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Public Service Obligation Orders

1.30 pm

Mr. Alistair Carmichael (Orkney and Shetland): I am delighted to have secured this debate, which is the first that I have secured in Westminster Hall. I am especially pleased that the Under-Secretary of State for Transport, Local Government and the Regions, the hon. Member for Plymouth Devonport (Mr. Jamieson), will reply. I know that he has some Shetland antecedents and that his portfolio includes many of the reserved transport matters that remain of great interest to me and my constituents. I hope that he will find time to return to his roots and visit Shetland, where I assure him of a warm welcome. Shetland is famous—some might say notorious—for its hospitality. Indeed, if he brings with him a public service obligation order, I can offer him more than a warm welcome—I can assure him of a hero's welcome.

I have spoken in this Chamber before about my obsession with transport. It is an obsession for which I make no apology. If one lives in an island community, as I do, transport is crucial to everything: get that right and just about everything else will fall into place. Since 1997, the Government have placed great emphasis on the need for social inclusion. We in Orkney and Shetland regard air services and the provision of transport services as a matter of social inclusion. Social inclusion is as important for a peripheral island community as it is for a peripheral housing estate in Glasgow or Edinburgh.

Let me give a few examples of our transport arrangements. The ferry alternative to air services to Shetland is a 14-hour overnight journey from Shetland to Aberdeen. From Orkney, it is a two-hour ferry journey to Scrabster, and from there to Aberdeen is at least a four-hour car journey—I have done that, so I can tell hon. Members that four hours is pushing it slightly. In that context, air services are crucial.

The return ticket that I bought in Orkney for this week's journey to Westminster cost £528 plus taxes. I can say that without blanching and without needing to sit down because it is paid by the Fees Office. If I had to use my private or my business income to pay for it, I would be rather less sanguine about that sort of expenditure. The Minister can doubtless imagine how it is when, for example, a family suffers a sudden bereavement and has to fly south at short notice. The myriad conditions, such as having to fly on a Saturday, would result in the family not being entitled to cheap fares. Constituents have recently come to my surgery saying that it would cost in excess of £900 for two or three members of a family to attend a family funeral in Glasgow.

There is a massive knock-on extra cost for the provision of health services on the islands, because specialist services are increasingly provided from Aberdeen and Inverness. In education, the provision of orchestras or sports services or any extension of interest in drama involves travelling away from the islands. Doing that in a reasonable length of time is dependent on air services.

I hesitate to speak of rugby clubs in your presence, Mr. Deputy Speaker, but there is a fine one in my constituency. Orkney rugby football club is striving to

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get into Scottish national division four. For a community of our size, that is a considerable achievement. We have a budget of £40,000 a year to run that club. I hazard a guess that there is not another rugby club in the country that cannot pack the first 15 into four cars and drive them wherever they need to go. That is the extent of the burden that is placed on us, whereas many communities on the mainland take ease of travel for granted.

The constant threat to communities such as those that I represent is that of depopulation. To make those communities attractive so that people move to them and stay in them, they must be made accessible, but if one speaks of subsidising air routes, state aid rules come into play. The Minister will be aware that derogations, through the provision of public service obligation orders, are allowed under European Union law.

The European Commission's third package of air transport liberalisation measures was adopted under Council regulation 2408, which trips very nicely off the tongue, in 1992. That regulation contains provisions under article 4 that permit the imposition of a public service obligation on scheduled air services within the European Union. Under the regulation, member states have the legal authority to impose a PSO in respect of scheduled air services on routes serving peripheral and development regions within their jurisdiction. The rationale for imposing a PSO should be based on the consideration that the maintenance of regular air services is vital for the economic development of the region in which the airport is located.

Furthermore, a PSO should be imposed where adequate provision of air services in terms of continuity, capacity and pricing would not be possible if air carriers considered solely their own commercial interests. That is very much the case in the highlands and islands. In selecting routes for PSO designation, member states are required to incorporate public interest considerations in addition to an assessment of the adequacy of services provided by alternative modes of transportation. A service that charges £528 plus taxes for travel between Orkney and London could not, within any reasonable definition of the term, be described as adequate.

I will examine briefly the experience of other countries within the EU that impose PSOs on domestic routes. The first example is that of France, where 46 domestic routes are subject to PSOs. The remarkable thing is that they are largely within France itself—they do not serve only island communities. A lot of them operate out of the big Paris airports. Some 18 of them have been imposed on links with Corsica, and the most expensive fare that I have been able to find linking Paris with Bastia or Calvi on Corsica is £84.

In Italy, there are PSOs on routes between Sardinia and Milan and Sardinia and Rome. The Cagliari-Rome route has eight round trips per day and the maximum one-way fare is £41. Sardinia has a much more robust economy than either of the two communities that I represent, but the Sardinians are supported by their central Government because they are valued by them. Sadly—this is not a comment on the present Government—Governments for time immemorial have failed to place a proper value on peripheral and island communities such as Orkney, Shetland or the Western Isles.

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In Portugal there are PSOs on 10 domestic routes, four of them linking Lisbon or Oporto with the Azores. In 1999, the total subsidy was £16.9 million and 1.4 million passengers were carried. Again, we see the sort of community that is subject to all the conditions that are attached to PSOs by the EU and that is able to have PSOs placed on it. One has to wonder why, if we are all supposed to be on a glorious level playing field in the EU, people living in island communities in Italy, France, Spain and Portugal are given that sort of treatment by their Governments but we are not.

It is not, however, all about cheap fares. Fares are the most easily identifiable issue about which constituents who approach me speak most animatedly. With PSOs, there are all sorts of possibilities. With them comes the opportunity to stipulate minimum service standards, the size and nature of the aircraft that is to be provided, the seating capacity and the timetabling—people can leave the island for the mainland at a time of day that is useful and that will allow them to return when they have completed their business.

The penalties that can be imposed for non-compliance with a PSO are also of great importance. Many of the benefits that I see in the imposition of PSOs stem from the fact that at present we are greatly dependent on our air services, yet we have little control over them. I pay tribute in particular to Loganair, which operates the British Airways franchise to Orkney and Shetland. The company is meticulous about keeping me and my colleagues in the Scottish Parliament informed about what it is doing and how it feels the service can be better operated. That is because it chooses to do so. If it chose not to, I could do nothing about it.

For something that is so important to many aspects of island life, that measure of local control is absolutely essential. We already have some experience of PSOs, as all the internal flights within Orkney and Shetland operate under them. Until recently in Orkney, that was limited to a handful of flights. However, the difference that the operation of PSOs made to communities like Papa Westray and North Ronaldsay was immense. It gave them the confidence to attract and keep people in those vulnerable communities. What happens to North Ronaldsay today will happen to mainland Orkney in five or 10 years and, no doubt, to the rest of the highlands and islands in 20 years. If we allow that constant drip of depopulation, we shall eventually find that we are all living in London—and heaven help us when that happens.

It is probably awfully poor form to refer to one's maiden speech, but I cannot help recalling time and again something that I said when I first came to the House—that I come here to represent communities that are proudly self-reliant. We are not subsidy junkies; we have a great contribution to make to the rest of the United Kingdom, not least that which flows through Flotta and Sullom Voe in the form of revenue to the Treasury from the oil industry. We have a lot to offer. The strength of the United Kingdom comes from the diversity of its communities. There is an obligation on central Government to ensure the survival of the widest possible range of communities. If communities such as

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Orkney or Shetland, or even the smaller ones such as North Ronaldsay or Papa Stour, Papa Westray or Graemsay, are depopulated, we shall all be the poorer.

I am conscious that I have spoken for almost 15 minutes. I am keen that the Minister should be allowed as much opportunity as possible to give a full exposition of the Government's thinking. Perhaps, in the course of that, he might be kind enough, if I conclude my remarks now, to allow me the occasional intervention.

Mr. Deputy Speaker (Mr. Nicholas Winterton): I call the Minister, who is a very regular contributor to debates in Westminster Hall.

1.45 pm

The Parliamentary Under-Secretary of State for Transport, Local Government and the Regions (Mr. David Jamieson) : I congratulate the hon. Member for Orkney and Shetland (Mr. Carmichael) on having secured the debate and on the sensible and clear way in which he has presented his case. The proud and self-reliant people of Orkney and Shetland can be proud that they have a good advocate. He is a doughty fighter for them, and may be for many years to come. I also congratulate him on having mentioned my antecedents. More than a century ago Magnus James Jamieson left Shetland to find his fortune in England. I could not have moved further away—in Plymouth, I am about as far as one can be in the United Kingdom from the Shetland Isles.

Mr. Deputy Speaker : Bar Solihull.

Mr. Jamieson : Thank you, Mr. Deputy Speaker. Given the peripherality of the constituency of the hon. Member for Orkney and Shetland, it is hardly surprising that he should be such a forceful advocate for good transport links between island communities and the mainland and I am aware that he spoke in a debate on rural and island transport on 8 January. At that time, he said that the chance to discuss island issues in the House is rare, so I am sure that he is glad to have had an opportunity to put the spotlight on the concerns that he has raised for Orkney and Shetland today.

As the hon. Gentleman has pointed out, the ferry journey from Shetland to Aberdeen takes 14 hours and it is, I believe, quite a rough one at many times of the year. No one can doubt that air transport is the only means of transport capable of providing the adequate links to the mainland that are essential to ensure the economic and social well-being of island communities. I can well understand the concern that those services should be reasonably priced and within the means of ordinary people.

Perhaps I can begin by setting out the regulatory framework that governs the air transport market and the extent to which Governments may intervene in it. There is a fully liberalised air transport market within the European Community. That means that Governments are not at liberty to interfere in the operation of the market. However, the European law that establishes the single air transport market recognises that special provisions may be necessary to maintain adequate services to regions. It therefore creates the ability for Governments to intervene in the

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operation of the air transport market by imposing PSOs. A PSO is an obligation imposed on a carrier to provide a set level of service on a particular route to ensure that the service satisfies fixed standards of continuity, regularity, capacity and pricing. The aim of a PSO is to ensure the adequate provision of scheduled air services to such standards, responsibility for which air carriers would not assume on a commercial basis.

The regulation empowers member states to impose a PSO in respect of scheduled air services on a route serving a peripheral or development area or on a thin route to any regional airport, where such a route is considered vital for the economic development of the region in which the airport is located and where an adequate standard of service would not be provided by carriers having regard solely to their commercial interest.

The hon. Gentleman was kind enough not to mention it, but one of the other links in the country is between Plymouth, Cornwall and London, which has some of the features that he mentioned. It is a different circumstance but has a similar effect for the people in my area.

The adequacy of standard of service is defined against criteria contained in the regulation, including public interest, the availability of other forms of transport, air fares and conditions for users, and the combined effect of all carriers operating or intending to operate on the route. A member state may, therefore, impose a public service obligation on any route that meets the criteria stated in the regulation.

I should make it clear that imposing a PSO does not in itself subsidise the service, although a route must be subject to a PSO before any subsidy may be paid. When the PSO has been imposed on a route, provided that no carrier has commenced a scheduled air service on that route in accordance with the PSO, the regulation allows the route to be restricted to a single carrier, subject to an open competitive tendering and for remuneration of operating losses incurred by the carrier selected to operate the route.

The Government's overriding policy since the inception of the liberalised air transport market in 1993 is not to intervene in the market unless it is felt absolutely necessary. We consider that the level of air fares is a commercial matter for airlines. The airline takes several factors into account when setting fares, such as the effect that fares would have on the volume and need to maximise capacity.

Mr. Carmichael : That is a fair statement of Government policy, and that of the last Conservative Government, but does the Minister understand the frustration that is felt in the isles when we see other Governments in the EU taking a much more interventionist approach to PSOs? Why should we not be given the same opportunities as others?

Mr. Jamieson : I can assist the hon. Gentleman on that matter. For a PSO to be placed on those routes, the Scottish Executive would have to make an approach to my Department, perhaps jointly with the local authority for the area. The Scottish Executive would have to take

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into consideration any financial implications. As yet, however, we have not had an approach from the Scottish Executive or the local council.

Mr. Carmichael : I am reluctant to ask the Minister to speculate, but could he give us a general steer? If such an approach were made, is there any reason why we should not take the same route as that taken by other EU countries?

Mr. Jamieson : Obviously, the United Kingdom Government will interpret the regulations in our own way. However, I shall move on, as what I am about to say may help the hon. Gentleman.

The exceptions to the policy of non-intervention are economically vital lifeline services that would not be commercially viable without subsidy. In such cases, the Government provide subsidy in accordance with the PSO provisions. As the hon. Gentleman will be aware, there are several lifeline air routes in Scotland, which are considered essential to the economic and social welfare of remote communities. The subsidised services include a number of inter-island Orkney and Shetland services, as well as other routes serving the highlands and islands. That shows the commitment of this Government and previous Governments to providing PSOs when it is deemed appropriate.

Aviation safety and regulation are reserved matters. My Department has overall responsibility for UK aviation policy and, therefore, for administering policy on PSOs. However, the Scottish Executive have day-to-day responsibility for considering applications for PSOs within Scotland and for overseeing their imposition, consulting my Department when necessary, especially on new applications. In the case of inter-island routes, the Scottish Executive work closely with the islands councils on their PSOs.

The Scottish Executive have, in the past, provided their full support to the local islands councils in their imposition of PSOs on Orkney and Shetland's internal air services, and they will continue to support the councils when the contracts are renewed.

I want to discuss assessments of the air services from Orkney and Shetland to the mainland against the criteria used for imposing PSOs. All that the PSO can do is specify standards of service that air carriers would not assume if they were solely to consider their commercial interest. If one or more carriers were able to meet those standards and already operated without subsidy, there would be no case for a PSO under our interpretation of the criteria.

I understand the issue raised by the hon. Gentleman about high fares, but costs are inevitably higher per passenger on low-volume routes than on highly packed traffic routes. However, for the Government to impose a PSO on a commercially viable service would mean overriding the long-standing policy of non-intervention other than when the market fails. It would set a precedent that could lead to requests for PSOs on many routes on which fares were perceived to be too high. One from my part of the country might be discussed at that time. The Government do not believe that such an approach would generally be helpful.

Mr. Carmichael : I feel that the Minister makes a bald statement when he says that such an approach would

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not be helpful. I would not deny the people of the south-west of England the opportunity for cheap air travel although, given the availability of road and rail links, I suspect that other considerations would be applied there.

Does the Minister not understand that the distances involved and the reliance on air travel make the case for a PSO compelling? Is there any point in the Scottish Executive approaching his Department to ask for a PSO on, for example, Aberdeen-Kirkwall and Aberdeen-Sumburgh if the policy that his Government pursue is, as he says, one of non-intervention?

Mr. Jamieson : As I explained, it is not entirely a matter of non-intervention, because several routes already have PSOs. Routes have to meet the criteria as we interpret them within the European Union. I was not trying to draw direct comparisons between the south-west and Scotland. I appreciate that there are considerable differences, such as the distances and the hard stretch of water between the mainland and those islands.

The hon. Gentleman asked whether there would be any point in the Scottish Executive approaching my Department, but that is a matter for the Scottish

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Executive to decide. That is what devolution is all about. It is not for us to tell the Scottish Executive or the islands council what to do. The Scottish Executive and the people in his locality have to analyse and assess whether the case is worth their consideration, bearing in mind that it could have continuing financial obligations. They would not ignore such obligations, which would probably fall on them.

We feel that we have to interpret the regulation as we think appropriate, but pursuit of the case is up to people locally. The devolved Parliament could make the approaches if it thought that appropriate. Should such an approach be made, we would carefully consider it within our policy framework. If the hon. Gentleman wanted to pursue the case, that would be his first port of call. My officials are in regular contact with colleagues responsible for transport in the Scottish Executive. We would be ready to respond quickly to any changing circumstances on the routes.

I understand the hon. Gentleman's points, which he made clearly. If circumstances change, we will respond. Should the Scottish Executive make an approach to us, it will be considered with great care, especially in the light of his arguments.

Question put and agreed to.



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