Impact of the Removal of RET Fares from Commercial Vehicles on The Western Isles, Coll and Tiree

9 Costs to the Taxpayer

9.1 Introduction

9.1.1 This chapter provides an assessment of the impact on the cost to the taxpayer of the removal of RET fares for commercial vehicles in April 2012. Specifically, in line with the brief the analysis considers the costs to the taxpayer of subsidising fares for commercial vehicles to the islands within the study areas.

9.1.2 In terms of spending, the cost to the Scottish Government of RET for CVs in the Western Isles, Coll and Tiree was £3.5m in 2011/12. Following the removal of RET, the cost of the transitional scheme for CVs was £2.5m in 2012-13. The 10% increase in CV fares in 2013‑14 (announced in December 2012) will cost the Scottish Government £2m in 2013-14.

9.1.3 The 'cost to the taxpayer' is defined here as the change in revenue as a direct consequence of an increase in fares for CVs via the transitional arrangements introduced in 2012 ie the change in revenue will directly impact on the level of subsidy provided to the operator and therefore the cost to the taxpayer. The analysis does not include the cost to the UK taxpayer as a whole as paid by all Scottish and UK government departments through, for example, changes in corporation tax, income tax, national insurance payments, welfare benefits etc.

9.2 Data

9.2.1 To date there is six months of carrying and revenue data since the removal of RET fares for CVs was introduced ie April to September 2012. This has been used as the starting point to show how revenue has changed, compared to the equivalent six-month period in the previous year. This has then been grossed up to provide an estimate of the annual change in revenue using the 2011 six month and twelve month revenue figures.

9.2.2 It should be noted that there are limitations with this approach: using six months of data will not necessarily provide a precise estimate for the whole financial year 2012/13 and beyond as users (businesses and hauliers) may not change their behaviour immediately in the face of higher fares eg businesses may be in contracts where transport charges may remain in place during the first six months and change in the second half of the year, or demand for final products may change over time as increases in ferry fares feed through to changes in prices of final goods, thus reducing demand for hauliers / commercial vehicles in the second six-month period.

9.2.3 It should also be noted that the removal of RET was not the only change occurring over the period. The economic downturn may have affected carryings more generally and local projects, such as the completion of the school building programme in 2011, may also have had an impact.

9.3 Impact of changes in fares

9.3.1 Table 9.1 below shows the percentage change in fare across the 4 routes[18][18] as documented in Chapter 2.

Table 9.1 Change in Fares from 1 April 2012
Route % change in fare April 2012
Oban - Castlebay / Lochboisdale 23%[19]
Oban - Coll / Tiree 40%
Uig - Tarbert / Lochmaddy 50%
Ullapool - Stornoway 50%

9.3.2 From the survey responses and interviews with hauliers and businesses, it is clear the removal of RET fares for CVs has impacted on the number of carryings and level of revenue generated. Table 9.2 below shows the number of CV lane metres carried and CV revenue generated by individual route, and total pilot area, for April to September 2011 and April to September 2012. The Table also shows, the absolute and percentage changes between the two six-month time periods.

Table 9.2 Carryings and Revenue by Route Apr-Sept 2011/12 and Apr-Sept 2012/13
Apr-Sept 2011/12 Apr-Sept 2012/13 Apr-Sept 2011/12 - Apr-Sept 2012/13 Apr-Sept 2011/12 - Apr-Sept 2012/13
Actual Carryings (m) Actual Revenue (£) Actual Carryings (m) Actual Revenue (£) change in carryings change in revenue (£) % change in carryings % change in revenue
Oban - Coll / Tiree 11,452 169,295 9,452 181,505 (2,000) 12,210 (17.5%) 7.2%
Oban - Castlebay / Lochboisdale 7,343 119,922 7,470 136,802 127 16,880 1.7% 14.1%
Uig - Tarbert / Lochmaddy 46,077 336,014 42,776 442,742 (3,301) 106,728 (7.2%) 31.8%
Ullapool - Stornoway 103,550 1,117,935 85,318 1,365,039 (18,232) 247,104 (17.6%) 22.1%
Total 168,422 1,743,166 145,016 2,126,088 (23,406) 382,922 (13.9%) 22.0%

9.3.3 Table 9.2 shows that in the six month period following the removal of RET fares for CVs on the Oban - Coll / Tiree, lane metres carried declined by 2,000 (17.5%), compared to the same six-month period in 2011/12. The change in fares combined with the change in carryings resulted in an increase in CV revenue of £12,200 (7.2%) for the six months.

9.3.4 On the Uig - Tarbert / Lochmaddy route, fares increased by 50% and lane metre carryings for CVs declined by 3,300 (7.2%). This resulted in an increase in revenue of just under £107,000 (32%).

9.3.5 On the Ullapool - Stornoway route, CV fares also increased by 50%. This was followed by a reduction in lane metre carryings of 18,232 (17.6%) and an increase in CV revenue of just over £247,100 (22.1%) over the six-month period between April and September 2012.

9.3.6 The slight anomaly occurred on the Oban - Castlebay / Lochboisdale route where fares increased by around 23%. Following this fare increase, carryings rose slightly by 127 (1.7%). However, despite an increase in carryings, the increase in revenue ie 14.1% (£16,880) was less than the increase in fares. The explanation for this anomaly is due to the concession for seafood lorries travelling empty ie while more lane metres or vehicles were being transported on the route, the introduction of the fares concession for the return trip from the mainland meant that the increase in revenue generated was less than the fare increase. It should be recognised that seafood lorries make up a significant proportion of CVs on this route.

9.3.7 Taking all of the routes together shows that following the fare increases, carryings declined by just over 23,400 (13.9%)[20] and revenue rose by £382,922 (22.0%) over the six-month period.

9.3.8 The total annual CV revenue for 20I1/12 across the four routes was £3,287,300. If we assume that the increase in revenue of 22.0% remains constant over the 12 month period then the absolute increase in revenue between 2011/12 and 2012/13 would amount to £657,460. If it is also assumed that this feeds directly through to a pound for pound reduction in subsidy, then the saving to the taxpayer from the removal of CV ferry fares would amount to £657,460.

9.3.9 The extent to how much this figure directly translates into a reduction in activity of this size across the islands will, as has been discussed elsewhere, depend on how much the increase in fares is passed on in higher transport charges and, subsequently, how much this can be passed on to customers outside of the islands. The evidence from the interviews suggests that most of the hauliers will pass on the increase in ferry fares to businesses. However, 42% of businesses surveyed explained that they could or would not pass on additional haulage costs to their end customers, while 27% of businesses said they would pass on the full cost to their end customer. While it is difficult to arrive at a precise figure on how much of the increase in fares will be passed on to final customers in the islands and elsewhere, the evidence from the interviews suggests the majority of end customers are located in the islands, and therefore the final impacts on activity will be felt there.

9.3.10 There are a number of assumptions here that may impact on the actual figure of £657,460. Firstly, for example, it is assumed that the percentage change in carryings and revenue remains constant between the first and second six-month period. It could be that carryings decline further as demand for transported goods falls (either imports or exports), leading to a decline in the estimated revenue. In this case the increase in revenue (between 2011/12 and 2012/13) will also fall, leading to a lower saving to the taxpayer.

9.3.11 Secondly, the estimate assumes that carryings and revenue would not have changed between 2011/12 and 2012/13 if RET had not been removed. It may be the case that carryings and revenue would have increased in the absence of the removal of RET, therefore reducing the estimated savings to the taxpayer. It is noticeable that CV carryings across the CalMac network as a whole, excluding the RET pilot routes, increased by 8% between Apr - Sept 2011 and Apr - Sept 2012. If this trend had been reflected on sailings to and from the Western Isles, Coll and Tiree if RET fares for CVs had not been removed, then revenue on these routes would have increased, meaning that the estimated saving to the taxpayer would be lower.

9.3.12 In addition to the cost to the Scottish Government of CV fares on Western Isles, Coll and Tiree, the Scottish Government has also absorbed additional costs of fare arrangements for livestock and shellfish lorries as well as for 5 to 6m commercial vehicles. With regard to the latter, in discussions with CalMac, together with anecdotal evidence from hauliers and businesses suggest that in the first six months since the removal of RET for CVs there has not been a noticeable increase in the number of vehicles of this length on these routes. However, it was also recognised that it may take a longer period of time for behaviour of hauliers to change, particularly when it comes to changing / replacing the size of vehicles in their fleet.

9.4 Conclusions

9.4.1 From the evidence gathered, together with the official data from the operator, the total CV lane metres carried in the first six months since the removal of RET declined by just under 14%, compared to the same six-month period in the previous year, across all routes. This compares with a 22% increase in revenue over the same period. The largest percentage decline in carryings were witnessed on the Oban - Coll / Tiree and the Ullapool - Stornoway routes, which saw CV lane metres fall by 17.5% and 17.6% respectively. Carryings on the Oban - Castlebay / Lochboisdale route actually increased, by a small rate of 1.7%. The largest increase in revenue was on the Uig - Tarbert / Lochmaddy route, which saw CV revenue increase by just under 32%.

9.4.2 The total change in revenue over the six-month period amounted to 22.0%. This equates to £382,922. If a similar percentage increase in revenue is witnessed over the 12 months since the removal of RET then this will equate to £657,460. This will be the savings to the taxpayer as a direct consequence of removing RET for CVs. This analysis does not take account of other tax and revenue impacts to other UK government departments, such as the change in income and corporation tax and national insurance contributions falling on from changes in transport charges feeding through to changes in business performance.

9.4.3 If the increase in revenue of £657,460 translates directly into a reduction in activity, then the evidence suggests that the majority of this impact will be felt in the islands.