At its closest point, the Isle of Wight is just 4 miles from the mainland, but if one cannot cross that stretch of water when one needs to at a reasonable cost, the mainland might as well be a thousand miles away. We have no scheduled air services, so the two ferry operators and the hovercraft provide lifeline services for island residents. They also carry visitors and holidaymakers, business traffic and goods, and, of course, islanders and their families and friends.
The ferry links are essential to our economy. We need them to be regular, reliable and affordable. The two main operators each have an effective geographical monopoly on their own routes. Islanders have always grumbled about the ferry services. It is a popular local pastime. But the ferry companies were taken over by huge financial institutions—Wightlink by Macquarie in 2005 and Red Funnel by Prudential in 2007. Since then, things have become more difficult for the ferry companies.
The companies were sold during the boom years for completely unrealistic sums. The then chief executive walked away with £30 million when Wightlink was sold to the Australian Macquarie bank. He and other former owners have benefited hugely, but the island’s economy has suffered. Like all islands, the Isle of Wight faces particular challenges. Looking at a key economic measure, the gross value added figure for Hampshire is well over £22,000. On the island, it is a smidgeon over £14,000. Our economy is fragile and wholly dependent on good connectivity.
In 2008, I asked the Office of Fair Trading to investigate the cross-Solent ferries. The OFT suspected that there were issues
“preventing, restricting or distorting competition”
but found
“limited evidence of consumer detriment”.
But I do not think that it looked very hard to see the damage being done to the island, because it also made it clear that there was no obvious regulatory answer to the problems. When it found no easy answers, it put it in the “too hard to deal with” box and closed the lid. The blunt truth is that Macquarie and Prudential paid well over the odds for these lifeline public services, but it is the island and islanders who are suffering from over-inflated prices and service cuts caused by those decisions.
It is sometimes claimed, including by the ferry companies, that talking about high ferry fares damages tourism, but they never suggest that the fares themselves might put off tourists. David Thornton of Visit Isle of Wight says that he gets few complaints, but he does not hear from people who do not visit the island because the ferry is too expensive. Tourists sometimes get very good deals. Some buy packages with a low ferry price hidden in the total. Surely it has got to the point of madness when it can be cheaper to book a week’s holiday, including the ferry and accommodation, than to pay for the fare alone. Some visitors come for an annual break or a few days away. They book in advance and can be flexible about the route and time of travel. They, too,
can get reasonable fares. But those who need to get to work, education, a hospital appointment or a funeral do not have that flexibility, and it is overwhelmingly the islanders who make such journeys.
I believe that the huge debts of the two ferry companies have prevented them from serving islanders as well as they should. In contrast, Hovertravel, a UK family-owned firm without any debt, has high levels of customer satisfaction. In 2012, Wightlink’s debt was £192 million on a turnover of £59 million. Red Funnel was in a better position, with £80 million of debt on a turnover of £14 million. The ferry companies deny that such large debts could impact on their services, but the OFT disagreed, stating:
“We remain of the view that the high levels of debt and gearing carry a higher risk…that the operators might have to cut back on service improvements.”
I told the OFT that if it did not act, prices would rise and services would go. Since its report in 2009, Wightlink has cut crossings by 26% and Red Funnel has cut them by 14%. It is very difficult to compare prices for vehicle travel because of the airline-style yield management pricing that both ferry companies use. Fares change constantly, and some of them are eye-watering, with people paying up to £200, or even more, for a vehicle crossing.
Two initiatives, the Isle of Wight Better Ferry campaign and the “Are Wightlink the Right Link” Facebook group, have 5,000 supporters between them. I would like to give a flavour of some of the comments:
“I’m fed up with not being able to book with my Multi-Link ticket, only to find that there are dozens of spaces if I pay the Non-Residents fare. Get a grip, Wightlink.”
Another islander says:
“My daughter and grandchildren live on the mainland. They can’t afford to visit the island and I haven’t seen them since February.”
Here is another comment:
“Once again, same ferry, same stretch of water, same travel time but different prices…They’re pirates.”
I have deleted the expletive. Here is another comment:
“Both these companies are disdainful of their captive market and are doing a huge amount of damage to the island economy.”
Finally:
“It’s just too expensive to get off the island. It’s not fair for island people. The prices make it difficult for us to take our children over to see friends and relatives. Please do something about this. Make a blessed change.”
There are hundreds of similar comments, and more are added every day.
I thank the Better Ferry campaign, which has supported me on this issue for years, and John Keyworth and Steven Caudle, who set up the Facebook page. John Keyworth told me:
“Since we set up our campaign, we have been flabbergasted at some of the stories that we’ve heard. There are very high levels of distrust and concern at the outright abuse and overcharging by this industry which provides an essential service to Island residents.”
The Barnett formula gives the Scottish Parliament money to spend on many things that this Government cannot afford. CalMac provides ferry services to Scottish islands. It received a grant of £73 million last year—more than half its revenue. My constituents living on the island receive no such benefits. They pay the full operating costs and profits and the fares that they pay also have to
service the company’s massive debts. Through their taxes, they subsidise Scottish ferries. Will the Minister explain why Scottish island residents get a much better deal than my constituents? For the life of me, I cannot. Channel islanders are protected from unfair ferry fare increases because the companies operate under licence from the islands’ authorities—another protection denied to Isle of Wight ferry users.
There are other worrying issues. Wightlink operates a multi-link ticket system for islanders. People pay for multiple crossings, giving the company hundreds of pounds in advance. They are rewarded for their loyalty by being denied access to many popular ferry crossings. In July this year, the mezzanine deck on the 30-year-old St Helen ferry collapsed. The investigation is ongoing, but even before that happened it was known that St Helen would need to be replaced. However, we are told that there is no money in Wightlink’s coffers to replace her and the banks are apparently refusing to stump up. I have yet to hear plausible plans from Macquarie to maintain this vital link for the island’s economy.
In preparing for this debate, I spoke to all the operators, including Kevin George, the new chief executive of Red Funnel. Under his leadership, Red Funnel seem to be getting it and are looking for ways to address some of the concerns—2014 prices have been held into next year; ferries refurbished at a cost of more than £2 million each; a greater focus on customer satisfaction; and new plans and discounts designed to benefit islanders.
Red Funnel has been taking market share. Recent figures show that, for the first time in living memory, it has overtaken Wightlink as the most popular route to the island. In a properly competitive market, that would be good news, but in a duopoly with no prospect of new competitors, it can be destabilising. It is more difficult for the company losing market share to build an investment strategy and to develop services rather than cut them. Worse still, if the trend continues, the company taking customers may be unable to cope properly with the increased capacity. That could lead to deteriorating services or even price increases to manage the market.
The UK’s largest constituency needs support. One option would be helping us to go back to the competition authorities. The customer detriment not found by the OFT in 2009 is now woefully apparent. I hope that my right hon. Friend the Minister will support us if we need to do that. However, even if we do there is still no easy regulatory solution, so I want to suggest a bigger and more imaginative way forward.
The island must find a sustainable solution to its transport issues. To be fair, the ferry companies, their owners and the banks also need to find a way forward. There have been constructive discussions between the Better Ferry campaign and the owners of Wightlink and Red Funnel. If we could find a new way of managing our transport infrastructure in which the ferry owners had a smaller stake in a bigger investment pot, they might welcome the reduction of risk. We need a model in which the community’s needs are recognised and addressed. The ferry owners would need to be realistic and take a patient approach, but we may be able to find a structure with a longer-term opportunity for investment, and we would surely want them to participate. The island would then have a public transport system that addressed the unique challenges that separation from the north island present.
The current ownership model of the ferry companies represents a real danger to the island’s economy, because the ferries are just small cogs in much larger businesses. They are expected to achieve profitable growth to enhance their market value. The end game is typically to sell them on for a higher price than was paid for them, scooping a windfall profit. However, that would burden the companies with even more debt on which interest must be paid from the fares. It is therefore a totally unacceptable model for businesses with weak competition offering lifeline services.
I ask the Minister to help us to explore whether there is a possible win-win situation. The future of Island Line, our railway, is under review. I have been involved in asking the Government to support an expert taskforce to look carefully for a viable, long-term outcome for Island Line. I would ask that this taskforce is not only supported but extended to include the whole of the island’s transport infrastructure. We need to take the connectivity of the Isle of Wight out of the “too-difficult” box that the OFT put it in in 2009. This must not be a way of kicking this issue into the long grass but a genuine attempt to find the best way forward, with support and expertise given by the Government. There is already support on the island for such an approach, and we can work to build allegiances on a cross-party basis to find a solution to this difficult situation. Informal discussions with Isle of Wight council have been encouraging. One of its priorities is to improve cross-Solent travel so that it is secure, accessible and affordable. This is a positive way of delivering that aspiration.
At the request of the ferry companies, I would like to turn to two further issues: first, tonnage tax. In January 2000, Red Funnel entered the tonnage tax regime. Her Majesty’s Revenue and Customs now wants to throw it out. After mountains of correspondence, HMRC, in some desperation, decided that the Solent no longer qualifies as a sea. I would be very grateful if Department of Transport officials tried to help to resolve this. Secondly, Wightlink is concerned about the effect that new marine conservation zones may have on its operations. I hope that the Minister will support me in making representations to colleagues in the Department for Environment, Food and Rural Affairs for these costs to be taken seriously.
My right hon. Friend is also a friend in the much more widely used sense of the word, and I would like to extend an invitation to him to visit the island once again. I will work with his office to put together a useful itinerary, as I did when he held another ministerial post. During that visit, as is so often the case, he went a little off-message and said exactly what he thought. I very much look forward to him doing so again in his current job, and in doing so helping us to find a creative solution to the long-standing transport issues that beset the Isle of Wight.
10.28 pm