To ask Her Majesty’s Government what steps they are taking to support the bus industry during the current economic situation.

First, I want to pay tribute to the bus workers in large parts of the country who have maintained services this week. While that was not the case in the capital, in Oxfordshire, from where I have travelled to and fro this week by bus, the conditions have been awful but the buses have run. Those concerned need to know that people are grateful. I should also declare an interest in that the journeys I made were as a concessionary fare traveller. I want to deal with several issues, but my noble friend Lady Scott will deal entirely with concessionary fares. We would perhaps all agree that they are not satisfactory.

I want to speak first about the bus service operators’ grant, known as fuel duty rebate. The Secretary of State has announced a review of the basic principles of BSOG to encourage fuel efficiency, low carbon buses and the like. It is probably a very blunt instrument for achieving that aim. With the use of modern buses, fuel consumption goes up. That is because when air conditioning, for instance, is built in, more fuel is burned. That does not mean to say that the operator is running inefficiently; it means that he is meeting other requirements. We must also bear in mind that almost all bus engines are derived from lorries, because the bus market is small compared with that for lorries. There is therefore little scope for the bus industry to specify exactly what it wants because in so doing it would substantially raise the cost of new engines.

We must also bear in mind that no operator wishes to waste fuel. I have heard people saying that the big companies are running buses around and making profits, but I do not believe that those which are profitable want to waste fuel. It is a large part of their production costs, fuel, wages and insurance being the main ones. However, I draw the Committee’s attention to the fact that fuel consumption varies from place to place. I have figures showing that the network in Liverpool averages 6.82 miles per gallon, whereas that in north Wales averages 9.36. So the amount of fuel burned depends very much on the terrain in which one is operating. Of course, the advent of free travel for older people has meant that many buses spend a great deal more time stationary. More people are getting on buses more slowly, and while the buses are stationary they are still burning fuel.

I want particularly to ask the Minister whether the consultation on the bus service operators’ grant is technically well informed about what they are asking for and what is possible. Will he also disabuse those people in other departments who seem to think that this is a free good handed to the bus industry, when in fact it facilitates the provision of bus services that are enjoyed by large numbers of people?

I turn to congestion, which everywhere gets steadily worse. At one stage—I go back a long time on this—there were proposals to introduce some form of road pricing which would inhibit the use of vehicles in towns, but that has not happened. As regards the general decriminalisation of parking, in some places parking enforcement might be a bit draconian but in the majority of places it is non-existent. Again, the effect on buses and bus users is severe. Have the Government any proposals, other than those in the Traffic Management Act 2004, to improve the way in which we deal with congestion? As it gets worse, and it assuredly will, bus operation will become more expensive. Not only will buses burn more fuel but more buses and more drivers will be used to provide a worse service, which is the opposite of a virtuous circle, whatever that is.

I draw attention to the situation in Newport not because I expect the Minister to answer for his colleagues in the Principality but because I should like to know the Government’s attitude towards bus priority measures that have been put in place with government grant. I am not talking about bus priority measures that local councils implement but those which the Government have grant-aided and which a council subsequently decides to remove, perhaps following a change of Administration. I am sure that some bus lanes have been put in the wrong place or turn out to be the wrong length but it is a bit like a council asking the Government for money to build a school and deciding subsequently, following a change of Administration, to knock it down or close it. However, once you take out a mortgage on a house you cannot opt out of it unless you put the money back within a few years. Therefore, government grants made to local authorities for properly researched schemes under various pieces of legislation should not be capable of being abrogated by a new Administration unless the latter is prepared to pay the relevant costs. The noble Lord, Lord Snape, will no doubt remind me that the Liberal Democrats have not always been as progressive as they might have been in this respect. Perhaps the noble Earl, Lord Attlee, will comment on the Conservative Party’s attitude to these schemes. However, I feel that where millions of pounds are being spent we need some different rules.

The EU Commission’s proposal to regulate the rights of passengers in the bus and coach industry is a very serious matter. The Minister was not in the department when the new drivers’ hours regulations were introduced, which bore very heavily on rural operators. I do not believe that officials in the department took notice of what many bus companies said would happen as a result of that. The regulation concerning the rights of bus and coach passengers is much more onerous and will lead to greatly increased costs for the industry. This week I received a document concerning the rights of passengers on inland waterways, which mentions the creation of 12,000 to 14,000 new jobs. As I understand it, these are not jobs for people sailing the ships but for bureaucrats administering the measure. I also understand that we are not in the business of creating bureaucrats. Giving the speaking time allotted to me, I cannot go into that measure today, but I hope that I shall be given an assurance that proper consultation will take place not just with the Confederation of Passenger Transport, which tends to represent the large operators more than the small ones, but with a comprehensive selection of operators, and that there will be a very good impact statement. As regards consultation on international routes, given my previous existence I would not like to think that includes the routes between places such as Sligo and Londonderry.

Finally, on the provision of bus services in rural areas, the way in which costs are rising and the way in which local government finance is being depleted means that the amount of money available to provide local bus services—I am talking about deep, rural bus services and not bus services between rural towns—will get smaller. What is more, it is already not very effective at improving the lifestyles of the people in those rural areas. They cannot go to work or go out for leisure. There is just a weekly shopping bus, which is not much use to the community.

In the short time available, I have raised a few issues. I hope that the Minister will be able to give the Committee some reassurance that the Government are actively considering these issues and, if not, will consider them.

I thank the noble Lord, Lord Bradshaw, for enabling us to have this debate on the position of the bus industry in the current economic situation. I should also like to endorse what he said about the efforts of bus staff over the past few difficult days. I shall make a few brief observations and will put some questions to the Minister. The bus industry is likely to feel the effects of the current economic downturn in the same way as other businesses. We do not wish to see bus services being reduced in frequency to a significant degree or routes being withdrawn, particularly as the less well-off and more vulnerable members of the community are more dependent on bus services than better-off sections of the community.

The economic downturn will have an impact on the income of bus companies and on the finances of those local authorities that are paying bus companies to run the services that the community requires but which the operators say are not commercially viable. A significant proportion of bus services are operated by a small number of large operators, which often do not seem to compete directly with each other as enthusiastically as some do with small operators. These large bus operators have become public transport operators running bus and rail services in this country, and sometimes elsewhere in the world, with varying degrees of success.

If a situation is reached—the operative word at the moment is “if”—where bus operators say that they cannot continue with current service and route levels without more financial support from either or both the local and the national taxpayer, I hope that the Minister can assure us that he will seek clarification on one or two points before any additional money is forthcoming. A not inconsiderable percentage of bus operator income already comes from public funds through grants to provide services and through concessionary and free travel schemes, of which I, like the noble Lord, Lord Bradshaw, along with millions of others, am a beneficiary.

I hope that the Minister will resist any significant reductions in levels of service since the money that is being paid to bus operators for concessionary and free travel presumably, in part, reflects current levels of service and the patronage that those levels of service have generated. The value of the service being paid for by the local or national taxpayer risks being diminished, at least in the short term, if levels of service and routes are cut.

I hope that the Minister will also ask what bus operators have done to reduce or check any loss of business in the present climate through selective reductions in fares. Many other businesses are having to reduce prices. Some of the current bus operators were not averse in the past to significant reductions in fares on some routes in their bids to see off competing smaller operators that did not have the same financial resources. Reducing fares to attract more passengers onto their services is not an unknown policy to the current larger bus operators.

I hope that my noble friend will also take the view that the overall adverse financial position and a falling share price for the company in question, which may have arisen because of difficulties with ventures abroad and with running rail services in the UK or in the property market, should not be the basis on which to seek further financial help for the running of bus services. I trust that he will also, if necessary, consider the position of local authorities, including PTAs, which may well find that bus operators withdraw from some current routes on the grounds that they have become commercially unviable in the economic downturn, and that the only way to keep the service going is to provide a subsidy. Will local authorities be provided with any additional resources to enable them to cope with a possible increase in the number of services that they have to support?

The other possibility is that some operators may withdraw from routes, because they are less profitable rather than unprofitable, to maximise their profits in the current climate by reducing their network and concentrating on the highest revenue-raising routes to the detriment of the travelling public. The comparative lack of real competition in the bus industry in many areas could mean that if instances such as these arise, the local authority would have to provide some additional financial support, following a tendering process, if the service was to continue to be provided.

I hope that the Minister can indicate what action, if necessary, could be taken to protect and maintain bus services in this difficult climate. Presumably the Government have some money available for transport, since they will not now be spending the money that they committed themselves to providing if the recent vote on the Manchester area congestion charge scheme had gone the other way. Revenue expenditure is likely to be needed to sustain the bus network. If there are calls for more money, first, how will the Government ensure that such money is justified, and, secondly, how will they ensure that if any additional money is provided without going through a tendering process, it is used solely for the public good through the provision of required bus services when we have a deregulated market with few checks and controls?

I am sure that there are ways to address these issues if the need arises, thus achieving the objective of sustaining our present network of bus services. I hope that my noble friend the Minister can indicate the Government’s thinking on these points.

I, too, congratulate the noble Lord, Lord Bradshaw, and thank him for giving me the opportunity to participate in this debate. I endorse what he said about bus workers, particularly their efforts over the past few days. Whether bus or rail, we are good at criticising in this place and outside. We ought occasionally to pay tribute to those who get up at all sorts of unearthly hours to provide the services that we occasionally criticise.

I declare an interest as a consultant to the FirstGroup group of companies. I know that the noble Lord, Lord Bradshaw, said earlier that he was going to leave the subject of concessionary fares to his colleague, the noble Baroness, Lady Scott. Without pre-empting anything that she says to the Committee, there is widespread concern throughout the country about the distribution of the global amount available for the Government’s welcome and splendid project—I am sure all Members of the Committee will agree—to extend concessionary fares. Is the Minister sure that the global amount is being properly distributed countrywide? I am thinking of parts of the country where there are perhaps a considerable number of people entitled to concessionary fares. Eastbourne comes to mind, as it is seen as a popular retirement spot on the south coast. Are we sure that the distribution of the global amount is proper and sensible and enables these services to be properly provided?

I endorse what the noble Lord, Lord Bradshaw, says about the proposed European passenger rights. I can find no other word but “bizarre” to describe some of the other proposals. Again, I am sure that the Government are doing what they can behind the scenes to prevent some of the more bizarre proposals coming into law. However, as I understand the present situation, if I get on a bus with my laptop and put it down on the seat next to me—I have to be careful what words I use, as I am conscious that words such as “fat” are not permissible in these more politically correct days—and someone of a more obese nature sits next to me and sits on that laptop, it is the bus company’s job to compensate me. If that is correct, one can think only that the number of claims will be enormous and that the number of bus services, whether publicly owned, privately owned or subsidised by the local authority so far as my noble friend Lord Rosser is concerned, will be considerably reduced if these extra overheads are to be piled on to companies countrywide.

My noble friend Lord Rosser talked about the comparative lack of competition, and he expressed understandable concerns about the impact of the current economic situation on existing, and perhaps future, bus services. I am never quite sure what certain people in this country want from bus services. If there is no competition, those running the bus services are accused of running a monopoly, and if there is competition, those for whom my noble friend speaks so ably talk about how wasteful it is. I am not sure what my noble friend’s gripe actually is. I wish that he would be a bit more specific about the problems as he sees them and as some of the people who brief him on these matters see them. I am sure that the bus industry as a whole would be grateful if these anomalies were properly pointed out, so that it could do something about them and perhaps correct them.

The noble Lord, Lord Bradshaw, spoke about the problems of the future of bus lanes. I shall not embarrass him by talking about Birmingham and the Liberal-Conservative coalition there removing bus lanes. I have a question for my noble friend. Once the passenger transport executives are altered—I have forgotten the name of the bodies that will take over from them—and their scope is widened into different parts of the country, will they be given some highway powers? The great problem at present is that whatever decisions and agreements are made between passenger transport authorities and their successors and bus companies, highway authorities have the power not only to countermand them but to remove bus lanes, as is being done in Birmingham and elsewhere.

I apologise for taking up the Committee’s time, but I hope that my noble friend can answer a couple of my questions.

I am grateful to my noble friend Lord Bradshaw for giving us a chance in this brief debate to air some of the concerns that I am picking up from colleagues in local government around the country. I would imagine that they are fairly widespread concerns.

When I first came to your Lordships’ House, the first legislation that I participated in was the Transport Act 2000, which introduced concessionary fares. At the time, we on these Benches suggested that it would be a good idea to have a national scheme rather than one that was operated on district boundaries. We were therefore pleased when the Government rather belatedly took up our idea and developed it. The concerns that I have today are nothing to do with the principle of the scheme, which is a good idea. It is clearly very successful; in fact in some areas I am being told that it is too successful and that so many concessionary pass holders are using buses that fare-paying passengers cannot get on. That is affecting the financial dynamic of the bus industry. It is successful, and we welcome that.

The problem is really with implementation, particularly with funding. It seems that the nub of the issue is the way in which the government grant, which is around £212 million, is getting to local councils. I know that the Government believe that they have a formula that deals with all the important issues, but local authorities are reporting that there are huge shortfalls. It is not unusual for there to be disparities between what local authorities believe is happening and what the Government believe is happening, but it is a testament to the complexity of local government finance that it is difficult to get to the truth of the matter and find out where the facts lie.

I tabled a Written Question to the Minister about a month ago asking for information about winners and losers. The Answer that I got back gave me only the amount that was available in quantum across the country, which was not really the information that I had been seeking. I felt a bit short changed by the Minister’s reply. Interestingly, the website TheyWorkForYou.com, which monitors these things, looked at his reply and said that it was inadequate and unrelated to the question that I had asked. I am still trying to understand why the Government are saying that there is enough and that it is being correctly distributed when local authorities are reporting quite the reverse.

The nub of the problem is that local authorities are paying for the bus journeys not of their residents but of the people who are getting on buses in their district. In my area, popular destinations such as Cambridge and Norwich, and presumably in warmer weather Lowestoft and Great Yarmouth, attract visitors for various reasons. They are paying for all the return journeys of anyone who visits their area. This is not just a tourist issue. Many towns in this country operate as hubs. We go to them to shop and to access leisure facilities and facilities such as hospitals. The host district therefore pays for the return fare of all the people who come in. Some may see that as a subsidy by town dwellers for rural dwellers.

I gather that park and ride is also an issue. If the park and ride site is within the city or town boundary, it pays for all the bus journeys of concessionary fare holders in that area, so there is a sense that there is a shortfall. My honourable friend the MP for Cambridge reports that, since last April, the city council has seen its spending on concessionary fares increase by 177 per cent, which is £1.6 million, but the extra government grant is £600,000, so it must find £1 million. It is not easy for local authorities that have been faced for some years with making year-on-year efficiency savings to find an extra £1 million. They cannot put up the council tax because there are capping regimes and political issues around those, so their alternative is to cut spending. Usually that falls on the transport budget, which may mean that where bus companies operate services that are subsidised by local authorities, the local authorities may withdraw the routes. The noble Lord, Lord Rosser, referred to the fact that if bus companies withdraw services, the local authority will probably be unable to step in and sponsor the services as they have done before because there is simply no money left in the budget.

The margins of bus operators are also being squeezed by local authorities that are trying to negotiate the contracts down, so there is a vicious spiral of decline. The result is that we may have a very successful concessionary pass scheme but fewer buses on which to use them. That is in no one’s interests, and certainly not what the Government are seeking to achieve. This issue does not affect every council. There are clearly winners and losers, but the winners get a windfall. However, they keep quiet about it and it gives them no incentive to improve the bus services in their areas. Some of the losers are in big trouble. I am told that there is a £500,000 shortfall in Oxford, £1.5 million in Norwich and £1.7 million in Chesterfield. These are very large sums of money, so will the Minister say a little in his reply about how these sums are calculated and the negotiations that are going on with local authorities to try to understand better what the situation really is and how it might be dealt with? Will he also say whether, in the long run, the Government have plans for a central reimbursement scheme? If they did, instead of large amounts falling on a few local authorities, the money could be smoothed out across a number of local authorities and would be more manageable.

I have a question for the Minister about verifying the use of concessionary bus passes and the issues that have arisen in connection with this. The issues are, by their nature, anecdotal. One hears reports about people being given tickets for destinations that are much further than they are travelling—that does not matter to the passenger, but it matters in terms of the amount of money that can be claimed back—or that phantom passengers are somehow generated on certain journeys. Given that this is public money, what do the Government believe is the correct level of supervision on the ground of the scheme that is being run?

In addition, what happens about sanctions if bus operators are found to have abused the system? I look forward to the Minister’s reply. I reiterate that this issue gives local authorities considerable concern and they would appreciate some assurances from him.

I, too, am grateful to the noble Lord, Lord Bradshaw, for introducing this Question for Short Debate this afternoon. Given its importance, I am surprised that we have been joined by only the noble Lords, Lord Rosser and Lord Snape, from the Back Benches.

Noble Lords are right to praise the efforts of bus crews in maintaining services, particularly drivers who have to make difficult decisions about whether to keep operating their buses in difficult conditions. If it all goes horribly wrong, they can find themselves in serious difficulties.

I shall not pretend that I could do a better job than the Minister, principally because I do not think I could, given his track record. However, having seen a lot of briefing on the subject, it was difficult to avoid coming to the conclusion that I was looking at a bit of a mess. Worse still, it is unlikely to be fully unscrambled before the next election.

The noble Lord, Lord Bradshaw, talked about fuel consumption and the BSOG. Most of what he said made a lot of sense to me and interested me, but I shall not cover it. The Question posed by the noble Lord, Lord Bradshaw, relates to the economic situation. He is right to ask it, but I am sure that he appreciates that all sectors will be affected and it might be difficult for Government to provide support to one sector but not to all the others. On the other hand, it would be a good start to attempt to rectify some of the mistakes that have been made. Furthermore, we do not know how bad the economy will become, although there is little doubt that it will be bad enough.

A personal friend of mine in the bus industry said that his business has already experienced a noticeable reduction in turnover. On the other hand, there may be some good news and some increase in patronage when some find that they cannot afford to run a car any more. Of course, all noble Lords will recognise that our problems are only just starting.

In addition to a reduction in passenger revenues, there are other problems related to the economic situation. The first problem is the cash flow and finance problems affecting relatively small operators. If they cannot finance their businesses, they may have to cease trading, even if their operations are profitable. The second problem is that the major automotive components and systems of a bus are often made in the eurozone and even in the United States. Therefore, the cost of spare parts and even new vehicles is increasing rapidly with the unfavourable exchange rate. Before noble Lords tease me about joining the euro, let us see whether the eurozone states can avoid severe social unrest due to an inability to adjust their interest and exchange rates.

My briefing covers concerns about the bus service operators’ grant, the EU Commission's proposal for the directive on passenger rights, covered by the noble Lord, Lord Bradshaw, and, of course, the quality contracts issue. I share some of the concerns expressed by the noble Lord, Lord Bradshaw, about the EU directive. We have to get it right.

Like the noble Baroness, Lady Scott, I intend to concentrate on the extension of the concessionary fares scheme so that all eligible people will be entitled to free off-peak travel. We on these Benches support the scheme, although it will be some time before I can benefit from it. Compensation to the operator will be met by the local authority in which the journey began and will be funded by a grant from the department. The noble Lord, Lord Snape, also touched on some of the problems. However, demand for concessionary travel has far exceeded expectations, resulting in increased costs to local authorities. I am being told that the grants provided by the Government are inadequate to meet the increased costs and that the guidance to local authorities on concessionary fares could be better. In addition, apparently there is a disconnect between the incidence of expenditure on the concessionary fares scheme and the distribution of the grant. The timetable is out of sync with local government budget-setting processes.

The grant is supposed to leave local councils no better or worse off, but the reality is rather different. The grant distribution system is also supposed to reflect the likely burden of cost, and is designed to direct funding towards hotspot areas such as coastal towns and urban centres. As indicated by the noble Baroness, Lady Scott, research shows that this has not been achieved, but these are the hotspots that are likely to suffer the most. In Cheshire, for example, this has caused a major headache for Chester City Council, while the other six districts appear to have done very well out of the funding, and apparently Brighton and Hove City Council is among the worst affected local authorities in the country. In addition, I am told that, in Lancashire, Preston is down by £824,000, whereas Pendle is up by £385,000. I am sure that that would please the noble Lord, Lord Greaves, who unfortunately is snowed in at home. I am also sure that he is not keeping quiet, as the noble Baroness, Lady Scott, suggested.

I am sure that the Minister will be well aware of the issues that we have raised, and I look forward to his reply. However, the situation is having a serious effect on local authorities. First, council funding for local bus services has had to be reduced to meet the unfunded cost of the new concessions, and a number of councils have had to withdraw a subsidy from socially necessary bus services for which they were previously paying. The north-east PTA has had to cut concessions to young people and students, and a large number of councils such as Basildon, Cherwell, High Peak, Medway, Chelmsford and Canterbury, which had previously offered enhancements to the statutory minimum such as extended hours of operation and companion tickets for carers, have been forced to consider withdrawing these benefits and to revert to the statutory minimum.

Can the Minister assure the Committee that fare-paying passengers are not suffering because they are left waiting at bus stops while the bus stops are full with concessionary passengers, or that operators are withdrawing services that are full because they are running at a loss? Just how will he put this right? What is his plan for making the welcome extension to the concessionary fare scheme work properly? Many noble Lords have made very good points, and I look forward to the Minister’s reply.

May I make it clear that I did not ask the Government for more money? I asked for much better administration of the resources of which they are disposing.

I declare an interest as a taxpayer with 15 more years to pay for the concessionary travel of the noble Lord, Lord Bradshaw, and I am delighted to be doing so. I am very grateful to all noble Lords who have spoken this afternoon, particularly to the noble Lord, Lord Bradshaw, for opening this timely debate. I echo the noble Lord’s tribute to all those who work in the bus industry and who give such dedicated service.

Let me start with the Government’s role in the provision of bus services. Since the deregulation of buses in the mid 1980s, government, both national and local, has had more of a hands-off role in the running of bus services. However, the Government rightly have a significant role in shaping, and where necessary subsidising, the provision of bus services; I say rightly, because we have clear duties to act on behalf of the public in this area. As my noble friend Lord Rosser said, for many people buses are the only form of local public transport available. For those without access to a car, they can be a lifeline to jobs, family and services. They are also a means of tackling congestion and promoting accessibility and more environmentally sustainable journey modes, all of which are key planks of the Government’s transport policy.

Therefore, despite the fact that the vast majority of the bus network is now provided by the private sector, we have a vested interest in ensuring that we have a healthy bus sector that provides a good quality public service. That is why national and local government provides some £2.5 billion a year to support bus services. That is up from £1 billion a decade ago. Let me stress that that funding is being sustained, not cut back, in the midst of the economic downturn. That is why we have taken the Local Transport Act through Parliament, with all its provisions to improve bus services as well.

Let me now deal with a number of issues raised in the debate: bus passenger rights, concessionary travel, the economic downturn, bus service operators’ grant, and, if I have time, Newport.

On bus passenger rights, the Government support the aim of the European Commission’s proposal to improve passenger rights, but, like the noble Lord, Lord Bradshaw, and the noble Earl, Lord Attlee, we are concerned that certain aspects of the proposal, as currently drafted, do not reflect the differences between international and local services, or that the bus and coach industry consists of a significant number of small operators that have little control over the infrastructure in which their buses run.

The proposed regulation would apply to domestic services as well as to international bus and coach services. While there is an exemption for urban, suburban and regional transport, under the Commission’s current proposal this would apply only if such services were provided under public service contracts that provide a comparable level of passenger rights to that provided by the Commission’s proposal. However, the majority of local bus services in the United Kingdom operate in an open market and so would not meet the conditions of this exemption. The Government therefore believe that the scope of this exemption needs to be reconsidered, and we will seek all stakeholders’ views, not just those of the large operators, to help inform the United Kingdom’s negotiating position when we consult on the Commission’s proposal shortly. As part of the consultation, I can tell the noble Lord, Lord Bradshaw, that we will prepare an impact assessment to guide the debate. During negotiations, we will seek to shape the proposal so that ultimately it is proportionate and realistic.

On the economic downturn, our expectation is that the bus sector will be more resilient than perhaps other transport modes. Unlike rail and aviation, the sector is less reliant on business and commuter journeys. Younger and older people make up a larger proportion of the passenger base, and their journeys are less likely to be affected by wider economic conditions. It is also, of course, an inherently flexible mode of transport, which in fairly rapid order, as my noble friend Lord Rosser indicated, can change its provision of services and its fares to reflect changing passenger demand. During the recent spike in fuel prices, for example, several operators reported a rise in bus patronage as commuters reconsidered their use of the car and chose to try the bus. Some bus operators looked to provide more luxury services to help destigmatise bus travel and persuade the commuter market to use the bus by providing services with, for example, wi-fi, leather seats and air conditioning. The public reassess their means of travel during difficult times, and the bus industry, if it is responsive and imaginative, can develop new business to offset the passengers who are lost due to economic conditions.

As my noble friend Lord Rosser noted, the profit margins in the bus sector have been relatively good. Bus-operating profits of the “big five”—FirstGroup, Stagecoach, Arriva, Go-Ahead and National Express—have generally been enjoying profit levels of more than 10 per cent in their bus divisions, and differences in profit margins between the bus divisions and group profit margins have always been positive. However, we are not complacent, and I know that times are challenging for many in the transport industry.

As was widely trailed in the press at the time, my right honourable friend the Secretary of State recently met the chief executives of the “big five” transport operators and the Confederation of Passenger Transport. Contrary to some press reports afterwards, no requests for government bail-outs or service cuts were made, but it was agreed at that meeting that the industry would keep in touch with Ministers at my department specifically on the impact of the recession on their operations.

Concessionary travel was raised in particular by the noble Baroness, Lady Scott, and the noble Earl, Lord Attlee. The introduction of free off-peak concessionary bus travel throughout England, which took effect on 1 April 2008, offers greater freedom and independence to up to 11 million older and disabled people in England. I was glad to see it so warmly welcomed in principle by both parties opposite. Funding in total to support concessionary fares for older and disabled passengers alone now amounts to £1 billion. I was delighted that the noble Lord, Lord Bradshaw, was not asking us for more as a global sum.

In order to provide for this expansion in the scheme, the Government are providing additional funding of £212 million from 2008-09, and £217 million and £223 million respectively in each of the following years. All Members of the Committee will recognise that these are very large sums. We are confident that they are sufficient in total to meet the additional costs of the new concession. I should also stress that the additional funding is being distributed through a special grant, which is precisely what local government asked us to do.

My noble friend Lord Snape and the noble Baroness, Lady Scott, asked about the arrangements for distributing the funding between local authorities and wondered whether there were iniquities in that. I stress to them and to the other Members of the Committee that the formula used to distribute the extra funding is based on the eligible local population, visitor numbers, retail floor space and current bus use. As such, it takes account of likely demand in areas such as coastal towns, urban centres and other places likely to experience an increase in bus journeys.

The noble Baroness, Lady Scott, specifically mentioned Cambridge, saying that this year it received £650,000 in special grants. I want to put that in further context. That represents a 57 per cent increase on the amount that Cambridge spent on concessionary travel in 2007-08. We believe that that is an appropriate figure, but it does not surprise me that local authorities would like more government money. If there is one sure thing about this job, it is that they always do. Of course, they will use arguments about concessionary fares to secure additional funding.

I also stress that it is for local authorities to negotiate with the bus operators to settle the rate of reimbursements. The Department for Transport provides the total amount of funding, but to some extent it is down to individual local authorities how well they negotiate. I would encourage them to negotiate effectively with their local operators. My department provides guidance to operators and to local authorities on reimbursement, and it also runs workshops to help local authority officers who are engaged in the process of negotiating to do so as effectively as possible.

Finally, in respect of concessionary fares, I stress that the current distribution is part of a three-year settlement designed to provide financial certainty to local authorities. That is an improvement on the regime that often applied previously, where local authorities were subject to annual budgets. We would not wish to reopen the three-year funding settlement and thereby create financial uncertainty for all travel concession authorities that have rightly sought to plan for the entire three-year period.

Is the Minister satisfied that the scheme is working correctly and needs no adjustment?

I am satisfied about that at the moment, yes. If the noble Earl and the noble Baroness want to provide me with specific instances where they believe that that is not the case, I will be happy to look at them. I have already responded on Cambridge. It is our belief that the scheme is working satisfactorily.

I now turn to the bus service operators’ grant to which the noble Lord, Lord Bradshaw, referred. More than £400 million goes to bus operators in that form. This covers 80 per cent of fuel duty on the fuel used by operators and is a valuable contribution towards the provision of bus services. We are currently reviewing the subsidy to bring it more into line with our wider environmental objectives. The BSOG does little to discourage fuel use, so we are considering various options to incentivise better environmental policies and to improve bus services. These include the use of more fuel-efficient vehicles, including hybrids, as well as incentivising the move towards smart cards, which we hope will help to increase public transport use by making it more convenient for passengers.

We know that the industry is concerned about these changes. The noble Lord, Lord Bradshaw, reflected its concerns and its arguments why we should maintain the status quo. I assure him that we will work closely with the industry to ensure that the changes work on the ground and help to deliver the benefits we are looking for. However, I also point out that some of his concerns are not well founded. For example, arrangements with the new scheme will take account of the individual circumstances of each operator. The target is for a 3 per cent per year improvement on that operator’s performance, given the existing starting point of that operator. It does not make arbitrary assumptions about their ability to generate efficiencies in fuel use that are not founded on their actual performance.

My noble friend Lord Tunnicliffe has indicated that I have been talking for 12 minutes. However, since nothing will go on for the next 10 minutes, if the Committee wishes, I am happy to make further remarks.

Good driver training can also help to save fuel. As part of the changes to the bus service operators’ grant, the department proposes to fund a safe and fuel-efficient driving demonstration programme to encourage fuel-efficient driving in the bus and coach sector. The trials of this training consistently show significant improvements in fuel efficiency of, on average, 10 per cent, as well as reductions in accidents.

In respect of rural bus services, as mentioned by the noble Lord, Lord Bradshaw, we provide more than £57 million a year to local authorities in rural bus subsidy grant to help them support rural bus services. That is now supporting nearly 2,000 bus services and in excess of 38 million passengers a year.

I am aware of the proposals to withdraw some bus lanes in Newport—I have read the press cuttings that were made available to me by the noble Lord—and of the concern that has been caused to bus operators in the area. Although it is for local authorities to determine how best to manage the road space in their areas, we encourage the appropriate use of bus lanes and other bus priority measures. If we are to improve bus punctuality and approve the image of the bus as far as the motorist is concerned and deal with the very real congestion issues raised by the noble Lord, Lord Bradshaw, we need to ensure that buses have a clearer run on the roads.

In respect of Newport, I understand that the Welsh Assembly Government are looking into this issue and into grants made by them to local authorities to promote bus priority. I welcome the fact that they are doing so, and I will take a close interest in the outcome.

I apologise for bringing the Minister and the Committee back to a situation in Birmingham where a bus lane, which was agreed between the passenger transport authority and the main bus company, has been temporarily suspended, in the words of the city council, for four years. Everyone knows that the city council has no intention of reinstating that bus lane. Yet the bus company concerned, of which I was chairman at the time, invested a considerable amount of money in a new fleet of vehicles on the basis of the bus lane being provided. Is there nothing that the Minister can do about that sort of situation?

I am not sure, but I am very happy to look at it in response to the concerns raised by my noble friend.

Finally, the department announced last week the start of a new Kickstart competition. We will be providing £25 million to help to pump-prime new or enhanced bus services and look forward to announcing the winners of this competition later in the year. Kickstart contributes to increasing bus patronage, improving accessibility and developing bus services as an alternative to car use. The last Kickstart round in 2005 gave £20 million to 43 new or enhanced bus services, helping to bring these schemes to commercial viability.

In short, we continue to provide substantial assistance to local authorities and to the industry to run a comprehensive bus service nationwide. That service has significantly improved in recent years. Those eligible for concessionary travel have been significant beneficiaries. I am not complacent about the challenges ahead, but even in this economic downturn we can expect to see good quality services provided nationwide.