Bus Industry

Mike Weatherley Excerpts

Tuesday 6th September 2011 Westminster Hall

[Graham Stringer (Blackley and Broughton) (Lab)]

It is a pleasure to serve under your chairmanship again, Mr Streeter. It is now 25 years, a quarter of a century, since buses outside London were deregulated following the Transport Act 1985. We have a great deal of experience of what the implementation of the Act meant. By and large, it has been a very poor experience. It is sensible to call it a disaster for the bus-travelling public. In Greater Manchester, in the past 20 years, approximately 30% of the number of people who travelled by bus no longer do so. Bus deregulation has meant higher fares in real terms, a reduction in the networks and less reliability. It is not surprising, therefore, that the number of passengers has reduced.

I will not say that everything about bus deregulation has been awful—most of it has been. If I had to put a figure on it, it would be approximately 80%. A great deal of it has been bad. Bus deregulation has been successful on radial routes in major urban conurbations, where the service in peak times is often better than it was. The old transport authorities and county councils were guilty of having inflexible bus routes and of sending buses to where people lived 30, 40 or 50 years previously, before areas were demolished and rebuilt elsewhere. The commercial flexibility of the deregulated system has had some benefits, but overall the impact has been negative.

How does one disaggregate that from the natural trends in bus ridership in the past 25 years or so? Well, that is fairly easy because we have a precise comparison. When bus services were deregulated in the rest of England and Wales, they were not deregulated in London. Between 1986 and when the office of the Mayor of London was introduced in 1998, the regulated franchise system in London retained its passengers with very little subsidy. From the time of the election of Ken Livingstone in 1998, the number of bus passengers in London increased and the network became more extensive because a considerable increase in subsidy was put into the system. The period after 1998 does not offer an exact comparison, but the period between 1986 and 1998 offers a very good comparison. Bus passengers were retained in this city, but they were not retained elsewhere. The simple conclusion is that that is because of bus deregulation.

Behind all the statistics that I will use in my speech, there are real people. If people want to get a sense of the damage that has been done to individual lives by the loss of bus services—it affects family life and the ability to get into employment—I suggest that they read the recent Transport Committee report, “Bus Services after the Spending Review”. That report has example after example of people’s lives being blighted, their ability to obtain employment diminished and their ability to see their families reduced because bus services have disappeared.

I thank the officials at the Passenger Transport Executive Group, Sir Howard Bernstein, chief executive of Manchester city council, and his officials at Transport for Greater Manchester. They provided a lot of the statistics in this speech about transport in Manchester and transport nationally. Two thirds of all public journeys take place by bus, even after the reduction in numbers following deregulation. We are therefore talking about something that is important to many people’s lives, often the poorest people in our communities, and something that is vital to the economy.

My main point in this speech is that there will be cuts to an already reduced system. I do not want a sterile debate in which the Government say that it is all the fault of the previous Government that they are making cuts, and we on this side of the Chamber say that the cuts are too fast and too deep. Both those points have their place. What is interesting is that, because we are dealing with cuts to a deregulated system, it is possible to diminish the impact of those cuts by looking carefully at what are likely to be the recommendations of the Competition Commission, and by trying to use more effectively and directly the facilities in the Local Transport Act 2008. That is what I want to concentrate on.

To get some sense of the size of the impact of the cuts that are likely to happen, I will go through what the bus system is faced with. First, there is the 28% reduction in local authority grants, which will affect buses. Then there are changes in the formula for concessionary travel. Estimates on the impact that that will have on the bus system vary between £50 million and £100 million. The best estimate is approximately £77 million. From 1 April 2012, there will be a 20% reduction in the bus service operator grant. In passing, I say to the Minister that BSOG is not used in the most effective way. As a general grant to the bus industry it is fine—it helps. However, it would be better if it were given to transport authorities and passenger transport executives so that they could direct it to environmental improvements or particular enhancements to transport, rather than it just being given generally to bus companies.

Those are the three big areas where there will be cuts, but there is also the abolition of the rural bus grant and the 50% reduction for small and medium-sized public transport schemes from the integrated transport block. There will, therefore, be major changes and reductions in bus services in the coming years. PTEG has tried to estimate what will happen and its conclusions are pretty stark and frightening. It estimates that by 2014 fares will have gone up by 24%—nearly a quarter—in real terms, there will be a decline in service levels of 19%, which is nearly a fifth, and patronage will be down by about a fifth. That is in metropolitan areas, which is what is covered by PTEG.

According to the Transport Committee report, 70% of local authorities in non-urban areas have already cut their grants for buses and transport. My hon. Friend the Member for Hartlepool (Mr Wright) is present and I look forward to listening to his contribution later, but in Hartlepool 100% of the bus services subsidy has been removed, as is the case in Cambridgeshire, although I understand that that is currently subject to legal challenge. In Somerset, North Yorkshire, Shropshire and Northamptonshire, there have also been significant cuts, while in Luton and Peterborough there have been no cuts. The situation around the country is varied but, overall, it looks pretty bleak, given the PTEG projections for urban areas and the known cuts identified in non-urban areas by the Transport Committee.

Transport is a function devolved to local transport authorities but, I ask the Minister as the Transport Committee did, surely central Government have a responsibility, not to make local decisions but to know what is happening in every area, so that when the Government make decisions about their grants and where they spend their money, they can do so as accurately and effectively as possible, and that requires knowledge.

The Office of Fair Trading decided that it would refer the bus industry to the Competition Commission. There was already a great deal of evidence from Greater Manchester and other places that monopoly behaviour was effectively taking place. It has taken the competition authorities a long time to get around to looking into it. More than 10 years ago I wrote to the competition authorities and asked them to investigate—I was not the only person who did that—and they said, “Please produce written documentation of unlawful agreements between different bus operators.” Of course I could not do that—those documents would not be available to a Member of Parliament or anyone else, if indeed they existed—but by looking statistically at what is happening, we can see all the signs of real monopoly behaviour, and that is what the Competition Commission has found.

I will go through some statistics for Greater Manchester. In Oldham, for instance, 85% of the services are provided by First. In my own constituency the figure is about 67%, in Salford 77% and in the whole of north Manchester 70%. In south Manchester, we can see a mirror image of those figures, with Stagecoach monopolising: in Stockport it provides 82% of services, and in the whole of south Manchester about 74%.

My constituents suffer a real disadvantage in fare levels. I was told when I put my case to First that not many people buy the one-off fare, but that people buy weekly tickets. Even the weekly tickets bought from First by people in north Manchester are 47% higher—£17, compared with £11.50—than the price people pay in parts of south Manchester, where the average income is about £10,000 higher than for my constituents. So if they need to use buses, they are paying twice the percentage of their income on fares. Frankly, there is little on-road competition, which is what was originally intended to be the driver of better, more effective and more responsive services under bus deregulation.

Another indication of monopoly or anti-competitive behaviour is what in the system is called gaming the market, where bus companies use the fact that two different transport systems are in operation—the deregulated system, under which anyone can operate a bus service having given a small length of notice, and the subsidised, tendered services. In designed deregistration, the bus company is really saying, “We can make more money from this service, because it is an important service for the public, if we deregister it and then get the transport authority to tender it out.” Then, if it loses the tender, and a tendered service is running, the company reregisters the services, or parts of them, to undermine the subsidised service. An awful lot of such anti-competitive behaviour goes on.

As I said, the competition authorities were slow to get off the mark and to look at the area, but they have got off the mark, and credit to them for that. They have found that profits are much higher in the deregulated area than in London. In the past 24 hours Go-Ahead, for its out-of-London services, has just announced record profit levels of up to 10.4%.

[Mike Weatherley (Hove) (Con)]

The hon. Gentleman mentioned that anyone may enter the bus market, but does he agree that one of the faults of deregulation was that it did not create a perfect market? There are significant barriers to entry, even if one does not go through the subsidised route but sets up an independent service.

[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?

--- Later in debate ---

[Mike Weatherley (Hove) (Con)]

I congratulate the hon. Member for Blackley and Broughton (Graham Stringer) on securing this debate. Although passenger numbers are on the decline throughout the country, I understand that buses remain the most popular form of public transport. Usage is on the increase in Brighton and Hove, which bucks the national trend.

In the city of Brighton and Hove, which includes my constituency of Hove and Portslade, we are fortunate to have a good bus service. We benefit from a network of many routes, frequent buses, and well-maintained bus shelters. I pay tribute to the managing director of Brighton and Hove Bus and Coach Company, Roger French, for his excellent management of the network in previous years. Increasingly, the company has been able to make use of new technology, such as real-time information screens at bus stops and smartcard readers on buses. While that is great news for residents of Brighton and Hove, I would argue that more competition is needed to protect the interests of bus passengers in future.

The Brighton and Hove Bus and Coach Company is owned by Go-Ahead, one of the five biggest bus service providers that together account for 69% of the country’s bus services. In areas such as my constituency, where one company operates over 95% of the public bus services, not much can be done when fare rises are proposed, as will happen later this month. Passengers cannot go elsewhere to get a cheaper ticket.

More competition would go some way towards maintaining best value for consumers and continuing to keep pressure on efficiencies. As the situation stands, however, the many barriers faced by new companies that are setting up bus services effectively restrict competition. Although in theory schemes are open to all companies that wish to take part, the costs of doing so are so prohibitively high that in practice they are open only to large companies that can afford to take part. A case in point is the real-time information system. Electronic display boards are now located on most bus stops in the centres of Brighton and Hove and provide real-time information about bus times. I have witnessed at first hand the system in operation at the Brighton and Hove Bus and Coach Company’s operational centre, and it is very impressive. The system is open to all bus operators, but only if they pay substantial costs for the on-bus radio system, transponders and any necessary back-office equipment.

Some charges levied on transport companies are implemented in a way that penalises small companies. Although some charges vary according to the number of vehicles a company operates, meaning that larger companies pay more, other charges are fixed irrespective of size. Such fixed charges mean that small companies effectively end up paying a higher proportion of their income than larger ones. Charges for the registration of a public service, for example, or an application for an operating licence or a transport manager’s certificate of professional competence, are the same regardless of the size of the company or the number of routes and buses involved, meaning that larger companies can absorb the cost more easily.

In my constituency, there is a small bus company called The Big Lemon that runs its buses on waste cooking oil from local restaurants. It has been beset by problems as a result of being a smaller company, to the extent that, as I understand, it has had to submit evidence to the Competition Commission and the Office of Fair Trading in order to protect its interests and, ultimately, to prevent it from being forced to cease operations. Fare increases have recently been announced by the Brighton and Hove Bus and Coach Company, and much has been made locally of the scale of those increases. In some places, fares will rise by as much as 20% and on most routes a return fare will cost as much as £4. However, on routes where The Big Lemon is in direct competition with the Brighton and Hove Bus and Coach Company, the fare will be only £2.50. That means that passengers in some parts of the city will pay 60% more than in other areas where competition has forced competitive pricing.

The Brighton and Hove Bus and Coach Company has stated that the fare increases are being introduced to reflect the rising price of fuel. However, as the managing director of The Big Lemon, Tom Druitt, pointed out, fuel does not cost more on different routes, and the difference in price seems designed to stamp out the competition represented by the smaller company. The Big Lemon also encountered a barrier to extending competition in the city when it attempted to join the quality bus partnership. As I understand it, that partnership is an informal agreement between the Brighton and Hove Bus and Coach Company and the council, and is not open to other companies or routes at present. The Big Lemon has also encountered difficulties in publicising information and timetables. It found that priority for such matters was given to the Brighton and Hove Bus and Coach Company, with the main information about fares and timetables on the council’s website referring to services provided by the larger company. Smaller providers are mentioned and a link to their websites is provided, but the main emphasis is on the Brighton and Hove Bus and Coach Company. That situation could easily be rectified at no cost to the taxpayer, and it would encourage competition.

The attitudes and actions that I have mentioned are obstacles to increasing competition. If one small company has encountered such difficulties, how many more companies are experiencing problems around the country? Bus companies that benefit from large Government subsidies naturally have an advantage that small start-up companies do not have. In my constituency and across the city, the Brighton and Hove Bus and Coach Company receives a large subsidy from the city council—money that would make a huge difference to small operators such as The Big Lemon. There is a compelling argument that we should encourage the distribution of subsidies on so-called loss-making routes towards new, smaller, innovative companies, thereby increasing competition and benefiting passenger choice and transport quality in Brighton and Hove and beyond. As councils do not have direct control over the fares levied by bus companies, that is one way in which greater competition in bus services could be encouraged.

As mentioned earlier, there are other ways in which the council could assist in making the market more competitive such as providing fair website information and the quality bus partnership scheme. In summary, I would like to see measures implemented that are focused on delivering sensible competition and a code of practice that would put new operators on a level playing field, thereby reducing barriers to entry in the market.