Bus Industry

Iain Wright Excerpts

Tuesday 6th September 2011 Westminster Hall

[Mr Iain Wright (Hartlepool) (Lab)]

Let me begin by saying what a pleasure it is to serve under your chairmanship, Mr Streeter. May I congratulate my hon. Friend the Member for Blackley and Broughton (Graham Stringer) on securing what I think is an important debate? He was kind enough to mention my constituency in his opening remarks, and I think that the example of Hartlepool and its bus users provides an almost perfect case study to illustrate why competition in the bus market is not working.

I would not disagree with the notion of competition in the bus market if it resulted in wider choice and a better-quality service for passengers. We would all agree that in an ideal situation, competition should keep operators on their toes, as they would be mindful of rivals securing a greater share of the market and would offer a more comprehensive service, a better fare and ticketing structure, more punctual journey times and more modern vehicles.

The situation in my constituency, however, is particularly frustrating because Hartlepool has all the ingredients for a good and comprehensive bus service. It is a relatively compact town; there are outlying villages, which I will mention in a moment, but at its heart is an urban centre just 2 miles wide and 5 or 6 miles long. Travel is self-contained and most journeys in Hartlepool take place within that urban centre, which therefore lends itself to a rapid, reliable, co-ordinated and integrated public bus transport system. About 40% per cent of households in my constituency do not have regular access to a car, which feeds into the need for a comprehensive public transport service to avoid isolation for many of my constituents.

Further afield, Teesside university in nearby Middlesbrough, the petrochemical and process industry cluster in Wilton, and the new logistical and distributional commercial opportunities at Teesport could mean that many of my constituents would have access to better employment rates and opportunities to participate in higher education if those places were connected by better public transport links. My constituency would benefit in every possible sense. From my experience in Hartlepool, however, it is clear that no effective market is in operation. My hon. Friend the Member for Blackley and Broughton touched on that with an example from Greater Manchester, and I will discuss that point in more detail later.

Bus services are dominated by one provider, Stagecoach, which has a significant share of the wider UK bus market. Such dominance has led to inefficiencies and distortions in the market—that is true not only in my constituency but, as we have heard, across the country. My hon. Friend quite rightly mentioned the profits made by Stagecoach, and it is worth reiterating that point. For the year ending 30 April 2011, Stagecoach made operating profits of about £200 million. Over three quarters of that operating profit—some £153.1 million—was generated solely through its UK bus operations. The profit margin of its UK bus division was 17.1%, as opposed to a 6.5% profit margin for its north American operations and 4.5% for its UK rail division. In its annual report Stagecoach states—boasts—of “sector leading profit margins” within its UK bus operations.

How was that allowed to happen? The answer is contained in the company’s annual report. Its operating and financial review states that its business model for its UK bus operations in the regions is based on an

“emphasis on lightly regulated bus operations enabling management to vary prices, operating schedules and timetables in response to developments in each local market—”

and this is the key phrase—

“without significant hindrance from regulation.”

It is therefore clear that Stagecoach seeks to cherry-pick profitable routes and discards socially or economically vital services the moment the taxpayer fails to take the risk on its behalf and subsidies are ended. The company is able to do so without the hindrance of an effective regulatory regime that could insist that such services are maintained for the good of the community.

The business model boasted about in the annual report is shown to be true when one looks at my constituency. As I said earlier, Stagecoach is by far the most dominant bus operator in Hartlepool. Arriva and Go North East provide a small number of services that travel in and out of the constituency, but in the main Stagecoach has a monopoly on the market, with about 80 % to 85% of market share.

The bus market in my constituency is striking for the absence of medium-sized bus companies. It has been difficult, as we have heard in relation to other places, for small and new entrants to the market to gain ground. Promising new entrants such as Tees Valley Coaches have provided some new routes, but have found it difficult to gain a foothold in the market and are now pulling back from providing routes.

A far too dominant player in the market has ensured that there is no incentive to improve services. Punctuality is poor. The traffic commissioner’s target is that 95% of buses should be on time. In Hartlepool, that figure is 81%. As my hon. Friend the Member for Blackley and Broughton said, ticketing arrangements, too, undermine choice and competition. In my constituency, Stagecoach operates a ticket discount scheme, but it is available only for Stagecoach services, rather than bus services across the town. Passengers are dissuaded from using other operators—of which they have only a limited choice—because of the additional cost of buying yet another ticket.

Most damning of all—my hon. Friend kindly mentioned this—is the abrupt cancellation of services, which leaves my constituents without access to transport. Hartlepool borough council faces cuts in its budget from central Government of about 25%, and it has decided to stop all subsidised services. That means that there are in effect no bus services in my constituency after 6 pm or on Sundays. Some outlying areas of my constituency—villages such as Elwick or Dalton Piercy, as well as the central area of the Burbank estate—now have no bus service whatever, which has left residents in those areas completely isolated.

The recent report by the Select Committee on Transport, “Bus Services after the Spending Review”, cites many comments from residents of my constituency. Miss Raw, for example, says that the bus service from Elwick to Hartlepool has been withdrawn, leaving the village completely cut off from Hartlepool. She states:

“I do not drive and therefore am finding it very difficult to shop for essentials, visit doctors, dentists, opticians, banks, hospital visits etc. Also I no longer visit friends, go to the theatre, or cinema, especially in the evening. In fact we are completely isolated.”

[Susan Elan Jones (Clwyd South) (Lab)]

Does my hon. Friend agree that whatever one’s general view on the bus deregulation of the 1980s, the one thing that we know is that it was an unmitigated disaster in villages and very rural areas, as buses were reduced either to a highly limited service or, in many cases, withdrawn altogether? That compounded the problem of rural poverty, which is often not addressed in an urban environment.

[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.

--- Later in debate ---

[Mr Wright]

The hon. Gentleman makes an interesting point, but I would suggest that we have had more or less the possibility of open competition and certainly deregulation since the mid-1980s. I accept the point that perhaps that has not meant free and open competition and there may be barriers to entry because of the structure—the way in which the legislative framework has been put in place. However, looking at the examples from my constituency, I would suggest that there has been market failure and, as a Labour politician, I would suggest that where there is market failure, the state should intervene. The hon. Gentleman and I will possibly disagree in our analysis of the reasons for that, but certainly we would agree that there has been market failure. I will ask the Minister, in trying to respond to the issue of market failure, to consider a number of things.

[Graham Stringer]

I acknowledge the weight of my hon. Friend’s remarks. Does he agree that where serious competition has taken place in Glasgow, Edinburgh, Preston and Manchester, where bus companies have set about competing with one another and where, in the short term, bus fares have dropped and there has been a conveyor belt of buses, the consequences have been worse congestion and pollution and then one bus company withdraws?

[Mr Wright]

That is one of the fears because of the way in which the bus market currently operates, with the dominance of four or five big players in the market. They have the bargaining power and, frankly, the cash to be able to hound smaller operators out of business. For example, in the north-east a number of years ago, a new and ambitious operator wanted to come into the market, but the big dominant operator of the time, which was Stagecoach, hounded it out by providing zero fares—free fares—at certain times. Stagecoach had the cash flow to be able to do that, so there is market failure, with domination by big players.

I hope that the Minister will respond to a number of points. I urge him to be bold when considering the Competition Commission’s report on bus services. He needs to examine why there has been so little take-up of the quality contract partnerships introduced by the previous Government. I urge him to undertake further work to see whether such partnerships need to be made easier to operate and enforce. To help with that, the Minister should consider whether franchising of local bus services within an area such as Hartlepool could provide a better quality of service and ensure that local authorities can determine the priorities on behalf of their residents. The Government need to be bold and radical for the good of passengers in Hartlepool and elsewhere. I strongly believe that they should re-regulate the market to ensure that local bus services are run for the benefit of passengers and communities, rather than purely for shareholders.