Glenlight Shipping Company

HC Deb 30 November 1993 vol 233 cc1012-20

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Kirkhope.]

10 pm

Mrs. Ray Michie (Argyll and Bute)

I am pleased to have the opportunity to discuss the future of the transport of bulk freight to the Scottish islands. As the Minister knows, that is carried out mainly and significantly by the Glenlight shipping company, which I believe is dedicated to supplying the islands. Of course, other shippers, such as Gardeners, Dennisons and the Easdale Island shipping company, are involved. One could say that they are the last link with the 150-year-old tradition of coastal puffers.

Glenlight employs 50 people, and many more are involved in support services. It is a wholly owned subsidiary of the Clyde shipping company, founded in 1815, which is a privately owned Scottish based and Scottish controlled company. Glenlight operates three coastal freighters and two barge systems—a far cry from the image conjured up by Para Handy and the Vital Spark. Nevertheless, the operation is still of significant importance to the highland economies.

The shipping company provides bulk freight services to, from and within the highlands and islands, and to Northern Ireland. It transports such commodities as coal, salt, building materials, cement, steel fencing and roadstone. It serves islands as far afield as Barra, Canna, Tiree and Lismore, in my constituency. I have received representations from some of those islands in the past week, and I shall quote part of a letter from the community council on the island of Lismore: I am writing to you on behalf of Lismore Community Council to express our concern over the plight of the Glenlight Shipping Company. We feel that the loss of the company would have very serious consequences for the island communities. At present our entire supply of coal along with lime and other bulk materials are supplied to Lismore by Glenlight Shipping Company. The loss of the service would rely in much greater reliance on road haulage and Caledonian MacBrayne Ferries. This would not only put an unacceptable strain on mainland roads and the…ferry service but would inevitably lead to a considerable rise in delivery charges.

Mr. John McFall (Dumbarton)

As the hon. Lady knows, we have a shared constituency interest, and the issue of road transport brings me to my feet. As we know, in the year to 31 December 1992 the Glenlight shipping company recorded 500 transport movements, representing about 55,000 tonnes of bulk freight and 45,000 tonnes of round timber. To move an equivalent tonnage by road would take 5,000 20-tonne lorries, which would use the road that my constituency shares with the hon. Lady's—the Rest and Be Thankful. Can she envisage 1,000 lorries coming down that road every week of the year? Is there not a sound community case as well as an economic case for retaining this subsidy for Glenlight?

Mrs. Michie

The hon. Gentleman makes a valid point. I hope to say more later about the environmental effects. Of course, the hon. Gentleman is absolutely right. The lorries would join the other trucks that cart up and down the roads the oil freight that the west highland railway line lost recently.

Glenlight is a pioneering firm. Together with timber growers and processors, it developed the concept of special barges with roll-on/roll-off flaps to run on to beaches and take large loads of timber, shipping them to Irvine, Workington and Northern Ireland. In fact, two of those landing areas are at Ardcastle and near Carradale in my constituency. The potential for further development of this type of barge transport by sea down the west coast of Scotland is considerable.

The Minister may remember writing to me on 23 February this year. In that letter, he said: The Glenlight scheme is therefore supported by The Scottish Office, the Forestry Commission, private forestry interests, the timber processing industry, Strathclyde and, the Highland Regional Councils and Highlands and Islands Enterprise. The Minister agreed that what the company was doing was worth while.

I understand that the effect of tariff rebate subsidy on the timber barge operation has resulted in land and standing timber values increasing. It has also provided the Forestry Commission's balance sheet with greater than expected timber stocks because remotely located supplies can now be brought to market at a competitive cost.

Glenlight has told the Scottish Office that without increased financial help it can no longer provide private enterprise money to support this lifeline service to the islands. Last year, it suffered a loss of £287,000 with its coasters making some 500 journeys to and from ports in the highlands and islands carrying 100,000 tonnes of cargo, of which 45,000 tonnes were timber.

The problem is that the present level of tariff rebate subsidy, whose purpose is to equalise the price of goods between the Scottish mainland and the islands, does not take proper account of the operating costs of providing that vital service. At this point, I must stress that Glenlight would be extremely reluctant to withdraw its service. Should that happen, we must look at the consequences.

The alternative to the environmentally friendly sea transport is transport by road. That does not bear thinking about. As the hon. Gentleman said, we are talking about huge 20-tonne lorries trucking the freight by ferry and road throughout the highlands and islands, increasing danger, congestion, noise and pollution. Not only would the cost to the island customer rise significantly, putting many such as coal merchants and building firms out of business. The cost of repairs to the damage done to the miles of narrow single-track roads would be much more significant than the cost of the tariff rebate subsidy. "Value for money" is the Government's watchword. That would cease to be so if everything had to be transported by road.

As the Minister knows, the tariff rebate subsidy covers certain goods shipped within the highlands and islands area. The level of subsidy depends on the commodity carried, and ranges from 10 per cent. to 40 per cent.

However, to bring commercial and financial viability to those lifeline freight services, Glenlight would like the Scottish Office to adopt an across-the-board TRS of 40 per cent. without arbitrary capping. It is essential to come to an agreement that includes a longer term programme and allows more certainty and stability for future planning.

Although it is not helpful to carry out such sensitive negotiations under an ultimatum, it can nevertheless concentrate the mind, and Glenlight has been negotiating with the Scottish Office for the past three years.

A report commissioned by the Shetland Islands council entitled "Sea Freight and Passenger Costs Study", produced in March this year by the Maritime Economic Research Centre, says: UK Government support for the services is therefore limited to a tariff reduction scheme, whereby rebates are given to consumers of the transport services on tariffs set commercially by shipping operators, in order to reduce rates to more 'acceptable' levels. Support is therefore targeted at the users of the services, rather than at the operators themselves.

The Minister will be aware of the apprehension and deep sense of unease felt by the islanders and those living at ports on the mainland about the future of Caledonian MacBrayne. I hope that he will not add to it by a lack of commitment to shipping freight services.

Sea freight is just one of the strands—part of the mosaic—in the many efforts being made by Government, local authorities, Highlands and Islands Enterprise, local companies, voluntary organisations and communities to stem the tide of depopulation, to hold the line. On some islands the battle has already been lost. The indigenous people have gone, and with them the language, culture, traditions and the values of their way of life. But others are hanging in there, albeit on a fragile basis, and they are determined to succeed.

That is where the Government come in as an enabler to create the infrastructure that will help them to survive—surely a good example of public and private enterprise working together. The Government owe it to those people on those highland islands to make reparation for what has gone before. The ultimate aim should be to make the islands less dependent on the mainland and more self-sufficient, trading between themselves. That is my vision for the future of the highland islands.

I thank the Minister for listening and hope that he will give a positive answer.

10.13 pm

The Parliamentary Under-Secretary of State for Scotland (Lord James Douglas-Hamilton)

I welcome this debate, and I thank and congratulate the hon. Member for Argyll and Bute (Mrs. Michie) on initiating it. I am glad that the hon. Members for Western Isles (Mr. Macdonald) and for Dumbarton (Mr. McFall) are also present.

The debate gives me an opportunity to answer a number of points that have been made in the press recently about Glenlight Shipping Ltd and to clarify the Scottish Office's position in support of shipping services to the highland and islands area.

Unfortunately, there have been a number of misleading statements about Glenlight's position as a shipping operator on the west coast, the adverse consequences of its possible withdrawal and the Government's commitment to supporting essential shipping services to the islands.

I should first make it clear that the Scottish Office remains committed to providing the financial support for shipping services necessary to maintain and improve economic and social conditions in the islands. Shipping services necessarily play an essential part in maintaining the viability of island communities. In recognition of that, the Scottish Office has greatly increased subsidies for shipping services provided by Caledonian MacBrayne, P and 0 Scottish Ferries and bulk shipping operators from the level of £10.8 million in 1989–90 to £17 million this year. That represents an increase of 57 per cent. over the past five years. In that period, the level of support provided under the tariff rebate subsidy scheme for P and 0 Scottish Ferries and currently nine coastal bulk cargo carriers has risen from £5.3 million in 1989-90 to £9.8 million this year. That represents an increase of 85 per cent. in provision over the past five years.

It might help the House if I were to explain how the tariff rebate subsidy scheme operates. It operates simply on the basis of providing for reductions in shipping operators' normal commercial tariffs. The bulk shipping operator decides on the tariff that will be set on a normal commercial basis for the carriage of a particular cargo. If the cargo and destination are eligible for subsidy under the scheme, he will then reduce the commercial tariff by a percentage decided by the Scottish Office: The Scottish Office then pays subsidy to the shipping operator to compensate for the revenue forgone by tariff reductions. Subsidy of that type directly benefits the islands by reducing the cost of importing essential commodities and of exporting economically important island produce.

The subsidy is not a direct subsidy to shipping operators, although without such support the shipping services could not be provided at a cost affordable to customers in the highlands and islands. The main commodities covered by the scheme are coal, fertiliser, building materials, foodstuffs, animal feeds and, as the hon. Member for Argyll and Bute suggested, timber. Subvention rates on the west coast are 40 per cent. for shipments to the islands and 30 per cent. for island exports.

At present under the scheme, we support P and 0 Scottish Ferries and nine coastal freight carriers, including Glenlight Shipping Ltd. Glenlight is one of five coastal freight shippers operating on the west coast of Scotland that receive support. It is necessary, in discussing the importance of Glenlight's shipping services, to recognise that Glenlight is only one of five coastal freight carriers operating off the west coast.

It is also necessary to recognise that probably 10 times as much freight is carried by commercial vehicles travelling on Caledonian MacBrayne's ferries as is carried by the five bulk shippers operating on the west coast. In recent years there has been on the west coast, with the introduction of modern roll-on/roll-off ferries, a progressive transfer of freight from coastal bulk cargo carriers to roll-on/roll-off ferries. That is a pattern of change that has applied all over the world where roll-on/roll-off ferries capable of carrying commercial vehicles have been introduced.

One of the misleading impressions currently held about Glenlight is that the company's freight services on the west coast are in some sense unique and essential. That is clearly incorrect in the circumstances when there are four other coastal freight carriers providing similar services in the same areas, as well as Caledonian MacBrayne's ferries already carrying approximately 90 per cent. of all freight carried by sea.

Another misleading assumption that has been made is that the withdrawal of one particular company's freight services would necessarily cause a great increase in commercial vehicle traffic on roads in the islands. I have considerable difficulty with that argument. At the moment freight to the islands, such as coal, fertiliser, building materials and foodstuffs, is carried either by bulk shippers or by commercial vehicles on ferries. On the islands, those commodities have to be distributed by commercial vehicles, however they may have been carried to the islands. Therefore, the withdrawal by one company of bulk shipping services would be unlikely to affect substantially either the total volume of freight traffic to the islands or the pattern of distribution by commercial vehicles on the islands.

A third misguided assumption that has been made about the possible withdrawal of Glenlight from operating in the Highlands and Islands Enterprise area is that it would lead to the transport of commodities in smaller amounts by commercial vehicles, and hence to higher costs for carriers and residents of the islands. That in turn would lead to serious economic problems for the islands. As I have already said, four other bulk cargo carriers besides Glenlight operate, all of them receiving financial assistance through the scheme. There is also evidence of considerable excess carrying capacity in the coastal freight market.

In the event of Glenlight's withdrawal, the likely outcome is that one or more of the other bulk shipping operators would carry the cargoes previously shipped by Glenlight, at similar cost.

Mr. Henry McLeish (Fife, Central)

I hope that the Minister will get more positive. Will he confirm that the gist of his remarks so far is to suggest that we do not need Glenlight, and that the Government are happy to watch the market operate and then see the company withdraw from providing a valuable service to the islands?

Lord James Douglas-Hamilton

The hon. Gentleman does not do himself justice. I have made it absolutely clear that large subsidies have been and are being given through the tariff rebate subsidy, which has been greatly increased in recent years. Moreover, there must be a level playing field for all bulk carriers in the islands.

I come now to the heart of the case presented by the hon. Member for Argyll and Bute. Since 1991, Glenlight Shipping Ltd. has made a number of representations to the Scottish Office seeking additional assistance under the scheme. The Department took a number of steps within the scope of the scheme to provide the company with additional assistance. First, the tariff rebate subsidy was restored in 1992 for shipments of timber from remote mainland locations, and the TRS rate for carriage of timber was increased to 40 per cent.

Secondly, Glenlight's entitlement to TRS assistance was increased from £245,000 in 1992-93 to £350,000 in 1993-94 in the light of higher traffic levels forecast by the company.

Thirdly, Glenlight was paid a revenue grant of £200,000 in 1992-93, in addition to TRS assistance totalling nearly £247,000, partly to meet the operating loss incurred that year. The additional assistance given as revenue grant in 1992-93 was made available, exceptionally in recognition of the company's development costs incurred in introducing a specialised tug and barge system for the transport of roundwood logs from remote locations.

Fourthly, the Scottish Office agreed, pending consideration of the company's recent application for additional assistance this year, to meet all eligible TRS claims for November and December in excess of Glenlight's cap level of £350,000 for this year. Officials have had several meetings with the company's directors in 1992 and 1993 to discuss the company's financial difficulties. It has been made repeatedly clear to the company that no commitment can be given to any long-term change in the arrangements in advance of the conclusion of the review of shipping subsidies schemes which is now taking place. But we have already provided the additional assistance that I have described to help the company to continue providing services on the west coast this year.

Although the review is unlikely to be concluded before March next year, Glenlight Shipping has demanded an answer early in December this year to its request for an increase in assistance this year,. from £350,000 to £500,000, and a revenue deficit grant of £625,000—taken together, a sum in excess of £1 million. This assistance is being sought in the present financial year alone. It represents a large amount of funding being demanded by just one bulk shipping operator in the scheme. Also, the demand for revenue deficit grant represents a sort of assistance, different from tariff rebate subsidy, which no other bulk shipping operator receives under the scheme.

In considering Glenlight's case we have to take careful account of the effect on other operators in the scheme, and ensure a level playing field. It would be wrong of the Scottish Office to take any action that would distort competition among shipping operators. Nevertheless, in view of Glenlight's immediate concern about its financial position, the Scottish Office's accounting services unit carried out an investigation into the company's financial and trading position—an investigation recently concluded. It is now urgently considering Glenlight's request for assistance in the light of the accountancy services report, and we expect to decide on the matter in the very near future.

I hope that I have convinced hon. Members that the Scottish Office remains absolutely committed to providing the funding support for shipping services that is necessary to maintain and improve economic and social conditions in the islands. This is evidenced by the wide-ranging review that we are undertaking. I also assure hon. Members that the most careful and urgent consideration is being given to the particular concerns of Glenlight Shipping. However, that consideration must take into account the need for equitable treatment of all shipping operators supported by the scheme. It cannot involve any major change to the present subsidy arrangements in advance of the outcome of the current shipping subsidies review.

That review provides the context in which Glenlight must be considered, and is examining the present arrangements under which financial assistance is being provided for shipping services to Orkney, Shetland and the islands off the west coast of Scotland. We shall also review the options for the future organisation and structure of CalMac, including the scope for introducing private sector participation in the provision of CalMac's services.

The review's main objective is to establish whether it is possible to improve the existing arrangements for providing financial support for shipping services in ways that are consistent with safeguarding the interests of island residents. Achieving greater efficiency and effectiveness in the targeting of subsidies, and hence in the delivery of shipping services, would provide better services for existing users. The study is being carried out by KPMG Management Consultants, which will report to the Scottish Office in the first quarter of next year, and thereafter we shall carefully consider the consultants' findings and recommendations before deciding on action.

I assure hon. Members that the tariff rebate subsidy scheme as it applies to Orkney and Shetland services and to bulk shipping services on the west coast of Scotland is a major element of the review.

Before saying more about Glenlight's specific circumstances, I should like to mention the recent BBC "Focal Point" programme which dealt with Glenlight's present difficulties. I have seldom come across a more misleading and incomplete analysis of an important matter. The programme wholly ignored the fact that as well as Glenlight there are at least four other bulk shipping operators providing services on the west coast. It suggested, in my view erroneously, that the reduction in bulk freight services would lead to more traffic on island roads, and it made scaremongering references to the possibility of increased transport costs for bulk freight.

We shall look at the case with the utmost care, come to a decision as soon as possible, and inform the hon. Member for Argyll and Bute as soon as we have formed a view. In the long term, the consultants' terms of reference are to review all aspects of the present tariff rebate subsidy scheme with respect to shipping services and bulk shipping services on the west coast; all operations of the present deficit grant subsidy system with respect to CalMac; to examine a range of options for the possible introduction of private sector participation, which I have mentioned; and to make recommendations about future shipping subsidies. The consultants are making steady progress with the study. They have had wide-ranging discussions with the shipping companies, local authorities, Highlands and Islands Enterprise, local enterprise companies, users of the services and other interested parties. They have gathered a wide range of material on the schemes and will shortly embark on their examination of options for improving the current arrangements.

I assure the hon. Lady that the tariff rebate subsidy scheme for west coast operators will be carefully studied along with all other aspects of the terms of reference of this important study. We wish to be in the best possible position to take fully informed decisions about the best means of securing the future of the shipping services that are necessary to ensure the social and economic well-being of the islands. We intend the review to examine fully the causes of problems experienced by operators such as Glenlight and, in the light of that examination, to recommend any changes thought to be necessary.

We shall study with the utmost care the remarks tonight of the hon. Member for Argyll and Bute before final decisions on the matter are made.

Mr. McLeish

We need the report.

Lord James Douglas-Hamilton

I have said that the report is due next year.

Glenlight wants a decision on this matter as soon as possible. I shall consider with the greatest care what the hon. Member for Argyll and Bute has said. However, I hope that she will appreciate that one of the subsidies that Glenlight is asking for is not similar to any that has been offered hitherto. That is a point that I am bound to make in this debate, but we shall consider carefully all that the hon. Lady has said tonight.

Question put and agreed to.

Adjourned accordingly at half-past Ten o'clock.