§ Mr. William Ross
I have been examining the present arrangements for the support of the shipping services to the Scottish Islands, principally in relation to the finances of the Scottish Transport Group's two shipping subsidiaries.
On the technical and operational side. I am satisfied that the present policy of encouraging the modernisation of services through their conversion to roll-on/roll-off operation should be maintained, and I intend to continue to make available Government grants and loans for this purpose. Almost all West Coast and Clyde services are now provided by roll-on/roll-off vehicle ferries, and substantial progress is being made with modernising the services in and to the Northern Isles. Government grants and loans for pier and harbour improvements in the Highlands and Islands have risen from £170,556 in 1970–71 to an estimated £2.1 million in 1974–75 and £2.3 million in 1975–76. About 95 per cent. of the expenditure on pier and harbour improvements in the two years 1974–76 will be devoted to vehicle ferry terminals.
Financial support from Government for the operation of shipping services to the Scottish Islands was running at about £1.3 million a year in 1974–75.
Of this sum, £240,000 was paid to the Orkney Islands Shipping Co. Ltd. for the Orkney inter-islands services; £100,000 was paid to the North of Scotland, Orkney and Shetland Shipping Co. Ltd. for its part of the Shetland inter-island service. which will soon come to an end when the local authority's vehicle ferry service is in full operation. These Orkney and Shetland payments are made under the Highlands and Islands Shipping Services Act 1960. A further £174,000 was paid 108W in grant to local authorities as a contribution under Section 34 of the Transport Act 1968 towards the grants which they make for the support of ferry services; these specific grants under Section 34 will come to an end on 15th May 1975, but assistance will continue to be given through the rate support grant.
The Scottish Transport Group's shipping operations have since January 1973 been carried on by two separate companies, David MacBrayne Ltd. and Caledonian MacBrayne Ltd. David MacBrayne serves those islands which are too small and remote for services to them to come anywhere near financial viability, and this company receives financial support under the Highlands and Islands Shipping Services Act which in respect of 1974 amounted to £746,000; the payment for the current year has not yet been finally settled but is not expected to be less than the 1974 payment.
When Caledonian MacBrayne Ltd. was established as a separate company it was the intention that, after taking account of the Government grant towards the cost of terminals, its services should be financially self-supporing and be operated on a commercial basis. That aim has not been realised, and for various reasons—price restraint in previous years, heavy increases in operating costs, and a lack of buoyancy in traffic as a result of the oil crisis and of general economic conditions—the operating deficit on these services has risen to a level which the STG cannot support from its own resources. There is therefore a need for a substantial increase in charges or financial support from outside, or a combination of these.
Against this background the Government are prepared to consider the payment of a revenue grant in respect of Caledonian MacBrayne services, and in fixing the level of that grant will have regard to the interests of users, taxpayers and the operators of the service.
I have examined with the STG the financial basis of the company's services on the Clyde and to the Western Isles. As a result of that examination I am satisfied that the Caledonian MacBrayne services cannot in the immediate future pay their way without an increase in charges to a level which I think would be generally regarded as unacceptable. Taking the group's shipping operations 109W as a whole, the deficit for 1974, after all charges, including depreciation, have been met, is expected to be £1.5 million, after taking account of subsidy payments to David MacBrayne Ltd., against a total turnover of £5.8 million. If the present basis of financial support were continued an increase in charges on the Caledonian MacBrayne services of the order of 65 per cent. would be necessary. This is more than users can be expected to pay in a single increase and I have therefore agreed with STG that I should pay a new annual grant in respect of the hitherto unsubsidised Caledonian MacBrayne services; this is expected to amount to about £2.5 million in respect of the company's 1975 financial year, so that payments from Government towards the operating costs of STG's shipping services will rise from about £750,000 to over £3 million a year.
Leaving aside assistance through the rate support grant, operating subsidies for shipping services will then be approaching £4 million in all, and total direct Government support, including both grants and loans for the operating and capital costs of shipping services in Scotland will then be over £6 million in 1975–76. A draft undertaking under the Highlands and Islands Shipping Services Act to give effect to the Government's proposed extension of the financial support paid towards the cost of operating these services will be laid before Parliament in due course, for the approval of this House under the affirmative resolution procedure. The undertaking will give details of the method of fixing and paying the subsidy to STG.
Even the greatly increased financial support which I propose to provide to STG will not balance the books of the group's shipping subsidiaries. It will be recalled that Price Commission approval was obtained last September for an increase in charges to bring in overall slightly more than 17 per cent. of extra revenue; this increase was held over pending the outcome of this review. In the interval costs have of course continued to increase, and I have come to the conclusion that an increase in charges to bring in the same percentage increase in revenue is now unavoidable. The STG is accordingly making arrangements for increases of 20 per cent.–25 per cent. on passengers and private cars, 25 per cent. on "loose" freight and 5 per cent. 110W of commercial vehicles to be brought in from 1st May 1975. Almost all the freight traffic in the islands, other than that carried in bulk, now moves by road and vehicle ferry, and the low rate of increase for commercial vehicles recognises their importance in the economic life of the islands, including agriculture. Although the earlier intention that these services should pay their way cannot now be maintained it will be understood that people in the islands must expect to have to pay their share of increases in transport costs.
The services to Orkney and Shetland are not provided by the STG, but by the North of Scotland, Orkney and Shetland Shipping Co. Ltd., which is a wholly owned subsidiary of P. & O. Ltd. The North Co's services from Aberdeen to Lerwick and Kirkwall and across the Pentland Firth to Stromness are operated on a wholly commercial basis, except that the Orkney County Council pays an annual grant of £82,000, of which 75 per cent. has hitherto been met by the Secretary of State under the Transport Act provisions, to offset proposed increases in charges on services to Orkney in 1969 and 1970. As on the West Coast, pier and harbour improvements in Orkney and Shetland qualify for direct Government grant. In the two years 1974–76 more than two-thirds of the provision available for harbour improvements will go to the Orkney and Shetland services—Scrabster, Stromness, Lerwick, Aberdeen and the Shetland overland route. In view of this, and of the fact that increases in charges for the services to Orkney and Shetland have over recent years been lower than on the West Coast, largely owing to the greater prosperity of those communities and the more compact route structure of their arterial shipping services, I do not consider that there is a need at present to offer Government subsidy for those services, and more especially as three new firms have introduced on an entirely commercial basis regular services to Orkney and Shetland from English and Scottish ports.
I have not found myself able to accept the renewed suggestions of the Highlands and Islands Development Board that charges should be based on what they describe as the road equivalent tariff. There are two reasons for this; first, the pro- 111W posal completely ignores the real costs of shipping services, whereas I consider it important that charges should continue to be related to costs so as to reduce the risk of misuse of resources, and, second, there would be the very high cost to the Exchequer of accepting the board's suggestion; on the basis of calculations made in respect of a limited number of services it seems that the total subsidy required for STG's services, would be about three-quarters of the total cost of the services concerned, which I regard as excessively high.
The previous Government's policy statement of April 1972 said that local and minor services, including the Orkney and Shetland inter-island services, would be for local authorities to support. Some progress has been made with the transfer to local authority support of minor services at present in receipt of Government support and the Government intend to continue discussions with the authorities concerned. The extension of Government subsidy to the Caledonian MacBrayne services raises the questions whether all these services should qualify for Government support or whether Government responsibility should extend to the main arterial routes only, with secondary and minor routes, including seasonal services, being supported by the regional and island authorities. Transfer to local support and control would fit in with the wider responsibilities for the planning and co-ordination of transport in their areas which the new authorities will assume next month, and would enable matters of essentially local interest to be settled locally. Once the regional and island authorities have settled into their new duties I shall want to discuss these questions with them.