7 How much has RET cost the Government?

Overview

Whilst RET has generated new passenger and vehicle trips across the network, the fare revenue generated has been less than the revenue foregone from reducing fares. This has resulted in an increase in the subsidy required to deliver the CHFS contract. This chapter therefore quantifies the net additional subsidy and the consequential costs of RET to the public sector in terms of investment required in supporting infrastructure. This chapter concludes with an estimate of the wider impact of RET.

How much has RET cost the Scottish Government in revenue foregone?

As has been highlighted by the elasticity data, the reduction in fares revenue associated with RET has not been offset by the additional journeys generated, meaning that the policy has required additional government funding, which is reflected in an increase in the subsidy for the CHFS network. An estimate of the revenue foregone as a consequence of RET is set out below.

What Is the annual cost of RET?

The figure below shows the annual net cost of RET, split by carrying type. It should be noted that:

the net impact is based on a comparison of the outturn against the ‘counterfactual’ (i.e. what fares revenue would have been in the absence of RET)
the comparison is based on ticket sales only and takes no account of retail revenue, which is likely to have increased as a result of the increased numbers of passengers

Figure 7.1: Annual net cost of RET (Source: Operator data)

RET is now costing the Scottish Government around £25m per annum in revenue support, around two thirds of which is supporting reductions in car fares.
The various phases of the RET roll-out are readily identifiable from the figure. The most notable increase was the 2015 expansion, which has more than doubled the level of funding required. This is predominantly a result of RET being introduced on the more frequent and high volume routes, particularly Largs-Cumbrae, Wemyss Bay-Rothesay, Oban- Craignure and Mallaig-Armadale.
Between 2008 and 2012, RET for CVs was costing almost as much as the car-based equivalent.

Key point: RET is costing the Scottish Government around £25m per annum in revenue support, of which around two thirds is attributable to RET for vehicles less than 6m in length. The 2015 roll-out more than doubled the level of revenue support required.

What Is the overall cost of RET?

The overall impact of RET on revenue comprises two elements:

revenue ‘lost’ by existing ferry users paying less
additional revenue from RET-induced ferry users, i.e. those making new trips (or switching from travelling as a foot passenger to a car-based passenger)

The figure below adds all RET Year-1 revenue and all RET Year +1 revenue across the four batches of RET to provide an indication of the relative proportions of these two effects.

Figure 7.2: Overall Cost of RET (Source: Operator Data)

Key point: Overall, RET led to a drop in revenue of around £20.7m from current ferry users on this basis. Partly compensating this, new, or induced ferry use generated £4.7m, recovering around a quarter of the lost revenue.

Figure 7.3: Cumulative net cost of RET (Source: Operator Data)

Key point: Since RET was first introduced in 2008, it has cost the Scottish Government a cumulative £120m. As previously noted, the expansion of RET to the 2015 islands has significantly ramped-up the annual funding requirement, such that around £100m of revenue support will be required every four years to maintain RET fares at their current level.

Have there been wider public sector costs of RET?

The direct and quantifiable cost of RET is the net increase in subsidy set out above. However, as has been evidenced throughout this report, RET has increased load factors on the ferries and has increased visitor numbers across the islands. This has led to consequential costs for other parts of the public sector, including Transport Scotland / CMAL, CFL and local authorities. These additional costs were explored through the business interview process and the key points made by each organisation are set out below:

Caledonian Maritime Assets Ltd

CMAL noted that, historically, prior to the creation of CMAL and the introduction of RET, the harbour infrastructure did not generally benefit from significant investment when new tonnage (with larger capacity) was introduced on routes. The infrastructure installed in the Ro-Ro conversions of the 1980s and 1990s remained, resulting in undersized marshalling areas and inadequate terminal facilities for the operator, staff and the public; with the pier fittings and fendering systems working to full capacity on a regular basis to accommodate larger vessels introduced on routes over the years. The introduction of RET has increased the volume of vehicles and foot passengers at most terminals, and extensions in timetables and new routes, introduced to meet the increased volumes & stakeholder expectations, has placed further demand on the port infrastructure in general.

CMAL has received more harbour dues income from RET-induced traffic, although the harbour dues model is balanced to reflect Transport Scotland funding arrangements and CMAL’s planned works, rather than making a profit from increased traffic and associated dues. CMAL plan expenditure and apply for Grant-in-Aid contributions from Transport Scotland at 75%, with CMAL providing match funding of 25%. Therefore, the charges applied annually for port usage can change depending upon the financial demands of the business.

CMAL explained that increased usage of harbour infrastructure increases wear of the assets and impacts on residual life in addition to increasing the general number of defects requiring repair around the network. The repair and maintenance obligation rests solely with CMAL and again this is accounted for within the financial model and if the increased volume of traffic (which is reflected in increased revenue) is insufficient, the harbour charging mechanism can be varied.

CMAL has developed 10-year and 30-year infrastructure plans, which reflect requirements to renew and rebuild existing infrastructure, but also upgrade facilities to match capacities of the vessels on the route, or in planning, taking account of the Vessel Replacement and Deployment Plan and CFL’s vessel deployment plans. The impact of RET on this planning process is therefore in the prioritisation of projects – i.e. addressing pinch points, replacement of time expired infrastructure or upgrades in advance of new tonnage deployment.

It was also noted that, as a result of RET, the summer peak has extended into times that historically would have been considered as the ‘shoulder seasons’. On a practical level, due to the increase in ferry usage and busier shoulder and winter periods, CMALs’ team, consultants and contractors often find it difficult to get onto ferries and to get accommodation. This subsequently either delays work or leads to higher costs, often both. In addition, there is less ‘quiet’ time to progress works around the network.

Finally, it was noted that the public areas on-board all of the vessels are being utilised by a higher volume of passengers and the peak period has also extended into the ‘shoulder season’. The public areas have always been upgraded as an integral part of the drydock period. However, more recently, the investment has increased because the overall wear and tear has increased due to the uplift in passengers carried.

CalMac Ferries Ltd

CFL noted that there has been an increase in demand across the network since the introduction of RET, although there are many other factors contributing to this rather than RET alone – this point should be borne in mind when reviewing the key points from their response set out below.

CFL explained that additional crew and shoreside staff members have been recruited to respond to the increase in demand experienced across the network, in addition to amending timetables where possible and increasing port turnaround time. This has been recorded in various contract variation agreements with Transport Scotland. Key highlights include.

33 additional full-time equivalent (FTE) port staff have been recruited. Whilst there has been an increase across most ports, the largest increases have been at ports on the high volume routes and where demand has increased most significantly (e.g. Mallaig (5.99 FTE); Ardrossan (5.65); Brodick (3.97); Ullapool (3.42); Oban (3.32); Craignure (3.24) etc.

33.67 FTE winter and 30.50 FTE summer crew posts have been created. These jobs are again concentrated on the volume routes including Ardrossan – Brodick, Oban – Craignure and Mallaig – Armadale).

CFL noted that whilst there has been an increase in employment opportunities for island residents, it is difficult to attribute specific numbers to this as some of these new jobs will be a result of natural attrition and seasonal variations rather than RET alone.

CFL explained that RET has created several operational challenges associated with accommodating the growth on the network. The extent of these challenges varies depending on the route, vessel and port, but issues experienced include:

customers unable to travel on their sailing of choice
island residents unable to travel at short notice, which is a source of numerous complaints
reductions in available seating (both in the ports and on the vessels)
congestion in and around the passenger accommodation areas
congestion of vehicles in and around the marshalling areas and port hinterland
delays to turnaround times due to increased volumes of traffic, resulting in changes to timetables
challenges in ensuring the safety of port and vessel operations due to the volume of traffic / passenger demands
Other operational challenges arising from increased demand have included:
- Difficulties in sourcing accommodation for the increased numbers of crew, particularly where onboard accommodation is limited or full. This has also reduced operational flexibility as it has been more difficult to redeploy vessels during disruptions.
- Difficulties in recruiting the additional numbers of certified crew required to deliver the operation. As noted above, due to the onboard accommodation being more limited, this can result in delays to inductions for new crew members or additional shore accommodation being required to facilitate induction.
- Increases to vessel running hours which is contributing to an increase in the maintenance required, maintenance costs and breakdowns. From a crewing perspective, this could require additional maintenance to be carried out at night after the timetabled day finishes and on the ‘Small Ferries’ fleet in particular, incurring additional costs to cover and comply with hours of rest.
- Port infrastructure is being used more frequently than originally intended, including fenders, Passenger Access Systems, linkspans and slipways, which means that it is being subjected to more wear and tear. This again increases the maintenance time, the risk of defects, and time out of service for rectification.
- When technical breakdowns (port or vessels) or other disruptions are experienced, there is more traffic to be accommodated but less spare capacity to absorb any disruptions. Whilst cancellations can have a significant impact in this regard, delays from disruptions also present significant challenges due to the increased volume of traffic to be marshalled in an already constrained space.
- All major vessels are all now fully utilised which means that there is no spare capacity to provide relief during technical breakdowns. This often results in vessels being redeployed to provide relief elsewhere in the network, with vessels being cascaded to other routes and increases in the likelihood of disruption.

CFL has benefitted from RET through:

increased brand visibility
increased customer satisfaction due to reduced fares
it should though be noted that these benefits have to some degree been offset by the issues outlined above, compounded by difficulties now facing island residents when accessing lifeline ferry services

Argyll & Bute Council

Argyll & Bute Council (A&BC) noted that RET has contributed in bringing more tourists to the islands, which is seen as a positive. However, feedback from communities is that their actual fares reduction was in some cases minimal and they are experiencing a range of negative impacts in terms of ferry capacity and the ability of on-island infrastructure to cope with induced tourist demand.

A&BC pointed out that local residents which previously travelled as foot passengers are now taking a vehicle onboard the ferry. Whilst this suggests that they are deriving a benefit / utility from doing so, it has negative environmental consequences associated with induced road traffic.

Accommodating vehicle demand at the marshalling areas in Council-run ports is also proving to be challenging, with queuing traffic spilling out onto the local road network at various ports. This is particularly the case at Craignure where the Council is proposing to extend the current marshalling area to accommodate increased demand. It is also considered that this issue will worsen if proposed vessel deployments go ahead, e.g. the deployment of the larger MV Hebrides to the Oban – Craignure route.

Parking, traffic and pedestrian management are major issues at Craignure. Anecdotally, it is understood that there has been a wider increase in the demand for parking across both Islay and Mull as a result of induced tourist demand.

The Council noted that it is difficult to attach an increase in roads maintenance spend directly to RET as the island road networks are not always in the best of condition to start with. However, on Mull, the Council noted that there has been an increase in verge damage due to motorhomes and other larger vehicles using narrow single track roads, often with poor passing place provision. The Council points out that this is probably replicated across all of the islands but there is little in the way of recorded evidence to support this point.

A study reviewing and consulting on the Council tendered air services found that, since the PSO was last tendered, the average subsidy per passenger has risen. Passenger numbers have fallen since peaking in 2016, prior to which the use of the air service had risen year-on-year. Whilst the reduction in ferry fares may have increased competition, the four islands served by the internal A&BC services (Colonsay, Coll, Islay and Tiree) were all in receipt of RET by 2013 at the latest, so it is not possible to make a direct causal link between RET and the reduction in use of the air service.

Comhairle Nan Eilean Siar

CnES explained that RET has been one of a number of factors, alongside new tonnage, routes and improved flights, which has grown visitor numbers to the Outer Hebrides, bringing positive tourism benefits and spin-off investment for the isles. It is noted that tourist growth has predominantly been focused on Lewis, Harris, and Barra. There has been growth in Uist, but to a lesser degree. There is however a strongly-held view that issues associated with a lack of capacity and resilience are dampening down the positive benefits of RET.

The Comhairle explained that the roll-out of RET on the Sound routes in 2015 has also supported inter-island travel for social and business reasons, facilitating closer integration between the islands / land masses in the Outer Hebrides.

However, there are significant ferry vehicle-deck capacity issues during peak periods which are considered to be constraining socio-economic development, the impact of which was explored by the Comhairle through an independent report submitted to government. These capacity issues have been reported by travellers, the local tourism sector and hauliers. The Comhairle is particularly concerned about the impact that a constrained ferry service is having, and will continue to have, on the socio-economic development of the islands. It was explained that tourism interests have long made the case that visitor spend in the islands is being constrained by an inadequate ferry service while hauliers have pointed out that summer ferries are running at capacity during a time of relatively slow economic activity.

The Comhairle also noted that local infrastructure is struggling to cope with the increased tourist demand, specifically accommodation and staff to service accommodation. This is a particular problem in Harris (a point which was also recorded by the PBA team during the Outer Hebrides STAG Appraisal). There is considered to be a particular issue with providing accommodation for seasonal workers in the tourism and construction sectors – indeed a business interview with an island hotelier found that they are using converted storage containers (i.e. with plumbing, heating etc) as accommodation for seasonal workers. Much of this is considered to stem from the fact that many traditional rental properties are being converted to short-term tourist lets, responding in part to RET-induced demand.

The original introduction of RET on the mainland routes impacted the inter-island routes due to increased traffic coming in at one end of the island chain and leaving at the other end. Whilst the impact at the ports was minimal, the introduction of RET to the Sound routes in 2015 saw a marked increase in traffic through CnES ports, with the resultant issues in the following areas identified by the Comhairle:

Footfall through waiting rooms has increased and has resulted in additional wear and tear, with increased complaints in summer 2019 on the cleanliness of facilities. This has never been noted as an issue in the past and may require the Comhairle to consider alternative / increased cleaning arrangements.
There has been an increase in waste disposal requirements (this is not only at the ferry ports but also at other harbours as motorhomes and tourists look for facilities to dispose of their waste). The Comhairle has increased the number of bins at ferry ports over the last few years and with changes in legislation forthcoming, there will be a need for further thought on how demand is met. It is noted that this should be considered against a background of the ports not creating the waste but being impacted by the cost of its removal.
Chemical waste disposal points at Comhairle ferry ports had historically been adequate for the volume of usage but, in the last couple of years, the level of complaints has increased with them increasingly not being able to cope with demand. The facility at Leverburgh was eventually removed as it was constantly overflowing or blocking either through misuse or overuse.
The marshalling area at Leverburgh has to be widened due to increased demand from wider commercial / motorhome vehicles backing up onto the main road. The Comhairle explained that all of the other inter island ports are standalone ferry ports, but Leverburgh is a fishing / commercial port with other businesses being affected by traffic volumes. Further consideration is being given at present to improving traffic management arrangements.

The introduction of RET reduced fares for cars but the Comhairle notes that it has had minimal effect on the bus patronage to and from the main ferry ports.

The Comhairle noted that the increased number of tourists has led to pressure on infrastructure and additional investment is required. This is particularly the case with respect to the island road network, particularly on the many single track sections, where increased traffic levels have impacted on local road safety, increasing the number of road traffic collisions and putting more pressure on emergency response services and healthcare. Moreover, there is more wear and tear on the roads themselves, the majority of which are poorly founded on peat.

The increased maintenance burden and requirement for infrastructure investment has corresponded with a significant reduction in Comhairle budgets in recent years, affecting the amount that can be invested in roads and other infrastructure. The Comhairle has recently been allocated £300k from the Rural Tourism Infrastructure Fund (RTIF) and will be providing match funding towards this grant that will be spent on motorhome facilities; car / bus parking & laybys; recycling banks; and improved signage. However, the fund was vastly oversubscribed with about five times as many local projects applying as receiving an allocation.

North Ayrshire Council

North Ayrshire Council (NAC) noted that, in general, RET has had many positive implications for Arran and Cumbrae, the two islands within the local authority area. In particular, the policy has supported the economy of both islands, generating new employment opportunities and increasing both tourist numbers and the length of the season. It also allows people to travel further around the islands (through taking a car), which can widen the benefits of tourism overall and relieve pressure on honeypot locations.

The Council did however explain that, whilst RET has had its positives, it has also not been without its challenges. These have included:

It has attracted a larger number of cars / vehicles to visit the islands, and an increased number of motorhomes. This increased vehicular traffic has put additional pressure on island road networks and has reduced public transport use both to the ferry terminals and on the islands themselves. This in turn impacts on the commercial viability of public transport services, and increases the subsidy required on publicly supported services on Arran – this is something of a vicious circle.
The increased number of cars has also impacted negatively on the cycle-friendly nature of Cumbrae (for which the island is famed), for example by reducing its attractiveness to less confident cyclists. It has also given rise to more general road safety concerns on both Arran and Cumbrae due to their rural nature and the width of the roads.
The increased load factors on the ferries impacts on service delivery on the islands, including getting materials to the islands and impacts on bus services.

RET has also given rise to traffic management issues at Brodick, Largs and Cumbrae Slip, as follows:

Traffic management in Brodick is only occasionally a problem due to queuing issues. These instances are generally related to ‘blocking-back’ as a result of ferry disruption and are typically relatively short-term in nature. There are however wider complaints of increased demand for vehicle parking across the island associated with the increase in overall vehicle numbers.
There are substantial challenges with parking, queuing and marshalling on Cumbrae and at Largs. Queuing and marshalling interacts with the public road at both slipways. This is exacerbated by passengers at Largs being required to go to the ticket office. There are also wider complaints of increased demand for vehicle parking across Cumbrae.
NAC has secured funding for a study and initial works to address these issues at both Largs and Cumbrae from Strathclyde Partnership for Transport’s Capital Programme. The outcome of this will be known in early 2020.
The Council does not currently manage parking but is investigating the potential to introduce Decriminalised Parking Enforcement (DPE).
The Council noted that bus patronage has not increased proportionately with the increase in the number of ferry passengers. This would suggest these individuals are travelling in a car, which is supported by the wider evidence presented in this study. It is noted that the demand for bus travel may have reduced due to factors including low cost of car travel; lack of connection between bus and all ferry services (e.g. additional summer sailings); and wait times for rail connections at Ardrossan for certain sailings.

The increase in vehicular demand has had an impact on the programming of roadworks, which now generally take longer and cost more due to limitations on ferry vehicle-deck capacity. This causes increased inconvenience to island communities. Works are currently programmed outwith holiday periods to reduce disruption to communities and visitors, but there remain challenges in relation to obtaining vehicle-deck space.

NAC explained that there is also a need for more frequent roadworks due to the more substantial deterioration of the road condition. The need for additional investment is recognised however there are no additional resources available.

RET has had an impact on the total waste arisings on Arran, and the Council manages more waste coming off the island since it was introduced, from 3,985 tonnes in 2013 to a maximum of 4,867 tonnes in 2018.
NAC extended the Brodick household waste recycling centre in June 2017 to be able to separate more waste for recycling, which was partially funded through Zero Waste Scotland.

The Council noted that there has also been an increased demand from visitors to Arran at both the GP practice and community hospital Accident and Emergency (A+E) department, which has been one of the factors influencing service redesign. In response to the ferry capacity issues, a clinical priority boarding pass has been introduced to facilitate a vehicle booking in urgent case.

The Council noted that developing rotas for health and social care services has become more challenging. This is due to increased traffic on the island in the peak period extending typical journey times between settlements.

NAC further explained that the growth in tourism has had a significant impact on the availability of affordable housing on Arran, as holiday lets and homes are in high demand. This has exacerbated a problem in health and social care finding accommodation which is a major factor in recruitment and retention difficulties in some posts. NAC explained that it is likely that continued growth will be increasingly problematic, despite recent and programmed social housing projects.

The Highland Council

In their response to the study, The Highland Council (THC) identified a range of parking and traffic management challenges in villages hosting CFL ferry services, as follows:

It was noted that Mallaig is facing several challenges in this respect, driven both by organic and RET-related growth on the Mallaig – Armadale route and the introduction of the Mallaig – Lochboisdale route. The main issue is a lack of car, bus and coach parking in the village. Traffic and pedestrian management within the village centre can also be a challenge during peak season.
There is also very limited parking at Lochaline, which can be problematic during peak season or when there is disruption on the Lochaline – Fishnish route (or indeed when the Oban – Craignure route is disrupted and traffic routes via Morvern and the Corran ferry).
Significant traffic management issues have also emerged at Armadale and Sconser at peak times.

THC notes that RET has contributed in growing visitor numbers across the West Highlands. Whilst many trips may ultimately be bound for the isles, there are passing trade benefits for communities en-route.

Despite a reduction in the use of the Lochaline – Fishnish route, usage of the Corran Ferry has continued to increase.

Summary

The introduction of RET is generally considered to have generated a range of benefits on the islands and peninsular communities on the west coast of Scotland. Island residents have been able to travel more frequently, accessing a wider range of employment, business and leisure opportunities. There has also been an increase in visitors to island and peninsular communities, which has generated employment and additional economic activity.

However, the additional demand released by RET has led to a wide range of cost and other pressures which in many cases organisations are struggling to address or are diverting money from other sources to mitigate RET impacts. These have included:

The increase in visitors to the islands and the increased propensity for both residents and visitors to take their car on the ferry has caused capacity challenges on several routes across the network. This has created challenges for the operator in terms of managing demand, maintaining punctuality and, at various ports, safely and efficiently managing traffic. Increased use of the vessels has also increased the maintenance burden and costs on the vessels and infrastructure.
A secondary impact of the increase in vehicle movements is pressure on local road networks. This is particularly pertinent in ‘honeypot’ islands such as Mull and Harris, which are dominated by single track roads. The maintenance burden has increased, particularly in relation to verge damage associated with e.g. motorhomes, whilst there have been public complaints associated with congestion and tourists being unaware of how to drive on single track roads. Traffic management and parking in and around ferry terminals is also proving to be a challenging at various locations.
There is a consistent story emerging across the local authorities about island infrastructure being insufficient to meet the increased demands placed on it. As well as roads, this includes public toilet provision (cited as major issue on Iona), general and chemical waste facilities, accommodation and campsite provision.
There is anecdotal evidence to suggest that patronage on local authority subsidised bus services has declined as a result of more residents and visitors taking their car on the ferry. However, no quantitative evidence has been provided to support this point.
There is little evidence to date of local authorities changing the way in which they deliver services (e.g. waste management, social care, health, education provision etc) in the islands as a result of RET.

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