshire)

A most interesting situation has developed. We are confronted with the astounding situation in which the Secretary of State has been forced to accept the onus of keeping transport services alive in the Highlands and Islands by taking quite dictatorial powers. He is enabled to spend much public money in building and chartering ships, in keeping open the sea routes and in providing bus and road services in the Highlands. When we look at this against the background of the pledges of hon. Members opposite not to support nationalisation in any guise whatever, which was the pledge at the last General Election given in the Scottish Unionist Party election address, we are astounded. I never imagined that I should be confronted in the House with a situation such as that which has developed.

I am not against what is being proposed tonight. I want the Secretary of State to understand this fully: I am all for keeping these services going and improving them, but Scottish hon. Members on both sides of the House should seriously reflect on what we are doing and whether we are going the right way about it. It is quite improper that we should try to keep going these routes in the Outer Islands, the bus routes and the trade services on the West Coast of Scotland, and the whole of coastwise shipping for which MacBraynes cater in the way indicated by the Secretary of State in these agreements and Undertakings, and in the Act of 1960, because these vital services are being tackled in a purely administrative way by the Scottish Office. In other words, they are an appendage of the Secretary of State for Scotland. He is bound to admit that already it is impossible for him to keep closely in touch with all the services for which he is responsible to the House. It is true that he has a Minister of State and three Under-Secretaries of State, and I do not know how many other appendages to help him go through life with a little ease, but it is common knowledge that the job is already far too onerous.

I do not expect that the Secretary of State will agree, but if he wants to provide suitable transport services to the Outer Isles in the way which he has indicated in one of the draft Undertakings, surely the proper way to tackle the problem is by the formation of a transport board responsible for transport services in Scotland. If the yardstick is to be that the Secretary of State must take over and operate uneconomic services when all the indications are that there will be many more of them, where will he stop? Will he help those parts of the country where problems can be met only by shipping or other parts of the country which, because of their remoteness, need MacBrayne's lorries to bring in the essential supplies, or MacBrayne's coastal shipping? If other services collapse or are declared uneconomic by Dr. Beeching or some other authority, will the Minister say, "This is no concern of mine"? He has accepted a responsibility which, if economic returns are to be the yardstick, will be an expanding responsibility in the years that lie ahead.

I want to ask some questions about the draft Undertakings. The first concerns the draft Undertaking between the Secretary of State and Orkney Steam Navigation Company Ltd. In paragraph 1 we read, Subject to the provisions of Clause 3 hereof, the Secretary of State undertakes to pay to the Company on execution of these presents by way of grant the sum of £8,061 15s., being three-quarters of the costs of the survey in the year 1960 of the Company's vessel, the s.s. 'Earl Thorfinn', which costs amounted to £10,749. What does the "costs of the survey" mean? Does it mean a survey in connection with necessary repairs? As it stands it is not intelligible to the ordinary reader.

Mr. Maclay

It is a technical term. It is the survey which a ship must have at regular intervals to retain its certificate for passengers and trade.

Mr. Manuel

In other words, it is the usual Board of Trade regulation certificate. But a cost of £10,000 for the vessel and £8,000 for the survey are remarkable figures. If it had been a survey for repair with work to follow, I could understand it, but when this sort of survey costs almost as much as the ship, some explanation is necessary. How often do these surveys arise? What liabilities are we undertaking as taxpayers for these surveys?

In the final paragraph of Clause 2 we read: In ascertaining the profit or loss during the period commencing on the First day of January, 1961, and terminating on the Thirty-first day of December, 1961, the aforesaid sum of £8,061 15s. shall not be taken into account". We should be told why this £8,000 should not be taken into account. In Clause 3 (b) we have the total cost of these company's two ships and "heritable and moveable assets" together as £26,500. What is the individual cost of these ships? I know that one is £10,749. If the other is the same, what are the "heritable and moveable assets"? What sort of liabilities are we taking on?

Mr. Grimond

I know that this may be surprising, but the figure of £10,000 is not the value of the vessel. The value of the vessel is far below that, I regret to say. It is one of the curious anomalies of the situation.

Mr. Manuel

It is very misleading, and I am grateful to the right hon. Gentleman for his explanation. But we should have the figures split up. In his draft Undertakings the Secretary of State is being given wide, sweeping, dictatorial powers. Practically every Clause mentions that the Secretary of State may do this, that or the other. We are here as members of the Opposition probing the Government and trying to find out whether public money is being spent wisely and well.

The agreement for the new company being formed by the Orkney Islands Shipping Company Ltd. is for six years whereas the agreement with MacBraynes is for ten years. Is there any reason why the Undertaking with Orkney Island Shipping Company Ltd. is for a shorter period? This is a very important point. The Undertaking reads: So long as this Undertaking continues in force the Secretary of State shall have the right to nominate two persons to be members of the Board of Directors of the Company. and they shall be British subjects. I want the Secretary of State to have some power, but if he has only the right to nominate, his nominations can be turned down. The Secretary of State says that he has appointed persons, but the Undertaking does not give him power to appoint. I think we are entitled to a better explanation.

The Undertaking could have given an indication that one of the nominees should have had experience of and been familiar with the organisation of workers. We have not had enough of that kind of appointment in our draft Regulations. The Secretary of State has the right to appoint two persons in the case of each Undertaking, and he should consider, at some time in the future, whether one of those persons should be familiar with the organisation of workers and with welfare conditions. This is a very common thing in publicly owned and nationalised industry, and if we are to accept nationalisation we must swallow its edges as well as its body.

Subsection (2) reads: The Company shall, during the currency of this Undertaking, pay to its directors by way of remuneration whether by way of fees or other emoluments"— and we should be told what other emoluments there can be— (exclusive of vouched expenses incurred by them or any of them) such annual sum as may be agreed between the Secretary of State and the Company in respect of each of its Directors or failing agreement such sum as shall be fixed by the Secretary of State. The Secretary of State can try to get agreement, but if he does not get agreement he can act in any case. There is no arbitration. This is dictatorial, all right. We should be told what sort of annual sum the Secretary of State is thinking of in respect of these nominated directors.

Clause 5 concerns the scope of the services. It refers to the "Approved Services", and I should like to know what they are. The Housing Bill contained the expression "approved houses", and that led us into some queer corners. What are "Approved Services"? Has the right hon. Gentleman in mind daily services? I know that at present some of these services are weekly or fortnightly. Has he a more regular service in mind? Will the word "approved" prove to be of great benefit to the right hon. Member for Argyll (Mr. Noble), for instance? In his constituency there are certain piers at which MacBrayne's steamers call, and which are used to get cattle shipped and calves to market. Will the crofting communities in certain areas of the Highlands really be able to save money, instead of having to feed stock at pierheads, and all the rest, when they should be getting on the way down to Oban, where they can be sold?

Under Clause 9 of the Undertaking, the Orkney Islands Shipping Company undertakes at all times to the best of its ability to ensure that the Approved Services connect with other public transport services. My mind immediately turns to the rail services. If those are to be wiped out, what will be connected? Is the Minister thinking of railhead connections? Is he saying that they should be kept alive? Although it is quite uneconomic, will the Oban service be kept alive to connect with MacBrayne steamers bringing cattle and other merchandise from the islands?

Clause 14 provides that: The Secretary of State undertakes to advance to the Company by way of loan such sums as the Secretary of State considers expedient on such terms as he may approve for specified purposes including the provision of working capital". Here are more dictatorial powers. What wider powers could there be? May we have some indication of the size of these loans and the rate of interest? Will the Secretary of State take as his yardstick the Public Works Loan Board rate of interest? Will it be comparable with the rate of interest which local authorities are paying for housing loans on the open market? We should be made cognisant of these things. In the Undertaking between the Secretary of State and MacBrayne, only one director so far has been nominated. I cannot say "appointed", although the Secretary of State said it. I understand that he has no power to appoint. I hope that this matter will be cleared up.

Another matter which intrigues me is the provision that any question or dispute must be referred in the event of no agreement to the Sheriff of Caithness, Sutherland, Orkney and Shetland, and in the case of MacBrayne, to the Sheriff of Lanarkshire. I do not know whether my hon. Friend the Member for Lanarkshire, North (Miss Herbison) knows anything about the sheriffs, but here we are choosing between two of them. I do not want to take sides between these sheriffdoms. This is another matter that might be explained to us.

I am also intrigued by the provision in Clause 6 (6) of the MacBrayne Undertaking which provides that: The Company may, with the consent of the Secretary of State, substitute a ship for a vehicle, or a vehicle for a ship, as the means by which any of the Approved Services is maintained… This is the power which hon. Members opposite denied to British Railways, but this is another nationalised service. Why are we treating it differently? Is it simply because we are appointing a Board which can earn dividend on the capital invested? The £800,000 invested by MacBraynes can earn a 6⅝ per cent. dividend, and here the Government are allowing the Board to do something which British Railways cannot do. In the Transport Bill, the only time that this can be done is if the line is closed or discontinued. On this occasion, there is no such provision. I do not say that I want it. I am merely pointing out the inconsistencies in these documents.

I should like to say something about competition. The Under-Secretary of State believes in competition. Every now and again, he preaches sermons to his constituents about the value of competition, the great spirit which it engenders, and so on. When it gets too monopolistic, however, there is no competition. Here, we have a little competition. Buses are in competition with rail services.

MacBraynes are being allowed to pay 6⅝ per cent. on invested capital. MacBraynes run buses from Glasgow to Fort William. I have passed them many a time along by Loch Lomond. They are a big nuisance, because they take up too much of the road. I understand that they run also to Oban.

MacBraynes are being subsidised, but British Railways are criticised when they have comparable routes covering these areas. The Government either will have to subsidise them or to close the lines. Dr. Beeching, I believe, will say that they are quite uneconomic. The Government, however, will be in a complete jam because they cannot close these lines. There are not the indigenous resources that will keep the Highlands turning over, either in the hotel trade or in industry. Therefore, whilst there is a good deal of loose talk about all this, these main line services cannot be closed. To close them would be ridiculous.

What does the Under-Secretary think about this competition with another subsidised service—British Railways—between Glasgow and Fort William and Oban? Many of these buses are running. In the summer, they multiply and there are fleets of them.

A host of powers are being conferred on the Secretary of State and I end by commenting on just one of them. MacBraynes are to be permitted to pay 6⅝ per cent. on the invested capital. In the light of the upgrading of grants in these Undertakings and in the light of the interest payment which can be earned on invested capital, may we have an indication of how much has been earned in the last ten years from Messrs. MacBraynes in interest on invested capital? For a while, the rate was 5 per cent. For a time it was a little less, but is now up to 6⅝ per cent. Why is the rate of interest being increased? What has been the turnover of interest to MacBrayne shareholders during the last ten-year period?

8.48 p.m.

Mr. E. G. Willis (Edinburgh, East)

Let me right away join in the congratulations which have been offered to the Government in their acceptance of the policy of nationalisation. I understand why no hon. Member from the benches opposite has ventured into this debate. I expected a stirring speech from the hon. Member for Aberdeenshire, West (Mr. Hendry) denouncing this nationalisation by the back door. The hon. Member distributed leaflets, I have no doubt, in his constituency during the General Election pledging himself not to do this. The hon. Member for Edinburgh, West (Mr. Stodart) must know quite well that tens of thousands of these leaflets were distributed in Edinburgh, certainly in my constituency, pledging all the Tory candidates not to introduce any more nationalisation by back-door methods. I should like to hear what the hon. Gentleman has to say about that now.

The Secretary of State is now becoming a shipowner on a large scale. He will end up, even as a result of what we have been told tonight, by becoming the owner of five quite large ships, two of which are to be chartered out to a company which he controls and for which he provides the capital. This is more nationalisation. The Under-Secretary ought to watch where he is going. Before he knows where he is he will be nationalising all forms of transport and other things.

Miss Margaret Herbison (Lanarkshire, North)

Haulage, perhaps.

Mr. Willis

It would not be a bad idea if he nationalised that. I must advise him that this is the road he is taking. We shall certainly welcome him on these benches whenever he realises exactly what doctrine he is supporting.

Under the proposal we are to get five ships. The right hon. Member for Orkney and Shetland (Mr. Grimond) said that he would like to see the second ship for the Orkney Islands Shipping Company Ltd. proceeded with. I should like to see all five proceeded with. This would be a good thing, because shipping is facing uncertainties. I spoke to the Under-Secretary about this. When is any decision to be taken about building the vehicular ships for the Western Isles? A number of people would like to know when this decision is to be taken. They would also like the Government to start placing contracts. My hon. Friend the Member for Glasgow, Govan (Mr. Rankin) will be interested in this. Firms on the Clyde would certainly like to know. The Government ought to be giving this much more urgent consideration than they have given it up to now. It has been known for a considerable time that this has to be done and this is an appropriate time to proceed with it.

I want to ask the Under-Secretary a few questions about MacBraynes. I did not quite follow the financial details. The Secretary of State said that the private capital at present in MacBraynes is £½ million. This is to be increased to £800,000. I intervened and asked the right hon. Gentleman how it was to be increased. He said, "We are capitalising reserves". This means that private shareholders in MacBraynes are now to get 6⅝ per cent. not on £500,000 but on £800,000. They will get a very considerable increase in their dividends as a result of the company having been able to accumulate savings, thanks to being subsidised and guaranteed by the Government.

An important principle is involved. If the Government subsidise a company and undertake to underwrite its losses, it is only right that the Government should benefit from the gains and not the shareholders, who do not have to bear any of the losses. The shareholders do not stand to lose anything at all. If the company loses, then under the terms of the agreement we are considering the losses are borne by the Government. That is not what is happening. What is happening is that the owners of the private capital are receiving a very considerable award. They are now to receive almost twice as much as they have been receiving in the past. Why this tenderness, why this solicitude for the private shareholders, whose capital is guaranteed by the Government and whose losses are borne by the Government?

I find this difficult to accept as a principle. If the private shareholders were to bear some of the losses, then, fair enough, they ought to enjoy some of the gains, but I cannot see why they should benefit to the tune of an additional £300,000 of capital on which they are to get 6⅝ per cent. guaranteed interest. We ought to have some explanation of that.

The next point is the question of a freight rates policy. My hon. Friends have raised a lot of points about this, and my hon. Friend the Member for the Western Isles (Mr. Malcolm MacMillan), who has an intimate knowledge of this problem, has put forward the case for very low rates. He has pointed out that if the Western Isles had been attached to the mainland by a neck of land, they would have a trunk road which would cost them nothing. What is the policy of the Government about this? I think that we should be told what is the Government's policy about the fixing of rates.

Reading Clause 19, which deals with rates and fares, I notice a rather curious omission. It provides: (d) in exercising his powers under this Clause the Secretary of State shall have regard to (i) the general level of other transport charges, I do not know what transport charges there are, other than MacBraynes, in some of these areas. However, that is one of the considerations. It continues: (ii) the financial results of the Company's activities and the amount of grant payable to the Company under this Undertaking and (iii) the effect on the economy of the area served by the Company. There is nothing whatever about the social life of the community.

Mr. Malcolm MacMillan

Perhaps my hon. Friend will compare these figures, which the Secretary of State may have in mind. In Lanarkshire, we can travel, and I do myself, about 16 miles on a return journey for 1s. 9d., whereas the same distance in the islands of Harris or Lewis would cost about 3s. 6d.–100 per cent. more. He could take other examples, but that is quite characteristic. If he is thinking in terms of associated services, like bus services, that is an exact analogy.

Mr. Willis

I am grateful to my hon. Friend for pointing that out. It is the first consideration which the right hon. Gentleman has to have in mind in considering freight charges, namely: (i) the general level of other transport charges. What are the comparisons to be made? The point I wanted to raise concerns the social life of the area. We can fix freights in accordance with the economic life of the area which may not have a great deal to do with the social life of the area, but, surely, the fact is, as was indicated by my hon. Friend the Member for the Western Isles, that here we have areas of depopulation, areas of declining population, where villages are gradually disappearing until in certain areas there is probably only one or two crofts left in them. There is nothing in this Clause which provides that the right hon. Gentleman has to take any cognisance of that at all, but I should have thought that that was one of the considerations which he should have to take into account.

What does the right hon. Gentleman visualise as the future of the Highlands and its transport services? That is a pertinent question because we are here dealing with an agreement which is to last for ten years, and we ought to have some indication of how the right hon. Gentleman expects these services to develop. For each of the last ten years there has been a decline in population and many of the bus services—and these agreements apply to MacBraynes bus services—are declining and, according to the Ministry of Transport Report at the weekend, many are likely to disappear.

It is a matter for regret that we are considering these agreements in isolation. We have now had a Report on the Bus Services in the Highlands and Islands which draws several important conclusions, makes certain recommendations and points out certain difficulties. It points out the difference between MacBraynes and Highland Omnibuses. That is interesting because MacBraynes gets a direct subsidy for its services under these agreements while Highland Omnibuses does not and has to support these services from those in the more profitable areas of the British Transport Commission.

Why is there this difference. Would it not have been better to have studied the problem as a whole and to treat everyone similarly? The Report goes on to indicate certain steps which could be taken to assist the bus services and in paragraph 56 it says: …there should be one body or authority charged with the duties of determining whether a bus service is essential and the extent lo which it requires financial assistance and of awarding contracts to enable essential services to be maintained. This body should also have a knowledge of other transport facilities serving the area. This body could not appropriately be the local authorities"— as was recommended by the Jack Committee in respect of subsidies— the Scottish Transport Council or the Scottish Transport Users' Consultative Committee. It may be necessary to have effective arrangements to provide for the co-ordination of all forms of public transport in the Highlands and Islands. That is the final recommendation of this Report and anybody who examines the problem will agree with it. It is getting somewhere near our concept of a Highland development authority, one authority to examine all these matters and to put schemes into operation.

I regret that these agreements have come along before we have had time to consider the Ministry of Transport's Report. However, what does the right hon. Gentleman visualise happening during the next ten years? Will there be more co-ordination? Is it the policy that MacBraynes should develop to pick up some of the services which might otherwise disappear in the Highlands, so that those might become eligible for a direct subsidy? Does he visualise MacBraynes having responsibility for some of the ferry services, which we were promised could be done under the 1960 Act? What does the Minister have in mind with regard to unifying these services in order that we may get the most efficient service possible and meet the demands of the Highland area?

9.5 p.m.

Mr. John Rankin (Glasgow, Govan)

We last considered an agreement of this type over nine years ago and, as has already been said by my hon. Friend the Member for the Western Isles (Mr. Malcolm MacMillan), the late Sir Gurney Braithwaite on that occasion said that he came to us laden with gold. Whether it was much find gold or not I do not know, but when he used that phrase our thoughts were directed to the fact that the gold he brought was to be bestowed wholly on the services that were to be provided in the islands of Scotland.

Tonight we have had it made clear that not only will the people of the Western Isles, the Orkneys and Shetlands and so on get these services, but that to the private investor there is to be given every year a sum of at least £56,000. Whatever may be the lot of the people in these depopulated areas, however insecure their lot may be, the lot of the private investor is to be carefully guarded by the Government.

I thought it was noteworthy that tonight the Secretary of State did not look very far into the future. In 1952 the Government were prepared to think in terms of a subsidy of £360,000, but tonight there was no attempt to look so far ahead. Compared with 1914, the value of the £ was worth 5s. 5d. in 1952, as was revealed a few days ago, and today it is worth 4s. 6d. During the period of validity of the expiring agreement the value of the £ has fallen by 20 per cent., which means that if the Secretary of State were to face the future as it was faced in 1952 we should be thinking tonight in terms of a subsidy of something like £420,000.

After ten years' experience of Tory Government the right hon. Gentleman has no more confidence in it and he cannot bear the thought of looking even a year ahead. I think that he is now living on a day-to-day basis. It is too far to look ahead to £420,000, because experience has taught him that even he cannot depend too firmly on the promises of a Tory Government.

A good deal has been said about the need for a fully intergrated service. The Undertaking states that its purpose is to make provision for sea transport services serving the Western Highlands and Islands. As I have already said, I also thought that part of the purpose was to secure the future of the investor. Of course, that has to be mentioned by hon. Members on this side of the House; naturally it is not emphasised in the Undertaking.

Of course, if one lives on an island, sea transport services are necessary, but the necessity becomes less sharp with the passing of time. Changes are taking place, and today we can travel by methods other than by sea, road and rail between the Western Isles and Glasgow much quicker than we used to be able to do. The travelling time by rail, steamer and road between Glasgow and Benbecula is anything from 12 to 16 or 17 hours. We can travel between those two places by air in an hour.

Obviously the Government must face this question of an integrated transport service and not think entirely of a sea transport service. Certain terms are defined in the Highlands and Islands Shipping Services Act, 1960. It is stated: 'sea transport services' means public transport services…provided in an undertaking which consists of, or includes to a substantial extent, the provision of public transport by sea". That decision leaves a gap, as it were, which could be filled by services of another type. If we look at the definition of the word "ships" as accepted in the agreement before us and as given in the 1960 Act, we find that: ships' includes boats and vessels of any description for use in navigation. The words: …vessels of any description for use in navigation must include the helicopter and hovercraft. While they may not be navigated on the sea, they are vessels which are navigated.

Mr. Willis

A hovercraft can go on the sea.

Mr. Rankin

Of course, a hovercraft can use the sea and the air. We must talk about transport in terms, not merely of one type of transport, but of all the types of transport which are available.

That is my criticism of this agreement. It is a matter of real regret to all of us on this side of the House that today, when we are looking forward to the next ten years, the Government should ask Parliament to give its blessing to an agreement which is already out of countenance in the times in which we live. It has no meaning at all in the present age, and it will be useless before the ten years for which it provides have ended. It should have been thought of in much broader terms.

Today we have three different methods of undertaking journeys between the Western Isles and other parts of Scotland. We can go by rail, boat and bus; we can go by air; or we can go by air, using different types of aircraft. We can go by rail from most of our big cities to Mallaig and then cross the sea by helicopter or hovercraft, and complete the journey by bus. We have three different forms of transport.

Mr. Willis

Are not they going to close the railway line to Mallaig?

Mr. Rankin

I am not sure how far I can be enticed off the track of the debate by the helpfulness of my hon. Friend.

Mr. Willis

In that case MacBrayne's would have to provide a bus service, which would bring the company under the provisions of this agreement.

Mr. Rankin

Let me continue with the point I was making. We have three different modes of travel to a relatively sparsely populated part of Scotland. Obviously it should not remain this way. This is an invitation to co-ordinate or integrate those services, but, as my hon. Friend the Member for Edinburgh, East (Mr. Willis) pointed out, we are presented with the position that we are giving a subsidy to one form of road transport, but we have another form of road transport which must get its subsidy—I am referring to Highland Omnibuses—out of the rich routes over which the company operates in other parts of Scotland.

Mr. Willis

The Scottish Omnibus Group.

Mr. Rankin

Yes. In other words, the company is providing the subsidy.

We have a similar position in the air, because B.E.A., which provides transport to the Western Isles, does it with a subsidy of £280,000, which it must recoup from its richer routes. If the Government place on it the onus of providing a service on the poorer route to the Western Isles, it will become more difficult to carry out this service because the Government are introducing competition on the richer routes. This is bound to hamper B.E.A. in the job it is doing in the Western Isles.

Of course, this reinforces the claim that if the Government consider that a subsidy is necessary for rail and boat services, they are admitting the claim which has been recommended by a Select Committee of the House that a subsidy is necessary for air services if we are to get the type of service which is demanded today in those parts of the country. If we do not get down to the problem of thinking out how we are to co-ordinate air services and surface services to those parts of Scotland, we shall be faced with a hopeless position, not merely from the financial point of view but also from the point of view of maintaining the social life of those parts—the type of life which is absolutely necessary if we are to retain people in those distant areas.

Most people in Scotland are really within easy reach of the great population centres, the places to which our fellow countrymen flock on Saturday afternoon to see a football match, to shop or to go to the pictures. Those places can be reached more easily by those in the populated areas than by those in the distant parts about which we are talking. They are treated as separate people. They are separated geographically from the rest of the country, and the draft Undertakings tend to continue to separate them in a social sense, too.

To take Larkhall as an example, a married couple living there may decide on a Saturday morning to go in the afternoon to Glasgow, the husband to a football match and the wife to go shopping and both to visit the pictures later on, and yet be able to return home the same evening. That is possible for people living in villages all round the central belt of Scotland. But it is impossible for those living in such a place as Benbecula or Stornoway. If we are to hold people in those places, we must make their contacts with the great cities such as Aberdeen, Glasgow and Edinburgh as close as those who live on the Scottish mainland.

I see the hon. Member for Aberdeenshire, West (Mr. Hendry) smiling. I do not know whether this matter amuses him. If he believes that people in the islands should be treated differently from others on the mainland, he should say so now. I will readily give way to him if he finds anything very amusing in what I am suggesting.

What I am suggesting is that through a co-ordinated air transport service it ought to be easy for people in the separated parts of Scotland to travel to whichever city they choose and enjoy their day there and then return to their homes on the same day. We must give them the feeling that they are part and parcel of the life of their country and that the advantages which belong to those living in the more closely populated parts of Scotland belong also to those living in its distant parts.

That would be a real contribution one which draft Undertakings of this type ought to be able to give—to the solution of the most serious problem facing our country, that of preventing the drift to parts of Scotland which already contain far too many people.

Clause 8 proposes that we should maintain good, substantial and efficient vessels My hon. Friend the Member for East, Edinburgh suggested that as the representative of a shipping area in Scotland I would be interested in this. Indeed I am, and now that the Secretary of State has become a shipbuilder and is proposing to build ships and charter them, I hope that he will keep Fairfield, Stephens and Harland and Wolff's in mind. My hon. Friend suggested that five ships were now needed and since there are three shipbuilding yards in my constituency, that leaves the Secretary of State two ships with which to do as he pleases. I am certainly taken by the phrase: good, substantial and efficient vessels and I welcome that proposal.

For a number of years I sailed as a servant—a purser—with MacBrayne's in the service that operated between Banavie and Inverness. The vessel on which I sailed was not like Gaul—"divided into three parts." Astern, amidships, and the bow were all of different ages. Amidships she was the oldest. The stern part was the next and the bow was the youngest of the lot. Naturally, being the youngest, she rose to the rough weather most gaily while the other two parts could hardly stand up to the pace which she set; so that they shook and quivered all over in the most amazing manner.

I am glad to note that the patching-up days have gone and that we are now to get: good, substantial and efficient vessels which, in stormy weather, will behave as if they were just one vessel and not made up of three different parts combined into a single unit.

I do not know why the Secretary of State does not encourage MacBrayne's to resume that service down the great glen through Loch Ness, Loch Oich and Loch Lochy, because I understand that some encouragement to resume this service—

Mr. Willis

There is a service today.

Mr. Rankin

I do not think so.

Mr. Willis

One can go by boat and take a trip through Loch Ness.

Mr. Rankin

Then I am glad to know that the service has been restored. I do not know whether it is as frequent as it used to be, but I gather that the frequency of the service is a matter that needs to be looked into. There is, of course, a great attraction in Loch Ness, for it contains a monster—a monster of a most co-operative kind. In the cold weather in the winter "Nessie" goes underneath in the deepest part of Loch Ness and remains quiet until the tourist season comes along. She then comes up to see the tourists.

There is no reason why we should not provide more frequent services on Loch Ness, continuing on, perhaps, through the other lochs, so that the tourists may have a chance of seeing "Nessie" when she comes along in the summer. I think that it would be a tremendous attraction, because we might be able to see her at close quarters, a feat which so far has never been achieved.

During the three years that I sailed Loch Ness I never heard of "Nessie". I believe she was spending her time in another part of the loch. There were rumours then that there was a gentleman monster around and that "Nessie" was otherwise engaged. Whether the results will be fruitful or not, one can only wait and see. Nevertheless, what an attraction it would be if the Secretary of State would press on MacBraynes to give this service. He could do it. He has been called a dictator. Does he deny it? He is, of course, a dictator and he has the power. Let him use it and try to give us in that part of Scotland better and more frequent services than we now have.

9.31 p.m.

Mr. George Lawson (Motherwell)

I wish to ask two perhaps rather extended questions.

I was rather interested in the arrangements which, I understand, have been made with the Orkney Islands Shipping Company, by which the company would be paid £26,000. From what the Secretary of State said, I gathered that the company was in a very bad way, in fact, so bad a way that it was not prepared to carry on even with a subsidy. Apparently it was exceedingly difficult to persuade it to carry on temporarily until permanent arrangements could be made. When the company goes out of business it is to be paid £26,000.

I should like to know for what it is to be paid £26,000. Is it being paid £26,000 for old ships which are to be scrapped? Is it to be paid £26,000 for office premises which will not be, or cannot be, used? What is the company to be paid this money for? If a company is in such a state of inability to pay its way that even with a subsidy offered to it it is not prepared to carry on, I question whether its assets are worth as much as £26,000.

My other question relates to the appreciation of capital of David MacBrayne Ltd. That has been mentioned several times, particularly by my hon. Friend the Member for Edinburgh, East (Mr. Willis). I understand that at present the company's capital is valued at £500,000. On the basis of £500,000, it has a guaranteed income—guaranteed in the sense of so much percentage profit or dividend on interest payments of £500,000. I understood that that £500,000 is to be raised to £800,000 and that it is to get payment on the basis of £800,000.

Mr. Ross indicated dissent.

Mr. Lawson

My hon. Friend is shaking his head.

Mr. Ross

I think that my hon. Friend is making an understandable mistake in relation to the calculation for the purposes of dividend. Dividend may be calculated from the issued capital, but in relation to interest calculation which enters into the formula, it is the capital employed.

Mr. Lawson

Is the capital employed not reckoned to be £800,000?

Mr. Ross

£1 million.

Mr. Lawson

I understood that the capital employed was £1 million, but that for the purpose of calculation it was £800,000. Is the dividend to be calculated on £800,000? This shows how much we need to have the matter cleared up.

I should like to know how there has been this appreciation of capital from £500,000. From where has the capital come? From where have these reserves come? I must confess that I have not studied the draft Undertaking closely, and that I had no intention of intervening, but the matter was raised and no answer that I found satisfactory ha-been given. I understand that the agreement has been negotiated and will become law after this evening.

There is what is called a "subsidised profit". If the subsidised profit exceeds £30,000, £15,000 will be retained by the company and £15,000 will go to the State. I think that the balance left over will be divided between them.

Mr. Willis

It goes to the State.

Mr. Lawson

If there is a loss of £30,000 the State will pay £15,000 and the company will have to pay £15,000 to make good the loss. Up to £30,000 the State shares 50 per cent. of the subsidised profit or the subsidised loss. I notice in Clause 16 (4) the Undertaking says: If for any two consecutive years during the currency of this Undertaking the subsidised profit or deficiency for each year exceeds £30,000 the grant referred to in Clause 12 hereof shall be reviewed and altered. I understand that if there is a loss of more than £30,000 over a period of years more will have to be spent by the State. On the other hand, if there is a profit of more than £30,000 over a number of years the subsidy will be adjusted so that the company will not get so much money. If this type of agreement has been in existence over a number of years, it seems strange that there could be an accumulation of money, to enable this considerable increase of capital to take place. Where does the money come from?

Mr. Ellis Smith (Stoke-on-Trent, South)

England.

Mr. Lawson

I will take my hon. Friend up on that and support some of his schemes. We will try to put these things right for the sake of English Members.

Where has the money come from which has enabled this write-up to take place? Has it been money retained in the company? Has it been invested? Has it been the earning of profits or dividends on the investment? If so, how much? If not, has it been ploughed back into the company in the sense of buying new boats and buses? Is the company now so much larger in terms of its equipment and the capital employed—because capital employed means equipment. Does it mean that over these years during which the company has been steadily subsidised by the State it has been adding to its reserves, building up the number of its buses and ships, so that in terms of capital engaged and equipment being employed it is worth about twice as much as it was earlier?

If that is the case, how does it come about that this company has been subsidised over all these years but has been able to build up in this way? If that is not the case and this capital appreciation or write-up is merely a write-up in figures and does not represent a genuine addition to the company's working assets, how does this arise, who agreed on it and where can we see the accounts so that we can see what has been taking place?

9.40 p.m.

Mr. William Ross (Kilmarnock)

I should congratulate my hon. Friends on their restraint, because with three such Undertakings before us, and in view of the fact that we seldom have the chance to expand on the subject of the Islands and Highlands and these services, there is no end to the questions which we could have put. It may well be that I shall add considerably to the number of questions and probably to the confusion which there may be about some of them. We must congratulate ourselves on this occasion that we are discussing these Undertakings at a time which even in the Parliamentary sense might be considered fairly early. Ten years ago when I made a speech from a less exhalted position, or a more exhalted position, whichever way one looks at it, it was 1.43 a.m. That was the sort of time to which we were relegated in those days.

Let us appreciate the importance of what we are doing, not only from the point of view of the Highlands and the Islands and the Northern Isles but from the point of view of the House—not least from the Government side of it, although hon. Members opposite are showing little interest in what we are doing; for it was hon. Members opposite who, at the last General Election, declared that they would have nothing to do with nationalisation in any shape or form. No one was more vehement about it than the Liberal Party in Scotland at the time. But the Liberal Party are now prepared to accept nationalisation in respect of the Liberal leader's own constituents. I think that he should reconsider his attitude to the constituents of other people. It is only the other week that he led his accumulated ranks into the Lobby in favour of the Government's Transport Bill to deny to the people of the mainland the benefits which he is insisting upon for his own constituents.

The draft Undertaking concerning the Orkney Steam Navigation Co. Ltd., shows a grant towards the 1960 survey of the vessel s.s. "Earl Thorfinn." This is December, 1961. We could not have waited very much longer and I was not surprised that the right hon. Member for Orkney and Shetland (Mr. Grimond) rather twitted the Government on the belatedness of these provisions. With me, he will remember that it is nearly two years since we discussed and passed on Second Reading the Bill from which these draft Undertakings stem.

At that time the right hon. Gentleman was complaining that it was three years since the MacGillivray Committee had made certain recommendations in relation to the services with which we are dealing. We have to look back over the historical aspects to 1957. Why has the Secretary of State delayed for so long bringing these agreements forward? This is nearly the middle of December, and this Undertaking winds up the activities of the company at the end this year. Even now he has given no full indication of what is involved in relation to expenditure for the Government. Will he tell us the cost of the Government grant towards the survey? We have the figure of £8,061 15s. He has told us about the payment in respect of heritable and moveable assets of £26,500. That makes a total of £34,561 15s. But we still do not know what is the loss over the year and, as we do not know that, we do not know in relation to the new company, the Orkney Islands Shipping Co. Ltd. which is being called into being by the Secretary of State, what its loss will be.

When we were discussing the Bill in Committee the Under-Secretary of State said that in the case of any contract for over £10,000 the House would be able to examine and scrutinise expenditure. How can we examine and scrutinise expenditure when we are not even told what it is? We are giving the Government a blank cheque in respect of each of these Undertakings.

Mr. Manuel

Dictatorial.

Mr. Ross

Dictatorial. I have used worse words than that of the Government before now. This is the reluctant bureaucrat in person. At every election he proclaims that he will have nothing to do with centralisation, and that we must keep these powers from the bureaucrats in St. Andrew's House or Westminster. But every time he brings forth a Bill, or even a meagre Statutory Instrument, we find that under its provisions "The Secretary of State shall do this, and decide that." That is the case in respect of each of these Undertakings.

The Minister should give us much more information about the finance involved in the first Undertaking, concerning the Orkney Steam Navigation Co. He told us that it might be about £10,000, and it is only because it might be about that sum that he is putting forward the Undertaking. That is a very coy one. Under Clause 1 alone he is already committed to paying over £8,000. There is not much doubt about the Undertaking being necessary. What worries me is whether this is an Undertaking at all, because the right hon. Gentleman has not chartered these ships. I am sorry that the Lord Advocate is not here to tell us how he works out the legality of the payments under Clauses 1 and 2.

My hon. Friend the Member for Central Ayrshire (Mr. Manuel) put some valid points concerning the sum of £26,500. This company was going bust. It could not carry on these services any longer. One would have thought that it would have been glad to get rid of its obligations, but we are here paying it at least £34,000, and there is a possiblility that we will pay something more like £44,000. The nation is paying for the obligation to run services which, at the moment, we know will involve a loss.

It is all very well to talk about "unrelieved pessimism"; nothing said in Committee offered us any relief. It is a question of realism and facing the fact of possible trading losses. We are entitled to much more information, and should be told why the nation should buy over this liability. This may be the scrap value of the two ships. I can understand that. But let us face the fact that this is a case of the failure of private enterprise. We have been unable to feed it with carrots or seduce it with subsidies, or cajole it in any other way. We have to take it over completely, and pay for the privilege.

The second Undertaking calls into being a new company. Out goes the Steam Navigation Co. and in comes the Orkney Islands Shipping Co. This is naked nationalisation, with a mere fig leaf of a company nominated by the Secretary of State. It has no share capital. We know how two directors are appointed, but I should like to know how the others are appointed. I expect the right hon. Member for Orkney and Shetland to have something to say about local representation, and the feeling that every area is not represented. How are the areas to be represented?

Every loss by this company will be borne by the State. The State will provide the working capital. The company will have the right to raise money by loan up to £50,000, but the State will underwrite that loan. In return, we have a new director of the North Isles shipping services, the great approver—the Secretary of State for Scotland. We have had approved schools and we have had approved houses. Now we are to have approved ships and approved services.

This equally applies to MacBrayne. In the last agreement in 1952 and before that in 1949 and in 1938 the services were called "general services" but now they are Approved Services, and who approves them? Hughie Long from Gourock. The Under-Secretary of State, the hon. Member for Kinross and West Perthshire (Mr. Leburn), does not know who Hughie Long is. He should read the speeches of the Secretary of State for Scotland.

This was a very good speech and that is why I keep quoting it at the right hon. Gentleman and reminding him of what he said in the past about dictatorial powers and the dangers of centralising authority in the hands of the Secretary of State. He is now the Secretary of State. We should be absolutely clear in our minds that in the Orkney Isles we have a nationalised service, and the right hon. Member for Orkney and Shetland is quite right—there follows from that, by virtue of this Undertaking, the right of Parliamentary Questions and scrutiny, to my mind without any limit.

The third Undertaking is very important from the point of view of the Western Isles, and in considering these Undertakings and all these services we should appreciate their importance to the people concerned. These islands could not live without the sea transport services. Private enterprise, limited as it is by the motivation of profit, finds no attraction in these services. If we were to rely on private enterprise these islands would become depopulated or return to a very primitive life indeed. Even where existing services have been withdrawn from the smaller islands we have already seen depopulation taking place.

Someone has said that these services are the highways of the islands, but my hon. Friend the Member for Stoke-on-Trent, South (Mr. Ellis Smith) interrupted the debate to say that the money was coming from England. Let me remind my hon. Friend that more money has been spent in Hammersmith in the last year, for which the Scots are paying as well as the English, than has been spent on MacBrayne or the Highland shipping services over the last ten years. If anyone wants to fight Bannockburn all over again, we will take him on tonight.

As I have said, we should appreciate the importance of these services to the islands. Every item that we take for granted and we can get by crossing the road to any shop must be taken to these islands by sea, and the chances are by land and then by sea again. And into the cost of every item—clothing, bread, cement, the tools of agriculture and masonry—freight charges enter, and if the cost of living has risen on the mainland it has risen even more in the islands. If, because of economic pressures, the shipping services are denied or reorganised in such a way as to save Government money, it means the denial of these essentials of life to the people of these islands. That is the importance of it.

It can be taken for granted that we certainly will not oppose any of these Undertakings tonight. What we asked for time and time again during the passing of the Bill, but it was denied us by the Under-Secretary, was that the Government should use far broader vision and take the opportunity, which seldom comes to us, of getting an Act of Parliament dealing with the limited transport aspects of the Islands and Highlands and to make it a little more comprehensive and all-embracing. I am sure that the Secretary of State wishes that he had taken our advice in view of the Report which has just been issued and which my hon. Friend the Member for Edinburgh, East (Mr. Willis) has quoted—indeed, not only in view of that Report, but in view of the threats to the rest of the North of Scotland by the application of the Beeching principle to railways.

We are doing what is likely to be denied to many of the scattered areas on the mainland. It may be that we are already presuming far too much, because the new MacBrayne set-up throws a greater responsibility than ever upon the Secretary of State for Scotland. One or two of my hon. Friends and the right hon. Member for Orkney and Shetland questioned the ability of the Scottish Department to deal properly with all this. There is a great measure of reason in that criticism.

There are tremendous new responsibilities for the Secretary of State. He skated over this MacBrayne business and rather suggested that it was more or less the same as before. Far from it. As I recall the last charter, the Secretary of State began by selecting the services and had only the right to approve or consent to changes. He also had the right to insist upon changes.

Now, the Secretary of State starts by having to approve each and every service. That is not the same thing at all. He becomes the great approver. Every service has to be approved by him and no service can be discontinued unless with his authority in writing, except for certain excursions and other things called services. I should like to know what that means and why this type of service, which is unqualified, should be included within the Clause. Apart from these and experimental and temporary services, every other service must be approved by the Secretary of State.

That is not all. There is one thing that the right hon. Gentleman scarcely mentioned. The last MacBrayne contract contained a specific paragraph specifying a building programme incumbent upon MacBraynes of one new passenger vessel and one new cargo vessel. There is nothing of the kind this time. The Secretary of State may, however, agree with Messrs. MacBrayne a capital investment programme. That covers the part that is missing, but with the difference that whereas before there was no reference to chartering, there is now a reference to it. From whom will MacBraynes charter vessels?

Mr. Manuel

The Secretary of State.

Mr. Ross

Yes, the Secretary of State.

I am delighted to see the Leader of the House with us. Less than a fortnight ago, he said at the Box that we could take it for granted that while he was Leader of the House, no new nationalisation Measure would be brought in. Let him come into the body of the kirk. Let him appreciate that here we have two new nationalisation Measures, one even more naked than the other. Therefore, when on Thursday he answers questions about the business for next week we shall expect an apology from him for misleading the nation, even in the short time during which he has been Leader of the House.

Does the Secretary of State appreciate that we are in a considerable difficulty over the financial terms? In the last MacBraynes contract we knew exactly what we were up against because a specific sum was specified. It was £360,000, which included the calculation in respect of interest on capital. Now we are given no indication.

The Secretary of State told us that he thinks it will run at about the same rate, between £260,000 and £300,000 a year. What it runs at is entirely dependent on him, because he fixes the services and the fares. So at both ends the man who will determine what the balance of efficiency will be is the Secretary of State. That is why he has become so important. He also fixes the charter prices, but they will be covered within the expenditures.

He has not satisfied our appetite for information. He has certainly not satisfied us about the calculation of the guaranteed profit, which is not a fixed sum. It can be the interest on capital, plus or minus £15,000. The maximum is the interest on capital, plus £15,000. The minimum is the interest on capital, minus £15,000.

The interest on capital is calculated on the capital employed. That used to be £500,000, but we are told by the Secretary of State that it is now £1 million. This is important, because the new interest rate for the next five years is to be 6⅝ per cent. After 1967 it is to be whatever is the borrowing rate for Government borrowing. Six and five-eighths per cent. on £1 million works out at over £66,000. Plus or minus £15,000 is not a bad return for a company which would not be able to earn a penny if it was not assisted by the Government. It is propped up.

My hon. Friend the Member for the Western Isles (Mr. Malcolm MacMillan) said that the Toothill Report did not make any mention of these problems, unless it was to say that the Government should not prop up dying industries. This industry would die, as would the rest of the industry in the Western Isles, but for this bold injection of capital, which has been described by one Conservative Member of Parliament as "this annual subsidy". Is it right that in respect of an undertaking of this nature, which is not a commercial enterprise, we should guarantee such a profit in this way?

An equally important thing has happened about dividends. The issued share capital has been increased from £500,000 to £800,000. Before this undertaking was signed the dividend was limited to 5 per cent. of £500,000, or £25,000, but it now becomes 6⅝ per cent. of £800,000. That is the possible. That is an increase to about £56,000. Where is the pay pause now? This is an increase in personal income, and the Leader of the House should be attending to the implications of these complex matters which the Scottish Treasury have been working out for him, undermining the whole fabric of Government. I do not doubt that the Chancellor of the Exchequer will have to make another broadcast about this, because the Secretary of State for Scotland has let him down.

From £25,000 it goes up to £56,000. What is the justification for that? Is there any? My hon. Friend was wondering where the money was to come from. The money is coming out of the generosity of the Secretary of State in the past, and he has already promised generosity in the future, because whereas they have been building up reserves to replace their vessels in the future, the vessels are to be replaced by the Secretary of State. He will build them and acquire them and he will then charter them, and so they are relieved of a great responsibility in respect of the reserves. That is why it becomes new issued capital.

There are other important aspects of this matter which we have only touched upon and on which I do not think the Secretary of State did any real justice to what is before us. There was one other change on which I should like a little information, because I am curious about it. I think that it was the eighth change which I have noticed in the new form of contract, as compared with the last. The contract states, in regard to the drivers of road vehicles: For the performance of such road services the Company undertakes to provide a sufficient number of competent drivers duly licensed to drive. As soon as the Secretary of State touches anything, down go the standards.

Why has there been omitted from this paragraph the words steady, honest, careful drivers of good character because these were the words of the last contract? Is it that under the Tories, we cannot find such people, or is it that they all are that in the Western Isles?

Mr. Willis

A general lowering of moral standards under a Tory Government.

Mr. Ross

I should like to know. I am a rather simple-minded man, and I want to know why these words have been left out. Competent drivers are not necessarily careful drivers, but it may well be that the Secretary of State was prepared to lay a greater onus on MacBraynes than he is prepared to lay upon himself, since he is the centralised bureaucrat in respect of all this. Perhaps we should be given an answer on this point.

I am not satisfied about the omission of words from Part III of the old contract relating to mails. It was by virtue of the annual subsidy that a specific obligation was laid upon MacBraynes about the mails, concerning conveying and delivering to accredited officers and ancillary services, roadside delivery, conveyance and protection. The right hon. Gentleman now tells us that all this is now purely a commercial matter between the Post Office and MacBraynes. Within that commercial contract, does this Undertaking have no place at all? Does it mean that MacBraynes has a greater freedom to resist any pressure from the Post Office to take particular traffics?

I am not entirely happy about this, since it is to be a matter of commerce between MacBraynes and the Post Office. I think that probably the Post Office would rather have the protection of this Undertaking in which all they undertake to do is tied to the subsidy. It was the Post Office contract which, in 1891, first started the subsidy to MacBrayne's, and then we changed over in 1928 to a particularised annual subsidy for MacBraynes which, once again, was anchored to the mail contract.

I shall not say any more about the financial matters, but I come now to the question of rates and fares. The Secretary of State has taken on a most important new obligation. I think that my hon. Friend the Member for the Western Isles will agree that it is the result of pressure which we put on the right hon. Gentleman during the Committee stage of the Highlands and Islands Shipping Services Bill. This obligation was not in the last contract and yet it now applies to the Orkney Shipping Company as well as to MacBraynes. Previously, the companies had to get the right hon. Gentleman's consent to a change of rates and fares, but now they must have the Secretary of State's written approval, with the exception of tourist and special passenger summer services.

In dealing with any application, the right hon. Gentleman has to consider the general level of other transport charges, the financial results of the company—which he himself can determine—and the effect on the economy of the area served. If he means what he says, he is the first Secretary of State for a long time to tackle the problem of freight charges. Hitherto, when the subject of freight charges has been raised, the Secretary of State has always been able to slide out of responsibility by saying that the matter had nothing to do with him. Now he has brought responsibility upon himself, and the services and the charges are his pigeon. No Scottish Member who is interested in the wellbeing of these areas will allow him to forget it.

I will begin by putting the complaints of the areas which have been left out and which have already been mentioned by my hon. Friend the Member for the Western Isles. The hon. Member for Argyll (Mr. Noble) is silenced by his Front Bench position, but the people of Iona are very much concerned about what is to happen to them, because, as part of the reorganisation, the number of island calls has been stepped down and only main ports are to be used. There is the further ferrying or transport by road of goods and passengers to areas which are no longer to be served direct. That is causing concern in some places.

I understand the argument that the reorganisation results in an immediate speeding up of the main services, but there will be a considerable slowing down at the delivery end, with the possibility of damage to goods by the duplication and trebling of handling and by additional storing of goods which have to wait a long time, because of bad weather, before they can be ferried or hauled to their ultimate destination. When direct contact by vessels with one of the islands is broken, it is usually—and this is how the people regard it—the first step towards complete neglect.

That is why my hon. Friends have been right to insist upon a more comprehensive attitude. Why must we leave out the smaller ferries? If the roads are inadequate, as they are, people are right to protest. This is another task for the Secretary of State. I hope that we will face the future with some aggression, because we now have someone to get at when we discuss freight charges in the Highlands. For the first time we have a Minister who is responsible for the services and for the freight charges. For the first time we can in this House directly effect the improvements for which we have long pressed. I only hope that when we next have a similar debate some Conservatives will be prepared to accept their parliamentary responsibility and join with us in demanding the rights of the Highlands and Islands in respect of sea transport.

10.15 p.m.

The Under-Secretary of State for Scotland (Mr. Gilmour Leburn)

I believe that hon. Members on both sides of the House will agree that we have had an interesting debate on shipping services in the Highlands and Islands largely arising out of the Act that we discussed in Committee and in this House and passed last year.

The hon. Member for Kilmarnock (Mr. Ross) has to a degree, I think he would admit, twitted the Government on the attitude that we have adopted to what he calls subsidies. I do not particularly mind whether we call them a bold injection of capital or subsidies. I think that we both know exactly what we mean.

Mr. Ross

As a farmer, the hon. Gentleman should.

Mr. Leburn

The hon. Gentleman also rather took my right hon. Friend to task for having changed the qualifications required for some of the drivers of MacBrayne's buses. I suggest that if we had taken the wording from the previous agreement my right hon. Friend would have been accused of slavishly following the Minister of Transport.

Mr. Ross

The hon. Gentleman will be aware, of course, that when that agreement was being drawn up the Minister of Transport was his right hon. Friend the present Secretary of State for Scotland.

Mr. Leburn

That may be so, but I do not think that my right hon. Friend would want to be accused of following himself slavishly ten years later. The real reason for the change in words is this. When I was looking at these agreements I saw that the same words did not apply to the masters of ships, and it seemed to me that I might be asked by the hon. Gentleman why the same words did not apply to them.

Mr. Manuel

rose—

Mr. Leburn

If the hon. Gentleman will allow me to finish these few remarks I will give him an apportunity to intervene later.

On the question of rates and fares, the hon. Gentleman is quite right in saying that my right hon. Friend now has guiding signposts given to him in Clause 19, but I hope that hon. Members opposite will not expect my right hon. Friend to ignore principles of efficiency, and so on, when he is applying his mind to those signposts. The hon. Member has instanced the case of Iona, and I think that it would be quite wrong if, simply because of an injection of Government money or a subsidy, we had to ignore efficiency altogether.

That is by way of introduction. Now I should like to deal with points raised by hon. Members—

Mr. Manuel

The hon. Gentleman rather twitted us about the drivers. Was it really necessary to substitute for the words in the original agreement the words: …to provide a sufficient number of competent drivers duly licensed to drive"? Surely drivers are of no use unless they are licensed to drive.

Mr. Leburn

I took a good deal of trouble with these words. I hope that the hon. Gentleman, on reflection, will find that they meet the bill.

I should like to follow the pattern of the debate and to deal, first, with the one-page Undertaking concerning the Orkney Steam Navigation Company, then turn to the Orkney Islands Shipping Company and, lastly, deal with some of the points concerning MacBrayne's agreement.

The right hon. Member for Orkney and Shetland (Mr. Grimond) raised a number of points which I should like to answer. First, he said that at present there is no subsidy for ships operating between the mainland and the main island of Orkney. That is perfectly true, but, on the other hand, it is open to anyone operating such a service to make an application. The right hon. Gentleman also raised the question of aircraft, hovercraft—I believe that I was the first hon. Member to raise the question of hovercraft with regard to these services—and landing craft, and so on.

I assure the right hon. Gentleman that we have been considering this matter very carefully. I have no doubt that the day will come when these means of transport will be used, but, at the moment, they would not be either economical or efficient for the work that has to be done. As I have assured the right hon. Gentleman before, we have looked at this matter extremely carefully.

With regard to the amount of money involved, we know that we are paying a sum of £26,500 to the existing company. That is broken up as follows: heritable assets at Kirkwall and Rousay—offices, stores and certain other buildings—amounting to £12,300; moveable assets, £5,656; and ships at scrap value, £8,544. I emphasise that, the ships having been surveyed and the Government having paid the money for the survey, we considered it only right that we should be able to take them over at scrap value.

With regard to the trading loss concerned, it is very doubtful whether, when the accounts are seen, it would be necessary to bring this agreement before the House, because it is just possible that the company may break even. Even with the £8,000, it may not exceed £10,000 altogether. I hope that that satisfies the hon. Member for Kilmarnock that there is very little in it. It is £10,000, or just a little over or a little under that. That includes the £8,000 for the 1960 survey.

Mr. Ross

Will a Supplementary Estimate be required for this, or has allowance been made for it in the Estimates?

Mr. Leburn

I hope that the hon. Gentleman will wait to see what the actual figure turns out to be.

The question of direct shipments will have to be considered by the new company which is set up. We do not exclude this by any means, but it will be a matter for the commercial judgment of the directors of the new company.

I agree with the right hon. Member for Orkney and Shetland when he says that we must not in any way be gloomy about this. Far from it. However, while we do not necessarily contemplate losses being made in perpetuity, we must realise that the charter fee for the new vessel in itself will amount to £23,000. It is, therefore, unlikely that, paying an economic charter fee of that level, the company will be able to make a profit. We want to encourage local people to be associated with the company. It is for that reason that we suggest and hope that local capital may be forthcoming in the way of debentures.

It may be possible to extend this, and this is one of the reasons why we have limited the present agreement to one of five years. We want to see how this works out, and it is for this reason that we have limited it at the moment to five years as opposed to the agreement for MacBrayne's, which is for ten years.

The hon. Member for Central Ayrshire (Mr. Manuel) also raised one or two points about the Orkney service. I have explained the reason for the five years. The hon. Gentleman raised the point about nominating certain Gentlemen as directors, rather than appointing them. I assure him that the two words mean identically the same thing.

The hon. Gentleman also asked what the salaries of the directors would be. These have not yet been decided, but they will be for discussion between the board of the new company and my right hon. Friend. Sir Douglas Thomson and Colonel Scarth, the two Government directors, have for the moment indicated that they do not wish to accept any directors fees.

The rates of interest under Clause 14 will depend upon when the money is finally made available to the company, and the rate of interest then pertaining, but I think that the hon. Gentleman will appreciate that it does not really matter very greatly as this is really only a cross entry, and if a high rate of interest is paid then my right hon. Friend will just have to make the subsidy that much bigger.

There has been a good deal of—

Mr. Rankin

Manipulation.

Mr. Leburn

—not manipulation, but accusation, if I may say so, that my right hon. Friend has taken upon himself dictatorial powers. This is not really so, but I think that the House will be with me when I say that, remembering that the Government are supplying all the money in this regard, apart from £100 local capital, for which we are very grateful—not merely for the finances involved, but for the fact that local people have taken a great interest in this matter. While the right hon. Member for Orkney and Shetland may have preferred to see one or two more members drawn from a wider area of the North Isles themselves, he knows that three of the seven come from the North Isles and that Colonel Scarth, as a county councillor, represents one of the North Isles.

I think that I can now leave the North Isles and turn to the MacBrayne contract.

Mr. Grimond

I am obliged to the hon. Gentleman for the trouble he is taking in answering these questions, but do I take it from his silence about the news of a second boat that no decision has been reached about it?

Mr. Leburn

I am sorry. I overlooked that. The question of a second boat is still under consideration, and I do not think that a decision will be come to until the new company takes over and the new board of directors has had an opportunity of looking at this matter.

We had a very interesting contribution from the hon. Member for the Western Isles (Mr. Malcolm MacMillan), as we always do when discussing these topics which are so close to his heart. He again made an impassioned plea for reduced fares, as did other hon. Members. He touched on the question of a fully integrated transport service. I cannot at this time of night go into this in any great detail, but I assure the hon. Gentleman that the agreement or the undertaking in the Clause which says that everything must be done to ensure that there is a connection between other forms of public transport, has been written in with the specific purpose, and with all seriousness, that it in fact can be achieved.

The hon. Member asked whether under the new vehicle ferry arrangements it would be possible to maintain a twice-weekly direct service between South Uist—Lochboisdale—and the mainland. South Uist has a connection already with the mainland, to Oban, three times a week, and MacBrayne does not propose any alteration to that. The hon. Member has in mind the connection between Lochboisdale and Mallaig. As my right hon. Friend explained in his speech, a decision has not yet been taken on the MacBrayne ferry proposals, and, therefore, what I say must not be taken as a definite commitment, but, as they stand at the moment, the MacBrayne proposals are for a twice-weekly ferry service between Mallaig and Lochboisdale, running both summer and winter.

The hon. Gentleman reminded me of a very interesting trip which I made with him to the Isle of Scalpay. Well I remember it and well I remember the discussions which I had with his friend the minister, Mr. Nicolson, about the jetty. I went into this very carefully when I got back. A solution of this difficulty offered itself—at least, so I thought—in the shape of a proposal from the county council that a separate vehicle ferry service should be operated to Scalpay across the Sound of Scalpay at Kyles Scalpay. This proposal was accepted in principle by MacBrayne and by my right hon. Friend's Department, and MacBrayne agreed to provide a new small ferry vessel, costing about £10,000, for the purpose. New jetties and road works, which would also be required, were estimated to cost about £40,000.

Subsequent to this, plans for these works were in an advanced state of preparation when, in October last, representations were received from the so-called Scalpay welfare committee objecting to the proposals on the grounds that the service would be frequently inoperable because of conditions in the Sound of Scalpay and that it would be uneconomic. The committee proposed, instead, that a direct sea service should be given from the existing Scalpay pier to Tarbert, and these representations have been referred to the county council, and its response is awaited.

I turn now to the third important point which the hon. Gentleman raised—the Stornaway-Ullapool Ferry. I appreciate the strength of the desire in Lewis for a direct ferry crossing between Stornaway and Ullapool. I know that this has been supported by Ross and Cromarty County Council. The present services to Stornaway are the MacBrayne cargo service from Glasgow and its mail services from Mallaig and Kyle. In addition, there is the Coast Line Service and the tramp services.

I am told that the ferry project would need to capture the bulk of the MacBrayne traffic on both the cargo and the mail services if it were to be anything like economic, but MacBrayne asserts that the cheapest service for freight to Stornaway is its cargo service from Glasgow and that even if there were no MacBrayne subsidy, the promoters of the Ullapool project could not match its rates. The promoters have been invited to estimate their rates for comparison, but so far have produced no figures. I do not, of course, rule out this suggestion entirely—it will certainly be examined carefully and sympathetically—but I think that it would be wrong to give the impression that it could be introduced without some adverse effects on the present services.

I turn to some of the points raised by the hon. Member for Edinburgh, East (Mr. Willis), which, I thought, linked with some of the points raised by the hon. Member for Motherwell (Mr. Lawson) and perhaps to some extent with those raised by the hon. Member for Kilmarnock. They were in regard to MacBrayne's financial structure. It is true that the company's capital employed has increased by about £317,000, from £726,000 in 1952 to £1,043,000 at 31st December, 1960.

The hon. Member for Motherwell was a little perturbed as to how this had come about. The reasons for the increase in capital employed are as follows. As in this present agreement, there was an incentive clause in the old agreement. It was not such a great one as in the present agreement. It was an up and down sharing arrangement, not to the extent of £30,000 as in the new agreement, but to the extent of £15,000. This incentive provision has produced a net surplus profit to the company of about £14,000.

The second point is that the company has been restricted to paying dividend on the issued capital of £500,000. Capital in excess of £500,000 earns interest at 5 per cent. compound interest, which accumulates. From 1952 to 1958 the company voluntarily restricted dividends on the issued capital to 4 per cent. and the 1 per cent. on £500,000 also accumulated at compound interest.

Income and Profits Tax allowances on assets in the early years of some of the assets concerned have been at a greater rate than the depreciation charges made in the accounts. Thus, to equalise their Income Tax and Profits Tax, the company has created a reserve of no less than £196,000 for the day when allowances will be less than the depreciation charges in the accounts. This reserve was £67,000 in 1952 and has grown to £196,000 in 1959. It has gone up by £129,000. The reserve of £196,000 will, however, eventually disappear if not replenished by further credits in respect of new assets.

Investment allowances have meant that a great deal of the company's Income Tax and Profits Tax in their return on capital has been excused. In addition, there has been a profit on scrapped ships of £40,000.

I agree with the hon. Member that the company has built up these reserves and now has £1 million employed in the business, but I emphasise that the capital has been employed. Therefore, when he decided what rate of interest ought to be paid to the company, my right hon. Friend decided that the right and fair figure would be on the capital employed in the business and at a rate of 6⅝ per cent., which is the ten-year borrowing rate applicable to a loan of this type. My right hon. Friend considered that this was the proper way to tackle the problem. If the Government or any other company had had to operate this service it would have to find the money at 6⅝ per cent. I hope that with that explanation the hon. Member will be able to follow what has happened.

Mr. Lawson

I thank the hon. Gentleman for his explanation, but when he says that the capital has been employed am I to take it that it has been put to a useful purpose, such as obtaining additional equipment? It is not just a question of a reserve being employed in the sense that it has been turned into capital which could be used?

Mr. Leburn

I can confirm what the hon. Member said. It has been used to buy new ships, new buses and so on.

Mr. Willis

Is it correct to say that there is no reserve? All this argument arose out of the fact that the right hon. Gentleman talked about a reserve.

Mr. Leburn

I maintain that there is a reserve, but it may not be a reserve in hard cash in the bank. There is a reserve; the assets of the company have been increased and there is a reserve to that extent, and £300,000 of it has been capitalised.

Mr. Manuel

To round this off, the hon. Member will recall that I asked whether he could tell me the total interest paid on the invested capital over the last ten years.

Mr. Leburn

Until 1957 or 1958 the company restricted its dividends to 4 per cent., and since then it has paid 5 per cent. Over the ten years the total amount of dividend paid has amounted to £190,000, which is subject to tax.

I believe that I have reasonably covered most of the points which have been raised by hon. Members. The hon. Member for Glasgow, Govan (Mr. Rankin), who is not in his place, although he was extremely critical of some of my hon. Friends because they were absent, drew a happy metaphor about the bows of a ship rising over the crest of the waves. I am paraphrasing his words fairly accurately. I like to think that the firms of MacBrayne and the new Orkney Islands Shipping Company might be likened to the bows of this ship and that in the five and ten years ahead, as the case may be, they will rise over the crest of the wave and give an extremely good account of themselves.

Mr. Malcolm MacMillan

Before the hon. Member disappears over the horizon, will he tell the House what arrangements the Government intend to make to give the House time to discuss the operation of these services from year to year?

Mr. Deputy-Speaker

Order. The Minister cannot properly reply to that because it does not arise on this Undertaking.

Mr. Willis

Will the Minister reply to the question which I asked about the ships being built for the Western Isles services, for MacBrayne? When are we likely to hear about them?

Mr. Leburn

I will not attempt to answer the question of the hon. Member for the Western Isles in view of your comment, Mr. Deputy-Speaker, but I am sure that he has enough ingenuity to find a way to meet his own point.

In reply to the hon. Member for Edinburgh, East, I would say that my right hon. Friend is shortly to ask a shipping firm to submit designs for these ships, and shortly afterwards it is hoped to put these out to tender to a certain number of firms which will be recommended to my right hon. Friend by the Minister of Transport. After the tenders have been made, my right hon. Friend will have to consider the position of how the order is to be placed and the number of ships involved. It is hoped that it will not be too far into the New Year before a final decision is taken.

Question put and agreed to.

Resolved, That the Undertaking between the Secretary of State for Scotland and David MacBrayne Limited, a draft of which was laid before this House on 27th November, be approved.

Undertaking between the Secretary of State for Scotland and the Orkney Steam Navigation Company Limited [draft laid before the House 29th November] approved.—[Mr. Maclay.]

Undertaking between the Secretary of State for Scotland and the Orkney Islands Shipping Company Limited [draft laid before the House 27th November] approved.—[Mr. Maclay.]