Funding and affordability
It is important that Scotland’s ferry services are based on a sustainable long-term financial foundation and remain affordable. This Plan would require significant and sustained funding for its successful delivery. This Plan sets out the priorities over the period of the Infrastructure Investment Plan (2021-2026) and recommends an investment programme over the longer term. In the context of constrained public finances in the years ahead, we must ensure that investments achieve Value for Money and are affordable.
The Scottish Government’s Infrastructure Investment Plan committed to investment of at least £580 million in ports and vessels, in addition to the completion of MV Glen Sannox / Rosa, to support and improve Scotland’s ferry services. Further funding of £115 million has also been allocated for the Little Minch vessels.
Individual investment proposals are developed in line with Transport Scotland guidance and based on robust business cases which make the case for multi-annual budget commitments. Investment proposals need to cover not just one-off capital costs but also ongoing operating costs of the crew, fuel, harbour dues and other costs of operating a vessel and staffing, maintenance and other costs of operating a port.
The Scottish Public Finance Manual (SPFM) and HM Treasury Green Book both suggest that Value for Money can be assessed either by looking at the costs and benefits of an option (generally when it is a new intervention) or by looking at the cost-effectiveness of options in achieving or maintaining existing outcomes. In both cases this is informed by the Scottish Government’s aims as set out in the National Islands Plan and the National Transport Strategy.
We will capture Value by taking a holistic view of the benefits and costs of the investment where appropriate. There are a number of costs and benefits associated with ferry services that cannot be easily quantified or monetised such as integration, accessibility and social inclusion and looking at the cost-effectiveness of options where appropriate. We will work with operators and stakeholders to improve our identification of the wider societal value of ferries as essential public services, in order to provide decision makers with robust justifications for public investment.
In both cases, assessing Value for Money ensures that recommended proposals meet objectives and strategic goals, where value includes the social, economic and environmental benefits of public investment, including where there is an opportunity through a vessel replacement or port renewal to make service enhancements which address identified transport connectivity needs.
The cost of investment in vessels, ports and ferry services is partly funded by fares revenue. This Vessels and Ports Plan, therefore, cannot be delivered in isolation from the other elements of the ICP, including renewed community needs assessments of services and a holistic review of future ferry fares options as part of progress towards the financial sustainability of ferry services.
Affordability is confirmation, at the time of the investment decision, that the necessary funding is, and will be available, in the financial years covered by the construction project.
The investment programme set out in this draft Plan, informed by initial stakeholder engagement, represents the recommended programme needed to maintain and safely operate the current network of ferry services. It is important to highlight that although funding has been made available, subject to individual project decisions, for the initial years of the Plan (2021-2026), the full programme of investment identified for future years falls into the decision-making responsibility of future Parliaments and Governments and, therefore, does not currently have allocated funding. Given the long time period of the Plan, reprioritisation and flexibility is required, particularly in later phases of the Plan, as the availability of funding will ultimately determine the pace of delivery.
Individual investment decisions will be taken in the context of budget allocations and market conditions prevailing over time. When difficult decisions within the overall programme need to be taken due to affordability challenges, these will be guided by the approach to “Investment Prioritisation” described below.
Transport Scotland normally uses capital funding (CDEL) for vessels and ports projects. Loans to CMAL are used for vessels and capital grants for port projects which is applied at an intervention rate in accordance with legislation and Subsidy Control Regulations. Grants to the operators to support ongoing ferry services provided through the CHFS and NIFS contracts use resource funding (RDEL). Given the challenging financial context, the programme proposed in this Plan, and the approval of investment projects for the replacement or renewal of current vessel and port assets, will consider the impact on operating cost on a whole-life cost basis. This will start from the presumption that, unless there is an exceptional case with a strong Value for Money justification, capital investment will not lead to an increase in the costs of operating those assets. Furthermore, projects should seek to reduce the operating costs where possible and reasonable. This will enable savings to be reinvested in services and help towards the long-term financial sustainability of our ferry networks.