The managing director of the Sandbanks Ferry company, Mike Kean has been giving evidence on the second day of the public inquiry to decide whether the company can increase the ferry crossing tolls.
He was called as a witness to support the application made by the company, to the Secretary of State for Transport, to raise the price of using the ferry. The revised application asks to increase the cost of a single trip by a car on the ferry from £4.50 in 2021, rising to £6.75 by 2032.
Mike Kean explained that the increase was necessary to cover the rising costs of the operation and to save enough cash to purchase a new ferry in 2034 – the date when its been advised by marine experts that the current vessel will need replacing. He also argued that the company directors had a right to get a reasonable return on their investment.
The current inquiry had already cost the company £60,000 in fees
Under questioning from the company’s legal representative, Paul Reynolds, Mike Kean said that an incremental cost plan to cover the next 12 years was proposed because he hoped this would be the last inquiry before the purchasing of a new ferry. He revealed that the current inquiry had already cost the company £60,000 in fees and was likely to cost £70,000 by the time it had concluded.
At the last inquiry in 2018 the application to increase prices had been unsuccessful with the inspector at the time, citing that directors’ dividends were being given greater priority over putting money aside into the ferry replacement fund. Mike Kean said that the accounting policy had now been changed to ensure that no dividends were awarded until the company had paid the promised amount into the ferry replacement fund.
“The company wants to be able to continue its service and operation”
The inspector asked whether there was anything in writing by the ferry company, committing it to paying into the fund and purchasing a new ferry. He replied that there was a written undertaking and this had been submitted to the inquiry. However when questioned whether there was anything to stop the shareholders changing this policy, he admitted:
“I suppose technically there isn’t anything to stop that happening but at the end of the day, the company wants to be able to continue its service and operation and so it would be economically foolish to make dividend payments, if it was going to leave it in a situation where it was unable to replace its major depreciating asset – the ferry.”
Mike Kean was cross examined by objectors to the price increase and in particular challenged on the structuring of the company’s finances by Studland residents, Malcolm Tice and Eric Stobart.
There was a lighter moment when another Studland resident, Andrew Parsons asked Mike Kean what he would do if in 2032 the company couldn’t provide a new ferry? He replied:
“I would prefer to cross that bridge when I get to it – hopefully ‘bridge’ not being taken too literally!”
Over the years there have been many people who have championed the building of a bridge or tunnel to replace the ferry.
Pig on the Beach hotel
Earlier in the morning session, the general manager of the Pig on the Beach hotel, Tara Crabb appealed to the inspector to consider the impact that increased tolls would have on local employers. She said:
“Our main concern is that the price increase could severely damage our recruitment and most importantly our staff retention. We have approximately 90 staff that work for us and over a third travel by ferry – that’s either by car, bike or on the bus over the ferry.
“Even at the current £6.80 return on discounted tickets or £9 return on the undiscounted tickets – over a five week month a household is spending between £170 and £225, which I think is expensive for an average household.
“…The local community and businesses this side of the water, need to have a fair and reasonably priced longstanding discount structure for frequent users.”
When cross examined, Paul Reynolds for the ferry company, suggested that a hotel that charges between £145 and £439 for a room for a night could provide its lower paid staff with tickets to cover the cost of their ferry commute. Tara Crabb retorted:
“Essentially you are taking something away from our business to benefit the ferry business.”
Consortium of councils comprising Dorset Council, Bournemouth, Christchurch and Poole Council, and Swanage Town Council
In the afternoon, it was the turn of the consortium of councils comprising Dorset Council, Bournemouth, Christchurch and Poole (BCP) Council, and Swanage Town Council to call witnesses. Their legal representative, Joshua Dubin had only one witness to call and that was the head of highways for Dorset Council, Jack Wiltshire.
Jack Wiltshire gave his reasoning behind the consortium’s proposal saying that they were guided by the local transport plan and national guidance to favour sustainable transport like cycling. The proposals put forward were to freeze ferry tolls for pedestrians and cyclists and to increase them for motorists to make up the income difference. He said:
“I would like to think that over the next decade, commuting by bike from Swanage across to BCP and vice versa on that route could be a viable alternative to the car.”
Although he then conceded:
“We don’t have dedicated cycle lanes currently on the Dorset Council side – so on the Studland side there isn’t a dedicated cycle lane going through Studland or indeed to Corfe Castle or to Swanage. These are certainly things we want to look at in the future.”
Under cross examination from the Studland Parish Council chairman, Nick Boulter queried whether the consortium had really taken into consideration the general age of local residents when drawing up the proposals. Nick Boulter said:
“The prospect of reasonably senior people dining their cycling gear to go and do their shopping and going to hospital, sounds a little unlikely. I really wonder whether Dorset Council took the concerns of local residents into account when they were putting forward their proposal?”
Nick Boulter also asked why the consortium hadn’t challenged the ferry consortium’s finances when at the last inquiry the inspector had rejected the price increase because he wasn’t convinced about the company’s financial structuring. In reply, Jack Wiltshire admitted:
“The rationale for the methodology for putting together the counter proposal was taking at face value the information and data that the ferry company had given to us…”
Nick Boulter said that the parish council had conducted a survey of Studland residents and revealed:
“The consensus view of the 65 who responded was that they would stop using the ferry if the consortium proposals were accepted, as it would lead to excessive fare increases.”
The consortium was the only one of the main objectors to not call a financial expert to scrutinise the ferry company’s accountancy practices in relation to the price increase proposals.
Studland Parish Council
The next objector to present evidence was the Studland Parish Council. The chair of the council, Nick Boulter led the assault on the ferry company’s application supported by Eric Stobart, Malcolm Tice and Andrew Parsons – all Studland residents.
This was a lively part of the hearing, with a no holds barred approach as the ‘furious four’ challenged the credibility of the ferry company’s proposals.
Eric Stobart questioned why the ferry company wasn’t using borrowings to finance the cost of the new ferry, although admitted later that it would require an Act of Parliament for the company to be allowed to borrow more than £5m. Even so, he felt that achieving this wasn’t beyond the wit of man and then added ‘or woman’ to his sentence, as he looked across to the female inspector.
The company’s lack of any legal measures to guarantee the ferry replacement fund
Eric Stobart then rounded on the company’s lack of any legal measures to ensure that the ferry replacement fund was only able to be used to purchase a new ferry and for no other reason. He suggested an escrow account or trust should be set up which could give those legal guarantees.
The legal representative for the ferry company, Paul Reynolds challenged this proposal. There then followed a feisty exchange where the two men traded their knowledge of how an escrow account could usefully operate in this case. Paul Reynolds was of the strong opinion that it was not workable for this situation.
Later in the proceedings, Stephen Dru Dury representing the views of Corfe Castle Parish Council helpfully mentioned that the oil company at nearby Wytch Farm had set up a ring fenced account to ensure that the site was returned to its natural state after the oil extraction had ended, even if the company went out of business or was sold.
He suggested that it may be useful to explore the type of account that had been set up to achieve this.
Continuing the Studland Parish Council evidence, Malcolm Tice, a retired accountant, said in reference to the ferry company’s finances:
“When I first saw the application, I was absolutely incensed by the actual procedures being used to justify this (toll increase). I think it is totally unreasonable.
“The ferry company is outrageously profitable, having a profit percentage of up to 50 percent on its turnover, which equates to 25 percent of the turnover going out as dividends in some years, which is a massive amount.
“I don’t know many other legal businesses that are capable of earning such a percentage as turnover.”
Concluding the afternoon’s session the objections of Stephen Dru Dury, the Vice chair of Corfe Castle Parish Council were heard. He said the parish council supported the consortium of councils’ counter proposal.
Peter Bowyer, an economist and former chair of Studland Parish Council said he was concerned by the serious negative impact on the local economy in Purbeck of any toll increase.
Last to be heard for the day was William Knight, Chair of Langton Matravers Parish Council. Among the parish council’s concerns was the way the rate of return for the ferry company was being calculated. He questioned the “spurious and debatable asset value” as a measure and said the council preferred it to be calculated on share capital or as a percentage of turnover.
The inquiry continues for a third day
The third day of the inquiry on Thursday 7th January 2021 will hear the objections of the National Trust presented by its Purbeck general manager, Tracey Churcher. There will also be closing statements from the main parties.