CALEDONIAN MACBRAYNE LIMITED

HC Deb 05 August 1975 vol 897 cc433-62

1.3 a.m.

The Minister of State, Scottish Office (Mr. Bruce Millan)

I beg to move, That the Undertaking between the Secretary of State for Scotland and Caledonian MacBrayne Limited, a draft of which was laid before this House on 2nd July, be approved. The purpose of the draft undertaking for which I seek approval tonight is to give effect to the Government's intention to pay a revenue grant to Caledonian MacBrayne Ltd., a wholly-owned subsidiary of the Scottish Transport Group, to meet a deficit in the group's shipping services on the Clyde and to the Western Isles.

My right hon. Friend the Secretary of State announced on 16th April this year his intention of paying to Caledonian MacBrayne a new revenue grant amounting to about £2½ million per year. Before I come to the reasons for that decision and before I deal with the main points of the draft undertaking, I should set these matters in perspective.

The shipping services on the Clyde were for many years operated by the Caledonian Steam Packet Company, owned by British Rail before it was brought into the Scottish Transport Group in 1969. Until this present year, no direct Government revenue grant was paid for these services, and any losses they incurred in the past were taken up within the general financial arrangements of British Rail and the Scottish Transport Group.

Services to the Western Isles were first subsidised by the Government as long ago as 1928, and for many years Government support for these services took the form of an annual deficit payment in respect of losses incurred by David MacBrayne Limited. This company, immediately prior to the setting up of the STG, was half owned by private interests and half by public interests. The STG, on its foundation, took over the public shareholding and shortly afterwards bought out the private holding.

The new STG decided that much needed to be done to modernise and improve the shipping services for which it was responsible. It therefore embarked on a programme of conversion to vehicle ferry operation to meet the growing demand from tourists as well as from the operators of commercial vehicles. The speed, frequency and capacity of the services to the islands have been greatly developed in recent years as a result of the change to roll-on/roll-off operation by modern vessels.

For example, in the summer there are now 31 sailings a week to Barra, the Uists, Harris and Lewis, compared with 12 in 1955 and 25 in 1965, and each sailing has a cargo capacity much greater than that of the old conventional mail-boat. The House will recognise from these figures how greatly the service has been extended—a point not always acknowledged by its critics, which is why I want it to be put on record.

After considering the finances and traffic prospects of the whole range of services for which it was responsible, the STG came to the conclusion that it should be possible to operate a number of the major services on a commercial basis without Government revenue grant and to concentrate the Government grant on a number of services to small and remote communities which could never hope to pay their way. These views were accepted by the then Government, and new arrangements were announced in April 1972.

As a part of that policy, the STG's shipping services were divided between two separate companies. Caledonian MacBrayne, with which we are concerned tonight, was set up to operate the commercial services, which included all the main vehicle ferry services to the principal islands. David MacBrayne Limited was to operate those uneconomic services which were known to need Government support on a continuing basis, such as those to the Small Isles and to Colonsay.

A new undertaking for David MacBrayne, giving effect to this change, was approved by resolution of this House on 11th December 1973. Because of the quite different nature of these two groups and services, we propose to keep the David MacBrayne undertaking in operation for the time being, and it is not affected by the draft undertaking we are considering.

As things turned out, since the new policy—and the policy of the previous Government—was announced in 1973, the STG has not been able to bring Caledonian MacBrayne on to a fully commercial footing. Price restraint, the fuel crisis, and inflation over the two years 1973 and 1974, brought about a sharp deterioration in the company's financial position. At the same time, there was a considerable volume of complaint from the islands about increases in charges resulting from cost increases, particularly as they affected the economic life in the islands. There was a large volume of complaint, in particular, in the spring last year following an increase introduced at that time.

After representations from the local authorities, we agreed to review the whole position, and I had a meeting with the local authorities concerned on 16th July 1974. This is bringing the story up to date.

As a result of that review, we came to the conclusion that it was no longer possible—certainly in the short term—to contemplate a continuation of the policy that Caledonian MacBrayne should operate on a straightforward commercial basis. To balance the books charges would have had to rise by about 65 per cent. in the current year and possibly by more if allowance were to be made for the falling off in demand which would have accompanied such a steep increase.

The Government concluded that this kind of increase could not be tolerated and, in accordance with the new policy statement of 16th April 1975, we there fore propose, through this present under taking, to pay a revenue grant to the company which is expected to be about £2½ million per year. This new subsidy represents a substantial increase in Government help to the Scottish Transport Group for shipping services from about £750,000, which has been going to David MacBrayne, to over £3 million a year. I want to emphasise that this is a considerable additional commitment by the Government. There is also help in other ways for capital purposes for these services in the Highlands and Islands, not all of it going directly to the Scottish Transport Group.

Nevertheless, we did not intend that this increase in subsidy, or this new subsidy, should mean that there would be no increases in charges at all. As was made clear in the statement in April, the new subsidy for the current year was not sufficient to cover all increases in costs and therefore ferry charges were increased from 1st May this year. The increases were those which had already been approved by the Price Commission last October but which were not implemented, on my request to the Scottish Transport Group. From 1st May this year basically the same increases have been introduced.

In making the increase the Scottish Transport Group sought to meet complaints from the islands about the effect of shipping charges on economic activity by limiting the increase for commercial vehicles to 5 per cent., with the main weight of the increase therefore falling on private cars and passengers, for which charges were increased by 25 per cent. The overall effect of the increase was that revenue from users was about 17 per cent. higher than before.

I should like to refer briefly to the suggestion that has been put forward from time to time, basically by the Highlands and Islands Development Board, but supported by others, that charges for ferry and shipping services should be based on what is called the "road equivalent tariff"; that is, that the charges should be related to the cost of moving a similar vehicle over the equivalent distance on the road.

We have rejected this suggestion for two reasons. First, we consider that charges must bear some relation to actual costs. Otherwise there is a possibility of the whole operation becoming removed from the real economics of the situation.

Secondly, we consider that the cost of such a charging system to the public-purse would be unacceptably high.

It is not possible to give precise figures, but the indications are that revenue based on such a system of charging would bring in only about a quarter of the actual operating cost. In terms of the Caledonian MacBrayne services, that would mean a subsidy of about £6 million instead of the £2½ million which we now propose.

Mr. Iain MacCormick (Argyll)

Does the Minister agree that that would be considerably less than is brought in in total from the whisky distilling industry on the Isle of Islay alone?

Mr. Millan

I do not know what the hon. Gentleman means by "brought in" by the whisky industry. I do not believe that we can make that kind of comparison. We would get all kinds of bizarre transport charges in different parts of the country if we based such charges on the relative prosperity of the industries in particular areas. It is a plausible argument, but it does not bear serious examination. As I said, in terms of the Caledonian MacBrayne services, the subsidy would be about £6 million rather than £2½ million. Given the present demands on public expenditure, I think that that is far more than could reasonably be expected to be diverted to the support of these shipping services. I believe that £ 2½ million is a very fair additional amount of resources to be allocated at present.

I make one further point concerning the Isle of Islay before I turn to the main points of the undertaking. I suspect that the matter may be raised by some hon. Members, so I shall briefly refer to it now, in the hope that I may later be able to pick up some of the points that are made when I make my reply.

In considering the Caledonian MacBrayne services we had to decide whether to include Islay in the arrangements to meet the company's losses, in the knowledge that Western Ferries had written to say that if Caledonian MacBrayne were given a subsidy and Western Ferries were not it would in all probability have to withdraw from the Islay route. We also had in mind that the two previous attempts to rationalise the Islay services came to nothing. The first, and most important, was in 1972 when Caledonian MacBrayne tried to withdraw. The Transport Users' Consultative Committee recommended against that and its recommendation was accepted by the then Government. I remind some Conservative Members of that event. Therefore, Caledonian MacBrayne is effectively under an obligation to continue its Islay services. The second attempt at rationalisation came later the same year, when the board of Western Ferries offered to sell the company to the STG. However, this came to nothing, because of the opposition of those who now control Western Ferries.

In this difficult situation we decided that the best thing would be not to exclude Islay from the general grant to Caledonian MacBrayne. I think that that would have had certain serious consequences, among other things, on the actual charges for the services to the islands. The question then was, should we also offer a subsidy to Western Ferries? We decided that it would not be a sensible use of public funds to pay two companies, no matter who owned them, to compete with each other. In case there is any misunderstanding, I point out that the Government are involved in paying grants, under similar undertakings, to private companies elsewhere, but not in a situation where we would be in the position of subsidising competing services. Hon. Members will be aware that Western Ferries has now retracted from its earlier decision to the extent of having announced its intention of continuing through the winter.

I turn now to the main points of the undertaking. The underlying aims are that because of the different nature and character of the services, control should be less detailed than over the present limited number of services operated by David MacBrayne. The Government will support services on an approved list, and any services or activities not approved will require to be operated on a commercial basis or receive financial support from elsewhere. What I have in mind is that any charter work, for example, should meet its full costs and that cruise or other seasonal services which are not approved for the purposes of the undertaking would need to be supported by local authorities or by some other source. The grant will be calculated and paid to the company as an aggregate amount and will not be calculated in respect of the loss of each service. It will be settled each year in advance, and will not be varied except for some major and unexpected change in conditions; the aim here is to provide the company's management with a financial target for each year's operations. The Government will not concern themselves with the detail of the company's price structure, but will influence the general level of charges through the annual grant settlement.

Mr. Teddy Taylor (Glasgow, Cathcart)

Is it the Government's intention that the public in Scotland or anyone else will know the losses of certain services?

Mr. Millan

The company has always taken the view that for a variety of reasons, including commercial reasons, it should not publish detailed losses on individual services. That is not at the wish of the Government; it is a matter within the commercial jurisdiction of the Scottish the Transport Group and has been cosidered by the Select Committee examining nationalised ferry services in the current year. The Committee may take a different view when it has considered the matter, but I am saying what is the practice determined by the STG. Indeed that has always been the practice. It is a practice which has been neither encouraged nor discouraged by the Government.

There will not be detailed control over individual services, but in considering how the grant will affect the level of charges we shall have regard to social and economic conditions in the islands. The company also has to observe the requirements of the Price Code, which is an additional safeguard for users.

Mr. Russell Johnston (Inverness)

The Minister said that the Government had not encouraged or discouraged the company in its commercial judgment. Does he not think that the Government should have taken a view on this matter?

Mr. Millan

I should be slightly reluctant to take a view on this matter, since it is within the commercial discretion of the group. There is a rather fine relationship between Ministers and nationalised industries on these comercial matters. I am not persuaded that it would be right for the STG to publish these figures. If the group were to decide to do so, I should not object. We are likely to have from the Select Committee some pronouncements on the matter. It was a matter in which that Committee took an interest and, indeed, I believe that the hon. Member for Inverness (Mr. Johnston) gave evidence to that Committee.

There is also provision for capital grant to be paid as considered appropriate for vessels and harbour facilities, though at present it is expected that the purchase of vessels will be financed in the normal way through a depreciation charge which will be taken into account in calculating the amount of grant. A ceiling of 75 per cent. has been placed on the capital grant and is similar to that applied administratively for the Government grant for harbour improvements in the Highlands and Islands under the eccentrically-named Congested District (Scotland) Act 1897.

The Secretary of State's consent is necessary for the discontinuance of a service, but not for detailed timetable changes. It is our general intention that complaints about such matters as the quality of service and timetable on which the complainants cannot obtain satisfaction from the shipping company should be dealt with through the Transport Users' Consultative Committee.

I make that point because I receive a number of detailed complaints which are matters not for the Minister concerned but for the other machinery involved. In the short term the Scottish committee is due for reappointment later this year. Nominations have been sought from a wide range of bodies representing local authorities and other local interests, including the Scottish Council of Social Services, the Federation of Crofters' Unions and the Highlands and Islands Development Board. It is the intention to strengthen the representation on the committee from the highlands and islands.

I think I have covered the main points. Other articles of the undertaking either make provision for the matters I have already discussed or contain the necessary legal safeguards for the Secretary of State's position in the eventualities which may arise. I hope that a little later I shall have the opportunity to reply to points made in the debate. I commend the proposals to the House.

Several Hon. Members

rose—

Mr. Deputy Speaker (Mr. George Thomas)

I remind the House that there is a total of one hour and 10 minutes remaining for the debate.

1.25 a.m.

Mr. Ian Sproat (Aberdeen, South)

The Opposition regard this as an extremely important debate, because it concerns very closely the existence of the islanders and because it encapsulates a very important principle about the extent to which subsidy paid to a nationalised industry undermines—and in this case could even put out of business—private enterprise. I hope to return to that in more detail in a moment.

I want, first, to say something in general about the subsidy. The Opposition accept completely that certain sea routes should be subsidised. We accept the social need and the social cost in principle. The people who live in the islands subsidise, through their taxes, railway networks, motorways, inner city roads, and so on, which may be of little direct benefit to them. At the same time, it is only fair that people living in other parts of the country should expect to see some of their taxes providing some of the transport needs of the islanders. That is agreed between both sides of the House.

But Governments must go, and have gone, beyond that general principle. As the right hon. Gentleman said, that is why the sea routes were divided, with those believed to be commercially viable going to Caledonian MacBrayne and those believed not to be commercially viable, and therefore in need of a social subsidy, being allocated to David MacBrayne Ltd.

We have now come to the next stage, in which we find ourselves no longer in total agreement with the Government. Having in the past said that it could run its routes commercially without a subsidy from the taxpayer, Caledonian MacBrayne has now admitted that it can- not not do so without an unacceptable rise in its rates, and that it must have a Government subsidy. The Government now propose to give the company £2.5 million.

It may be that Caledonian MacBrayne is right about the non-commercial viability of certain routes. It may be, equally, that it is wrong about certain routes. But it is intolerable that it should claim and be given this subsidy without being prepared to reveal how it intends to spend that subsidy and without being prepared to reveal the detailed costings on each route which alone can prove whether it is right about the need for a subsidy of this size.

Of course, further doubt about the judgment of Caledonian MacBrayne of what is commercially viable is sharply aroused by its behaviour over the Islay route. The broad situation cannot be disputed. Caledonian MacBrayne finds itself in open competition with private enterprise—in this case, Western Ferries—and it has been compelled to lower its fares and to alter and improve its services, yet still it has lost up to two-thirds of the traffic to its competitor.

Mr. MacCormick

Has the hon. Gentleman ever travelled to Islay by air or by the present steamer services?

Mr. Sproat

No, I have not. But when I spoke in Campbelltown, I heard a great deal about the issue from both sides.

My point is that where Caledonian MacBrayne has had to face competiton in Islay its commercial judgment and ability have been found wanting.

Surely there are some general principles which any Government should apply. First, where a private commercial concern provides a satisfactory and commercial service at a profit and at no cost to the taxpayer, it must be encouraged to continue doing so. Secondly, new competition in the cause of better services to the islanders at lower rates—as has happened in the case of Islay—and at no cost to the taxpayer should be actively encouraged, especially by the open and total disclosure of route costings. Thirdly, specific route subsidising, out of the general subsidy now being granted to routes which private enterprise has shown can be profitable without subsidy should be prohibited totally.

On the question of disclosure, Caledonian MacBrayne has so far refused to disclose the detailed costings of each route. That can no longer be tolerated. The Minister has indicated an open mind. I hope that he will tell the company to make the costings available. In the other place on 26th June, Lord Hughes said that if the costings were disclosed people on some routes might complain that others were getting more and that they should have the benefit of the subsidy. No doubt such complaints would be received, but so what? The company would then have to justify its actions and, hopefully, be able to prove that its allocations of expenditure was fair. To shelter behind that feeble excuse, as the noble Lord did, is to negate open government and public accountability.

If the taxpayer is putting up an extra £2½ million to subsidise part of the sea routes to the Western Isles because it is claimed that they can no longer be run at a profit, surely the taxpayer has the right to know what part of his subsidy is being spent on what routes. That is essential, and it is indefensible to argue otherwise. The Norwegian Government have accepted that principle and this Government should accept it too. I hope that the Minister will undertake to give us the figures for the Islay route.

I said that there was no good reason for not disclosing how the subsidy will be spent, but there is a bad reason—that the STG wishes to hide the fact that the taxpayer's money will be wasted on the Islay route, because, if it were not paid, Western Ferries would be able to operate without a subsidy and at a profit.

What is the most economic way of servicing Islay? Either the taxpayer pays out more subsidies—I am advised that it will be about £300,000—and the people of Islay get a worse service, or the taxpayer pays out no more money and the people get a better service. It is incredible that there should be any doubt about this, but it is more incredible that the Scottish Office should pay for the choice which costs more and means a worse service.

Mr. MacCormick

Would not the hon. Gentleman agree that the best solution for Islay and the people living thereon is to have both services?

Mr. Sproat

I was coming to that. My next note was to the effect that of course the people would like to retain the services of both Western Ferries and Caledonian MacBrayne—as I would, ideally—because little but good could come from the beneficent effects of competition. The fact that the Islay service is the envy of many other Western Islanders who languish under the MacBrayne monopoly is proof of that. But if one service is to go temporarily, it should be the less efficient and more costly—Caledonian MacBrayne.

If Western Ferries have to go because the Government subsidise Caledonian MacBrayne as proposed, which will totally undermine Western Ferries' ability to continue—we understand that it will go through to the end of March, but there will not be much hope thereafter—the history of Caledonian MacBrayne shows what the future will be. MacBrayne's standard of efficiency and service will fall and rates will rise into line with the much higher average rates the company charges where it has a monopoly and is not subject to healthy competition. In short, the hon. Member's constituents and the general taxpayer will be worse off.

Mr. Tam Dalyell (West Lothian)

Is the argument that competition should be fostered throughout the islands?

Mr. Sproat

We should encourage as much competition as possible. There will be certain routes, particularly those operated by David MacBrayne Ltd., on which such competition is not possible, but where it is possible and where it could take place without subsidies, it should be allowed to do so.

On the troubled question of the Islay services, there are problems which at least have a chance of being settled reasonably and amicably, even at this late stage, if the Government set up a small investigative group with a representative each from, say, the STG, Western Ferries, the Government and the Strathclyde Region. They should have obligatory access to all the facts and figures they require, should aim to report within a month, and their findings should be made public.

I accept that in the changed economic circumstances of 1975 and beyond, certain Caledonian MacBrayne services may need a new subsidy, but this extra drain on already heavily burdened taxpayers can be justified only if the taxpayers, through Parliament, can see exactly where and how it is being spent. In future, there must be full and detailed disclosure of all the costs of the Caledonian MacBrayne routes, broken down individually. The money would not be justified if it undermined private enterprise on routes where, because of the subsidy paid to its nationalised rival, private enterprise cannot make a profit.

I hope that in future the Government will think less doctrinairely and more openly about the nationalised industries.

1.38 a.m.

Mr. Donald Stewart (Western Isles)

The question whether the Government are undermining private enterprise is not a great issue. I do not worry unduly about that. The people of the Western Isles are entitled to a reasonable, economical form of transport, like anybody else in the United Kingdom, and we have lacked that for many a long day.

The Minister was more understanding in his speech than he has been in some of the brushes I have had with him across the Floor of the House. He showed a more realistic approach to the problem. The people of the Western Isles pay taxes to subsidise the railway system in the rest of the country and they are entitled to a reasonable form of transport themselves. We are approaching the situation in the Western Isles, the Inner Hebrides, Orkney and Shetland, and perhaps other parts of the country in which it will be almost impossible for people to have a reasonable standard of living. No development is coming into these areas.

Caledonian MacBrayne has found it impossible to pay its way. I welcome the £ 2½ million Government grant, as I welcomed the Government's deferment of increased freight charges some months ago. The West Coast has a totally inadequate, antediluvian, exorbitantly costly form of transport. For example, it costs £170 to take a lorry load of fish on the short sea crossing to Stornaway. A textile manufacturer in Stornaway bought some machinery in Bradford and took it across through Skye and Harris. The cost was greater than the cost of two lorries to bring the machinery from Bradford. A firm that smokes fish in Stornaway pays 15p per bag of oak chips. Each bag costs £1. 20 to transport from Glasgow to Stornaway.

Only today I have had telephone calls from the Western Isles to the effect that a well-known mail order firm has advised all the regions that the cost of any goods that cannot be sent by parcel post will have to be borne wholly by the purchaser, and that, owing to transport costs, the firm can send them only to mainland addresses.

In the last week we have had an intimation that the Glasgow boat was being withdrawn from service to the Inner Hebrides. This was an important vessel to the Islands. It carried goods such as roofing slates and tiles, which could not be taken economically by road. Road haulage costs are exorbitant. We have had this vessel phased out. David MacBrayne Ltd. had a weekly service, then it had a 10-days' service; then it was once every three weeks, and then even the three-weekly service was phased out. Figures were produced to show that the tonnage of goods being transported had dropped and that there was therefore no need for the service. But there is a need for it, because the people cannot afford to pay the transport costs involved in carrying that type of goods by lorry to the Western Isles.

Why should we bear the total cost? Even in London—the wealthiest city in the country—transport is subsidised. So great is the increase in living costs in the Western Isles that the local council has made an agreement with the NJIC to pay is workmen £3.50 a week weighting allowance, as in London. That shows the extra cost of living, which is entirely due to the appallingly high freight rates to the Western Isles. We should be on an equal footing with the rest of the country in terms of freight rates. The Norwegian Government do this even in respect of the islands right in the north, and I do not see why we should not have the same advantage. If we did, development would increase and the extra traffic would make the services far more viable than they are now.

I welcome the draft undertaking, as far as it goes, although it is still inadequate to meet the existing situation. I am sorry that the Minister said that it should be applied on a commercial basis. We cannot do that at this stage. We are entitled to the same subsidy as the rest of the country. To suggest that local authorities should provide the subsidies is, as somebody said in the Orkneys a year or two ago, like asking a man to provide the blood for his own blood transfusion. We do not have local authorities with that kind of money. We should receive support to see that we have a fair and economical system of transport to the Western Isles, and to see that we enjoy the same benefits as the rest of the country and are not impeded by such factors as transport costs which do not apply in the rest of the country.

1.44 a.m.

Mr. Russell Johnston (Inverness)

It is worth saying—because MacBrayne's inevitably and unavoidably will be criticised throughout this debate—that, speaking for myself and, I am sure, for all Members of Parliament who represent constituencies served by MacBrayne's, in my experience, over 10 years, the criticisms made of MacBrayne's apply hardly at all to the people who provide the service—the deckhands, the skippers, the cooks and the ferrymen. All those people do a very good job. It is worth saying that. The criticism of MacBrayne's is a management argument rather than an argument about the nature of the services provided by the people who work in the organisation.

I should like to make four points. First it was surprising, pleasant and new to hear the hon. Member for Aberdeen, South (Mr. Sproat) saying that each individual service should declare its profit and loss. This has not been the policy of the Conservative Party in government—a point that I am sure the Minister will not fail to make in his speech later.

I hope that when the Select Committee on Nationalised Industries, to which the Minister referred, produces its report—which I understand is at the printers—it will make a clear recommendation on this matter. In my constituency it is totally absurd that no one knows how much profit the Kyle—Kyleakin ferry, which is operated by Caledonian MacBrayne, makes. We know by looking at it that it makes a profit, but why should not we know how much?

The basic theory about parliamentary control is that we have some idea of where subsidy is applied, how much subsidy is applied in a particular case, and what the result is.

Reference has been made to Norway—mainly through interjections by the hon. Member for Argyll (Mr. MacCormack), and during the speech of the hon. Member for Western Isles (Mr. Stewart). I received a letter, perhaps not entirely surprisingly, with the compliments of Western Ferries (Argyll) Ltd., writen to the Oban Times in July this year, in which the writer, a Mr. Blue—which is not a strongly Highland name—

Mr. MacCormick

Does the hon. Gentleman not appreciate that at the time when the MacGregors were proscribed, most of them took names after colours, and anyone called "Blue" today is almost certainly a historical MacGregor?

Mr. Johnston

I am grateful to the hon. Gentleman and for the opportunity to refer to the hon. Member for Glasgow, Cathcart (Mr. Taylor) as a historical MacGregor. No one could be more blue than he.

Mr. Blue, who lives in Ardrishaig, made an interesting comparison between the Scottish Transport Group's report and the kind of information available to him or made available equally to the citizens in Norway in comparable reports. He indicates clearly that the Norwegian report contains information: giving detailed route costings, ship costings, and traffic category costings, together with full figures for the previous year and projections forward…". He concludes It's peculiar how they manage to provide the information, isn't it? That is a fair point to make. It was interesting that Mr. Blue appended to that letter a comparison of the fares charged on the basis of per kilometre as between certain routes in Scotland compared with similar route distances in Norway. For example, the cost of a single car at full rate on Kyle-Kyleakin, operated by the STG, was £1.05 and the same distance in Norway cost 59p. That figure was reflected quite remarkably throughout long tables going through virtually all the main ferry routes in Scotland, comparing them with the Norwegian situation. This is something we should have regard to. It may be—I do not know—that the Norwegian ferries are heavily subsidised, and that that is why their costs are so much cheaper. On the other hand, they also know where they subsidise, and the Government and the individuals know what the cost is. We in this House cannot judge unless we know. Particularly when increased subsidies are being made, we should know where the main drain is, so that we can make judgments about it.

Secondly, there is the question of competence and initiative. Caledonian MacBrayne is open to criticism here. I shall not develop Western Ferries' argument, because I am sure that the hon. Member for Argyll, within whose constituency it is, will develop it effectively. We have all had correspondence from Western Ferries, and know the argument. Here we have an independent company which went into competition with a nationalised concern and did very well. The lesson must be taken into account. A constituent, Mr. John Campbell, proprietor of the Isle of Canna, wrote to me last month to say: I hope you will support Western Ferries in their application for aid…I cannot forget how when we widened the pier here from 42ft to 96ft in 1971…MacBraynes were asked if they could bring Messrs Lilley's crane and other machinery here to do the job, and had to admit that they could not do so. Western Ferries were approached and provided transport immediately. Since then MacBraynes have been having the benefit of a much improved pier at Canna, on which the work of improvement could not have been done but for Western Ferries. That is a small island. But the evidence clearly is—although one lacks the full information—that Caledonian MacBrayne appears not to have done as well as fairly recent competitors in this country, or as well as those in Norway, for example, operating in basically more difficult circumstances. This is a management matter.

Thirdly, there is the question of consultation, which the Minister mentioned at the end of his speech. I had some correspondence about the Scottish Transport Users' Consultative Committee procedures at the end of last year. The Minister of State, Department of Prices and Consumer Protection, wrote to me on 5th December: I do not think I need comment on the substance of the Inverness County Council's case; Bruce Millan obviously has the matter well in hand and I am glad to see that the STUCC have already made some headway… As far as STUCC procedure is concerned, I agree with you that there is a case for having a fresh look at the mechanisms for considering objections to timetable changes and other service alterations. The present position is that the operator of the service is under no statutory obligation to give notice of alterations in services (unless they be total closures)". He added that he thought that the procedures should be reconsidered. I do not know whether that has been done. But I know that one of the major criticisms made of Caledonian MacBrayne again and again throughout the western and island area is that it does not consult well. It is continually announcing fare and service changes without people knowing that they are to happen. That is not good enough, and something should be done about it.

I am not one of those who go overboard in favour of the consumer councils. I personally prefer the elected members operating rather than that sort of appointed institution, but perhaps we ought to have some sort of consumer council.

Mr. Dalyell

Can the hon. Member assure us that he took the trouble to talk to the management about the problems?

Mr. Deputy Speaker

I hope that nobody else will interrupt the hon. Gentleman, otherwise I shall not be able to call all the hon. Members who wish to speak.

Mr. Johnston

I have only one more point to make. I was not very clear what the hon. Member for West Lothian (Mr. Dalyell) said.

Mr. Dalyell

Did the hon. Member for Inverness (Mr. Johnston) hear the management side of the story from MacBrayne before making his point?

Mr. Johnston

Yes, of course. I have talked with the MacBrayne management and, as I said in the evidence that I gave to the Select Committee on Nationalised Industries, they are a very pleasant group of people. They appear to be very understanding, but the fact remains that these changes continue to take place without consultation, and continue to result in these frustrations and objections. I am sorry to say this to the hon. Member for West Lothian but it is a fact. I do not know why it is but I can assure him that it is so. I think the hon. Member for Western Isles would confirm that from his experience.

Lastly, on the question of the consolidation of fares on some sort of road equivalent—the last point made by the Minister—I am sorry that he rejected us out of hand. I take the figures that he gives. He tells us that it would cost £6 million as opposed to the proposed £ 2½ million. Obviously that is a very big difference and the House would have to think very closely about it. On the other hand, I think it is worth saying that the Highlands and Islands Development Board, a body which the Minister is very happy to quote in support of his approach to Highland problems from time to time—he may smile, but that is true—has said that this seems to it to be the right course of action.

I think that the Government should give it greater consideration than they appear to have done. Although it is true that it would cost a certain amount, it is equally true that the expenditure on motorways, and so on, throughout the rest of the United Kingdom has been heavy, and in the totality of providing an efficient transport network it has been accepted.

1.58 a.m.

Mr. Tam Dalyell (West Lothian)

I shall take notice of what you said about time, Mr. Deputy Speaker, because it would be wrong that anybody should be kept out because of the length of speeches. Is it not true that the West Highlanders, on the whole, rather like having a sense of grievance? They might admit this themselves.

A great deal has been said about MacBrayne's management. It has its problems, but I hear a great deal of good about it from my constituents—the Cadzow family, for example. I, too, have talked to MacBrayne's management, and it has its side of the story. Basically it is a problem, as the hon. Member for Inverness (Mr. Johnston) put it, of the way in which Western Ferries came into the situation. Was not it the most lucrative part of the trade potential?

Mr. MacCormick

That is wrong.

Mr. Dalyell

If I am wrong the hon. Gentleman will say so, but to some of us it looks suspiciously like a Skytrain situation. I have talked to Mr. Harrison, of Western Ferries, and put this to him. Here is an incoming firm taking the lucrative aspect of the market and leaving the nationalised industry to do the rest of the routine work that is by its very nature unprofitable.

Before we criticise Caledonian Mac-Brayne Limited we must hear its side of the story in greater depth than we have heard so far.

2.0 a.m.

Mr. Iain MacCormick (Argyll)

I was disappointed at what the hon. Member for West Lothian (Mr. Dalyell) said. We do not condemn the management of Caledonian MacBryane. We admire the company and think that it does a tremendous job.

I abhor the way in which some hon. Members have tried to inject an ideological concept into this discussion and have said that the Tories are on one side and Labour Party supporters are on the other. Other more important points are involved in this discussion. The first part of the discussion involves the situation obtaining in all the islands. The second involves Islay.

Last autumn, when the Government announced a survey of the situation, the hopes of population of the Western Isles, or the Hebrides, were raised. The people hoped that the Government would accept the principle enshrined in the Highlands and Islands Development Board, deal with the principle of the road equivalent tariff, as they call it, and evolve a new system of sea transport to the Islands. Unfortunately, the Government did not do that. There was a different result.

Other countries have successfully worked out better systems of sea transport to outlying islands. I am told that in Norway there is a £12 million subsidy to the island services, compared with the £6 million subsidy in this country. The Norwegian operation is six times larger than ours. How is it possible for the Norwegian Government to grant such a large subsidy? The answer must be that Scotland is a poor relation.

The subsidy is disappointing. There is nothing new about it. Before the "New Look" approach to the Highlands and Islands shipping services in the 1960s the Government granted a subsidy to cover the steamship companies' losses. The Government said that that approach would be swept aside. But in 1975 they are reintroducing that approach. They say that if fares are to rise they will draw a line and make up the difference from a subsidy. That is the least sensible way of operating a subsidy system, especially in view of the problems affecting the community of Islay.

Many hon. Members have spoken about the problems of Islay, but I doubt whether anyone has any experience of the situation there. I invited the Secretary of State to visit Islay. It is a long time since he accepted such an invitation. I hope that he will accept one soon, in view of what I shall say.

The argument has been developing since the 1940s and 1950s—but particularly when the previous Labour Government were in power—that the overland route should be developed from Keills, on the north side of Loch Sween, to Lagg, through Jura by road and then to Islay.

In response to that argument a firm came into being, now called Western Ferries, which operated a modification of that route. Western Ferries pioneered the now common concept of roll-on/roll-off ferries in the Western Highlands and Islands of Scotland. The firm revolutionised the whole concept of transport to Islay and other islands. I can remember a time, not 10 years ago, when my wife took 12 hours to travel by bus and steamer to Islay from Oban. Now it takes a fraction of that time. I do not know whether the Government appreciate the extent to which this service has revolutionised the attitude to travel and the whole concept of a viable firm being able to operate in Islay.

I do not want to introduce political motives because my interests are solely those of my constituents. The success of Western Ferries led, in 1972, to the attempt by Caledonian MacBrayne to withdraw from that service. I pay tribute to my hon. Friend the Member for Moray and Nairn (Mrs. Ewing) for putting forward the evidence which resulted in both services being retained. I and my party believe that both Caledonian MacBrayne and Western Ferries should be allowed to continue their present services to the island. There is a good framework whereby both services can be maintained, even if the Government are paying a subsidy to either or both.

I was surprised that the hon. Member for Aberdeen, South (Mr. Sproat) did not make monetary comparisons. His failure to do so was a weak point in his argument. For example, in 1975 the cost of taking a car to Islay is exactly the same as it was 10 years ago. There can be few similar examples anywhere in the British Isles. That is possible only because Western Ferries ran such an efficient system that Caledonian MacBrayne was forced to cut its fares by half. That situation still exists.

The hon. Member for Inverness (Mr. Johnston) said that it costs more to take a car to Mull—which is only about 10 miles from Oban—than from West Loch Tarbert to Islay, which is 20 or 30 miles.

The crux of the matter is whether it is conceivable that only one of the two services can cope with the traffic to and from Islay. All of us have had the chance to read the correspondence which has passed between the Secretary of State and the Chairman of Western Ferries. I was amazed to read one sentence in one of the right hon. Gentleman's letters in which he said, "We have seen over the last few weeks in February and March that Caledonian MacBrayne can cope with this service." Surely everyone appreciates that the real time of the year when there is a service to Islay is in the summer, because the main industry there is tourism. Not many of us take our summer holidays in February or March.

Granted the situation where the service to Islay is half as expensive pro rata, per mile, as to any other island of Scotland, is it not rather odd to suggest that this situation would continue if there were only one operator?

The Highlands and Islands Development Board's report—the board is an eminently sound body—says: The shorter the crossing, the greater appears to be the disparity between sea and road. It is also noteworthy that in Islay the service rates per kilometre are less than for any other route, presumably because of the existence of fairly intense competition between Caledonian MacBrayne and Western Ferries. One is surely bound to admit that in the long run, if not in the sort term, if one or other of these services were withdrawn the other would increase fares to be comparable with those levied on other routes in the Western Isles.

There are not all that many folk on the island of Jura, and there are far too many deer. Jura's only contact with the mainland at present is through the ferry services provided by Western Ferries. If Western Ferries is forced to withdraw, it will mean that the people of Jura, to bring themselves or their goods to the mainland, will have to go across to Feolin, or Port Askaig, take a bus journey the length of Islay, to Port Ellen, and then go by sea to Loch Tarbert. That would be an uneconomic and tedious way of spending their time, when it could be better employed otherwise.

These are the three vital points affecting those who live in these places. I am met by a feeling of disillusionment. Much in the draft undertaking deserves congratulation, but there is one flaw in it that we should all be concerned about.

The Government are right to say that we cannot allow fares and charges to go up. Where they go wrong is in saying that we have to make Islay the same as the other places. Islay is a different case, because it is the only island, of all the Western Isles, which has both a nationalised company and an independent company serving it, and it is the only island of the Western Isles which has a genuinely viable community both economically and socially.

I do not see why it should not have been possible for the Government to say that they would apply their formula to the rest of the Western Isles, but that Western Ferries had revolutionised the whole idea of transport to all the islands and they would allow it to carry on its service to Islay.

The same sort of people work both services. Last time I travelled by Western Ferries, I went on to the bridge and talked to the captain. Later, I saw the same captain on the bridge of a Caledonian MacBrayne ferry. Therefore, we are not dealing with a different class of folk.

Why not try out a new system in Islay, which would involve a subsidy based not on making up an operating loss but on the idea of subsidising the inputs? I refer to the inputs in terms of fuel costs, the number of people, cars, and so on, carried. Would that not allow the Government to subsidise both Caledonian MacBrayne and Western Ferries by taking the present subsidy off the routes to Islay and halving it, giving one half to the one and the other half to the other?

I should like to ask the Minister of State one last question which must be answered in this House tonight if we are having a meaningful debate. How much money is Caledonian MacBrayne losing at present on its service from West Loch Tarbert to Port Ellen in Islay?

2.16 a.m.

Mr. Russell Fairgrieve (Aberdeenshire, West)

I shall confine my few brief remarks to the matter of principle, but naturally, debate being what it is, I cannot refrain from referring to the speech made by the hon. Member for Argyll (Mr. MacCormick). He opened his remarks by pointing out that the Scottish National Party did not take up any ideological position; it was not for nationalisation or for private enterprise, but was somewhat in the middle. I am glad that the hon. Gentleman then made a most spirited defence of private enterprise. There is no doubt that the SNP is beginning to realise values in these matters.

Today we are seeing far too much the fault of what is happening in this country over similar matters. This applies not only to Caledonian MacBrayne and Western Ferries, but to British Airways and British Caledonian in Scotland. The arrival of British Caledonian at Turnhouse and other airports in Scotland meant an immediately more efficient service from British Airways. Had British Caledonian not arrived, I doubt whether we would have had this improved efficiency by British Airways.

We are seeing the same kind of thing carried out in a bigger way with the arrival of the British National Oil Corporation. Because it is obvious to all concerned that nationalisation does not work, that undertaking is being started with a massive advantage by not being subject to petroleum revenue tax, and so on. The fact remains that everybody who is not just thinking of ideology knows that private competitive enterprise delivers the goods and nationalised industry does not. We are having this problem at Islay because Caledonian MacBrayne is being given the subsidy and Western Ferries is not.

The hon. Member for West Lothian (Mr. Dalyell) said that one ought not to be too general about these matters, but should have specific evidence. I have a letter from a constituent in West Aberdeenshire, where we breed some of the finest cattle in Britain. He writes: As a regular buyer of cattle from the Island of Islay, and as a regular user of Western Ferries—which I have found a most efficient and obliging firm to deal with—it is with great concern that I learn of their impending withdrawal from the Islay route. Comparing the two ferry services available, without a doubt Western Ferries offer a keener and more efficient service. That is a matter of opinion. However, I suggest that all the evidence shows that when competition is removed, when monopoly is introduced and when no alternative is offered, the users suffer. That is why I wish Western Ferries to be given the same treatment as Caledonian MacBrayne.

2.20 a.m.

Mr. Teddy Taylor (Glasgow, Cathcart)

This has been a fascinating debate. In a way I am reluctant to intervene in a debate that has been dominated by experts. We have heard from people who represent islands, from people who live on islands, and from people who own islands. I should say that my only qualification for intervening is that my wife and three-year-old son sailed this afternoon on the "Queen Mary II" from Largs to Bute, paying two and a half times as much per mile as the charge per mile on the Islay service.

There are a number of questions that we are entitled to ask arising out of the debate. First, the Minister has mentioned the £2½ million subsidy without giving us any indication of the future relationship between fares and subsidies on Caledonian MacBrayne services. In April 1975 the Chancellor indicated that there was to be a change in the Government's pricing restraint policies whereby subsidies of £550 million were to be reduced to nothing next year. Will the Minister give us his view of the future relationship between subsidies and fare income on Caledonian MacBrayne services, observing that up to now we have aimed at the company breaking even?

Secondly, will the Minister consider the question of making available the loss figures for the Caledonian MacBrayne services? The hon. Member for Inverness (Mr. Johnston) chided us on the basis that they have not been provided. I suggest that there is a world of difference between a situation in which we have Caledonian MacBrayne breaking even and not looking for a direct subsidy from the taxpayer, and a situation in which approximately £2½ million of revenue expenditure is to be provided when private firms are in competition. In those circumstances I believe that we are entitled to have individual figures for each service.

Thirdly, is the Minister prepared to reconsider his policy in relation to Islay? I appreciate that this is a delicate matter. We have heard the hon. Members for Inverness and Argyll (Mr. MacCormick) saying how splendid and wonderful are Caledonian MacBrayne and Western Ferries. The hon. Member for Argyll seems to think that the solution lies in an input cost subsidy in relation to the actual costs. Of course, that would be unfair when the "Pioneer" uses twice as much oil per journey as does the Western Ferries' boat.

I hope that the Government are prepared to reconsider their policy, bearing in mind that if they operated on the same basis with Caledonian MacBrayne in America they would be prosecuted under the anti-trust laws.

There appears to be a situation in which Caledonian MacBrayne is driving enterprising private firms out of business by means of unfair State-aided competition. There is no doubt, as the hon. Member for Argyll has rightly said, that the initiative in Western Ferries has led to a situation in which Islay has better services than most of the isles, at the cheapest cost. Bearing in mind that we have set up a Scottish Development Agency, which will expand State control of private industry, the Minister has an obligation to remove the many justifiable fears that are held by many firms and industries that they will be subject to unfair competition by State-owned companies.

If we need any evidence of that situation, let us bear in mind the figures I have obtained, which show that on the Oban to Craignure service the cost per passenger is 73p a mile and on the Blodick service 55p a mile, whereas on the Islay service it is 21p a mile. That is for a 14ft. car. I am sure that the hon. Member for Inverness would express that as 4½ metres.

The final question I ask the Minister is whether he will give us an assurance that under paragraph 10 he will ensure that private road hauliers in the Highlands are protected from unfair competition by Caledonian Haulage. Although we are not discussing Caledonian Haulage we are discussing Caledonian MacBrayne.

We are concerned about the special arrangements regarding fares and transportation, especially about the arrangements between Caledonian MacBrayne and Caledonian Haulage. It is a strange fact that the rate quoted by MacBrayne Haulage to transport a 40 ft. trailer from Inverness to Ullapool is lower than the rate charged to convey that same trailer from Ullapool to Stornaway direct.

We want to ensure fair competition and we should like to know the Minister's aims in respect of the future relationship between subsidies and fares. Even more important, does the Minister realise that the question of unfair competition is important not just for Islay but for the whole of Scottish industry?

2.26 a.m.

Mr. Millan

I should like at the outset to deal with the subject of Islay. It would be interesting if the hon. Member for Glasgow, Cathcart (Mr. Taylor) would explain why his former colleague, the ex-Secretary of State for Scotland, was so anxious to compel Caledonian MacBrayne to stay on the Islay operation when that company wanted to withdraw. It is not in the same position as Western Ferries, because if Western Ferries withdrew from the arrangement there would be no question of the STUCC's being involved, because Western Ferries is not a public enterprise and could withdraw the service tomorrow.

I do not criticise Western Ferries, but it is not in the same position as a nationalised operator would be. If we are to provide a decent service to the islands, it must be done by the nationalised concern because that concern has an obligation to run the service. This is not a doctrinaire attitude.

Mention was made of the Scottish Development Agency Bill. That Bill provides for a subsidised air service to the islands and highlands. Those services are to go to Loganair and will not go to the nationalised British Airways, but they will not go to that organisation in a situation in which they will be compared with another service which is to be subsidised by the Government.

I take the point about Argyll and the problems that would face certain people if Western Ferries were to withdraw. If that were to happen, we realise that we should have to examine the problem, but we are not approaching the matter from any doctrinaire standpoint. Undoubtedly there would be difficulties involving the expenditure of public money in present circumstances if we were to seek to subsidise what, basically, are competing services to the same island.

We did not, as the hon. Member for Inverness (Mr. Johnston) said, reject the roads concept out of hand. Careful consideration has been given to the matter and I spoke to the Highlands and Islands Development Board about it on one occasion. However, for the reasons I have mentioned, I do not think it would be justified to earmark such money at present. I accept that if we are to have a decent service to the islands, it is bound to be expensive and as a Government we are bound to have to consider that if people living on the islands are to have reasonable prosperity and opportunities for economic development, we must try to support the services to the islands. It must be a matter of judgment how far we should spend money in this direction compared with the money that goes out in other ways through, say, the Highlands and Islands Development Board. However, I accept that we have as much of an obligation to produce reasonable living standards for people in the islands as for the rest of the, people in Scotland. I believe that the £2.5 million in new subsidy which has gone in is a very important step towards that end.

I was asked again about the publication of figures. I have never said that these figures should not be published. I gave evidence myself to the Select Committee on this, and I have a completely open mind about it. The STG has probably felt that if it were to disclose all the figures for all the services, for those making substantial losses there would be unlikely to be any demand by the people in the areas concerned for the fares to go up to meet the losses, but that in respect of the few which were paying their way there might be demands that the fares should go down. That is human nature everywhere, especially in the islands. That is a practical objection, quite apart from the normal commercial objections that in certain cases the STG would be disclosing figures which its competitors would not be under an obligation to disclose.

The point must also be made that the STG is not under a statutory obligation to pay its way on each individual service. The obligation relates to services as a whole. There are substantial objections to making these figures known in detail. But I have no objection to the STG doing that if it thinks it sensible, and obviously the group will read what hon. Members have said in this debate.

On the general approach to the Scottish Transport Group, management, and the rest, criticism about remoteness of management is made quite frequently. Recently, having had criticisms made by an hon. Member who is not here tonight, I made a point of asking the group to send me copies of the correspondence. In that case, the complaints had been dealt with very promptly—a good deal more promptly than I deal with letters from hon. Members, I am afraid—in great detail and with great courtesy. It was obvious to me that a great deal of attention had been paid to the complaints. I am not saying that that happens always. But, having made the test, I got very favourable results. I also spoke to the chairman of the STG and arranged for him to meet the hon. Member concerned.

If hon. Members ever feel that they are getting inadequate treatment from the group, I am always willing to make representations, but I am not willing and cannot be expected to take over the rôle of day-to-day management of the group and deal with day-to-day matters which are the responsibility of the group itself. That is not the right kind of relationship.

Many other detailed matters were raised. Reference was made to the cargo boat. All that has happened—

It being one and a half hours after the commencement of proceedings on the motion, Mr. Deputy Speaker put the Question, pursuant to Standing Order No. 3 (Exempted business).

Question agreed to.

Resolved, That the Undertaking between the Secretary of State for Scotland and Caledonian MacBrayne Limited, a draft of which was laid before this House on 2nd July, be approved.