Public Service Obligations in Transport Regulations 2023

Lord Davies of Gower Excerpts

Monday 27th November 2023 Lords Chamber

Moved by

[Lord Davies of Gower]

That the draft Regulations laid before the House on 16 October be approved.

[The Parliamentary Under-Secretary of State, Department for Transport (Lord Davies of Gower) (Con)]

My Lords, these draft regulations relate to arrangements to support the effective and efficient provision of transport services to customers, particularly in relation to rail passenger services. It will use the powers provided by the Retained EU Law (Revocation and Reform) Act 2023 to revoke what is called EU Regulation 1370/2007 and replace it with the Public Service Obligations in Transport Regulations 2023. In doing so, we will take advantage of the benefits of Brexit to put in place a regime which is better tailored to the transport sector in Great Britain, supporting the provision of services to customers. This will allow us to retain a flexible regime for contracting public transport services, separate to the mainstream procurement and subsidy regimes. It will provide greater clarity and certainty to industry by retaining the interpretive effects of relevant EU case law and underlying principles where this is in Great Britain’s interest. In addition, it will streamline the existing regime by removing duplicative or unnecessary provisions.

I will start by providing some background information about these regulations. While the UK was a member of the EU, Regulation 1370/2007 created a bespoke procurement and subsidy regime for public service contracts in the transport sector. This was in recognition that such contracts are needed in the general interest of the public and cannot always be operated on an entirely commercial basis. The regulation contains some important exemptions from the complex rules surrounding subsidies and procurement. It recognises the special status of public passenger services as critical national networks. It also provides contracting authorities the freedom to let passenger services contracts more efficiently via simpler competitive processes, and when necessary, via direct award. This flexibility helps to minimise disruption to these important public services.

The intent of the regulation is to encourage competition, and this will remain the default process for the award of passenger services contracts. The regulation recognises, however, that in certain circumstances it will be necessary to award a contract without competition by instead making a direct award to maintain the continuity of essential public services; for example, the contracts which were put in place following the pandemic to secure train services. Discussions with experts from the transport sector have identified opportunities to remove some of the ambiguities and conflicting provisions in the regulation. This will provide greater certainty and clarity to industry and contracting authorities.

I now turn to the detail of the regulations. We are using this opportunity to use our post-Brexit flexibilities to revoke and replace Regulation 1370/2007. This will ensure that a robust and reliable regime for public transport service contracts is maintained, which is independent of the mainstream procurement and subsidy regimes. It will also increase efficiency by removing duplicative or unnecessary provisions and clarifying drafting wherever possible; for example, by defining terms which were previously left undefined in the EU regulation. The instrument will also bring the regime in Great Britain into compliance with the subsidy control chapter of the EU-UK Trade and Cooperation Agreement.

Crucially, this instrument will preserve the current powers to make direct awards of rail contracts, which would otherwise sunset on 25 December 2023, due to a pre-existing sunset clause within Regulation 1370/2007. This means that without this instrument, the Department for Transport, as well as other contracting authorities such as Transport for London, would lose important powers on which we currently rely to award rail franchises. Leaving the EU has given us the opportunity to retain these important powers, and it is in the best interests of the railways in Great Britain that we retain the flexibilities they provide. The private sector has an important role to play to drive innovation and growth and we remain committed to returning to competition for rail contracts as soon as possible; however this instrument recognises that in certain circumstances it will be necessary to award a contract by making a direct award.

Additionally, this instrument will provide greater clarity and assurance to industry by retaining the interpretive effects of EU case law and underlying principles. Under the retained EU law Act, EU case law will no longer be binding on UK courts after 31 December 2023. Relevant EU case law relating to procurement notices and to in-life changes to contracts, which was not codified by the regulation, has been relied on for clarity by authorities and contractors. This case law is therefore being codified by this instrument as it provides helpful clarity. Likewise, EU principles will no longer apply to underpin public service obligation procurements from the year end. The instrument replaces these with principles based on the new mainstream procurement regime for England and Wales, and with principles based on Scottish procurement law for Scotland. Beyond the changes I have outlined, this instrument largely maintains the status quo. This will provide certainty, clarity and confidence to contracting authorities, operators and passengers alike.

This instrument will put in place a regime for the award of public service obligation contracts in the rail, light rail, bus and tram sectors which is tailored to the transport systems in Great Britain, while largely enabling contracting authorities and operators to continue operating as they do now by maintaining the default position of competitively tendering for public service obligation contracts. It will enable the Government to meet their international obligations and will ensure consistency with other domestic legislation, and crucially, it will retain important flexibilities in the way we award contracts, which would not have been possible had we remained a member of the European Union. I commend these regulations to the House.

[Baroness Randerson (LD)]

My Lords, I thank the Minister for his introductory comments. These regulations are one set of many that will undoubtedly be required to amend legislation as we establish British legislation separately from the EU legislative framework. It serves to illustrate how complex this process is going to be, and how much intensive work by officials is being required in order to produce it. It also, by the way, illustrates that the original concept of the REUL Bill was absolute pie in the sky.

This is modelled on the principles of the Procurement Act, which itself had some issues for debate as it went through this House. I noted the difference in the way in which Scotland and Wales are referred to in these regulations, because in Scotland, procurement is stated to be devolved, but not in Wales, where procurement is embraced by the same system as in England.

--- Later in debate ---

[Lord Tunnicliffe (Lab)]

My Lords, I welcome this instrument. The Government are right to permit the making of direct awards for PSO contracts and to ensure that they are able to meet the obligations under the EU-UK Trade and Cooperation Agreement. I have no intention of opposing the regulations.

I had a number of questions, but the Minister has already answered most of them—although I will not go as far as saying that he did so satisfactorily—and at this late hour, I do not intend to repeat them. Along with the answers he will give to the noble Baroness, Lady Randerson, I think that this will be sufficient debate.

[Lord Davies of Gower (Con)]

I thank the noble Baroness and the noble Lord for their consideration of the draft regulations. I will turn to the points raised.

Regulation 1370 provides a bespoke, flexible procurement and subsidy regime for public service contracts, reflecting the fact that they are vital public services and cannot always be operated on an entirely commercial basis. Now that we have left the EU, we are able to preserve essential flexibilities and simplify the regime where possible, giving contracting authorities a strong basis for providing these key public services. Simply revoking the regime altogether would mean allowing to fall away direct award powers which provide government and franchise authorities such as Transport for London with important flexibilities in awarding rail contracts. That would create significant challenges in ensuring the effective operation of public transport services, particularly rail services.

Following privatisation 25 years ago, passenger numbers had more than doubled before the pandemic, rising more quickly than in most of Europe. The private sector has invested billions in new, modern trains and upgrading our stations—investment that would not have happened under nationalisation.

It is the Government’s intention to return to competition as quickly as possible. The intent of regulation 1370 is to encourage competition, so the default process for the award of a passenger services contract is primarily through competition. However, regulation 1370 recognises that, in certain circumstances, it will be necessary to award a contract without competition by instead making a direct award. The powers to award directly are not new but were due to expire under EU legislation. We feel that it is in the best interests of the railways and passengers in Great Britain to retain them, and leaving the EU has given us the flexibility to do so. We have committed to restart the competition for contracts as soon as possible, which will require stable market conditions and sufficient long-term certainty.

Engagement with the proposed amendments to regulation 1370 has been ongoing since early summer 2022. The key amendments to regulation 1370 were publicly consulted on as part of the plan for rail consultation. Stakeholders were generally supportive of the proposed amendments, and the Government response will be published shortly. We have held targeted engagement with key affected stakeholders on the amendments proposed in addition to those publicly consulted on. In addition to face-to-face meetings to talk stakeholders through the additional amendments and our reasoning, we have sent written detail for further consideration, including to rail partners, franchising authorities and bus and light rail stakeholders. The wide engagement enabled the Department for Transport to work closely with stakeholders affected by the instrument and address issues raised; for example, updating the definition of “rail” in line with survey feedback enabled us to achieve a broad consensus on the change.

The noble Baroness, Lady Randerson, raised the point about engagement and consultation carried out with the devolved Administrations. As a result of close engagement, both Scottish and Welsh Ministers have provided agreement to the regulations. My officials met with each of the devolved Administrations covered by this instrument on a regular basis during the formulation of the policy and the drafting of the instrument. We worked closely with the devolved Administrations to address any concerns, including detailed work on the SI with Transport Scotland, with the result that, following ministerial approval to the instrument, Scottish parliamentary agreement was received. I commend the Motion.

Motion agreed.