HC Deb 28 October 1994 vol 248 cc885-6W
Mr. Kynoch

To ask the Secretary of State for Scotland if he will make a statement on his decision following the shipping subsidies review.

Mr. Lang

After very careful and detailed consideration of a range of options, I have concluded that the present arrangements for Caledonian MacBrayne represent the most cost-effective and satisfactory way of providing support for lifeline ferry services to the islands off the west coast of Scotland. I am satisfied that CalMac operates economically and efficiently under the present arrangements and provides a service of high quality and reliability.

Of course, there is always room for improvement in financial performance, while maintaining and developing standards of service. Caledonian MacBrayne is making significant efficiency gains under the stimulus of the review and discussions with the company are taking place on the setting of new financial, efficiency and quality of service targets to help sustain the progress.

Following a thorough review of arrangements for financial support for shipping services, I have concluded that the current tariff rebate subsidy scheme for freight and passengers is in need of revision. It is complicated to administer and is not well matched to the present market for passenger and freight services in Orkney and Shetland. First, it does not provide a satisfactory basis on which the long-term viability of the essential passenger service, which also carries accompanied cars and some freight, can be assured. Secondly, it has encouraged the creation of excess subsidised capacity in freight markets, which has led to the under-utilisation of vessels, price instability and uncertainty as to the long-term viability of shipping operators.

Revised subsidy arrangements will be introduced to secure the future of the essential passenger service to and from Orkney and Shetland, in line with the Government's commitment to continued support, where necessary, for shipping services to the islands. I intend, subject to the approval of Parliament and of the European Commission, to change the method of subsidy to a block grant payable: over a period of years in accordance with a contract to operate a specified level of service. In the interim, TRS will continue to be applied to passenger and accompanied car fares.

TRS will also be retained for shipments of livestock from the islands, at a revised level of subsidy. I am confident that these arrangements will ensure that farmers on the islands will continue to be able to get their animals to market without unreasonable transportation costs.

In line with evidence of over-capacity in the supply of freight services, I am satisfied that competition for the carriage of freight, other than exported livestock, is such that subsidies are no longer necessary to enable freight services to Orkney and Shetland to be provided at reasonable cost. These subsidies will be withdrawn with effect from 1 May 1995. Freight rates for all types of cargo are expected to remain close to existing levels.

We are continuing to give detailed consideration to the future arrangements for freight services to the west coast and I shall announce my decisions in due course.

The improvements in security of essential services and in value for money from the Government's substantial support for shipping services to and from the islands, which will be achieved through these decisions, demonstrate the benefits of our decision to carry out the review.