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Transport: Bus Industry

Volume 721: debated on Tuesday 2 November 2010

Question for Short Debate

Tabled By

My Lords, I should declare two interests: I am a concessionary bus pass holder and a regular bus user—I come 13 miles each day to the station to catch my train.

The issue that currently concerns bus operators the most is receiving fair compensation for the costs of concessionary fares. Any consideration of this issue must take account of the fact that, in 2012, the bus service operator grant will start to fall. Also, the reduction in local authority bus budgets will take effect next year, at the same time as the new arrangements for concessionary fares come into effect.

The consultation document about the future funding of concessionary travel, which the Government published in September, asks for very prompt responses, by 11 November, with a view to guidance being issued to local authorities by 1 December for implementation in April. That is going some, given that guidance often takes something like a year and a half to emerge.

The research was carried out by the Institute for Transport Studies at Leeds and is extremely theoretical. Understanding the consultation document and the supporting paper is well beyond the capability of the smaller bus operator. The report is based on survey data collected in August—not the best month for a survey. I shall give your Lordships a few extracts from it, because, in my view and that of the bus industry, they are almost incredible. For example, on the impact on bus passengers, it states:

“No direct impact from changes in reimbursement guidance or regulations. Potential disbenefit from small reduction in services and/or higher fares if operators respond to lower reimbursement rates”.

Well, operators are bound to respond to lower reimbursement rates. It continues:

“The assessment of the impact of the preferred option is particularly sensitive to assumptions about how the new guidance is applied and the reaction of operators (in relation to fares and service levels)”.

Well, obviously. If you reduce the money going into the bus industry by the amount proposed, there will be a reduction in service levels.

The research talks about the ongoing effect of the reduction in bus service operator grants. I shall quote one more paragraph—there are 35 pages of it, and it is in very small type:

“As noted in the main body of the impact assessment, it has not been possible to model the impact of changes to the concessionary travel guidance on service levels and fares”.

That is in the paragraph headed “Rural proofing”. I really believe that the changes have not been rural-proofed.

If the proposals as outlined in the document go ahead, bus fares will rise and, more importantly, services will be reduced, hitting both concessionary travel and fare-paying passengers. The scope of services—the length of the day or the length of the week that they cover—will be reduced. Jobs will be lost both within and outside the bus industry.

Mr Iain Duncan Smith was reported recently as saying, “Get on a bus and get a job”. That would be all right if there was a bus to get on. In 10 years, one rural bus operator has created 280 jobs in his area of operation, which has little other local employment. There will be real and lasting job losses as services are withdrawn. How much practical consultation has taken place with smaller, independent operators? Does this really matter to the Department for Transport? One might say that the documents are considering the formula isolated, comfortingly, from the real world. However, the TPPs published for rural areas call, as we heard during the previous debate, for greener travel arrangements and less congestion. Most of the people with whom I travel on the bus, as I do regularly, would rather see a good service maintained and make a contribution themselves to the concessionary fare support—say, a flat rate of £1 a journey. They would rather do that than have a worse service or no buses at all, because if there is no bus to take you where you want to go, what is the use of a free bus pass?

The bus service operator grant has been reduced because the Treasury believes that that will lead to people buying more fuel-efficient buses. I have been involved in the operation of the bus service and I know of no operator that buys vehicles that are not fuel efficient. However, we have to bear in mind that air conditioning, disabled access and emission controls add to the weight of a bus and lead to higher fuel consumption. Soon, local authorities will have more discretion over how they disburse the reduced funds. How do we ensure that buses get their fair share of that money? There will be many other pressures on local authorities which they may consider to be more important.

I turn to the burden of regulation. The OFT and the Competition Commission are the two bodies involved with the bus industry. I ask the Minister how many inquiries each has held into the bus industry since deregulation. It will amount to tens, if not hundreds. Do those bodies appreciate the huge amount of work that they cause to the industry? The remedies that they propose are often ineffective. I cite an example where Arriva was told to sell off two of its garages in Liverpool to an outfit called Glenvale, which went bust after having run some pretty rotten buses in the mean time. The simple remedy of a traffic commissioner who is able not to accept registration of services that are predatory in nature is the obvious answer to all this interference from competition authorities.

I turn to the EC regulations. The working time directive was forced on the bus industry by the previous Government. Can the Minister give us any assurance that the United Kingdom Government will continue to resist the extension of the proposed passenger rights objective to local bus services? This matter is very active in Brussels and needs a great deal of push.

In the past five years, the bus operators have invested £1.6 billion in the bus building industry, yet orders now are scarce, as operators are not ordering buses because they believe that they will have to cut services severely—obviously, they have enough buses. The effect of this on the bus building industry is quite awful. We have to remember that this is one of the British manufacturing industries that we want to preserve.

In conclusion, I implore the Government to take serious notice of the representations of the bus industry. They still have time, particularly for those bus operators that serve rural areas, before they go ahead with the proposals for the reimbursement of concessionary fares.

My Lords, local bus services have three essential economic and social functions: they get people to work and education in support of economic growth; they help to reduce congestion and carbon emissions; and they improve social inclusion for those without a car by providing them with links to local services and access to work and leisure. However, there is a conflict today between the important role that bus services play and the unregulated way in which they are operated outside London.

Bus services here in London are wonderful. I am impressed by their frequency, the reasonableness of the fares, the newness of the vehicle fleet and the wide range of routes which extend access and availability. While commercial operators do a good job in some other parts of the country, the overall picture is nevertheless mixed. Investment in modern, cleaner and more accessible vehicles varies from region to region, as does the extent of networks, reliability of services and maintenance standards. I regret in particular that there is no public service obligation on bus operators as there is on other public utilities. Unlike a domestic electricity or gas supply, a neighbourhood’s bus service can be cut off at 56 days’ notice, without consultation, by its commercial operator.

The context today is one in which bus services will come under greater strain in the years ahead as a result of the reductions in public spending, as 47 per cent of bus company income is derived from national and local government in various grants and subsidies that now amount to some £2 billion. As this is reduced, there is a real danger that services will decline in some areas. This is already the case with shire counties cutting the number of routes that they subsidise. As examples of cuts to bus services starting to take effect, North Yorkshire County Council is consulting on plans to save £600,000 by withdrawing its subsidy for evening and weekend bus services, and Durham County Council has been consulting residents on which of the bus services that it subsidises—20 per cent of all routes in the county—it should cut as it seeks to reduce spending.

According to Spending Review 2010, the 20 per cent reduction in bus subsidies paid directly to operators will save over £300 million by 2014-15. That, coupled with a reduction of 28 per cent in overall local authority funding over the next four years, will inevitably put pressure on to the subsidy system. In addition, the special grant top-up for concessionary travel funding is being withdrawn and, from next April, that funding will be subsumed into the formula grant alongside the rest of the funding for concessionary travel.

It is interesting to note that the total cost of subsidising bus services has grown since 1986 from £850 million to around £2 billion. This subsidy includes bus service operators grant, public transport support and concessionary fare reimbursement by local authorities. There is now a very real danger of a salami effect on bus services, with bus companies withdrawing their own marginal routes as the bus service operators grant is reduced at the very same time as councils are forced to reduce subsidised routes. This attrition of an essential public service must be curtailed, given that in the UK the total number of bus trips today is still twice the number of rail and underground trips.

So, what should we do? Local authorities need to be encouraged to look at new models of service delivery, including forming strategic partnerships with operators and introducing quality contract arrangements with local franchises offered to a single operator in a particular area. As part of that, the Government should ensure that local authorities and passenger transport executives retain the powers to determine how bus services are delivered in their communities, using the full powers of the Transport Act 2009, and are incentivised to do so, where possible, by secondary legislation and government guidance.

Under quality contract franchising, private sector companies would be invited to bid to operate a specified network. Once a company was appointed, it would face no on-road competition and would be free to concentrate on developing the local market for bus travel. With franchising, you get what you are prepared to pay for, but a market testing exercise by passenger transport executives has shown that, even with the existing level of public subsidy to the industry, franchising should provide a better network than currently exists. At a minimum, those networks would be: more stable, with less frequent changes to fares, times and frequencies; possibly more reliable, because services would be monitored and good performance would be incentivised; better integrated, with one brand, one network, one ticket and simpler fares; and cleaner, because dirty old buses would be sent to the scrapyard and contracts would require bus operators to provide newer, cleaner buses and to maintain them to a high standard.

If in time more resources became available, whether from national government or from the local authorities themselves, quality contracts could be used to make a further step change with more state-of-the-art low-emission or no-emission buses. Fares could be simplified and held at current levels, or even reduced. The network could be made more accessible more quickly by making every bus low-floor, with easy access for wheelchair users. New services could be added to help link people to vital destinations like jobs and hospitals. More buses could be provided in rush hours to help reduce traffic congestion. This would all help reduce car dependency, improve air quality and contribute to the quality of the environment.

We should note that franchising of services, with the public sector specifying and regulating and the private sector delivering, is now the norm in the rest of public transport provision in Britain and across Europe. It is time that it became the norm with our bus services. Indeed, a growing number of bus operators, particularly those who have forged a good reputation in providing franchised public services at home and abroad, are supportive of franchising proposals. For the private sector, the advantage of franchising is an open, competitive framework and a long-term and stable return on investment with which they can invest in new vehicles and build customer numbers. Those in the private sector know that bus ridership can be increased because latent demand exists, and that is what has to be generated.

We can see from Transport for London how ridership can be increased. First, in the 20 years from 1986 when bus services outside London were deregulated, bus patronage in urban areas has declined by 46 per cent, while London has seen bus patronage increase by 81 per cent. In the past year, while ridership dropped 3 per cent outside London, London’s buses saw 0.5 per cent growth. Secondly, in the same period bus fares in urban areas have increased by 94 per cent in real terms, but in London fares have risen by just 54 per cent over the same period. Thirdly, even though local bus service vehicle kilometres fell by 13 per cent in the 10 years to 2008 in urban areas, they rose 31 per cent in London. Crucially, the higher load factors achieved in London have led to a significant fall in operating costs per passenger journey, by 22 per cent in real terms since 1985 compared with an increase of 7 per cent outside London.

It is all about generating new customers on our bus services. London has shown what can be achieved, and the rest of the UK must be empowered to follow.

My Lords, I am grateful to both noble Lords who have contributed so much to this debate already, especially the noble Lord, Lord Bradshaw, for initiating it and bringing to the issue his customary expertise and trenchant questions. I am sure that the Minister noted them carefully and will respond to them accurately in his speech, which we await in a few moments. The noble Lords, Lord Bradshaw and Lord Shipley, have identified key issues that affect and face the industry at present. I particularly liked the points that the noble Lord, Lord Shipley, made. His optimistic and constructive perspective was that ridership could increase and that, if the correct strategies were followed, we could improve bus services and see more people using them.

Like the noble Lord, Lord Bradshaw, I use a bus daily, but I am afraid that mine is a London bus. As the noble Lord, Lord Shipley, indicated, London is atypical in these terms, although I hope that it points to what can be achieved if there is sufficient commitment to increasing bus ridership and making the service efficient. In terms of efficiency, of course the quality of the buses and the hours that they run are important. We all know what dogs people when it comes to bus services. Without punctuality, people feel forlorn. They feel exposed to a position over which they have little control and one that is severely disappointing.

We all recognise why London’s experience cannot be readily translated, certainly to our rural areas, although in our major cities a great deal from London could be followed. There is no doubt that, in the example that London offers, the great success is the frequency and regularity of the buses and the knowledge that, when people go to catch a bus, one will arrive. That is important. That is why investment in the information that is available to bus passengers is of the greatest significance. After all, none of us expects to try to catch a train without some accurate information. However, people often wait for buses in much more inclement positions than they ever do at railway stations. Not even the most derelict of our railway stations fails to offer some shelter, but people using buses are often exposed to the weather conditions and wait for buses in very inclement circumstances.

The point that we need to emphasise—I hope that the Minister takes this on board—is that we are concerned with fairness, as far as support for buses is concerned, because buses are used by the less well-off in our population. It is people who cannot afford cars who travel by bus. We all remember the famous statement in the 1980s that, as far as one Prime Minister was concerned, it was only those who had failed who travelled on buses. That caused some resentment in the wider population. I am sure that that sentiment is not held by this Government today. They will be judged on the kind of services that are provided by the Department for Transport for those who are least well-off in our society and most dependent on effective public transport. The bus is of great importance in those terms. That is why the 20 per cent cut to the bus subsidy that is to be introduced by the Government is of great significance.

I have no doubt that the Minister has erected his defences well and no doubt that one of those defences is that we must wait for the Competition Commission’s report. The Competition Commission has many virtues and I am sure that we will learn a great deal from its report, but the question that we are asking the Minister is: can we wait that long? If cuts are coming that will affect bus services dramatically, significantly and early, waiting for the Competition Commission will, I am afraid, mean waiting for advice on how to plug a gap that will already, by then, be a great, tearing hole in the quality of our bus services. Therefore, I hope that the noble Earl will not erect that defence and that he will appreciate that the noble Lord, Lord Bradshaw, introduced the debate this evening because of his sense of urgency and concern about bus services, which is shared across the industry and, of course, by passengers and the wider public.

We note that Iain Duncan Smith—a Minister with significant responsibilities given present circumstances—thought that getting a job involved merely taking a bus ride from Merthyr Tydfil to Cardiff. That journey lasts an hour and the service is not particularly frequent, although it is regular. However, an unemployed fellow was featured in a television programme taking a bus to Cardiff only to find that the most desperate circumstances prevailed in terms of the likelihood of being able to land a job, given that the jobs available were so few and the number of applicants so great. If employers have a choice between employing a local person who can come in and meet their demands at short notice and someone who has an hour’s travel to get to work and an hour’s journey home, the latter has a pronounced disadvantage. Therefore, it will not do to give glib answers about unemployed people using buses to travel to get a job. The Government should think seriously about the nature of the support for the industry. I am sure that the Minister is seriously considering the proposals of the Local Government Association as regards the necessity of providing a single grant for buses. It identified where the weaknesses lie in the present situation. Indeed, the noble Lord, Lord Bradshaw, identified a very important dimension of that with regard to concessionary fares.

The LGA argues that reform is necessary. After all, we have seen the subsidy increase over the past decade by a very substantial amount. The LGA knows that money is scarce. Before the Government carry out their full depredations on the grant, the money is already pretty scarce. However, the LGA is concerned that the Government should look at the nature of the grant in different terms and think of it as a model for a single pot. I know that that proposal poses all sorts of challenges for the Minister and that it will require serious consideration. However, I make a plea from this Dispatch Box that unless he thinks radically about the way in which we organise our support for buses in circumstances where resources are so scarce, and unless clear reforms are carried through, we will see a deterioration in a service which in many parts of the country is already not good enough to meet the public’s needs, and certainly will not be good enough for those several hundred thousand of our fellow citizens who will need to be mobile in order to get a job.

My Lords, I am grateful to my noble friend Lord Bradshaw for introducing this Question for Short Debate. He made his points very well with his usual expert style, as all noble Lords would expect.

Buses provide an essential public service and improve the quality of many people’s lives, providing cost-effective gateways to work, shopping, education and leisure. The best bus networks are built on partnership. Local government needs to work closely with operators, community organisations and the travelling public to ensure a local transport network that works for everyone. Transport operators need to listen and respond to the views of their passengers.

Central government needs to provide an appropriate legislative framework that enables innovation and creativity from bus companies and provides local authorities with the flexibility to use their local knowledge to support their bus networks in a fair and logical way. The traditional bus service with a fixed timetable is not always the right answer. Flexible, demand-responsive solutions, often provided by communities themselves, can be the better, more efficient and cost-effective option.

As I am sure your Lordships will be aware, the Competition Commission is currently investigating the bus market. As an independent organisation, and thanks to its information-gathering powers, the Competition Commission is best placed to come to a decision as to whether there are features of the local bus market that prevent, restrict or distort competition. During the inquiry, the Competition Commission is looking at a wide variety of issues and evidence relevant to the assessment of competition, including the profitability of bus operators. The Government will await the outcome of that inquiry with interest and subsequently decide on whether any changes to the legislative framework for buses are needed. In answer to the question asked by the noble Lord, Lord Davies of Oldham, the Competition Commission is due to report next summer, so it is sensible to wait before deciding whether changes to legislation need to be made.

My noble friend Lord Shipley talked about the future benefits of new technology. He speaks with great authority and I will certainly study Hansard carefully tomorrow in order to pick up all his points.

One of the first things that the Government announced was an additional £15 million investment in low-carbon buses though a second round of the green bus fund. This will help bus operators and local authorities to buy around 170 new hybrid and electric vehicles. This builds on the success of the first round of the green bus fund where, in 2009, £30 million was allocated to help to buy around 350 new low-carbon buses. As a result of both rounds, by April 2012, there will be around 500 new low-carbon buses on the streets of England and we hope that this will encourage other operators to make the switch.

Contrary to some predictions, we are not calling time on the concessionary travel scheme. Instead, concessionary bus travel will remain, so that older people can continue to enjoy the greater freedom and independence that the scheme gives them. However, we are looking at ways of ensuring that we get the best value for money from the scheme. We are currently consulting on reforms that lead to simplified and more efficient reimbursement arrangements and reduce the scope for disputes between local authorities and bus operators. This will ensure that the scheme remains sustainable in the future.

The Government have consistently said that reducing the country’s deficit is our main priority. Reductions in public spending will have to form part of this. The Chancellor announced that from 2012-13 bus subsidy will be reduced by 20 per cent. While I appreciate that any cuts will be unwelcome, it is only right that bus subsidy takes a share of the cuts—and this cut is lower than for most other local transport revenue grants. However, I fully accept the point made by the noble Lord, Lord Davies, about the need for buses for the less well-off. That is precisely why we have left the BSOG in place. Following the Chancellor’s announcement of 20 October, my honourable friend Norman Baker spoke to the Confederation of Passenger Transport UK, which represents the bus industry. It was hopeful that, in general, the small reduction in BSOG could be absorbed without fares having to increase.

The Chancellor also announced that the majority of local transport resource funding will now be paid through formula grant. This will simplify funding by moving from around 26 grant streams to just four.

The noble Lord, Lord Davies, touched on the administration of funding. It is for local authorities to decide how this funding is spent according to their priorities. We have also established a Local Sustainable Transport Fund worth £560 million to help local authorities support economic growth and reduce carbon emissions. Even after the spending review, the public funding allocated to buses will remain at significant levels.

The noble Lord, Lord Davies, made important points about the importance of punctuality. He was absolutely right in his explanation. Today's passengers demand and deserve a public transport system that is efficient and modern, and that meets the challenge of using new technology. Some operators have invested in technology that can tell them the location of their buses at any given time. This gives operators a wealth of data to help deliver a good service to passengers, and sharing data brings other benefits. Sharing data with local authorities will help to identify traffic management issues that are making it difficult for buses to run to time, both on a day-to-day basis and in the long term, by benchmarking punctuality and enabling agreement on joint actions to help deliver the punctual services that passengers want. We know that real-time information can make a big difference in encouraging potential passengers to choose the bus. It certainly does for me. That is why we are supporting operators who share data with local authorities so that they can provide real-time information systems, by paying them a higher rate of bus service operators grant.

A further example of technology offering real improvements for passengers is TfL's Countdown system. This provides real-time bus arrival information for passengers throughout London, using electronic signs at bus shelters. From 2011, a new, improved Countdown will be introduced that will show bus arrival predictions for every one of London's 19,000 bus stops. As well as using electronic signs at bus shelters, it will take advantage of a range of information channels, including text messages and the web.

One of the most important technological advances towards a more joined-up transport network is smart and integrated ticketing. We want this new technology to be rolled out more widely across England, so we have provided £20 million of grant funding to the nine biggest English urban areas outside London, and have offered a higher level of bus service operators grant payment to support this. I am pleased to say that some major bus operators are in the process of rolling out smart ticketing across their fleet, but we are eager to see even more achieved, particularly in terms of integration between modes and services. The vision of my honourable friend Norman Baker is for seamless travel on one card throughout the country, whether on the bus in Bristol, the Tube in London or the Metro in Newcastle—a card that lets you hire a bike or join a car club, that can be topped up in shops, online or by phone, and that makes travel easier and cheaper.

I have several questions to answer. The noble Lord, Lord Bradshaw, asked why cuts to bus subsidies are being made. I have talked about the need to reduce the budget deficit, but the saving is 28 per cent lower than that being made from other transport revenue grants, reflecting the benefits that bus services bring to the economy and the environment, as well as the fact that many people rely on bus services to reach education and healthcare.

The noble Lord, Lord Bradshaw, also asked about consultation with small operators. Representatives of local government and the bus industry in the Reimbursement Working Group were actively consulted throughout the research process and the development of the draft DfT reimbursement guidance. The Confederation of Passenger Transport, the trade organisation for the bus industry that represents both small and large operators, was a member of the working group.

The noble Lord, Lord Bradshaw, also asked about the Competition Commission's inquiry. The commission is a public body, entirely independent of government, and all of its inquiries are undertaken following a referral by another authority, most often the Office of Fair Trading, which referred this market inquiry in January of this year. It is important to note that the commission's legal role is clearly focused on competition issues rather than on the wider public interest.

I wonder whether the Minister will pause there for a moment. The Competition Commission is very much concerned with the definition of a market in any field. The commission’s approach to the bus industry has been very narrow indeed—for example, it excludes consideration of the fact that the car is a competitor with the bus. However, I do not believe that that is logical because people often have the choice of using a car or a bus, and not bringing the two together is perverse.

My Lords, I think that I touched on the point that the Competition Commission is looking at the profitability of the bus industry. However, I will draw all the noble Lord’s points to the attention of my honourable friend Mr Norman Baker.

I return to my answer. On the other hand, this Government are committed to getting the best deal for bus passengers and taxpayers alike. With around £2.5 billion of taxpayers’ money spent on bus services and passengers each year, it is only right, as in every other area of public spending, that we should question whether the bus market is delivering the best service for bus passengers and the best value for the taxpayer.

The noble Lord, Lord Shipley, asked about quality contracts. He will know that the legislation is still in place and that local authorities are free to use quality contracts when they wish to do so. We are already seeing plans in west and south Yorkshire. We think that partnership is a better approach but, ultimately, it is a matter for the local authorities to make a decision based on their circumstances.

I acknowledge that there are big challenges confronting the industry. Beyond any question, these are testing times for an industry that matters and that makes a difference, but it is an industry that, with our support, can grow and flourish.

House adjourned at 9.12 pm.