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Mr. David Marshall (Glasgow, Shettleston): My hon. Friend mentioned the suggestion that CalMac might have an unfair competitive advantage. Could that not apply equally to P and O?
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--I put it no higher--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.
The competitive tendering process has more to do with dogma and a bias against publicly owned, yet--as in this case--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--as they no doubt will be in the future--they might not have freight capacity and might be simply for passengers and cars. That would leave the islanders in a precarious position--again, the reverse of what the subsidy was intended to preserve.
Mr. David Harris (St. Ives):
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's to the off islands? Does he think that that is right? Is he
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.
Mr. Robert Hughes (Aberdeen, North):
We slipped up there.
Mr. McKelvey:
Only a certain amount of finance is allowed to Select Committees--as you well know, Madam Speaker--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--as there is in the Northern Isles--but if so, there is scope for argument that a subsidy should be provided to improve the services to those islands.
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's financial performance deteriorated by some £4.4 million. During the same period, P and O's freight revenue fell by only £1.4 million.
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 £24 million. During 1991-92, P and O undertook the purchase and refit of two second-hand vessels--the St. Clair and the St. Ola. In the case of the St. Clair, the cost of £15 million was 50 per cent. more than all investment over the previous five years. The MDS Transmodal report suggested that P and O had incurred significantly higher finance charges over that period. Coincidentally, the current cost accounts of Caledonian MacBrayne show a loss of £4.4 million for 1991--almost all because of increased provision for depreciation.
The Select Committee saw the issue of vessel replacement as of central importance to the inquiry, and the report states:
Dr. Norman A. Godman (Greenock and Port Glasgow):
On the acquisition of new purpose-built vessels--I refer to paragraph 81 of the Committee's fine report--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.
Mr. McKelvey:
My hon. Friend raises a relevant and helpful point.
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--not unlike myself--and certainly middle-aged.
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--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.
Mr. Phil Gallie (Ayr):
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.
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
Mr. Gallie:
I do not disagree with any of the hon. Gentleman'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.
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'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.
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'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'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.
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.
However, concerns about the under-usage of capacity that was identified in the Committee'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.
"We believe the dramatic deterioration in profitability experienced by P & 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."
I wish to refer to the recent tendering process for the contracts for supplying ferry and freight services. From the original 18 tenders--which did not include Caledonian MacBrayne--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--because of changes in European legislation--they would qualify for a 50 per cent. grant towards the purchase of a new vessel. That information was not
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.
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