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Brexit: No-deal Ferry Contracts

Volume 797: debated on Wednesday 1 May 2019

Private Notice Question

Asked by

To ask Her Majesty’s Government what plans they have to mitigate the expense to the taxpayer of ferry contracts entered into in preparation for a no-deal Brexit on 29 March, which have now been cancelled at a cost estimated to be in excess of £50 million.

My Lords, in light of the Article 50 extension, the ferry contracts with Brittany Ferries and DFDS have now been terminated. The National Audit Office estimated the total termination cost to be £56 million. I am pleased to tell the House that the figure for termination is £43.8 million. Furthermore, the total amount for termination fees and running costs is a little over £50 million. These contracts were an important insurance policy to ensure the continued movement of medicines and other essential goods.

I thank the Minister for that response, which indicated the cost to the taxpayer of the contracts with Brittany Ferries and DFDS. Can the Minister confirm what actual benefit the taxpayer got in return for what I think she said was £43.8 million? What services were provided to the taxpayer? On top of that, the Government have already had to pay £33 million to Eurotunnel in return for no services whatever but to settle a legal case challenging the procurement process for the ferry contracts, and the DfT may now be facing legal action from P&O Ferries on the grounds that Eurotunnel has been unduly favoured. The Government’s answer is no doubt that they had no alternative but to make contingency arrangements because of their own failure over two years to conclude an acceptable Brexit deal, but they cannot argue that in relation to the £33 million to Eurotunnel or any payments to P&O Ferries. The Government always talk about getting value for money. In this case, we have had a lot of money but no value to the taxpayer. Is the Minister now going to apologise for the unnecessary expense that has been incurred and for the failures of the Government, and of the Secretary of State in particular?

I would like to focus on the first of those questions: what exactly was the benefit to the taxpayer? The benefit was that the taxpayer had an insurance policy. Like many organisations, the Government are able to take out insurance policies, and these contracts were precisely that. The benefit to the taxpayer is that the Government were able to ensure the continued movement of absolutely critical goods—what we call “class 1 goods”—into this country in the event of no deal. I am fairly sure that the noble Lord would have been the first to criticise the Government had these goods not got through.

Following my noble friend’s analogy, can she explain why we have given up the insurance policy before we have the certainty of knowing that we will not have no deal? Can she also tell us what the total cost to the taxpayer has been of our failure to leave on 29 March?

The noble Lord is right that this particular insurance policy falls away because these were six-month contracts, and now that we have the extension to 31 October the contracts are obviously not needed. These contracts are very visible, but they are actually an extremely small proportion of our no-deal planning. A total of £4 billion has been put in place as an insurance package to make sure that, in the event of no deal, which remains the legal default, we will be able to protect our citizens.

My Lords, every time I think that the Secretary of State has extracted the last vestige of farce from these ferry contracts, he seems to plumb new depths. I want to take up the point about P&O. Can the Minister explain to us whether the Government are facing court action from P&O and what stage any action is at in that case? The Government claim to have paid £800,000 for the legal advice on which these contracts were based. That is an awfully large sum to pay for duff advice—if indeed the advice that was given was followed. Can we have the Minister’s assurance that the Government will review how and from whom they seek advice on such matters?

There were a couple of points there from the noble Baroness, for which I am grateful. Knowing what I know now from my short time in the department and from my time as a Defra Whip, I believe that, had I been the Secretary of State, I would have made the same decisions. These are very important contracts. The other thing to be aware of is that the contracts had to be as flexible as possible. Many will say, “Oh, they do not seem particularly flexible”, but this is all dependent on the maritime market, which is not the same as other markets. The maritime market operates in periods of weeks and months rather than hours and days. We believe that the legal advice is appropriate. I can confirm that a case is being brought by P&O, but obviously I cannot comment on an ongoing legal case.

My Lords, can I ask the noble Baroness two things? First, where did the money come from? Has it come from government contingency funds or out of the direct expenditure plans of her department? Secondly, if this insurance deal is not to be repeated, as seems to be implied, do I take it that the Government have firmly—and will in the future—set themselves against a no-deal Brexit?

I believe that the money will have come from the no-deal Brexit funds made available from the Treasury. If that is not the case, I will of course write to the noble Lord. I did not say that these contracts would not be repeated. The situation is that no deal is still the legal default, so what is going to happen next is pretty much what happened last time—

I really wish I had not paused for breath at that particular moment. Discussions will happen with the Department of Health and Social Care, Defra and BEIS, and we will all look at the amount of class 1 goods that need to come into the country. DfT will then be tasked to ensure that that can go ahead.

Following on from that answer, will my noble friend commit to publishing a comprehensive update on the Government’s preparedness for no deal?

It would be inappropriate for me to commit to that at this time, but I am sure that the Government are listening.

My Lords, the Minister suggested that the legal advice gave flexibility. If that is the case, why was there not the flexibility to roll over these contracts in case there is a no-deal scenario on 31 October? Surely that is what flexibility should have offered.

I was trying to get across to noble Lords the complexity of the maritime market. Flexibility is possible, but it is not unlimited. For example, DFDS had to charter new vessels from very far away to fulfil these contracts. Other vessels had to be reconfigured. Those vessels will now need to go back to what they were beforehand to take on passengers. The noble Baroness looks incredulous, but the contract offered extremely good value to the taxpayer.

Are the Government planning an out-of-court settlement with the ferry companies or do they intend to contest the case?

I am pleased to be able to tell the noble Lord that we have reached a settlement with the ferry companies, as I pointed out earlier, and that the termination fees are £43.8 million. It is clear that we have co-operated with the ferry companies, and we are grateful to them for the amount of mitigation that they have been able to do to reduce the amount of money that we have had to pay. We have had negotiations with them. We tried to sell as many tickets as possible to reduce the cost to the taxpayer and the ferry companies have cancelled sailings. We are grateful for their co-operation and believe that this is a fair settlement of the contract.

My Lords, if it is necessary, which I hope it is not, to take out further insurance policies of this nature, can we be absolutely sure that the ferry companies that we contract with will actually have some ferries?

I thank my noble friend for that question. Yes, we can be absolutely sure. Perhaps I may address the point about Seaborne, as it seems to be the elephant in the room. Not a single taxpayer pound was paid to Seaborne. The management of Seaborne perhaps made some very serious errors, but the biggest thing that happened was that its credible partner and backer, Arklow Shipping, pulled out of the deal.

My Lords, is it not the fact that this was not insurance for the taxpayer but a political gesture by the Conservative Party and Prime Minister—which was demonstrated by the fact that the Prime Minister has told MPs this afternoon that when she made her “no deal is better than a bad deal” statement in the Lancaster House speech in 2017, it was “in the abstract”? She has now disowned it, which shows that it was never a real issue but was just political grandstanding.

No deal remains the legal default. I remind the noble Baroness that had no deal happened—obviously, we hope that it does not in future, either—there would have been a significant constriction of flows of trade across the short straits between Dover and France to perhaps 12% to 13% of what is currently is. That is why we had to take out these contracts. The contracts were to other ports; they made sure that important class 1 goods—medicines and things that noble Lords would find to be extremely important and beneficial to our citizens—would get through.