I beg to move,
That the Agreement, dated 3rd June, 1947, between His Majesty's Government and David MacBrayne, Limited, for the maintenance of certain transport services in the Western Highlands and Islands of Scotland, and for the conveyance of mails in connection with the said services, be approved.
I ask the House to approve an agreement made between the Ministry of Transport and the Postmaster-General, on behalf of His Majesty's Government, and Messrs. David MacBrayne, Ltd., for certain transport and mail services in the Western Highlands and Islands of Scotland. This agreement is for a rather short period, namely, from 2nd March, 1946, to 31st December, 1947. It will provide an opportunity for Members of the House to express their views, if they so desire, on the terms and conditions of this agreement. As I have indicated, it is an interim Measure, following the interruption of the agreement as a result of the war. It will probably lead to a long-term contract in the near future. David MacBrayne's steamship services have to deal with a very difficult economic pro-blem in relation to the population of the Western Isles.
This affords an opportunity for me to pay a tribute to the value of the work done by the officers and men of our short-sea coastal services, which is not always appreciated. It is at times such as Dunkirk, and more recently during the fuel crisis in the early part of this war, that we are able to appreciate the courage and devotion to duty of services of this kind in our Island's economy. David MacBrayne's ships made their contribution during the war. I have already referred to the Dunkirk incident; they were also used for minelaying, and for conveying troops in and around the Western Isles. This appears to be a suitable opportunity to acknowledge the services of the masters and crews in the past and for the future.
Whenever these contracts appear before the House, they usually arouse a certain amount of criticism, and that will possibly be the case tonight. In view of the fact that this is a short-term agreement, I shall listen to any criticisms that are made with greater attention than would probably have been the case if I were already committed to a long-term contract. I wish later to indicate some of the difficulties and new circumstances arising, which influenced me to look with considerable care before any long-term arrangement was made in this direction. This is the only company carrying out services of this description which has enjoyed a permanent subsidy from the State. That, as I have said, is because of the peculiar circumstances of the area which they serve. The subsidy dates back to 1891—[HON. MEMBERS: "Shame"]—and in 1928 a long-term contract, of 10 years, was inaugurated at a round figure of £50,000 a year, which rose to £60,000 towards the end of that period. That contract was subjected to rather severe criticism in the House. Before it was completed Messrs. David MacBrayne ceased to exist, and their liabilities were taken over, as a result of the deliberations of a Select Committee of this House, by Coast Lines Ltd., and the L.M.S. Dividing the capital liabilities between them, 50 per cent. on either side, they took over the old company's services. That joint body represents the ownership of the lines today.
The war brought that arrangement to an end. In 1941, the Ministry of Transport requisitioned their ships and other coastal vessels under the liner requisitioning scheme and the subsidy disappeared, because, during the war, the Ministry paid the gross rate of hire for all the vessels that were requisitioned. In March, 1946, I was responsible for releasing MacBrayne's services, and at once the old problem of the necessity for a subsidy re-emerged. In view of the fact that at that time the nationalisation of road transport was in preparation, the difficulties arising from increased expenses and changed character of the traffic, the knowledge that I possessed that the L.M.S. held a 50 per cent. shareholding in this company, and that provided the Transport Bill become law, that shareholding would pass into the ownership of the Transport Commission, hon. Members will realise that new factors emerged which caused me to think carefully before entering into a further long-term contract. Those Members who served on the Standing Committee on the Transport Bill will be aware that Scottish Members on all sides expressed a very direct interest in these services, and that I gave an undertaking that I would examine thoroughly the problem of transport in these wide and scattered areas. That examination has influenced me to agree to a memorandum of agreement on a short-term basis before being committed to a long-term obligation.
Under this agreement, MacBrayne's would undertake certain general services —steamer, road, ferry and harbour services. I regret that it has not been possible for the company to restore their full steamer services at once, but I am satisfied that every effort is being made by the company to improve them as rapidly as circumstances permit. I would remind the House that they came out of the war with five fewer ships, owing to war losses, and, like every other transport service, their ships had been subjected to very heavy wear and tear during the war. While they are anxious and willing to re-engine, replace and reconvert ships, they are handicapped by the general difficulties that prevail in the shipbuilding industry. Nevertheless, they have under construction at the moment, and it is near completion, the "Loch Seaforth," a 16-knot ship, and when this is in operation, which I hope will not be very long now, it will cut off one hour from the run to Stornoway. The ex-hospital launch "Galen" commenced today a new twice daily service between the island of Lismore and Oban. Negotiations are going on between the company and the Admiralty, and if a suitable craft can be obtained a ferry service will start shortly between Tobermory and Mingary.
As to the terms of the agreement, I think that hon. Members will appreciate that wherever a subsidy is involved—and this is a very substantial subsidy—for the services that are performed, it behoves the Government to keep the balance between the needs of an area of this character and the needs of the Treasury. That brings me to the problem of increasing the rates and freights. If one takes the advance of the coastal shipping freights as a whole, throughout the industry, there has been an, advance of at least 75 per cent. above prewar rates, but although these services were operating on a lower rate than generally prevailed before the war owing to the advantage of the subsidy, nevertheless, the Ministry of Transport and the Scottish Office have agreed in consultation only to advance the average increase of rates and fares of this service by 33⅓ per cent. from the 1st of November, 1946. Hon. Members will be aware that the rates and freights of this particular service are substantially below those prevailing generally in similar services. I must make it clear that the adjustment from war conditions does not represent a permanent adjustment of rates and freights any more than in other transport services. With regard to the financial conditions of the agreement, before the war the contracts that determined the subsidies were in round figures, as I have indicated, £50,000 rising' to £60,000.
After very full examination of all the special and abnormal difficulties which surround these services, it was felt that we could not proceed under conditions as they prevail today on the old basis upon which the subsidy was framed. Therefore, in this contract, I must bring to the notice of the House the difference in the basis of the subsidy. This subsidy is based on the difference between expenditure and income plus a sum of £33,000 providing 3½ per cent. interest on the capital employed. Some hon Members may feel that that is rather a generous basis, but I ask them to keep in mind the practical difficulties that prevail in the shipping world today. The shortage of shipping, and the abnormal expenses that any one operating shipping services has to meet are well known, and if any shipping service were diverted from these particular routes, there would be no difficulty at all in earning figures such as I have given here in the subsidy figures. I want to assure the House that this has been thoroughly considered and we feel, taking the whole of the circumstances into consideration, that the House would be justified in approving this agreement.
I come to the safeguards which we consider to be necessary. The Government have always had the right of appointing a director on the board of MacBrayne's. That will be continued. Further, the com- pany must submit its ordinary accounts to my Department and to those of the Comptroller and Auditor-General. We will have full access whenever it is required to the company's books. Under Article 15 (2), the company will be required to keep the surplus funds which they have received from insurance in respect of war losses invested at reasonable rates of interest, and these investments will have to be brought into their revenue account. New capital expenditure will be excluded, and the Minister's consent for expenditure on repairs other than normal repairs will have to be obtained Under Article 15 (3, b) no expenditure will be included in the accounts unless the Minister is satisfied that it is reasonably and properly incurred.
The cost of the subsidy for this year, 1947, is estimated to be £163,000 made up as follows: Direct subsidy, £145,000; interest on capital at 3½ per cent. £18,000, making a total, as I indicated, of £163,000. The company has to undertake certain services for the Postmaster-General, and that, of course, is a normal trading operation. The Post Office will contribute £35,000 for their services, which brings the net subsidy down to £128,000. I think the House will appreciate, as I have indicated, that this is a very substantial sum to be paid from the Treasury for services of this character. It is reasons and factors of the sort which I have indicated that have influenced me to give this matter more serious consideration before adopting any long-term policy on this matter While matters of that description are being examined, the life and trade and economy of the Western Islands must be maintained. Hence the interim arrangement. The Fair Wages Resolution which the House of Commons passed on 14th October, 1946, is inserted in Article 12.
There is only one other point which I need to make and that is with regard to the Government director. Colonel McLeod has been the Government director since 1928. He has given very valuable service on the board of directors. His period of office ended on 31st March this year. I want to take this opportunity of thanking him for his interest and valuable services. If the contract is approved by the House, as I sincerely hope it will be, I propose, in agreement with the Secretary of State for Scotland, to appoint as Government director on this board Sir Hector McNeil, the Lord Provost of Glasgow. He has served the Ministry of Transport in very many important ways; he has a very wide and extensive knowledge of this type of undertaking, and I am satisfied that he will look after the full interests of the Government in this direction. I close by asking the House to approve this agreement, and I assure Scottish Members that the undertaking which I gave them in the Standing Committee is still having my close attention, and I am hoping that I may be able to discharge it in a somewhat different way.