Is the Governments ferries policy "economically
In the Herald this week in an article
by David Ross, David Wood, owner of the Stornoway haulage
company Woody's Express said: "This (RET) proposal from the
SNP Government is economically illiterate and will have a devastating
impact on the islands."
The Herald noted "The Scottish Government said last month
it was going to roll out RET, which bases fares on the cost of
travelling the same distance by road, to the rest of the CalMac
network after it delivered up to 50% cuts in ferry fares to the
Outer Isles, Coll and Tiree in a pilot scheme. At the same time
it said it would no longer apply to commercial vehicles".
The proposal has led to more than 40 companies in
the Western Isles forming a lobby group to campaign against the
Government's decision which they claim will mean up to 175% increases
in ferry fares for commercial vehicles (CVs).
There is a strong case for lower fares to promote
economic growth and development in peripheral and vulnerable areas.
I, along with others, made that case years ago, see
But RET is not that case. In October 2010 I wrote about "The
Folly and Waste of RET"
So is this policy "economically illiterate"?
Let's take this step by step.
In 2010 I said
Point 1: By just abandoning RET on CVs, the
Government has made my point about the RET trial being a self-negating
folly which has already wasted millions "if the pilot is
expected to expire in the short term and leave them back where
they started" - as indeed it has, for CVs.
Point 2: Even if people had been deluded
into thinking the RET trial would represent permanent fare price
decreases, it would not have been long enough for the long term
effects of relocation and investment decisions to factor in. It
did not measure what it claimed to measure because it did not
last long enough.
Now we come to the decision to keep RET on private
vehicles and users but not commercial vehicles.
Point 3: Significantly adding transport costs
on commercial traffic will in turn be likely passed on in the
form of higher input prices and push up business costs in the
islands. This will in turn push up prices on the final consumer
and may threaten survival of some businesses selling to island
Point 4: Island businesses depending on exporting
outside their island will find their transport costs pushed up
and could also threaten their survival in some cases, especially
those operating in competitive markets.
Point 5: Lower prices all round are generally
a good idea for economic and social reasons on the islands, as
I have argued if it is properly used it can be a very efficient
use of subsidy to stimulate long term economic growth and development.
But to have very low fares for island residents and very high
fares for CVs is the worst possible combination. The knock-on
effect of high island prices and cheap fares for residents mean
that that the island resident will have every incentive to head
for the mainland and stock up themselves and their cars with mainland
goods and services, diverting consumer spending from the islands
(and its businesses) to the mainland.
Point 6: It might be thought that low fares
from tourism would be a great boost to the island economies. Not
really, the tourists that will not be deterred by the high costs
of island living created by this "No RET on CVs" policy
will make a point of stocking up themselves and their transport
with their own goods and services before coming to the islands
as self-sufficient as possible, and in turn minimise their own
spending and economic input into the islands when they are there.
Point 7: Finally, if you have the level of
pricing which it looks like CVs will have to bear, the unregulated
nature of the market which this government has promoted opens
up the whole market to entry by cherrypickers. Cherrypicking was
tried before in this market in the Outer Isles, it has been done
in the Northern Isles, and vehicle-carrying has also been cherrypicked
in the case of Gourock-Dunoon. What looks at first like the benign
introduction of competition by cherrypickers tends to have one
outcome as in Gourock-Dunoon, the creation of an overpriced private
monopoly with the eventual loss of the low cost / high revenue
traffic for the public service, in turn pushing up the subsidy
that is needed for what remains of the public service.
So yes, Mr David Wood is right, this is indeed "economically
As for his comments that it "will have a devastating
impact on the islands", what I can say is that the massive
amounts of subsidy which will be ploughed into this policy will
fail to meet its growth and development objectives for reasons
that I have outlined above. If it has any positive effects they
will be weak, and indeed the net effects could turn out to be
negative in some cases.
Whether it will turn out to be "devastating"
we shall have to wait and see, but the fact that it is not ridiculous
to be able to actually talk in such terms signals what a travesty
of a policy this is coming from a government staffed with professionally
trained economists, and indeed led by one.
What is the point of offering a shop assistant in
Stronoway cheap fares to the mainland if she cannot afford even
those fares because the business she worked for has just gone
bust? You do not need an economist to answer that question, not
even a shop assistant, just common sense.
No self-respecting economist would support RET as
a device to get fares down in the first place, which is quite
possibly why it looks like no economist was consulted over this
new policy turn - or if they were, they must have been ignored.
But it is not just the Outer Isles and Coll and
Tiree that will be affected by this incoherent and frankly incompetent
policy if it is rolled out around other Scottish regions such
as Argyll and Bute. In my 2010 piece I described the RET policy
as "economically naïve and illiterate". I did not
think it could be made much worse than that - but it just has.
If it were a first year students economic essay, it would fail
I do not think the Transport Minister Keith Brown
should have to be made to account for this economically illiterate
policy. I think the economist in Alex Salmond should prompt his
alter ego First Minister Alex Salmond to spare a few minutes from
grappling with his referendum question to deal with much more
immediate economic questions here that affect the future of whole
regions whose interests he was elected to protect and promote.
And if he still does not understand why the policy
is economically illiterate, then it is not just these regions
that are in trouble, it is the whole of Scotland.
Neil Kay 25th January 2012