PARLIAMENTARY DEBATES

HOUSE OF COMMONS

OFFICIAL REPORT

First Standing Committee on Statutory Instruments, &c.

DRAFT UNDERTAKING BY THE SECRETARY OF STATE FOR SCOTLAND WITH THE CONSENT OF HER MAJESTY'S TREASURY AND OF ORCARGO LIMITED

Wednesday 10 March 1993

LONDON: HMSO

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The Committee consisted of the following Members:

Chairman: Dr. John G. Blackburn

Batiste, Mr. Spencer (Elmet)

Body, Sir Richard (Holland with Boston)

Canavan Mr. Dennis (Falkirk, West)

Chisholm, Mr. Malcolm (Edinburgh, Leith)

Coombs, Mr. Anthony (Wyre Forest)

Dalyell, Mr. Tam (Linlithgow)

Donohoe, Mr. Brian H. (Cunninghame, South)

Douglas-Hamilton, Lord James (Parliamentry Under Secretary of State for Scotland)

Galloway, Mr. George (Glasgow, Hillhead)

Graham, Mr. Thomas (Renfrew, West and Inverclyde)

Hendry, Mr. Charles (High Peak)

Howarth, Mr. Alan (Stratford-on-Avon)

Kennedy, Mr. Charles (Ross, Cromarty and Skye)

Kirkhope, Mr. Timothy (Leeds, North-East)

McFall, Mr. John (Dumbarton)

Martin, Mr. David (Portsmouth, South)

Merchant, Mr. Piers (Beckenham)

Townsend, Mr. Cyril D. (Bexleyheath)

Mr. R. G. James, Committee Clerk

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3 First Standing Committee on Statutory Instruments, &c. Wednesday 10 March 1993

[DR. JOHN G. BLACKBURN in the Chair]

Draft Undertaking by the Secretary of State for Scotland with the Consent of Her Majesty's Treasury and of Orcargo Limited

4.30 pm

The Parliamentary Under-Secretary of State for Scotland (Lord James Douglas-Hamilton): I beg to move, That the Committee has considered the draft undertaking by the Secretary of State for Scotland with the consent of Her Majesty's Treasury and Orcargo Limited. This is a small but useful measure which will benefit the island community of Orkney. As hon. Members will know, the Government are committed, through their election pledges, to promoting the survival and prosperity of the island communities of Scotland. Shipping services play an essential part in maintaining the viability of island communities. The Government, in recognition of that fact, have in recent years substantially increased the level of financial support for those essential sea transport services. Since 1979–1979 the Government have increased the total amount of financial support for shipping services in the highlands and islands by more than 20 per cent. in real terms because they are regarded as lifeline services. In July 1979 we entered into an undertaking under the Highlands and Islands Shipping Services Act 1960 with P and 0 Ferries. Under this undertaking, Government funds used to subsidise the commercial tariffs for passengers and cargo travelling to and from Orkney and Shetland. Revenue support for Caledonian MacBrayne's ferry services on the west coast has also been substantial over that period. That resulted in lower fare increases than might have been expected and the improvement of services by investment in new vessels and ferry terminals. We have also introduced, progressively since 1981, a series of undertakings with bulk shippers to reduce the cost of their services to consumers in the highlands and islands area. The draft undertaking before us today is the latest in that series. It may be useful if I explain how the scheme of tariff rebate subsidies operates. The scheme is straightforward. The bulk shipper works out a commercial tariff for the carriage of a particular cargo. If the cargo and route are eligible for tariff rebate subsidy he will then reduce the price charged to the consumer by a percentage agreed by the Scottish Office. The Scottish Office will then reimburse the shipper for the revenue lost. Such subsidy directly benefits the islanders by reducing the cost of transporting people and goods to and from the islands. The subsidy is not a direct subsidy to the shipping company itself—although, without it, shipping could not be provided commercially at tariffs that the market would bear. I come now to the specific undertaking for which we seek approval. Orcargo was incorporated in July 1991 and began trading in March 1992 following the purchase and conversion of a roll on/roll off vessel, the Contender. The company is owned by David Laidlow and Angus Sinclair, 4 both residebt in Orkney, who have a business backround in the transport, shipping and fishing industries. Both men invested £150,000 as shareholders in the company, and at finance has been supplemented by loans totalling £1.2 million. The company's objective when it was set up was to purchase and operate a ro-ro vessel that would provide a dedicated service to the Orkney islands between the ports of Invergordon in the Cromarty firth—is the constituency of the Member for Ross, Cromarty and (Mr. Kennedy)—and Kirkwall, Orkney. The Orcargo service has been purposely designed to be convenient and attractive to road hauliers, and reflects Mr. Laidlow's experience as a haulage operator. The service is attractive to hauliers because, on a round trip, the use of Invergordon instead of Scrabster as the port of departure for Orkney saves around 220 miles of road journey costs. The company has maintained a regular and reliable service between Invergordon and Kirkwall, with six return sailings each week since March 1992. Orcargo has managed to maintain that service and to build up its market share despite intense competition from P and 0 Scottish Ferries and Orkney Line, which have the advantage of support under the tariff rebate subsidy scheme. From an examination of financial information provided by the company, we concluded that the company is financially and commercially viable, provided that it receives assistance under the tariff rebate subsidy scheme to enable it to compete on an equal basis with the other shipping operators already receiving subsidy support. It is intended that the rate of subvention will be 47.4 per cent. southbound and 10.5 per cent, northbound. That reflects the views of the islands council that it is more important to subsidise exports from the isles than goods brought by shippers to the isles. It is a standard subvention rate and it applies to all north isles operators. The exact details of the commodities on which Orcargo can offer tariff rebate subsidy will, as with other shippers, be the subject of annual discussions between the company and the Scottish Office. The undertaking will be welcomed by the islanders. From the correspondence that I have received, I know that there is support for the admission of the company to the tariff rebate scheme that the undertaking effects. The amount concerned will be about £400,000 in the year. The hon. Member for Orkney and Shetland (Mr. Wallace) wished me to pass on his regrets to the Committee that he could not be present today. He considered several facts to be relevant: first, that the crew is British; secondly, that the crew is resident in the highlands and islands and, thirdly, that the ship now has a British flag. It is a registered British vessel that offers a lifeline service. The undertaking will be a useful addition to our support for the islands communities. I commend it to the Committee. Finally, as a matter of courtesy to the Select Committee on Statutory Instruments, I wish to say that I have studied its report, which includes several helpful points on how the drafting could be improved. I carefully studied its recommendations and I accept that, although some of the drafting amendments may be desirable, they are relatively minor in nature and not essential. On those grounds, I do not consider that the delay that would be caused by the withdrawal of the undertaking and its submission once again to Parliament would be justified. I have made a careful note of the Select Committee's points and I shall 5 ensure that they are taken fully into account in the drafting of future undertakings. I have no hesitation in recommending the order to the Committee.

4.37 pm

Mr. Charles Kennedy (Ross, Cromarty and Skye): In context to what happened earlier this week, we are supporting the Government on this occasion. I was grateful to the Minister for mentioning my hon. Friend the Member for Orkney and Shetland who cannot be here today because of constituency commitments but who has been in correspondence and communication with the Minister on the issue for the past 12 months or so. The service shuttles between our respective constituencies and, like my hon. Friend, I greatly welcome the undertakings. I wish first to underscore the Minister's point about the importance of maintaining the exporting capacity of the islands community generally—and in respect of the undertakings the northern Isles in particular. I emphasise the importance of the link between Kirkwall and Invergordon in my constituency, and I welcome the recognition that the Scottish Office has given to it. Secondly, I wish to emphasise that the service is a reflection of the general diversification that has been pursued by the Comarty Firth port authority in the area of its responsibilty. I am sure that the Minister will agree that that diversification is important, not least given the cyclical ans ultimately finite nature of the oil and oil related sector. Such developments are extremely important. Thirdly, given that P and O has expressed some anxiety about the development, I shall underscore the point that my hon. Friend the Member for Orkney and Shetland made to the Minister in his letter dated 10 June 1992. My hon. Friend wrote that since "the service was initiated in March,—P and O has significantly reduced their charges on routes to Orkney and in one important respect it would appear that the competition is having a desired effect." My hon. Friend went on to state: "The other side of the coin, however, is that there is not a level playing field in the Orcargo do not have the advantage of the subsidy which P and O has. Accordingly if the competition is to be sustained, it would surely be desirable that both companies operate on an equal basis," The order is welcomed in that it gives effect to such a desirable outcome. My hon. Friend the Member for Orkney and Shetland and I support the sentiments expressed by the Minister.

6

4.41 pm

Mr John McFall (Dumbarton): The official Opposition also welcome the undertaking whereby the company Orcargo will be admitted to the tariff rebate subsidy scheme. It seems that, when Ministers go three quarters of the way up the country, the rarified atmosphere clears their minds and they give us a touch of Keynesian economics. Here we have investment in a transport system which will result in a greater return at the end of the day. Why does the Minister not apply the lessons that he has learnt from the highlands and islands to the lowlands so that we end up with a really good transport policy? The Opposition fully support the undertaking.

Mr Kennedy: I hate to intrude again, but the honourable Gentleman has encouraged me to do so. He may think that the order is the result of sheer benevolence due to the wonderful atmosphere of the highlands, I am sure that the Minister and I could talk about another ferry service on the Isle of Skye and what might replace it, but I shall not go into that today because the approach to that is distinctly less benevolent on the part of the Scottish Office.

4.42 pm

Lord James Douglas-Hamilton: I thank honourable Members very much for coming here to support the undertaking when important business is being discussed on the Floor of the House. I am glad that Invergordon, which I have visited, has diversified. That will be important for employment. Let me make one final point. More than 50 years ago, the population of St. Kilda was removed to the mainland. Of course, at that time, they were living on a diet of gannets and fish, which was not the most healthy diet. None the less, that was considered to be a very controversial decision. The island communities regard the Orcargo service as a lifeline service, and I am grateful to honourable Members for supporting it.

Question put and agreed to.

Resolved. That the Committee has considered the draft undertaking by the Secretary of State for Scotland with the consent of Her Majesty's Treasury and of Orcaro Limited.

Committee rose at seventeen minutes to Five o'clock.

THE FOLLOWING MEMBERS ATTENDED THE COMMITTEE:

Blackburn, Dr John G (Chairman)

Chisholm, Mr

Coombs, Mr Anthony

Donohoe, Mr

Douglas-Hamilton, Lord James

Howarth, Mr Alan

Kennedy, Mr Charles

Kirkhope, Mr

McFall, Mr

Martin, Mr David