Written evidence submitted by the Go-Ahead Group PLC (BSB0029)

Background

Go-Ahead operates around seven per cent of the UK commercial bus market with services in north-east England, Brighton, Oxford, Plymouth, the south coast and East Anglia. It is also a major provider of bus operations to Transport for London. This document addresses the subjects raised by the Committee’s request for evidence, in the order asked.

1. The need for the Bill

1.1.    The landscape for bus services in England is changing as a result of several factors:

• the devolution agenda for English regions originated by the last government;
• technological innovation which is introducing new car-based competition for the bus, especially from new entrants into the emerging market for door to-door mobility services;
• the interplay between trends for increasing urban housing density and increasing road congestion;
• increasing air quality concerns in major urban areas, and other aspects of the public health agenda, including aims for increased walking and cycle use.

1.2.    These emerging factors make now a good time to bring bus legislation up to date and maintain its relevance for the coming decade.

2. Whether the Bill addresses the correct issues

2.1.    Go-Ahead supports the principles of devolved decision-making in general. However, if the main policy outcome desired from new bus legislation is an increase in bus use and better quality passenger services, then the main focus of the Bill represents a missed opportunity.

2.2.    Independent research conducted by Transport Focus[1] and confirmed by the everyday customer-facing experience of Go-Ahead’s commercial bus operations suggests that the highest priorities for passengers include the punctuality and reliability of services, journey times and value for money. All of these are directly affected by road conditions, especially congestion.

2.3.    Professor David Begg said in his June 2016 report, The Impact Of Congestion On Bus Passengers[2]:

“At the start of the research for this report it was clear that growing urban congestion was a serious problem facing the UK bus sector, but the detailed analysis undertaken revealed just how acute and crippling the problem is. It is now a disease, and if left unchecked will irreparably damage the sector.”

2.4.            From the passenger perspective, the legislation misses the opportunity to address the key issues that are preventing bus travel from progressing. Instead, the main thrust of the legislation is to address a re-regulation debate, driven by political factors arising from the previous government’s devolution agenda, and the desire of several local authorities to gain political control over the operations they sold to the private sector between 1986 and 2009 (in the case of the sale of Plymouth Citybus by the local authority to Go-Ahead).

2.5.            Competition for urban road space can only intensify as the traditional contenders of public transport vehicles, private cars, cyclists and pedestrians are joined by a new wave of expansion from local freight distribution and logistics/delivery services, and burgeoning car-based transport services. The absence of measures to mediate and alleviate this contention is an important omission in the Bill.

2.6.            For a bus passenger the identity of the controlling body is a secondary issue: what matters is whether a better service can be provided, and solutions to the congestion issue are needed to overcome the largest barriers to better services. In that regard we consider there to be a case for legislation to provide new powers to local authorities to manage congestion directly though measures such as lane rental for maintenance and construction works, constraints on private car use and other initiatives. More use of existing powers by local authorities to tackle congestion would also be both possible and welcome.

2.7.            We are further concerned at the weight of emphasis in the legislation being placed on mature technologies such as smart ticketing which have already been provided by the market.  It raises the risk that opportunities may be missed to improve today’s service and create a favourable environment for new types of service enabled by new technology.

2.8.            Also absent are measures to support continuing high investment levels in the industry. High levels of capital investment are likely to be required to enable necessary progress towards urban decarbonisation and electrification. The proposed regulatory regime does nothing to encourage the private sector to deploy additional risk capital, and may deter investors from backing the private sector at a time when substantial public sector capital investment in fleet is likely to be unavailable.  Investors accept that investments may lose value because of poor business performance, but arbitrary political risk is harder to calculate and thereby a potentially serious deterrent in a world of long life assets. 

2.9.            In the event of bus franchising it is inevitable that some long-standing operators, both large and small, will lose their access to city markets.  The cost of capital for all commercial transport operators is likely to rise if investors are obliged also to price in the resulting potential stranding of fleet and depot assets, and the costs of redundancies.

2.10.        We are further concerned with the absence of measures to limit unintended adverse consequences of experiments in re-regulation by local authorities.  These could include boundary issues affecting both urban and rural areas, and a loss of flexibility in meeting the needs of rural communities.

3. How Advanced Quality Partnerships and Enhanced Partnerships are likely to contribute to the Government’s aims of improving services for the passenger and enabling a successful commercial sector

3.1.     Go-Ahead has long supported partnership working as the most constructive form of engagement between local authorities and transport operators. For that reason we welcome the concepts of Advanced Quality Partnerships and Enhanced Partnerships as embodied in the Bus Services Bill. The legislation could be improved significantly by developing the idea of partnership as a two-way street. At present the provisions on the face of the Bill are all one-sided, i.e. requirements on commercial operations with no countervailing requirements on local authorities. Partnership working will deliver the greatest improvements when local authorities focus on elements that only they can provide, such as road schemes which improve traffic conditions, and thereby the reliability and punctuality of services. New local authority powers may be helpful in this regard.

3.2.   There are some anomalies in the partnership provisions on the face of the Bill when it comes to delivering improved services for the passenger. In particular:

• While it is clearly reasonable for a partnership scheme to set a minimum frequency for services, the scope to set a maximum frequency of service is undesirable and unnecessary, when higher frequency would directly improve the service offer.
• Powers are granted to Traffic Commissioners to cancel service registrations if a commercial operator fails to meet its partnership obligations, but there is no balancing power to sanction a local authority which fails to meet its partnership obligations. This asymmetric risk is counterproductive.

4. The appropriateness of limiting the automatic right to introduce franchising to combined authorities with elected mayors

4.1.    Passengers on commercial services vote daily, weekly or monthly with their wallets by choosing to buy those services rather than go by bike, private car, taxi or other alternatives.  Mayoral accountability provides a proxy for consumer power where the direct commercial accountability between operator and passenger has been broken by market regulation. 

4.2     The London Mayoralty has been a powerful influence in TfL’s successes, giving it political leadership, advocacy in political circles, and making a strong direct contribution to policy development.  Transport policy has been central to all credible Mayoral election campaigns. Consequently Mayors feel highly accountable for what their transport policies deliver, and TfL as the transport authority feels a very real accountability to voters via the Mayor’s mandate. In contrast, the accountability of transport officials in regional combined authorities to voters without elected mayors seems much less clear-cut.

4.3.    We therefore conclude that the elected mayoralty is a necessary and valuable precondition for franchising schemes, safeguarding consumers and taxpayers.  The elected mayor must also have genuine authority to match the political responsibility of the office, rather than being a ‘rubber-stamp’ for decisions made elsewhere within a Combined Authority structure.

5. The likely effect of franchising on small and medium operators

5.1.    Most of the likely impacts of franchising are similar in character regardless of the size of the existing commercial operator, but it is undoubtedly harder for an SME operator to assess the bureaucratic impacts and to mitigate the potential damage to existing commercial operations by moving investment to other geographical areas. In particular the burdens of pensions provision and TUPE provisions may be problematical for some SME operators, as may several aspects of the anticipated open data requirements.

5.2.    The combined effects of these requirements may in practice close markets to many operators, implying the loss of whatever value they have built up in the business over the years.

6. The effectiveness of the measures relating to open data and how these could improve the accessibility of bus transport

6.1.    All commercial bus operators of substance in England operate in an on-line environment, and provide a wealth of open data, including real-time running information, which can be accessed by the public via the free websites and mobile phone apps provided by operators.

6.2.    The information is also made available free of charge to third party information providers, enabling them to develop and maintain their own online information services.

6.3.     This information is compiled into the Traveline National Dataset. It is a comprehensive resource, includes all bus stops in the country, and is an efficient low-cost operation. For any future requirement for open data provision, it would be prudent to build on this existing successful and well proven system rather than reinvent the wheel.

6.4.    Open data of a type already made freely available by the commercial bus industry is undoubtedly an important asset to passengers and those who seek to make their lives easier through the production of apps and other travel aids. But the emergence of new global app-based car transport services blurs traditional market boundaries. Bus operators should not have the playing field tilted towards car competitors by the unintended consequences of asymmetric open data measures. Part of the licensing for car transport services in regulated city-regions should be the publication of comparable open data.

6.5.    Where authorities require additional commercially sensitive information from operators with a view to introducing franchising schemes, strict safeguards will be needed, including the following:

• Local authorities must be required to meet reasonable costs for operators to generate and prepare the information required
• Commercially sensitive information should be made available only in safeguarded conditions, i.e. in a data room and for a limited time only
• Confidentiality undertakings must be given by authorities receiving information to prevent leakage or the passage of data to third parties
• Patronage and revenue information must be limited to totals rather than route-by-route disaggregation, to discourage ‘cherry-picking’ in franchising proposals
• Measures to prevent frivolous applications for data without any real intention of implementing a franchising scheme
• Applications must be restricted to actual historical facts, rather than speculative forecasts and projections.

7. The basis for a prohibition on new municipal bus companies delivering bus services, particularly in non-franchised areas

7.1.    The commercial industry has nothing to fear from municipally owned operations which compete fairly in an economically sustainable way, but the creation of new municipal operators inevitably increases the economic risks to the taxpayer, and may lead to a disorderly market for tendered services, to the long term detriment of the travelling public.

7.2.    In an era where local authorities are finding it increasingly difficult to fund any expenditure which is not a statutory duty, there must be a question mark over the wisdom of local authorities in transferring the commercial revenue risks of bus operations away from the private sector and placing them instead on the local taxpayer. That principle affects all franchising proposals where the local authority takes the revenue risk. But if a local authority sets up a wholly-owned municipal operation the risks are magnified as a result of the large capital investments which would be necessary.

7.3.    Bus companies’ operating surpluses (operating profits) are not optional: they are necessary to remunerate the cost of capital (debt interest or dividends to shareholders). Without meeting the cost of capital there can be no continual flow of new capital investments required in renewing fleet and facilities. That is just as true for state-owned operations as for privately owned ones, unless the state-owned operation receives transfers from the taxpayer over and above the usual flows from local authorities to operators (i.e. partial remuneration for concessionary fare foregone, BSOG and local authority direct support for the operation of routes which are not commercially viable).

7.4.    Where local authorities face direct political pressure on fares and service, in addition to the commercial disciplines faced by the private sector, there must be a concern that ways will be found to maintain an attractive veneer of success in the short term at the expense of the longer term and the bigger picture. For example:

• A municipal operator may choose to run down its initial capital base by not recovering cost of capital, so that when equipment needs replacement the necessary funds do not exist within the operation. This would put them in a similar position to the Tyne & Wear Metro which has used up the service life of the light rail system in service since 1980 without accumulating adequate surpluses for the inevitably-necessary capital replacements, with the result that the local authority is now approaching the Treasury for £550 million to buy new trains, power supply systems and depots.[3]
• A municipal operator and local authority may choose to cherry-pick the most profitable routes in a region from the commercial market through franchising, undermining the ability of the private sector to maintain the wider network benefits on which the whole system depends in the longer term.

7.5.    In contrast the commercial bus sector has an enviable record of capital investment and has proven able to self-finance and maintain a flow of investment through good times and bad.

7.6.    Where a local authority creates a tendered franchised market for bus services and sets up its own municipal competitor, it is also difficult to guarantee competition on a level playing field without external scrutiny.  The existence of such a competitor with a perceived ‘inside advantage’ may well tend to suppress rival bids into what should be a fully competitive public sector procurement exercise.

7.7.    For these reasons Go-Ahead supports the prohibition on the establishment of new municipal operations.

8.   Measures in the Bill relating to ticketing schemes and new technologies

8.1.    Many of the ambitions of the Bill in relation to ticketing schemes are already effectively realised or close to delivery for the benefit of passengers. The ticketing aspects of the legislation are unlikely to advance the state of the art as experienced by passengers.

8.2.    Ticketing features currently benefiting passengers and currently in advanced development include:

• Multi-operator ticketing which Go-Ahead already participates in, within the current regulatory framework, in Oxford, Brighton, Plymouth, Norfolk and Tyne & Wear (including multi-modal fares across bus and the Tyne & Wear Metro).
• Oyster-style smart cards - Go-Ahead’s version, The Key, operates on almost all Go-Ahead’s commercial bus and rail services, used for more than 100,000 journeys a day.
• Mobile phone ‘M-Ticketing’ - Like Oyster, The Key is now a mature technology and is now rivalled by M-Ticketing, now used by more than 88,000 Go-Ahead bus passengers.
• Contactless ticketing facilities - Go-Ahead has joined the other ‘big five’ UK bus operators in committing to the provision of on all buses by 2022, in line with the UK Cards Association framework announced at the beginning of 2016[4], a recognised and impartial forum for establishing the UK-wide approach to contactless ticketing. Working with government, rail and bus operators and card issuers, acquirers and schemes, together we are developing a Contactless Transit Framework and resolving issues that can only be managed at a cross-industry level. This has been welcomed by the Government[5] and makes up part of a larger multi-modal effort which includes the envisaged elimination of paper ticketing from UK trains by 2025.
• Multi-modal bus/rail ticketing has been available since 2009 when the UK became the first country in Europe to offer an online 'one-stop shop' for the purchase of ‘PlusBus’ integrated bus/rail journey tickets. All train operators' websites now offer these integrated bus/rail fares online. This initiative was a key recommendation of the government report Door-to-door by public transport - Improving integration between National Rail and other public transport services[6] endorsed by Go-Ahead amongst the other five largest bus and train operators in the UK.

8.3.    Beyond ticketing, there is little or no support within the Bus Services Bill to pave the way for the adoption of desirable technological changes such as urban electrification to address local air quality issues, and intelligent road infrastructure, which are likely to have a significant impact on the urban transport ecosystem over the next 10 to 20 years.

August 2016

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