A Safe Haven - The Harbours (Scotland) Bill

In March of this year, the Harbours (Scotland) Bill (the “Bill”) was introduced to the Scottish Parliament. The Bill’s main purpose is the repeal of section 10 of the Ports Act 1991 (as it applies in Scotland) which permits Scottish Ministers’ to compel a trust port, with an annual turnover above £9 million, to bring forward privatisation proposals. Contrary to the observations being made by some commentators, this has nothing to do with objections to privatisation. In fact the primary purpose of the Bill is to satisfy the Office for National Statistics (the “ONS”) that trust ports should no longer be classified as public corporations.

By way of background, in October 2013, the ONS announced that “major” trust ports would be treated as public corporations due to the power of the relevant Government sponsoring body to choose to enforce their sale under section 10 of the Ports Act 1991 and to have a right to a legally defined share of the proceeds from such a sale. The Bill, accordingly, revokes this power of the Scottish Government.

For those less versed in the accounting intricacies of the European System of Accounts 2010 (ESA 10), a public corporation is one of the two major classifications of a “public” body namely:

a) public corporations which are market entities but which are subject to public sector control, split into sub-categories of public non-financial corporations and public financial corporations; and

b) general government bodies which are non-market entities subject to public sector control, split into sub-categories of central government, state government, local government and social security funds.

This Bill has largely passed under the radar with a total of 10 responses to the consultation launched on 21 August 2014. Despite this comparative anonymity, the Bill’s potential impact on borrowing by trust ports no longer counting against Scottish Government budgetary limits is significant when one considers the number and size of trust ports in Scotland such as Aberdeen (including the proposed extension of the current harbour into Nigg Bay), Fraserburgh, Peterhead, Cromarty Firth and Tarbert (Loch Fyne). In addition the Bill provides important confirmation of the trust port model going forward in Scotland (as compared to municipal ports or privatised ports).

The Bill also provides an interesting point of comparison for HUB and NPD models in light of the current issues being caused by ESA 10. Trust ports are set up by Act of Parliament to be independent statutory bodies governed by their own local legislation and managed by a board of trustees. Trust ports operate on a quasi-commercial basis financially independent of the UK and Scottish Governments with no shareholders or owners. Any surpluses generated by the trust port’s activities are used for maintenance and regeneration of the port for the benefit of their stakeholders - usually the port users, employees and local residents. More details on trust ports and their stakeholders can be found here.

Could the trust port model provide a model for infrastructure delivery in the future? With trust ports being creatures of statute yet able to re-invest surpluses for the benefit for their stakeholders, there are clearly points of comparison. Other than expressing concerns surrounding the level of public control in NPD/HUB projects, the ONS also noted in their review of the Aberdeen Western Peripheral Route/Balmedie - Tipperty Project (AWPR) dated 15 July 2015 that “the accrual of surpluses to the Scottish Government” entered their decision making process when classifying the AWPR SPV as falling within the central government sector. With certain qualifications as to structure, the trust port model might avoid the concerns of being considered either a market entity or an entity which is subject to public control.

It is, however, worth noting that the ONS is still considering whether or not trust ports with annual revenues below the £9 million threshold should be considered to be public sector bodies. The ONS committed, subject to higher priorities, to consider these “minor” trust ports on a case by case basis by the last quarter of 2015/the first quarter of 2016. As at 29 September 2015, this review is now expected to take place in the first half of 2016. The briefing note to the Bill is perhaps unsurprisingly silent on this point which may indeed sink the Scottish Government’s rationale behind the Bill.

The Bill also makes administrative amendments to the Harbours Act 1964 for the removal of the requirement for harbour authorities to:

1. submit six copies of a draft Harbour Order along with the application for the Order; and
2. submit six copies of a harbour reorganisation scheme to Scottish Ministers.

This amendment was universally supported by the 10 responders to the consultation.

A more contentious point set out in the consultation was the introduction of a mediation step for port users challenging harbour dues, by amendment to Section 31 of the Harbours Act 1964. This received mixed comments from respondents to the consultation, and has not been brought forward to the Bill presumably to ease the passage of the Bill through the Scottish Parliament and to allow the Scottish Government to cast off the shadow of trust port borrowing from its budget.

If you would like any further information on this article or if you have any other queries in relation to the Harbours (Scotland) Bill please contact Eleanor Lane, Michael McAuley or James McDonald.