The Minister of Transport Stewart Stevenson yesterday
made a statement about the Government's RET policy (the principle
of setting ferry fares to the equivalent of travelling a similar distance
by road) which adds further incoherence to what is already an indefensible
and discredited policy. He has explained the decision to extend cheap
RET fares in the Western Isles at an additional cost of £6.5m on
the basis that "Over the last 20 years we've seen population in the
Western Isles drop by 19%. We've seen population in the Northern Isles
remain relatively stable. It is absolutely clear that investment in the
Western Isles is investment to support the economy and the future of these
This follows hard on the heels of his recent announcement that the RET
trial would be extended by another year. There was no defensible justification
made for the extension. But had the pilot not been extended the original
planned end of the trial meant CalMac fares there would have had to show
a doubling in many cases, back up to pre-trial levels, all this around
the time of the Spring 2011 Holyrood elections. .
There is no more logic in setting fares equal to road equivalents with
RET than there would be for setting them equal to any other transport
mode. If you want to go down this ludicrous route, why not BET or Bridge
Equivalent Tariff (after all, bridges are the closest mode to ferries
in terms of the transport function they perform), in which case you would
set the fares of all ferries in Scotland to zero. Or turn it around, why
not FET (Ferry Equivalent Tariff) for bridges and roads, why not set them
equal to the ferry equivalent in fares - which is after all what they
did with the Skye Bridge to begin with, sparking off the campaigns of
civil disobedience that ill-advised policy warranted.
Any such policies based on a notional "Equivalent Tariff" are
economically naïve and illiterate and no basis for coherent policy
But one of the most damning aspects of this whole charade is that it
has absolutely no chance in fulfilling the objectives set for it, and
indeed from the start it never had any chance of fulfilling these objectives
- which those formulating this mess should have realised from the beginning.
The stated objectives of the RET pilot were to explore how lower ferry fares could help deal with barriers "to economic growth on the islands and could also boost island economies by attracting tourists and supporting businesses".
In short, the RET trial had a supposedly long term economic growth objective.
As any competent economist would almost certainly have advised the government
if they had asked them, the study will tell them absolutely nothing about
how these lower fares would affect island long term economic growth. RET
is a short term trial originally intended to last just 30 months, but
since extended some more months.
As long as it is believed to be a short term trial, whether extended
or not, people will frame their actions around these expectations.
If the crises of recent years have taught even those who are generally
ignorant of economics anything, it is that economics is fundamentally
In short, the RET trial will tell us absolutely nothing about the long
term effects and potential impact on economic growth. This trial is a
self-negating folly which has wasted tens of millions of pounds already
on a project that simply cannot meet the objectives set for it.
I am also not surprised that others have raised fundamental questions
on other grounds about this process. Soon after this pilot started I pointed
out to the Minister that EC law required that subsidies for public service
obligations in this context had to be made available to all qualified
EC operators. At the very least it is not clear how that requirement was
complied with here. This is very likely a mess than the next government
will have to deal with.
Yet another issue that comes out of this mess is the question of what
will happen when the trial ends. The Government knows there is no money
for fare decreases on anything like the scale RET would demand, after
all it has told the public in its latest consultation which also ended
yesterday that there will actually be less public money available for
ferries in the future, and all this in the context of a network already
suffering from years of underinvestment in vessels and infrastructure.
Even if the money for fare decreases could be found, the system simply
could not cope with the sudden demand surge that an RET regime would lead
The government knows all this, so it is also knowingly wasting more public money with the extension of the RET trial beyond the next Holyrood election.
So there will be no extension of RET to the network after the trial does
end. What will happen to ferry fares in the Western Isles then? Will they
shoot back up to pre-RET levels, causing chaos and distress for many of
those dealing with the sudden doubling of many fares and leaving nothing
lasting except the waste of public money ? Or will some spurious justification
be found for keeping the fares at RET level for Western Isles and continuing
to discriminate in their favour against other needy, peripheral and fragile
regions in the Highlands and Islands? This is just another aspect of the
mess that the next government has been left to deal with. .
The deepest irony is that there is a strong and robust case that could
and should have been made for low fares as a cost effective method of
promoting economic growth in these peripheral and vulnerable areas, not
just Western Isles. I did an earlier
review of studies of the effects of possible fare changes on the CalMac
network that provided all that was needed to know here from previously
The present short term effects of RET being observed now are entirely
consistent with what was estimated and predicted from the previous studies
in this area that I reviewed, so we have not even learned anything more
from the trial about the short term effects of ferry fare decreases. As
far as long term effects of fare decreases relevant to econonic growth
considerations are concerned, the best rule of thumb that I could find
for ferry fares on the CalMac network based on the best economic research
available was that in the long run fare changes could be taken to approximate
revenue neutrality - that is, on average in the long run a 10% increase
in fares could be expected to lead to about a 10% decease in traffic,
while on average a 10% decrease in fares could be expected on average
to lead to about a 10% increase in traffic. In general, you could choose
a high fare or low fare regime for the network, it would not make much
difference to farebox revenue, where it would make a difference would
be in terms of the increased investment to support a low fare regime.
There are powerful arguments in favour of the investment needed to support
a low fare strategy given the potential economic benefits of sustained
low fares to these fragile areas in supporting economic growth and development.
The analysis I conducted was based on good solid actual economic research
by professional economists. Analysis like this is all that is needed to
make a judgment on whether or not a low fares strategy in justified in
principle, after that there are standard economic tools such as cost-benefit
analysis and standard regulatory tools such as RPI- X which can put the
fares policy into practice. There is no need to take all this on trust,
there are numerous professionals working in the area of regulation of
essential public services in the UK who could give similar advice and
almost certainly would have had they been allowed near this folly of a
These analyses and cost benefit studies could have been and can be achieved
for a small fraction of the millions wasted on this RET trial, and would
have produced a credible basis for policy which this RET trial is congenitally
unable to achieve. But the worst aspect of all is that this debacle will
almost certainly set what is a robust case for lower fares for these vulnerable
regions back years, that is if it has not managed to discredit it altogether.
Neil Kay 1st October 2010