§ 3.59 p.m.
§ The Minister of State, Scottish Office (Lord Gray of Contin)
My Lords, with the leave of the House, I shall now repeat a Statement being made in another place by my right honourable friend the Secretary of State for Scotland. The Statement is as follows:
§ "With permission, I should like to make a Statement on my proposals for financial assistance in 1984–85 for snipping services to the Scottish islands, and also to announce my conclusions on the future system of shipping subsidy.645
§ "I propose to give deficit grants of £7.2 million to Caledonian MacBrayne and of £0.9 million to the Orkney Islands Shipping Company. These grants will limit the need in both cases for the companies to increase their fares to approximately 5 per cent. overall for the year. I propose also to increase support offered to P & O and to the various bulk shipping companies with whom I have undertakings to allow them to continue to rebate the fares and charges on their services. The rebates are estimated to cost £3.65 million in the case of P & O and £1.6 million in the case of the bulk shippers.
§ "In total, Government revenue support in 1984–85 will amount to some £13.35 million—an increase of 9.9 per cent. over the current financial year, and more than a threefold increase since 1978–79. I hope this will be recognised as an excellent deal for the users of these services, and for the island communities they support.
§ "I am also able to announce today that I have completed my review of the future system of shipping subsidies and have concluded that a change to an RET-based system of subsidy should not be pursued.
§ "I have taken this decision after detailed consideration of the difficult practical issues that would arise if RET were implemented. In particular, full implementation would not distribute the greatly increased subsidy that would be required to where support is most needed. Moreover, since the subsidy system would still have to be adapted to be acceptable to all communities affected by it, the system would not be objective or above dispute. The required adaptations would also increase the cost and there would be considerable confusion during the necessarily lengthy transitional period.
§ "I have also taken into account several other developments since 1979. First, it has become clear that a period of major new capital investment lies ahead, in new ships and in the associated terminals, for both Caledonian MacBrayne services and those serving Orkney and Shetland. There is therefore substantially more public expenditure to be committed on our shipping services than is indicated by the annual revenue grants alone, and it is vital for the maintenance and improvement of these services in the longer term that resources be made available for these capital works. Secondly, I attach much importance to the Monopolies and Mergers Commission's general recommendation that, in the interests of efficiency, Caledonian MacBrayne's fares should be related to costs incurred. This adds weight to the practical objections to RET. Besides offering no encouragement to efficient operation, it would, by stimulating demand, itself increase the need for new investment in shipping capacity. Since the subsidy requirement would be calculated automatically by reference to a formula unrelated to shipping costs, that requirement could change considerably from one year to the next. Sudden increases in subsidy could only be achieved at the expense of other services for which I am responsible.
§ "It is, however, important to have a fares system that is clearly understood. P & O and the bulk 646 shippers are private sector operators who fix their fares and charges on a commercial basis, the charges being rebated with the benefit of subsidy. These arrangements will continue. In the case of Caledonian MacBrayne, the Monopolies and Mergers Commission noted the company's policy that fares on one route should be comparable with those on another, and that a standard fare scale should be adopted consisting of three elements: pier dues, toll charges (reflecting the cost of loading) and distance charges. Such a system should produce a structure of fares tapering with distance. The commission noted that no recent progress had been made with this system and that as a result significant anomalies now exist in the fare structure. They recommended that Caledonian MacBrayne should make renewed progress towards such a system, starting with an up-to-date examination of the structure of costs. I have asked the company to proceed on this basis. The new fares system will take some years to implement fully, but a start will be made in fixing the charges for 1984–85, which the company will be announcing shortly. The result will be a standard fares system which should be more equitable than at present.
§ "Mr. Speaker, the question I have had to address is how, in the light of some significant developments since 1979, we can offer the best long-term guarantee of services to the Scottish islands. My subsidy proposals for 1984–85 together with my substantial capital support to ships and terminals confirm the Government's continuing commitment to the maintenance and improvement of these services."
§ My Lords, that concludes the Statement.
§ Lord Ross of Marnock
My Lords, I think the House should be grateful to the Minister of State for repeating that Statement. It is a very important one indeed, covering not only the current on-going situation in relation to finance but the whole future structure of the support that is to be given to the Scottish Islands, mainly the Western Isles, the Orkneys and Shetlands.
I should like first to deal with the current situation. I do not think anyone could be anything but relieved that the Government have given the measure of support that they have. It does of course mean a 5 per cent, increase, and as to whether that 5 per cent, will be equally divided between freight and passengers we do not know. I hope it may well be possible that in respect of passengers there will not be any increase at all, but we shall have to wait and see. I certainly have no complaint in respect of that.
When the Government go on to tell us that it is a three-fold increase from 1978–79, lots of things have happened since then and there may well be new elements within those subsidies, bearing in mind the much increased traffic in certain of those islands related to oil and the bulk that has now got to be taken up there which would not be considered to be really related to the normal, ordinary life of the people of the Highlands and Islands.
Now, shall I congratulate the Government, or shall I not, on finally having made up their minds about RET? For those of your Lordships who wonder what that means, it is "road equivalent tariff". It has been a 647 war-cry in the Highlands for long enough—and who shouted loudest for it? It was the Government, the Tories. They had it in one of their manifestos—I think it was 1973—but suddenly they have seen the light. There always was a certain amount of confusion about how you interpreted RET; but the Government have now taken belated advice somewhere or other. I fancy that what spelt the doom of RET for the Government, although it will disappoint many of their own supporters, is the fact that it was going to cost more; it was going to stimulate demand, and it might have led to a demand for new ships. If there is any place where you want to stimulate demand and stimulate interest in people to go there, surely it is the Scottish Islands. So if they had turned it down they would have given the worst of all reasons for it. I would ask the Government whether this is the end of it, or whether there is the possibility of some kind of structure, based upon that, which will eventually be put forward.
The other point I should like to raise is this. We are told there is going to be some new kind of structure towards which they will move as regards Caledonian MacBrayne and the Orkney Islands shipping side. What is this going to mean? Any change in that structure may well affect routes, some of which are already threatened. It will affect charges; and I think I am right in saying that at present Caledonian MacBrayne tends to take into account the sparsity and distance of an island and not relate it purely to the cost. In other words, the more popular routes will help to maintain the less popular routes. I hope that flexibility will remain.
The Government cannot blame Caledonian MacBrayne about this, because every year the Secretary of State has to approve the routes and charges, so if there have been any defects in past years they stem from the Secretary of State. I certainly shall hold fire in respect of the new changes until I see what is promised. When will we see the new fares and routes in this coming year? Am I right in thinking that one of the dangers, as we move towards that, is that the less popular and more distant routes will be threatened? But they are still the lifelines of the people; and that is a thing that we have to remember when dealing with future policies in relation to fares and charges.
§ Lord Taylor of Gryfe
My Lords, we on these Benches should like to thank the noble Lord for the Statement made this afternoon, and to congratulate the Minister on achieving a further subsidy for this important service in a period when there is so much talk of Government cut-backs in one way or another. At the same time, I should like to ask one or two questions. I notice that the subsidy to MacBrayne is £7.2 million, while that to P & O is £3.65 million. Both companies carry freight, though MacBrayne carry both passengers and freight. I am wondering how the costings were calculated which provided the £3.65 million subsidy to P & O as against the £7.2 million to MacBrayne, when one considers that MacBrayne has a much more substantial service to the islands and carries a greater number of passengers and freight. It would be interesting to know how those computations were made.
Secondly, I think the Minister will pay tribute to the operational efficiency of MacBrayne, not only because 648 it was able to keep the fares increase to 5 per cent, as a result of the increased subsidy but because it is a reflection of the fact that MacBrayne has been able to contain its costs, which is a very creditable performance in these days.
The Minister might agree that the increased costs which MacBrayne is carrying this year, which necessitate the increase in fares, are due not to operational problems but to the fact that new tonnage has to be depreciated heavily and involves high interest charges, while it is financed under the ship mortgage scheme. If we are looking forward to new investment, which we very much welcome, I should be interested to hear from the Minister what kind of impact there will be on future fares, if there is to be an increasing burden of depreciation and interest in the years ahead with the new and desirable tonnage.
I very much welcome the logic of the decision that the RET system should be departed from and that we should adopt the more logical system which is recommended by the Monopolies and Mergers Commission. The new structure is desirable, is better understood than the RET system and makes for a more equitable distribution.
Finally, may I just echo what the noble Lord, Lord Ross of Marnock, has said? What we are talking about is the lifeline of people in the outer islands, and any increase in fares is a tax on those people. Therefore, I hope that that will be kept in mind. It is their only connection with the mainland. It is their only opportunity for exporting their goods and moving around or back to the mainland. That involves a very substantial social obligation which should weigh heavily in any decision that we make about the future of MacBrayne.
§ Lord Gray of Contin
My Lords, I am most grateful to the noble Lord, Lord Ross of Marnock, and to the noble Lord, Lord Taylor of Gryfe, for their general welcome to the Statement which I have made this afternoon. The noble Lord, Lord Ross of Marnock, acknowledged that the Government have made a substantial investment, and will be making a substantial investment this year, so far as help to shipping services to the islands is concerned. As I said in my initial Statement, the sum is £13.35 million—an increase in real terms of 9.9 per cent.
The noble Lord, Lord Ross of Marnock, asked whether this is the end of the road equivalent tariff. Of course, it would be a brave person who committed his successors in respect of the future, but certainly, so far as we are concerned, we have taken the decision that the road equivalent tariff system should not be proceeded with, and that it should not be proceeded with for a number of reasons which I need not go into now. But the principal issue which determined the Government's final decision was that, although the road equivalent tariff might be a very easy way to conduct our affairs for the future and would undoubtedly bring benefit to some islands, there is no doubt that it would leave others severely disadvantaged. Therefore, the Secretary of State took the view that the selective approach which has been the method over the years was the more desirable to maintain.
The noble Lord, Lord Ross of Marnock, mentioned Caledonian MacBrayne and the Orkney Islands 649 Shipping Company, and said that we would wish to acknowledge their activities, as did the noble Lord, Lord Taylor of Gryfe. I willingly acknowledge the service which they give. So far as the future fares structure is concerned, as the noble Lord rightly pointed out this is subject to the approval of the Secretary of State on a year to year basis. We feel confident, as was acknowledged by the noble Lord, Lord Taylor of Gryfe, that the new structure of fares will be more satisfactory than the road equivalent tariff. Indeed, when we talk about the road equivalent tariff we must recall that as far back as 1980, when the consultative paper was produced, there were a great many people who were unhappy about it, including the Shetland Islands Council, the Western Isles Council, Strathclyde Council, the Scottish Transport Group and a number of other influential bodies.
The noble Lord, Lord Taylor of Gryfe, asked me how the breakdown of the £7.2 million support for Caledonian MacBrayne and the £3.65 million support for P & O was arrived at. If he will bear with me, that is something which I shall write to him about and explain in detail, because I cannot give him that information at this time. Again, I am most grateful to the noble Lords for their welcome of this decision by trie Government.
§ Lord Mottistone
My Lords, is my noble friend able to give some indication of how these grants, which are clearly welcomed by noble Lords opposite, compare with the rather more limited financial support which the Government give to sea transport to the Isle of Wight? It is all very well noble Lords laughing. For these people, too, it is the lifeline. I suspect that the Scottish amounts that we have heard about are proportionately very much larger. I wonder whether my noble friend has any idea of how they compare.
§ Lord Gray of Contin
My Lords, I am, of course, very interested in what my noble friend Lord Mottistone has to say on that subject, but I cannot give him any comparison at the moment. I have no doubt those who read the reports of our deliberations will take note of what he said. If they do not, I shall remind them so that they can write to him. But I must say that I find my responsibilities for the Scottish Islands just as much as I can cope with at one time.
§ Lord Shinwell
My Lords, the Minister may have noted that my noble friend Lord Ross of Marnock expressed doubts as to whether the Government deserve congratulations. On the whole, I think that he ought to give the Government some credit, for this is by no means a new controversy. I doubt whether anybody else in your Lordships' House can recall, as I can, the controversy at the beginning of the century when MacBraynes exercised a monopoly over the Western Highlands traffic and the traffic south of the Highlands. It was one of my tasks, as organiser for one of the seamen's unions, to try to persuade the men on the MacBrayne vessels to become members of the organisation. We had a frightful row with MacBraynes about it, but now something has happened. I am not so sure that past Labour Governments made a very effective contribution, in spite of the remarkable efforts of my noble friend and some of his colleagues. Nevertheless, they made some contribution. There are 650 always bound to be anomalies in connection with shipping, particularly in matters of this kind. On the whole, we might give the Government some credit and hope for the best.
§ Lord Gray of Contin
My Lords, I am most grateful to the noble Lord, Lord Shinwell, for his generous remarks.
Lord Campbell of Croy
My Lords, my memory certainly does not go nearly so far back as that of the noble Lord, Lord Shinwell, but I remember that the MacBrayne monopoly was broken during the early 1970s while I was Secretary of State. Is not the principle of RET being abandoned—many people thought at the time that this principle ought to be fully examined—because, when applied to some sea journeys and some distances, it means that less financial help would be given than would be made available under the existing system?
§ Lord Gray of Contin
My Lords, I am grateful to my noble friend. I remember well the contribution which my noble friend made to the general administration of these services when he was Secretary of State for Scotland. My noble friend is perfectly correct. It would not have mattered how we tried to adjust an RET system; the result would have been that any adjustment would have benefited some areas and disadvantaged others. As the pattern changed in years to come, we could foresee this happening over and over again. It was one of the major reasons for the Government's deciding not to proceed with it.
§ Lord Donnet of Balgay
My Lords, I would ask for a little patience, in the sense that the Minister is having an unusually pleasant experience today when perhaps he had expected an unpleasant one. I should like to take the opportunity to run the narrow line between the interrogative and the assertive. The Minister indicated that the Government have concluded their review of the road equivalent tariff and the implications it will have for the expectations of the islanders both in Orkney and Shetland and in the Inner and Outer Hebrides. The view was forced upon them that the road equivalent tariff led straight to Heaven and carried with it a very substantial reduction in fares on the ferries. There was a Conservative Party promise during the 1979 election that the road equivalent tariff would be put into operation. Quite rightly the Minister said that it has been subjected to so many interpretations that the Government finally decided to abandon it. This will raise many questions. Not only the local authorities but the Highlands and Islands Development Board take a very strong view about it. Is the Minister aware that Caledonian MacBrayne have been investigated by the Price Commission and by the Monopolies and Mergers Commission? Would the Government now allow Caledonian MacBrayne to get on with their work?
§ Lord Gray of Contin
My Lords, I am grateful to the noble Lord, Lord Donnet of Balgay, for his contribution. He is not, perhaps, fully informed on this matter. Even at the outset considerable reservations were expressed about the whole concept of RET. Two of the bodies which the noble Lord mentioned— 651 for example, the Western Isles Council—had great reservations about it, because under RET the southern routes to the Western Isles would have been very adversely affected. The Shetland Island Council shared similar doubts. The noble Lord asked me what this will mean for the people in these areas. It will mean a steady fare structure for them. It means that the capital expenditure from which they will benefit will go ahead. We must bear in mind that until 1979 Orkney and Shetland received no subsidy for their shipping services. They will have £3.5 million for P & O in the coming year and £1.3 million capital assistance towards the refit of the "St. Clair". The Western Isles will similarly benefit. There has been a major breakthrough with the new Hebrides vessel which has recently been announced and the consequential pier works, costing up to £5 million, at Uig, Tarbert and Lochmaddy. Therefore, the commitment which the Government have shown to the islands will be fully appreciated by these islands. It is our intention to make quite sure that they are looked after in a fair and reasonable way.
§ Lord Taylor of Gryfe
My Lords, will the example of Caledonian MacBrayne—of placing their orders in British yards—be drawn to the attention of other companies which may enjoy a subsidy of this kind?
§ Lord Gray of Contin
My Lords, this must be a matter for each and every company to decide for itself, but I have no doubt that the policy of Caledonian MacBrayne will be highlighted by what the noble Lord has just said.
§ Lord Carmichael of Kelvingrove
My Lords, I wonder whether I could press that point, knowing how important it is that the delivery of new ships should hit the correct part of the season. I had the unpleasant experience, in another capacity, of having to defend a ship going to another yard because delivery at the correct part of the season could not be guaranteed. Would the Minister make it clear to the Scottish Office that forward planning, and even forward ordering, should be resorted to, particularly since there is spare capacity in Scottish and British shipyards, bearing in mind always that for these purposes a ship must be delivered at the end of March or at the beginning of April?
§ Lord Gray of Contin
My Lords, my stand on those matters when I was Minister of State for Energy is probably well known. On many occasions I did my utmost to try to persuade people to place orders in British yards. I shall certainly continue to do so, provided always that the prices are competitive and that delivery is guaranteed.