Tariff Rebate Subsidy (Northern Isles)

Part of Prayers – in the House of Commons at 10:27 am on 12th March 1997.

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Photo of Andrew Welsh Andrew Welsh , Angus East 10:27 am, 12th March 1997

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.

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's intentions so that the people may make a judgment about the fate that awaits them under Government policy.

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.

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"—that is, after the deduction of subsidy—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—that is, with the subsidy included—as that was the actual revenue earned by the operators before the changes.

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's position, or is the accusation of unfair competitive advantage true? I look forward to his detailed response.

Does the franchise specification favour older, depreciated ships, and hence act against newer vessels—