Written evidence submitted by the Association of Local Bus Company Managers (ALBUM) (BSB0058)                                                                                                                                      

Introduction to ALBUM: membership, interests, experience                           

ALBUM represents the 'non‐aligned' sector of the bus industry. It has 156 individual members from 57 independent and municipal companies.  With 5,400 buses, ALBUM members’ fleets are equivalent to Britain's fourth largest operator.    Members' companies are locally owned and managed and are part of their community, aiming to provide good service in the interests of passengers, with profit not the sole motive.

In this response we address each of the Transport Committee’s questions and raise one additional topic.

1              Need for the Bus Services Bill

1.1              The Bill’s principal purpose is to pursue the government’s devolution agenda. It adds little to the market interventions already available under the Transport Acts 1985 and 2000 and Local Transport Act 2008.    To that extent we see little need for it.

1.2              However, it introduces new partnership concepts which we support – Advanced Quality Partnerships (AQPs: broadly existing Statutory Quality Partnerships renamed, and a new Enhanced Partnership.  It replaces the current public interest tests with new, easier to achieve, tests.   (See Section 3).

1.3              We welcome the provisions in the Bill to provide better services to passengers through the open data (See Section 6)

2              Does the Bill address the correct issues?

2.1              The political desire to control bus networks is an inadequate reason to sequester from private businesses the 87% of services provided commercially (1), at least without objective tests.   The objective of shaping bus networks to meet objectives beyond the needs of customers, can be achieved within existing legislation.     

2.2              Where local authorities and operators join together to enhance the bus operating and customer environment, people increasingly choose the bus.   We support the new partnership initiatives, but believe more could be achieved for passengers with more imaginative criteria, especially to include specific duties to address worsening congestion issues.   (See Section 3)

2.3              The Government has the right to set policy and to require businesses to adapt to the resulting environment, but not to change policy without compensating businesses left – sometimes substantially – worse off (See Section 9)

2.4              The Bill is a complex series of amendments to previous Acts which taken together will make it difficult for bus operators, especially SMEs without access to commercial legal teams, to act and trade compliantly. That cannot be good law.

3              How will AQP/EP contribute to improving services/enabling a successful commercial sector

3.1              AQP and EP do not add significantly to the range of market interventions already available.   For years voluntary quality partnerships have encouraged improvements in the quantity and quality of bus services. So long as operators and authorities enter into the spirit of the partnership, they can continue considerably to benefit passengers and local economies.

3.2              The Bill does little to strengthen the requirement on local authorities to improve aspects of service quality for which they are responsible.  All operators, including in London (regulated) and Manchester (deregulated) now record passenger loss (2) attributed to worsening traffic congestion.   The Bill places no requirement on authorities to implement measures to address this phenomenon.   Greener Journeys’ research (3) shows that:

“Over the last 50 years, bus journey times have increased by almost 50% in the more congested urban areas. If we had protected bus passengers from the growth in congestion there would arguably be between 48% and 70% more fare paying bus passenger journeys today. If the trend is allowed to continue, then our urban buses will no longer represent a viable mode of transport……a 10% decrease in speeds reduces patronage by at least 10%.”

Operators have increased fleetss and driver numbers, just to maintain the same service frequencies, reducing productivity and increasing costs to passengers. Full implementation of the 2004 Traffic Management Act would give local authorities the tools to combat traffic congestion, to the benefit of their local economies.  Not to do so is a wasted opportunity.

3.3              EPs give local authorities the power to set the routes, times, frequencies, fares, ticketing, vehicle features and branding of commercial services; but financial risk remains with operators.  This is unjust, and does not represent a partnership of equals. .   We welcome that operators can veto local authority plans, but this is not a recipe for good partnership relationships.  We welcome the establishment of an oversight Board which, to serve the community’s best interests, must not be dominated either by local politicians or operators.  

3.4              In February 2016 the Competition & Markets Authority (CMA) wrote to local authorities giving its views on how legal structures that balance partnerships and competition benefit passengers and stressing the importance of allowing bus networks to evolve:

“To ensure that a network scheme delivers long-term customer benefits it is important to allow scope for the network to evolve, for new entry to take place and for existing operators to be able to propose new services. Retaining an ongoing threat of potential competition plays an important and necessary role in motivating operators to maintain the quality of their services. It also encourages innovation by potential competitors.”

We support CMA’s comment, which applies equally to any business, providing essential social infrastructure to benefit the local economy.   Local bus operation is demand-led and the appropriate role for political involvement is to set minima, not constrain maximum services levels for which there is demonstrable demand.  Secondary legislation must, therefore, support the CMA’s intervention.

3.5              Local authorities generally lack the skill and experience to plan bus services that meet demand effectively.   Their attitude to busy, frequent bus services, which operators only run that way because there is demand, is that they constitute ‘over-bussing’.  Authorities tend to favour reducing such frequencies so as to run more buses in areas of lower demand. Rather than increasing demand, these policies reduce overall patronage. Local authorities may do as they wish in franchise areas, but we are concerned that they will use EPs to harm the commercial market.

3.6              We strongly support partnerships but are wary of those which pass planning powers to local authorities, even though operators have a right of veto.  Existing powers provide adequate opportunity for authorities to intervene in the market.  We support the Department for Transport’s Total Transport initiative in rural areas, and commend the East Riding of Yorkshire Council’s integrated application (4).

4              Appropriateness of limiting the automatic right to introduce franchising to combined authorities with elected mayors

4.1              The decision-making process leading to a move from a commercial market to a franchise must be transparent, with consultation on the principle as well as the process.  

4.2              The Bill allows authorities to make this change without consultation; they only have to consult once they have decided to proceed.  Consultation is therefore largely on the process and not the principle.   It is of the gravest concern that there is no statutory requirement to consult on the principle, even with businesses which may be closed as a direct result of the decision.  The ability for local politicians to decide on a process that sequesters business activity, leaving the cost of possible closure solely with those from whom they have sequestered,  is so significant that we believe it should be in the Bill itself, and not left for possible inclusion in secondary legislation.  We raise the case for compensation in section 9.

4.3              We see it as appropriate to limit the automatic right to franchise to combined authorities with elected mayors, so as to minimise the number of areas in which the law will allow such extraordinary behaviour. 

5              Likely effect of franchising on SMEs

5.1              The legal impact of franchising on SMEs is no different from that on any size of business, but the consequence can be greater.   It is unlikely that a multi-regional or multi-national operator will close as a result, but that is a real potential consequence for SMEs.   Once the decision to franchise is taken, businesses lose their markets and closure becomes a real possibility.

5.2              There are two scenarios for an SME.   It either wins or does not win a franchise.   In either scenario, if its pre-existing route networks falls into two authorities’ areas, with only one franchising, removing cross subsidy would impact negatively in the non-franchised area.   The resulting inability adequately to cover overheads could lead to the operator ceasing trading, with significant costs to the non-franchise authority.

5.3              If an SME wins a franchise, it will only benefit for a time-limited period.  Likely franchise contract terms will be between 5 and 10 years, but vehicle write-down usually 10-15 years, therefore reducing the incentive to invest, with consequences for the bus manufacturing industry.  This could be mitigated if the franchise authority owned and leased out the necessary fleets.

5.4              If an SME does not win a franchise, it may well be put out of business, however good the quality of its operations and its customer satisfaction. A large, multi-base undertaking will withstand such losses. Once put out of business, an SME, including some owned by local authorities themselves, will no longer be present to compete in future.  .

5.5       SMEs know their markets and consistently achieve high quality, winning operator quality awards and scoring highly in Transport Focus Bus Passenger Satisfaction Surveys.  They provide social dividends for the communities they serve: higher frequencies, lower fares, a longer service day or week than would be justified on criteria of strict financial viability (5)i.

5.6              In Hessen, Germany, the decision to franchise saw the number of SMEs in the local bus market fall by 60%, supply costs rise due to the creation of 600 additional council jobs, and drivers’ wages fall (6).  Evidence is starting to show the dice loading against SMEs in franchising schemes; Transport for Greater Manchester’s Pre-Qualification Questionnaire (7) stipulates procedures that are difficult for SMEs to meet. Inviting bids in large chunks must be avoided, as this would also preclude SMEs from competing.

5.7              The TAS Bus Industry Performance review (8) suggests a return of around 10% is necessary to provide funds for investment in an on-going business. This was achieved between 1996 and 2003, but the level had fallen to 7.3% by 2014. A review of 114 bus companies in all ownership sectors found 28% earn pre-tax profit margins of over 10% (none of which were independent or municipal companies), 54% zero of under 10%, and a significant 17% incur losses (9).  Objective analysis, therefore, indicates the industry, including SMEs, is not making excess profits.  However, ahead of the introduction of franchising operators are likely to reduce cross-subsidy which provides the ‘social dividends’, in order to minimise their costs and to position themselves to bid competitively.

6              Effectiveness of open data measures on improving bus transport

6.1              We support the Open Data provisions in the Bill.  Over time, this will open the industry to comparison websites which will enhance informed consumer choice. 

6.2              Criteria must be established for its provision and application and we trust that the secondary legislation will do so.   This must cover issues such as who owns the open data depositary, how it is operated, what data is deposited, how it is used and what is not required to be deposited.

6.3              It is  important that the means of depositing data is not unduly prescriptive, such that it may favour one operator over another simply because of their pre-existing programs and functionality.   In rural areas, government bodies define even upgraded faster broadband as only 2 mb, insufficient to move significant data files.

6.4              We are concerned that data may be deemed to be a sub-function of the registration process of bus services. It should be the other way around.   Registration is a legal obligation, but is not fully suited to information provision.  The operator of the national Traveline facility has to clean up or amend some data to fit its output streams.   Registration relates to providing data for the Regulator, whose needs should be secondary to those of the consumer, and sequenced accordingly.    The opportunity to rationalise and modernise the registration processes should not be missed.

6.5              We are concerned at the intended requirement to register digitally as the only means available to operators.   Most registrations are submitted manually, including the overwhelming number from large operators with access to the expensive tools required to submit digitally. SMEs could be effectively ousted from the market by such a requirement.

7              Basis for ban on new municipal companies especially in non-franchising areas

7.1              Only a handful of truly municipal bus companies remain in England, including such successful businesses as Nottingham City Transport and Reading Buses, compared to around 40 before 1986.    There are also multi-sector companies wholly owned by local authorities, such as Norse, owned by Norfolk County Council, which also trades in Suffolk and Medway.   Norse provides services including catering, care homes and transport.

7.2                We do not believe there is a case for new municipal or wholly-owned local authority companies such as Norse to enter the market, whether in franchise or non-franchise areas.   We believe that they can be used to significantly distort the market because of the Teckal Exemption from EU competition law (10). Further distortion of what in many areas will be a market in upheaval, or closed for franchising, is inappropriate.

7.3              If new local authority undertakings are to be allowed, it is essential that they are created transparently, as stand-alone commercial businesses, competing in an open market, and are not protected by the Teckal exemption.  

7.4              It may be appropriate to ensure that Teckal is discontinued in the Brexit negotiations and then reconsider the issue of further municipally owned bus operators.

8              Measures in Bill re ticketing schemes/new technical measures

8.1              The ability to introduce new technologies without being inhibited by legislation is a welcome outcome of the Bill.   Legislation in this area should concentrate on outputs rather than, as hitherto, inputs.

8.2              Local authorities must not have the right to interfere in commercial decisions by operators on the level and structure of fares, without specifically taking the consequential commercial risk.    Operators must be entitled to compensation for inappropriate decisions forced upon them.             

8.3              Technical measures, such as requiring the provision of information (Clause 17: new sections 141A and 143B to Transport Act 2000 and regarding the variation or cancellation of registrations (Clause 18: new Section 6C to Transport Act 1985) are acceptable provided they apply equitably across the industry.   It would not be appropriate to require technical solutions that only suited national and multinational businesses, but excluded SMEs.

9              Compensation for business closure

9.1              We recognise the right of government to determine policy and the requirement that businesses should adapt to such changes.   However, closing down a market is such an extreme measure that there has to be transparent and objective analysis of any decision that will lead to business closures.

9.2              It will be the decision to move to franchising, not the act of failing to win a franchise, that sequesters local route networks from operators.

9.3              The 2000 and 2008 Acts seek to balance public benefits and private losses by public interest tests.  The 2016 Bill sweeps these away and replaces them with tests based on public benefit derived from public funding.   Thus the 2016 Bill denies, for the first time, that there is any impact on private business.

9.4              For this reason the only equitable way to implement government policy is by compensating operators for the cost of business closure, including the difference between a company’s value as a going concern and the proceeds of a ‘fire sale’.  We therefore support the amendment tabled in the House of Lords for local authorities to be statutorily required to include the cost of compensation in their business case for franchising.

August 2016

Notes

1              Bus & Coach Statistics 2015, Table Bus0205a

2              Bus & Coach Statistics 2015, Table Bus0103; Greater Manchester Transport Strategy 2040, Table 5; TomTom Measuring Congestion Worldwide/Manchester: extra travel time at peaks, 2016: 37%, up 5% on 2015

3              David Begg: The impact of congestion on bus passengers, Greener Journeys, 2016

4              David R Boden, Thinking Totally Transport, Coach & Bus Week, 26th July 2016

5              Anthony Smith, Chief Executive, Transport Focus: Will the Bus Services Bill make a difference? Transport Times, 15 August 2016

6              Dirk Dannefield, A Lesson from Hessen: Passenger Transport, The ALBUM Report 2016,

7              Transport for Greater Manchester’s Subsidised Services Dynamic Purchasing System Pre-Qualification Questionnaire

8              TAS Passenger Transport Intelligence Services: Bus Industry Performance 2015

9              Martin Higginson: Cross subsidy and franchising/contracting, Passenger Transport, The Album Report 2016

10              Teckal Srl v Commune di Viano, Case C-107/98 [1999] ECR I-8121; Public Contracts Regulations 2006, SI 2006/5 and s2(2) European Communities Act 1972; Council Directive (EC) 2004/18, Coordination of procedures for the award of public works contracts, public supply contracts and public service contracts (OJ2004 L134 p114).

BC/MH 26/08/16