What happened on Gourock-Dunoon

The announcement is here entitled "Bright New Future for Gourock-Dunoon service". Why did they not just call it "Brave New World for Gourock-Dunoon service", the extension of hours could have been done years ago they did not have to wait for this. It is as I predicted months ago, passenger-only.

(1) Summary

The tender for Gourock-Dunoon was based on systemic false and misleading information from the government and amongst other things will create a vehicle-carrying monopoly by Western Ferries across a strategically important part of the transport network. The government's handling of this will have major adverse consequence for the dependent communities, the users and the taxpayer. There are a number of things which should be pursued as a matter of urgency but there are two in particular which stand out.

First Western's route is classifiable as a public service route under EU law and so eligible for the imposition of non-negotiated public service obligations (PSOs) including price controls by the government. There are precedents for the imposition of PSOs without subsidy on other commercial EU ferry services. This option should be pursued as a matter of urgency to protect the public interest here.

Second, there is already a generally recognized need for an independent Inquiry into this debacle but that is unlikely to be set up by the Scottish Government or Scottish Parliament. But while this whole tender was framed around the need to satisfy EU law it is not the Scottish Government that Brussels holds ultimately responsible here, it is the UK government. The fact that the UK has devolved some responsibilities here is really seen as an internal matter for the UK, Brussels still regards Whitehall as responsible authority Since the UK authorities have the ultimate responsibility here, they also have a legitimate interest - indeed one would argue both a right and obligation - in ensuring good governance with regards to what is done in their name to Brussels. It is to the UK authorities to whom arguments should now be made that there is a compelling need that they should set up an independent Inquiry into the issues here.

I have put at the bottom of the front page of www.brocher.com a collection of links to relevant documents which help inform the story here. Most of the "what" and "why" of what has happened is discussed in these documents. This one is just to try to draw these threads together and make sense of today's announcement. .

(2) Political affiliations/non-affiliations

For the record, I certainly cannot be accused of being naturally antagonistic to the SNP as a party or as a government, indeed I have openly supported the party and its aims since I was a student in the Seventies, right up to and through the 2007 Holyrood election. I was a member of Alex Salmond's first Shadow Cabinet in the Nineties, and before the SNP formed a government in 2007 I had been an invited member of SNP working parties, including those chaired by John Swinney (the Cabinet Minster ultimately responsible for ferries 2007-2011) and Mike Russell (now Cabinet Minister for Education and since May the constituency MSP for Argyll and Bute). However, I am not a member of any political party, nor have I been for many years.

(3) Some simple economics

It is essential to understand the basic economics of ferries on routes like Gourock-Dunoon to also appreciate the significance of what has happened here. If you want to transport foot passengers using ferries between centres of population to connect with other forms of public transport (e.g. buses and trains) you may choose between a passenger-only vessel or a vehicle-passenger vessel.

Foot passengers typically deliver little revenue and have high costs, mostly high crewing levels for safety reasons. So a passenger-only vessel usually needs high fares or high subsidies, a fast passenger-only ferry is a gas guzzler and would be likely to have even higher fares or be an even greater subsidy guzzler.

By contrast, transporting foot passengers on modern vehicle-passenger roro ferries on routes like Gourock-Dunoon would add much less to costs than it does to revenues. As Western Ferries has demonstrated, the money in such routes is in the vehicle trade, adding vehicle-carrying roro services can help defray some or all of the losses and subsidy that would have been incurred if the service was just foot passenger only.

But such ferries have to be built specially, there is not a stock of them hanging around on the second-hand market. Building two such ferries for the Gourock-Dunoon town centre to town centre CalMac route was exactly what the 2007-2011 SNP Government had promised to do in their 2007 manifesto commitment.

That never happened despite SNP MEP Alyn Smith getting confirmation from the Commission in 2007 that there was no problem with vehicle carrying on the town centre route as long as passenger subsidy was ring fenced from vehicle-carrying. There are well established procedures for doing this. There was no law preventing them building these vessels. The Government could have commissioned and tendered the two vessels needed for the route on the same basis that the vessels for the rest of the CalMac network route were built and tendered, and done so within the space of their four year tenure 2007-2011

So what happened? We may never know the full story, but with the help of Freedom of Information (FoI), more and more is coming out. At the same time there will be things which will probably be beyond the reach of FoI. But the critical period that almost certainly determined all this was the year 2007.

(4) 2007 and the background to it

We know that what was to become the SNP government was publicly committed at the May 2007 election to building the two vehicle-passenger ferries the town centre route. There were other things happening at the same time of potential relevance to Gourock-Dunoon. In 2007 Brian Souter made a major (£500,000) donation to the SNP. The same year he started a fast passenger-only trial ferry service on the Forth called "ForthFast", the trial was to link with a number of Stagecoach bus routes. Brian Souter's technical adviser for "ForthFast" was Alistair Macleod who was the Chief Executive of "ClydeFast" which was a venture which Mr Macleod had been promoting for some time, without any obvious success, for a fast passenger-only service on the Clyde, on a route that woudl have included Dunoon and Gourock. By early 2010 Brian Souter's Highland and Universal Securities Ltd was one of the four shortlisted companies for the Gourock-Dunoon tender and then in 2011 it was Alistair MacLeod in his capacity as consultant to Highland and Universal Securities who announced that "The very short timescale and the fact that it would be almost impossible to procure a suitable vessel in time meant that the company decided to withdraw" (at least Brian Souter cannot be said to have been less than open about his intentions for the route; if you are not planning to run a fast passenger ferry on the route, then why have as your adviser and representative for the route someone who is a technical specialist in fast passenger ferries?).

There were other voices that would have been active around 2007 and later, such as Lord George Robertson the ex-Labour Cabinet Minister and ex-Secretary General of Nato brought in as a non-executive board member of Western Ferries. Lord George's knowledge of ferries is not well documented, but he brought with him significant networking and lobbying assets. Roy Pedersen was both a SNP councillor and private transport consultant who had long argued the superficially attractive but economically flawed case for fast passenger ferries and short vehicle crossings. Since fast passenger ferries fitted the ClydeFast/ForthFast business model and short vehicle crossings fitted the Western Ferries business model, it would have helped make the case for what I later described elsewhere as the symbiosis of the shared, complementary and mutually supporting business models of Brian Souter and Western Ferries.

Finally, the Transport Minister (Stewart Stevenson)'s own civil servants were pushing for a passenger-only solution for the town centre route. If a vehicle carrying service actually started between the two town centres, helped reduce subsidy, or even - heaven forbid - actually eliminate it, then it would mean the advice they and their predecessors had given to ministers over the years to maintain the frequency restriction on the CalMac service and not invest in the new vessels the route had needed had cost the taxpayer tens of millions of pounds of unnecessary subsidy.

It is difficult to credit that senior figures in the SNP Government would not have been aware in 2007 given the Brian Souter / fast ferry / ForthFast / ClydeFast / Alistair Macleod connections that their major donor could actually have a possible or potential interest in Gourock-Dunoon. If they were not aware, there would have been plenty voices to have made sure they were aware. A lot can be done with the help of proxies.

Which helps explain why just a short time after having promised to build two new vehicle-carrying ferries for Gourock-Dunoon, we learned just a few weeks ago from the Herald that the Government turned round and effectively offered Western Ferries in 2007 a vehicle-carrying monopoly on the Gourock-Dunoon market if they would just run some of their service from their out-of-town terminal at McInroys Point into Dunoon. That in itself was a scandal which has only recently been made public, but what many people have overlooked is that this would still leave a void in terms of the foot passenger service from Gourock to Dunoon town centres. Western's business model and their active practice does not encourage foot passengers, so it would need someone to fill that void and of course there was an obvious candidate in Brian Souter's company - a company whose business model was based on high cost but subsidised passenger-only services as a bridgehead to link with and develop bus services at both ends of its ferry routes.

There is nothing wrong with companies pursuing and lobbying for their commercial interests as long as government are aware that private and public interest are not always the same thing. And at the same time if you are an East Coast minister - as all the ministers in this political pecking order were, all the way from Stewart Stevenson through John Swinney up to Alex Salmond - this must have seemed like a win/win/win situation all round. None of them knew much more than how to tell the pointy end from the rear end of a CalMac ferry. The idea of a fast ferry would have also have seemed like a modern high tech fix. Giving Western the vehicle-carrying monopoly the company craved would have got them of the government's back (or so they thought). And of course with Brian Souter taking over the town centre route it would have made happy someone that Alex Salmond had praised in 2007 as "one of the outstanding entrepreneurs of his generation". As I said win/win/win all round, how that belief would have arisen was even understandable, it was what happened subsequently that represented systemic and cumulative breaches of the public interest and public trust.

What was win/win/win for Salmond, Souter and Western Ferries was lose/lose/lose for the dependent communities, the users, and the tax payer for the reasons that I set out above in terms of the economics of this route. It would mean a vehicle carrying monopoly, a degraded town centre to town centre service and a massive and totally unnecessary subsidy for the tax payer. Not only that, Western's publicly declared plans opened the way for this same trick to be repeated all the way down the Clyde, starting with Arran then moving onto Bute. It would mean millions for the private companies involved but many millions more in avoidable costs to the public.

So why did they not go public with this win/win/win strategy? At some point someone with local knowledge inside this big tent would have pointed out that the idea of a fast passenger ferry had been floated at a packed public meeting in Dunoon before the 2007 election by the Lib Dem MP and had been howled down. If it were to be done, it had best be done slowly and covertly, and certainly not made public.

(5) What happened next

Al the above sets out the context and explains 2007 to 2011. First, as Western recently revealed, the government effectively and privately offered it a vehicle-carrying monopoly in 2007, the company said this offer was seen by them as a standing offer and as far as they were concerned was never withdrawn. Over the next four years the Government were to claim that they were still actively working to ensure a town centre to town centre vehicular service; that they were in active and protracted discussions with the European Commission, that it was the European Commission that was stalling progress; that there was a European law against building new boats for the route; and that there were suitable vehicle-carrying vessels for the route available on the second-hand market.

None of that was true, all of these claims were shown to be false - and the Government must have known they were false. The last bit about "suitable" vehicle-carrying ferries being available on the second -hand market for Gourock-Dunoon was particularly cynical on two counts, first it was designed to keep false hope of vehicle-carrying on the route alive right through the 2011 election, and second if it had not been exposed as a sham the Government would have subsequently used the supposed "market test" of the tender to falsely argue that passenger-only must be more efficient since bidders choose not to bid with vehicle-ferries when they are supposedly available.

The effect of all this - and it has to be assumed the intention - was to conceal: first that the Government had no intention of maintaining (let alone improving) the vehicle-carrying service (the 2007 offer to Western confirmed that, and most importantly confirmed that to Western); second that they had hoped that Brian Souter would take over and run a fast passenger-only service from Gourock-Dunoon; third that Western would get what they wanted and get them off the Government's back; fourth that all this had been the case since at least 2007; and finally that they hoped all this could be concealed by dragging things out until after the May 2011 election

They knew that there would be a fuss after the 2011 election but the calculation would have been that if a week is a long time in politics, what was then four years (and is now five years) is an eternity and that by the time the 2016 Holyrood election came round that many voters would have moved away or just died off, memories would be dimming, and anyway it could be dismissed as just a little local issue. They would also puff up the "improved" fast ferry service. That all helps explains what happened, why it happened, and when it happened. It is the only explanation that helps makes sense of what would otherwise just appear to be a series of bizarre and incoherent statements and actions by the Government. Unfortunately for the Government the European Commission refused to play ball and accept any more foot dragging by the Government, it stuck on its deadline of June 2011 for the tender, around which point Brian Souter lost patience and pulled out, whether it was because it had taken so long or not long enough, we may never know.

So who is individually responsible? That depends how far up the ministerial pecking order you go. Harry Truman had a sign on his desk saying "the buck stops here", I doubt if Alex Salmond has a similar sign on his desk but the sentiment and the reality should be the same. We do not know if he took any direct interest or part in the Gourock-Dunoon issue or simply left it to his friend, ex-chauffeur and Transport Minster to take what he would regard as the best decisions. We do not know if the Transport Minister was an unwitting dupe who blundered into this through pressure from inside and outside government. We know what was done, and essentially why it was done, what still needs to be established is who decided what and when

But at the very least there is a collective responsibility here, that responsibility is very clear and there must be corresponding accountability. If a government makes statements which help serve their political advantage, statements which are not true, statements which are demonstrably and verifiably not true, and statements which they had every reason to know were not true, then it is not just the dependent communities, users and taxpayers who have a problem, by every democratic standard that government should also have a problem.

So far this Government has relied on the fact that most journalists, politicians and lawyers tend to be urbanites and at least in Scotland have difficulties in connecting with issues that do not impact directly and obviously on Edinburgh, Glasgow, or both. Left to their own devices, this Government will see no need to change the strategy of delay, deceit, and blaming everyone else that they practiced for the last four years. Indeed, given the hole that they have created, it could be argued that they cannot now afford to change that strategy even if some of the Government wanted to.

If you want to see what tunes the Government will play just ead the chaff from the SNP candidate (now MSP) for Argyll and Bute in the Dunoon Observer on the week of this month's election now praising the virtues of fast ferries and talking up his future dream of a fast ferry service from Rothesay to Dunoon to Gourock and then into Glasgow centre - in short nothing more and nothing less than the old ClydeFast fantasy (wearily I had to point out in the paper the following week - but after the election - the simple economics that buses and trains can get you from Gourock to Glasow centre much faster, cheaper, more often and with more stopping options on the way than any fast ferry ever could). Where did the constituency MSP and cabinet secretary get this misguided and economically flawed advice? Who is advising him? All this may just help keep going the nonsense and incoherent vision of fast ferries that are not wanted, needed, or justified as part of a softening up process that will lead to future attempts to force these solutions on the public - whether further down the Clyde or eventually back up at Gourock-Dunoon.

(6) What to do now?

We know the tender for Gourock-Dunoon was based on systemic false and misleading information from the government. Based on past experience the government will respond to such arguments with bluff that any actions or complaints along those lines could threaten what little remains of the town centre service itself. I personally no longer believe anything this government says and I would advise everyone else to treat such threats the same way.

So what can be done? Well, starting with the easy ones, there is scope for more Freedom of Information questions (these have been very useful so far) Also there have been a lot of interested parties involved in this, some might wish to get their own version out in public to defend themselves and pre-empt other versions, the more interested parties there are, the more chances of the truth coming out (as we have seen already).There are politicians and journalists who have an interest in this and might pursue it inside and out of parliament. And there should be immediate pressure to impose price controls in the form of PSOs on Western Ferries given its impending monopoly situation, given that its route is classifiable as a public service route under EU law, and given the recent court decision that it should find £3mill from somewhere to pay what HMRC say they are owed. There are precedents for the imposition of PSOs without subsidy on other EU ferry services

But the main issue is that this tender cannot be allowed to stand unchallenged for six years. There is at the very least an absolute and urgent need for an independent Inquiry. At the Dunoon hustings in April I asked all five candidates if they would support a case for a judicial review of this tender All gave various degrees of support except the SNP candidate, Mike Russell who said he would support an Inquiry, but only by the Scottish Parliament and only if it looked at the history of the route going back several decades.

Such an Inquiry would be a complete waste of time, first it would have limited powers including limited access to information, second its terms of reference would be set by Parliament which is now framed by an SNP majority, and third if it covered decades instead of focusing on the last four years here it would just lead to a political slanging match as to who was to blame for this fiasco. If the SNP Government and Parliament are allowed to set the terms of any investigation, we can expect it to frame, delay and distort everything to its advantage.

There must be an independent inquiry and if there is any level of democratic control and accountability left in Scotland then what is left of a viable political opposition must be pressing for and indeed demanding this now.

On that last point, there is one further twist than many parties, including politicians, seem to have overlooked. It is true that the Scottish Government has devolved powers within the UK for dealing with such issues as ferry services, it is true that the Commission investigated these services during the 2007-2011 Scottish Government, and it is true that the Scottish Government was seen as the party responsible for making sure that the Gourock-Dunoon town centre (CalMac) service and the resulting tender were compliant with EU law. Indeed, not only the tender but also the recent tonnage tax judgment that went against Western Ferries were the subject of much debate and analysis to make sure they were seen as compliant with EU law. So both the Scottish administration and Brussels have central parts to play here.

But there is a third element in this governance mix, and that is the role of the UK government. It was not Scottish law that mattered in the case of Western's tonnage tax case, it was EU state aid and UK tax law. It is not the Scottish Government, or before that the Scottish Executive, that Brussels writes to when there are issues dealing with State aid and Scottish transport. The fact that the UK has devolved some responsibilities here is really seen as an internal matter for the UK, Brussels still regards Whitehall as ultimately responsible. When Brussels agreed to fares discount for air travel for certain Scottish island residents in 2005, it was not Tavish Scott or Jack McConnell who signed the agreement with Brussels, it was the then UK Foreign Secretary Margaret Beckett. When Brussels wrote about their concerns regarding possible State aid and Gourock-Dunoon during the last Scottish Parliament, they did not write to Stewart Stevenson or even Alex Salmond, they wrote to the then UK Foreign Secretary David Miliband.

Since the UK authorities have the ultimate responsibility here, they also have a legitimate interest - indeed one would argue both a right and obligation - to ensure good governance with regards to what in done in their name to Brussels. While there would be no majority in the Scottish Parliament for an independent Inquiry with strong legal powers into this debacle, the government does not have the same control and influence at UK level, not even (or not particularly) among Scottish MPs.

An independent Inquiry by the UK authorities with legal powers of access to information could be justified on the grounds I have just stated and could find real interest and support amongst MPs of all parties with the exception of the SNP. While constituency MPs might be expected to take the lead here, the issues are much wider than just Cowal and Inverclyde. Clearly such an Inquiry should at least cover the town centre route and the events leading up to the present tender, but it could be quite legitimate to add in Western Ferries and its route as well since the recent tribunal involved possible State aid issues, and as well as UK tax law there are possible competition issues, all of which UK authorities have an interest in and are responsible for. An independent Inquiry set up by the UK authorities into Gourock-Dunoon could be expected to provoke a storm of protest from the Scottish Government including from the First Minister. However I do not think that would put off Scottish MPs, on the contrary it could be argued that this is one of the things they are there for. At a broader political level, an Inquiry that related to the First Minister's use of his present powers could be seen as a potentially useful counterpoint to his recent demands for new powers. It is certainly an important possibility out of several lines that could be well worth pursuing. This is not just a little local difficulty, this is a failure of governance at national (Scottish and UK) level and has to be seen and dealt with as such.

Neil Kay, May 25th 2011