Impact of the Removal of RET Fares from Commercial Vehicles on The Western Isles, Coll and Tiree
7 Geographic Impacts
7.1.1 The purpose of this chapter is to report on the geographic impact of the removal of RET for CVs. The initial findings from the research suggest that, due to the types of businesses and their characteristics, the removal of RET for commercial vehicles has had, or will have, a negative impact across all of the islands in the RET pilot group. However, the evidence collected through the consultation process suggests that these impacts will be greater in some islands than others. This section explores this issue in more detail and sets out which areas could witness the greatest impacts and why.
7.1.2 It is important to note here that the economies of the islands included within the RET pilot, and the focus of this study, are, similarly to all areas of the country, being affected by the general slowdown in activity caused by the current economic climate. As explained in earlier chapters, it is difficult to isolate precisely these impacts from the removal of RET for CV ferry fares. This also applies to the geographical incidence, where local impacts may be as much due to remoteness or the limited scale of industry as they are to higher CV fares. Nevertheless, the evidence from the interviews and surveys suggest that the removal of RET may exacerbate the effects.
7.1.3 It should also be noted that, given the limited data, it is not possible to quantify precisely the impacts of removing RET in each of the geographies / island communities. However, wherever possible, evidence from the surveys and official sources are used to assess the fragility / vulnerability of the different areas.
7.2.1 This section provides a brief outline of the recent socio-economic context of the islands, taking account of issues such as the recent trend in population, the level of unemployment (as measured through the percentage of Job Seeker's Allowance claimants), gross weekly pay and the number of businesses. In addition, because it is felt that any increase in transport charges may have a disproportionate impact on businesses in the primary sector, the importance of this sector, in terms of the number of firms, is also considered.
7.2.2 Table 7.1 below shows that between 1981 and 2011 the total resident population of the Western Isles declined from 31,500 (actual) to 26,100 (estimated), a fall of over 17%. There was a relatively steep decline between 1981 and 2001, with the total population falling by just under 16%. While the population has continued to fall after 2001, it has been less rapid and appears to have almost stabilised in the last few years.
Job Seekers Allowance Claimants
7.2.3 The level of unemployment in the Western Isles, as measured by those claiming Job Seeker's Allowance (JSA), is set out in Table 7.2. The table shows that the percentage of the workforce claiming JSA declined in 2007 and 2008 before rising to a peak in 2009. Since 2009 it has been relatively stable at around 3.2 to 3.3 per cent. Nevertheless, the most recent figures are higher than that experienced between 2006 and 2008.
7.2.4 In comparison with Scotland, the JSA figure for the Western Isles was above the national figure in 2006 and 2007. However, since 2008, the figure for the Western Isles has consistently been below that of Scotland.
|WI JSA Claimants||3.1||2.7||2.2||3.5||3.3||3.2||3.2|
|Scotland JSA Claimants||2.7||2.3||2.4||3.8||4.0||4.1||4.1|
Gross Weekly Pay
7.2.5 Table 7.3 below sets out a time series of gross weekly pay for the Western Isles and Scotland between 2002 and 2012. The table shows that gross weekly pay peaked in the Western Isles in 2009 at £493.1 before falling to £438.3 in 2012, a decline of 11% (in nominal terms) in three years.
7.2.6 The table also shows that while gross weekly earnings in the Western Isles were above the Scottish average in 2002 by 3.7%, earnings in Scotland as a whole have increased steadily in each year to £498.3 and are now 13.7% higher than those for the Western Isles.
7.2.7 Chapter 5 discussed the vulnerability of businesses in the agriculture and fishing sector to changes in commercial vehicle fares if these were passed on in higher transport charges. This was because these types of firms in the Western Isles tend to be operating in competitive markets, are price takers, they are transporting low volumes of goods of relatively low value, and have little market power and therefore ability to pass on higher charges to their customers. Chapter 5 also set out details of the importance of the primary sector to the Western Isles economy, in terms of turnover, employment and number of registered businesses. While these figures are not repeated here, it was shown that the Western Isles has an above average percentage of enterprises operating in the agriculture, forestry and fishing sector, with a figure of 23%. This compares with a figure of 11% for Scotland as a whole. It was also shown that the vast majority of businesses in the primary sector are small with less than five employees.
Scottish Index of Multiple Deprivation
7.2.8 In looking at those areas most vulnerable to changes in fares feeding through to an impact on economic activity, it is also useful to consider the current levels of deprivation across the islands. The Scottish Government's Scottish Index of Multiple Deprivation (SIMD) ranks deprivation by area using a combination of indicators, including income, employment, health, education, skills and training, housing, geographic access and crime. The results for the Western Isles Coll and Tiree are set out in Figure 7.1, where the figures represent the ranking of most deprived ie one would be the most deprived area in Scotland and 6,505 the least deprived area.
7.2.9 Figure 7.1 shows that many parts of the Western Isles are considered to be within the most deprived in Scotland. The most deprived areas are located in Lewis, Harris and South Uist. However, the figure also shows that even the least deprived areas of the Western Isles, Coll and Tiree are still in the 50% most deprived areas of Scotland.
7.2.10 This section has provided a brief socio-economic context of the Western Isles. It has shown that it has experienced a significant decline in population over the past 30 years. It has also witnessed a relative decline in gross weekly earnings compared to Scotland as a whole, particularly in the last three years. While unemployment, measured in terms of those claiming JSA, is below that of Scotland as a whole, the figure in recent years has increased. Finally, it is clear from earlier chapters that the Western Isles economy is highly dependent on those businesses in the primary sector, in terms of number of businesses, employment and turnover. It is also clear from the business survey and interviews that these companies are the most vulnerable to increases in ferry fares if they are passed on in terms of higher transport charges.
Lewis / Harris
|Year||1971||1981||1991||2001||change 1971 - 2001|
|Harris and Scalpay||2,879||2,489||2,222||1,984||-31%|
7.3.1 Between 1971 and 2001, the island of Lewis saw its population decline by 9%. Indeed, between 1991 and 2001 alone it experienced a fall of 8.3%. Over the same 1971 to 2001 period, Harris (including Scalpay) saw a decline in its population of over 30%, from 2,879 to 1,984.
7.3.2 The latest population estimates reveal that while there may have been a slight increase in the total population of Lewis and Harris up to 2007, the 2011 figure is still very similar to that for 2001. Overall, therefore, it is clear that the area of Lewis and Harris has seen a long‑term decline in population which could have an adverse impact on the sustainability of the community if it is to continue.
7.3.3 Table 7.5 below shows that the percentage of JSA claimants in Lewis and Harris peaked in 2009 at 4.0%. It then declined in 2010 and 2011 before rising again in 2012 to 3.8%. The table also shows that after 2007 the figure in Lewis and Harris has been above that for the Western Isles as a whole.
|Lewis / Harris JSA Claimants||3.0||2.5||2.4||4.0||3.5||3.4||3.8|
|WI JSA Claimants||3.1||2.7||2.2||3.5||3.3||3.2||3.2|
7.3.4 In terms of the trend in the number of businesses, Table 7.6 shows that, there have been ongoing fluctuations in the total number of businesses in Lewis and Harris. While it experienced a decline of almost 5.5% between 2008 and 2011, it also witnessed an increase of 3.5% between 2011 and 2012. The figure in 2012 is 2.2% lower than in 2008.
|Total number of businesses||920||920||900||870||900|
7.3.5 The latest data shows that the number of businesses in the primary sector in Lewis and Harris has witnessed an ongoing decline in recent years. Table 7.7 below shows that the figure has fallen from 150 in 2008 to 125 in 2012, a decline of 17%. The Table also shows that there has been a steady year-on-year decline with the number of businesses in the sector falling in each of the four years up to 2012.
7.3.6 The latest figures also contrast with the number of business as a whole. For example, while the number of total businesses in Lewis and Harris increased in 2012, the number of businesses in the primary sector continued to decline. Given the importance of this sector across the islands, and the adverse impact that an increase in transport charges could have on businesses in the sector, the withdrawal of RET fares for CVs could have an important impact on the local economy.
|Number of Businesses||150||140||135||130||125|
7.3.7 While the Western Isles as a whole has 23% of its registered businesses in the primary sector, in recent years the proportion of businesses in this sector in Lewis and Harris has been lower, at just over 15%. The figures for 2008 to 2012 are set out in Table 7.8 below.
|Number of Businesses||16%||15%||15%||15%||14%|
7.3.8 While all areas of the Western Isles, Coll and Tiree will be affected by the increase in ferry fares due to the nature of industry across the islands eg high concentration of primary industries, Lewis, in theory, is likely to be the island afforded the greatest protection by its sectoral mix. Areas with industries less likely to be affected directly by an increase in CV fares will be more able to support overall activity and help absorb the impacts. An example of a sector which is likely to be less directly affected by the introduction of RET is the services sector and public administration. Businesses within these sectors are much more concentrated in Lewis, and in Stornoway in particular, compared to other areas of the Western Isles.
Haulage Market Impacts
7.3.9 Lewis and Harris also support a relatively large scale haulage industry, with a higher number and concentration of operators, including large multi-purpose firms like D R MacLeod and MacRitchie's Highland Distribution. The size of this haulage market and scale of industry creates competition and economies of scale and helps keep haulage costs down. The level of competition between hauliers also makes it relatively harder to simply pass on any RET related price rises. For example, evidence from the interviews suggests that the entry of MacRitchie's into the island haulage market has assisted in keeping rates down. While this will have an impact on haulier margins, it also provides some protection for businesses in the area more generally.
7.3.10 Businesses in Lewis and Harris are protected, to some extent, against the price rises by the presence of the MV Muirneag. Users of the overnight freight sailing offered by the MV Muirneag benefit from a 10% discount on the fare charged for using the MV Isle of Lewis, while the ability to drop trailers reduces both vehicle length charges and the need to send a driver with the vehicle. This is a significant overall cost reduction for using the Stornoway - Ullapool route and one which is not available to the other islands in the RET group.
The Uists, Benbecula and Barra
7.3.11 This section sets out socio-economic data for the Uists, Benbecula and Barra. Where possible the data has been disaggregated. However, it has not been possible to do this for all indicators and, in some cases, the data is presented at different island levels.
7.3.12 Between 1971 and 2001 the total population of the Uists and Benbecula declined by 13%. Between 1981 and 2001 alone the figure was 21%. The figures are set out in Table 7.9 below. The latest mid-year estimates suggest that the rate of decline has dropped. Nevertheless, there is clear evidence of a continued gradual decline in population levels in the area with the figure for 2011 showing a decline of 5% on the 2001 figure.
|Year||1971||1981||1991||2001||change 1971 - 2001|
|Uists and Benbecula||5,598||6,122||5,903||4,857||-13%|
7.3.13 Table 7.10 below shows that between 1971 and 2001 the population of Barra increased from 1,088 to 1,172, an increase of 8%. The table also shows however that the population increased by 21% between 1971 and 1991, before falling by 11% in the ten years to 2001. Since 2001, the mid-year estimates reveal that the population level has remained fairly stable with small fluctuations over the period and the 2011 level is almost equivalent to what it was 10 years earlier.
|Year||1971||1981||1991||2001||change 1971 - 2001|
7.3.14 Table 7.11 below shows that the percentage of JSA claimants in North Uist and Benbecula has declined between 2006 and 2012, from 4.5 to 3.2. In contrast, the figures also show that the percentage of JSA claimants for South Uist and Barra increased between 2006 and 2012, from 2.7% to 2.9%. The figure has increased significantly from the low of 2007 when it was 2.0%.
7.3.15 Table 7.11 also shows that while the percentage of jobs seekers in North Uist and Benbecula has been equivalent to or higher than the figure for the Western Isles as a whole, the figure for South Uist and Barra has consistently been below the figure for the Western Isles. In terms of this unemployment indicator it is clear that the area of South Uist and Barra has performed better than North Uist and Benbecula.
|North Uist and Benbecula||4.5||3.6||3.7||3.9||3.3||3.7||3.2|
|South Uist and Barra||2.7||2.1||2.0||2.9||3.0||2.8||2.9|
|WI JSA Claimants||3.1||2.7||2.2||3.5||3.3||3.2||3.2|
7.3.16 Table 7.12 below shows the total number of businesses registered in North Uist and Benbecula. The figures show that over the period 2008 to 2012 the total fell from 115 to 110, a decline of 4.3%. However, the most recent figure does show an improvement in 2012, where the figure of 110 was an increase of 4.8% on the number in 2011.
|Total number of businesses||115||110||110||105||110|
7.3.17 Table 7.13 shows the number of businesses in North Uist and Benbecula in the primary sector. The figures show that between 2008 and 2012 the number fell by 12.5%. This included large declines in 2009 and 2011, but also included a rise of 16.7% in 2012. It is noticeable that the increases and declines recorded in the primary sector match the change in numbers in the total number of businesses in the area.
|Number of Businesses||40||35||35||30||35|
7.3.18 Taking the two tables together, it is clear that there is a significant dependence on the primary sector. Table 7.14 below shows the share of total businesses in North Uist and Benbecula that are located in the primary sector. While the numbers show small annual fluctuations over the period, it is very clear that North Uist and Benbecula has a very high dependence on businesses categorised within the primary sector, with around a third of the total in each year.
|Number of Businesses||35%||32%||32%||29%||32%|
7.3.19 Table 7.15 shows the total number of businesses registered in South Uist and Barra. The figure shows that over the period 2008 to 2012 the number increased from 205 to 210, a rise of 2.4%. Indeed, in 2012 the figure of 210 was an increase of 5% on the figure in 2011.
|Total number of businesses||205||205||210||200||210|
7.3.20 Table 7.16 shows the number of businesses in South Uist and Barra in the primary sector. The table reveals that the direction of the annual fluctuations in the number of businesses in the primary sector mirrored that for businesses as a whole, although the magnitude of the percentage change was much greater in the primary sector. The figures show that over the 2008 to 2012 period the number increased by 14%. The table also shows that the figure increased by 14% alone in 2012.
|Number of Businesses||70||70||75||70||80|
7.3.21 Taking the number of businesses in the previous two tables reveals that, even more than North Uist and Benbecula, the combined areas of South Uist and Barra also have a high dependency on the primary sector. Table 7.17 below shows that the number of businesses in South Uist and Barra in the primary sector, as a proportion of all businesses in the area, was 34% in 2008, rising to 38% in 2012.
|Number of Businesses||34%||34%||36%||35%||38%|
7.3.22 While the haulage market in Lewis and Harris can benefit a number of companies in that area, it can have the opposite effect in some of the southern islands such as North Uist and Benbecula. The concentration of the haulage industry in Lewis means that the majority of goods are 'hubbed' through Stornoway. While goods being transported to Barra arrive direct in Castlebay from Oban, many of the goods to the other islands come via Stornoway and businesses are therefore already paying for the cost of moving traffic inter-island and, due to the nature and characteristics of businesses located in these areas, will likely have a greater proportion of the RET related cost increases passed on to them.
7.3.23 In terms of Barra, it was explained in Chapter 4 that there was problems due to the area having a relatively small market, in terms of number of businesses, an extended sailing time, low service frequency and the inability to use drop trailers, this created inefficiencies in the haulage sector and leads to higher than average costs. It has been explained, for example, that Barratlantic drivers are paid proportionally more to sit on the ferry than to drive and this structural inefficiency has to be built into the overall business cost base and margin.
7.3.24 There is evidence from the business surveys to suggest that rates have already increased since RET for CVs was removed, and the responses from the business interviews suggest that the remote communities will find it more difficult to deal with the impacts of these rises. A number of stakeholders explained that this is a direct result of the small traffic volumes moving to and from these islands. The lack of scale for many hauliers means that costs are already high and thus the pass on of increases related to the withdrawal of RET has been, and indeed will be, significant for many of the low margin, price competitive businesses in these areas.
Coll / Tiree
7.3.25 Table 7.18 sets out the long-term trend in the populations of Coll and Tiree. While the population of Coll increased by 14% (144 to 164) between 1971 and 2001, it declined by 5% in the 10 years to 2001. In Tiree, the population declined by 12% (875 to 774) between 1971 and 2001 but remained fairly stable in the decade to 2001.
7.3.26 The most recent mid-year estimates suggest that while the combined population of the two islands has fluctuated in the years following 2001 up to 2011, the estimated figure for 2011 is 1,050, an increase of 12% over the figure for 2001.
|Year||1971||1981||1991||2001||change 1971 - 2001|
7.3.27 Table 7.19 shows that the percentage of JSA claimants in Coll and Tiree has been steadily increasing since 2007, from 2.4% to 5.6%. This compares with a more gradual rise in Argyll & Bute as a whole. The figures in Coll and Tiree are also higher than the island areas in the Western Isles discussed above.
|JSA Claimants Coll and Tiree||2.7||2.4||2.5||4.6||5.1||5.1||5.6|
|Argyll & Bute JSA Claimants||2.5||2.2||2.1||3.0||3.2||3.4||3.4|
7.3.28 Table 7.20 shows that between 2008 and 2012 the total number of businesses in Coll and Tiree increased by 20, or 29%. The majority of the increase occurred in 2010 alone where the number of businesses increased by 15, or over 21%.
|Total number of businesses||70||70||85||90||90|
7.3.29 The latest data shows that the number of Coll and Tiree businesses in the primary sector has remained fairly steady over the 2008 to 2012 period. The figure, as shown in Table 7.21, increased from 15 in 2008 to 20 in 2012, a rise of 33%. It was noticeable however that all of the increase in the number of businesses occurred in 2010. This trend in activity is similar to that for the number of businesses as a whole.
|Number of Businesses||15||15||20||20||20|
|Number of Businesses||21%||21%||24%||22%||22%|
7.3.30 Table 7.22 shows that the islands of Coll and Tiree also have a relatively large share of total businesses operating in the primary sector, with each of the last five years showing a figure above 20%.
7.3.31 The islands of Coll / Tiree saw the fare for a 17m vehicle rise by £99, the highest absolute increase across the RET pilot routes. Although this was the highest absolute increase, the percentage increase of 46% was lower than Ullapool - Stornoway or Uig - Tarbert / Lochmaddy. During the business interviews there was much concern expressed about this increase being passed on to businesses and the impact this would have on the islands. On Coll for example, islanders were highly vociferous about the impact of the removal of RET for CV fares on the cost of living. The majority of food deliveries to Coll is brought in on vans under the commercial vehicle threshold and there has not been a particularly notable difference in the cost of food since April. However, there has been a marked increase in the price of fuel, heating oil and coal, all of which are essential products on the island and brought in on commercial vehicles.
7.3.32 It was explained that loivestock movements work somewhat differently in Tiree compared to many other Scottish islands. The island has a reputation for producing good quality livestock which is sold at five annual auctions run by the Stirling based firm, United Auctions. The auctions are held in August (mainly for lambs); September (sheep); October / November (biggest cattle sale); February (2nd biggest cattle auction) and May (cattle).
7.3.33 While Tiree livestock fetch a good price at the auction, there is anecdotal evidence to suggest that the small price premium is now being lost because the buyers face increased expense in getting the livestock to the mainland. It was suggested that the premium for Tiree cattle is now almost insufficient to cover the costs and there were concerns about the long-term future of the industry if the mainland-island differential continues to rise.
7.3.34 Farmers, for example, import hay at least once a year; concentrated feed 2-3 times per year; and other smaller items like fencing, herbicide and bale wrap. All of these goods are brought to Tiree on articulated lorries and an increase in price as a result of higher fares would have a significant adverse impact on the businesses. Some farmers purchased large volumes of goods in advance in anticipation of higher transport charges. While this insulated them against the price rises to some extent, many are worried about the impending price rises for their next purchases. Those interviewed expect that the increase in the ferry fare will be passed on in full to their businesses.
7.3.35 It was claimed that fuel in Coll is the second most expensive in Europe even though it is sold from a not for profit community filling station. Given that fuel is a highly price inelastic good, the extra cost incurred as a result of the RET decision is simply passed straight to the end customer (ie the islander). The cost of this is estimated at 1.5p-2p a litre.
7.3.36 The costs for coal and heating oil are also passed straight on to the customer. The owner of the village shop on Coll explained that the price of a bag of coal has risen from around £9 to £9.75 since April, an increase of over 8%.
7.3.37 It was also claimed that there were particular issues for Coll and Tiree because these islands only have one low frequency route. For example, during the winter timetable, Coll and Tiree only have sailings on a Tuesday, Thursday, Saturday and Sunday. With such a timetable, it was suggested that these islands (Coll in particular) are already high cost locations to serve because they necessitate tying up a lorry and driver on either the mainland or island for an extended period, with a subsequent loss of earnings. The removal of RET for CVs is an additional cost that could make the economics of serving these islands increasingly marginal, with the risks to fuel supplies perhaps being the most significant threat.
7.3.38 There was also concern that the increase in transport charges could feed through to an adverse environmental impact. For example, as Coll is a small island, there are relatively limited means of disposing of waste, a particular issue given that the agriculture industry can generate high quantities of waste products. The chair of the local recycling group has been working closely with farmers to recycle items such as bale wrap. The group has helped raise money to bring in a lorry from Solway Recycling, which removes bale wrap and other waste products and takes it to Carlisle to be recycled. The recycling lorry tends to come across twice per year but the removal of RET will make this an increasingly expensive process to maintain as Solway Recycling pass any additional costs on in full.
7.3.39 If farmers and the recycling group cannot or do not meet this higher cost, the bale wrap and other products will have to be burned. There is also a greater likelihood of such products ending in the waters surrounding Coll. Plastic-based products are highly dangerous for marine life, which often mistake them for food.
7.3.40 The Chair of the local recycling group also coordinates the 'car takeback' scheme whereby MacKinnon of Tiree move scrap cars to a scrapyard in Glasgow for recycling. The economic viability of this scheme is under question following the removal of RET for CVs.
7.4.1 It was explained in Chapter 4 that many firms outside Lewis and Harris are paying excessive haulage costs due to a higher market rate. A number of factors impact on the market rate, including the level of competition in the haulage sector, the 10% discount on the Ullapool - Stornoway overnight service, the ability to drop trailers, the frequency of ferry services, the scale of goods being transported. The southern islands already face higher market rates due to the absence of these factors. If higher ferry fares feed through to higher transport charges it will be the southern islands that will be most adversely affected.
7.4.2 The findings from the business survey and the business interviews showed that across all geographic areas businesses expected the increases in ferry fares to be passed on in terms of higher transport charges. In most cases this was also confirmed by the interviews with the hauliers. In addition, there was no regional disparity about whether businesses would pass on higher transport charges to their customers. Across all island groups, it was generally felt that businesses would not be able to pass on any increases and would have to be absorbed within the overall company costs, having a detrimental impact on performance.
7.5.1 Using the evidence gathered it is likely that all areas of the Western Isles, Coll and Tiree will be affected by the removal of RET fares for commercial vehicles. However, given the profile of industry across the islands, the different indicators of recent socio-economic trends, and the location of businesses within the haulage market, it means that some areas are more vulnerable than others and will experience different levels of impacts.
7.5.2 Areas with a large share of enterprises in the primary sector will, due to the nature of these businesses, be adversely affected most. The Western Isles, Coll and Tiree as a whole have a proportionately higher share of enterprises within the primary sector. However, this is particularly the case in the southern islands, Coll and Tiree where the share of total businesses in the primary sector can be as high as 35%, leaving these areas more vulnerable. These areas already face higher than average transport charges due to the lower number of hauliers in the area and less competition in the market.
7.5.3 While the island communities covered in the study have not witnessed high levels of unemployment by Scottish standards, the rates seen are high compared to other island areas, and the Western Isles does have a number of highly deprived areas according to the Scottish Index of Multiple Deprivation, making them very vulnerable to any downturn in activity.
7.5.4 In addition, many of the areas concerned do not have the level of industry and capacity to absorb the downturn in activity, through say, changes in employment. While the area of Lewis and Harris may have the sectoral mix to absorb some of the impacts. Nevertheless, this area still has a relatively high dependence on those sectors likely to be most affected by an increase in transport charges brought about by the removal of RET CV fares.