§ The Under-Secretary of State for Scotland (Mr. Michael Ancram)I beg to move,
That the draft Undertaking between the Secretary of State for Scotland and The North of Scotland Orkney and Shetland Shipping Company Limited and the Peninsular and Oriental Steam Navigation Company, which was laid before this House on 19th December, be approved.The Government's commitment to ensure the social wellbeing and prosperity of the island communities in Scotland has been amply demonstrated over the past five years by our policy of increasing materially the level of support for sea transport services. Revenue support has increased threefold since 1979 from £4.2 million to £12.3 million in the current year. Over the period we have not only increased support but widened the coverage of support payments, most notably to include the services to the north isles.In July 1979, the House approved an undertaking between my right hon. Friend the Secretary of State and the North of Scotland Orkney and Shetland Shipping Company, a wholly-owned subsidiary of the P and O Steam Navigation company, the purpose of which was to enable my right hon. Friend to make revenue payments to the company to allow it to reduce fares and tariffs on the arterial scheduled services between Orkney and Shetland and the mainland. Under that undertaking almost £6.6 million was paid in the four years ending in March 1983. In the current financial year payments are likely to total £3.2 million. The reductions currently in force are a 30 per cent. rebate on return tickets bought on the islands and a 15 per cent. rebate on all other tickets. Northbound freight traffic is eligible for a 15 per cent. rebate while southbound freight traffic receives a 50 per cent. rebate. The differential rates for freight subsidy reflect the wishes of the islands councils. In addition, the transport of bulk freight to the islands by coastal shipping companies is eligible for assistance and several shipping companies currently have undertakings with the Secretary of State under which the shipping services they provide receive support, which is also passed on to the customers in the form of rebates on tariffs.
The vessel that provides the main passenger and vehicle ferry link between Lerwick and Aberdeen, the MV St. Clair, is now almost 20 years old. Although the vessel was not built specifically for this route, it has given sterling service over a number of years and is generally held to have served the community well. Because of the age of the St. Clair, the company has been considering what steps need to be taken to ensure that the Shetland Isles continue to receive an adequate service in the future.
To build a new vessel of comparable size to the St. Clair would cost at least £20 million. The revenue that could be earned from the service would be quite inadequate to fund such an investment. An alternative possibility would be to acquire another, but newer, second-hand vessel, but the company would find it difficult to justify investment of the scale required to carry out this option now. A third option, given the suitability of the St. Clair for the Aberdeen-Lerwick route, is to carry out a major refit and programme of enhanced maintenance on the vessel to extend its useful working life by up to 10 years. An independent technical 412 examination of the St. Clair has confirmed the feasibility of such a life extension, and the Government and the company have concluded that this option represents the most cost-effective means of securing the continuation of an adequate sea transport link between Aberdeen and Lerwick. It is, of course, in the fare-paying public's interest as well as that of the company and the taxpayer to achieve the most cost-effective solution.
The full cost of the refit will be about £2.2 million. In addition, there will be extra maintenance requirements that would cost a further £1.3 million over a 10-year period; a total bill of some £3.5 million. The revenue generated by the service could not meet those costs in full. and the company has, therefore, sought assistance from Government. We consider that the extension of the life of the vessel represents a practical means of securing the continuation of this essential service at a reasonable cost to the taxpayer. We therefore propose, subject to the approval by the House this evening of our draft undertaking, to offer the company assistance of up to £1.3 million towards these exceptional costs.
The life extension work falls into three parts. First, there are costs attributable to extraordinary annual maintenance because of the age of the ship. Secondly, there are engineering and other renewals to meet contemporary standards. Thirdly, there is major refurbishment of passenger accommodation.
The company will meet the full cost of the additional annual maintenance of the vessel. The Government propose that grant equivalent to 75 per cent. of the actual cost of the engineering renewals should be made available. The works include new engine crankshafts and liners, stabiliser housings and items such as facilities for disabled people and the refurbishment of the galley and crew accommodation to contemporary standards. In addition, we propose to meet 45 per cent. of the cost of refurbishing the passenger accommodation. The works will include the installation of 23 additional two or four berth cabins, each with en suite facilities, the modernisation of existing passenger cabins and refurbishment of passenger public spaces and the modernisation of the restaurant and cafeteria areas. We believe that with these improvements the St. Clair will provide a first-rate surface link between Aberdeen and Shetland and should also, incidentally, provide an additional attraction for Shetland's tourist industry.
The present undertaking between the company and the Secretary of State to which I have already referred enables my right hon. Friend to reimburse the company for the cost of the reductions in its charges to users. The draft undertaking which is the subject of this evening's debate is based on the current undertaking and I do not therefore propose to go through it in detail. The differences are in paragraphs 7 to 9 which contain provisions to enable the Secretary of State to make advances to the company by way of capital grant. Paragraph 8 limits the amount of capital grant payable in any case to a maximum of 75 per cent. of the actual capital expenditure to be incurred by the company. Paragraph 9 provides that capital grant will not be payable until the facility in respect of which it is paid has been brought into use except that instalments may be paid in advance.
The draft undertaking is laid before the House under section 2(3) of the Highlands and Islands Shipping Services Act 1960. The Act empowers the Secretary of State to make grants to shipping operators in the Highlands 413 and Islands but obliges him to lay a draft undertaking before Parliament and to seek the approval of this House if he proposes to make a grant of more than £10,000. In this case, as I have said, revenue and capital expenditure, to be made available in the current year will amount to some £4.5 million. That sum will be met from existing public expenditure approved by Parliament in the Roads and Transport (Scotland) Vote.
I understand that the arrangements that we have reached with P and O, subject to the agreement of the House this evening, to assist in the refurbishing of the St. Clair, have been generally welcomed in Shetland and I am confident that with the benefit of this refurbishment the ship will continue to provide an excellent service for the Islands. I commend the draft undertaking to the House for its approval.
§ Mr. Jim Craigen (Glasgow, Maryhill)The Minister has been looking at me across the Table for so long today that he probably wants to send me away on a long sea voyage. I hope that it will not be on the St. Clair, in view of the complaints that have been registered about it. I note what he said about the order, which seems to have been broadly accepted on the islands. However, this debate gives us a useful opportunity to comment and to question the Minister on other aspects of shipping services to the isles.
The undertaking subsidises the user rather than the operator. Nevertheless, there has always been a fair amount of anxiety over the lack of publicly available information about the money that is paid over in pursuance of the undertaking. With regard to the refitting of the St. Clair, in view of the Minister's comments about the vessel's extraordinary state I thought that we might be getting a right-to-repair consultation document. There is a substantial element of public investment towards this private sector company's involvement in the vessel's refurbishment. Local opinion would prefer a completely new vessel. I should have thought that, if only to improve the fortunes of the United Kingdom's shipbuilding industry, there might be considerable merit in the Government responding in that way.
As the Minister has been keen to tell us today of his party's fulfilment of its manifesto, would he throw a little more light on the manifesto commitment of the Conservatives in Scotland in 1979 in respect of moves towards a road equivalent tariff? The principle of RET was well buttressed by the excellent report produced by the Select Committee on Scottish Affairs. I am glad that my hon. Friend the Member for Cunninghame, South (Mr. Lambie) has gone back into the Chair of that Select Committee because I heard his praises sung in respect of the report on rural transport and ferries, and it worries me that that report may well be gathering dust in Government circles whilst the Government show a certain dragging of feet over the implementation of road equivalent tariff.
There is no doubt that the Highlands and Islands development board has been particularly keen on seeing the introduction of RET because it recognises with its responsibilities, the significance of transport costs on the economic and social landscape of the Highlands and Islands. I hope that the Government will make more positive moves here. They may get a slight nudge when 414 the Montgomery committee reports, I believe by Easter, on this matter. I am sure it is bound to touch on the issue of shipping services that are such a lifeline to our Scottish islands.
With those comments, I hope the Minister will be able to expand a little more and to reply to the points I have made on the wider issue.
§ Mr. James Wallace (Orkney and Shetland)I welcome this undertaking, which has been generally welcomed in the islands. I have relatively recently fought an election campaign in the islands, and, no matter how many issues were brought up, underlying almost all of them was that of transport.
The cost and the availability of transport is fundamental to the economic and social welfare of the islands. It is also fair to say that P and O ranks along with British Rail almost and our airport services, in that when people find transport does not quite fit their needs or they meet a hold-up or some irritation when making a journey the operator is a target for some criticism. When one takes a step back from an immediate problem, I think one recognises the valuable service that P and O has given and continues to give to the northern isles.
The Minister mentioned the various steps that it is hoped will be taken to refit the ship and the benefit that would provide to tourism in Shetland. I should also like to put in a plug for the Shetlands tourist industry. Not only will the better accommodation give my constituents a more comfortable journey to the mainland, it will encourage more people to go and seek out the delights of Shetland, not just for its natural beauty but also for the specialist interests it has to offer various holidaymakers.
With regard to the Select Committee report referred to by the hon. Member for Glasgow, Maryhill (Mr. Craigen), even at the time when the members of the Select Committee were wending their way by sea from Aberdeen to Lerwick on the St. Clair it was known that in the relatively near future some decision would have to be made about the future of the vessel providing that passenger service and, freight service in terms of whether there would have to be a new vessel or a major overhaul. The Select Committee in its report stated that a major overhaul could be only a temporary measure. It invited the Scottish Office, without any approach from P and O, to undertake its own cost-benefit analysis and to make a comparison between the costs of a new vessel, a secondhand vessel and a major refit.
Now that this proposal has come forward today I hope that the Government will not feel they have done their bit and can lose sight of the problem. I hope that they will continue to keep an eye on it. I hope that they will not necessarily wait for a further approach from P and O, but will monitor the situation and undertake the cost-benefit analysis recommended by the Committee, and at the same time looking into the possibility of a lease-back arrangement, which was another suggestion made in the report of the Committee.
This undertaking not only enables the Secretary of State to make the capital grants to P and O but reiterates the subsidy measures for freight and passenger charges. I do not wish to detract from anything that they have done in this regard since they came to office. While compliments are being handed out, it is also fair to say that it was the right hon. Member for Glasgow, Govan (Mr. Millan) 415 when he was Secretary of State for Scotland who took the initial steps towards providing help for the northern isles shipping, no doubt under great pressure from my predecessor. It was the present Administration who implemented much of the work done by the Labour Secretary of State.
These measures are of considerable benefit to the islanders, not only in reducing the cost of goods coming in but in decreasing the cost of exports from Shetland. As oil development goes over the hump, the native industries of Shetland, such as food production, fishing and knitwear, will depend heavily on relatively low transport costs for their exports if they are to prosper in the future.
I welcome the Minister's undertaking at Question Time today that a statement will be made about the subsidy for 1984–85 in the very near future. I should welcome even more an assurance that there will be an increase in the subsidy. In the past few weeks P and O has announced its intention to increase fares and charges by 7 per cent. That is more than the general rate of inflation, but no doubt the company has to take account of the money that it will have to find for the refit. Nevertheless, in view of that increase, the islanders will be looking for a substantial increase in the subsidy.
The Government are committed to increase the subsidy over a period so that the phasing in of road equivalent tariff will not be such a big jump when it comes and I welcome the Minister's assurance that there will be a statement on RET before too long. I recognise that there are problems in deciding which formula to use and whether there should be a cut-off point, but when the previous undertaking was given on 25 July 1979 by the then Under-Secretary of State, the hon. Member for Edinburgh, Pentlands (Mr. Rifkind), we were told that the Government were
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."— [Official Report, 25 July 1979; Vol. 971, c. 831.]The end of 1979 has been and gone, as has the end of 1980, 1981, 1982 and 1983. We should now welcome a definite commitment to a date for the introduction of road equivalent tariff and specific information about the cost. The islanders will certainly be keeping an eye on the Government to ensure that that pledge is honoured and that it does not disappear, as did the pledge to abolish domestic rates, like snow off a dyke.Finally, from time to time there are complaints—I recall that towards the end of last year the hon. Member for Banff and Buchan (Mr. McQuarrie) complained about this at Question Time — about the amount of money spent on the Highlands and Islands. Quite apart from the citizen's right to earn a living and enjoy a comfortable lifestyle in the place on which he was born and brought up or to move to the islands if he wishes, it must be remembered that transport is quite heavily subsidised in many other parts of the United Kingdom. Many of my constituents own cars and pay the full road fund licence fee although they have very few miles of roads on which to operate. They do not have immediate access to hundreds of miles of motorway. We thus contribute to the national economy as well as receiving the subsidies involved in this undertaking. If the social and economic life of the isles is 416 to be sustained, measures such as this are vital. We are grateful for the present measure and look forward to a new vessel for the route in the not too distant future.
§ Mr. David Lambie (Cunninghame, South)My hon. Friend the Member for Glasgow, Maryhill (Mr. Craigen) said that when inquiring from people in the Shetlands about the order he heard praise being heaped on the Select Committee for its work and on me as its chairman. I think my reputation at that time was enhanced because 1 was the only member of the Select Committee who was still standing when we entered Lerwick harbour in the morning after our journey from Aberdeen.
§ Mr. John Home Robertson (East Lothian)It was not the weather.
§ Mr. LambieNot only had my capacity in whisky drinking equalled that of all the other members of the Select Committee, but I had also built up a tremendous reputation because I had managed to defeat even some of the councillors from Shetland who had accompanied us on the journey. I think that was the basis of our reputation, more than what we did as members of the Select Committee.
The new undertaking between the Secretary of State for Scotland and the Orkney and Shetland Shipping Company Limited replaces the one which has been in force since 1979. The need for a new undertaking is to enable the Secretary of State to make capital grants to P and O
in respect of the acquisition, provision or improvement of a facility".The immediate reason for the new provision is undoubtedly the Government's decision to provide support of up to £1.3 million for a major refit of the Aberdeen-Lerwick vessel, the St. Clair.When the Select Committee on Scottish Affairs undertook its rural road passenger transport and ferries inquiry in 1981–82 it made some relevant points in paragraph 81 of volume 1 of the report; we stated:
However, the return on capital employed by P&O Ferries on the service is comparatively modest, and anxieties were expressed to us that the costs of vessel replacement might eventually lead P&O to withdraw from the service. When we travelled on the St. Clair, which dates from 1965 and is principally used to provide a passenger and roll on/roll off service between Aberdeen and Shetland, we were told that major overhaul or replacement of the vessel would soon be required: overhaul would provide only a temporary solution, and replacement—even by a second-hand vessel—might cost some £12 million.The Minister has stated that the up-to-date estimate is £20 million. Quoting again from paragraph 81, we said:This problem is currently under discussion with the Government.Later in the paragraph we stated:As a first step, however, we recommend that the Government, instead of waiting for proposals from P&O, should forthwith initiate an independent cost-benefit analysis of the alternative methods of meeting the future requirements for a vessel to serve this route, including a comparison between the costs of overhaul and replacement.In our informal discussions as a committee we were told that P and O was principally worried about the St. Chair's ballast tanks and the fact that at that time about £350,000 was needed to put them right. We were also told that this would keep the boat going for perhaps five more years, but would scarcely be worthwhile. The St. Clair dates from 1965, and reservations were expressed by Shetland 417 councillors about a boat of 20 years operating a regular service in the sort of weather conditions that prevail around Orkney and Shetland. In the Secretary of State's reply to the Select Committee he admitted that the St. Clair was then nearing the end of its useful life. If in 1982 the Government were saying that, why are they wasting money now to provide a refit and refurbishment for this vessel?I hope that when the Minister replies he will answer the following questions. Was there a full cost-benefit analysis of alternative methods of providing a vessel for the route, as the Committee recommended? The refit, according to the press notice put out by the Secretary of State, will equip the St. Clair to carry on for "up to 10 years." That was not the advice that was given to us during our investigation. "Up to 10 years" is a canny statement by the Government. Does it mean 10 years? If it means less than that, how much less? In return for this capital assistance, are the Government requiring additional information about P and O's finances over and above the information already supplied under the 1979 undertaking? Throughout our discussions the Shetland islanders wanted to know how much P and O was getting out of providing these services for the Shetland Islands.
It is correct, as the Minister stated, that revenue grants to P and O have risen over recent years, and the Government must be congratulated on that. They have risen from £0.72 million in 1980–81 to £2.5 million in 1982–83, and they are estimated to be £3.3 million in the current year. However, like the hon. Member for Orkney and Shetland (Mr. Wallace), I would like the Minister to tell us the road equivalent tariff as it is directly affected by the order. Will the Minister give the House some information about the level of fares being charged compared with recent years? It is not the increase in subsidy that is important to the Shetland islanders; it is what they are paying in hard cash for the fares. How much have fares risen since the introduction of the last order?
The Committee recommended that all ferry charges should, with effect from 1984–85, be based on road equivalent tariff, which in turn should be assessed on the basis of running costs. We said that if that recommendation were accepted, no special treatment for the north of Scotland service would be required; but that if RET was assessed on the basis of full operating costs, a "cut off' in respect of distances over 80 km would be necessary to avoid the longer routes such as Aberdeen to Lerwick being penalised.
The fact that the new draft undertaking merely continues the previous arrangements for revenue grant and tariff discounts is a further sign that the Government have turned their back on RET and their manifesto promise.
I hope that the Minister will take as much pride in saying that the Government will keep to their manifesto promise as he did in the last debate when he was following their manifesto promise on tenants' rights.
It is worth recalling that in paragraph 72 of its report the Select Committtee commented on the lack of a coherent pattern or strategy underlying the Government's decisions on ferry investments. In their reply the Government said:
the forthcoming need for substantial new investment provides the opportunity for a review of ferry policy … The Government intend to make full use of this opportunity.418 Those where brave words, but the Government have not yet given us any information tonight on the result of this strategy and investigation into ferry policy, not just on these routes but on the west coast routes as well.I hope that the Minister will consider the Select Committee's report again and return in the near future, not with this small order but with answers to the recommendations by the Select Committee, and the decision that the Government will introduce the RET in the next financial year. If the Minister does that, I shall be the first to congratulate him on carrying out the Tory party manifesto not only at the election last year but at the election before that.
§ Mr. John Home Robertson (East Lothian)I support the points made by other Opposition Members. Like my hon. Friend the Member for Cunninghame, South (Mr. Lambie), I was a member of the Select Committee that visited the Shetland Islands during that investigation. I made some friends there during that visit—so many that I returned with my family to spend a holiday there the year after the investigation. Far from having taken just one trip on the St. Clair, as my hon. Friend did, I have taken three trips on it.
The people of the Shetlands will welcome the fact that money is being put in to upgrade the vessel. However, I seriously wonder whether the Government are throwing good money after bad. Will it be cost effective to spend money on revamping the present vessel? It is 20 years old. Those of us who have travelled on it seriously wonder whether it should continue on a regular service in those waters for many more years.
The St. Clair has to travel between Aberdeen and Lerwick not only in the relatively good weather that the tourists experience in the summertime, but in gales, as in the past few months, when the St. Clair has carried vital supplies to the islands. Is that vessel up to the job? Should we not take a more radical approach to the problem and plan to replace the vessel sooner rather than later?
I should like to amplify the points that have been made about fares. As the hon. Member for Orkney and Shetland (Mr. Wallace) said, the St. Clair is the Shetlanders' equivalent of a motorway. It is not much of a motorway, but it is pretty expensive. The Shetland Islands council deserves much credit for what it has done for fares and services on the inter-island ferries. I have travelled on quite a few of them. There seem to be practically no fares on some of them because it is recognised that they are part of the internal road system on the islands. One could argue that that link between Lerwick and Aberdeen is part of the vital linkage with the rest of the transport system of the United Kingdom. We recognise the complication of straight, crude road equivalent tariff for the Shetlands because they are so far away, but there is a serious problem. The islanders have a handicap about which people on the mainland should be concerned. Politicians of various colours, including the Government, have made promises over the years. The people of the islands are entitled to hear something definitive, and to know when the road equivalent tariff or a necessary variation of it will be introduced for the benefit of the Shetland islanders.
§ Mr. AncramWe have had a useful short debate. It is perhaps ironic that a greater welcome was given to my 419 announcement by the hon. Member for Orkney and Shetland (Mr. Wallace), whose constituents will benefit from it, than by other hon. Members from the central belt who did not have such a strong and close interest in it.
The hon. Member for Glasgow, Maryhill (Mr. Craigen) said that he thought that there was a lack of public information on the cost to P and O of providing the service. Full information on costs is available to the Government. In our view, the return is not unreasonable. If the hon. Member looks at clause 13 of the draft undertaking, he will see that it ensures that the Secretary of State can obtain the information that he requires. Public disclosure is a matter for the company. The hon. Gentleman must agree that there is no sign of great public concern about the matter.
The hon. Member also asked about consultation on refurbishment. Essentially, this is a matter of commercial judgment for the company. It must decide on the scale of refurbishment, but the Government are satisfied that the works are appropriate, and that is borne out by the general welcome given to the proposals by the people of Shetland.
A number of hon. Members asked about road equivalent tariff, a question that arose this afternoon during Scottish Question Time. They will recall that I said then that the Government were studying the whole system of subsidies, particularly in the light of the Monopolies and Mergers Commission's report on CalMac. My right hon. Friend the Secretary of State will, I hope soon, be making a statement on this, and it would be improper for me to go into any further detail at this stage.
Some hon. Members continue to suggest that in some way the Government have been dilatory in looking after the interests of the islanders. I have already pointed to the way in which we have considerably increased the subsidies paid to the islands in both cash and real terms. That suggestion comes badly from the mouths of Labour Members, because I understand that during their time in office there were decreases in real terms in the amount of subsidy paid. Even if they are not prepared to recognise that, I am sure that the islanders will.
The hon. Member for Maryhill asked why the Government did not help P and O to buy a new ship for the route. A thorough technical inspection by independent engineers has shown the St. Clair to be in good condition. In P and O's commercial judgment, the most cost effective means of providing an adequate service lay in the refurbishment programme that is now proposed.
Although this is the best solution for the moment, P and O has said that it will take all practicable steps to ensure a replacement vessel when it is considered to be needed. In all these circumstances, the course now proposed by P and O, with the assistance of the Government, is the correct one. That is also P and O's commercial judgment.
The hon. Member for Orkney and Shetland mentioned the 7½ per cent. rise in charges. That increase in fares took place on 1 January. As he will know, the subsidy increased at the same time to take account of the new fare levels. As the hon. Member for Maryhill said, these are not subsidies to the company, but subsidies that are passed on to those who use the service. I hope that will reassure the hon. Member for Orkney and Shetland.
The hon. Member for Orkney and Shetland also asked about the Government's scrutiny of P and O's financial position in relation to these services. The company has 420 given specific assurances that grants from the Secretary of State will not be included in the company's capital for which its commercial rate of return has been set.
The hon. Member for Cunninghame, South (Mr. Lambie) also asked about financial information. If he looks at the terms of the undertaking he will see that the information available to the Secretary of State is all that could be required in the circumstances. On the basis of what is in the undertaking, I hope that the hon. Gentleman will feel that his worry is covered.
The hon. Member asked whether an overhaul was enough. As I said earlier, we decided to take independent professional advice on the condition of the ship. I suspect that the hon. Gentleman's Select Committee was unable to take account of that. The advice was clearly that the ship could continue for five to 10 years, depending on certain work being done. Our economic appraisal of alternative options showed that the refit was the best option. Work on the ballast tanks has already been carried out by the company, and that will not be grant-aided.
I hope that the hon. Member for East Lothian (Mr. Home Robertson) will forgive me, but I have answered hon. Members at length on so many points that his comments have already been covered.
The hon. Member for Cunninghame, South asked whether the St. Clair is ending her useful life, which is the most important question. That was the view of the Select Committee. The subsequent technical appraisal, which was carried out by independent experts, showed that the life of the vessel could be extended by at least five and probably 10 years. The ship offers a good service to the Shetlands. The hon. Member for Orkney and Shetland was right to welcome the undertaking. It fulfils, yet again, the Government's commitment to help improve the quality of life on the islands by transport subsidy. That factor has always been part of the Government's policy.
I hope that the House will support the undertaking.
§ Question put and agreed to.
§
Resolved,
That the draft Undertaking between the Secretary of State for Scotland and The North of Scotland Orkney and Shetland Shipping Company Limited and the Peninsular and Oriental Steam Navigation Company, which was laid before this House on 19th December, be approved.
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