HC Deb 25 July 1979 vol 971 cc831-43

2.36 a.m.

The Under-Secretary of State for Scotland (Mr. Malcolm Rifkind)

I beg to move, That the draft undertaking between the Secretary of State for Scotland on the one hand, and the North of Scotland Orkney and Shetland Shipping Company and the Peninsular and Oriental Steam Navigation Company on the other, which was laid before this House on 12 July, be approved. The Government are committed, through their election pledges, to the survival and prosperity of the Island communities of Scotland and accepts that the cost of sea transport to the Islands is an important factor to this survival and prosperity". It is for this reason that we are at the moment undertaking a thoroughgoing review of the present system of ferry subsidies. When this is complete, which we hope will be by the end of this year, it should be possible to say when and at what cost the Government can honour their manifesto pledge to move towards a road equivalent tariff for ferry charges.

But the world does not stand still and, for a number of reasons, we cannot forgo all action until this review is complete. It seems timely to lessen the burden of sea transport costs, especially freight costs, on the arterial scheduled services between the islands of Orkney and Shetland and the mainland. These are the services from Aberdeen to Lerwick in Shetland and Stromness in Orkney and the short crossing from Scrabster in Caithness to Stromness. They are run by the North of Scotland Orkney and Shetland Shipping Company, a subsidiary of the P and O shipping company.

Shipping services on the West Coast already receive substantial Government aid through the deficit grant paid to Caledonian MacBrayne. But the services to Orkney and Shetland run by P and O operate with no Government assistance at all. They are one of the few remaining major surface transport links in Scotland which run on a wholly commercial basis. But their charges have been a cause of complaint within the islands and this has been reflected in pressures from the islands on successive Administrations for some relief.

The right hon. Member for Orkney and Shetland (Mr. Grimond) and many public bodies and individuals within the islands have pressed for a number of years for some assistance to be given on these routes. This is the purpose of the draft undertaking before the House today. This undertaking would enable the Secretary of State to pay grant to the North of Scotland Orkney and Shetland Shipping Company to enable fare reductions to be made on its services. I must stress that this is not a deficit grant to a loss-making company. It is a direct Government subvention to enable specific fare reductions to be made on the services. The Secretary of State proposes to pay to the shipping company a grant which will be precisely equal to the amount of revenue which it forgoes as a result of making fare reductions requested by my right hon. Friend.

The draft undertaking is laid before the House under section 2(3) of the Highlands and Islands Shipping Services Act 1960. This Act empowers the Secretary of State to make grants to shipping operators in the Highlands and Islands but obliges him to lay a draft undertaking before Parliament and seek the approval of this House if he proposes to make a grant of more than £10,000. In this case the Secretary of State proposes to spend, in this financial year, around £800,000. Parliamentary approval for this expenditure will be sought in a Supplementary Estimate for the Roads and Transport (Scotland) Vote. Pending that approval, the necessary expenditure will be met by repayable advances from the Contingencies Fund. This assistance will be met out of existing public expenditure, and an increase of £½ million will be made to the cash block SDD1. The remaining £300,000 will be paid from savings within the block.

If the undertaking is approved, the Secretary of State proposes to introduce in this financial year an interim scheme of subsidy. A sum of £800,000 will be spent to enable freight charges to be reduced by 35 per cent. for freight going south from the islands and by 12½ per cent. for freight going north to the islands. The subsidy is confined to freight traffic because this was the item to which the islands councils attached greatest priority when the proposals were discused with them. In the view of the Government this will attract the greatest benefit to the islands' economies. The considerably greater rebate is being offered on southbound freight because this will direct most benefit to the islands themselves, especially to the agriculture industry and the many small businesses in the islands on which their prosperity depends.

A starting date of 1 September is proposed for the reductions. This should ensure that the cattle and sheep exported from the islands during the main livestock export season will benefit from the reductions. The proposed scheme will operate until the end of the financial year, that is to say 31 March 1980, and it has been welcomed by the islands councils, which see it as a basis on which to build for the future. Decisions on the level of subsidy for future years must, however, await the outcome of the Government's review of the shipping subsidy system.

I emphasise again that the scheme is designed to give benefit to the islands' communities by reducing the cost of importing by sea. But it also makes a much bigger reduction in the cost of exporting the products of the islands. This will be particularly beneficial to the islands' important agricultural industry, which exports a great deal of its produce to the mainland. The proposals should also have the minimum distorting effect on other forms of shipping, for example the coastal shipping or "puffer" trade which brings bulk cargoes such as coal, oil, timber and building materials into the islands. I understand that the right hon. Member for Orkney and Shetland is concerned that the coastal shipping trade should also be brought within our subsidy arrangements, and I shall be interested to hear any proposals that he may have for doing this so that we may consider them for the future.

While I cannot say what effect these proposals will have on prices in the shops in Orkney and Shetland, I am sure that the reduction in transport costs will have some effect, although I doubt if it will be a significant one. Indeed, a study published last week by the institute for the study of sparsely populated areas, at Aberdeen university, suggested that transport costs were not the main cause of high prices in isolated areas such as the islands. Its conclusion was that com- petition between retailers and the size of the market were the crucial factors in keeping shop prices low.

The arrangement proposed in the draft undertaking is straightforward. The Secretary of State undertakes to pay grant to the shipping company to enable tariff reductions to be made on the services rendered. The company agrees to make specified reductions. The Secretary of State also is empowered to reimburse the company for incidental expenses necessarily incurred. The draft undertaking also makes provision for estimating the likely subsidy to be needed, for accounting for it, and for the company to make information available to the Secretary of State. Provision is also made for the undertaking to be changed or determined.

One important and new feature in the proposed arrangements is that each customer will be able to see just how much help is being given each time he uses the service. Each bill received from the shipping company will identify the commercial price; it will then identify the rebate financed by the Secretary of State and finally the actual price to be paid. This arrangement makes the benefit of the subsidy obvious to all who use the ferries and also, incidentally, makes it very simple for the Secretary of State to calculate precisely how much grant he needs to pay the company at the end of each month. This is an arrangement which I think we may consider for use elsewhere if it proves practicable here.

Finally, before I finish, I should like to compliment the P. and O. shipping company on the great interest which it has shown in the welfare of the islands. It has been extremely co-operative in the discusions which have led to this proposal and has shown a great willingness to enter into the necessary arrangements and a resourcefulness in considering and suggesting ways in which the scheme might work. This shows, I think, that it has the best interests of the islands at heart. I emphasise that it will have no financial benefit from these proposals.

I commend the draft undertaking to the House for its approval.

2.45 p.m.

Mr. George Robert son (Hamilton)

The Opposition welcome the draft undertaking in many ways. Although the Under-Sec- retary of State has come here to put forward the case and explain and outline the subsidy that is to be offered, the draft undertaking is the result of detailed discussions and negotiations that took place between the previous Administration and the people of Orkney and Shetland. Much of the credit for the undertaking should go to my right hon. Friend the Member for Glasgow, Craignton (Mr. Milian), who responded to the views that were put forward by the right hon. Member for Orkney and Shetland (Mr. Grimond) and those expressed to him directly and indirectly by the islands councils in Orkney and Shetland. When the tickets come into the shops, showing the precise rebate on each item, I hope that due recognition for that rebate will be accorded to the former Secretary of State for Scotland.

In welcoming the draft undertaking I should like to make a few general comments. I do not believe that we can take this undertaking, or anything that is debated this evening or this week, in isolation. These matters should be considered and judged against the background of the Government's economic policy. It is incongruous that we are discussing a major subsidy to one part of the United Kingdom after eight weeks of announcement after announcement that the Government were cutting back on support to communities throughout the country. It is particularly incongruous to consider this evening's policy against the background of the cuts that have been announced in transportation on the mainland of Scotland and the reductions that will emanate almost directly from the cuts in local government spending that are proposed for the next financial year.

The Under-Secretary should be reminded of the suggestions that were made by his Department in a document that received widespread publicity in the Scottish press last weekend. It was a so-called secret and confidential document that was not made available to hon. Members or published to the country. It laid the foundation for the major cuts that the Government have proposed in an increasing and substantial way for local authorities. Those who have obtained the document inform me that it contains specific suggestions from the Government about transportation in Scotland. I am told that the document states that auth- orities might also review their payments both for concessionary fares and for support of public transport and the services so supported. It also states that, where appropriate, consideration should be given to introducing or increasing charges. Therefore, on the one hand the Government are claiming credit for reducing the cost of living in one part of the United Kingdom, while on the other hand they are, by their policies, directly indicating an increase in the cost of transportation for those in the rest of the country.

The Government's proposals for roads and transport in Scotland also mean that, as part and parcel of their manifesto commitment to building more dual carriageway roads in Scotland and increasing certain expenditure on roads, the totality of cuts in expenditure on roads and transportation in Scotland will fall with greater calamity on some parts of the country than on others.

A few weeks ago the Secretary of State for Scotland announced in a written answer yet again that his budget for roads and transportation in Scotland was to be cut in this financial year by £4.6 million. This evening the Under-Secretary has announced that as a result of this draft undertaking an additional Supplementary Estimate of £800,000 will be called upon to be met from the Scottish Office Vote. He said that £500,000 of this would be from Supplementary Estimates on SDD1 but that £300,000 would have to be met from savings under the same heading. We think that it is incumbent upon the Under-Secretary this evening not only to announce the good news but for the other people in Scotland, who are to bear the burden of the increased subsidy for Orkney and Shetland, to know where the burden will fall.

If all these miles of new dual carriageway are to be built in Scotland, let the Government and the Under-Secretary tell the people of Scotland who will suffer the largest amount of cuts to allow that additional expenditure to take place.

The House will welcome the news that the Government are to review ferry services. It would welcome it all the more but for the presumption that we can easily make that that sort of review is likely to result only in an overall reduction in Government expenditure on the services described in their election manifesto. It is interesting to compare the Government's attitude in the last few weeks on Government expenditure with so many of the pious sentiments expressed by the Under-Secretary's colleagues in previous debates on similar draft undertakings.

The hon. Member for Aberdeen, South (Mr. Sproat), speaking in the debate on the equivalent draft undertaking for Caledonian MacBrayne Ltd., said: The Opposition accept completely that certain sea routes should be subsidised. We accept the social need and the social cost in principle."—[Official Report, 5 August 1975; Vol. 897 c. 441.] If anyone believed that that was to be the principle underlying the Government's review of ferry services, he would have much greater confidence in the outcome of the review and in its consequences for the people of the islands around the Scottish coast.

When they were in Opposition, a number of the Conservatives' policies tended to indicate that in this matter they would embark upon a policy with what was described by the former Shadow Secretary of State, Mr. Teddy Taylor, as the American anti-trust attitude, with the busting of the services of monopolies around the coasts of Scotland. Yet here we are discussing a draft undertaking, put forward by a Conservative Government, that places a subsidy in the hands of an operator that was being chastised in 1975 in terms that indicated that if it operated in America it would be prosecuted under the anti-trust laws.

The Under-Secretary said that the review that is being embarked upon by the Scottish Office is designed to see how the Government's manifesto commitment to introduce a road equivalent tariff can be implemented. I am sure that many hon. Members on both sides of the House will await with bated breath the Government's announcement of how they will do that while embarking upon a programme of massive and increasing cuts in public expenditure. The calculations that were done by the previous Administration, which I am sure must have been shown to the new Ministers, show that the cost of introducing such a scheme, fine though it is in principle, would be enormous. It will be interesting to find out at that stage how the Government reconcile the reality with their commitment during the 1979 general election. I want to know how it will be done. Who will pay the price for it? At the end of the day, who will have the cuts which seem to be the only way by which the Government will finance the additional cost of their own commitments?

I shall not take too much time at this late hour, but these matters are of more than passing interest. Although there are those on the Government Benches who, as they previously announced, are here only at the behest of the Whips and not out of any interest in the subjects under debate, they should understand that this is an important matter for many people in Scotland beyond those covered by the undertaking under debate. The policy implications of the Government's expenditure cuts have yet to be fully realised throughout Scotland, and I am sure that when their extent is fully comprehended there will be horror at their consequences.

However, I welcome this draft undertaking and the work that has been put into it. I hope that in Orkney and Shetland it will be recognised as part of the previous Government's commitment and policy to strengthen life in the Highlands and Islands of Scotland.

2.56 a.m.

Mr. J. Grimond (Orkney and Shetland)

The first point I make is that it is five minutes to three in the morning. For a Parliament which is about to go on holiday for two and a half months still to be sitting at this time and to have sat until after midnight all this week, discussing matters, for instance in regard to Northern Ireland, of the greatest importance, must give the public the impression that we are utterly incapable of running our own business. For any Government who cannot even run Parliament to pretend to run the country will, I am afraid, only he greeted with total disbelief.

I beseech the Scottish Office—I do not blame Scottish Ministers for it—to make serious representations that whoever runs the business of the House should show some example and evidence of being capable of organising matters in such a way that business gets done in reasonable working time. It cannot be said that our holidays are too short.

I welcome the undertaking. It is notorious that the greatest handicap which my constituents have suffered is that of high freight charges. Although there are criticisms of the present proposals, at least they show that the Government recognise that we are entitled to some help.

The Western Isles receive many millions of pounds a year in help. Up to now we have had no help for the general services to Orkney and Shetland, though it must be said that we have had help over capital works and certain internal services. So this is an important breakthrough and recognition of the needs of my constituents, and for that reason I welcome it.

I gather that the Government have said that they will now embark upon some examination of policy for the future and, in particular, whether they are able to advance to us a road equivalent subsidy. That also I welcome, and I make two or three suggestions for consideration in the review.

First, it is extremely important to us that whatever help is given is available for bulk shipments and for charters, the reason being that many of our most important items of trade, such as cattle, sheep, coal, and so on, are carried by such shipments. Secondly, although £800,000 is not to sneezed it, it is a drop in a bucket compared with what other shipments get and, indeed, compared with what London gets as a subsidy towards its transport.

Thirdly, we want to be assured that whatever subsidy is given goes to the people for whom it is intended and not merely into the general accounts of the P. and O. company. I am sure that the Government have all these matters in mind, if they have much in mind at this time of the morning, and that they will carry them forward into the broad light of day when they embark on further negotiations on the future of the subsidy.

At this time of day I merely say that there is nothing that could be more important to my constituents than some help with freight. Secondly, oil is not an unmitigated blessing. It has increased many costs. There are many who have not benefited from the hard payments that the oil industry is making. When the oil boom runs down we shall be more dependent than ever upon our basic Indus- tries, and they in turn will be dependent to some extent upon freight charges. Thirdly, when negotiations are entered into again—I take it that that will be fairly soon—I hope that the Government will bear in mind that it is the native people whom the subsidies are designed to help, and that they should not be confined to the routine scheduled services but should be extended to charters, bulk shipments and, to some extent, to passenger fares. When the undertaking is brought before the House again, as I trust it will be, I hope that we shall see the fruits of the negotiations.

I accept that the Government have had only a few months in which to deal with these matters. As I understand it, the Government are to enter into further discussions. I hope that the Minister will confirm that. Therefore, the matter will come back to Parliament in due course. In the meantime, I welcome the undertaking as far as it goes.

3.2 a.m.

Mr. Rifkind

With the leave of the House, I wish to reply briefly to the matters raised by the hon. Member for Hamilton (Mr. Robertson) and the right hon. Member for Orkney and Shetland (Mr. Grimond). I thank them both for welcoming the undertaking that the Government are introducing.

First, I respond to the remarks of the hon. Member for Hamilton, who spoke from the Opposition Front Bench. He correctly said that discussions began when the previous Government were in office. He made the interesting suggestion that when tickets are being sold on Orkney and Shetland they should include an expression of gratitude to the previous Secretary of State, the right hon. Member for Glasgow, Craigton (Mr. Milian). That might be fair, but only if included on the ticket were a reference to the responsibility of the right hon. Gentleman for the dramatic increase in the level of charges during his period of office. I do not think that the right hon. Gentleman would wish to take credit without taking responsibility for the many dramatic fare increases that people throughout Britain, and especially on the islands, have experienced over the past five years. Those increases were a major contribution to the very problem that the Government are now trying to solve.

The hon. Member for Hamilton ranged somewhat wide in his remarks. He introduced a reference to what he chose to describe as a secret, confidential document that had been made available to local authorities. That description may have suggested that some exciting revelation was about to be made. However, the so-called secret, confidential document to which he referred was a document circulated to all the members of the Convention of Scottish Local Authorities. As that body includes members of the Conservative Party, the Labour Party and other political parties, I do not think that the Government would have expected the document to remain confidential and secret for very long, if that had been their intention in the first place.

The hon. Gentleman suggested that there was a paradox between the assistance that the Government are giving to Orkney and Shetland and their warnings that fare increases will be necessary on the mainland. We are not suggesting that Orkney and Shetland may be protected from fare increases. We are not saying that an undertaking must be given to this one part of the United Kingdom that, if there are increases throughout the rest of the country, it will not have to take its share of them.

The undertaking recognises—I had assumed that the hon. Gentleman was aware of this—that the level of transport charges to the islands, because of their special geographical position, is dramatically in excess of that elsewhere on the mainland and that a response is required from Government. That is a response which the Government are making.

I turn to the more detailed comments of the right hon. Member for Orkney and Shetland. The right hon. Gentleman began by making some remarks with which I have some sympathy—namely, that it is inappropriate to discuss this undertaking or any other matter at this time in the morning. The Government were anxious that the undertaking should be dealt with before the House goes into the Summer Recess.

The right hon. Gentleman will be particularly aware that the commencement date of 1 September will enable the islands' cattle and sheep exports to benefit from the undertaking. If the Govern- ment had declined to introduce it until after the recess, so that it could be considered at a more reasonable hour, the right hon. Gentleman's constituents would have suffered substantially. I think he will agree that the minor inconvenience that he and I and other hon. Members have experienced is more than outweighed by that consideration.

The right hon. Gentleman referred to the problem of bulk cargoes, which are not included and which will not directly benefit as a result of the undertaking. I made that clear in opening. But the review of the whole question of road equivalent tariff will certainly take this matter into account. We shall try to see whether a response can be made to the specific problems that bulk cargo traffic involves. There is the difficulty that it is far more complex to control the method and the proper level of help to bulk cargo traffic than scheduled traffic as covered by the undertaking. This is a technical rather than a fundamental difficulty in principle. We shall be examining ways in which the matter can be resolved.

The right hon. Gentleman asked for an assurance that the assistance given would be of benefit to the islanders and not to the company operating the shipping services. I thought that I had made it clear that in no way will the company benefit to the tune of even 1p from the assistance that the Government are giving. Every pound given to the company must be met by an equivalent reduction in the revenue that it would otherwise receive in fares paid by members of the public. That is why I paid tribute to the company for having been so co-operative in assisting both the islands and the Government on a matter from which it will have no financial benefit.

This is not a loss-making company. It is not a company which requested this assistance. The assistance is given to meet the needs of the islanders. We are confident that the strict rules laid down in the undertaking will ensure that the benefit goes to those for whom it is intended. The right hon. Gentleman need have no concern about that.

With those remarks, I commend the undertaking to the House.

Question put and agreed to.

Resolved, That the draft undertaking between the Secretary of State for Scotland on the one hand, and the North of Scotland Orkney and Shetland Shipping Company and the Peninsular and Oriental Steam Navigation Company on the other, which was laid before this House on 12 July, be approved.