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Scottish Bus Group

Volume 134: debated on Tuesday 24 May 1988

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3.57 pm

With permission, Mr. Speaker, I should like to make a statement about the future of the Scottish Bus Group.

I told the House on 27 January that I had decided to seek powers at an early opportunity to privatise the Scottish Bus Group. I said that I was considering whether the group should be privatised as a single company or as several companies. In order to reach a decision on this matter, I appointed the Scottish merchant bank, Quayle Munro, to advise me. In the light of that advice, I have decided that the Scottish Bus Group should be privatised in about 10 units.

In reaching this decision, I have considered carefully the views of the board of the Scottish Transport Group and of its financial advisers. I have also met the chairman and the vice-chairman of the group. The board of the Scottish Transport Group is in favour of privatisation of the Scottish Bus Group, but as a single unit. However, I consider that, with 3,000 buses and providing more than half the local bus mileage in Scotland, the bus group would be too dominant to allow for fair competition with other bus companies. I have decided that my objective of introducing greater competition into the Scottish bus market would be better achieved by privatising the bus group by the method that I have suggested.

There are other important reasons for deciding to privatise the group in a number of companies. Locally based companies will be more sensitive to local needs. Management will be freer to respond to local demand on the basis of local knowledge. I am sure that employees will find it easier to identify with smaller locally based companies. An important objective of privatisation will be to give a substantial boost to enterprise in Scotland by the creation of new Scottish-based private sector companies. I hope that part of this process will be an increase in Scottish employee participation. The work force has already made it clear that it is keen to take a stake in its industry.

The detailed pattern of privatisation will be worked out in consultation with the board of the Scottish Transport Group when the companies are being prepared for sale. However, privatisation will be, broadly speaking, on the basis of the present subsidiaries, probably with a combination of pairs of subsidiaries north and south of Glasgow and adjacent to Edinburgh to provide for even competition with the public transport companies—that is, the former municipal operations.

We have already seen the benefits of competition following deregulation. There are new and innovative services. Operators have adapted to demand. Further competition will benefit the customer. What I propose will strike a balance between increased competition and stability of services. The privatised companies will be substantial bus operators with the capacity to thrive in the deregulated environment alongside the growing independent operators. They will be a valuable addition to the private sector in Scotland.

Few people would agree with the right hon. and learned Gentleman about the benefits of deregulation. It has brought wasteful competition in already congested areas, where provision was always adequate; poorer service in many outlying areas; and fares that have risen substantially faster than the rate of inflation. There is in the right hon. and learned Gentleman's statement a remarkable lack of detail, although many people will be disappointed by the decision that there should be fragmentation rather than the selling of the entire Scottish Bus Group.

I shall ask the right hon. and learned Gentleman a number of specific questions. He says that there will be about 10 units. Will they all be operating bus routes? I ask that because there is no mention of SMT Insurance, Sanderson Travel or, indeed, the Scottish Bus Group Engineering business, which is of importance. I would like the right hon. and learned Gentleman to be more specific as to what will happen to them and whether the 10 units will be operational in the way I have described.

Secondly, the right hon. and learned Gentleman puts great stress on new Scottish-based private sector companies. Will he tell the House how he intends to ensure that, when this happens, there will be Scottish ownership or Scottish control? All the evidence of the English experience shows that there will be bids from south of the border and, indeed, perhaps from abroad. What protection will be offered during the break-up and during the subsequent period? As the right hon. and learned Gentleman will remember, in England there were about 70 companies at the time of deregulation. There are now 11 dominant companies, many of which have been put together by consortia, which have recreated operations that the Government deliberately split up at the time of deregulation. What will be in the Bill to prevent that happening in Scotland?

The right hon. and learned Gentleman puts particular emphasis on scale. For example, would Stagecoach, which already has about 900 buses in operation and is made up of four English companies, and widespread of Scottish operations, be able to buy one, two or more of these new fragmented parts of the Scottish Bus Group? If Front Source, perhaps in a joint venture with Icarus or some other big international group, bought the Scottish Bus Group Engineering business, what would be the result in terms of competition?

Perhaps the right hon. and learned Gentleman could say a word or two about the key to the scheme. The key is the criterion on which bids will be assessed. Will it simply be the price offered, or will competition, service cover for the travelling public, safety standards and employee participation be taken into account?

What effect will there be on the four former municipal undertakings? Does the right hon. and learned Gentleman rule out—as I hope he does—any further restructuring of those?

Finally, there is a startling silence on the fate of Caledonian MacBrayne. Is it to be sold? Is it going out to management tender, as rumour has suggested? After all, it is a vital lifeline to the islands. It inevitably needs and deserves substantial public support. It seems to me, and I am sure to my hon. Friends, to be an unhappy and inappropriate candidate for privatisation and the so-called discipline of the profit motive. Will the right hon. and learned Gentleman tell us his intentions for Caledonian MacBrayne?

We shall look critically at the legislation. Perhaps the Secretary of State will confirm that there will be legislation before the sale of this major public undertaking, with a turnover of over £180 million and 11,000 employees. When can we expect the Bill to come to the House? What is his estimate of the windfall profit to the Treasury of this asset-stripping exercise?

The hon. Member for Glasgow, Garscadden (Mr. Dewar) began with some uncomplimentary comments about the effects of deregulation. His comments added up to assertions without any evidence. I shall now supply him with some of the evidence. Since deregulation was introduced, although subsidies for buses have been reduced from £27 million to £15 million to the benefit of the taxpayer and ratepayer, up to May 1987 the actual vehicle mileage in Scotland had already increased by 4 per cent. In Scotland, there are 16 new operators providing services and the number of vehicle miles provided by independent operators has increased by 7 per cent. On those routes now subject to competition, there have been significant fare reductions and the overall effect has been highly beneficial to the travelling bus public.

Further, the hon. Gentleman asks whether the 10 units referred to included the engineering, insurance and other minor interests of the Scottish Bus Group. They do not. Those will be privatised, but will be in addition to the operational units that I primarily referred to.

On the question of ownership and control of the bus group after privatisation, I have said that we hope that management and employees of the group will—as evidence already suggests that they will—have a great interest in acquiring ownership of a significant number of those companies. If Opposition Members say that that is a pious hope, I ask them to look at what happened south of the border. Seventy-two companies were privatised out of the NBC, 38 were the result of a management or a management employee buy-out. That is something which will also be a feature in Scotland, and I am sure will be welcomed by Opposition Members. It is something that the employees of the Scottish Bus Group welcome and something on which they should be congratulated.

The hon. Member for Garscadden asked me about the municipal PTCs and the implications for them of the privatisation of the Scottish Bus Group. The hon. Gentleman is right to draw attention to the somewhat anomalous position that they find themselves in as a result of privatisation. It is important that we consider the future of the PTCs, but I have no statement to make at present. The hon. Gentleman is right to raise that matter, because there must be implications for them arising out of the privatisation of the Scottish Bus Group.

On the question of Cal Mac, I repeat the assurance that I gave previously. I am conscious of the lifeline to island services that Cal Mac represents. We are not yet in a position to say what the future will hold for Cal Mac. I assure the hon. Gentleman that, whatever structure is finally recommended to the House, it will be one that will guarantee the present quality of service that the islanders rightly enjoy.

May I remind the House that we have a busy day ahead of us with Lords amendments? I ask the hon. Members who are rising, or will be called, to put single questions and not to repeat questions that have been asked.

Since my right hon. and learned Friend is seeking to create a number of companies, and thereby creating local opportunity, will he say whether help and assistance will be available to local management and work forces where there is interest in buying out those local undertakings? I understand that that was the case in England and Wales. Will my right hon. and learned Friend be more forthcoming in relation to the future of the local authority bus undertakings? In Lothian and Strathclyde, because of their size, those undertakings could pose a considerable threat to some of the companies that my right hon. and learned Friend is seeking to create. This point needs clarification.

With regard to the first question of my right hon. Friend the Member for Kincardine and Deeside (Mr. Buchanan-Smith), assistance was given in the form of help with advice and consultancy to management and employees in existing NBC activities, which in some cases enabled them to put forward successful bids for management or management employee buy-outs. We would wish to give at least comparable assistance to local management and work forces in Scotland.

My right hon. Friend is correct to say that the PTCs, particularly in Strathclyde and Lothian, are a substantial size. That is one of the considerations that led me to suggest that it might be appropriate for some combination of the existing subsidiaries of the SBG to be achieved so as to ensure effective competition between them and the PTCs in those localities.

In accepting that this privatisation is to take place, I say that there is some logic in the way that the Secretary of State is proposing to carry it out. However, first, I have a question about rural subsidies. Some of the units that he has said he will create will find it difficult to survive in a commercial free market.

Secondly, what protection will be given to the companies to ensure that predatory bids do not come from firth of Scotland?

I thank the hon. Gentleman for his general welcome of the structure that I am recommending to the House. Rural bus services will be in the same position as at present. Regional councils will be free, as at present, to provide a subsidy for any rural bus service in which interest was not expressed by the private sector. That is the present position and it will continue to be the case after the privatisation of the bus group.

Is my right hon. and learned Friend aware that many of us are delighted that there will be a monopoly privatisation? Will he confirm that Stagecoach, which is based in my constituency, which has done so well for the private sector and buses and which has brought down prices on so many routes, will have an opportunity to participate in the privatisation programme?

I confirm that Stagecoach has played an active part and was successful in acquiring a number of companies of the privatised NBC. Like other companies, Stagecoach will be free to make known its interests in possible subsidiaries of the Scottish Bus Group. Obviously we shall have to wait to see the extent to which that company is successful in achieving control of any individual company. I have stated that, as a general preference, we wish to encourage management and management-employee buy-outs but, as with NBC, there is likely to be a varied outcome in Scotland.

Is the right hon. and learned Gentleman aware that most people in Scotland will be disappointed that he has replaced his right hon. Friend the Member for Ayr (Mr. Younger) who, while he was Secretary of State for Scotland, managed to protect the public sector Scottish Bus Group against attacks on it by the English Tory Government when they were privatising the public sector in Scotland?

In spite of the assurances that the Secretary of State has given that he does not yet have any plans to announce to the House about the future of Cal Mac, will he assure us that if Cal Mac is privatised it will not be privatised in the way in which he is privatising the Scottish Bus Group and be divided into 10 or so independent sectors, but that he will privatise it as a group because it depends on cross-subsidisation to make it efficient?

I repudiate the hon. Gentleman's initial remarks. He will be aware that the principle of privatisation has been welcomed by the Scottish Bus Group and by the Scottish Consumer Council and other organisations in Scotland.

On the hon. Gentleman's latter remarks, I accept that any future structure recommended for Cal Mac must take account of the fact that some substantial public subsidy element must remain because most, although by no means all, of the routes serviced by Cal Mac could not operate without a significant degree of public support.

Does my right hon. and learned Friend believe that the users, managers and employees of the Scottish Bus Group will respond with interest to the challenge before them, or does he think that they will be negative in their response and follow the monopolistic, conservative and traditional route that is followed by the Opposition in trying always to defend the inefficient status quo? Is my right hon. and learned Friend an optimist or a pessimist in that regard?

The evidence so far suggests a great degree of interest by the employees of the Scottish Bus Group in enjoying the opportunity to acquire either shares in or the ownership of their individual companies. I recollect, for example, that bus drivers at the Bannockburn depot dissociated themselves from statements that were alleged to have been made on behalf of the employees and said that they looked forward to acquiring a stake in the ownership of the industry in which they worked.

Given that there will be an extensive period of negotiation following the Secretary of State's statement today, will he assure us that there will be full discussions with local authorities, especially with Grampian regional council and Highland regional council because of their understanding of the needs of rural communities? Given that the statement referred specifically to Edinburgh and Glasgow, will the Secretary of State assure us that the twin northern capitals of Inverness and Aberdeen will be involved in all discussions?

I shall be happy to hear any views that those local authorities may wish to put to us. However, most of the detailed discussion will be with the Scottish Bus Group about the details of individual subsidiaries and the form that the privatisation might take. I hope that the hon. Lady will agree that the decision to split the Scottish Bus Group into smaller units will ensure that the units serving, for example, the north-east of Scotland are likely to be more responsive to the needs of the north-east of Scotland than a single Scottish Bus Group with its headquarters elsewhere.

I congratulate my right hon. and learned Friend on bringing the benefits of privatisation, which have been experienced in England, to the people of Scotland in terms of improved services for the passenger and more work for those who supply vehicles to the industry. Will he tell the House the time scale within which he will operate and say by what date the whole transaction will have been completed?

It is difficult to give an exact date, but we certainly anticipate the possibility of introducing legislation at an early moment. Thereafter there should be no major bar to an early disposal of the individual companies.

Is it not the case that the Secretary of State is offering no guarantees whatsoever that those small companies will not be snapped up by predators from outside Scotland or even by companies such as Stagecoach, which does not enjoy a good safety record? Is it not also the case that as no such guarantees are being offered regional councils might be well advised to think twice before continuing the subsidies that they currently give bus group companies if those companies are to be based outside Scotland?

The hon. Gentleman should make up his mind. In recent months regional councils have been attacking the Scottish Bus Group for what they claim to be unfair competition against them and Strathclyde region was critical of the Scottish Bus Group in Glasgow following deregulation. However, the hon. Gentleman is now claiming that they will be upset because we are ensuring that there will not be any unfair dominance by any one unit in the aftermath of the privatisation. The hon. Gentleman is a difficult customer to satisfy, irrespective of the policy that is put forward.

I congratulate my right hon. and learned Friend on the action that he has taken. Will he take this opportunity to assure the people of Scotland that the experience of England has been that, where there is competition on routes, it is possible to run subsidised routes to meet social needs and that the overall provision has resulted in more and better bus services south of the border?

That is the experience not only of England, but of Scotland. It has been a substantial time since deregulation was introduced and, as I commented earlier, there is solid evidence in terms of the route mileage provided by the bus services and in the implications for fares that deregulation has been an almost uninterrupted benefit to the Scottish public.

The statement is deeply disappointing and worrying to bus passengers and bus workers in Scotland. What guarantee can the Secretary of State give to protect the wages and conditions of employees in the bus industry? Why did he choose to refuse to accept the advice of the management of the Scottish Bus Group?

There is not the slightest evidence to suggest that the interests of employees are better served by publicly owned bus companies than by independent operators. There has been substantial growth among independent operators, thus providing better opportunities for their employees.

As to the reasons why we did not accept the advice of the Scottish Bus Group, the hon. Gentleman should acknowledge the fact that it is in the interests of the employees and the bus industry as a whole that there should not be a single dominant company with over half the bus route mileage in Scotland because that would be very much against the interests of the employees.

Will the Secretary of State acknowledge that his failure yet again to say anything definite about the future of Caledonian MacBrayne will be greeted with dismay throughout the islands as will his failure to respond to the point made by my hon. Friend the Member for Cunninghame, South (Mr. Lambie) about keeping Caledonian MacBrayne as a single entity? Will he respond to information that I have received to the effect that if Caledonian MacBrayne were privatised it would not have access to the substantial amounts of EEC money to which it has access at the moment and that, therefore, the privatisation of Caledonian MacBrayne would be not only socially irresponsible but financially foolish?

If the hon. Gentleman was wishing to be entirely objective, he might have prefaced his remarks by recognising that this Government have given more additional support to Cal Mac during the past 10 years than at any previous time in the history of ferry services to his constituency. Therefore, the interests of the Government in the well-being of island services to the Western Isles can hardly be doubted. It is precisely because we wish to be sure that the quality of services to the Western Isles and to other island communities will be properly safeguarded by the structure that we eventually recommend to the House that it is taking longer than the hon. Gentleman might like for us to reach a conclusion. The hon. Gentleman should see that as a source of reassurance, not concern.

Would the Secretary of State care to be a little more forthcoming with the House about his economic and social strategy? Although it may be appropriate to divide the Scottish Bus Group into 10 sub-companies so that it may be digested by the financial markets, should we not consider Scotland as a whole, in economic and social terms, as a market for bus operations and to argue the case, in terms of safety, employee interests and customer satisfaction, in the face of private enterprise and various public authorities, for one integrated Scottish Bus Group, so as to have a countervailing power to preserve acceptable, publicly endorsed standards? Is not the Secretary of State running away from that in his statement?

There was no problem about whether the Scottish financial community could absorb a single privatisation of the Scottish Bus Group. After all, the Scottish Bus Group, even as a single unit, has some 3,000 buses and it would not have been beyond the wit of the financial community to absorb that as a single unit. I can therefore assure the hon. Gentleman that such a consideration did not lead to the recommendation that we are making to the House.

We were anxious to ensure a structure that was fair to bus operators throughout Scotland. I am sure that the hon. Gentleman will appreciate that the creation of a single private sector bus company with over 40 per cent. of all the buses in Scotland and over 50 per cent. of the route mileage would have been grossly unfair to all the other operators, both in his constituency and elsewhere in Scotland.

The Secretary of State has argued in favour of privatisation as a means of devolving real power and control back to Scotland. Does he not realise that, in disposing of the Scottish Bus Group on a fragmented basis, he is opening up the way for cash-rich predators from outwith Scotland to pick off the individual Scottish Bus Group companies one by one and that, far from devolving control back to Scotland, he is really facilitating that control being passed out of Scotland and into England?

On the contrary, if I were to recommend the privatisation of a Scottish bus company, and that company was then taken over by an outside owner, ownership would automatically go elsewhere. The fact that there will be a number of companies makes that ultimate outcome that much less likely and, if each of those individual companies is healthy and viable, there is no reason why they should not continue to have deep roots in Scotland. I have suggested, for example, that employee and management buy-outs are likely to occur in Scotland, as they have south of the border. That is also a way of ensuring a continuing control within Scotland and, therefore, should be welcome to the hon. Gentleman.

May I remind my right hon. and learned Friend—perhaps this is one reason why Opposition Members are seeking to shout me down—of the experience in Cleveland since privatisation? The rate has been reduced by the best figure that we are able to obtain from £4 million to £1 million. That is the sum with which the ratepayers have had to subsidise the bus services. With privatisation, we now have a saving and better services for the people of Cleveland.

My hon. Friend need not worry about the reactions that his intervention has caused among Opposition Members. We have all noticed a multiplicity of Scottish Labour Members taking part in English debates on the community charge legislation and, therefore, my hon. Friend should feel quite confident.

Does the Secretary of State realise that the irate comments by Opposition Members were due to the fact that the hon. Member for Langbaurgh (Mr. Holt) was commenting on and questioning a statement to which he did not have the courtesy to listen? As I sat through that statement, perhaps the Secretary of State will answer my question and that asked earlier by my hon. Friend the Member for Glasgow, Shettleston (Mr. Marshall) which he pointedly refused to answer. What guarantees will he give to the present employees of the Scottish Bus Group regarding their future conditions, wages and pensions? Is it not the case that he can and will give no such guarantees?

There are no guarantees that one can give to employees under the present nationalised Scottish Bus Group that one cannot give to them about the future. However, Opposition Members know perfectly well that, in every previous privatisation of any industry, the pensions of all employees have been properly protected. In each case, the Opposition have sought to scaremonger and claim that the pension rights of employees would be damaged as a result of privatisation. In every case, they have been found to be wrong in the aftermath, and the same will apply in this case.

The Secretary of State referred to the Government's record in terms of subsidies given to Caledonian MacBrayne. In future, what assurance will there be that its successor, a privatised company, will continue to receive financial assistance from the state to meet the cost of new vessels? Is it not the case that the company will require several new vessels within the next 10 years?

Today's statement is not about Caledonian MacBrayne, but I have already stated, and repeated today, that the continuing requirement for Government funding for at least part of the activities of Caledonian MacBrayne has already been entirely accepted. In many cases, those ferry services to the island communities simply could not continue without significant Government funding. As we have recognised from the start, those services are a lifeline to the island communities, and I can assure the hon. Gentleman that whatever structure we eventually recommend will take into account that important consideration.

As a Member representing a rural constituency, may I give the Secretary of State the evidence, which he obviously does not have, that deregulation is cutting services? Sunday services in my constituency have gone, as have late night services, and some services have gone completely from such places as Dailly, Dalmellington, New Cumnock and Rankinson. That is happening all over rural Scotland. How does he expect Strathclyde regional council to continue to subsidise and, indeed, to increase its subsidy for those vital rural lifelines when he is clawing back £80 million or more from its expenditure in the current year? How can it continue to subsidise those routes when this new piece of highway robbery goes through?

The hon. Gentleman knows perfectly well that, if individual routes in his constituency have ceased to operate, that was because Strathclyde regional council declined to provide the subsidy required. That is a matter within the power of regional councils. Regional councils have found that, as a result of deregulation, vehicle mileage in Scotland has increased by 4 per cent. and the subsidies that they have decided to give to bus services in Scotland have gone down from £27 million to £15 million. The hon. Gentleman might not like that, but, if he has any complaints about individual routes, he should address them to his local regional council.

The Secretary of State said earlier that he was looking for evidence. Perhaps I could invite him to my constituency when I should be delighted to meet him. I could take him to the splendid Alexander resource centre which is used by elderly and disabled people who have already experienced great difficulties as a result of deregulation. Their difficulties have not been eased because the Manpower Services Commission is withdrawing its funding from the dial-a-bus scheme. Before the Secretary of State made his statement, did he consult any organisations for disabled or elderly people, apart from the organisation that he appointed? Did he speak to anyone who genuinely represents consumers?

I look forward to meeting the hon. Gentleman whenever I visit his constituency.

Obviously my statement today was primarily concerned with the structure of the privatised industry and whether it would consist of only one company or several companies. The hon. Gentleman asked whether we had had the benefit of the views of anyone representing consumers. We did, because we had the benefit of the published views of the Scottish Consumer Council. In its submission, the council said:
"A decision to sell the SBG as a single unit would send all the wrong messages and would reverse what growing confidence there is among the smaller independent operators. A privatised monopoly of this scale could seriously undermine competition in the Scottish bus industry."
I am sure that the hon. Gentleman will welcome the fact that we are following the advice of the Scottish Consumer Council.

We all know who appoints the Scottish Consumer Council.

This proposal to decimate the Scottish Bus Group has nothing to do with the interests of passengers or employees. It is another case of public asset-stripping. Is the Secretary of State aware that we reject his selective assertions about the benefits of deregulation? Will he take notice of the Scottish majority's opposition to the thinly veiled threat that he made about the future of municipal passenger transport companies? Can he offer any credible guarantee that the privatised companies will remain under recognisable local control? For instance, will there be any safeguards in the criteria for the sale of these undertakings, or is this just another charter for predators to cream off lucrative business while public authorities are left to protect essential but unprofitable routes by subsidy? Will the Secretary of State reply to my hon. Friend's question about the timing of legislation in connection with this announcement?

The timing of legislation is not primarily for me. I can certainly tell the House that we expect early legislation about the proposals that I have announced today. The hon. Gentleman seeks to discredit the views of the Scottish Consumer Council on the ground that it is appointed by the Government and at the same time the Opposition seek to draw support from the views of the Scottish Bus Group, the board of which is appointed by the Government. Both organisations fearlessly put forward their views, which were based on their own convictions. The Scottish Consumer Council, which has not been hesitant about criticising the Government in other areas, has said that it unreservedly supports what the Government are seeking to do over the Scottish Bus Group.

The hon. Gentleman asked about the future control of individual companies in the bus group. Of course at this stage I cannot predict the degree of interest that there will be among the employees and the Scottish people about acquiring these companies. However, I do say—and the hon. Gentleman should welcome this—that on the precedents that we have available there is likely to be substantial management and employee interests. That will certainly be one way of ensuring that the individual companies retain their decision-making in Scotland.

Perhaps Scottish companies such as Stagecoach will also express considerable interest. Perhaps companies south of the border will also do so. This is a United Kingdom economy and, just as Scottish companies occasionally acquire companies south of the border, the reverse may also apply. We have said quite clearly that one of the purposes of privatisation is to provide an opportunity for the employees and the management of the Scottish companies to acquire the ownership of the companies in which they work. Whether they respond to that opportunity is clearly a matter for them. I hope that they will.

On a point of order, Mr. Speaker, arising out of the statement. You will have noticed that there was some protest when you called the hon. Member for Langbaurgh (Mr. Holt) to ask the Secretary of State for Scotland a question. You quite rightly asserted his right to ask questions of any Minister. Is it not a normal courtesy for an hon. Member to listen to a statement before putting a question about it?

That is correct and I was in error. I am afraid that I had not noticed that.

Statutory Instruments, &C


That the Companies (Fees) Regulations 1988 be referred to a Standing Committee on Statutory Instruments, &c.—[Mr. Dorrell.]