A Scottish Review investigation
Shock waves
The strange world of Caledonian MacBrayne
I. First stop, Guernsey
Kenneth Roy
If I were to tell you that a publicly owned body has an offshore subsidiary rather than pay employers' NIC in this country for 650 people who work for it, what would you say?
If I were to tell you that its legal tax avoidance scheme has been worth almost £5 million to this body in the last four years, what would you say?
If I were to tell you that, at the same time as it deprives the state of revenue for essential public services, it gobbles up £90 a million a year in public subsidy, what would you say?
If I were to tell you that all this goes on under the noses of the Scottish Government, what would you say?
You would think that I was making it all up. I'm not.
Welcome to the world of Scotland's very own non-doms of the seas. Step aboard your CalMac ferry bound for St Peter Port.
Well, the weather's certainly better. To say nothing of the tax advantages.
Caledonian MacBrayne Crewing (Guernsey) Limited supplies crew for the fleet operated by CalMac around the west coast of Scotland. It is advertising for the 2010 summer season.
Managing director Phil Preston says: 'The jobs on offer include opportunities for deck and engineering officers, as well as deck and catering ratings, working on the full range of vessel types and sizes...Successful applicants are expected to have high standards of personal presentation...They must be customer-focused and have a proactive approach to customer care.'
So far, so good. But what of this company's own personal presentation? Are looks deceptive?
It's complicated. When the EU considers the complex web of companies that used to be plain old Caledonian MacBrayne, steaming around the islands of the Hebrides and Clyde, picking up the odd sea dog, it now requires an intricate graph to make any sense of it. I have the graph in front of me. There are arrows pointing in every direction. Thank you, EU.
And yet...it's still complicated.
I will try to explain.
There is Caledonian Maritime Assets Ltd. It owns the piers and the vessels. Pretty important of course, but you can pretty well forget it for present purposes.
Then there is David MacBrayne Ltd. It is the parent company of the rest. It is owned by a group of people known as the Scottish ministers. They are the sole shareholders. If you can imagine staff nurse Sturgeon in charge of the first-aid room, John Swinney as the purser, Kenny picking up the odd drunk and Captain Salmond making the on-board announcements, you have the approximate picture.
You might think that Caledonian Maritime Assets Ltd and David MacBrayne Ltd would be enough to run a ferry service. You would be wrong.
David MacBrayne Ltd has a subsidiary known as CalMacFerries Ltd, which operates the routes. It in turn has a subsidiary known as Caledonian MacBrayne Crewing (Guernsey) Ltd. (There is, believe it or not, yet another subsidiary known as Caledonian MacBrayne HR (UK) Ltd, and no doubt it is owned by somebody somewhere, but life is difficult enough already. I propose to concentrate on the Guernsey operation.)
Why does it exist? Why has the publicly owned David MacBrayne Ltd allowed its subsidiary CalMacFerries Ltd to create a company based in the Channel Islands? Even if the route is tortuous, the destination is simple: it saves a lot of money. Of the 800 crew men and women working on the ferries which ply the waters of the Hebrides and Clyde, no fewer than 650 of them are employed in Guernsey, a Crown protectorate outwith the United Kingdom. As a result, a company whose ultimate owner is the public pays no employers' NIC to the UK government for these 650 employees: none whatsoever.
This bizarre arrangement has been in force since February 2006. The company has informed the Scottish Review that it saves £1.2 million a year. It continued throughout the recession when public services began to be squeezed. It continues still.
When I asked the company for an explanation, I was told that it helps to protect jobs. Well, I suppose there's something in that. I mean, if it was legally possible, which maybe it is, I could make Islay McLeod the sole employee of Scottish Review Deputy Editing (Guernsey) Ltd and save a bob or two on employers' NIC contributions in this country. As a matter of fact, if I counted the amount of money I could have saved for the Institute of Contemporary Scotland in the last four years by shipping her off to the Channel Islands, and avoiding the annoying obligation to pay the Government for her invaluable services, I could easily claim, if the pesky media ever asked, that I was helping to protect her job.
But that rather misses the point. I had better explain, for the benefit of David MacBrayne Ltd, what the point is. It may have eluded them.
National insurance in the UK was introduced as long ago as 1911. It was initially a system of insurance against illness and unemployment. In 1946, it was expanded by the government of Clement Attlee to provide retirement pensions and other benefits. It was a practical manifestation of post-war idealism, the striving for a better and fairer society. Employers paid their share, employees theirs. It was equitable. It was all in a good cause.
In recent years, it has been seen more and more as a tax. The Government itself now tends to refer to it as a tax. Employers' organisations call the employers' contribution a tax on employment; it amounts to 12.8% on top of salary. But it remains socially useful: it is more specifically targeted than other forms of taxation. The money raised may be allocated by the Government for capital projects such as schools and hospitals. Much of it is given to the National Health Service.
National insurance, then, is a politically sensitive issue. It also provides a significant part of the Government's revenues – 17% of its total receipts.
Why should any eligible individual or company be allowed to avoid contributing? The key point about the current non-dom scandal is the almost universal public feeling that, if you want to live in this country or do business in it, you should contribute your fair share to keep the country going. Many don't. It is estimated that rich corporations have devised legal ways to avoid paying £12 billion a year, offshore 'havens' (so-called) such as Guernsey providing one of the most established routes.
CalMac is not a rich corporation. On the contrary, it depends largely on public subsidy for survival. It simply behaves like a rich corporation.
The company asked me yesterday why I was suddenly interested in a scheme that had been in operation for four years. There are several answers.
One: it is not generally known. I have studied successive annual reports of the parent company and although there are brief references to Caledonian MacBrayne Crewing (Guernsey) Ltd, the true reason for its existence has never been acknowledged in any of these reports. The Scottish media have said next to nothing about the arrangement: there has been not a whisper of criticism. The Scottish Government says nothing at all. The whole issue seems to be below the ship's radar. It ought not to be.
Two: the world of 2010 is a very different world to the world of 2006. Guernsey's tax regime has attracted the critical attention of both Gordon Brown and Barack Obama. When Brown recently said something disobliging about it, the Guernsey press called him a playground bully; not very original. Meanwhile, Obama's administration has been exchanging tetchy correspondence with Guernsey. It disapproves of such havens; it wants to make it harder to access them. This new and more aggressive policy on the part of the UK and American governments is understandable: it is rooted in a desire for a more transparent financial regime on the back of the banking scandals of the last two years.
Three: the UK is no longer in the strong economic position it appeared to be in four years ago. It needs every penny it can lay its hands on. Why should it be deprived of any revenue to which it is entitled when there is talk of savage cuts in public services?
Four: the scheme, although legal, cannot be defended on ethical grounds. It is unacceptable that a publicly owned body in receipt of an annual subsidy of £90 million should be resorting to such a deplorable business practice. The company says that other merchant shipping fleets do likewise. So what? We should not be adopting as role models the non-doms of the commercial world. We should have our own standards of what is appropriate and what is not. Either the tax avoidance should stop; or the public subsidy.
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