§ Motion made, and Question proposed, That this House do now adjourn.—[Mr. Garel-Jones .]
11.45 am§ Mr. Stephen Ross (Isle of Wight)I offer my apologies to the Minister who is to reply to my Adjournment debate. He has had one false start from me on the subject when, unfortunately, I was unable to proceed with the debate. I have kept him up all night and no doubt he has had to rearrange his appointments, and I apologise to him for that.
I am grateful for the opportunity, even at this hour of the morning, to raise the important subject of the imminent privatisation of Sealink. In addition to myself, many of my constituents—and certainly those who work for Sealink on the Isle of Wight route—are worried about what is happening to their company, and are anxious to know who is to be their future employer.
Although Sealink maintains about 20 passenger services from various ports of the United Kingdom, and other cargo-only routes, I do not believe that any other hon. Member represents a constituency whose whole economy is so dependent upon the frequency, reliability and cost of the shipping schedules of one almost monopolistic operator, Sealink; hence my concern.
As I said in a transport debate on 25 April, in the year ending September 1983, Sealink carried 70 per cent. of the 6.37 million passenger movements to and from the Isle of Wight, 78 per cent. of all car movements, and 70 per cent. of commercial vehicle movements. We have every reason to believe that the percentages have increased markedly since then with the introduction of the two new 150-car capacity roll-on roll-off ferries on the PortsmouthFishbourne route and the transfer of a larger vessel to the Lymington-Yarmouth service. Their only competitor for freight traffic is Red Funnel, operating from Cowes to Southampton, a longer route taking nearly an hour, with a much less frequent timetable and no boats in service during the night hours. We have a very good regular service from Sealink and it goes through the night, particularly during the summer months. We have no regular air operators and the hovercraft does not carry vehicles. Neither does the hydrofoil.
Therefore, I was particularly alarmed by the answer that I received last Friday to a question that I tabled to the Secretary of State for Transport, asking that a report be made to this House before any bid for Sealink is accepted. That request was met with a flat no, despite all the recent comments in the national press about the state of the negotiations and the likely bidders.
Surely the House is entitled to be treated better—and with rather more respect—when public assets are being sold and the economy of a constituency is so vitally affected. I quote some recent national newspaper headlines, such as
Sealink sale fiasco",Seasick SealinkandState to retain a Sealink stake".We do not know what that stake may be. I gather that it refers only to some reserve power should more than 25 per cent. of Sealink's fleet be moved out of United Kingdom waters, which has defence implications. I should like clarification on that point.1334 If the Government were now to decide to retain a substantial holding in the company, due to the present unsatisfactory circumstances surrounding the sale, I believe that that would be highly desirable. At least it would give us some confidence for the future.
It seems to be common knowledge that until very recently there were four serious bidders for the company, Trafalgar House having withdrawn. I am now told on good authority that both Ellerman and Common Brothers are non-starters and are reported to have said so publicly. That leaves us with the National Freight Company and Sea Containers, whose well-known boss is Mr. James Sherwood of Orient Express fame.
Morgan Grenfell, the merchant bankers handling the sale, claims that there are three and a half bidders. It also says that all the bids are conditional, in view of the continuing uncertainty as to important factors affecting the purchase price. I am not quite sure we have three and a half bidders but that is what we are told.
That is why I suggested to the Secretary of State on Monday that he should call a halt to the negotiations and let Sealink get back to the business of running a shipping line, at least for the foreseeable future. I do not expect that he will do that, so 1, must press for assurances before a sale is concluded.
I have said publicly many times that I am not opposed in principle to private investment in Sealink. However, handing over total control to a largely American company, based in Bermuda, raises hackles, and I am sure that that will also be the view of the unions.
Far from confirming the statement in the House on Monday by the hon. Member for Romsey and Waterside (Mr. Colvin), Mr. Jim Slater of the National Union of Seamen, speaking on Radio 4 yesterday, threatened strong action against any sale of Sealink out of the public sector. He made it clear that he would fight such a sale.
However, the Isle of Wight boats are largely manned by members of the National Union of Railwaymen and, until now, they have been prepared to await events. Some would hope to acquire a shareholding, as was provided for in the sale of the NFC.
Surely the 9,633 employees of Sealink are entitled to have some say about their future. To ignore them is to ask for trouble. They have served us well and the men operating the Isle of Wight boats did not respond when they were called out on strike by the NUR a couple of years ago. They suffered in consequence but we were grateful to them. The knew what damage a strike would do to our economy.
I always favoured the consortium approach, not because I have any financial interest—I am never likely to have such an interest—but because it made provision for employee participation, kept the present management together, at least for the time being, and brought in outsiders with a knowledge of the industry and a record of success.
The NFC owns Islandlink, the island's major road haulier, and much will depend on that company's rates being kept within the means of local manufacturers. There is an excellent relationship between the ferry management, the NFC and the local management of Islandlink, and it is vital that we have continuing close co-operation between the ferry operators and the hauliers. That is where the experience of existing staff is of paramount importance.
It is vital to the bigger manufacturers that space is reserved for them on the ferries at particular times of the 1335 day. Our local ice cream manufacturer, based in Ryde, supplies Harrods and we have a laundry that collects dirty clothes from the Army at Aldershot and serves some of the London theatres. Other businesses that may be affected include boat builders and furniture manufacturers, as well as Westland and Plessey. The centre wing-spans of the Short 330 and 360 are made in East Cowes and transported across the Solent and on to Northern Ireland.
Is the through-booking system secure? What about the cheap day tickets, pensioners' rail cards and out-of-season bargain trips? Can my constituents count on the continuation of the discount of between 25 and 35 per cent., according to season, which is available to them if their cars are licensed on the island? What about the arrangements for the work force at Wellworthys who take the Yarmouth ferry to Lymington to work on the night shift and travel at a special rate? No doubt there are many other such interests.
Those are the sort of questions to which we need answers. They may seem mundane, but they are important to everyday life on the island, where the cost and frequency of ferries are major issues. They are raised with me every time I knock on doors during general election campaigns. One cannot reach anywhere on the mainland without catching a boat, hydrofoil or hovercraft.
I remind the Under-Secretary of State of the Secretary of State's statement in the House on 21 May that a prospective purchaser's ability and willingness to extend to the Sealink work force an opportunity to participate in a share ownership scheme would have a considerable bearing on its acceptability. I trust that that still holds good today. However, I do not deny that there is room for improvement in the management of the boats. Worker participation is the best way to achieve more efficiency.
The consortium gave the following undertakings to the British Railways Board. First, it will develop the company as an entity and not split it up. Secondly, it will continue its present flag registration policy. Thirdly, existing employment rights, including pension entitlement, will be fully safeguarded. Fourthly, the concessionary travel rights to existing employees will be maintained. Fifthly, the special relationship with British railwaymen will be maintained and secured by contracts. Sixthly, after the acquisition, a prospectus should be issued to the Sealink United Kingdom staff, who will be invited to subscribe for 20 per cent. of the equity on advantageous terms. It also undertook to elect a shareholder director from the Sealink United Kingdom staff following the issue of shares to them.
How do we know that another buyer will not split up the organisation? I believe that it is a requirement—I cannot confirm it — that the Irish routes are to be maintained although they are losing money. A person getting a bargain purchase could do very well by selling off the profitable routes— largely those to the Isle of Wight—surplus ships and harbour facilities. The Isle of Wight county council has tried time and again to establish whether the island's services could be separately tendered for. The answer has always been no. If the Government changed their mind, a local consortium could be established to take them over. It would be infuriating, to put it mildly, if that option were offered to us by an American at a later date.
1336 When we applied to British Rail, and later to its merchant bankers, Morgan Grenfell, for a copy of the sales prospectus, we were refused and the door to a local approach to a split-up has remained firmly closed. No doubt the Secretary of State will receive a recommendation from the British Railways Board within the next few weeks. I ask the Under-Secretary of State to look after and protect the interests of my constituents when that day of decision arrives. He knows my constituency and visited it recently. I am sure that he will give me those assurances today.
§ The Parliamentary Under-Secretary of State for Transport (Mr. David Mitchell)I welcome this opportunity to report to the House the latest position on the privatisation of Sealink. I also recognise the particular importance which Sealink has to the hon. Member for Isle of Wight (Mr. Ross) and his constituents, so I shall try in the time available to me to deal with as many as I can of the specific points he has raised on the Isle of Wight.
First, it might be helpful if I briefly recall the background to the privatisation policy on Sealink, and the reasons which underlie it.
The hon. Gentleman first raised the matter some months ago. I am glad that he has recovered from the indisposition, which prevented him on that occasion from bringing the matter before the House. We have both waited a long time for this debate.
I shall first describe the background. With a turnover of £260 million, Sealink UK Ltd. is one of Europe's largest ferry companies. It operates 40 ships on 23 routes around the United Kingdom. It owns seven major harbours — Folkestone, Heysham, Holyhead, Newhaven, Parkeston Quay (Harwich), Stranraer and Fishguard — and several other smaller harbours and piers.
Sealink UK Ltd. was formed in 1979 as a Companies Act subsidiary of the British Railways Board to take over the board's shipping and harbour undertakings. Although these undertakings originally evolved from the ferry services provided by the railways for "classic"—that is, foot-passengers, Sealink has or some years now been one of the leaders in the accompanied car and roll-on/roll-off freight markets. More recently it has also taken a major share of the rapidly developing coach market. So while rail-generated traffic remains an important part of Sealink's business, it has long since ceased to be the major part of its activities.
It was against this background that the British Railways Board and the Government agreed, in 1980, that Sealink should be transferred to the private sector at the earliest suitable opportunity. The board and the Government took the view that Sealink would benefit both from the commercial freedom which private sector status would bring and from access to private capital to carry out the investment it needs to compete successfully with the private sector ferry companies. I shall discuss in a moment the investment which I know concerns the hon. Gentleman. The board also saw advantages to the railway from the privatisation of Sealink, since it will allow the board to concentrate its resources — financial and managerial—on the main railway business. In terms of the board's external financing requirement, which includes the total investment in leased assets, as well as the cash requirement, there were sums which the railway could well have used itself in years when the external 1337 financing limit was a major restraining factor influencing railway policies on investment. Looking ahead, Sealink has been planning to invest more than £20 million a year during the next few years. British Rail saw no reason why investment on that scale in a commercial shipping business needed to come from within the railway's investment resources.
Those reasons were fully debated in 1981 when the Transport Act of that year was considered by the House. that Act gave the board the necessary powers to sell the shares in its subsidiaries, including Sealink. Ministers explained to the House then that British Rail would be in the lead in devising the method and timing of privatisation to suit the needs of each business, although, in the case of a sale of shares in a subsidiary, the Secretary of State's consent would be required to the eventual sale.
The Board set up British Rail Investments Ltd. to act as a holding company for the subsidiaries to be privatised, and to spearhead the privatisation programme. So far, by its efforts, the railway has disposed of its interests in hotels, in hovercraft, and in more than £200 million of non-operational property. In the case of Sealink the scope for privatisation has depended on the completion of two major tasks. First, the management of Sealink had to return the company to profit, after a number of years of losses. Sealink's 1983 accounts recorded a profit for the first time since 1979. The second task was to carry out the necessary separation of Sealink from the railway, and to put the continuing commercial relationship between the two organisations on a contractual basis. That has proved to be a very major task indeed, since the shipping activities had been closely intertwined with the operations of the railway. The relationship was built up over 100 years or more.
Railway services on an internationally agreed timetable to meet boats must be scheduled into many harbour slots. Accounting arrangements must share the ticket income between several international railways and Sealink. Railway lines run right into the harbours. Inevitably, there are difficult problems in settling the demarcation of property and of responsibility. Sealink has shared British Rail's financial services, telecommunications, computing, police and medical services. Several dozen contracts had to be drawn up to put all those arrangements on an arms-length basis. The process has taken appreciably longer than British Rail had originally hoped, and the task proved to be even bigger than it had foreseen. It has certainly taken longer than I expected. The hon. Gentleman will understand that in view of our discussions last year.
Following discussions with the Government on the possible options for the method of sale, the railways board, at the beginning of this year, decided to sell the company by tender to a commercial buyer. This method of sale allows the potential purchasers access to much more of the commercial information about the company than could be provided in a flotation. Thus, although a flotation would only become feasible once a consistent profit record has been established, a commercial sale will allow bidders to assess the underlying worth of the company at a much earlier stage. The board took the view—which we fully supported — that the company urgently needed the investment and commercial stimulus which private sector status would bring.
The board's merchant bank, Morgan Grenfell and Co. Ltd., invited expressions of interest in purchasing the company in March of this year. As a result, about a dozen 1338 parties stated that they had such an interest, including several major companies with shipping interests and a consortium which included Sealink's own management, as mentioned by the hon. Gentleman. Detailed discussions then took place between Morgan Grenfell and those parties. They were provided with an information memorandum about Sealink and, in the light of that, those bidders who remained keen to proceed were subsequently supplied with complete information about the company.
Formal tenders were invited last week and bids were received last Friday. The bids are now being considered carefully by the board in the light of criteria which were explained when offers of interest were invited. The price offered will obviously be a major criterion in deciding the successful bidder. The board and the Government have made it clear that if none of the bids represents an acceptable price for the company, the sale will not proceed. I hope that explains the background to where we currently stand on the privatisation of Sealink.
I come now to the implications for the Isle of Wight, about which the hon. Gentleman expressed concern. He explained Sealink's role on the cross-Solent services and the importance of Sealink's services to the island's economy — for example, to the business community which the hon. Gentleman mentioned — and I congratulate his constituent on successfully selling to Harrods in London and the other businesses that he described.
I have travelled on some of the ferries since taking up my present appointment, and I am sure that the lion. Gentleman will agree that the island is well served by ferries. After all, it has six regular services, two of which have direct railway connections, and three of which provide multi-purpose passenger, car, and roll-on/roll-off freight facilities. Considerable investment has taken place in all the services in recent years, particularly on three Sealink services. Two new car ferries have recently been introduced on to the Portsmouth-Fishbourne route at a cost of £10 million. Each new ship has double the vehicle capacity of the largest of the ships previously operating on the service.
The addition of these new ships allowed the larger of the older vessels to be concentrated on Sealink's Lymington-Yarmouth service, so increasing the capacity there. In addition, a new terminal for the Fishbourne service was opened recently at Portsmouth and new "linkspan" ramps have been installed at Fishbourne and Yarmouth. In total, Sealink has invested over £18 million in its Isle of Wight services in recent years. The hon. Gentleman nods agreement. It is indeed a substantial sum.
I appreciate that the citizens of the Isle of Wight feel sensitive about their communications with the mainland, and the hon. Gentleman attaches particular importance to one set of ferries—the Portsmouth-Ryde route—where the existing vessels are ageing, and where Sealink had proposed investment in replacement ferries. As the hon. Gentleman said, the Government were not prepared to give approval for that investment in the run-up to privatisation.
We discussed this at considerable length in the latter part of last year. We felt that this decision should be taken by the directors of Sealink after privatisation. We took that view largely because the success of the investment — which would have cost nearly £9 million—would have been heavily dependent on a market judgment. There is more than one option. There are fast ferries, as proposed, 1339 but with high amortisation costs, in competition, at least in part, with hover or perhaps with lower-cost slower vessels ordered sooner or later. Commercial decisions must be made, and we felt it right that the decision should be made by the new proprietors of the business.
To be worth while, the new fast ferries would need a dramatic increase in traffic on the Portsmouth-Ryde service, or a willingness of travellers to pay higher fares, or both. The investment was not put forward on the basis that it would reduce the costs of running the service.
There would be some manning reductions but operating costs in total, after taking account of the capital charges, would be higher than at present. Thus, the justification for the investment hinges on the new ships offering a better service and attracting more passengers, some of whom would be prepared to pay a premium fare. That is a significant commercial judgment, and I believe it is right for the new owners to take it.
I emphasise that I recognise that the present ferries on the Portsmouth-Ryde service are old, that they are at risk to breakdowns and that when they are being surveyed in the winter the relief ferry which is brought in is not entirely satisfactory.
I have travelled to the island by this route and I understand the problems. I am certainly not seeking to suggest that the present arrangements can continue indefinitely. Sealink has never suggested to me or my Department that the investment is urgent on commercial grounds. Its investment submission to me read:
Existing ships 'Brading' and `Southsea' are in reasonable condition for their ages, but will require heavy expenditure in 1985, followed by further moderate expenditure in 1990; they could then continue in service until about 1997 (when they would be almost 50 years old) but with considerable risks of major failure occurring and with considerably increasing routine maintenance costs.On the facts as I know them, I think that that was a fair and balanced statement. It was supported by the information that I had received from our own surveyors, who inspect the vessels every year.I ask the hon. Gentleman to consider the problem in the overall context of ferry services to the island. As I have said, there are six regular services and there has been substantial investment by Sealink and others in recent years. On any reasonable assessment, the island is not doing badly for ferry services.
The hon. Gentleman is concerned about the exploitation of the people of the Isle of Wight as a result of the change of ownership. Sealink has operated for some years with a fully commercial remit from British Rail. 1340 There is no reason to believe that a new company, operating also with a fully commercial remit, would take a different view from that of the existing management. We do not know at this stage which of the tenders will be accepted, and this may or may not involve the continuance of the existing management
Mr:. Robert Adley (Christchurch)Does my hon. Friend agree that where companies have been privatised — for example, the National Freight Corporation and British Aerospace — the evidence is that the service, employment and industrial relations have improved? This is an important point that needs to be made
Mr:. MitchellAll that my hon. Friend says is true, but I am sure that the hon. Gentleman is more concerned with the continuity of the service and the assurance that he has sought that there will be no exploitation of his constituents
Mr:. Stephen RossIndustrial relations within Sealink are very good and its relationship with island business is also very good. However, my constituents and I are concerned about the substantial concessions that are made on fares. A concession of 25 to 35 per cent. on a return ticket from the island to the mainland is substantial when one is talking about a fare of £30. We want the Minister to inquire into that practice before the sale of the company goes ahead
Mr:. MitchellI must emphasise that the concessions have been provided by Sealink not merely because it loves the hon. Gentleman or his constituents. The concessions have been provided as a commercial proposition, and there is no reason to believe that a new operator will take a different commecial view from that which has been reflected by the commercial decisions of the existing management. I do not believe that the hon. Gentleman has reason to be concerned on that score.
I hope that I have been able to clarify where matters stand on the privatisation of Sealink. I hope, too, that I have been able to allay the concern that the hon. Gentleman has expressed about the effect of privatisation on ferry services to the Isle of Wight. The Government and British Rail share the hon. Gentleman's wish to end the present uncertainty. We wish to see the successful transfer of the company to the private sector. We believe that this will be to the benefit of Sealink, the railways and their customers, including the hon. Gentleman's constituents on the Isle of Wight.
§ Question put and agreed to.
§ Adjourned accordingly at 15 minutes past Twelve o'clock midday on Thursday 12 July 1984.