Local Bus Market

Louise Ellman Excerpts

Thursday 10th January 2013 Westminster Hall

[Mrs Louise Ellman (Liverpool, Riverside) (Lab/Co-op)]

It is a pleasure to serve under your chairmanship, Mr Walker. I am pleased to launch this debate on the Transport Committee’s most recent report on bus services, “Competition in the local bus market”, which we published in September. It follows our previous report on bus services after the spending review. I intend to follow up some of the issues that we raised.

Bus services are the Cinderella of public transport. They are a lifeline for millions of people, enabling them to get to work, school and college, and to hospitals, shops and vital amenities. More than 5 billion passenger journeys were made by bus in 2010-11, more than three times the number of journeys made by National Rail, yet bus services receive less subsidy and a fraction of national attention.

Our reports focus on bus services in England outside London. Buses in Scotland, Wales and Northern Ireland are the responsibility of the devolved authorities, and London has a more regulated bus system than the rest of England: services are provided under franchise arrangements set out by Transport for London. Bus services in London receive more local authority subsidy than the rest of England put together. It is perhaps not surprising that London bus services are regarded as an example of successful public transport provision, and that bus use in London grew by more than 50% in the decade to 2010 and continues to grow. By contrast, bus usage outside London fell.

It is sometimes forgotten that buses are the most popular form of public transport. Some 4.7 billion passenger trips were made in 2011-12, and half of those were in London. The amount of bus travel has grown, particularly concessionary bus travel. In 2011-12, holders of concessionary bus passes for older and disabled people made an average of 109 bus trips each. The number of fare-paying trips outside London, however, has fallen by more than 5% in the past five years. Bus demand outside London fell in the second half of 2012. Does the Minister think that that is the start of a new downward trend as funding cuts bite on fare levels and the number of services, or does he regard it as simply a blip?

Buses play a vital social and economic role. More than 50% of bus trips are made by people in the lowest two income quintiles, and more than half are made by people aged under 20 or over 60. Our earlier inquiry into bus services after the spending review received numerous letters and e-mails from people across the country telling us about the direct impact on their lives of reductions in bus services due to cuts in funding. Our inquiry was much strengthened by evidence from users of bus services who told us in great detail how important bus services were to them and how they had been affected by their withdrawal.

About 80% of bus services outside London operate on a fully commercial basis. The remainder are supported by local authorities. That includes many evening and weekend services, as well as many rural services, which provide vital support to local communities. Our earlier report drew attention to the combination of funding cuts that seriously affected the provision of supported services. Cuts in central Government funding to local authorities are having a major impact. Not only was local authority funding reduced by 28% overall from 2011-12, but the subsidy provided to bus operators—the bus service operators grant—has also been reduced by 20%. That is likely to have made some previously commercial services unviable.

The Campaign for Better Transport has recently published research showing that local authority support for 20% of tendered bus services was reduced or withdrawn in 2011-12, 41% of local authorities made cuts to spending on bus services and 10% cut spending by more than £1 million. Can the Minister confirm whether the Department for Transport knows how much local authorities are now spending on bus services, following cuts in central Government funding to those authorities? Can those data be put in the public domain? It is not satisfactory to have to rely on data extracted from local authorities by freedom of information requests, as did the Campaign for Better Transport research. We need to know the full national picture.

The Minister spoke to the Committee about promoting examples of good practice where local authorities have found innovative ways to provide services despite funding cuts. What examples can he give us? How has the Department set about promoting good practice? What effect has the cut in BSOG had on both commercial and supported bus services? Has it led to more pressure on budgets for supported services? The Government recently consulted on reforms to BSOG, including the possibility of paying some of it to local authorities rather than operators and using some of it to support the better bus areas fund in future. When will decisions on that be announced?

Our September report considered the recommendations of the Competition Commission aimed at improving competition in the local bus market. It is a difficult matter, as there is little evidence to suggest that more head-to-head competition between bus companies on routes will provide better service. Where such competition exists, it has often been detrimental to passengers; it has not made bus travel more affordable. Between 1997 and 2010, the cost of motoring increased by 32.5%, while bus fares increased by 76.1%. The reality is that passengers tend to benefit from partnerships rather than on-route competition between local authorities and operators.

During the course of our inquiry, we visited Oxford, where a voluntary partnership has led to significant improvements. Services have been rationalised, improving the city’s environment and traffic flow, timetables have been co-ordinated and a smart card has been introduced that can be used on any service. Passenger numbers have increased. Partnerships are the way to improve bus services. If possible, they should be made by voluntary arrangement.

The Government have a role to play in promoting best practice, encouraging local authorities and operators to work together and ensuring that the competition authorities do not block or inhibit sensible arrangements that benefit passengers. The Competition Commission has done some valuable work, but its focus is narrow. It puts far too much emphasis on head-to-head competition and misses the wider context of what passengers seek from bus services and the impact of deregulation. Our report questioned whether the Competition Commission had pulled its punches when it came to challenging major firms’ dominance in certain areas. The concept behind bus regulation was that it would lead to competition on all routes, which would improve passengers’ experience and reduce fares. However, the evidence shows that, in practice, five major bus companies dominate the whole bus service.

It might not be possible to make voluntary arrangements to improve bus services across the country. That reality was anticipated by the last Government, which is why, during the last Parliament, legislation was introduced for statutory partnerships and franchise arrangements known as quality contracts that put the emphasis on local authorities to specify what they want bus operators to provide. This Government have kept that legislation on the statute book. When we spoke to the Minister about it during Committee sessions, he assured us that the statute would remain in place, but it is unclear how far the Government are committed to encouraging local authorities and local transport authorities to use that legislation.

In our report, we discussed the problems of being the first authority over the line in setting up a quality contract. The Government seem determined to provide no assistance to such a local authority, and I would be pleased if the Minister clarified their position on statutory partnerships and quality contracts. In what circumstances would the Minister encourage a local authority to pursue such options?

The creation of the Government’s better bus area fund is very welcome. The Campaign for Better Transport has shown that the fund has mitigated some of the impacts of cuts in some areas. The Government have linked the provision of that funding to the development of partnerships, but local authorities wishing to set up quality contracts are not eligible for it, which looks like a strong signal from the Government for them not to go down the road of using quality contracts. I hope that that is a misreading of the situation and that the Minister will confirm that, if a local authority wishes to use the Local Transport Act 2008 to set up a statutory partnership, it would be eligible to bid for better bus area funding.

The introduction of multi-operator ticketing is another important aspect of any bus partnership. We recommended that local authorities should have the power to implement a multi-operator ticketing scheme where a voluntary agreement cannot be reached. The Government have said that they will clarify guidance on the use of such powers under the Transport Act 2000 and consider the need for further legislation. Will the Minister clarify the time scale for that work and say how he will decide whether new legislation is needed? Should it be needed, is there any prospect of new legislation being enacted during this Parliament?

Another important issue relates to what happens when a commercial service ceases and the local authority decides to support that service to enable it to continue. The operator of that commercial service has a significant advantage over its competitors, because it knows the revenues and costs associated with running the service. The Competition Commission estimated that the resulting reduction in effective competition for tenders costs local authorities between £5 million and £10 million a year.

Information on those services could be provided voluntarily by bus operators, but they have so far refused to disclose it, citing commercial confidentiality. The Government are exploring that situation, but the Committee recommended that they should set a deadline for operators to agree to disclose the information and introduce legislation if operators fail to do so. Will the Minister tell us what progress is being made on that issue, and does he contemplate introducing legislation to force companies to disclose the relevant information?

The disclosure of data is also an important consideration in other areas. Passenger Focus is doing important work in surveying passengers’ views of services. Overall, satisfaction levels are relatively high: on average, 85% of passengers are satisfied with their service, but that global figure hides considerable disparities between operators. We want more disaggregated data to be available, so that the performance of operators in individual areas—and, indeed, that of individual operators—can be properly assessed. That will require more work on the collection of underlying data. Does the Minister share our view that more information on customer perceptions will help drive up service levels, and will he support Passenger Focus in getting the necessary funding and assistance to undertake that work? More could be done to publish data on operators’ performance—for example, on punctuality and cancellations. Far less information is available for bus services than for trains. We did not sense that the Government are seeking the disclosure of data, so will the Minister explain and elaborate his view?

As part of our inquiry, we took evidence from the senior traffic commissioner, Beverley Bell. The traffic commissioners play a vital role in regulating the safety and punctuality of buses. Ms Bell told us that the performance of some bus operators was so poor that they ought not to be in business. The Competition Commission has recommended that the traffic commissioners should draw up a code of conduct for bus operators to prevent buses from engaging in anti-competitive behaviour on the road. Ms Bell told us that she did not have the resources at her disposal to do that satisfactorily. Has progress been made with the code of conduct? Is the Minister concerned that the traffic commissioners may lack the resources necessary to do their job effectively?

It is worth reflecting that the Office of Rail Regulation, which regulates rail services, spends about £29 million a year on staff and office costs, compared with the £15 million spent by the traffic commissioners. The seven traffic commissioners in Great Britain, who are responsible for the safety and punctuality of the whole bus industry, are supported by 138 staff, of whom a substantial proportion are devoted to the licensing of goods vehicles. The Office of Rail Regulation has 280 staff, with additional rail regulation and safety staff at Network Rail. That indicates the contrasting approaches to regulating bus and rail services, and therefore to protecting the interests of bus and rail users.

We recommended that the roles and resourcing of the traffic commissioners should be reviewed before the next spending review. Will that review take place, and will the wider review of non-departmental public bodies mentioned in the Government response to our report cover such issues? Will that review be made public? In our report, we compared the limited resources available to the traffic commissioners and the much more generously resourced Office of Rail Regulation as another example of how buses can be characterised as the poor relation of rail. The subsidy for bus services is lower than that for rail, even though it unambiguously helps the least well-off. The leadership in the bus industry is also less visible than that in the rail industry, particularly since the formation of the Rail Delivery Group. Stronger leadership—for example, in driving the introduction of new ticketing technology—would benefit both bus companies and passengers.

In conclusion, these are potentially troubling times for the bus industry, and therefore for bus passengers. Services are under threat, demand outside London is dropping and there are significant funding pressures. There is uncertainty about the regulatory environment, with quality contracts and statutory partnerships being unused and the traffic commissioners struggling to cope with their work load. The Competition Commission has offered helpful recommendations, but they do not address the key issue of the need for partnership. Indeed, the Government’s strategy for buses is unclear. I hope that the Minister will offer some reassurance that he has a positive policy for buses and that there is more to Government policy than funding cuts and voluntary initiatives. Millions of bus users across the country deserve better.

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[Norman Baker]

That is not fair, and I have already listed some of the extra money that the Department for Transport has made available to help buses. In a moment, I will go on to what we are doing. Moreover, many councils are not making cuts, which demonstrates that there is flexibility. Some have chosen not to make cuts, although there have been reductions across the patch, not only in local councils but in Departments. I do not wish to rehearse the Budget position, but there was a general recognition that reductions in Government expenditure were necessary. Indeed, the hon. Lady’s party was also committed to a large swathe of cuts had it been returned to power in 2010. In the Department for Transport, we are doing what we can to protect bus services, and I hope that local councils have the same objective—some appear to be discharging it well, others less so.

We are doing our bit to help, and we remain committed to supporting local bus markets through direct operator subsidy, through DCLG funding of local government and through our targeted investment packages. That includes £70 million on better bus areas, which was a bolt out of the blue and a windfall that the bus industry was not expecting, with more to come for those places that successfully apply for full devolution of bus subsidy. That also includes around £200 million in capital funding for major projects in Manchester, Rochdale, Bristol and elsewhere, and many of the 96 projects made possible by the £600 million local sustainable transport fund, which is a brand-new Government initiative and provides a major increase in spending on sustainable transport compared with that of the previous Administration.

Many of the 96 projects include improvements related to bus services. In addition, I recently announced a further £20 million for a new, fourth round of the green bus fund, on top of the three previous rounds worth £75 million. Many of those buses will be built in Britain, helping British manufacturing and jobs as well reducing our carbon impact from buses. Such funding, therefore, is not insubstantial and not a bad deal for the bus industry. It comes in spite of the tough financial climate and the need to reduce the structural deficit.

As I have made clear before, however, with such significant amounts of public expenditure invested in the bus market, it was only right for us to consider whether it has been delivering the best service for bus passengers and best value for the taxpayer. That is why we are engaged in a series of reforms to facilitate competition and to increase local accountability for spending on bus services. We are reforming how bus services are subsidised, providing guidance on ticketing and tendering for contracts, and making regulatory changes to encourage more on-the-road competition where the market supports it.

On bus subsidy and the reform of BSOG, I am considering the response to last year’s consultation and will have final proposals before Easter. That will include the treatment of areas where quality contract schemes are planned, which is clearly and understandably of interest to the Committee. Guidance for local authorities that wish to apply for better bus area status will be out later this month.

[Mrs Ellman]

I am trying to interpret the Minister’s welcome comments. Is he saying that he will be able to give a clear answer about whether local authorities could secure public support for embarking on statutory partnerships?

[Norman Baker]

That issue was raised at the Select Committee, to which I gave evidence, and it has been raised again today. Local councils want to understand the relationship between better bus areas and quality contracts; that is fully understood. I will not give a definitive answer today. The matter has been subject to consultation, as the hon. Lady knows. The responses to the consultation are being carefully considered, and I will discuss those matters with my ministerial colleagues in the Department for Transport, but I accept the need for clarity, and I intend to provide that so that everyone knows where they stand.

I am pleased to note that, by and large, the Committee’s key findings and recommendations complement and support the coalition Government’s policies that were set out last year in “Green Light for Better Buses”. I have a lot of time for the Chair of the Committee, but I thought she was uncharacteristically unfair when she said that there needed to be more to our policy than funding cuts. That was a gross distortion, and failed to note the direction of travel that is clearly set out in “Green Light for Better Buses” and our proposed changes to funding arrangements. That constitutes a policy that we believe will help to deliver better arrangements for our buses. Combined with our response to the Competition Commission, it sets out a clear policy. The hon. Lady may disagree with it, but it is a clear policy. In fact, the Committee’s findings suggest that she does not disagree with much of it.

We have made it clear that partnership is a highly effective way of delivering quality, affordable bus services, and I welcome the hon. Lady’s endorsement of partnerships as a good way forward. Our better bus area proposals are indicative of that. The purpose of such areas is to ensure that councils and operators work together, because that is more successful than a council wanting to drive forward policies, perhaps for good reasons, when the bus industry is not interested. Similarly, if the bus industry has good ideas, but a council is unresponsive, those ideas will not be delivered. The proposal to financially incentivise two groups of people to come together is entirely sensible, and can only work to the benefit of the public.

We will support the integration of services when that is in the public interest, and we will encourage the roll-out of smart, multi-operator ticketing. We will monitor local authorities as they develop their partnership agreements, liaising with the Office of Fair Trading when necessary—the Chair of the Committee made this point—to ensure that competition law does not become an insurmountable barrier to sensible service improvements.

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[Mrs Ellman]

It is a pleasure to serve under your chairmanship, Mr Bone. I thank the Minister for his full response. I note his positive approach to many of the issues that have been raised, and I acknowledge the positive support that he has given the bus industry, in so far as he has been able to do so within the constraints of Government policy. I look forward to pursuing these issues and particularly how we can enable local authorities that wish to become involved in statutory partnerships to do so. The Committee will pursue these issues further. I thank the Minister for his positive approach.

Question put and agreed to.