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    <title>Sitting of 12 March 1997</title>
    <dateCreated>Wed, 12 Mar 1997 00:00:00 +0000</dateCreated>
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    <outline id='3195508' text="&lt;i&gt;The House met at half-past Nine o'clock&lt;/i&gt;" title='Preamble' type='link' url='http://hansard.millbanksystems.comhttp://hansard.millbanksystems.com/commons/1997/mar/12/preamble'></outline>
    <outline id='3195511' text='[MADAM SPEAKER &lt;i&gt;in the Chair]&lt;/i&gt;' title='PRAYERS' type='link' url='http://hansard.millbanksystems.comhttp://hansard.millbanksystems.com/commons/1997/mar/12/prayers'></outline>
    <outline id='3195511' text='PRAYERS'>
      <outline id='3195516' text='&lt;i&gt;[Relevant documents: First report from the Scottish Affairs Committee of Session 1995&amp;#x2013;96, on the removal of tariff rebate subsidy on Northern Isles freight (HC 229), and the Government&apos;s response thereto (Cm 3492) &lt;/i&gt;]&lt;br/&gt;&lt;i&gt;Motion made, and Question proposed, That this House do now adjourn.&amp;#x2014;[Mrs. Lait.]&lt;/i&gt;&lt;br/&gt;9.34 am&lt;br/&gt;Mr. William McKelvey: Good morning, Madam Speaker. I am delighted to have this opportunity to debate tariff rebate subsidy. This is an historic event, as it is the first time that the Select Committee on Scottish Affairs, which was formed comparatively recently, has had time on the Floor of the House to discuss a report and the Government&apos;s response. By way of introduction, I shall outline the history of the tariff rebate subsidy scheme in the highlands and islands, so that people who enjoy reading the debate later on may understand what it is about.&lt;lb/&gt;&#x000A;The Highlands and Islands Shipping Services Act 1960 commits Governments to maintaining and improving sea transport services in the highlands and islands, by giving financial assistance to the operators. The Government introduced the tariff rebate subsidy for the carriage of freight to the Northern Isles in 1979.&lt;lb/&gt;&#x000A;The subsidy is intended to reduce the cost of supplying essential commodities to customers in remote highland and island locations and to promote exports. Its primary purpose, according to Highlands and Islands Enterprise, is to sustain the economy of the islands and to retain their populations, which I am sure that the whole House would agree to be a laudable and sensible objective.&lt;lb/&gt;&#x000A;Service users benefited directly by receiving freight accounts net of the tariff rebate subsidy, while shipping operators reclaimed the discounted figure from the Scottish Office. The scheme provided freight rate reductions of 10.5 per cent. on imports to Orkney and Shetland and 47.5 per cent. on exports.&lt;lb/&gt;&#x000A;In 1989, subsidy claims from P and O Scottish Ferries were limited to a fixed amount; in effect, a capping system was introduced. That system was then extended to cover the freight services operated by Orkney Line and Shetland Line from 1991 and Orcargo from 1993. On 1 May 1995, the Scottish Office withdrew the tariff rebate subsidy on freight, with two exceptions: fish meal and fish oil retained tariff rebate subsidy for three years, reducing from 30 per cent. on 1 May 1995 to zero from April 1998; and southbound livestock retained the subsidy, but at a reduced rate of 33 per cent.&lt;lb/&gt;&#x000A;&lt;col&gt;270&lt;/col&gt;&#x000A;The Government argued that tariff rebate subsidy was a flawed system, and initiated a review of the market, to identify better means of supporting the shipment of bulk freight in the future. At that time, the Select Committee on Scottish Affairs decided to investigate the matter. We all enjoyed the visits to Orkney and Shetland, which gave us a great opportunity to hear for ourselves the concerns of the local people about what was happening.&lt;lb/&gt;&#x000A;Some doubts were expressed about the Select Committee&apos;s ability to understand such an intricate subject, but at the end of the day I was happy to hear at least one person say that she was astonished by the scope of the questions that we asked and our obvious knowledge; I must therefore pay tribute to the people who fed us the questions.&lt;lb/&gt;&#x000A;The Government raised specific questions about the level of subsidy paid to the bulk shipping service operators in the Northern and Western Isles, which had increased in real terms from &amp;#x00A3;800,000 to &amp;#x00A3;2.7 million between 1981 and 1995. Tariff rebate subsidy increases with the level of carryings, which has caused the Government to view it as flawed. The Committee felt that they had missed the point. TRS was introduced to help retain population on the islands by improving economic competitiveness and hence the productivity of island communities. It is therefore obvious that, as economic activity increases, with, for example, increased exports, the subvention will also rise. That tariff rebate subsidy increases as economic activity increases might therefore be considered an acceptable outcome.&lt;lb/&gt;&#x000A;The difficulty arises when the tariff rebate subsidy begins to exceed the finite resources that the Government allocate for shipping subsidies, and the capping mechanism is employed. The Government concentrate their attention on the effect of capping on the providers of shipping services&amp;#x2014;the competitive effect&amp;#x2014;but it should be remembered that capping must also ultimately restrict economic activity on the islands, thus adversely affecting island communities&amp;#x2014;the opposite of the intention of TRS.&lt;lb/&gt;&#x000A;The Government have also suggested that TRS encourages excess capacity in the bulk freight market. The Select Committee considered the effect of the removal of TRS on Northern Isles freight, found no evidence for that, and reported accordingly to the House. Bulk shipping services are provided on a tramp&amp;#x2014;rather than a scheduled service&amp;#x2014;basis, as in the ferry sector. That means that bulk shipping capacity tends to arrive in the market only when demand warrants it.&lt;lb/&gt;&#x000A;For instance, the Hay and Company vessel was also employed on other coastal routes around the United Kingdom; it was not used solely for Northern Isles trade. The Government&apos;s suggestion that bulk operators were forced to run under-utilised vessels on Northern Isles routes and that such under-utilisation was subsidised by TRS was not borne out by the facts disclosed by our investigation. TRS applies to the freight rate in respect of cargo carried, not the vessel&apos;s space or the capacity that is provided. Therefore, TRS could hardly be said to create excess shipping capacity in the bulk freight market.&lt;lb/&gt;&#x000A;The concept that TRS is flawed ultimately depends on what the Government&apos;s objective is. Perhaps the Minister will enlighten us when he replies. If the objective is to restrict, or even withdraw, public expenditure in respect of shipping service subsidies, then, far from being flawed,&#x000A;&lt;image src="S6CV0292P0I0143"/&gt;&#x000A;&lt;col&gt;271&lt;/col&gt;&#x000A;it could be argued that Government policy has altered and that they believe that support for bulk shipments is no longer necessary. That is a sensible point at which to turn to examples of how the public sector supports essential passenger and freight ferry services in other European Union countries. The Government may want to consider some of those methods.&lt;lb/&gt;&#x000A;The Spanish Government provide guaranteed funds for ship mortgages, corporate tax allowances for Spanish-registered ships, and exemption from transfer tax and stamp duty, and pay 50 per cent. of the social security contributions of shipping employees. Ferry services to the Canaries, the Azores, Madeira and the French Atlantic possessions are all maintained, in one way or another, with state support. Italy supports its state-owned ferry operator with contributions to vessel costs and a subsidy to cover trading losses. For private operators, the Sicilian regional government reimburses 50 per cent. of the cost of round-trips for tourist cars between Genoa and Sicily.&lt;lb/&gt;&#x000A;The tariff rebate subsidy is flawed only from a certain viewpoint. If it is there to help island communities to compete economically, to survive and to allow people to remain on the islands, it can hardly be said to be flawed, as it clearly fulfils that purpose by aiding the creation of island businesses that specialise in production or consumption of bulk commodities. It is another matter if it is considered flawed because it is an increasing burden on the taxpayer.&lt;lb/&gt;&#x000A;The Government have argued that TRS is flawed because it does not offer value for money to the taxpayer and cannot be sustained in the longer term. That statement suggests that the Government favour restricting, if not entirely removing, the subsidy. I shall wait to hear what the Minister has to say on that. I am glad that the Government have listened to the Select Committee and rejected entirely removing the subsidy. I welcome the Government&apos;s acceptance of the immediate reinstatement of TRS for the carriage of bulk freight to and from Orkney and Shetland and of putting TRS for the carriage of livestock back up from 33 to 50 per cent.&lt;lb/&gt;&#x000A;I am concerned about the four options identified by the Government as alternatives to TRS for bulk freight. The first two options both involve capping. Each would effectively place a limit on the public funds allocated for shipping subsidies. When a cap is introduced, demand for shipping capacity must fall, as must economic activity. The question is one of balance: the quantity of public funds against how much economic activity is needed and desired on the islands.&lt;lb/&gt;&#x000A;The Government&apos;s third option involves completely tendered contracts operating on a geographical basis. That probably means that one or two bulk shipping operators would serve the Northern Isles routes. Curiously, the Government suggest that that would address the problem of excess capacity, a problem that does not exist for bulk freight services in the Northern Isles. Such franchise agreements would be a subsidy to the transport provider, not to the shipper or consignee of goods.&lt;lb/&gt;&#x000A;That was a core issue in the Select Committee&apos;s report. We said that the emphasis of tariff rebate subsidy had changed and had become a subsidy for the transport provider. While the operator would be monitored, it is reasonable to suggest that conflict might arise if market&#x000A;&lt;col&gt;272&lt;/col&gt;&#x000A;freight rates were subsequently increased to take account of a decline in demand or lack of adequate subsidy for a given period.&lt;lb/&gt;&#x000A;Bulk vessels seem to be regarded as homogeneous craft, but companies on Shetland need specialised tankers to transport fish oil. Such services would need to be considered in any franchise scheme and would increase the complexity of that option.&lt;lb/&gt;&#x000A;The fourth option would place the subsidy with the public authorities in the islands, to enable them to purchase their preferred service. It is not certain that all the islands councils would want to bear such a responsibility, although it was made clear to us that Orkney would favour it. Orkney islands council is bidding for the lifeline passenger service to Orkney.&lt;lb/&gt;&#x000A;Another issue of great concern is the Government&apos;s decision not to allow CalMac to tender for lifeline services. The main argument against that is the delay that would be caused in tendering. Our investigation has already caused some delay, but it was worth while, as I am sure the Government agreed when they received our report. A further delay would allow CalMac to tender, which could prove worth while. Even at that late stage, it would not be wise to rule it out. It has been argued that CalMac has an unfair competitive advantage, but the Committee thought that, as it has been found to be as efficient as the private sector by no fewer than three different consultants&apos; reports, it could be more cost-effective to the taxpayer.&lt;br/&gt;Mr. David Marshall: My hon. Friend mentioned the suggestion that CalMac might have an unfair competitive advantage. Could that not apply equally to P and O?&lt;br/&gt;Mr. McKelvey: I was merely saying that the Government had suggested that there was an unfair advantage; I was not saying that. My hon. Friend is right, because the Select Committee strongly felt&amp;#x2014;I put it no higher&amp;#x2014;that there was a very cosy relationship between the Scottish Office and P and O. In effect, P and O has been subsidised at a time of loss, and I shall return to that matter in more detail later in my speech.&lt;lb/&gt;&#x000A;The competitive tendering process has more to do with dogma and a bias against publicly owned, yet&amp;#x2014;as in this case&amp;#x2014;successful operators than with any threat to competition. I am concerned also that the Scottish Office is saying that, as passenger ferries carry freight and livestock, those services do not need to be separately defined as "lifeline". Freight-only services are likely to be provided in line with demand without subsidy; and it was pointed out to the Select Committee that, if new craft were to be introduced on that route&amp;#x2014;as they no doubt will be in the future&amp;#x2014;they might not have freight capacity and might be simply for passengers and cars. That would leave the islanders in a precarious position&amp;#x2014;again, the reverse of what the subsidy was intended to preserve.&lt;br/&gt;Mr. David Harris: I congratulate the hon. Gentleman and the Committee on this interesting report. Is he aware that the Isles of Scilly in my constituency have had no subsidy at all for the operating costs of ferries from the mainland to the islands, or from St. Mary&apos;s to the off islands? Does he think that that is right? Is he&#x000A;&lt;image src="S6CV0292P0I0144"/&gt;&#x000A;&lt;col&gt;273&lt;/col&gt;&#x000A;aware of the considerable resentment of the Scilly islanders at the difference in treatment between the Scottish islands and the Isles of Scilly?&lt;br/&gt;Mr. McKelvey: In all its travels, the Select Committee on Scottish Affairs never had the opportunity to visit the Isles of Scilly. I wish that we had thought of that, as we could have compared the two areas.&lt;br/&gt;Mr. Robert Hughes: We slipped up there.&lt;br/&gt;Mr. McKelvey: Only a certain amount of finance is allowed to Select Committees&amp;#x2014;as you well know, Madam Speaker&amp;#x2014;and we Scots are frugal when it comes to travel. However, the hon. Member for St. Ives (Mr. Harris) raises an interesting point and it is something worth looking at. I am not sure whether there is a need to maintain the population in the Isles of Scilly&amp;#x2014;as there is in the Northern Isles&amp;#x2014;but if so, there is scope for argument that a subsidy should be provided to improve the services to those islands.&lt;lb/&gt;&#x000A;Many matters have been raised, and many hon. Members are anxious to catch your eye, Madam Speaker. The members of the Select Committee who are in the Chamber are now specialists in the area. My hon. Friend the Member for Glasgow, Shettleston (Mr. Marshall) referred to the perceived losses by P and O Scottish Ferries, because of competition, and the loss in market share for freight because of the new entrants to the TRS scheme. Between 1991 and 1992, P and OSF&apos;s financial performance deteriorated by some &amp;#x00A3;4.4 million. During the same period, P and O&apos;s freight revenue fell by only &amp;#x00A3;1.4 million.&lt;lb/&gt;&#x000A;Other factors in the loss of freight revenue were more significant, and I recall that the members of the Select Committee were surprised by them. Higher interest and depreciation charges in respect of replacement ships came to a total of &amp;#x00A3;24 million. During 1991&amp;#x2013;92, P and O undertook the purchase and refit of two second-hand vessels&amp;#x2014;the St. Clair and the St. Ola. In the case of the St. Clair, the cost of &amp;#x00A3;15 million was 50 per cent. more than all investment over the previous five years. The MDS Transmodal report suggested that P and 0 had incurred significantly higher finance charges over that period. Coincidentally, the current cost accounts of Caledonian MacBrayne show a loss of &amp;#x00A3;4.4 million for 1991&amp;#x2014;almost all because of increased provision for depreciation.&lt;lb/&gt;&#x000A;The Select Committee saw the issue of vessel replacement as of central importance to the inquiry, and the report states:&#x000A;&lt;quote&gt;"We believe the dramatic deterioration in profitability experienced by P &amp;amp; OSF between 1991 and 1992 was less as a consequence of the fall in freight revenues than due to an increase in depreciation, interest and other charges related to increased capital expenditure on replacement ships."&lt;/quote&gt;&#x000A;I wish to refer to the recent tendering process for the contracts for supplying ferry and freight services. From the original 18 tenders&amp;#x2014;which did not include Caledonian MacBrayne&amp;#x2014;we are now down to three. There has been a change in the terms of the tendering for contracts, inasmuch as the three remaining firms will now be aware that&amp;#x2014;because of changes in European legislation&amp;#x2014;they would qualify for a 50 per cent. grant towards the purchase of a new vessel. That information was not&#x000A;&lt;col&gt;274&lt;/col&gt;&#x000A;known to the other 15 tenderers, which have since dropped out. That in itself leads me to believe that the Government should reconsider the tendering process.&lt;br/&gt;Dr. Norman A. Godman: On the acquisition of new purpose-built vessels&amp;#x2014;I refer to paragraph 81 of the Committee&apos;s fine report&amp;#x2014;I should point out that, with European funding, the contracts for the building of such vessels would have to be advertised throughout the EU. More important, however, Caledonian MacBrayne has vast experience of designing and running purpose-built vessels to transport goods and people between the islands and the mainland.&lt;br/&gt;Mr. McKelvey: My hon. Friend raises a relevant and helpful point.&lt;lb/&gt;&#x000A;I am nearing the end of my speech. If I may, I shall refer to a recent cartoon that appeared in the papers in the Northern Isles and which summed up the situation as most islanders believe it to be. The cartoon depicts a sporting scene and a stadium with three runners about to take off in a hurdle race. In the outside lane, we see Orkney Ferries, which has limited routes and is involved in the tendering process. In another lane, we see Sea Containers, which has the route from Argyll to Northern Ireland. Both those runners are depicted as quite muscular. P and O, however, is drawn as slightly bent and balding&amp;#x2014;not unlike myself&amp;#x2014;and certainly middle-aged.&lt;lb/&gt;&#x000A;The runners are about to take off at the sound of the starting pistol. The hurdles for Orkney Ferries and Sea Containers are drawn as about 6 ft high, while the hurdle for P and O is about 2 ft high. That encapsulates the feeling in the Northern Isles&amp;#x2014;people feel that P and O is again being favoured by the Scottish Office and that there is a cosy atmosphere between the two. That very much concerns local people.&lt;lb/&gt;&#x000A;We are to have a general election, and my hon. Friends and I hope that it is sooner rather than later. The Government must take cognisance of that fact, and of the fact that most commentators say that there will be a change of Government. We shall have to wait and see. Because of questions about the availability of grant, the Government would be wise to suspend the tendering operation, with a view to reconsidering it after the general election. Perhaps Caledonian MacBrayne might then be given an opportunity to tender, if it so wishes.&lt;br/&gt;9.58 am&lt;br/&gt;Mr. Phil Gallie: The hon. Member for Kilmarnock and Loudoun (Mr. McKelvey) said that this was something of an historic occasion, in that it was the first time that a report by the Select Committee on Scottish Affairs had been debated in the House. However, I believe that the Select Committee has created history since 1992. It was not constituted before 1992, and there was a gap. The hon. Gentleman is the Chairman of the Committee, and I commend him. The Committee has carried out many interesting investigations, and although I have not agreed with him on every occasion, he has always been fair and taken a positive view.&lt;br/&gt;Mr. David Marshall: Is the hon. Gentleman aware that, between 1979 and 1987, the Select Committee on Scottish Affairs produced a number of good reports, and that one of the Chairmen was my hon. Friend the Member&#x000A;&lt;image src="S6CV0292P0I0145"/&gt;&#x000A;&lt;col&gt;275&lt;/col&gt;&#x000A;for Aberdeen, North (Mr. Hughes), who is present today? Does he agree that the reason why there was no Select Committee on Scottish Affairs between 1987 and 1992 was the failure of the Conservative party to provide enough Members of Parliament who were willing to serve on the Committee? Labour Members were only too willing to serve, but the Conservatives prevented the Committee from meeting.&lt;br/&gt;Mr. Gallie: I do not disagree with any of the hon. Gentleman&apos;s comments. Had I been a Member of Parliament before 1992, I should have wanted the Select Committee to be reconstituted, and I have worked pretty assiduously within the Committee since being elected. What happened before 1992 is another matter entirely.&lt;lb/&gt;&#x000A;I want to say to the hon. Member for Kilmarnock and Loudoun that recently we carried out an interesting investigation into community care, and I hope that today&apos;s debate has not slowed efforts to get that report published. I should like to think that I shall be here in the next Parliament to debate that issue on the Floor of the House, because it is vital to Scotland.&lt;lb/&gt;&#x000A;This debate arises from the abandonment in 1994 of the tariff rebate subsidy, albeit in conjunction with maintaining it at a reducing level for fish oil, fish meal and livestock. One pleasing aspect of the Committee&apos;s investigation is the fact that, as a direct consequence, my right hon. Friend the Secretary of State has uprated the TRS for livestock, principally in support of the Kirkwall-Invergordon route. The TRS has been uprated from 33 per cent. to 50 per cent.; I welcome that, and the Government&apos;s comments. The one thing that is not stated in the Government response is whether that is against a fixed time scale. I would suggest to my right hon. Friend or his successor, although I think that he will remain in his post after the general election, that that uprating should be continued.&lt;lb/&gt;&#x000A;The subsidy for Northern Isles services was turned around to the block grant for passenger services, to be competed for by service providers. As the hon. Member for Kilmarnock and Loudoun suggested, in the first instance, that certainly seemed to favour P and O Scottish Ferries and, to a degree, it allowed the company to set its own standards for that service. The results appear to be acceptable and they are welcome to Shetlanders, who receive a regular and extremely good service between the islands and Aberdeen, and there is no doubt that the service suits the commercial interests and tourism industry on Shetland.&lt;lb/&gt;&#x000A;However, concerns about the under-usage of capacity that was identified in the Committee&apos;s report are ignored. One difficulty that the Government must recognise is the difference of opinion between people on Shetland and people on Orkney. An easy answer might be for the Government to come up with additional cash to throw in different ways at the different islands, but I do not believe that that is a practical solution.&lt;lb/&gt;&#x000A;There are other issues in the report on which the Government have acted positively. They have addressed the issue of regulation of maximum freight tariffs within the passenger ferry service contract. However, in addition, we should consider the charges made in respect of cross-subsidy by P and OSF and examine the extent to&#x000A;&lt;col&gt;276&lt;/col&gt;&#x000A;which minimum freight tariffs would be appropriate. I am advised that P and OSF levies a livestock charge on the Invergordon run of &amp;#x00A3;5.15 per head of cattle, which compares with a charge of &amp;#x00A3;17.38 in 1992. Given Orcargo&apos;s charges, the 1992 figure appears to be more appropriate.&lt;br/&gt;Mr. James Wallace&lt;i&gt;rose&lt;/i&gt;&amp;#x2014;&lt;br/&gt;Mr. Gallie: The hon. Gentleman wants to intervene, but it would be better to let me run.&lt;lb/&gt;&#x000A;A start point for contract conditions on block grant might be a maximum freight charge of &amp;#x00A3;5.15 plus an allowance within the contract for an X-factor increase year by year of the inflation rate. That would alleviate fears of predatory pricing, which would drive competition out of the marketplace and leave P and OSF with the world as its oyster. The provision of such a service would be a major factor in the consideration of the contract. Increased TRS on livestock and provision for peak livestock capacity within the passenger contract would be welcomed all round.&lt;lb/&gt;&#x000A;I warmly welcome my right hon. Friend&apos;s decision to reinstate TRS on the carriage of bulk freight. From the minutes of proceedings in the report, it will be noted that my hon. Friend the Member for Eastwood (Mr. Stewart) and I urged that TRS should be amended or revamped, so that livestock and agricultural freight and industrial bulk and semi-bulk freight are covered. Given that the Government have addressed that matter, I am not in a position to complain about the Government&apos;s response to the report.&lt;lb/&gt;&#x000A;I want to quote a letter from Highlands and Islands Enterprise, which&#x000A;&lt;quote&gt;"has been monitoring the prices of a range of goods in Orkney and Shetland following the changes in the Tariff Rebate Subsidy".&lt;/quote&gt;&#x000A;It has determined that&#x000A;&lt;quote&gt;"there have been relatively few changes in prices of goods in Orkney and Shetland which can be linked to the Tariff Rebate Subsidy."&lt;/quote&gt;&#x000A;That is, to the removal of the TRS. That seems to justify to some extent the concentration of my hon. Friend the Member for Eastwood and myself on the bulk freight aspects of TRS. The letter also suggests that&#x000A;&lt;quote&gt;"there are considerable concerns among the Orkney and Shetland business community"&lt;/quote&gt;&#x000A;about the renegotiation of the P and OSF contract and whether that might have an adverse effect. I am sure that my right hon. Friend the Secretary of State will take note of such concerns.&lt;lb/&gt;&#x000A;On the consequences of the reinstatement of the bulk freight TRS, Highlands and Islands Enterprise says:&#x000A;&lt;quote&gt;"This has reduced the price of sand imports from Aberdeen&amp;#x2026; and quarries on Shetland are in a position to resume exports of aggregates."&lt;/quote&gt;&#x000A;Members of the Committee felt strongly about that issue, and we all welcome those findings. We also welcome the fact that the Government have undertaken a bulk freight review, and I have no doubt that its findings will be welcomed.&lt;lb/&gt;&#x000A;Without resorting to a line-by-line analysis of the Select Committee&apos;s report and the Government&apos;s response, I emphasise that my concern is to ensure that maximum advantage is taken for the islanders and the taxpayer of any continuing Government subsidy. I noted the remarks&#x000A;&lt;image src="S6CV0292P0I0146"/&gt;&#x000A;&lt;col&gt;277&lt;/col&gt;&#x000A;of my hon. Friend the Member for St. Ives (Mr. Harris) in respect of the Scilly Isles ferry service, which is not subsidised, and I listened to the response of the hon. Member for Kilmarnock and Loudoun, which referred to falling populations in the Northern Isles. Having been an observer on the Committee&apos;s visits to Orkney and Shetland, I believe that there is a reversal of that process there, with many of the immigrants to the Northern Isles coming from south of the border, although I doubt that few are from the Scilly Isles.&lt;lb/&gt;&#x000A;I do not believe that the matter of livestock and bulk freight can be catered for in any way other than through the TRS system, as currently established. I referred earlier to the time scales in the Government response. However, I have several questions to ask and points to make in respect of the contract for passenger services. I queried from the start the suitability of the present P and O vessels and the philosophy of adapting old vessels for that route. Members of the Committee emphasised that that was a factor. I should like a guarantee that any future contract will ensure availability of stand-by vessels on the route. The under-utilisation factors of the service identified by the Committee should be addressed.&lt;lb/&gt;&#x000A;I want to know why the availability of European regional development fund money has not become known to those who tendered, until this late stage of the tender process. I understand that 18 companies originally tendered. It is only fair, correct, and in the interests of the taxpayer and all concerned, that any of the companies that feel that they could resubmit a bid, given the availability of ERDF funding, be allowed to do so. I ask my right hon. and learned Friend the Minister to take account of the fact that that would be in everyone&apos;s interests.&lt;lb/&gt;&#x000A;I understand that P and O has the lease on the roll on/roll off facilities in Aberdeen harbour. Whoever is the successful bidder for the contract must have open access to that facility; it cannot be blocked by P and O. I well understand that there will be difficulties. There will be a need for regular, timed services, which could be disruptive to P and O if that facility were used, but that facility is much needed for the service that is provided, and the successful bidder must have access to it.&lt;lb/&gt;&#x000A;I find it difficult to understand how the question of cross-subsidy on general freight can be addressed in full. I suggest that, whatever the method used to determine passenger subsidies, a link be made to the level of freight charges currently made and the level of freight volumes currently carried, and a substantial amount of subsidy made if no freight cross-subsidy is to be considered.&lt;lb/&gt;&#x000A;The list goes on, but as the hon. Member for Greenock and Port Glasgow (Dr. Godman) keeps pointing to me and to the clock, I recognise that other hon. Members wish to speak in the debate. I look forward to hearing what they have to say and, above all, to hearing the response of my right hon. and learned Friend the Minister.&lt;br/&gt;10.11 am&lt;br/&gt;Mr. James Wallace: I pay tribute to the Select Committee on Scottish Affairs and its Chairman, the hon. Member for Kilmarnock and Loudoun (Mr. McKelvey), for giving the House, the communities of Orkney and Shetland and those of Scotland as a whole, the benefits of the Committee&apos;s report. The Committee has many pressing needs to consider in addition to this one, so we were very grateful in the islands that its&#x000A;&lt;col&gt;278&lt;/col&gt;&#x000A;members took time to visit the isles to take evidence and to prepare what has been a valuable contribution to the debate.&lt;lb/&gt;&#x000A;That debate has raged since October 1994, when the former Secretary of State, the right hon. Member for Galloway and Upper Nithsdale (Mr. Lang), announced that the tariff rebate subsidy on freight to the Northern Isles would be abolished with effect from 1 May 1995. In the meantime, there was to be a negotiated level of subsidy to P and O Scottish Ferries for its passenger and car services.&lt;lb/&gt;&#x000A;That decision caused outrage among my constituents. The Secretary of State for Scotland got a taste&amp;#x2014;or perhaps an earful&amp;#x2014;of that when he visited Orkney in September 1996. Soon after his announcement, there was controversy about the content of the KPMG consultants&apos; report on which that decision was apparently based. I shall not go over all the ground and ask for the report to be published or ask what was in it and what was kept secret.&lt;lb/&gt;&#x000A;The aspect that caused most anxiety among my constituents was the fact that those who were involved in the delivery of shipping services apart from P and O Scottish Ferries&amp;#x2014;Streamline Shipping and Orcargo&amp;#x2014; were barely consulted by the KPMG consultants. I believe that in both cases the conversations lasted about half an hour and in one case there was a follow-up telephone conversation, which shows how little the consultants had understood in the original conversation.&lt;lb/&gt;&#x000A;There was much dissatisfaction regarding the consultants&apos; report on which the Secretary of State&apos;s decision was based, so it would be valuable&amp;#x2014;although it may be a little late in the day&amp;#x2014;to have the full study that the Select Committee undertook. This time, proper consultation took place with the various shipping lines, with the local authorities, with the local enterprise companies, with the National Farmers Union and with local businesses, which was welcomed and appreciated. It should have been done before.&lt;lb/&gt;&#x000A;In 1993, consultants prepared a report for the Scottish Office, with specific relevance to the Western Isles, evaluating the impact of ferry subsidies. I understand that the study concluded that any variation of subsidy level would lead to fare increases and result in loss of employment in all the main economic sectors in the islands. Notwithstanding that report, the following year the Government went ahead, without evaluating the likely effect on the Orkney and Shetland economy.&lt;lb/&gt;&#x000A;As a consequence of pressure and representations, the Minister agreed to monitor the position in the aftermath of the removal of the tariff rebate subsidy. A report that reflects much of that monitoring and contains an analysis of what has been going on has been prepared by EKOS&amp;#x2014;a firm of consultants&amp;#x2014;and is almost ready for publication. Any advance information that the Minister can give the House today of its contents would be welcome.&lt;lb/&gt;&#x000A;The hon. Member for Kilmarnock and Loudoun emphasised the importance of the subsidy in helping businesses. Partly as a result of the oil industry, my constituents have enjoyed unemployment rates below the Scottish average for several years. Many businesses have been built up, not least around the route between Kirkwall and Invergordon&amp;#x2014;a subject to which I shall return.&lt;lb/&gt;&#x000A;However, if one of the objects of the TRS system and of the fact that the Government and the House approved undertakings that admitted Streamline&amp;#x2014;&#x000A;&lt;image src="S6CV0292P0I0147"/&gt;&#x000A;&lt;col&gt;279&lt;/col&gt;&#x000A;Orkney line and Shetland line&amp;#x2014;and Orcargo to the scheme was to promote competition and allow businesses to develop and benefit from the lower freight charges that resulted from subsidy, to a considerable extent it was a success. We are now in danger of losing some of the benefits that we have enjoyed in recent times.&lt;lb/&gt;&#x000A;Although existing companies may be able to monitor how they might be affected by the change in freight rates, we can never know how many potential firms have not invested there. One of the key factors in any business investment in the isles is transport and its costs, and one cannot tell how many people have been driven away by transport costs.&lt;lb/&gt;&#x000A;The Select Committee rightly said in its first recommendation&#x000A;&lt;quote&gt;"that the sea transport needs of Orkney and Shetland differ significantly and that each island group requires specific sea transport services which meet their particular needs."&lt;/quote&gt;&#x000A;I hope that the Government will bear that in mind when considering the current passenger service.&lt;lb/&gt;&#x000A;There is obvious concern about increased costs. My information is that, during recent months, P and O has increased its published tariffs by 3 per cent., Streamline has done so by 6 per cent. and Orcargo has done so by 18 per cent. I emphasise that those are only the published tariffs.&lt;lb/&gt;&#x000A;The Government have said throughout that they are prepared to impose a ceiling on the amount by which freight rates increase. That would appear to be a ceiling based on published tariffs, whereas the last thing that most people who use the service ever pay is the published tariff. Such has been the competition that, in most cases, there are discounts, and any potential bidder must find out the discounted rates. However, it would be reassuring if the Government were to say today that, when they talk about imposing a ceiling on freight charge increases, they mean a ceiling on what the charges have been in practice&amp;#x2014;the discounted charges, not published rates.&lt;lb/&gt;&#x000A;Concern about the re-emergence of a monopoly flows from that point. In its evidence to the Select Committee, Shetland Islands council, in a conclusion, phrased it very well, when it said:&#x000A;&lt;quote&gt;"The present level of freight tariffs on P&amp;amp;O services are the result of serious competitive pressure in recent years. The unanswered question is whether the creation of a monopolistic operator will be beneficial in the longer term when the memory of competition recedes."&lt;/quote&gt;&#x000A;Competition has managed to reduce prices. In its evidence to the Select Committee, the National Farmers Union for Scotland said:&#x000A;&lt;quote&gt;"Previously, as a monopoly P&amp;amp;O had imposed high tariffs and had been unreceptive to customer requirements."&lt;/quote&gt;&#x000A;There is the important question of maintaining equality in the service, and the re-emergence of a monopoly gives rise to concern. The hon. Member for Ayr (Mr. Gallie) pointed to what might be described as signs of predatory pricing. He referred to the P and O service between Kirkwall and Invergordon, but in fact he meant between Stromness and Scrabster, outward bound. That is an important point, because he almost undermined his argument. The hon. Gentleman cited the much lower prices for cattle now than in 1992.&lt;lb/&gt;&#x000A;&lt;col&gt;280&lt;/col&gt;&#x000A;When I responded to the passenger franchise specification in the new year, I suggested to the Minister that there may be an argument for introducing floor prices to combat predatory pricing. While the Minister was sympathetic to my argument, he responded:&#x000A;&lt;quote&gt;"However after some consideration we decided that this is not a practical option. Pricing floors are difficult to monitor and enforce given the many ways of discounting prices and would no doubt be perceived by the ferry operator as an unacceptable restriction on commercial discretion".&lt;/quote&gt;&#x000A;Nevertheless, I hope that the Minister will be alive to the possibility of predatory pricing and will explain how he intends to monitor it. I understand that the Office of Fair Trading is examining the matter, and perhaps the Minister could tell us the stage that the investigation has reached. One of the problems is the definition of "predatory pricing". However, if a problem is perceived in that area&amp;#x2014;evidence to the Select Committee highlighted such concerns&amp;#x2014;we should know how the Government intend to address it.&lt;br/&gt;The Minister of State, Scottish Office (Lord James Douglas-Hamilton): I welcome the involvement of the Office of Fair Trading in the matter. We understand that, if there were evidence of predatory pricing, it would take strong action.&lt;br/&gt;Mr. Wallace: I am somewhat reassured by the Minister&apos;s response, but the problem will be resolved only by experience over time.&lt;lb/&gt;&#x000A;The loss of routes is also important, particularly the loss of the Kirkwall-Invergordon route. In paragraph 73 of its recommendations, the Select Committee said that it should&#x000A;&lt;quote&gt;"be designated a lifeline freight and livestock route."&lt;/quote&gt;&#x000A;The operation of that route could not be described as opportunistic or as cherry-picking, but that is how the Government refer to it in their response to the Select Committee report when they accuse some operators of opportunism. The route did not exist previously and was built up by Orcargo. It is much favoured by Orkney farmers, and particularly by the auction mart as cattle may be transported from Orkney and down the A9. The scheduled service fits in well with the auction mart&apos;s arrangements. There is concern about the route&apos;s future unless it receives some recognition as a lifeline livestock route.&lt;lb/&gt;&#x000A;I have argued previously that the route should be franchised in its own right. I regret that that argument has not prevailed to date, but it is worth maintaining. The Minister may say that the TRS has been gone for almost two years, and that the Government responded to some extent by restoring the subsidy on livestock and by increasing it slightly&amp;#x2014;it went from 47.5 per cent. to 30 per cent. and then back to 50 per cent. The Government may say, "Orcargo is still there, and you have been proved wrong." However, we could turn that argument on its head, as the Government&apos;s case is based on access capacity, which is the same two years later. I know that Orcargo is finding things difficult. Preserving the route does not necessarily mean preserving a particular company. That route has proved to be of considerable importance, and I hope that it can be franchised and saved.&lt;lb/&gt;&#x000A;The mixture of passengers and livestock has been addressed. In a recent letter to me, the Minister said that he had not heard about that issue before. However,&#x000A;&lt;image src="S6CV0292P0I0148"/&gt;&#x000A;&lt;col&gt;281&lt;/col&gt;&#x000A;I was present at a meeting in September 1995 when the convener of Orkney Islands council told the Secretary of State about his concerns. At present, there is a smaller mix of livestock and passengers on the P and O sailings between Scrabster and Stromness, because most of the livestock travels on the Invergordon route. There is concern that a switch back to livestock on that route would impact on tourism.&lt;lb/&gt;&#x000A;Shetland is worried about the movement of large volumes of livestock at peak times. I am grateful that the Government have acknowledged that point, and confirmed that any specification would require the operators to ensure that there was sufficient capacity to move livestock at peak times.&lt;lb/&gt;&#x000A;One of the continuing concerns in Shetland is the configuration of services. I share the Government&apos;s view, which was expressed in the passenger franchise specification and in their response to the Select Committee, that two vessels are almost certainly needed to serve Shetland if we are to secure daily sailings. However, I am unhappy at the suggestion that only daily sailings five days a week will be required during the winter months. The salmon and fish processing industries would prefer to have daily sailings six days a week in order to ensure that produce gets to market in a good state.&lt;lb/&gt;&#x000A;I hope that the Minister will answer several important questions. Is there an element of cross-subsidy? He has told me that the lifeline freight service might be covered by the fact that the Government are supporting a lifeline passenger service. It has been admitted that there will inevitably be a bias to the existing operators in the tendering process. I endorse the call for a delay and a suspension of the tendering process to allow CalMac to participate. At what stage was European development funding made available to potential bidders? When were they told about it?&lt;lb/&gt;&#x000A;The exercise began when P and O announced that it could not provide new vessels. The Minister has told me that there must be new vessels by 2002 in order to meet the Stockholm agreement on shipping safety. What do the Government have in mind in that regard? Why is the question of new build not focused more clearly in the draft specification?&lt;lb/&gt;&#x000A;As the bidding process proceeds, will the Minister confirm whether he will involve the islands councils in the final decision making? Several aspects of the specification are not hard and fast: qualitative decisions must be made about a marketing plan, timetabling, cleanliness, customer satisfaction and consultation. With the best will in the world, I do not believe that civil servants or Ministers in the Scottish Office can make those qualitative decisions. Those issues intimately affect the life style and the ways of the islands.&lt;lb/&gt;&#x000A;Therefore, I ask that the Government involve the islands councils in evaluating the bids where qualitative issues are at stake. They should also be involved in the monitoring process. The Scottish Office will rely on those councils, the NFU and other operators to assess how well the franchisee is performing.&lt;lb/&gt;&#x000A;The services are vital to my constituency. We suffer the disadvantages of geography. but they can be mitigated. Business development depends on the availability of transport at affordable prices. We want to secure a safe, efficient and cost-effective system of&#x000A;&lt;col&gt;282&lt;/col&gt;&#x000A;transport for freight and livestock as well as for passengers and cars. We do not want to see the re-emergence of a monopoly. I do not believe that the Government have yet responded adequately to the Select Committee report, but we live in hope.&lt;br/&gt;10.27 am&lt;br/&gt;Mr. Andrew Welsh: I shall be brief, as I know that many hon. Members wish to participate in the debate. There is a feeling that the Government have not fully met the specific and important conclusions of the Scottish Affairs Committee, which were designed to be fair and to provide a long-term solution to the problems faced by the people of Orkney and Shetland. I have some specific questions for the Minister, which I hope that he will answer today.&lt;lb/&gt;&#x000A;Do the Government acknowledge that freight is an essential element of the lifeline service? If not, why not? We need an explanation. Is there under-utilisation of the existing P and O ferry fleet, with the consequence that public subsidy is being used to support excess capacity? The Secretary of State has declared that he is not able to deliver what people have asked for because it does not represent what he calls the "best value" for the taxpayer. Will he therefore confirm that the number of vessels operating the services will be reduced in order to prevent a mis-spending of public subsidy? I would like him to be more open about the Government&apos;s intentions so that the people may make a judgment about the fate that awaits them under Government policy.&lt;lb/&gt;&#x000A;The Committee expressed concern that the current interim subsidy arrangement appears to provide no incentive for the lifeline ferry operator to achieve potential operating efficiencies. That concern has not been addressed, and the Minister has a duty so to do.&lt;lb/&gt;&#x000A;The Committee highlighted the fact that the changes have given P and O Scottish Ferries an unfair competitive advantage. The Minister stated in evidence that the expected earnings from freight carrying were based on what he called "reasonable market rates", but the managing director of P and O stated in evidence that "net freight revenue"&amp;#x2014;that is, after the deduction of subsidy&amp;#x2014;was used in the P and O financial model submitted to the Scottish Office. It has been pointed out to me that the market rate should have been construed as the gross freight rate&amp;#x2014;that is, with the subsidy included&amp;#x2014;as that was the actual revenue earned by the operators before the changes.&lt;lb/&gt;&#x000A;The impact of that anomaly was compounded by the fact that P and O Scottish Ferries gave a guarantee as part of the interim arrangement with the Scottish Office that customers would pay the same net rate. That effectively undercut market rates by the amount of subsidy previously applied. Can the Minister justify P and O&apos;s position, or is the accusation of unfair competitive advantage true? I look forward to his detailed response.&lt;lb/&gt;&#x000A;Does the franchise specification favour older, depreciated ships, and hence act against newer vessels&amp;#x2014;&lt;br/&gt;Mr. Robert Hughes: And crews&apos; wages.&lt;br/&gt;Mr. Welsh:&amp;#x2014;and crews&apos; wages, as my hon. Friend says&amp;#x2014;as newer vessels would be less well placed to submit a lower bid?&lt;lb/&gt;&#x000A;&lt;image src="S6CV0292P0I0149"/&gt;&#x000A;&lt;col&gt;283&lt;/col&gt;&#x000A;I have been brief and specific. There is a clearly expressed concern on Orkney and Shetland about the possibility of the creation of a monopoly service. The view from Edinburgh may be different, but the issue affects everyone on the islands and their entire economic and social life. I ask the Government to address the questions specifically and to give the assurances being sought on a matter that is crucial to the future of every man, woman and child on Orkney and Shetland.&lt;br/&gt;10.31 am&lt;br/&gt;Mr. Calum Macdonald: I know that there are still hon. Members who served on the Select Committee who want to speak in the debate, so I shall restrict myself to one point, which concerns the recommendation in paragraph 55 that Caledonian MacBrayne be allowed to tender for the Northern Isles service.&lt;lb/&gt;&#x000A;In the Government&apos;s response on page 6, they say that one of the reasons why they rejected that recommendation was:&#x000A;&lt;quote&gt;"CalMac&apos;s core business activities are the operation of ferry services in the Western Isles and the Government believe it would be detrimental to the efficiency of operations on the West Coast of Scotland to extend CalMac&apos;s responsibilities to the Northern Isles."&lt;/quote&gt;&#x000A;That is not the view of the people in the Western Isles or of the communities that are served by the ferries. We believe that CalMac should be allowed to tender for the Northern Isles routes. We believe that that would consolidate and enhance the services and the provision of CalMac. I hope that the Minister will not use that rationalisation in his reply to the debate.&lt;br/&gt;10.32 am&lt;br/&gt;Mrs. Helen Liddell: I shall be brief, as several of my hon. Friends have posed serious questions to the Minister and we want to give him the utmost opportunity to respond.&lt;lb/&gt;&#x000A;I, like my hon. Friends, congratulate my hon. Friend the Member for Kilmarnock and Loudoun (Mr. McKelvey) not just on his contribution to the debate and on securing it, but on the excellent way in which he has chaired the Scottish Affairs Committee. Before becoming a Member of Parliament, I watched the Committee&apos;s work closely, and I am well aware of the depth of knowledge and expertise that is applied to many significant issues that affect Scotland.&lt;lb/&gt;&#x000A;Through detailed examination of the issues raised in the debate, my hon. Friend the Member for Kilmarnock and Loudoun has done us a great service by bringing down to more simple terms an extremely complex but interesting subject that is of considerable import to the people of the Northern Isles.&lt;lb/&gt;&#x000A;The important point that my hon. Friend made relates to the reasoning behind the Government&apos;s decisions involving ferry services to the Northern Isles. I reiterate his concern about the value judgments that are being applied by the Government in their responses to the Select Committee report. He drew attention to a considerable misgiving that has been articulated to me by people from the Northern Isles, and a point that has been raised by a number of hon. Members today: the close relationship that seems to exist between the Scottish Office and P and 0 Scottish Ferries.&lt;lb/&gt;&#x000A;&lt;col&gt;284&lt;/col&gt;&#x000A;The fact that people from the Northern Isles raise the matter is an important aspect to be taken into account. The people of the Northern Isles require reassurances that their best interests are at the front of Government policy, not some other arrangement that the Government have yet to explain to us.&lt;lb/&gt;&#x000A;The decision, taken by the former Secretary of State for Scotland, the right hon. Member for Galloway and Upper Nithsdale (Mr. Lang), to change the basis of tariff subsidy to the Northern Isles is still questioned. The hon. Member for Orkney and Shetland (Mr. Wallace) drew attention to the consultants&apos; report, over which there is a great question mark. Many of us want more detailed information about the way in which the right hon. Gentleman came to his conclusions on the future of tariff subsidy to the Northern Isles.&lt;lb/&gt;&#x000A;I share some common feeling with my hon. Friend the Member for Kilmarnock and Loudoun about whether the decisions in relation to P and O and the services that it provides to the Northern Isles have some dogmatic origin, rather than being directed to the best interests of the public in the Northern Isles.&lt;lb/&gt;&#x000A;My hon. Friend made a detailed point about the decline in the financial performance of P and O over 1991&amp;#x2013;92. The same point was made by the hon. Member for Angus, East (Mr. Welsh) when he drew attention to the depreciation of second-hand ferries and where they appear in the accounts of P and O.&lt;lb/&gt;&#x000A;Is it not ironic that I, on the Opposition Benches, am challenging the Government about their creation of an artificial monopoly for P and O, and advocating the free market and competition? Adam Smith must be turning in his grave at the Government&apos;s decisions that have led to this cosy relationship with P and O&amp;#x2014;and to &amp;#x00A3;7.6 million being given to the company. It has been allowed to operate with an artificial monopoly.&lt;lb/&gt;&#x000A;In his closing remarks, my hon. Friend the Member for Kilmarnock and Loudoun made a plea for a sensible examination of the situation in the run-up to the general election. That is a reasoned request, and I do not wish to make any partisan point. A general election is looming. There are significant issues to be addressed. The Minister is a sensible man and takes his responsibilities seriously. I urge him to delay decisions on the tendering process to allow the Government elected in the next few weeks&amp;#x2014;whatever the colour of that Government&amp;#x2014;to re-examine the issues.&lt;lb/&gt;&#x000A;The points made in the Select Committee report about the involvement of Caledonian MacBrayne are very serious. I find it bizarre, to say the least, that a publicly owned company has been excluded from the tendering process for Northern Isles ferries. I find it questionable that we discovered the European regional development fund elements only after 15 of the companies that had entered the tendering process had withdrawn.&lt;lb/&gt;&#x000A;The cynicism of the people of the Northern Isles and the rest of Scotland must be addressed. The best way to do that would be to take the issue out of the fevered run-up to the general election and allow a more reasoned re-evaluation. That would provide an opportunity to re-evaluate the Kirkwall-Invergordon ferry as well. We must seek a resolution to the difficulties that have arisen in the case of the Northern Isles that takes into account the most economically efficient, as well as the most socially reasonable, option.&lt;lb/&gt;&#x000A;&lt;image src="S6CV0292P0I0150"/&gt;&#x000A;&lt;col&gt;285&lt;/col&gt;&#x000A;If the general election results in a change of Government, a Labour Government will seek to reopen the tendering process to allow CalMac to tender, and will seek to re-evaluate the issue of ferry services to the Northern Isles. We will try to find a solution that suits the Exchequer, and takes into account the concerns of people in the Northern Isles.&lt;lb/&gt;&#x000A;Let me make a more general point. I am worried about the apparent vendetta against CalMac. My hon. Friend the Member for Western Isles (Mr. Macdonald), who is probably more able than anyone else to analyse CalMac&apos;s performance because it provides a vital lifeline to the Western Isles, has referred to the importance attached by people there to CalMac&apos;s being given an opportunity to secure the contract for the Northern Isles. We have heard from my hon. Friend the Member for Greenock and Port Glasgow (Dr. Godman) about CalMac&apos;s expertise in operating custom-built ferries, and we know of its commitment to securing continuity of service to remote Scottish communities. It is bizarre that it should have been excluded from the tendering process.&lt;lb/&gt;&#x000A;I regret having to say this, but, when we look at what happened in relation to the Northern Ireland contract, we must ask what on earth was going on when CalMac was excluded. What makes the situation even worse is the fact that, having been excluded, CalMac was forced to sell one of its vessels at a knockdown price to Sea Containers, which won the contract. That alone is cause for re-evaluation of the issues.&lt;lb/&gt;&#x000A;In view of what KPMG has said about the Northern Isles service, there may well be a case for a monopoly to continue. I leave the judgment open, but, if there is such a case, is there not a pressing public responsibility to ensure that a public sector operator operates with the taxpayer&apos;s best interests in mind, rather than the profitability of an individual company? Reading the Government&apos;s responses to the issues that have been raised, I was surprised to note that P and O&apos;s financial performance figured so strongly. I wish that, just occasionally, the Government would take into account the requirement to ensure that CalMac, a well respected ferry operator, is given a level playing field in which to compete.&lt;lb/&gt;&#x000A;The issues involved are extremely serious. We are talking not just about the future viability of services to the Northern Isles, but about the economic viability of the Northern Isles. I listened carefully to the reasoned arguments of my hon. Friend the Member for Kilmarnock and Loudoun and, in particular, the hon. Member for Orkney and Shetland who, in his final remarks, made a number of important points about the role of the islands councils, their inclusion in the assessment of the qualitative aspects of tenders and the role that they should play in monitoring the operation of the service. The councillors are the elected representatives of the people of Orkney and Shetland, and their concerns should be taken into account.&lt;lb/&gt;&#x000A;The hon. Member for Ayr (Mr. Gallie) asked some pertinent and serious questions, which I hope the Government will answer. For instance, he questioned the suitability of the secondhand vessels that P and O has used, and spoke of the impact that that has had on P and O&apos;s accounts in terms of the depreciation of those vessels. He asked for guarantees that standby vessels would be&#x000A;&lt;col&gt;286&lt;/col&gt;&#x000A;available: such provision is important in remote communities. He also asked what the Government would do to deal with under-utilisation.&lt;lb/&gt;&#x000A;One of the hon. Gentleman&apos;s most important questions about the tendering process was, "Why was the issue of the European regional development fund raised so late in the day?" He also raised an issue that has caused me considerable anxiety since it was brought to my attention yesterday&amp;#x2014;access to ro-ro facilities for P and O at Aberdeen harbour. I am also a bit concerned about the fact that the Government have sought to appoint P and O&apos;s chief executive to Aberdeen harbour board. We must be assured of transparency in all decisions relating to the Northern Isles.&lt;lb/&gt;&#x000A;I think that my comments have been very restrained. I have not, for example, drawn attention to the fact that, since 1991, the Conservative party has benefited to the tune of &amp;#x00A3;100,000 a year from P and O, because I feel that that would have made the debate partisan. It is, however, crucial in the run-up to the general election for us to stand back from the issues, and to give the new Government&amp;#x2014;whatever their persuasion&amp;#x2014;an opportunity to take account of the concerns of the people of the Northern Isles about monopolies, the concerns raised by hon. Members about the tendering process and the concerns about ensuring continued economic viability for the remote communities of the Northern Isles.&lt;br/&gt;10.45 am&lt;br/&gt;The Minister of State, Scottish Office (Lord James Douglas-Hamilton): This has been a very good debate, in which a number of important issues have been raised. I pay tribute to the Chairman and members of the Select Committee for their perseverance and application in inquiring into these complex matters.&lt;lb/&gt;&#x000A;We share the Committee&apos;s view that efficient and affordable sea transport services are vital to the movement of essential imports and economically important exports for the islands communities. As evidence of our commitment to support essential shipping services to the islands, we shall this year provide subsidies of &amp;#x00A3;7.6 million for P and O Scottish Ferries for passenger services, &amp;#x00A3;700,000 for P and O and Orcargo for livestock exports and &amp;#x00A3;300,000 for bulk shipping operators. That is in addition to grant assistance for pier and harbour works at Scrabster, Stromness and elsewhere in Orkney and Shetland. The Government have paid Orkney and Shetland some &amp;#x00A3;11 million in piers and harbours grant in the past five years.&lt;lb/&gt;&#x000A;Our policy is to allow the private sector, wherever appropriate, to deliver the necessary services, but I have been asked why CalMac is not being allowed to tender. CalMac is wholly owned by the Secretary of State, and the undertaking with the Secretary of State is to provide an approved lifeline ferry service on the west coast. There is no undertaking to provide services to the Northern Isles. We examined the matter carefully, and it was decided that, on balance, it would not be appropriate to allow CalMac to tender.&lt;lb/&gt;&#x000A;A number of factors influenced that decision. First, CalMac&apos;s core business is the provision of lifeline services on the west coast; secondly, we believe that the role of the public sector in the economy should be restricted and that, wherever possible, services should be provided by the private sector. Furthermore, the&lt;lb/&gt;&#x000A;&lt;image src="S6CV0292P0I0151"/&gt;&#x000A;&lt;col&gt;287&lt;/col&gt;&#x000A;Government wanted the tendering process to be seen as entirely fair. If CalMac had been allowed to tender on the back of Government funds, that would have been unfair to private sector competitors.&lt;br/&gt;Mrs. Liddell: Why is public sector operation not considered advantageous? Private sector operators have considerable expertise in operating lifeline services in the Western Isles. Is there not an impeccable logic in transplanting that expertise from the Western to the Northern Isles? Are the Government not taking part in a narrow sectarian vendetta against CalMac?&lt;br/&gt;Lord James Douglas-Hamilton: Certainly not. CalMac has an extremely good record, but, if a public sector organisation subsidised by the state were allowed to compete against the private sector, private sector tenderers would be deterred from coming forward. That could be seen to make for unfair competition.&lt;lb/&gt;&#x000A;The hon. Member for Orkney and Shetland (Mr. Wallace) asked whether the councils would be consulted. I give him an undertaking that that will certainly happen. The hon. Gentleman went further, however, and asked for the councils to be involved in the decision on the tender. While there have been extensive consultations on the specification, the final decision on the award must be for Ministers. After all, given that one of the bidders is Orkney islands council&apos;s own shipping company, involving the council in that decision would be hard to justify, and would lead to a conflict of interest.&lt;br/&gt;Mr. Wallace: I agree with that, but surely the Minister recognises that the franchise specification leaves a number of matters open. The bidders must come back with proposals of a qualitative nature. Is the Minister saying that, once the bids are in, there will be further consultation with the islands councils on aspects of the final bids submitted, which will be of a qualitative nature?&lt;br/&gt;Lord James Douglas-Hamilton: I am only too happy that there should be consultation on the terms of the specification, but the decision has to be for Ministers of the Government of the day.&lt;lb/&gt;&#x000A;The hon. Member for Kilmarnock and Loudoun (Mr. McKelvey) asked whether passenger vessels will carry freight in future. I can assure him that the service specification requires the operator to provide capacity for the carriage of passengers, cars, commercial vehicles, freight and livestock.&lt;lb/&gt;&#x000A;The hon. Gentleman also asked about the European regional development fund. It has always been possible since the beginning of the tendering process for ERDF money to be made available for vessel replacement. That is not a new issue. The Government&apos;s response makes that clear.&lt;lb/&gt;&#x000A;Some hon. Members, including the hon. Member for Monklands, East (Mrs. Liddell), asked whether I could delay the tendering process. It would not be sensible for the Scottish Office to halt it at this late stage. To do so would cause further uncertainty before lifeline services could be secured by block grant contract. There could also be a danger that tenderers would withdraw. We believe that final bids are due this week, so we do not believe that&#x000A;&lt;col&gt;288&lt;/col&gt;&#x000A;that would be in the public interest. Of course, if a general election is declared, the normal rules will apply to decisions made during the election period.&lt;lb/&gt;&#x000A;My hon. Friend the Member for Ayr (Mr. Gallie) asked a very relevant question about standby vessels. The final service specification requires tenderers to make proposals for continuing service during refits and repairs. These will be examined very carefully during the evaluation of bids, and we will be keen to ensure that proper arrangements are put in place in respect of breakdowns and relief vessels, and, indeed, cover for annual overhauls.&lt;lb/&gt;&#x000A;My hon. Friend also asked about new vessels. It is probable that the requirements of the Stockholm agreement on passenger ferry service safety survivability will make it inevitable that new vessels are introduced in 2002. New build options are being considered as part of the competitive tendering process.&lt;br/&gt;Mr. Gallie: Will my right hon. and learned Friend give way?&lt;br/&gt;Lord James Douglas-Hamilton: Very quickly, as I have a lot of points to answer.&lt;br/&gt;Mr. Gallie: My right hon. and learned Friend emphasised the involvement of the private sector and the importance of competition&amp;#x2014;which I welcome&amp;#x2014;which was demonstrated by the 18 bids that came in. However, if factors have changed, it would not be unreasonable to give any of those bidders a further opportunity to be involved, particularly in relation to the comments on ERDF. Will he give further consideration to that point?&lt;br/&gt;Lord James Douglas-Hamilton: If my hon. Friend is asking for special pleading on behalf of any of those who have not made the shortlist, I cannot do that; he is asking that the whole process be started again. I cannot give that commitment at this stage, and one reason why I cannot is because I am totally opposed to cross-subsidy&amp;#x2014;a point echoed by the hon. Member for Monklands, East. In determining the subsidy to be paid to P and O Scottish Ferries under the interim arrangements, we have attempted, as far as possible, to ensure that cross-subsidy will not occur.&lt;lb/&gt;&#x000A;In negotiating the subsidy, explicit account was taken of P and O&apos;s expected earnings from freight carryings on the basis of reasonable market rates. The Scottish Office&apos;s objective was to achieve a transparent contract designed to provide the minimum subsidy in the interim period to secure P and O&apos;s continued operation of the passenger ferry service. By minimising subsidy in that way, we have sought to avoid any cross subsidisation of freight services. For the longer term, I believe that competitive tendering of the block grant contract will be a strong safeguard against cross-subsidy, to which we are wholeheartedly opposed.&lt;lb/&gt;&#x000A;The hon. Member for Kilmarnock and Loudoun raised the issue of bulk freight subsidy support. The key point is that we have restored the rate of bulk freight support, but recognise that there are flaws in the system and in the way in which the scheme operates. That is why we have sought views from all interested parties on various options to amend the scheme so that it meets the needs of bulk product producers and users in the islands as efficiently as possible. The deadline for responses is 19 April.&lt;lb/&gt;&#x000A;&lt;image src="S6CV0292P0I0152"/&gt;&#x000A;&lt;col&gt;289&lt;/col&gt;&#x000A;The hon. Member for Orkney and Shetland asked about the ceiling on published tariffs. We will set a ceiling in relation to current market rates. He also asked about EKOS. One of the commitments that we gave the Select Committee was to continue to monitor freight prices and the market generally. To fulfil that, with Highlands and Islands Enterprise and with Orkney Enterprise we commissioned EKOS to undertake a study to evaluate the trends in freight process and to assess the impact of transport costs to the Orkney economy. That work is under way, and EKOS is due to report shortly.&lt;lb/&gt;&#x000A;Many of the Select Committee&apos;s recommendations have been acted upon. Its report carried great influence with the Government. We have decided, first, to consult Orkney and Shetland council and other passenger interests on the service specification; secondly, to regulate maximum freight tariffs; thirdly, to provide sufficient capacity for the carriage of livestock; fourthly, to increase the rate of tariff rebate subsidy for the carriage of livestock, from 33 per cent. to 50 per cent.; fifthly, immediately to reinstate TRS for the carriage of Northern Isles bulk freight; sixthly, to consult towards identifying more suitable long-term subsidy arrangements to support bulk freight; and, seventhly, to commission, with Highlands and Islands Enterprise, the study with EKOS.&lt;lb/&gt;&#x000A;We have not been able to accept all the recommendations.I was asked, for example, about the Kirkwall-Invergordon route. I accept that Orcadians perceive there to be distinct benefits associated with that route for the carriage of freight and livestock, but subsidising that route would perpetuate the problems of excess capacity in the freight market. It would encourage the continuation of excessive price competition in the freight market, threaten the commercial viability of the passenger freight operator and make it much more difficult to conclude the new block grant tendering process. We have therefore concluded that it would not be appropriate to subsidise the route at the expense of the taxpayer and to the detriment of the competitive tendering process for the passenger ferry contract.&lt;lb/&gt;&#x000A;Considerable concern was expressed that a weakening of competition in the freight market could lead to the emergence of a monopoly. There is no evidence at present&amp;#x2014;two years after the withdrawal of TRS&amp;#x2014;that competition for general freight has weakened. We intend to provide the contract with a regulation on maximum freight tariffs. We believe that that would be a significant safeguard against the abuse of monopoly power.&lt;lb/&gt;&#x000A;I recognise the desire of the hon. Member for Orkney and Shetland to ensure that there is adequate consultation. We will certainly ensure that that happens. We regard that as extremely important.&lt;lb/&gt;&#x000A;&lt;col&gt;290&lt;/col&gt;&#x000A;I should make it clear that the Government took the view in 1995 that continuing competition in the freight market, as well as customer resistance to price rises, would act as effective restraints on any significant increase in freight tariffs. We have promised to review the position on freight subsidies if evidence emerges to show that, over a period, prices charged in the freight market as a whole have risen substantially. That is why we commissioned the report.&lt;lb/&gt;&#x000A;I should also make it clear that our overriding objective remains to secure the long-term commercial viability of lifeline ferry services to Orkney and Shetland, which are central to the continuing social and economic development of the islands. Final tenders from the ferry operators bidding for the ferry services contract have been invited by 14 March. It is intended to reach agreement in principle on the contract terms with the preferred operator towards the end of April. Normal procedures and rules governing election periods will be followed.&lt;br/&gt;Mr. McKelvey: Will the Minister give an answer to the problem that could arise from the appointment of the P and O Ferries managing director to the Aberdeen harbour board for three years, as many people would imagine that that implies that the tender has already been won?&lt;br/&gt;Lord James Douglas-Hamilton: I am very sympathetic to the point made by the hon. Gentleman and by my hon. Friend the Member for Ayr, that whoever wins the tender&amp;#x2014;I have no idea who it will be&amp;#x2014;should have the necessary access. It is for the Scottish Office Minister at the time to use his or her good offices to ensure that that is implemented. I wish to ensure that the services are carried out effectively in that connection.&lt;lb/&gt;&#x000A;I think that I have answered most of the points raised by hon. Members. The new vessels issue is very important. I have made it clear that the Stockholm agreement requires the new vessels to be on the route by early next century. We are working on an agreement to give operators sufficient reassurance to allow them to invest in new build. The quality objectives laid down in the service specification were tightened after consultation with islands representatives.&lt;lb/&gt;&#x000A;We shall continue to monitor the effect of the present subsidy arrangements, in consultation with representatives of the islands&apos; interests, to ensure that essential shipping services continue to be provided to the islands at affordable cost.&lt;lb/&gt;&#x000A;I thank hon. Members, and I would like to say how much I enjoyed being a member of the Select Committee that visited Shetland during the Falklands war when we were considering transport.' title='Tariff Rebate Subsidy (Northern Isles)' type='link' url='http://hansard.millbanksystems.comhttp://hansard.millbanksystems.com/commons/1997/mar/12/tariff-rebate-subsidy-northern-isles'></outline>
      <outline id='3195526' text='[&lt;i&gt;Relevant documents: First report from the Agriculture Committee of Session 1995&amp;#x2013;96, on the UK dairy industry and the CAP dairy regime (HC 40), and the Government&apos;s response thereto (HC 708 of Session 1995&amp;#x2013;96).&lt;/i&gt;]&lt;br/&gt;11 am&lt;br/&gt;Sir Jerry Wiggin (Weston-super-Mare): It has been the practice of the Select Committee on Agriculture, since I had the honour to become its Chairman in 1987, from time to time to examine major sectors of the agriculture industry. It had been clear for some years that we should undertake an inquiry into the dairy industry, but we felt it right to await the ending of the Milk Marketing Board&apos;s statutory monopoly before proceeding.&lt;lb/&gt;&#x000A;The most well-known, perhaps infamous, aspect of the common agricultural policy dairy regime is the milk quota system. Quotas were an afterthought that were added to the regime after its other mechanisms had encouraged the over-production of milk and dairy products, and resulted in over-expenditure on the CAP budget. Milk quotas were a crude means of capping production, and to that extent they have worked well. However, it is a fact that the United Kingdom has never been allocated enough milk quota to be self-sufficient in dairy produce, because quotas were implemented in 1984 on the basis of historic production levels.&lt;lb/&gt;&#x000A;The United Kingdom dairy industry as a whole and with one voice believes that it is being disadvantaged because of its quota allocation, and there can be no doubt about that. Many of the witnesses who came before us sought some relaxation in the quota system to permit increased production. We explored a number of ways in which to achieve that. The simplest of the proposals was the suggestion that the UK should press for a larger quota in the Agriculture Council. In their reply to our report, the Government said that they would continue to register with the Commission the dissatisfaction felt in the UK about this matter, and that they would oppose any moves to cut the national quota.&lt;lb/&gt;&#x000A;We also explored suggestions that milk quota could be traded across national boundaries&amp;#x2014;cross-border trading&amp;#x2014;or that over-production in one country could be balanced against under-production in another&amp;#x2014;cross-border balancing. We concluded that there was little prospect of cross-border trading, given the different ways in which quota is administered in different member states. Should quotas remain after 2000, we believe that systems of administration should be harmonised to facilitate trade.&lt;lb/&gt;&#x000A;The Government agreed with the first part of our argument, and restated that their ultimate objective was the complete abolition of the quota system. We propose that the Government suggest to the Agriculture Council that a cross-border balancing system should be introduced. Although they agreed to continue to argue for increased flexibility in the quota system, the Government did not believe that such a proposal would be palatable to other member states, given that most of them had, in recent years, achieved or exceeded their quota allocations, leaving little scope for balancing.&lt;lb/&gt;&#x000A;A further means by which the quota system could be relaxed is the introduction of a two-tier system. Milk produced under the first &apos;A&apos; tier would be sold on the European Union market in the usual way. Secondary &apos;B&apos;&#x000A;&lt;col&gt;292&lt;/col&gt;&#x000A;quota milk would be restricted to export markets, and would be subject to the prices prevailing on world markets. We were sceptical about the proposal for two reasons. First, it would be an additional administrative complication; and secondly, it would further entrench quotas into the structure of the EU dairy industry while increasing opportunities for fraud.&lt;lb/&gt;&#x000A;We viewed all those measures as no more than a short-term means by which the flexibility of the current dairy regime could be increased. For the longer term, we were convinced that radical reform of the dairy industry was inevitable and desirable. There is no doubt that the task of reform will be hindered by the fact that in several member states, including the United Kingdom, milk quota has achieved a significant monetary value.&lt;lb/&gt;&#x000A;Some have argued that reforms to the CAP that result in the abolition of quota should also compensate farmers for the loss of that asset. The Committee did not support that view, not least because when quotas were originally imposed they had no value. Indeed, in member states such as France, where quotas cannot be traded and transferred, they remain without value other than providing the holder with the right to produce milk.&lt;lb/&gt;&#x000A;We did, none the less, recommend that farmers should be given as much warning as possible of any changes that would result in the removal of quotas, or in a dramatic reduction in milk prices, and a consequent drop in the price of quota. For that reason, the removal overnight of import tariffs, export subsidies and quotas would, in the Committee&apos;s view, be highly problematical. In their reply to our report, the Government endorsed our analysis, and stated that that would not be a viable option. They favoured instead progressive cuts in support prices leading to the complete removal of price support, thus removing the need for any production controls. Even so, it was the Minister&apos;s view that, after 2000, when the current quota regulations expire, quotas will remain.&lt;lb/&gt;&#x000A;Our report was published in July 1996. At that time, we were told that the Commission intended to open debate on the possibilities for reforming the dairy regime this year, with concrete proposals unlikely to be introduced until spring 1998. The Committee was surprised to find that there was little sense of urgency on this matter among officials of the other member states that we visited, or in the Commission.&lt;lb/&gt;&#x000A;It is clearly vital that the Government push the Commission to bring forward its proposals as soon as possible. There are rumours that announcements will be made in the next few weeks, but that is not a minute too soon. By the time such proposals are agreed and implemented, farmers will have little time to adjust their businesses to the new circumstances that they will face.&lt;lb/&gt;&#x000A;In reality, nothing is likely to happen before 2000, so we suggested that, over a five-year period from 2000 onwards, support prices should be cut to world levels, import tariffs should be progressively reduced to zero, and milk quotas should be abolished at the end of the transition period in 2005. We also recommended that, to compensate for lower prices and not for the loss of the value of quota, farmers should be paid time-limited transitional payments via a dairy cow premium, which could be linked to requirements for environment and welfare-friendly farming techniques. On the whole, the Government endorsed our suggested approach, but it would be foolish to suggest that achieving those goals will be easy.&lt;lb/&gt;&#x000A;&lt;image src="S6CV0292P0I0154"/&gt;&#x000A;&lt;col&gt;293&lt;/col&gt;&#x000A;During our inquiry, we visited France, Italy and Ireland. The structure of the dairy industry in those countries is different from that of our industry. In France, we found strong support for the retention of milk quotas among farmers, Government officials and the Minister. Lower support prices and the removal of quotas were not appealing to their small farmers. Some dairy producers in France and Italy are very small indeed by UK standards. Our average herd size is 68 cows and rising, and almost half the national dairy herd is in herds of more than 100 cows.&lt;lb/&gt;&#x000A;In Italy, we visited a farmer who makes his living from 12 cows. He has stall spaces for 12 cows, has always had 12 cows and, as far as he is concerned, always will have 12 cows. United Kingdom dairy farmers may deride such a small enterprise, but there were aspects of that farmer&apos;s business and those of his neighbours from which our dairy industry could learn a great deal. He and his colleagues were part of a co-operative producing expensive Parmigiano-Reggiano cheese. They saw themselves not as milk producers but as cheese producers. For them, that meant being paid not when the milk went to the dairy, but when the cheese was marketed many months of maturation later.&lt;lb/&gt;&#x000A;The unified approach to milk production, cheese making and marketing in Italy, France and Ireland was in marked contrast to the conflicts that we have encountered in the UK dairy industry.&lt;lb/&gt;&#x000A;In 1994, the Committee held a very short hearing into the deregulation of the milk industry and the delays in negotiations. At that time, we suggested that Milk Marque had been guilty of "brinkmanship" in its negotiations. Once the revised scheme of deregulation had been approved by Ministers, the Dairy Industry Federation made its first priority, on the establishment of the deregulated market on 1 November 1994, a formal complaint to the Director General of Fair Trading. The DIF had maintained that Milk Marque was abusing its powerful position in the marketplace, accounting as it did for 65 per cent. of the market for raw milk in England and Wales, to push prices to artificially high levels.&lt;lb/&gt;&#x000A;We investigated the matter and found no firm basis for the DIF&apos;s claims. Through negotiations with Milk Marque, Mr. Bridgeman, the Director General of Fair Trading, secured a number of assurances on issues of concern in Milk Marque&apos;s trading practices. In particular, Milk Marque introduced more transparency into its selling process&amp;#x2014;a process that in any case results in lower prices to dairy farmers than many of the purchasing schemes operated by the dairy companies themselves. Indeed, given the prices being offered today, Milk Marque&apos;s price is at the bottom of the table.&lt;lb/&gt;&#x000A;In line with the Committee&apos;s recommendation, Mr. Bridgeman, having asked for our views, declined the DIF&apos;s request for Milk Marque to be referred to the Monopolies and Mergers Commission. We hope that, in line with another of our recommendations, the industry will be left in peace to adapt itself to its new circumstances. Indeed, it seems ironic that at least one industry commentator, Barry Wilson, suggested in February&apos;s edition of &lt;i&gt;British Dairying&lt;/i&gt; that dairy companies have become so good at manipulating Milk Marque&apos;s selling system that milk producers might have a case to refer the dairy companies to the OFT&amp;#x2014;the other way around.&lt;lb/&gt;&#x000A;&lt;col&gt;294&lt;/col&gt;&#x000A;It became clear to us during our inquiry that the primary motivation of the DIF&apos;s main objection related not to Milk Marque&apos;s trading practices but to its very existence. Those who are acquainted with the history&apos; of the UK dairy industry will know that the milk marketing boards and the milk marketing schemes were set up in the first place to help to redress the balance between small milk producers on the one hand and increasingly large dairy companies on the other. It was the Committee&apos;s view that the need for farmers to have a strong stake in the marketing of their milk continues.&lt;lb/&gt;&#x000A;It is reasonable to say that we had some understanding with Mr. Bridgeman of the OFT that, when the matter was resolved, he would allow Milk Marque&amp;#x2014;and the Dairy Industry Federation&amp;#x2014;to get on with its business. I however have a copy of a letter addressed to Andrew Dare, the director of Milk Marque, from the OFT on 22 January, which is headed: "Monitoring Milk Marque&apos;s Assurances". Part of the letter reads:&#x000A;&lt;quote&gt;"We shall be seeking information from a range of participants in the market but will obviously look to Milk Marque itself as a key source. Apart from the obvious data on prices and volumes etc we will be asking you to provide information which will cover:&#x000A;&lt;ol&gt;&#x000A;&lt;li&gt;1. How the starting prices were reached for the various contracts.&lt;/li&gt;&#x000A;&lt;li&gt;2. How individual bids were dealt with.&lt;/li&gt;&#x000A;&lt;li&gt;3. The criteria used for the allocation of supplies.&lt;/li&gt;&#x000A;&lt;li&gt;4. How any further contract prices and supply allocations were arrived at during subsequent bidding rounds.&lt;/li&gt;&lt;/ol&gt;&#x000A;We will be looking for information down to individual customer level and would ask you to ensure that all information relating to the current selling process is retained by Milk Marque."&lt;/quote&gt;&#x000A;Milk Marque does not feel that that is entirely leaving the matter alone. I endorse the comment that evidence is beginning to emerge that the dairy industry is learning to manipulate the Milk Marque selling system. I fully recognise, as does everyone else, that the recent drop of 2p a litre is not entirely due to the change in currency&amp;#x2014;although it is largely. I ask my hon. Friend the Minister to bear very closely in mind that it is not difficult for a handful of large companies, once they understand the system, to mutter to each other. I am not casting any direct aspersions, but I ask both him and the OFT to ensure that both sides of the industry, which have been at war for far too long, are not seen to be blameless. If he is going to look so closely at Milk Marque, he should look just as closely at some of the big purchasing dairies.&lt;lb/&gt;&#x000A;During the Committee&apos;s inquiry, the DIF claimed that the UK&apos;s dairy producers were among the most efficient in Europe yet the UK as a whole imports high value; added products such as speciality cheeses, fromage frais and yoghurt, and exports low value-added products such as butter and skimmed milk. We asked why UK dairy manufacturers, for the most part, were not able to match the performance of their continental competitors, despite the fact that prior to deregulation, UK farmers received some of the lowest prices in Europe for their milk.&lt;lb/&gt;&#x000A;Our report shared the views of the Ministry of Agriculture, Fisheries and Food and independent industry analysts that some restructuring of the processing industry was inevitable and that the root of the problem lay in the historic inefficiencies of the UK processing industry, which had been fostered by the milk marketing scheme, and the institutionalised and anachronistic system of end-use pricing. That system, in which milk prices were set by a formula depending on the intended use, protected inefficient processors and stifled innovation.&lt;lb/&gt;&#x000A;&lt;image src="S6CV0292P0I0155"/&gt;&#x000A;&lt;col&gt;295&lt;/col&gt;&#x000A;The effect of deregulation was to allow manufacturers to compete for milk according to their own needs and costs of production, with the result that inappropriate, inefficient or simply surplus processing capacity is being lost while more innovative processes are thriving, as we saw in my constituency when we visited Yeo Valley Dairies. It is imperative that, if the UK is to make the best use of any opportunities to increase production when quota restrictions are removed, our dairy industry continues to develop in a manner compatible with modern markets and consumer preferences.&lt;lb/&gt;&#x000A;We were nearing the end of our inquiry when the fateful statements on bovine spongiform encephalopathy and Creutzfelt-Jakob disease were made on 20 March. The Committee&apos;s members were determined to confine ourselves in the report on the dairy industry to covering issues directly affecting the dairy industry only. We considered other aspects of the BSE affair in other inquiries.&lt;lb/&gt;&#x000A;We noted that the selective or accelerated slaughter scheme, which the Government decided initially not to implement but then agreed to undertake, and which the National Farmers Union at first opposed and then supported, is not being undertaken for reasons of public health. We argued that compensation for cattle slaughtered under the scheme should therefore be closer to the replacement value of stock than to the market value, and that farmers who will lose a significant proportion of their herd should receive additional compensation. The legislation implementing the selective cull, which came into force on 24 January, sets compensation rates at 90 per cent. of the replacement value of cows or the market value, whichever is higher. In addition, farmers who lose more than 10 per cent. of their herds will receive additional payments. I certainly think that that is a fair balance.&lt;lb/&gt;&#x000A;Coming from the west country, I need hardly add that we looked at the contentious issue of bovine tuberculosis, which is accepted by many in farming and veterinary circles as being spread by the burgeoning badger population, especially in the south west and the midlands. In our report, we recommended that my hon. Friend the Minister should have farmers at the forefront of his mind when it came to any decision on future badger control strategies, and that, in addition, compensation for TB reactors should be raised to 100 per cent. of the animals&apos; market value. As the House knows, the Government have established an independent scientific review to look into that matter.&lt;lb/&gt;&#x000A;This is definitely the last time that I shall present an Agriculture Committee report to the House. Perhaps I might take the opportunity of thanking all hon. Members on both sides of the House who have served on my Committee since 1987, when I was first elected as its Chairman. I hope that they have found the experience rewarding and feel that we have contributed in our small way to exercising the power of the House in monitoring the business of the Government. I should also like to thank the Clerks, their assistants, secretaries and advisers who have worked so hard to produce our end product, which is inevitably always in the form of a report. I am happy to say that I think that, with the wisdom of hindsight, we have been more often right than wrong&amp;#x2014;although clearly that is a matter for others to judge.&lt;lb/&gt;&#x000A;&lt;col&gt;296&lt;/col&gt;&#x000A;In the summer of 1969, I made my maiden speech on agriculture, and I am glad that I am addressing the same subject this morning. It remains our most important industry, and its prosperity is the strength of our countryside and our nation.&lt;br/&gt;11.18 am&lt;br/&gt;Mr. Paul Tyler: I did not expect to be called so soon in the debate. On behalf of my colleagues, may I thank the hon. Member for Weston&amp;#x2014;super&amp;#x2014;Mare (Sir J. Wiggin) for not only the report but his leadership of the Committee over a number of very difficult years for the industry, and the way in which his particular advocacy of the industry has informed debates in the House? I found the report so helpful that I shall confine my remarks to the points made in it. They will therefore follow the report&apos;s format.&lt;lb/&gt;&#x000A;In paragraph 37, the Select Committee says very firmly:&#x000A;&lt;quote&gt;"we would expect Ministers to take a very robust stand before and during negotiations."&lt;/quote&gt;&#x000A;Many hon. Members, I think on both sides of the House, believe that, because of the distractions of internal problems with which the industry and therefore the Ministry have been faced in recent years, far too little attention has been given to the United Kingdom&apos;s position in those crucial negotiations over the future of this sector of agriculture. I endorse the Select Committee&apos;s view that a much more robust attitude will be necessary in the new Parliament. When and if there is a new Government, a different attitude will no doubt be taken, but the importance of the negotiations cannot be underestimated.&lt;lb/&gt;&#x000A;There will have to be a triple-track approach to the issues with which the Select Committee has been concerned. First, the hon. Member for Weston&amp;#x2014;super&amp;#x2014;Mare referred to the subject of the national quota. Clearly, it would be totally unsatisfactory if other countries bid for more quota in the coming years and Britain did not make its claim as well. It may be that the total pool of quota is not going to change, but it would be devastating to British agriculture and to the dairy sector in particular if the same pool were sliced up, if a pool can be sliced up, in a way that is unfair to British producers. That is one of the major concerns of the farmers unions throughout Britain. If other countries are going to bid, we must be in there too&amp;#x2014;that is track number one.&lt;lb/&gt;&#x000A;Secondly, if there is to be some transition towards a new quota regime&amp;#x2014;a much lighter regime, perhaps&amp;#x2014;after 31 March 2000, it follows that, during that transition, there will be an urgent need to harmonise the existing different regimes in different member states. Ours is perhaps the exception that proves the rule. Ours is exceptional in terms of the speculative value that is attached to quota here, which has had a devastating effect on new entrants in particular, but has also damaged those who are seeking to develop in this sector.&lt;lb/&gt;&#x000A;Other countries have managed to avoid that speculative element. Members will recall, because our postbags were full of it, that, just two years ago, we were told that football clubs, pop stars and redundant Cabinet Ministers were all investing in quota because it seemed to be the best product for a quick return. We know that they did not, but that is not the point. The very fact that there was speculation about speculation caused a speculative price. Unless we can get away from that position, it could return.&#x000A;&lt;image src="S6CV0292P0I0156"/&gt;&#x000A;&lt;col&gt;297&lt;/col&gt;&#x000A;It would be devastating if we were to find that we were the ones that were out of step in a transitional period that could otherwise benefit other competitive countries.&lt;br/&gt;Mr. Ieuan Wyn Jones (Ynys M&amp;#x00F4;n): One of the reasons why those companies were not able to speculate was that the quota remained attached to the land. The difficulty that the hon. Gentleman mentions is that, if quota were detached from the land, that speculation could take place.&lt;br/&gt;Mr. Tyler: I am grateful to the hon. Gentleman. There is a consensus that detaching quota from the land would be a backward step. The Select Committee made that point and the Government in their response made it too. No one is now suggesting that, but there must be some way in which the management of quota is more effectively undertaken in the public interest, not just in the industry&apos;s interest.&lt;br/&gt;Mr. David Harris: What exactly is the hon. Gentleman&apos;s party&apos;s policy on the future of quota? Is he in favour of abolishing it, phasing it out or keeping it?&lt;br/&gt;Mr. Tyler: There is absolutely no question of quota being abolished. It would not be possible for Big Ben to strike midnight on 31 March 2000 and the quota to go completely. No one in Europe wants it to go like that, but, clearly, there will have to be a new regime. My point is that Britain must be in those negotiations to ensure that the transition is not to the disadvantage of our industry and to the advantage only of our competitors.&lt;lb/&gt;&#x000A;Thirdly, the Select Committee considered seriously and very well the issues of cross-border quota trading and cross-border balancing. That is the third track that we should be pursuing because, if there is to be a different regime after 2000, it will have to be on a much wider basis than the present national basis. There is room there for some horse trading to ensure that other countries recognise the value of that. If we run all three tracks at once, there is a chance of making progress. That is the view of many in the industry not just in Britain, but in some of the other member states, which share our view.&lt;lb/&gt;&#x000A;Here is an example. In the past, the British veto was perhaps necessary to preserve the position of British agriculture in common agricultural policy reform, but with the enlargement of the European Union, there may be more allies there and in future the Greek or Portuguese veto may hold us back from reform. That could be an area where majority voting may be to the advantage of Britain and its farmers.&lt;lb/&gt;&#x000A;On two-tier quotas, I have carefully considered the report and I have heard a great deal elsewhere too. Recently, I spoke at the conference of the Royal Association of British Dairy Farmers in Malvern. I heard some convincing arguments for reconsidering the issue of two tiers. It will not be easy&amp;#x2014;I do not think that anyone could deny that&amp;#x2014;but, after 2000, that may be the way in which we get some fluidity into the cross-Europe milk quota system. We should not discard it as readily as the Select Committee appeared to do and as the Minister did even more. I fear that farming unions are perhaps putting their heads in the sand in anticipating that it is a non-runner. It may be a runner for other EU states as well as ourselves.&lt;lb/&gt;&#x000A;On support prices and compensation, I notice that, in paragraph 66, the Select Committee says firmly:&#x000A;&lt;col&gt;298&lt;/col&gt;&#x000A;&lt;quote&gt;"The NFU&apos;s position was in stark contrast to MAFF&apos;s."&lt;/quote&gt;&#x000A;I hope that we will find that those positions come together, because it is critical to the future prosperity of this sector.&lt;lb/&gt;&#x000A;I want to move from quota to other wider issues that the Select Committee wisely felt it had to consider, but in passing I must make the comment that I think that this is the first time that anyone in the House on an official basis or indeed anyone outside has placed such a neat summary on the record of what happened with the 1992 CAP reforms. In paragraph 79, the Select Committee said:&#x000A;&lt;quote&gt;"To avoid the problems of &apos;over-compensation&apos; which have occurred in the arable sector following the 1992 CAP reforms, the level of compensation payable should be automatically adjustable to take account of fluctuations in world dairy prices."&lt;/quote&gt;&#x000A;Hon. Members on both sides of the House must all accept now that the so-called Gummer reforms of 1992, which placed no cap or adjustment mechanism on the arable aid payments and which paid no attention to world cereal prices, were a disastrous mistake. They have drained away from the CAP budget huge sums of money, which both the taxpayer and the rest of the industry do not feel is justified.&lt;lb/&gt;&#x000A;On the way in which any compensation regime should be introduced, I take seriously the comment in paragraph 80 that any attempt to introduce some form of modulation that could result in distortion is dangerous. The Select Committee is absolutely right. I hope that today the Minister will tell us that, in approaching the issue of modulation in any future negotiations, it will be central to the British Government&apos;s position that modulation, if there is to be any, must be a matter for derogation, so that it can be appropriate to the particular circumstances of each member state. I suspect that it will come down the track sooner or later. It may not come in 2000, but sooner or later it will come, simply because of taxpayer resistance throughout the EU. If that is to happen, clearly subsidiarity must be the order of the day.&lt;lb/&gt;&#x000A;Before I leave the subject of the dairy sector and its marketing process, I have to say that the Chairman&apos;s remarks about the relationship between Milk Marque and the Dairy Industry Federation were apt, appropriate and extremely topical as a result of the cuts in pricing in the past few weeks. There is concern that the oligopoly among the dairy companies is just as likely to be a threat to competitive forces in the industry, and to the consumer&apos;s interest, as the position of Milk Marque, which after all does not have a complete monopoly&amp;#x2014;the situation is very competitive.&lt;lb/&gt;&#x000A;In the past few days, I have been disappointed that the Labour party&amp;#x2014;in a classic attempt to make post hoc propter hoc the basis of its policy&amp;#x2014;has started again to say that the creation of Milk Marque has destroyed the doorstep pinta. That is absolutely ludicrous, because we all know that the doorstep delivery of the pinta has gone for many social and economic reasons. I give the example of my own home. I am not there that often now, and my children are grown up. Our doorstep pinta eventually ceased when the milkman was no longer prepared to deliver a pint every other day, because it was not worth his while. Increasing numbers of women are going to work and realise that they do not want a pint sitting on the doorstep, going bad during the summer or demonstrating that the house is empty, and people inevitably have chosen other means.&lt;lb/&gt;&#x000A;&lt;image src="S6CV0292P0I0157"/&gt;&#x000A;&lt;col&gt;299&lt;/col&gt;&#x000A;The doorstep pinta did not suddenly disappear because the House passed a law; it was part of a general social trend. It is quite absurd&amp;#x2014;it is essentially taking a dinosaur approach to social trends&amp;#x2014;for the Labour party to pretend that the pinta disappeared because we introduced a new form of milk marketing. That is ridiculous, and it shows how out of touch the Labour party is with reality.&lt;lb/&gt;&#x000A;Some extremely important issues were not given quite so much room in the report. However, we should give them some attention now, because they have loomed large in our affairs since the report&apos;s publication. I noticed the comment on the over-30-month scheme, in paragraph 150, which states:&#x000A;&lt;quote&gt;"it would be unduly harsh to he over-critical of the delays associated with getting the scheme up and running".&lt;/quote&gt;&#x000A;Surely that is the understatement of the century. Being "over-critical" reflects the fact of life. Everyone in the dairy sector and in farming knows that the scheme was a shambles, and it was rightly categorised and castigated as such at the time.&lt;lb/&gt;&#x000A;Since then, at long last, the selective cull proposals have been presented to us, to the Commission and to other member states. In its report&amp;#x2014;which was published before the details of the proposals were known, although the rough parameters were&amp;#x2014;the Committee states:&#x000A;&lt;quote&gt;"In our judgment, it lies at the boundaries of political acceptability."&lt;/quote&gt;&#x000A;The Chairman did not refer to that paragraph&amp;#x2014;which is also an understatement&amp;#x2014;in opening this debate.&lt;lb/&gt;&#x000A;In the coming weeks, if the cull level in some of our prime, closed and most productive herds reaches a point at which milk production is severely damaged for some time&amp;#x2014;because replacement will not be easy, particularly if sourcing must be from equally well accredited herds&amp;#x2014;we will have a problem. I hope that the Minister will address that issue&amp;#x2014;although it may lie in the territory beyond 2 May, and perhaps in someone else&apos;s field. Nevertheless, I hope that the Ministry still has a bit of soothsaying ability.&lt;br/&gt;Mr. David Nicholson: A few moment ago the hon. Gentleman vigorously castigated the Labour party for playing politics. I wonder if I can tempt him to say something about the consequences for the dairy industry, abattoirs and others&amp;#x2014;particularly in the south-west, where concerns have recently been expressed&amp;#x2014;of the Labour party playing politics over meat hygiene?&lt;br/&gt;Mr. Tyler: I do not think that I should be diverted on to that matter, except to say that farmers are fed up with living with the consequences of the shambles, the mismanagement and the culture of secrecy that has take over in the Ministry of Agriculture, Fisheries and Food. That is the real complaint. The complaint is not about information coming to light&amp;#x2014;in many cases very properly so.&lt;lb/&gt;&#x000A;The Committee also dealt with the problem of the welfare of dairy cows. However, there is another problem which is very much connected to public concern and interest in genetic development, and about going down a one-way street in developing genetic improvements in dairy cows. The report contains a very interesting section on lameness in cows, which I discussed yesterday with the Farm Animal Welfare Council.&lt;lb/&gt;&#x000A;&lt;col&gt;300&lt;/col&gt;&#x000A;I notice that some hon. Members are indicating that I should not allow any more interventions to my speech and should bring it to a conclusion. Before I do so, 1 should say that the long delay in establishing the Krebs inquiry into the connection between tuberculosis and badgers has been a disaster for the industry, particularly in the south-west. Its chairman was appointed last summer, after a wait of many months. The other members were not appointed until last autumn, and the committee is only now starting. I can understand the Government trying to avoid embarrassment before polling day, but that delay was absurd.&lt;lb/&gt;&#x000A;The Ministry&apos;s credibility is at an all-time low at home and abroad, and it was not helped by last summer&apos;s counter-productive and ludicrous beef war, which delayed progress on eradicating BSE not only in the United Kingdom but across Europe and on introducing the certified herd scheme and effectively regulating meat processing in the single market. If we are able to persuade the Commission and other member states to accept our criteria and standards in certifying herds and controlling meat processing, those criteria should apply across the Union. I believe that that is critical. If there is a single market, it is absurd that our exports should be controlled in a manner different from that applying to German exports to this country, for example. The same rules should be applied.&lt;br/&gt;Mr. William Cash: Will the hon. Gentleman give way?&lt;br/&gt;Mr. Tyler: No, I will not give way; other hon. Members want to speak.&lt;lb/&gt;&#x000A;As a direct result of the way in which the Government played their cards last summer, we are now marginalised in some of the most important discussions and negotiations that will ever affect the agriculture industry, and particularly the dairy sector. I hope and pray that we will have a new start after May 1.&lt;br/&gt;11.36 am&lt;br/&gt;Sir Roger Moate: I shall try to make a few points very briefly, as this is such a short debate. I, too, compliment my hon. Friend the Member for Weston&amp;#x2014;super&amp;#x2014;Mare (Sir J. Wiggin) on his eight years as Chairman of the Agriculture Select Committee. I have had the privilege of being on it for two years, and have come to respect his great support for agriculture, knowledge of the industry and the way in which he has created a cohesive and happy Committee.&lt;lb/&gt;&#x000A;The only complaint that I would make of the Committee&amp;#x2014;it is a feature of all Select Committees&amp;#x2014;is that its very cohesion tends to produce reports containing conclusions that are designed to attract maximum support in the Committee. The reports are therefore less abrasive than they might be, which thereby enables Ministers always to respond by saying that they agree with the conclusions.&lt;lb/&gt;&#x000A;My hon. Friend the Member for Weston&amp;#x2014;super&amp;#x2014;Mare mentioned one of those conclusions, and said that, on a matter of fundamental importance, the Government agreed&#x000A;&lt;quote&gt;"with the Committee&apos;s conclusion that the sudden removal of support prices and quotas in the dairy sector is not a viable option."&lt;/quote&gt;&#x000A;&lt;image src="S6CV0292P0I0158"/&gt;&#x000A;&lt;col&gt;301&lt;/col&gt;&#x000A;However, we did not come to that conclusion, although the Minister agreed with it. Before that, we said:&#x000A;&lt;quote&gt;"the &apos;Big Bang&apos; solution of drastic cuts&amp;#x2026; and the abolition of quotas overnight&amp;#x2026; would appear to be highly problematic".&lt;/quote&gt;&#x000A;"Problematic" was a carefully chosen word. If one goes back to our report, we said something that I think is more significant. We said:&#x000A;&lt;quote&gt;"the &apos;Big Bang&apos; solution should not be rejected. It could be that a rapid radical reform would be more advantageous to producers as well as consumers if accompanied by a well-engineered programme of compensation."&lt;/quote&gt;&#x000A;The matter must be examined within the context of a much wider-ranging discussion about what should happen in 2000. The hon. Member for North Cornwall (Mr. Tyler) mentioned our earlier comments&amp;#x2014;which could have been interpreted as criticising the Government&apos;s position, and which the Government have sensibly chosen to ignore. The comments contain some criticism, although it is not a specific criticism of this Government. It is the expression of worry about a general lack of zeal, determination and robustness in ensuring that we have a proper solution by 2000 and that we tackle the problem soon.&lt;lb/&gt;&#x000A;According to paragraph 37 of the report:&#x000A;&lt;quote&gt;"Mr. Hogg told us that MAFF&apos;s approach to the question of dairy regime reform would depend on the Commission coming forward with specific proposals."&lt;/quote&gt;&#x000A;We could wait a long time for that. It continues:&#x000A;&lt;quote&gt;"Mr. Hogg stated that &apos;the sensible man&amp;#x2026; decides what is attainable and then negotiates for that, otherwise you end up with egg on face&apos;. This view contrasts with the strong statements of policy by MAFF. Given the vigorous and critical nature of the extended debate that will undoubtedly take place&amp;#x2026; we would expect Ministers to take a very robust stand&amp;#x2026; during negotiations."&lt;/quote&gt;&#x000A;That robust approach had been reflected in Ministry documents that were extremely impressive. Page xxi of the report refers to&#x000A;&lt;quote&gt;"a scathing critique of the dairy regime"&lt;/quote&gt;&#x000A;in which&#x000A;&lt;quote&gt;"MAFF claimed that it was &apos;manifestly absurd to operate a support price system which encourages excessive production while at the same time imposing quotas to offset this&apos;".&lt;/quote&gt;&#x000A;That is the background to the issue. There is widespread concern that we shall end up with half-baked proposals from the European Community, a serious entrenchment in defence of the present position and only mild changes in 2000, so that the present regime, perhaps with some minor changes, may well continue for years.&lt;br/&gt;Mr. Cash: Does my hon. Friend accept that one reason why he is almost certainly right is that there is absolutely no desire on the part of other member states to make the necessary adjustments to ensure that the British dairy farmer who is efficient gets reasonable treatment? The problem has been plagued by a determination to ensure that the British dairy farmer does not get the fair deal that he deserves.&lt;br/&gt;Sir Roger Moate: I am sure that my hon. Friend is right. Ultimately, of course, there has to be agreement, unless, by some miracle, we can negotiate, or&amp;#x2014;to use the same phrase as my right hon. Friend the Secretary of State for Health&amp;#x2014;renegotiate ourselves out of the common agricultural policy and the common fisheries policy. We&#x000A;&lt;col&gt;302&lt;/col&gt;&#x000A;have to have agreement. Unless the British position is put robustly, it is unlikely that we shall secure the right deal for British agriculture.&lt;lb/&gt;&#x000A;There is no difference of view between us. The Government&apos;s position is clearly stated in their documentation, but will the British Government take a robust position in favour of significant reforms in 2000? I am worried about that. I have heard nothing from hon. Members on the Labour Front Bench to suggest that a Labour Government would take a more robust line. In fact, it is the reverse; they are determined that Britain should not be isolated in Europe or be a lone voice. We have to take a strong position, however, because the British consumer and the British dairy industry are seriously disadvantaged by the present regime.&lt;br/&gt;Mrs. Ann Winterton: Does my hon. Friend agree that, whatever new regime is introduced in the European Union, it should not repeat the experience of the imposition of quotas in 1984? They were introduced retrospectively and at great disadvantage to Britain. Does he further agree that our dairy industry needs time to introduce change so that it is not severely disadvantaged?&lt;br/&gt;Sir Roger Moate: We have to move rapidly to a position where we are not restricted by present quotas, or prevented from producing as much milk as under the present regime. UK Ltd. is probably disadvantaged to the tune of &amp;#x00A3;1 billion or &amp;#x00A3;2 billion, and many individual dairy producers are seriously disadvantaged. Although there might be historical arguments for those quota levels, how long can we continue to base the system on historical factors that are no longer relevant?&lt;lb/&gt;&#x000A;Even if we had a rapid and radical solution, no one suggests that anything could be achieved overnight. However, our objectives and policies must be clear. Our objective must be to maintain a healthy dairy industry in Britain.&lt;lb/&gt;&#x000A;Finally let me point out one or two disadvantages. The table on page xxiii of the report sets out the disadvantages to Britain in direct expenditure on support to the dairy industry. It shows that the average support per cow in the Netherlands is &amp;#x00A3;434. In Ireland, the figure is &amp;#x00A3;193; in Denmark, it is &amp;#x00A3;407; and in the United Kingdom, it is &amp;#x00A3;81. That is pretty dreadful.&lt;lb/&gt;&#x000A;Most subsidies provide export support, and we cannot export because of quota restrictions. Many other subsidies provide price support, but that is uniform across the Community. The direct support discriminates against the British industry, and that is quite unacceptable. The biggest discrimination against the United Kingdom, as my hon. Friend the Member for Weston&amp;#x2014;super&amp;#x2014;Mare made absolutely clear, is that we are required to produce much less than our needs and are therefore obliged to import dairy products. We cannot allow that discrimination to continue, so we must present a strong and robust case at the Council of Ministers and the general negotiations that are likely to take place.&lt;lb/&gt;&#x000A;It is also worrying that dairy farming is not included in negotiations at the intergovernmental conference so negotiations will have to take their own slow and separate course. We have threatened to veto the IGC negotiations unless we get satisfaction on quota hoppers in fishing. How much more sensible it would be if we refused to allow progress at the IGC unless there were serious reforms of the common agricultural policy.&lt;lb/&gt;&#x000A;&lt;image src="S6CV0292P0I0159"/&gt;&#x000A;&lt;col&gt;303&lt;/col&gt;&#x000A;For how much longer will we be told that there will be reform, while year after year we have to tolerate certain unacceptable features of the CAP such as the high cost to the consumer of &amp;#x00A3;20 per week per family? We spend &amp;#x00A3;34 billion a year on supporting agriculture in Europe. The British taxpayer still subsidises the production of bad wine in France and of tobacco in Greece. It is universally agreed that the system is unacceptable and we really must make a determined attack on it and press for the reform of the dairy regime in 2000 and the rapid phasing out of the present system thereafter.&lt;br/&gt;11.46 am&lt;br/&gt;Mr. William Ross: I shall speak only briefly, as the report refers to Northern Ireland.&lt;lb/&gt;&#x000A;Many of us are sorry that the hon. Member for Weston&amp;#x2014;super&amp;#x2014;Mare (Sir J. Wiggin) is leaving the House. He has been a very robust Member and has always expressed his views clearly. Although I do not necessarily agree with everything he says, he puts his views firmly and I respect him for that. He will be a loss to the House and to his party.&lt;lb/&gt;&#x000A;The hon. Gentleman will be a loss, especially to the farming community, given the attitude of the Minister of Agriculture, who appears to negotiate on the basis of what might be attainable. The hon. Member for Weston-super&amp;#x2014;Mare would have said, "This is what my country needs and, regardless of what happens, I am going to get it." If the Minister took that approach to Europe, we might end up with what the country needs rather than what we will graciously be given. I do not think that the hon. Member for Weston&amp;#x2014;super&amp;#x2014;Mare would have been as soft in securing what the country needs.&lt;lb/&gt;&#x000A;One of my pet subjects is tuberculosis in badgers. In my opinion, the disease is a consequence of the British attitude to wild animals. Man is the supreme predator. As we got rid of all the other predators in Britain many years ago, we have a duty to manage the remaining wildlife and to maintain a balance. Unless we do so, some parts of the country will be overrun with badgers and foxes.&lt;lb/&gt;&#x000A;Folk will remember that some years ago there was a considerable trade in fox skins out of Northern Ireland. It faded because of all the hullabaloo about wearing furs. When it was over and done with, I tabled a parliamentary question on how many fox skins had been exported from Northern Ireland over five years. The average for each year was 23,000. If anyone had tried to tell me that 23,000 foxes a year could be killed in Northern Ireland&amp;#x2014;I suppose that some of the foxes probably came from the Irish Republic&amp;#x2014;I would have laughed them to scorn, but the figures are there. There are a lot more wild animals than most people think.&lt;lb/&gt;&#x000A;Mink have caused immense damage. We should have made a serious effort to wipe them out. All sorts of other animals also cause damage, such as magpies and raptors&amp;#x2014;an issue that will come back whether we like it or not. We had better start thinking straight about these matters rather than allowing ourselves to be ruled by emotion, as we have for far too many years. Some hard decisions will have to be made. Some of us will have to express and defend our attitudes more clearly against all those who look at little furry animals or nice little birds and shut their eyes to the consequences of the imbalances that have arisen among our wildlife.&lt;lb/&gt;&#x000A;&lt;col&gt;304&lt;/col&gt;&#x000A;That is a pet subject of mine that I shall not pursue too far, because I can see that you are becoming a little uneasy, Mr. Deputy Speaker. We have lots of badgers&amp;#x2014;I have some on my land. The foxes come round every year and stink them out, breed and then go away again and the poor old badger has to clean his house out. We shall return to TB in badgers when the scientific evidence is available. Whatever that evidence shows, my earlier remarks will still apply.&lt;lb/&gt;&#x000A;Northern Ireland is the only part of this country with a land boundary&amp;#x2014;with a nation that is a strong competitor for our milk and dairy products. The report refers to the fragmented nature of the Northern Ireland dairy processing industry. In another context, instead of lamenting that fragmentation, we would praise it as evidence of strong competition for the market, giving people choice.&lt;lb/&gt;&#x000A;We lament that fragmentation because the Republic has built up a strong, vertically integrated milk products industry. It has purchased far too much of Northern Ireland&apos;s processing capacity and is still buying far too much of our milk production. Too many decisions are being taken south of the border rather than in the United Kingdom. A dangerous situation for the Northern Ireland dairy industry in the long term has been created and is steadily expanding.&lt;lb/&gt;&#x000A;As well as noting and agreeing with the Committee&apos;s comments on the structure of the dairy industry, I hope that the Government note the concerns expressed by dairy farmers in Northern Ireland and my comments on the processing sector in Northern Ireland, the long-term dangers and the need for the Government to do something about it. If they do not, heaven only knows where we will end up. I fear that we shall end up entirely in the hands of processors outwith the United Kingdom. That should not be acceptable to the House or to the Government.&lt;br/&gt;11.53 am&lt;br/&gt;Mr. Richard Alexander: This has been one of the last inquiries conducted under the chairmanship of my hon. Friend the Member for Weston&amp;#x2014;super&amp;#x2014;Mare (Sir J. Wiggin). This morning we have heard probably his last speech in the House. The debate may feature the last speeches from some others of us, but that is for the electors to decide.&lt;lb/&gt;&#x000A;I pay tribute to my hon. Friend for his chairmanship over the past 10 or 11 years. His professionalism and his dedication to agriculture have been admired by his colleagues throughout that time. He has been a firm and fair Chairman, running his Committee with authority and always with a sense of humour. He has shown great friendship to us all, regardless of party. I know that those sentiments will be shared by all members and former members of the Select Committee on Agriculture. We wish him well.&lt;lb/&gt;&#x000A;We have had quotas since 1984, and they are an established part of the dairy farmer&apos;s way of life. They were widely objected to at the outset, as I remember well from my constituency, but now they are widely accepted, as happens with most changes. The system was renewed in 1989 and 1992. It will expire in just over two years, unless it is extended again, which seems unlikely. Because of the uncertainty, farmers need to know what the situation will be after 2000.&lt;lb/&gt;&#x000A;It goes without saying that quotas are a valuable asset for the farmer fortunate enough to have them. The change in 1984 was traumatic for farmers. Cutting off quotas and&#x000A;&lt;image src="S6CV0292P0I0160"/&gt;&#x000A;&lt;col&gt;305&lt;/col&gt;&#x000A;going for a completely free market after 2000 would be equally traumatic, resulting in a huge loss of asset value for dairy farmers through no fault of their own.&lt;lb/&gt;&#x000A;We cannot, however, ignore the fact that there must be some change in 2000, or at a reasonable time after that. The report and the debate are therefore timely, enabling both major parties to set out their thinking on how the situation should be resolved. When they do so, I hope that two factors in particular will be uppermost in their thinking.&lt;lb/&gt;&#x000A;First, we must make it clear that any return to the Commission&apos;s original idea of the early 1990s of limiting compensation according to a maximum number of cows would be unacceptable. The Commission was thinking of a maximum of 40. It called the idea modulation. British farmers, with their much larger herds, would call it something else, seeing it as another back-door way of harming a settled and prosperous part of our agricultural scene. I look forward to hearing from my hon. Friend the Minister and from the hon. Member for Newcastle&amp;#x2014;under&amp;#x2014;Lyme (Mrs. Golding) that the Commissioner will be told that the plan is a non-starter. We do not know what the Commission will propose. We are saying that we must not allow drift beyond 2000, which would result in uncertainty and quotas by default. If we are going to have quotas for the foreseeable future, we should be told.&lt;lb/&gt;&#x000A;Secondly, we should insist that there should be no reduction in this country&apos;s quota in the meantime. We are not self-sufficient in milk and we have a strong case for more quota rather than less. The impression hitherto has been that the Ministry is unlikely to press for additional quota. I regret that. Other countries, with records perhaps less authentic than ours, are robust in asking for extra quota in the price-fixing negotiations. We should do the same, and we should certainly argue against any suggestion of quota cuts. I would welcome assurances from those on the two Front Benches that that is their thinking.&lt;lb/&gt;&#x000A;It is tempting to say that we should not alter the quota system. It is not broke and does not need fixing. Farmers like the system, which protects them against cuts in support prices and is a capital asset in their hands. If we continue as we have done, comfortable though it may be, we must recognise that, according to the Commission&apos;s figures, in seven years there will be a surplus of 8.6 million tonnes of milk. To deal with that surplus, we are likely to have to end production controls.&lt;lb/&gt;&#x000A;That will mean a reduction in price for the producer, but that could be balanced over the years by greater access to world markets, perhaps coupled with suitable compensation for loss of a capital asset. Other countries are expanding and exporting their milk production, and we should do so too. We have the option of protecting the present regime for as long as we can or of getting into world markets. We cannot do both.&lt;lb/&gt;&#x000A;I am not too attracted by the idea of &apos;A and B&apos; quotas; neither was the Select Committee. They have operated in the sugar regime for some time. They produce stability, but the price is uncertainty when each round of negotiations looms. We are in a minority&amp;#x2014;one country out of many&amp;#x2014;when it comes to those negotiations. Our competitors are not widely known for protecting Britain&apos;s interests in sugar or in anything else.&lt;lb/&gt;&#x000A;Another price of quotas is the inability to produce more for world markets. To produce more, British Sugar has to set up plant abroad, whereas it should be able to produce&#x000A;&lt;col&gt;306&lt;/col&gt;&#x000A;more in this country, in excess of quota, and sell abroad. Milk &apos;A and B&apos; quotas would defeat the object of getting into worl