Bus Services (No. 2) Bill [ Lords ] (Second sitting)

Jerome Mayhew Excerpts

Committee stage
Thursday 26th June 2025 Public Bill Committees

[Simon Lightwood]

The clause is about mobilisation periods for franchising areas. Existing law states that there must be a period of at least six months between the franchising contracts being made and those services first being delivered on the ground. The clause will enable franchising authorities to set shorter mobilisation periods that work for them and their stakeholders, if they wish. That will speed up the franchising process and ensure that bus passengers do not have to wait for an arbitrary period before experiencing the benefits.

Clause 6 amends references to local services by inserting the words

“which have one or more stopping places”

in certain sections of the Transport Act 2000. That is intended to clarify that the relevant reference to local services includes cross-border services where appropriate. These technical changes support the Bill’s focus on giving franchising authorities more scope to facilitate the provision of cross-border services.

[Jerome Mayhew (Broadland and Fakenham) (Con)]

It is a pleasure to serve under you, Dr Allin-Khan.

Clause 5 deals with the minimum period before provision of services can be changed. It is not a difficult clause, but it is worth going into some of the subsections in a bit more detail. Subsection (1) omits section 123H(4) of the 2000 Act, which set out that a franchising scheme

“may not specify under subsection (2)(d) or (3)(c) a period of less than six months.”

That meant that at least six months had to expire between the authority making a local service contract and the provision of the local service under that contract.

Clause 5(2) sets out that the transition arrangements in subsection (3) apply where, before the clause comes into force, the franchising authority or authorities have published under section 123E(2) of the 2000 Act a consultation document relating to a scheme or variation of a scheme, but have not yet made the scheme or varied it. Clause 5(3) provides that when making or varying the franchising scheme pursuant to the consultation document, the franchising authority or authorities may specify a minimum period, under sections 123H(2)(d) or 123H(3)(c) of the 2000 Act, that is less than six months.

Although I understand that the Minister and his Department want to smooth out some of the hindrances and streamline the system, and in principle I am supportive of that, the question that begs to be asked is: is there no de minimis period? It may be considered that a six-month period is too long, but what about a one-week period? Is that too short? As drafted, the clause does not provide a de minimis period. What would be the impact on franchise operators if there were an instantaneous change? That is a significant issue that needs to be considered, because we are dealing with operators that are commercial beasts. They have infrastructure, and drivers and staff that have to accommodate changes to these schemes, and yet the Government’s proposed changes would in theory allow there to be no notice at all.

I would be grateful if the Minister could expand on the Department’s, or the Government’s, thinking on this matter. I accept that six months is itself an arbitrary time limit. Why is it not seven, or five? I accept the rationale, which is that we wish to streamline the provisions in order to make it easier for local transport authorities to undertake these changes and take advantage of some of the opportunities that the Bill provides, but it is important for it to be practical and not to have unintended consequences for bus operators and their commercial activities.

Clause 6 amends sections 123E(4)(a), 123N(2)(a), 123Q(5)(a) and 123R(5)(a) of the 2000 Act. Before I go any further, it is worth reflecting that the reason why the clause is so complicated in its nomenclature is that there have been multiple amendments to the Transport Act. Although I have not researched it, some of that presumably came about through the deliberations of this House when the legislation was drafted, but there have subsequently been multiple alterations.

It begs the question of our approach to legislation in this place when an Act is so often amended. It makes it very difficult, one imagines, for people and organisations—local transport authorities, in particular—to understand what their duties and legal responsibilities are. In many instances, these are not recommendations; they are mandatory requirements, with which failure to comply could lead to judicial review and the kind of lawfare that we as a society often rail against, because we feel that the Government—and by that, I also mean local transport authorities in this instance—cannot get anything done because they are being tripped up by incredibly complex legislation with poor drafting that requires multiple amendments. That is how we get to a “section 123Q(5)(a)”—but that was a slight aside.

Clause 6 further amends the Transport Act by adding to all those subsections the words

“which have one or more stopping places”

after the references to “local services”. In itself, it is a wholly good amendment, and I am not seeking to criticise it. It clarifies that the references to “local services” incorporate any service that has a stopping place in the relevant area, including cross-boundary services operating pursuant to a service permit. However, I wonder whether this clarification was necessary in practice. I would be interested to know whether there have been any instances of local transport authorities being misled by the current drafting—I would be surprised if there had been—or any legal challenge to the current definitions that highlighted a need to clarify an ambiguity. Subject to that clarification from the Minister, I accept that there is nothing wrong with the amendment made by the clause. It is a useful clarification of the Transport Act 2000, to avoid doubt in interpretation, if, in fact, such doubt has ever existed.

[Mr Paul Kohler (Wimbledon) (LD)]

It is a pleasure to serve under your chairship, Dr Allin-Khan. My party has little to say on this group. We are supportive of clauses 5 and 6, although the hon. Member for Broadland and Fakenham made a good point, and we would like to hear the Minister’s views on it.

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[Jerome Mayhew]

I beg to move amendment 46, in clause 7, page 3, line 23, at end insert—

“(1A) In subsection (5), omit from ‘and’ to end.”

This amendment seeks to simplify the process for granting service permits by removing the requirement that the proposed service will not have an adverse effect on any local service that is provided under a local service contract in the area to which the scheme relates.

[The Chair]

With this it will be convenient to discuss the following:

Amendment 47, in clause 7, page 3, line 26, leave out “may” and insert “must”.

Amendment 48, in clause 7, page 3, line 27, leave out from “there” to end of line 34 and insert

“is a benefit to persons making journeys on the proposed service.”

Amendment 49, in clause 7, page 3, line 36, leave out “may” and insert “must”.

Amendment 50, in clause 7, page 3, line 37, leave out from “that” to “will” and insert

“the proposed service has benefits to the economy of the area to which the scheme relates, or to persons living in that area,”.

Government amendments 4 and 5.

Clause stand part.

Clauses 8 and 9 stand part.

[Jerome Mayhew]

Clause 7, which is reasonably long, introduces a number of additional tests for the granting of service permits. Subsection (2) inserts a new subsection (5A)(a) and (b) to section 123Q of the Transport Act 2000. Paragraph (a) provides that the franchising authority or authorities may grant a service permit for a cross-boundary service—this is the meat of it—if satisfied that

“the benefits to persons making the journey on the proposed service will outweigh any adverse effect on any local service that is provided under a local service contract in the area to which the scheme relates.”

Paragraph (b) sets out that the franchising authority or authorities may grant such a service permit if they are satisfied that

“the benefits of the proposed service to the economy of the relevant area”—

that is different from paragraph (a), which referred to benefits to persons taking the journey—

“or to persons living in that area, will outweigh any”

adverse effect on the local service provided under a local service contract. The first paragraph refers to the benefit to passengers on the cross-boundary service and the second to the benefit to the area.

I suppose what sits behind this is the abstraction argument, which we are familiar with from the railway. In fact, those lucky enough to be at Transport questions this morning will have heard a brief rehearsal of that argument by the Secretary of State in respect of open access applications on the railway. The essence of the argument is that when a new service is proposed for a particular area, in addition to just saying, “Isn’t this is a jolly good idea? We’re getting further provision, more choice and no doubt price competition as well, and new constituencies and demographics being served by buses”—or, in the other example, by rail—before agreeing to it, we need to look at its impact on existing services. It is argued that it would be unfair if we have already contracted a franchise agreement or service operation agreement for buses, or we have a franchise operator on the railway, such as London North Eastern Railway—actually, that is not a good example, because it has open access competition. Let us take High Speed 1, where Eurostar has its operations, and imagine that we said, “We’re going to provide a new service.” Virgin, for example, is applying for an operating licence for HS1. We would then say, “What would be the impact on the provision of the existing services? Is this new service going to supply a currently unmet need, or is it going to provide two services fighting over the same customer?”

That takes us back, interestingly enough, to the original regulation of bus services in the 1920s. A major argument for the need for bus regulation in the first place was the common complaint that there could be one route with 15 different buses on it, all from different bus operators competing furiously for a key route, and for the less well-travelled routes and perhaps the suburban or rural routes, there would be no bus provision at all. The argument ran that we could not leave it up to the private sector to fight it out and let the market decide where services should be provided; we needed a degree of regulation so that we could have decent provision on the main thoroughfare and provision elsewhere. I think I am right in saying that the term “traffic commissioner” was first created following the review in the 1920s, and those commissioners still exist to this day. As we progress through the Bill, we will see reference to the traffic commissioner, which is a historical overhang from the initial regulation of the bus network in the 1920s.

I return to abstraction. The argument goes that it would be unfair to provide a new service where the impact of that would be negative on existing services or on other factors in a local area. The Secretary of State’s argument—admittedly in the context of rail, but it is relevant to this argument—is that it would be unfair to provide such a new service, but I challenge that base assumption. The person who is being left out of that consideration is the passenger. New services provide new opportunities for the passenger. Yes, it is true that new services may act as de facto competition for existing service providers, but as we know from every other aspect of our lives, competition tends to improve performance.

Before I came into Parliament, I was a businessman running a consumer-facing company. I hated competition, and I did everything I could to stifle it, because I knew the impact it would have. I will not tell the Committee the things I used to do—I should think there would be a by-election—but the point is that existing providers hate competition, because they have got a comfy little operation, they know what their activities are, they know what their likely revenue will be, they know how they deal with their customers, and they do not like change.

When competition comes in, businesses are forced to sit up and say, “Oh my goodness! This is an existential threat to us as an operator. How are we going to respond?” Businesses in aggregate respond in a number of different ways. Some of them are nicer to their customers and improve their customer service to hang on to their customers and ensure they are not tempted across by the new provider. Others reduce their fares to attract custom. Then we get a price war, as we often read about in the press—we get price wars between Tesco and Asda, and Lidl and Aldi. Those who benefit are not the businesses but the customer, who gets either better customer service or lower prices. They certainly benefit from wider provision of opportunity, because they have two services available to them instead of one, and that puts the providers on their mettle.

My submission is that new provision of whatever description is inherently a good thing, even if there is an argument about abstraction from existing providers. I suppose it comes down to the core beliefs of Government Members as opposed to Conservative Members, who at heart—my heart, anyway—believe that competition and the challenge of a competitive market is a good thing. In the vast majority of cases—not always—it brings benefits to the customer and forces a focus on the end user rather than the supplier.

If I were to traduce Labour Members’ political opinions—perhaps I am putting words into their mouths—my criticism of the Labour party more widely and its approach to legislation as demonstrated in this clause is that its instinct is to support the supplier and the operator, rather than the customer, particularly in heavily unionised sectors. We touched on this point a little bit in our last sitting on Tuesday, when I was discussing the Bee Network in Greater Manchester and the decision on whether to increase the hourly rate for bus drivers.

At the time when the contract was being let, the commercial rate was £12.60 an hour. The Mayor for Greater Manchester insisted on an hourly rate for bus drivers of £16 an hour. I rehearsed the arguments both for and against. We can look at it in two ways—we can think it is a wonderful thing that bus drivers are being paid more, but it also means that bus services are considerably more expensive to provide in Greater Manchester than they are elsewhere in the country because salaries—wages—are more than 60% of the costs of running any bus operating business. That is the heart of it. Who are we after? Are we supporting the suppliers or are we supporting the customer—the passenger?

That brings me to amendments 46 to 50, standing in my name. Amendment 46 would have the effect of removing the requirement in section 123Q(5)(b) of the Transport Act that

“the proposed service will not have an adverse effect on any local service that is provided under a local service contract in the area to which the scheme relates.”

Given my preceding comments, we can see why this is so important. As it currently stands, we have a measure that prohibits the provision of a new service if that service were to have any adverse effect on pre-existing services under a local service contract in the area to which the scheme relates. That is a very low bar—it is almost a veto—for the provision of new services, because one can imagine that it is very easy to assert that the provision of a new service may draw customers away from one that is already being provided.

The amendment seeks to simplify the process for granting service permits. Demonstrating that a change will not have any adverse effect is an enormously high bar and is evidentially onerous. Removing section 123Q(5)(b) from the Transport Act, as the amendment would do, speaks to the Government’s desire to streamline the process and make it easier for the supply of new services, for innovation, and for new entrants to enter the market.

[Amanda Hack (North West Leicestershire) (Lab)]

The shadow Minister raises an important point about competition and the customer being at the heart of bus services. Will he share with us why so many rural bus services have been cut, if the commercial operator is king and the focus is on customers? That is not the experience we feel in rural communities. We have had cut after cut.

[Jerome Mayhew]

That is an interesting point, and the hon. Member is of course quite right. I did preface my comments by saying that competition is beneficial in most areas, but there are some areas where it is not. The counter-argument is that, in this instance, this is about a new operator, which does not have to be a private sector operator, suggesting an additional service. This is not about cutting services. This is about where, for whatever reason, an analysis has been done that there is additional demand—this is not about cutting a service, but about providing an additional service.

The hon. Member is quite right to raise rural areas, as the hon. Member for North Norfolk has done through a number of his amendments. I represent a rural constituency myself in Norfolk. In bald terms, the rural service in Norfolk is not too bad as long as the destination is Norwich. We have a radial provision of bus services from outlying villages directly into Norwich. If someone wants to go across the county to anywhere other than Norwich on those lines, it is very difficult. The hon. Member for North West Leicestershire is right that if we look to only the passenger ride and the fare box to support usable and sufficiently frequent services, it is highly unlikely that a purely commercial approach will do it. That is why, in Norfolk and many other places, the innovation of an advanced partnership has worked so well.

[Joe Robertson (Isle of Wight East) (Con)]

On my hon. Friend’s point about rural areas such as his constituency and my constituency on the Isle of Wight, it is difficult to move between towns. On the Isle of Wight, we have a radial system that makes it easy to get in and out of Newport, which sits in the middle of the island, but it is less easy to go anywhere else. I am at a slight loss as to how we get over that fundamental issue in bus franchising—this is geography, and the market for moving between villages is clearly smaller. I am concerned that the entire franchising model and, indeed, this clause are overselling a solution to a fundamental problem. If we are to get over that hurdle, it would ultimately require a lot of public money.

[Jerome Mayhew]

My hon. Friend is absolutely right; there is no commercial case for large-scale, frequent bus services to every small rural community. I have certainly not come across such a case, even if one does exist. The solution—if there is a solution—will be one of a number of things. Under a franchising scheme, it would be open to a local transport authority to invest in and design a scheme that provides for frequent bus services to every rural community. It would be possible to do that, but it would be phenomenally expensive.

Already, one of the key criticisms of the Bill is that it has no money attached to it, so we are going to spend the next two and a half weeks virtue signalling about how wonderful franchising could be. It is not mandatory, and no one is actually going to do it—outside of the big mayoral authorities that are doing it anyway under the Bus Services Act 2017—because there is no money supporting the Bill. It would be incredibly expensive.

There is an alternative, hybrid solution: a combination of scheduled bus services on the key arterial routes from big villages into their major towns, such as from Norfolk going into Norwich, a rural hub-and-spoke system for the more remote villages, as suggested by the hon. Member for North Norfolk, and demand-responsive public provision.

On Tuesday, I described this as the “Uberfication” of public transport. It still is unlikely to make sense on a purely commercial basis, but it is the kind of focused provision of public sector transport that could work in a highly rural area where the aggregate cost would be less than the blind provision on frequent, full bus services to every community, which would be monumentally expensive.

[Siân Berry (Brighton Pavilion) (Green)]

Amendment 46 would remove the requirement for the service not to have an adverse effect on local services. Bearing in mind what the shadow Minister said about the impossibility of commercial viability for some rural services or non-radial routes in cities, is it correct that the amendment would allow commercial entities to come in and take away part of the market, even where a local transport authority had built up the potentially profitable part of a wider, well-planned public network? The requirement as it stands is intended to prevent commercial companies from parasitising on a market that has been built up with public money. The Minister is not proposing that it should be easier for commercial entities to come in and develop new markets where there is potentially pent-up demand in rural areas.

[Jerome Mayhew]

The hon. Lady is right that there is a risk of challenges in some areas, but in other areas there is the opportunity to increase provision for new markets. The difficulty is that the clause as drafted says that “any adverse effect” will be sufficient to prevent the application.

Amendment 47 would replace the word “may” with the word “must” in clause 7(2)—in reality, proposed new section 124Q(5A) of the Transport Act 2000—if a local transport authority is satisfied with the conditions of proposed new subsection (5A)(a) and (b). In such circumstances, why should the local transport authority be given discretion to refuse to grant a cross-boundary permit? It will have accepted that there are no adverse effects; nevertheless, it is given discretion. The clause says that it “may” grant the application, but why? If someone wants to provide an additional service and the local transport authority has satisfied itself that there is no adverse impact, why would it say no?

That is the purpose behind amendment 47. If the applicant—it could be the municipal bus company, given that there is nothing to prevent it from doing this—has satisfied the local transport authority that there is no adverse impact, as set out in the conditions of proposed new subsection (5A)(a) and (b), why should the provider not, as a right, be able to create the service?

[Siân Berry]

I just want to give an example in which “may” is more appropriate. Proposed new subsection (5A)(a) and (b) talk about a local service that is provided. If a local transport authority is building out a planned network and, in the very near future, a service will be introduced in an area, it may want to prevent disruption of the benefits of an integrated local service there by such an application. I believe it is very appropriate that “may” remains in the clause.

[Jerome Mayhew]

The hon. Lady is bending over backwards to think of hypothetical instances in which it is possible that something like that could exist. The fact remains that we must ask—this comes down to the philosophical difference between us, perhaps—whether we are looking after the passenger or the supplier. From my perspective, the Bill should have services for passengers squarely in its sights. If passengers will benefit from a new service, the local transport authority should allow it. After all, the aim of the Bill is to maximise general utility for the wider bus service. Amendment 47 would therefore prevent local authorities from sitting on their hands, as the hon. Lady suggests they might.

Amendment 48 goes one step further. If the previous two amendments were red meat to some members of this Committee, this one will send them over the top. It would scrap entirely the convoluted assessments about balancing benefits and adverse effects in proposed new subsections (5A)(a) and (b). The authority would simply take a view on the benefits for persons making journeys on the proposed service—what is wrong with that? If the service has benefits for customers, why should we not just go for it? It is a straightforward process where applicants are in the driving seat. The amendment would provide higher certainty for applicants and therefore encourage additional service providers.

I anticipate that hon. Members may say, “What about the web—the franchise service—that the local transport authority may be trying to design?” But I seek to remind them about the incentives of providers. Again, I speak as a former businessman. We sometimes forget something in this place. We make lots of rules and we deal with processes ad infinitum, and we think that everyone will be incredibly logical. We say, “Oh yes, they have to go through this process, then that process and the other one, and then the local authority may decide to help them or not.” That ignores the basic maxim of private enterprise, which is that time kills deals. If a process is convoluted by design, it is also, by design, time consuming, and therefore expensive and uncertain in its outcome.

Let us think of a potential service provider looking through these provisions. They would say, “I’ve jumped through the hoops of proposed new subsection (5A)(a) and (b), and I’ve demonstrated the evidential basis for this application,” but then there is the discretion at the end where the local authority may, for whatever reason, choose not to award the deal based on some plan for some date in the future that we have not even heard about. Is the provider even going to bother doing it in the first place? This is an important issue of practicality. Commercial organisations respond to incentives, and if we make something long-winded, expensive and complex, they are much less likely to bother doing it. They will employ their capital, their time and their creative energies elsewhere.

[Joe Robertson]

The more I hear the shadow Minister unpicking all these issues, the more it transpires that the whole franchising model that the Bill offers to local authorities is really rather unattractive. Particularly for smaller local authorities, it is complicated, and there is a huge risk that when the new service is implemented, despite the best of intentions, it will not run in the way that the local authority or commercial provider thought it would. All the while, the local authority—I am thinking in my case of the Isle of Wight council or the potential combined mayoral authority with Hampshire—is taking on that risk of things going wrong. The shadow Minister is getting to the heart of a fundamental problem with the Bill: it will not sort out bus services country-wide, particularly in rural areas. It is really just a model for the big cities.

[Jerome Mayhew]

My hon. Friend is right. In broad terms, the Bill facilitates additional opportunities for local transport authorities, which is a good thing. As I have said, allowing franchising is in fact a Conservative concept. It goes back to the days of Mrs Thatcher, but more recently, the 2017 changes allowed franchising without consent for mayoral combined authorities. In fact, any local transport authority was allowed to apply for franchising operations, but with the safeguard that it required the consent of the Secretary of State for Transport, because of the huge commercial risks associated with franchising for local transport authorities, particularly smaller ones. That was an eminently sensible safeguard that I have spoken about previously, so now we have that risk.

Even if the local transport authority is capable of managing that risk, of developing the expertise to design these complex systems in-house, as is anticipated, and of starting a municipal bus company on top of designing the franchise operation, we cannot get away from the conclusion that is expensive. Whichever way it is designed, if it is going to improve services, it will be expensive.

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[Luke Myer (Middlesbrough South and East Cleveland) (Lab)]

Does the hon. Gentleman accept that the entire structure of combined authority devolution, particularly in Greater Manchester, which has pioneered much of this work, is about the earn-back or gainshare principle? Early public investment results in economic growth down the line, and higher business rates and tax revenue that then fund some of this work. In other words, in the end, it pays for itself.

[Jerome Mayhew]

I am grateful for that thoughtful intervention. In principle, the answer is yes, which is why we legislated in 2017 to allow that in principle and why we supported Greater Manchester through the implementation of the Bee Network. That happened under not Labour, but the Conservatives. However, it comes with financial risk. There needs to be clarity on where the costs are and an absolute, laser focus on minimising them, just like in any other business.

The hon. Member did not say that the forecast in the Bee Network’s business case, which enabled it to get the go-ahead, was for it to make a profit. I accept that there will be periods where it makes a profit and periods where it makes a loss, but it should break even overall. Over the forecast period, however, the plan was for it to make a profit of £94 million—that was how it was sold. For it to make a planned loss in 2025-26 of £226.3 million and change, given the huge cost overruns that I hinted at in Tuesday’s sitting, is a disaster. It makes me wonder where that has come from.

I remember the hon. Member watching with interest on Tuesday as I talked about the more than £17 million overrun on agency bus drivers, because the transport authority had failed to provide enough qualified drivers having misunderstood the nature of the TUPE regulations regarding their transfer from the previous operators to the franchise process. There was also the massive cost overrun on the purchase of bus depots because it was the only buyer in the market. There was an explosion in costs for the purchase orders for new buses, with a surcharge of £40,000 on every bus that Andy Burnham’s Greater Manchester combined authority buys because of the design requirements that he has put in, including bits of leather on the seats—we will not go into the detail of that.

If we are not absolutely laser-focused on the costs, that is what happens. The biggest overrun, which perhaps I should have led with, was the increase in wages. There has been an increase in unionised power—which arguably could be a good or bad thing—and an increase in hourly rates for bus drivers to £16 an hour, which is above the market rate. There are not just bus drivers in a bus company; there are all sorts of other roles as well.

I should also mention the failure to be efficient with the application of capital. In a private organisation, having bus washers is important, because having clean buses is part of the service and it affects the customer experience. Since the Bee Network has been in place, and the local transport authority purchased the depots, there has been a rather unfortunate occurrence whereby the bus cleaning mechanism—the washers—have been out of action for over a year.

The processes and the efficiency within the new structure have to date proved inadequate to get the funding to repair the washers, because that is capex rather than opex. I am assuming that is what the problem is—that it is an unplanned expense, so the authority has to go through the rigmarole of a public sector procurement process. No doubt it will get there in the end, but the consequence is that the bus depot is sending out buses that have not been cleaned for a year. Is that an improvement in service? No, it is not.

I say that not to denigrate franchising. Franchising can be done well—it is not a necessary consequence of bus franchising that there are dirty buses—but the evidence that we have at the moment is that even a really sophisticated operator such as Greater Manchester, with a mayoral combined authority and the financial resources, but without the experience of running buses, suffers very significant bumps along the road. That needs to be addressed. If that is happening in a large local transport authority, what is the likelihood of it happening in a small one—for example, in Norfolk county council in my neck of the woods? That is one of our problems with the Bill.

Going back to amendment 49, proposed new section 123Q(5B) of the Transport Act 2000 deals with intra-boundary services. I am applying the same logic as I did to amendment 47. Why should local transport authorities have the power to refuse to grant a service permit if they are satisfied that there are benefits of the proposed service to the economy of the area, or to persons living in that area, and that those benefits will outweigh any adverse effect on any existing local service?

All the amendment requires is for local authorities to act in the wider interests of consumers—the passengers. The proposed service might have an impact, but if we are satisfied that overall the net benefit is in the positive column and not the negative, why would we not agree to it? Let us think of the passenger—the consumer—rather than the supplier.

The amendment would be a particularly important safeguard if the local transport authority was also the owner of a municipal bus company, which was the supplier of the local services contract. There would then be an added layer of opacity in the process, because the contractor and contracted would be the same organisation. A challenger brand could then come and say that it wanted to provide additional services, and it could be assessed to be net beneficial to the economy or the people living in that area, nevertheless the local authority could refuse to grant a permit, even though it is the operator that would be adversely affected—let us imagine how that would look.

The temptation, of course, would be to say that the award was refused for wholly improper reasons: a circling of the wagons to protect one’s own. I hope that the whole Committee would agree that that would be an improper reason to deny additional access to the people living in the area, and/or to deny a benefit to the economy, yet there would be a strong temptation. If the authority has built its bus service network, and a little so-and-so comes in and demonstrates that it can go one step better, but that would have a negative impact on the authority’s cosy plans, people in the authority are going to think, “I don’t want to be troubled by this.”

[Siân Berry]

The shadow Minister was looking at me while making those points, and I agree that our parties have very different philosophies on this issue. The circumstances that he has just described as “cosy” relationships that are improper, are ones that I characterised earlier as public money being invested in building up a market that should not be parasitised. Those are, very clearly, different points of view, and I want to make sure that is on the record at the right time.

[Jerome Mayhew]

The hon. Member is absolutely right that there is a fundamental difference of philosophy here. She appears to back what I described as the cosy relationship—but let us not use pejorative language; let us call it the mechanism of state supply. She thinks that that is more important than improving the experience of passengers in that location and/or improving the economy, because that is the hurdle that would have to be crossed for the change made by amendment 49 to take effect. I accept, acknowledge and celebrate that difference. As a Conservative, I stand up for the consumer—for the resident—in my constituency, not for the supplier of services, even if it is the state supplier. Those are the people who I represent, those are the services that I am trying to improve, and that is what amendment 49 would do.

The amendment would require the local authority to act in the wider interest of consumers, not that of its own suppliers. That is particularly important where the authority has skin in the game. If I am unsuccessful—as I have a sneaking suspicion that I might be—in persuading the majority of the members of the Committee to support amendment 49, we should at least expect transparency in any decision-making process where the decision taker, the local authority, is taking a decision that affects a municipal bus company owned by that authority. At the very least—as we will discuss in relation to other amendments—we should insist on absolute transparency in those commercial relationships, so that the disinfectant of sunlight can shine on the exact rationale for a commercial opportunity being refused.

Amendment 50, my final one in this group, goes one stage further. It would get rid of the complex “balance of benefits” argument entirely and replace it with a simple assessment of the application: will the proposed service have benefits for the economy of the area or persons living in the area? If yes, the licence would be granted. The impact would be similar to that of amendment 48: it would simplify the process and give agency to the applicant. If they could prove that their service would deliver benefit, the local authority would grant a service permit.

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[Jerome Mayhew]

I fear that the hon. Member and I may agree more than he perhaps thinks. As I said, I accept that rural routes are unlikely to be profitable, but that does not mean they should not be provided. That is why I went on to talk about demand-sensitive transport, as well as to mention the suggestion from the hon. Member for North Norfolk about rural transport hubs. Those can be subsidised, either through an enhanced partnership or through a franchise process. I accept that they will not be part of a purely commercial result, but that is not what I was suggesting in the first place.

[Mr Kohler]

I heard the shadow Minister say that, and I understand it. However, there is a contradiction in his analysis. He admits that point, but constantly refers to consumers operating in profit-and-loss markets. He is making a very narrow equation, and I fear that allowing public providers in the way he wants would simply undermine the whole rationale behind what we—or the Government—are trying to do with the franchising process. It is too narrow and simply ends up completely undermining what we are trying to do.

--- Later in debate ---

[Steff Aquarone (North Norfolk) (LD)]

It is a pleasure to serve under your chairship, Dr Allin-Khan.

To refer to the general comments made by the shadow Minister, I am totally up for supporting things that put passengers first and are aligned to that purpose. I was regretful that the Committee disagreed to clause 1, on the inclusion of the overall purpose of the Bill, in our previous sitting.

The shadow Minister gave a long and wide-ranging speech; I was disappointed that it did not extend to his own personal tactics for rope sabotage, given the provenance of his business background—but perhaps that is for a future hearing. I will leave the Minister to respond to the issues of the words “outweigh” and “persons”, because I feel that it is his Bill to defend, but I do not fear the potential to refuse to the same extent as the shadow Minister.

Let us get back to what we are substantially talking about here, which is the cross-border issue. From my perspective—my constituency and that of the shadow Minister share many geographic characteristics—the whole point is that, however it is looked at, bus transport, even in urban areas, does not make a profit. Franchising is a welcome model because it allows the state, which is funding the operations, to contract to the providers who are going to deliver the service most efficiently and effectively. I do not see room for the entrepreneurial business model and profiteering that the shadow Minister refers to.

[Jerome Mayhew]

The risk of the franchising model, as we are already seeing in Greater Manchester, is that the size of the contract determines the amount of profit. Although the profit percentage is reduced, it is applied to the full size of the contract. Ironically, there is no incentive for the operator to reduce costs—for example, by pushing down wages—because wages are paid as agreed under the contract, and then the operator receives the 3% or 4% on top of that. My concern is that, as currently evidenced in Greater Manchester, we are seeing costs rise despite services being operated by private sector companies.

[Steff Aquarone]

The shadow Minister makes a valid point, as is always the case, but it takes us into the philosophical domain again. I gently point out that there are other perfectly profitable industries where the cost-plus model is the industry norm, and where it is possible for investors to make a return.

Nevertheless, to bring us back down to earth, I want to mention a couple of scenarios. One is from my own experience—in fact, from the shadow Minister’s constituency, which I travelled through growing up, where we had two providers leapfrogging each other from Aylsham to Norwich on commuter journeys. It was literally the same service, but if someone happened to get on the wrong bus, they could not get the same route back on the other operator. That is a fine example of why it would be appropriate to refuse a cross-border permit.

Equally, my hon. Friend the Member for South Cotswolds (Dr Savage) sent me an example:

“We also have an issue of cross-county boundary bus routes. For example it takes maximum 10 minutes to drive from Malmesbury (Wiltshire) to Tetbury (Gloucestershire) but up to 2 hours on the bus as there is a huge diversion to another big town and then on to Tetbury through the small villages”.

These measures are about the practicalities of cross-border permits. With more rural areas likely to enter into combined mayoral authority arrangements, that will reduce the need for cross-border permits. Although I am grateful to the shadow Minister, I do not see the equivalence with open access in rail. This is, to me, what validates the franchising model overall, as well as providing for necessary moderation in common-sense, cross-border issues.