Scottish Transport Group (Hansard, 4 March 1987)

§ Mr. Ancram

I have written today to the Scottish Transport Group setting objectives for the group's bus and shipping operations. The objectives are as follows:

OBJECTIVES FOR THE SCOTTISH TRANSPORT GROUP

The Scottish Transport Group's function is to operate road passenger and ferry transport services in and to and from Scotland.

SCOTTISH Bus GROUP

Preamble

The Group's strategic objectives in the provision of bus services are as set out below. In pursuing these objectives the Group's policy (as set out in its document of September 1986 entitled "The Transport Act 1985 and Competition Law Guidelines for Scottish Bus Group Companies") is that financial dealings between the Scottish Bus Group and subsidiary companies will be at arm's length and undertakings have been given on the elimination of cross-subsidy between companies.

In addition the Scottish Transport Group recognises the special obligations arising from its present strength in the bus market in some areas of Scotland. It has therefore given the Secretary of State a number of important assurances concerning the management of its business following deregulation. First, the Scottish Bus Group's financial target — to seek an average annual return of 4 per cent. on average net fixed assets at current cost adjusted to take account of capital grant on an historical cost basis over the period to 1990 — is to be applied to each operating company. Arrangements have been established to allow regular monitoring by the Scottish Development Department. Second, any transfers of assets or loans, including short-term loans between subsidiary companies or between the holding company and a subsidiary, are to be conducted at arm's length. Third, arrangements have been agreed in principle with the Department to ensure that the cash reserves held by the Group will be available to subsidiary companies only on commercial terms.

Objectives

The Group's strategic objectives in the provision of bus services should be as follows:

1. To manage its bus operations as it would do in the interests of private shareholders seeking in particular to retain customer goodwill and to provide efficient profitable services.
2. Subject to objective 1, to provide services in rural areas both through the development of commercial opportunities and in participation in the tendering process, consistent with the framework for achievement of operational objectives set out below.
3. To explore and develop potential new markets and new methods of service provision.

Framework for achievement of objectives

In seeking to achieve the above objectives the Group's plans and actions should be consistent with the following operational policies:-

1. The achievement (year on year) of an adequate return on capital employed in accordance with the financial target set by the Secretary of State.
2. The establishment of a challenging system of cost control including targets for year on year reductions in unit costs.
3. The establishment of arrangements for the regular review of standards of service.
4. The achievement of performance aims agreed with Government.
5. The containment of external financing requirements within the limits set by Government.
6. The proper appraisal of new investments.
7. The provision of regular information to Government in a form suitable for monitoring performance in relation to target and financial limits.

CALEDONIAN MACBRAYNE

Objectives

In relation to its ferry services the Group should pursue the following strategic objectives:

1. To provide services as approved by the Secretary of State in terms of his Undertaking with Caledonian MacBrayne and to make appropriate financial and investment provision for the continuity of these services.
2. To provide economically and efficiently a level and pattern of service which strikes an appropriate balance between costs and revenue and takes due account of local requirements.
3. To exploit opportunities for the development of services for the benefit of both Caledonian MacBrayne and the communities served, having particular regard to the Government's commitment to the economic development of these communities.
4. To seek to develop commerical opportunities outwith the approved (subsidised) services where these opportunities can be met within existing capacity and agreed capital investment programmes.

Framework for achievement of objectives

In seeking to achieve these objectives Caledonian MacBrayne's plans and actions should be governed by the following operational policies:-

1. The need to contain deficit subsidy.
2. The achievement of the financial target set by Government.
3. The achievement of performance aims agreed with Government.
4. The requirement to make proper appraisal of investments.
5. The establishment of a challenging system of cost control including targets for year on year reductions in unit costs.
6. The need to take account of the social and economic needs of the communities served when making decisions on service provision.
7. The provision of regular information to Government in a form suitable for monitoring performance on targets and financial results.