Leader of the Isle of Wight council, Cllr Dave Stewart, has responded to news announced last week by the Island Independents that they would use formerly agreed loans to purchase a slice of Red Funnel, if they return to power after the May elections.
Officers say “too risky”
Cllr Stewart says the idea has some merit, but claims it’s “a financial disaster waiting to happen”.
He said,
“The council has already looked at this proposal, but the expert advice from officers is it’s too risky financially. At best it’s a red herring, at worst it’s a financial disaster waiting to happen and so not in residents’ interests.
“I fully acknowledge the idea has some merit because of the cost of travel to and from the Island, but we are not an authority with the resources to take a stake in Red Funnel and to do so would raise considerable problems.
“For the Independent group to think it can be done is unfortunately far-fetched and nothing more than pretty desperate electioneering because it would run the risk of bankrupting the Island and the reasons are simple.”
Minority shareholder with little power
Claiming the council would have little say on operational decisions, Cllr Stewart went on to say,
“All ferry companies servicing the Island have accrued significant amounts of debt which has to be serviced by the owners – or, in other terms, the Island taxpayer if the council took a stake in Red Funnel.
“The council cannot own Red Funnel outright and would be a minority shareholder with little power over decisions like pricing, investment or debt consolidation, to name but a few issues.”
Couldn’t “hold all ferry companies to account”
We’re not sure that any council administration has ever really held the ferry companies to account (they all agreed to take part in a Scrutiny Committee meeting a few years ago), but Cllr Stewart went on to add,
“Buying into one ferry company when there are others would impact on the council’s ability to impartially hold all the ferry companies to account.
“What would the council do about the perfectly valid expectations from the community to reduce the cost of travel when this conflicts with the desire to make a profit? Without a strong return, there will be no money to replace the ferries when they reach the end of their life in a few years’ time and who picks up the bill? Potentially, the Island taxpayer again.”
Stewart: “Why is owner keen to sell?”
He then went on to question why it’s being sold, saying,
“If the company is a good investment, why is the present financially astute owner keen to sell?”
Red Funnel’s CEO, Kevin George had told OnTheWight earlier this month that Infracapital had been a supportive owner for over nine years and that, “it is normal for an infrastructure fund manager such as Infracapital to review its investments from time to time”.
Stewart: “Now not time to take risks with Island’s future”
Cllr Stewart finished by saying,
“The Independents’ plan is to use precious public funds on this acquisition. But their recent record on coping with difficult spending decisions doesn’t give any confidence they could manage this kind of investment. They have proven themselves unprofessional when it comes to even the day-to-day running of council services, let alone multi-million pound ferry buying.
“Many will say, and I fully agree, that due to our current financial circumstances now is not the time to take risks with the Island’s future by borrowing huge sums of money for what is effectively venture capital.
“I would also ask the independents to answer this question: where will this leave our current plans to regenerate our Island’s economy, create jobs for our young people and address our social care needs, if all the cash is spent putting all our eggs in this particular basket?”
Indies: “Keep Island money on the Island”
Leader of the Island Independent group of councillors, Cllr Julia Baker-Smith, said,
“Cllr Stewart shows a lack of vision and risk aversion before having even seen the facts and figures. It seems all the Conservatives are willing to do is cut services and send money off the Island.
“The idea has not been rejected by the Council, as no formal decision has yet come forward on the subject. Of course due diligence would have to be undertaken, and of course we would only invest in something good for the Island, but unless we try, unless we do the work, then we will never know.
“No-one ever made a difference by doing things the way they’ve always been done. If we are going to really set the Island up to succeed and prosper economically then we need to do things differently and keep Island money on the Island. The Conservative Government has made it very clear that they will continue to cut the Island’s funding and that we must find ways of supporting ourselves. This investment opportunity is one possible way of doing so.
“To dismiss it out of hand without looking at the facts is remiss of the Conservatives and shows their lack of vision and lack of ambition for the Island.”
Turner: “Muddled electioneering with a healthy dollop of self-delusion”
Isle of Wight Conservative MP, Andrew Turner also added his views, saying,
“It is hard to see how the Council could have a financial interest in one cross-Solent company and still retain the trust of the others to remain unbiased – as they must be seen to be. Any serious potential purchaser of a company on sale at £250m would undertake what is known as due diligence before announcing any intention to purchase it – that typically takes time and costs thousands of pounds. I simply don’t believe the Island Independent Group has done anything of the sort.
“If this is indeed a serious proposal on how they plan to use Islanders’ money, they should make their thinking clear. Are they planning to buy a minority stake in the company? If so they will have no influence over how it operates. If they intend to buy a majority stake because they want to change the operating model to help Islanders and the economy then profits will drop; which negates the reason given for buying it. Who are their ‘partners’? Why are they not named? How much public money are they talking about?
“This press release also raises serious questions. Their group leader is reported as saying “We are currently speaking with a number of potential investors and Red Funnel directors to prepare to put forward a bid immediately after the forthcoming May elections”, which gives the very clear impression that directors of Red Funnel support this ‘bid’ and are working with them to prepare their plans. I would be amazed if that were true. I hope the Island Independent Group will quickly make clear what the actual position is.
“I do not believe that the current model of private equity ownership of these lifeline services serves the Island well, but this privately-owned company is for sale, so we must seek to work constructively with whoever buys it as well as the operators of the company. The sale of Red Funnel may present opportunities for the Council, but I am far from convinced that should include ownership. We certainly need to improve cross-Solent transport links and connectivity, but the idea that the Council owning one of the ferry companies would deliver such improvements is a little far-fetched – to say the least!
“The Island Independent Group lost their own leader and deputy leader over internal bickering and power struggles. How could they ever be regarded as stable and reliable partners by any serious investor? It seems this announcement amounts to little more than muddled electioneering with a healthy dollop of self-delusion.”
Article edits:
17.08 – statement from Andrew Turner MP added.
21.03 – statement from Cllr Baker Smith added.
Image: timparkinson under CC BY 2.0
