Bus Industry

Andrew Turner Excerpts

Tuesday 6th September 2011 Westminster Hall

[Graham Stringer]

The hon. Gentleman makes a perfectly sound point, which I will come to in my conclusions. The large operators own the garages and can afford to subsidise competition if there are new entrants to the market—it is a long way from being perfect competition.

I was talking about the profits of Go-Ahead but the profits of Stagecoach are truly staggering, especially when the economy is flatlining and we have been in recession. They are up to £153 million from £126 million, which is an increase from 14.4% to 17.1%. In the friendly debates I have with Brian Souter of Stagecoach, he once called Gwyneth Dunwoody and me “dinosaurs” because we believe in going back to a sane system of regulated buses—he even set up little models of dinosaurs. I do not know how many people in the Chamber remember the film made of the James Clavell book, “King Rat”. When the Japanese prisoner-of-war camp in Singapore was liberated by allied forces, there was one very fat prisoner among all the other prisoners, whose ribs were showing—they were starving to death. At a time of austerity and the economy not doing well, Brian Souter and Stagecoach are the King Rats of the British economy, doing enormously well out of public subsidy when everyone else is struggling to get to work and make a living. They are, in effect, subsidy junkies.

The figures in the Transport Committee’s report show that the bus industry outside London receives from the fare pot about £1.8 billion in a total income of £3.4 billion, so 47% of the bus industry’s income comes from taxpayers. It is as simple as that. Whenever a bus leaves a depot, an average of 50% of its costs are paid by taxpayers. Given what has happened with deregulation, is that sensible use of taxpayers’ money? Are we receiving the best possible value?

[Mr Andrew Turner (Isle of Wight) (Con)]

The hon. Gentleman may not know that in my constituency there is only one bus company for the whole island, and there is no competition. What prevents large companies from competing in the parts of Manchester that he mentioned, where that seems not to happen?

[Graham Stringer]

I am the wrong person to ask, but my view is that companies do not compete because then they can exploit the market using informal agreements or in nods and winks, by putting up fares in their own areas without the cost of competing. The statistical evidence in their profits and fare levels is that they are exploiting the market compared with what happens in the London market. That is voluntary. Companies are happier operating in their own areas. They say that they do not like the extra dead mileage if buses must be driven into areas where other companies operate from their depots, but that is a weak argument. They simply do not want to compete because it is more profitable for them not to.

The making of high profits was the first major finding in the Competition Commission’s interim report. The second was that many operators face little or no competition. It is welcome that the commission finally got around to writing the report, but it is flawed in many ways, as such reports tend to be because they look at statistics over the past five years, but the economic world is now different and more difficult. They estimate that anti-competitive behaviour costs £70 million, but they do not include the cost when people abandon buses; if that were included the real cost to the public would be much higher. In addition, they do not look at how the current bus system inhibits the use of simple integrated ticketing, which would drive up the number of passengers using buses.

I have a few requests for the Minister. First, when the Competition Commission’s report is published and he is considering what to do about buses, will he bear in mind that there is a lot of information out there, but it has to be culled at great expense from surveys and other sources, because the bus companies keep much of their information private, despite receiving 50% subsidy? Good-quality information is vital for local transport authorities when planning their services.

My second request is for through-ticketing. We know what brings people back on to buses: a simple, low-fare structure with through-ticketing. It is estimated that if fares are cut by 20%, passenger numbers increase by 13%, with a further increase if the ticket structure is simplified with through-ticketing. What can the Minister do to help that?

My main question, which goes back to the beginning of my speech, is how can the Minister support and help to build on the powers and structures in the 2008 Act? I know that he understands the legislation thoroughly, because he and I served on the scrutiny Committee. There are many barriers facing South Yorkshire, West Yorkshire, and Tyne and Wear passenger transport authorities. They are considering moving back to a regulated system of quality contracts, because the buses, bus drivers and depots are in the hands of the bus companies, which have rubbished the Competition Commission’s interim report—well, they would—and are threatening a scorched earth policy for any passenger transport executive or authority that decides on re-regulation. What help can the Minister give those transport authorities?

Everyone knows that we are dealing with a coalition Government. The Minister’s views are well known from the time before he was a Minister, as are the Secretary of State’s. The Secretary of State is more of a free marketeer, and the Minister believes in the instruments in the 2008 Act, but when the bus industry is declining, the balance between the two parts of the coalition, resulting in a watching brief and agnosticism on the industry’s future, is not satisfactory. I should be grateful if the Minister told us his view.

My final point is that the present Government and Governments for the past 25 years have not done enough for the quarter to one third of people who do not have access to a car and rely completely on buses. One of the most appalling sarcastic comments made by the last Prime Minister, in response to a Birmingham Member who asked what he would do about the loss of a bus service in Birmingham, was that he would immediately call a Cabinet meeting. He said that sarcastically, but Cabinet Ministers should discuss bus services. They are vital for many millions of people in this country and they have been neglected or given too low a priority for long enough. I look forward to the Minister’s support in protecting and helping the bus industry at a time of inevitable cuts. That is possible.

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[Mr Wright]

My hon. Friend makes an important point, and my hon. Friend the Member for Blackley and Broughton referred to the same issue. Economic activity is very much contingent on the availability of good transport and connectivity. Concerns have been raised with me both by constituents living in the urban part of Hartlepool and by constituents living in outlying areas, who say that they cannot take up a job because they cannot get to the place of work as a result of the absence or removal of the bus service.

Another of my constituents cited in the Select Committee report is Mrs Powers, who states:

“Since the removal of the bus service my daughter…has NO way of getting to and from college…Is she surely not entitled to the education she deserves? My daughter works very hard and gets excellent grades and I feel appalled that her future education is being jeopardised in this way!”

It is important to mention the importance of access to education in rural areas. My hon. Friend the Member for Clwyd South (Susan Elan Jones) will be concerned about that as well.

It is clear that competition in the bus market in Hartlepool has failed. Deregulation since the mid-1980s has not proved to be a success. The market is characterised by too dominant a player, making excessive profits by cherry-picking the busy and popular routes and ensuring that passenger choice is left behind. For those services that remain, punctuality rates are behind what should be expected, because operators do not fear that another company might come along and provide a better service that takes away their market share.

[Mr Andrew Turner]

It is not the case that things have been tested and found to fail—they have not been tested. We have to try the competition route, which should be given the chance to work under the new system. We have to make it work, rather than pretending that it has already happened and been found to fail.

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[Andrew Gwynne]

With many bus services used disproportionately by people on lower incomes and by those without access to a car, the socially excluded are worst hit by service reductions. For example, two out of every five jobseekers say the lack of transport is a barrier to getting a job.

When considering bus services, we really must take account of the policies being implemented by the current Government. Many of the cuts are happening not by chance, but by choice. The Government have made a number of critical decisions that I do not just fear but know will have a real effect on bus services. First, as my hon. Friend the Member for Blackley and Broughton said, there is the 28% cut to local authority funding for local transport, which includes money for subsidising unprofitable bus routes. Support will be reduced by £95 million between 2010-11 and 2011-12.

Secondly, the Government are changing the way councils and bus operators are reimbursed for the concessionary fares scheme for older people, taking £223 million from the scheme between 2010-11 and 2011-12. Thirdly, from January 2012, they are reducing by a fifth the rebate for additional fuel costs for running unprofitable bus services, and that will particularly affect rural areas, as my hon. Friend said. That will take away a further £254 million in support for bus services between 2010-11 and 2011-12.

We are already seeing that these changes mean the end of council-funded rural, evening and weekend buses in many parts of the country. With rising costs, the need to maintain profit margins and the state of local budgets contributing to fare rises, the changes will largely mean service reductions in some of the most isolated parts of the country.

When the Prime Minister made his election pledge to protect free bus travel for pensioners, or at least to protect their passes, he did not tell them that, in doing so, he would take away their bus services instead. The sad fact is that the situation on bus cuts is likely to get worse. Forecasts by PTEG show that, by 2014, fares will have increased by a further 24% in real terms in metropolitan areas, while service levels will decline by 19% and patronage will decline by 20%.

[Mr Andrew Turner]

It is interesting to look at what the Prime Minister said before the election. In my constituency, at least some pensioners would rather pay half fares than face the possibility of having no buses at all. They would like to pay their bit on the buses.

[Andrew Gwynne]

Indeed. In places such as Greater Manchester, there was a long-standing concessionary fares scheme before the national bus pass scheme was introduced, and pensioners paid a small amount. Under the bus pass scheme, the concessionary fare was available on peak services until it was removed this year—in the peak period, pensioners now have to pay the full fare. My constituents make the same point as the hon. Gentleman’s and would sooner pay something than lose their service altogether. It is clear that all parties at the last general election pledged to protect the bus pass, but there is no point people having that bit of plastic if they do not have the buses to use it on.

The situation is already bad, but it will undoubtedly become increasingly difficult to maintain current service levels when spending reductions deepen in successive years. In non-metropolitan areas outside London, there have been significant cuts to supported bus services, with some local transport authorities withdrawing funding from all such services, and we have heard first hand about the appalling situation in Hartlepool.

Let me turn briefly to the level of competition between the bus companies. As we know, the Competition Commission is investigating the local bus market and published its provisional findings in May this year. Its provisional findings included the view that profits are higher than they would be if the market were competitive and that too many operators face little or no competition in their areas. The competition authorities recently looked at tactic co-ordination between bus companies, and that has certainly raised a few questions about how truly competitive the bus industry is. The interim report also found that short-term bus wars on the streets, such as we experienced a few years back in Manchester, when the big bus companies used an extremely aggressive approach to drive out the smaller competition and secure their monopolies, were not the way forward, and that more should be done to facilitate multi-operator ticketing. Although we await the full report later this year, the interim report makes interesting reading and helps to inform our debate today.

Of course it was the previous Labour Government who set the ground for improvements to be made to local bus services. We set in progress ways of tackling some of the worst effects of deregulation. Indeed, quality contracts—or the provision for them—were introduced by the previous Government as a key to improvements in bus standards. In hindsight I think that our party would like to have gone further with those improvements to service provision for passengers, and with the implementation of quality contracts. Certainly, those contracts could allow bus companies to concentrate on developing the local market for bus travel, but it is understandable, given the points that have been raised by my hon. Friend the Member for Blackley and Broughton, and given the burden of risk on local authorities as opposed to the bus companies, that those measures have not been pursued as vigorously as they should have been. Quality contracts would help to set minimum standards, making it possible for them to be more stable, with less frequent changes to fares, times and frequencies. In turn that would help bus services to be more reliable, because they would be monitored and good performance would be incentivised.

It is fair to say that the current set-up does not always benefit the passenger, and we need to consider other ways of making our local buses work more effectively. We need to think about ways of addressing the issues that have been raised today, and ways of empowering local authorities and communities, allowing them more of a say in the way their bus services are run, and what the routes should be. Perhaps we need to look at ways to make it easier for passenger transport executives and local transport authorities to enter into voluntary partnerships, statutory quality partnerships and a more balanced quality contract system. That could allow for a system of franchising bus services to local transport authority specifications, similar to the system used to provide bus services in London, allowing a service that is responsive to what passengers want and reintroducing some long-term planning to the system.

I want to ask the Minister what consideration the Government have given to allowing local authorities more powers over local bus services. What assessment has the Minister made with regard to quality contracts? Does he view them as a way to set minimum standards and to make service levels more stable and reliable? What assessment has he made of the greater powers that Transport for London has over local buses and the performance in relation to bus services in London, as compared with what happens outside London, particularly in major conurbations, although the problem is not exclusive to big cities, but also exists in large and medium-sized towns and rural areas?

There is clearly a wider debate to be had about the way we look at restructuring our bus industry. Deregulation has largely failed, and that has been recognised in the debate. We need to think about restructuring our bus industry. I am sure that the discussion we have had today will help to inform the ongoing debate.

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[Norman Baker]

I am grateful to the hon. Gentleman for that clarification; he wants the money to be ring-fenced for bus services.

My right hon. Friend the Secretary of State has asked me to initiate a review of BSOG to see whether it is deployed to the best advantage. As far as possible, our time scale is designed to coincide with the Competition Commission report, so that if changes are necessary to the landscape of the industry or to that form of financial help, things could be combined at that stage. To that end, I have been in discussion with the industry and local authorities to hear their aspirations and views on the matter. I shall try to come up with a solution that is satisfactory for both parties—I shall then go on to deal with the Israel-Palestine problem. I hope that we might make some progress. It is in the interests of local authorities and bus operators to come to a sensible arrangement on BSOG.

We understand that good bus services can contribute to both of the Government’s key transport priorities—creating growth and cutting carbon emissions. By providing an attractive alternative to the car, not only can we cut carbon but we can unclog the congestion that chokes off our local economies. However, it must be remembered that we also have to deal with the budget deficit.

I do not want this to be a sterile debate—a phrase used by the hon. Member for Blackley and Broughton—about why we are where we are, but I have to respond to the comments of the hon. Member for Denton and Reddish, the Opposition spokesman. It would have been helpful if he and his colleagues had acknowledged some responsibility for the financial situation in which we find ourselves, rather than pretending that the cuts are somehow malicious and optional, and could have been avoided. That is not the case. I would like to think that we could work across the House to ensure that the impact on bus services is minimised in the constructive way suggested by the hon. Member for Blackley and Broughton.

I shall deal briefly with the three elements of funding referred to earlier. About 80% of bus services are run commercially. I will leave aside questions about the consequences of that for the market and for local government support. The money from the Department for Communities and Local Government is not relevant to those services. At present, local authorities rely on BSOG. The reduction in that grant was trailed long in advance, at the time of the spending review, and it will not take effect until April next year. There has been an 18-month lead in, and the cut was much less than the bus industry anticipated—and much less than Members of Parliament expected. At the time, the Confederation of Passenger Transport, which represents the bus industry, indicated that the cut was manageable and could be introduced without a diminution of services or general fare increases. That is what it said. It is important to point out that bus companies can take the BSOG arrangements in their stride. That should not, therefore, lead to cuts in services.

The basis of the reimbursement arrangements has not changed one iota. The hon. Gentleman will know that primary legislation stipulates that bus companies should be no better and no worse off from handling concessionary travel. That legislative requirement has not changed, and local authorities are required to reimburse bus companies accordingly. All that has happened is that the Department for Transport has issued some guidance to help local authorities to calculate how they should reimburse bus companies, and that, as Members will appreciate, is quite a complicated business. The ultimate test remains the same. If bus companies are unhappy with the reimbursement they have received from a local authority, it is open to them to appeal and their case will be handled independently.

One of the changes that I have made is to ensure that, if there is an appeal, it is possible for a local authority to win. Hitherto, when bus companies have appealed, their contribution has either been reduced or it has stayed the same. Now the appeal process can assess whether local authorities have had to pay too much and reduce the costs to them. That seems to be a much fairer way of dealing with those matters. The appeal process is open, fair and independent and can deal with any complaints that people have.

As for cuts in funding to local authorities, we all accept that local authorities have a challenging settlement. That is particularly the case, may I say for the benefit of the Member who has disappeared, for rural areas and for those services that are supported by local authority funding because they are not commercial to run. Having said that, the pattern of responses from local authorities across the country is varied. Unfortunately, some councils have taken something of an axe to local services, while others have made very few cuts. That is a matter for localism. It is up to local councils to exercise their increased freedom and to decide how they are going to spend their pot of money. We will increasingly see a situation in which one person living in an area will say, “Why is it that my county council has cut these bus services when the county council next door has not cut bus services at all?” That is a perfectly proper question to ask and one that we are trying to encourage in our drive towards localism.

[Mr Andrew Turner]

Will the Minister consider the wish of some elderly people, in areas where buses have been withdrawn altogether, to make a contribution? At present, the system is no buses, no pay.

[Norman Baker]

I well understand why my hon. Friend made that point, which has been made by a number of others. All I can say is that the Prime Minister has made it clear that the concessionary fares regime for local bus travel is not to be compromised and that requiring a charge would do just that. All I can undertake to do is to ensure that my hon. Friend’s comments are passed up the chain so that others are aware of that view.

The hon. Member for Blackley and Broughton mentioned the monitoring of cuts. Let me assure him that we are taking steps to establish the picture. I have asked my officials to do so on a rolling basis. We are checking where services are being significantly cut and where they are being protected. Ultimately, it is a matter for localism, but we have to understand what is happening.

The hon. Gentleman failed to mention the introduction of a £560 million grant, a significant amount, from the local sustainable transport fund, which can be used to drive up the number of bus services in a particular area as part of an integrated package to create growth and cut carbon. That has been well received. If we take the total package of measures under the loose heading of sustainable travel, the £560 million represents an increase in funding compared with what was available under the previous Government. Therefore, despite the difficult economic circumstances and the budget cuts that have taken place, we have made an increase in funding, which has been well received by councils. Every council that could qualify under that scheme, with the exception of the Isles of Scilly, has applied for funding. We had a good first round. I am happy to say that, in Manchester, the key component bid was approved, which is a cycling project for the city. Moreover, a large project from Manchester has applied for a significant amount of money and it has been shortlisted for the final approval process. Therefore, steps are being taken to address the issue of sustainable transport more widely as well.