Current Petitions

Thank you for your invitation, which I appreciate. I will keep my presentation brief. My petition is about the appointment—which would be desirable—of an expert task force to advise Parliament and the Government on the regulatory oversight of ferry services in Scotland.I have experience of this. I think that I first suggested it to a transport committee of the Parliament in 2000-01, to which I gave invited evidence. In the second session of Parliament, I again documented the failures of governance to another transport committee of the Parliament, and in the third session I again gave evidence to a transport committee of the Parliament, in which I repeated those failures in governance. On other occasions, I have advised parliamentarians and ministers that the appointment of such a task force would require only modest resources but could have a tremendous impact. I hope that this committee will at least give me credit for persistence, if not for success.The purpose of my brief presentation is, I hope, to try to put the arguments in context. You have in the documentation evidence of why there have been successive failures in governance as far as ferry services are concerned. The petition is not about whether we should have public or private ferries; it is not about policy. However, to put it in context, I would like to mention two current areas of policy in which failures in governance can have a major impact on the public interest in Scotland. Both relate to cherry picking, or the dangers of cherry picking.As an economist, I should say that cherry picking is not necessarily bad, but you have to have ways of governing it. You have to prevent it, to regulate it or to find ways of dealing with it, such as having competition among cherry pickers. The Government decided to deal with cherry picking by bundling routes. One policy development in the northern isles, which might be followed in the area where CalMac Ferries Ltd operates, relates to single-route tendering, which again raises the issue of potential cherry picking.Cherry picking in the context of ferry services is not about routes but about particular services on routes, especially the high-value services such as ferrying vehicles and freight. The evidence in Scotland is that single-route tendering has not delivered—there is quite a bit of evidence of that. It has failed to deliver in the cases of the Campbeltown-Ballycastle and Gourock-Dunoon routes, it was resisted by three quarters of the respondents to the consultation exercise on the northern isles routes, and there is no economic case for it. If there were, we would see ScotRail services being tendered route by route. So, single-route tendering causes issues that have to be addressed by the governance structure. It has to be said that at the moment, the governance structure is not set up to deal with that and will fail to deliver. Parliament should be aware of that.The second policy issue that I want to raise, which relates to governance issues or potential failures of governance, is the road-equivalent tariff, which members might know has been piloted in the Western Isles. Crudely put, it involves setting much lower fares than have previously been set by the CalMac ferry service—roughly half the level of fares that prevailed before. The pilot that is currently running was due to finish before, or just after, the previous election. It has again been extended and is due to finish next year. At the moment, there is pressure for decisions to be made as to whether RET is to be extended to the rest of the network. If you read The Herald last week, you would have seen that pressure is coming largely from commercial enterprises, whose interests are in making sure that RET is not extended to the rest of the network because it would, at a stroke, remove all possibility of cherry picking because it would be impossible to undercut the RET fares.Whether to allow cherry picking, and which policy decisions to enact, are issues for Parliament and the Government. However, the present governance structures are not really set up to deal with the issues. I hope that, in tandem with policy that is in train just now, Parliament can set up a task force to give advice on the options and the dangers that may be involved in these policy issues.The northern isles tender will go out next year, and the CalMac tender will go out soon after. There is therefore a window of opportunity during which the Parliament will, I hope, do what has not been done in previous years, which is take from people with experience of regulatory oversight of other essential services expert advice on how to deal with the options that are before Parliament and the Government.

In the documentation that the committee has before it, I raise a number of issues that could be considered. The answer to the question of what the role and responsibility of a regulator should be can be gained from other regulated industries. Other essential services have dealt with the problems of operator of last resort, of exclusivity, of cherry picking, and so on. They are not unusual problems; they are standard problems. Therefore, the agenda that a regulator would face, and the issues that a task force would attend to, are really the issues that have appeared time and again in other regulated essential services. For example, exclusivity—the issue of whether there should be just one operator on a route, or whether free entry should be allowed—has raised its head time and again, but it has never been properly solved.Over the previous three sessions, the preoccupation of Parliament has been with the European Commission. However, the European Commission has narrow interests in such areas. It is interested in non-discriminatory tendering, in open access to other EU operators, and in there being no overcompensation. However, issues such as operators of last resort are left for national authorities to deal with. Such missing areas, which other essential services have dealt with, should be fully on the Parliament’s agenda.

The answer to that is straightforward. An analogy that I have used before is that public service obligations and public service contracts are like a knife and fork: you might use a knife independently of a fork, or you might use a fork independently of a knife, but sometimes you might wish to use them together. So it is with public service obligations and public service contracts: sometimes it is sufficient to have a public service obligation without a contract, and sometimes you might wish to have a contract without a public service obligation. The Commission’s investigation was sparked when the possibility of state aid to CalMac and the northern isles ferry services came in. Sometimes, when you have public service contracts, you have to have clearly defined public service obligations as well. Sometimes they are alternatives, but sometimes they are complementary.

Essentially, the evidence on that is documented in the petition. During the past 10 or 11 years, I and others have tried to advise on the issues that are documented in the petition on which there have been genuine failures. Indeed, as I have said in my response to it, I do not feel that Transport Scotland’s response to the petition was adequate or dealt with the issues. That is part of the answer.We are talking about skills and competences here, and we are dealing with what is effectively the only distinctively Scottish service that is essential and major. If we think of other essential services such as gas, electricity, water—which is a special case—and rail, they all have UK dimensions and the experience in how to regulate them and the problems that have been dealt with have been embodied at UK level. One of the things that I said in 2000-01 was that there was an abundance of expertise in the Department for Transport and Industry and other UK agencies on how to regulate for the particular issues—cherry picking, exclusivity, bundling of routes, operator of last resort—that are so important in practice.I will give two more examples of that, if I may. I raised the question of a regulator in 2000-01, and the attitude to the suggestion was that we already had a regulator in the Maritime and Coastguard Agency, but that is a safety regulator. There was no real understanding of the notion of an economic regulator because such issues were dealt with at UK level.The other matter is operator of last resort. Over three parliamentary sessions, I and others have tried to communicate how important it is to have an operator of last resort if we have competitive tendering. That is a standard solution in every other essential service. If the operator goes bankrupt or fails on technical or financial grounds, the service has to have a backup. That issue was on the agenda for at least the first two sessions of Parliament but it has disappeared now. There are genuine problems with the suggestion, but it has just been brushed under the carpet. It is important for such genuinely important issues to be put on the agenda and dealt with by people who know how to deal with them. Those who know how to deal with such issues are those from other regulated essential services.

Well, there were the three invitations to appear before the various transport committees, and there have been numerous letters to ministers and to parliamentarians. We have made repeated efforts over the years. Would you like me to mention my “Newsnight Scotland” appearances?

They were not “numerous”.

I hope that the group’s existence and its members’ credibility, which would be critical, would give proposals momentum and credibility. Ultimately, that would benefit not just the public and the Parliament but the Government.In the ferries review, the transport directorate has heard the voices of vested interests. I read the consultant’s report. Having been a consultant, I will say that consultants’ reports are good—there is no problem with them. However, consultants respond to terms of reference, and the answers depend on the questions that are asked. In this case, Transport Scotland has determined the questions. In terms of reference for consultants, questions are not being set about known soft and vulnerable areas. In the ferries review, the vested interests have their own agendas. We need an authoritative task force with credibility. The group that is appointed should reflect credibility and expertise in the areas that I have described. I hope that that would create a voice with the influence that others—such as me—have not had over the years.

Yes.

That is exactly what I imply. In case it is being suggested that purely private interests are unduly influencing matters, I add that CalMac—or the David MacBrayne Ltd holding company—and NorthLink Ferries Ltd have vested interests. If several voices have particular agendas, making a coherent story can be difficult. The responsibility of the task force or expert group—the terms are synonymous; I have used the same phrases at different times—would be to advise and give an overview from its expertise, which is missing at the moment.

In the past few days, I have been in discussions with an operator who said that going for a six-year contract on their particular route would not be on. CalMac used to plan for a 20-year lifespan for its vessels, but some of its vessels are now well over 30 years old. A role therefore arises for a public body such as Caledonian Maritime Assets Ltd, which can consider long-term investments that private operators would not. Under European Commission law, it is quite legitimate to build vessels for a route and then to lease them to operators under competitive tender. That leads to a separation of the long timeframes that are required for building capital assets from the relatively short timeframes for contracts, such as those of six years.This goes outside my petition, but the six-year time horizon has been heavily criticised by many people. It is not long enough to allow a sensible contractual basis. However, one way of dealing with that is to have CMAL—a state-owned company—building vessels under EC law, and under competitive tendering itself, and then leasing the vessels on the routes for which they were designed.

No. Absolutely not.

Thank you for your time and consideration.15:42 Meeting suspended.

15:43 On resuming—