A Scottish Review investigation

Shock waves
The strange world of Caledonian MacBrayne
II. Exchange of letters
Scottish Review and CalMac

Yesterday morning, we emailed the company and sought to confirm the basic facts. We also requested the company to provide a rationale for the Guernsey operation.

At 10.30 we received the following reply:

Hi Ken, I don't know the answers to these off the top of my head but I know a man who does. I'll get back to you asap. Can I ask what your interest is and the context of your question?

At 10.37 we replied:

I just think the whole policy is wrong. No publicly funded body should be avoiding its obligations to support the essential services of this country.
National insurance contributions are traditionally used to fund the National Health Service. Frankly, I am appalled that any publicly funded body
would wish to locate offshore in order to avoid paying employers' NIC.

At 14.53 we received the following reply:

I wasn't around when the off-shoring occurred so have had to do a quick catch-up on this. As with many things associated with CalMac it is more complicated than might first appear, but I will try and set out the position.
     I don't know how much you know of  the history of  the tender for Clyde and Hebrides Ferry Services (CHFS) contract, but it may be helpful to go over some key points which resulted in the then Caledonian MacBrayne deciding to set up an offshore company to employ staff in anticipation of the services being put out to tender.
     It was then, and remains now, standard practice in the international shipping industry to use offshore companies for crewing, so Caledonian MacBrayne realised that if it was to bid on a level playing field it would be necessary to create an offshore crewing company otherwise every one of its potential competitors would have an immediate competitive advantage. (I gather CalMac was one of the last shipping companies to do this.)
     By taking this step the company was able to make savings which not only improved its competitive position in the bid by reducing costs, but also reduced the value of the bid and therefore the annual subsidy it required from Government. There is therefore a strong argument for saying that offshoring actually saves money. Savings to the company are £1.2m per year.
     As you will also be aware CalMac is an important employer in the area it serves, so there was also a desire to secure jobs as far as was possible. By creating the offshore company local staff remained competitive and countered the very real risk that other operators would bring in foreign crews to cut costs.
     The arrangement came into place on 1 February 2006. Including seasonal staff, the crewing numbers are 800, but it should be stressed that we do pay employers' NIC for around 150 of them who work on Class A-D waters. All (800) pay NIC to the Government. Of course, we pay NIC for all shore-based staff who also pay their own NIC.
     At that time Caledonian MacBrayne Ltd was a wholly-owned subsidiary of Government so the decision to create the new companies was entirely supported and facilitated by the government who were keen that the then existing operator was in a position to launch a realistic bid. For that reason too, Caledonian MacBrayne Ltd became Caledonian Maritime Assets Ltd in order to retain ownership of the piers and vessels in public hands and CalMac Ferries Ltd was created solely as an operator of ferry services.
     One final thing I wish to clarify is the legal status of CalMac. You described Caledonian MacBrayne as a publicly funded body but that is not strictly true. CalMac Ferries Ltd operates as a private company, which receives a subsidy on a commercial basis to deliver the services under the CHFS contract which it won after a formal government tender process. Its directors are bound by the terms of the Companies Act. The company is able to generate revenue, albeit subject to clawback, but it does not receive deficit funding as in the past. This may seem like splitting hairs but it is an important distinction that few understand.
     I can see how the off-shoring looks at first glance, but I hope the explanation above shows that it was done for good reasons related to securing employment in fragile areas and to ensuring as far as was possible that the company which had operated these services in various guises for more than 150 years continued to do so. There is absolutely no question that it was done to avoid 'paying its way' and was done with the full knowledge and consent of the Scottish Government.
     Is there any reason you are looking at this now, given it's been in place for four years or so?
     There are a lot of myths and mischief associated with CalMac so if you need any further information or clarification please do not hesitate to contact me.  

At 15.24 we replied:

Thank you for that explanation. I will publish it, of course.
     A minute of a meeting of David MacBrayne Limited and CalMacFerries Ltd (jointly held, one supposes) on 28 January 2009 states:
     'Mr Lynch informed the Board that, although a recent change in Guernsey law had removed the requirement for the accounts of Guernsey-registered companies to be audited, he had advised the Guernsey administrators that it would be inappropriate, from a government perspective, for a company which was ultimately owned by a body in the public sector in Scotland [my italics] to take advantage of this and, accordingly, their accounts will still need to be audited'.
     It would appear, then, that David MacBrayne and CalMacFarries Ltd accept that the Guernsey-based company is ultimately owned by a body in the public sector in Scotland.
     Actually, it is ultimately owned by the Scottish ministers. They are responsible for this state of affairs.
     I do not believe that any company, in the public sector or otherwise, which avoids its responsibilities to pay employers' NIC by basing itself offshore should be the recipient, directly or indirectly, of any public subsidy. All employers should accept a responsibility for meeting their fair share of the costs of the National Health Service and other essential services. If that was true in 2006, it is true with very much greater force in the circumstances in which we now find ourselves as a country.
     But thank you for your very considered response.

At 16.28 we received the following reply:

Hi Kenneth. There is no question that as David MacBrayne Ltd is owned by Scottish Ministers that its subsidiary CalMac Ferries Ltd and in turn its subsidiary Caledonian MacBrayne Crewing (Guernsey) Ltd could be considered to be in public ownership. They were in public ownership when Ministers and the Scottish Govt agreed to the creation of Caledonian MacBrayne Crewing (Guernsey) Ltd for the reasons outlined in my earlier note. I would be grateful if you could attribute anything in that note to a CalMac spokesman.

[click here] for Sail Away: photo-essay by Scottish Review Deputy Editing (Guernsey)