Bus Services (No. 2) Bill [ Lords ] (Second sitting)

The Committee consisted of the following Members:

Chairs: † Dr Rosena Allin-Khan, Sir Roger Gale, Sir Edward Leigh, Dame Siobhain McDonagh

† Aquarone, Steff (North Norfolk) (LD)

† Berry, Siân (Brighton Pavilion) (Green)

† Conlon, Liam (Beckenham and Penge) (Lab)

† Dearden, Kate (Halifax) (Lab/Co-op)

Egan, Damien (Bristol North East) (Lab)

† Gardner, Dr Allison (Stoke-on-Trent South) (Lab)

† Hack, Amanda (North West Leicestershire) (Lab)

† Hall, Sarah (Warrington South) (Lab/Co-op)

† Kohler, Mr Paul (Wimbledon) (LD)

† Lightwood, Simon (Parliamentary Under-Secretary of State for Transport)

† Mayer, Alex (Dunstable and Leighton Buzzard) (Lab)

† Mayhew, Jerome (Broadland and Fakenham) (Con)

† Myer, Luke (Middlesbrough South and East Cleveland) (Lab)

† Newbury, Josh (Cannock Chase) (Lab)

Race, Steve (Exeter) (Lab)

† Robertson, Joe (Isle of Wight East) (Con)

Smith, Rebecca (South West Devon) (Con)

Simon Armitage and Adam Evans, Committee Clerks

† attended the Committee

Public Bill Committee

[Dr Rosena Allin-Khan in the Chair]

Bus Services (No. 2) Bill [Lords]

11:30:00

Before we begin, I remind Members to switch their electronic devices to silent, to send their speaking notes to hansardnotes@parliament.uk, and that tea and coffee are not allowed during sittings. I understand that we may have some people in the Public Gallery this morning who are visually impaired— I welcome them. For their benefit, as well as the benefit of others following proceedings this morning, when calling a Member to speak or to make an intervention, I will announce the Member’s name and party affiliation. I ask that Members allow me to do so before commencing their contribution. It has also been brought to my attention that those in the Gallery would like, if possible, during the break, to meet some members of the Committee. Clause 3 Specification of areas Question (24 June) again proposed, That the clause stand part of the Bill.

I remind the Committee that with this we are considering the following: Amendment 70, in clause 4, page 2, line 10, leave out “or places” and insert— “, places or Rural Bus Hubs”. This amendment is linked to NC35 and would allow rural bus hubs to be included in the specification for a franchise scheme. Clause 4 stand part. Amendment 71, in clause 38, page 41, line 23, after “England” insert— “(e) the impact, or potential impact, the establishment of Rural Bus Hubs on services to villages.” This amendment would require a review of bus service provision for villages to include an assessment of the impact of rural bus hubs, if already established, or the impact which establishing them may have on villages. New clause 35—Rural Bus Hubs— “(1) Local transport authorities may consider the construction of Rural Bus Hubs in rural areas which are, in the authority’s assessment, not sufficiently well-served by buses. (2) Any Rural Bus Hub must— (a) be a facility where bus users can park vehicles for the purposes of transferring to a bus service for the remainder of their journey; (b) be constructed outside of town or and village centres, and be easily accessible by road, cycle or walking routes and other modes of transport; (c) be on newly-developed sites or on sites which have been repurposed; (d) contain car parking, electric vehicle charging, cycle parking and other amenities as the franchising authority sees fit, at a level of adequacy determined by the franchising authority.” This new clause would allow local transport authorities to create rural bus hubs in areas to create a hub-and-spoke model of bus service delivery.

It is a pleasure to see you in the Chair, Dr Allin-Khan. At the conclusion of our sitting on Tuesday, I had begun to address the points made by the shadow Minister, the hon. Member for Broadland and Fakenham, on the role of small and medium-sized enterprises in franchising. I will briefly address the outstanding points. The Department for Transport understands that there are barriers to SMEs accessing franchise networks. That is why we are listening to the sector about how to ensure that disproportionate paperwork requirements do not hinder SME bids for franchising contracts, and that SMEs are provided with the resources to simplify bidding. My Department has also engaged directly with SME representatives through policy development and the passage of the Bill, including on additions to guidance, such as the Department’s role in facilitating pre-tender engagement between SMEs and franchising authorities. Already, as part of the consultation on a franchising scheme, an authority must make a statement about how it proposes to facilitate the involvement of SME operators when it conducts the procurement process for franchised services. Moreover, the grant-making powers given to local authorities via the Bill will allow grants to be designed to prioritise SME bus operators, subject to other competition and subsidy controls. I hope that that offers reassurance to the Committee. Question put and agreed to. Clause 3 accordingly ordered to stand part of the Bill. Clause 4 ordered to stand part of the Bill. Clause 5 Minimum period before provision of services Question proposed, That the clause stand part of the Bill.

With this it will be convenient to discuss clause 6 stand part.

The clause is about mobilisation periods for franchising areas. Existing law states that there must be a period of at least six months between the franchising contracts being made and those services first being delivered on the ground. The clause will enable franchising authorities to set shorter mobilisation periods that work for them and their stakeholders, if they wish. That will speed up the franchising process and ensure that bus passengers do not have to wait for an arbitrary period before experiencing the benefits. Clause 6 amends references to local services by inserting the words “which have one or more stopping places” in certain sections of the Transport Act 2000. That is intended to clarify that the relevant reference to local services includes cross-border services where appropriate. These technical changes support the Bill’s focus on giving franchising authorities more scope to facilitate the provision of cross-border services.

It is a pleasure to serve under you, Dr Allin-Khan. Clause 5 deals with the minimum period before provision of services can be changed. It is not a difficult clause, but it is worth going into some of the subsections in a bit more detail. Subsection (1) omits section 123H(4) of the 2000 Act, which set out that a franchising scheme “may not specify under subsection (2)(d) or (3)(c) a period of less than six months.” That meant that at least six months had to expire between the authority making a local service contract and the provision of the local service under that contract. Clause 5(2) sets out that the transition arrangements in subsection (3) apply where, before the clause comes into force, the franchising authority or authorities have published under section 123E(2) of the 2000 Act a consultation document relating to a scheme or variation of a scheme, but have not yet made the scheme or varied it. Clause 5(3) provides that when making or varying the franchising scheme pursuant to the consultation document, the franchising authority or authorities may specify a minimum period, under sections 123H(2)(d) or 123H(3)(c) of the 2000 Act, that is less than six months. Although I understand that the Minister and his Department want to smooth out some of the hindrances and streamline the system, and in principle I am supportive of that, the question that begs to be asked is: is there no de minimis period? It may be considered that a six-month period is too long, but what about a one-week period? Is that too short? As drafted, the clause does not provide a de minimis period. What would be the impact on franchise operators if there were an instantaneous change? That is a significant issue that needs to be considered, because we are dealing with operators that are commercial beasts. They have infrastructure, and drivers and staff that have to accommodate changes to these schemes, and yet the Government’s proposed changes would in theory allow there to be no notice at all. I would be grateful if the Minister could expand on the Department’s, or the Government’s, thinking on this matter. I accept that six months is itself an arbitrary time limit. Why is it not seven, or five? I accept the rationale, which is that we wish to streamline the provisions in order to make it easier for local transport authorities to undertake these changes and take advantage of some of the opportunities that the Bill provides, but it is important for it to be practical and not to have unintended consequences for bus operators and their commercial activities. Clause 6 amends sections 123E(4)(a), 123N(2)(a), 123Q(5)(a) and 123R(5)(a) of the 2000 Act. Before I go any further, it is worth reflecting that the reason why the clause is so complicated in its nomenclature is that there have been multiple amendments to the Transport Act. Although I have not researched it, some of that presumably came about through the deliberations of this House when the legislation was drafted, but there have subsequently been multiple alterations. It begs the question of our approach to legislation in this place when an Act is so often amended. It makes it very difficult, one imagines, for people and organisations—local transport authorities, in particular—to understand what their duties and legal responsibilities are. In many instances, these are not recommendations; they are mandatory requirements, with which failure to comply could lead to judicial review and the kind of lawfare that we as a society often rail against, because we feel that the Government—and by that, I also mean local transport authorities in this instance—cannot get anything done because they are being tripped up by incredibly complex legislation with poor drafting that requires multiple amendments. That is how we get to a “section 123Q(5)(a)”—but that was a slight aside. Clause 6 further amends the Transport Act by adding to all those subsections the words “which have one or more stopping places” after the references to “local services”. In itself, it is a wholly good amendment, and I am not seeking to criticise it. It clarifies that the references to “local services” incorporate any service that has a stopping place in the relevant area, including cross-boundary services operating pursuant to a service permit. However, I wonder whether this clarification was necessary in practice. I would be interested to know whether there have been any instances of local transport authorities being misled by the current drafting—I would be surprised if there had been—or any legal challenge to the current definitions that highlighted a need to clarify an ambiguity. Subject to that clarification from the Minister, I accept that there is nothing wrong with the amendment made by the clause. It is a useful clarification of the Transport Act 2000, to avoid doubt in interpretation, if, in fact, such doubt has ever existed.

It is a pleasure to serve under your chairship, Dr Allin-Khan. My party has little to say on this group. We are supportive of clauses 5 and 6, although the hon. Member for Broadland and Fakenham made a good point, and we would like to hear the Minister’s views on it.

The hon. Member for Broadland and Fakenham spoke about the removal of minimum mobilisation periods. It is consistent with the aims of the Bill to empower local transport authorities to decide how best to design their bus services, and this will be an issue for franchising authorities to determine. A minimum mobilisation period does not need to be mandated by central Government. This is something that franchising authorities will need to consider, and it is in their interests to make sure that there is a smooth transition to a franchising scheme, if that is the pathway they wish to consider. Franchising authorities will make their determinations about the duration of mobilisation periods based on numerous factors. The clause provides flexibility for mobilisation to occur in a period shorter than six months, where it is in the interests of stakeholders and passengers. As I have explained, the Government intend to update the franchising guidance following Royal Assent. Question put and agreed to. Clause 5 accordingly ordered to stand part of the Bill. Clause 6 ordered to stand part of the Bill. Clause 7 Criteria for granting service permits

11:45:00

I beg to move amendment 46, in clause 7, page 3, line 23, at end insert— “(1A) In subsection (5), omit from ‘and’ to end.” This amendment seeks to simplify the process for granting service permits by removing the requirement that the proposed service will not have an adverse effect on any local service that is provided under a local service contract in the area to which the scheme relates.

With this it will be convenient to discuss the following: Amendment 47, in clause 7, page 3, line 26, leave out “may” and insert “must”. Amendment 48, in clause 7, page 3, line 27, leave out from “there” to end of line 34 and insert “is a benefit to persons making journeys on the proposed service.” Amendment 49, in clause 7, page 3, line 36, leave out “may” and insert “must”. Amendment 50, in clause 7, page 3, line 37, leave out from “that” to “will” and insert “the proposed service has benefits to the economy of the area to which the scheme relates, or to persons living in that area,”. Government amendments 4 and 5. Clause stand part. Clauses 8 and 9 stand part.

Clause 7, which is reasonably long, introduces a number of additional tests for the granting of service permits. Subsection (2) inserts a new subsection (5A)(a) and (b) to section 123Q of the Transport Act 2000. Paragraph (a) provides that the franchising authority or authorities may grant a service permit for a cross-boundary service—this is the meat of it—if satisfied that “the benefits to persons making the journey on the proposed service will outweigh any adverse effect on any local service that is provided under a local service contract in the area to which the scheme relates.” Paragraph (b) sets out that the franchising authority or authorities may grant such a service permit if they are satisfied that “the benefits of the proposed service to the economy of the relevant area”— that is different from paragraph (a), which referred to benefits to persons taking the journey— “or to persons living in that area, will outweigh any” adverse effect on the local service provided under a local service contract. The first paragraph refers to the benefit to passengers on the cross-boundary service and the second to the benefit to the area. I suppose what sits behind this is the abstraction argument, which we are familiar with from the railway. In fact, those lucky enough to be at Transport questions this morning will have heard a brief rehearsal of that argument by the Secretary of State in respect of open access applications on the railway. The essence of the argument is that when a new service is proposed for a particular area, in addition to just saying, “Isn’t this is a jolly good idea? We’re getting further provision, more choice and no doubt price competition as well, and new constituencies and demographics being served by buses”—or, in the other example, by rail—before agreeing to it, we need to look at its impact on existing services. It is argued that it would be unfair if we have already contracted a franchise agreement or service operation agreement for buses, or we have a franchise operator on the railway, such as London North Eastern Railway—actually, that is not a good example, because it has open access competition. Let us take High Speed 1, where Eurostar has its operations, and imagine that we said, “We’re going to provide a new service.” Virgin, for example, is applying for an operating licence for HS1. We would then say, “What would be the impact on the provision of the existing services? Is this new service going to supply a currently unmet need, or is it going to provide two services fighting over the same customer?” That takes us back, interestingly enough, to the original regulation of bus services in the 1920s. A major argument for the need for bus regulation in the first place was the common complaint that there could be one route with 15 different buses on it, all from different bus operators competing furiously for a key route, and for the less well-travelled routes and perhaps the suburban or rural routes, there would be no bus provision at all. The argument ran that we could not leave it up to the private sector to fight it out and let the market decide where services should be provided; we needed a degree of regulation so that we could have decent provision on the main thoroughfare and provision elsewhere. I think I am right in saying that the term “traffic commissioner” was first created following the review in the 1920s, and those commissioners still exist to this day. As we progress through the Bill, we will see reference to the traffic commissioner, which is a historical overhang from the initial regulation of the bus network in the 1920s. I return to abstraction. The argument goes that it would be unfair to provide a new service where the impact of that would be negative on existing services or on other factors in a local area. The Secretary of State’s argument—admittedly in the context of rail, but it is relevant to this argument—is that it would be unfair to provide such a new service, but I challenge that base assumption. The person who is being left out of that consideration is the passenger. New services provide new opportunities for the passenger. Yes, it is true that new services may act as de facto competition for existing service providers, but as we know from every other aspect of our lives, competition tends to improve performance. Before I came into Parliament, I was a businessman running a consumer-facing company. I hated competition, and I did everything I could to stifle it, because I knew the impact it would have. I will not tell the Committee the things I used to do—I should think there would be a by-election—but the point is that existing providers hate competition, because they have got a comfy little operation, they know what their activities are, they know what their likely revenue will be, they know how they deal with their customers, and they do not like change. When competition comes in, businesses are forced to sit up and say, “Oh my goodness! This is an existential threat to us as an operator. How are we going to respond?” Businesses in aggregate respond in a number of different ways. Some of them are nicer to their customers and improve their customer service to hang on to their customers and ensure they are not tempted across by the new provider. Others reduce their fares to attract custom. Then we get a price war, as we often read about in the press—we get price wars between Tesco and Asda, and Lidl and Aldi. Those who benefit are not the businesses but the customer, who gets either better customer service or lower prices. They certainly benefit from wider provision of opportunity, because they have two services available to them instead of one, and that puts the providers on their mettle. My submission is that new provision of whatever description is inherently a good thing, even if there is an argument about abstraction from existing providers. I suppose it comes down to the core beliefs of Government Members as opposed to Conservative Members, who at heart—my heart, anyway—believe that competition and the challenge of a competitive market is a good thing. In the vast majority of cases—not always—it brings benefits to the customer and forces a focus on the end user rather than the supplier. If I were to traduce Labour Members’ political opinions—perhaps I am putting words into their mouths—my criticism of the Labour party more widely and its approach to legislation as demonstrated in this clause is that its instinct is to support the supplier and the operator, rather than the customer, particularly in heavily unionised sectors. We touched on this point a little bit in our last sitting on Tuesday, when I was discussing the Bee Network in Greater Manchester and the decision on whether to increase the hourly rate for bus drivers. At the time when the contract was being let, the commercial rate was £12.60 an hour. The Mayor for Greater Manchester insisted on an hourly rate for bus drivers of £16 an hour. I rehearsed the arguments both for and against. We can look at it in two ways—we can think it is a wonderful thing that bus drivers are being paid more, but it also means that bus services are considerably more expensive to provide in Greater Manchester than they are elsewhere in the country because salaries—wages—are more than 60% of the costs of running any bus operating business. That is the heart of it. Who are we after? Are we supporting the suppliers or are we supporting the customer—the passenger? That brings me to amendments 46 to 50, standing in my name. Amendment 46 would have the effect of removing the requirement in section 123Q(5)(b) of the Transport Act that “the proposed service will not have an adverse effect on any local service that is provided under a local service contract in the area to which the scheme relates.” Given my preceding comments, we can see why this is so important. As it currently stands, we have a measure that prohibits the provision of a new service if that service were to have any adverse effect on pre-existing services under a local service contract in the area to which the scheme relates. That is a very low bar—it is almost a veto—for the provision of new services, because one can imagine that it is very easy to assert that the provision of a new service may draw customers away from one that is already being provided. The amendment seeks to simplify the process for granting service permits. Demonstrating that a change will not have any adverse effect is an enormously high bar and is evidentially onerous. Removing section 123Q(5)(b) from the Transport Act, as the amendment would do, speaks to the Government’s desire to streamline the process and make it easier for the supply of new services, for innovation, and for new entrants to enter the market.

The shadow Minister raises an important point about competition and the customer being at the heart of bus services. Will he share with us why so many rural bus services have been cut, if the commercial operator is king and the focus is on customers? That is not the experience we feel in rural communities. We have had cut after cut.

That is an interesting point, and the hon. Member is of course quite right. I did preface my comments by saying that competition is beneficial in most areas, but there are some areas where it is not. The counter-argument is that, in this instance, this is about a new operator, which does not have to be a private sector operator, suggesting an additional service. This is not about cutting services. This is about where, for whatever reason, an analysis has been done that there is additional demand—this is not about cutting a service, but about providing an additional service. The hon. Member is quite right to raise rural areas, as the hon. Member for North Norfolk has done through a number of his amendments. I represent a rural constituency myself in Norfolk. In bald terms, the rural service in Norfolk is not too bad as long as the destination is Norwich. We have a radial provision of bus services from outlying villages directly into Norwich. If someone wants to go across the county to anywhere other than Norwich on those lines, it is very difficult. The hon. Member for North West Leicestershire is right that if we look to only the passenger ride and the fare box to support usable and sufficiently frequent services, it is highly unlikely that a purely commercial approach will do it. That is why, in Norfolk and many other places, the innovation of an advanced partnership has worked so well.

00:00:00

On my hon. Friend’s point about rural areas such as his constituency and my constituency on the Isle of Wight, it is difficult to move between towns. On the Isle of Wight, we have a radial system that makes it easy to get in and out of Newport, which sits in the middle of the island, but it is less easy to go anywhere else. I am at a slight loss as to how we get over that fundamental issue in bus franchising—this is geography, and the market for moving between villages is clearly smaller. I am concerned that the entire franchising model and, indeed, this clause are overselling a solution to a fundamental problem. If we are to get over that hurdle, it would ultimately require a lot of public money.

My hon. Friend is absolutely right; there is no commercial case for large-scale, frequent bus services to every small rural community. I have certainly not come across such a case, even if one does exist. The solution—if there is a solution—will be one of a number of things. Under a franchising scheme, it would be open to a local transport authority to invest in and design a scheme that provides for frequent bus services to every rural community. It would be possible to do that, but it would be phenomenally expensive. Already, one of the key criticisms of the Bill is that it has no money attached to it, so we are going to spend the next two and a half weeks virtue signalling about how wonderful franchising could be. It is not mandatory, and no one is actually going to do it—outside of the big mayoral authorities that are doing it anyway under the Bus Services Act 2017—because there is no money supporting the Bill. It would be incredibly expensive. There is an alternative, hybrid solution: a combination of scheduled bus services on the key arterial routes from big villages into their major towns, such as from Norfolk going into Norwich, a rural hub-and-spoke system for the more remote villages, as suggested by the hon. Member for North Norfolk, and demand-responsive public provision. On Tuesday, I described this as the “Uberfication” of public transport. It still is unlikely to make sense on a purely commercial basis, but it is the kind of focused provision of public sector transport that could work in a highly rural area where the aggregate cost would be less than the blind provision on frequent, full bus services to every community, which would be monumentally expensive.

Amendment 46 would remove the requirement for the service not to have an adverse effect on local services. Bearing in mind what the shadow Minister said about the impossibility of commercial viability for some rural services or non-radial routes in cities, is it correct that the amendment would allow commercial entities to come in and take away part of the market, even where a local transport authority had built up the potentially profitable part of a wider, well-planned public network? The requirement as it stands is intended to prevent commercial companies from parasitising on a market that has been built up with public money. The Minister is not proposing that it should be easier for commercial entities to come in and develop new markets where there is potentially pent-up demand in rural areas.

The hon. Lady is right that there is a risk of challenges in some areas, but in other areas there is the opportunity to increase provision for new markets. The difficulty is that the clause as drafted says that “any adverse effect” will be sufficient to prevent the application. Amendment 47 would replace the word “may” with the word “must” in clause 7(2)—in reality, proposed new section 124Q(5A) of the Transport Act 2000—if a local transport authority is satisfied with the conditions of proposed new subsection (5A)(a) and (b). In such circumstances, why should the local transport authority be given discretion to refuse to grant a cross-boundary permit? It will have accepted that there are no adverse effects; nevertheless, it is given discretion. The clause says that it “may” grant the application, but why? If someone wants to provide an additional service and the local transport authority has satisfied itself that there is no adverse impact, why would it say no? That is the purpose behind amendment 47. If the applicant—it could be the municipal bus company, given that there is nothing to prevent it from doing this—has satisfied the local transport authority that there is no adverse impact, as set out in the conditions of proposed new subsection (5A)(a) and (b), why should the provider not, as a right, be able to create the service?

I just want to give an example in which “may” is more appropriate. Proposed new subsection (5A)(a) and (b) talk about a local service that is provided. If a local transport authority is building out a planned network and, in the very near future, a service will be introduced in an area, it may want to prevent disruption of the benefits of an integrated local service there by such an application. I believe it is very appropriate that “may” remains in the clause.

The hon. Lady is bending over backwards to think of hypothetical instances in which it is possible that something like that could exist. The fact remains that we must ask—this comes down to the philosophical difference between us, perhaps—whether we are looking after the passenger or the supplier. From my perspective, the Bill should have services for passengers squarely in its sights. If passengers will benefit from a new service, the local transport authority should allow it. After all, the aim of the Bill is to maximise general utility for the wider bus service. Amendment 47 would therefore prevent local authorities from sitting on their hands, as the hon. Lady suggests they might. Amendment 48 goes one step further. If the previous two amendments were red meat to some members of this Committee, this one will send them over the top. It would scrap entirely the convoluted assessments about balancing benefits and adverse effects in proposed new subsections (5A)(a) and (b). The authority would simply take a view on the benefits for persons making journeys on the proposed service—what is wrong with that? If the service has benefits for customers, why should we not just go for it? It is a straightforward process where applicants are in the driving seat. The amendment would provide higher certainty for applicants and therefore encourage additional service providers. I anticipate that hon. Members may say, “What about the web—the franchise service—that the local transport authority may be trying to design?” But I seek to remind them about the incentives of providers. Again, I speak as a former businessman. We sometimes forget something in this place. We make lots of rules and we deal with processes ad infinitum, and we think that everyone will be incredibly logical. We say, “Oh yes, they have to go through this process, then that process and the other one, and then the local authority may decide to help them or not.” That ignores the basic maxim of private enterprise, which is that time kills deals. If a process is convoluted by design, it is also, by design, time consuming, and therefore expensive and uncertain in its outcome. Let us think of a potential service provider looking through these provisions. They would say, “I’ve jumped through the hoops of proposed new subsection (5A)(a) and (b), and I’ve demonstrated the evidential basis for this application,” but then there is the discretion at the end where the local authority may, for whatever reason, choose not to award the deal based on some plan for some date in the future that we have not even heard about. Is the provider even going to bother doing it in the first place? This is an important issue of practicality. Commercial organisations respond to incentives, and if we make something long-winded, expensive and complex, they are much less likely to bother doing it. They will employ their capital, their time and their creative energies elsewhere.

The more I hear the shadow Minister unpicking all these issues, the more it transpires that the whole franchising model that the Bill offers to local authorities is really rather unattractive. Particularly for smaller local authorities, it is complicated, and there is a huge risk that when the new service is implemented, despite the best of intentions, it will not run in the way that the local authority or commercial provider thought it would. All the while, the local authority—I am thinking in my case of the Isle of Wight council or the potential combined mayoral authority with Hampshire—is taking on that risk of things going wrong. The shadow Minister is getting to the heart of a fundamental problem with the Bill: it will not sort out bus services country-wide, particularly in rural areas. It is really just a model for the big cities.

My hon. Friend is right. In broad terms, the Bill facilitates additional opportunities for local transport authorities, which is a good thing. As I have said, allowing franchising is in fact a Conservative concept. It goes back to the days of Mrs Thatcher, but more recently, the 2017 changes allowed franchising without consent for mayoral combined authorities. In fact, any local transport authority was allowed to apply for franchising operations, but with the safeguard that it required the consent of the Secretary of State for Transport, because of the huge commercial risks associated with franchising for local transport authorities, particularly smaller ones. That was an eminently sensible safeguard that I have spoken about previously, so now we have that risk. Even if the local transport authority is capable of managing that risk, of developing the expertise to design these complex systems in-house, as is anticipated, and of starting a municipal bus company on top of designing the franchise operation, we cannot get away from the conclusion that is expensive. Whichever way it is designed, if it is going to improve services, it will be expensive.

12:15:00

The Minister and I had an exchange on Tuesday and earlier today. I boldly asserted that the Bee Network, the franchised buses experiment in Greater Manchester, was running at a £226 million loss. The Minister picked me up on that and said, “That’s outrageous”—well, he did not say that, but he corrected me on Tuesday and then at the Dispatch Box today.

I know that the Minister is wholly across his brief, but he may have overlooked the Greater Manchester combined authority report on the transport revenue budget ’25-26. On page 10 of that report is the proposed Transport for Greater Manchester budget for ’25-26, which sets out the comparator between 2024-25 and 2025-26. Under “Resources”, it states that direct funding from the Greater Manchester combined authority went up from close to £319 million to £322 million. It also sets out the bus and Metrolink funded financing costs and the Department for Transport rail grant, which was removed. The forecast revenue for ’25-26 was £343,964,000 for the combined transport.

However, if the Minister looks under “Net expenditure”, he will see that, in ’24-25, the bus franchising implementation costs were £18.7 million, and the bus franchising net cost—the cost of providing the bus franchise in Greater Manchester absent farebox—were £150,761,000. That is what is sometimes described as the transition phase. If he looks across to ’25-26, he will see that the forecast for this year is a loss—net of revenue—of £226,304,000. Those are not my figures; they are from transport revenue budget of the Greater Manchester combined authority, which is planning on making a loss of £226 million. The Minister corrected me; it was in fact £226.3 million, so I undercut it.

Does the hon. Gentleman accept that the entire structure of combined authority devolution, particularly in Greater Manchester, which has pioneered much of this work, is about the earn-back or gainshare principle? Early public investment results in economic growth down the line, and higher business rates and tax revenue that then fund some of this work. In other words, in the end, it pays for itself.

I am grateful for that thoughtful intervention. In principle, the answer is yes, which is why we legislated in 2017 to allow that in principle and why we supported Greater Manchester through the implementation of the Bee Network. That happened under not Labour, but the Conservatives. However, it comes with financial risk. There needs to be clarity on where the costs are and an absolute, laser focus on minimising them, just like in any other business. The hon. Member did not say that the forecast in the Bee Network’s business case, which enabled it to get the go-ahead, was for it to make a profit. I accept that there will be periods where it makes a profit and periods where it makes a loss, but it should break even overall. Over the forecast period, however, the plan was for it to make a profit of £94 million—that was how it was sold. For it to make a planned loss in 2025-26 of £226.3 million and change, given the huge cost overruns that I hinted at in Tuesday’s sitting, is a disaster. It makes me wonder where that has come from. I remember the hon. Member watching with interest on Tuesday as I talked about the more than £17 million overrun on agency bus drivers, because the transport authority had failed to provide enough qualified drivers having misunderstood the nature of the TUPE regulations regarding their transfer from the previous operators to the franchise process. There was also the massive cost overrun on the purchase of bus depots because it was the only buyer in the market. There was an explosion in costs for the purchase orders for new buses, with a surcharge of £40,000 on every bus that Andy Burnham’s Greater Manchester combined authority buys because of the design requirements that he has put in, including bits of leather on the seats—we will not go into the detail of that. If we are not absolutely laser-focused on the costs, that is what happens. The biggest overrun, which perhaps I should have led with, was the increase in wages. There has been an increase in unionised power—which arguably could be a good or bad thing—and an increase in hourly rates for bus drivers to £16 an hour, which is above the market rate. There are not just bus drivers in a bus company; there are all sorts of other roles as well. I should also mention the failure to be efficient with the application of capital. In a private organisation, having bus washers is important, because having clean buses is part of the service and it affects the customer experience. Since the Bee Network has been in place, and the local transport authority purchased the depots, there has been a rather unfortunate occurrence whereby the bus cleaning mechanism—the washers—have been out of action for over a year. The processes and the efficiency within the new structure have to date proved inadequate to get the funding to repair the washers, because that is capex rather than opex. I am assuming that is what the problem is—that it is an unplanned expense, so the authority has to go through the rigmarole of a public sector procurement process. No doubt it will get there in the end, but the consequence is that the bus depot is sending out buses that have not been cleaned for a year. Is that an improvement in service? No, it is not. I say that not to denigrate franchising. Franchising can be done well—it is not a necessary consequence of bus franchising that there are dirty buses—but the evidence that we have at the moment is that even a really sophisticated operator such as Greater Manchester, with a mayoral combined authority and the financial resources, but without the experience of running buses, suffers very significant bumps along the road. That needs to be addressed. If that is happening in a large local transport authority, what is the likelihood of it happening in a small one—for example, in Norfolk county council in my neck of the woods? That is one of our problems with the Bill. Going back to amendment 49, proposed new section 123Q(5B) of the Transport Act 2000 deals with intra-boundary services. I am applying the same logic as I did to amendment 47. Why should local transport authorities have the power to refuse to grant a service permit if they are satisfied that there are benefits of the proposed service to the economy of the area, or to persons living in that area, and that those benefits will outweigh any adverse effect on any existing local service? All the amendment requires is for local authorities to act in the wider interests of consumers—the passengers. The proposed service might have an impact, but if we are satisfied that overall the net benefit is in the positive column and not the negative, why would we not agree to it? Let us think of the passenger—the consumer—rather than the supplier. The amendment would be a particularly important safeguard if the local transport authority was also the owner of a municipal bus company, which was the supplier of the local services contract. There would then be an added layer of opacity in the process, because the contractor and contracted would be the same organisation. A challenger brand could then come and say that it wanted to provide additional services, and it could be assessed to be net beneficial to the economy or the people living in that area, nevertheless the local authority could refuse to grant a permit, even though it is the operator that would be adversely affected—let us imagine how that would look. The temptation, of course, would be to say that the award was refused for wholly improper reasons: a circling of the wagons to protect one’s own. I hope that the whole Committee would agree that that would be an improper reason to deny additional access to the people living in the area, and/or to deny a benefit to the economy, yet there would be a strong temptation. If the authority has built its bus service network, and a little so-and-so comes in and demonstrates that it can go one step better, but that would have a negative impact on the authority’s cosy plans, people in the authority are going to think, “I don’t want to be troubled by this.”

The shadow Minister was looking at me while making those points, and I agree that our parties have very different philosophies on this issue. The circumstances that he has just described as “cosy” relationships that are improper, are ones that I characterised earlier as public money being invested in building up a market that should not be parasitised. Those are, very clearly, different points of view, and I want to make sure that is on the record at the right time.

The hon. Member is absolutely right that there is a fundamental difference of philosophy here. She appears to back what I described as the cosy relationship—but let us not use pejorative language; let us call it the mechanism of state supply. She thinks that that is more important than improving the experience of passengers in that location and/or improving the economy, because that is the hurdle that would have to be crossed for the change made by amendment 49 to take effect. I accept, acknowledge and celebrate that difference. As a Conservative, I stand up for the consumer—for the resident—in my constituency, not for the supplier of services, even if it is the state supplier. Those are the people who I represent, those are the services that I am trying to improve, and that is what amendment 49 would do. The amendment would require the local authority to act in the wider interest of consumers, not that of its own suppliers. That is particularly important where the authority has skin in the game. If I am unsuccessful—as I have a sneaking suspicion that I might be—in persuading the majority of the members of the Committee to support amendment 49, we should at least expect transparency in any decision-making process where the decision taker, the local authority, is taking a decision that affects a municipal bus company owned by that authority. At the very least—as we will discuss in relation to other amendments—we should insist on absolute transparency in those commercial relationships, so that the disinfectant of sunlight can shine on the exact rationale for a commercial opportunity being refused. Amendment 50, my final one in this group, goes one stage further. It would get rid of the complex “balance of benefits” argument entirely and replace it with a simple assessment of the application: will the proposed service have benefits for the economy of the area or persons living in the area? If yes, the licence would be granted. The impact would be similar to that of amendment 48: it would simplify the process and give agency to the applicant. If they could prove that their service would deliver benefit, the local authority would grant a service permit.

12:30:00

Before Members jump in and say, “Well, what about this example or that example?”, I accept that we could construct some hypothetical examples where there could be suboptimal outcomes as a result. I will concede that from the get-go. But what we fail to consider, with the counter-argument, is the impact on the ability of service providers—or potential service providers—to take advantage of opportunities, to innovate, to provide new capital and to have new thinking in an area. If we make it almost impossible—convoluted, complex, time consuming and costly—to make any application, and design the process with no certainty of outcome despite the evidence put forward as part of the application, we will, by design, prevent the vast majority of entrepreneurs, who create wealth and innovation, from getting involved in this area and looking at buses as a commercial opportunity.

That opportunity would partly be for them, I accept—profit is not a bad thing; it is a good thing—but it would also be an opportunity for innovation to provide new passenger services, to open up new markets, to look at this in a different way and to provide additional answers. The amendment would avoid the complex, expensive, time-consuming comparative assessments, increase applications and generate greater innovation and the faster moving development of services.

Those services, by the way, would then react to changing demographics. We have been talking up until now about the existing services being a good thing, saying that we should maintain existing services and treating their closure—as in the hon. Member for North West Leicestershire’s constituency, and also in mine, over the years—as necessarily a bad thing. For the passengers who wanted to use it, of course it is a bad thing, but it may be a much better allocation of resources to take that underused resource and focus it elsewhere, where there are many more passengers.

That is what markets typically want to do; they want to find as many passengers to assist as possible, because the fare box—the amount of money they receive in fare—is crucial. It should also be the same for local authorities, but I am concerned that it will not be as they have other factors—political factors—that are more important to them, because they are not commercial organisations. Fundamentally, the fare box—the number of passengers attracted—is not the prime consideration; it is just one of many considerations, as we all know, as politicians ourselves.

The risk is of a local transport contract that is wholly unresponsive to changing needs. It keeps on doing what it does because it is politically inexpedient to close down a bus route—we have all seen it in our inboxes. There is therefore an increasing risk of an unresponsive use of capital, even though there could be a new town or village; we all know how quickly our local environments are changing.

I have a village, Rackheath, in my constituency, which has a couple of thousand residents, or maybe fewer than that, and 7,500 houses are being built there as we speak. That is an enormous change in demographics. Some of that will be planned for—part of the planning process will include associated bus routes—but we need to be able to respond, by taking away capital from some places and applying it elsewhere. That is what this amendment is seeking: to unlock things and to fight against this assumption that “process” is an answer in itself. It just is not; very often it gets in the way.

We are also considering Government amendments 4 and 5, to which I have no objection; everyone will be pleased to hear that. Clause 8 is a complex clause. It is quite hard to follow the drafting, requiring a high degree of cross-referencing to section 123 of the Transport Act, with which we are becoming intimately familiar. Essentially, subsection (2) provides that section 123J(2) of the Transport Act, which disapplies the registration requirements in sections 6 to 9 of the Transport Act 1985 in relation to local services in a franchised area

“does not apply in relation to a…service which is provided under a service permit.”

That is a bit of a mouthful, but I am sure that everyone has got their head around it.

The registration requirement referred to is the requirement to register a bus service with the traffic commissioner. That commissioner, which I have referred to, was introduced in the 1920s as the first attempt at regulation. I am not seeking to divide the Committee on this clause, but it prompts some questions. First, can the Minister explain why we still have a requirement to register a bus service with the traffic commissioner? What, in this day and age, does the traffic commissioner actually do, given that we have local transport authorities that either go down a franchise route or have an enhanced partnership scheme? Why do we have this archaic and additional layer of bureaucracy that sits over the top, requiring a registration with a traffic commissioner whose genesis came from a different age? I stand to be corrected if there is a genuine reason. It is not something that I have deeply researched; I say that in advance. I apologise to all the traffic commissioners out there if I have inadvertently undermined their raison d’être to get up in the morning and go to work.

However, the clause prompts the question: are we putting yet another layer of process, and therefore delay and uncertainty, on what is already an enormously complex piece of legislation, which is creating what is becoming an enormously complex process for bus operators and service providers to navigate?

That is the first question. The second question is: so what? We have registered with the traffic commissioner—job done. What does the traffic commissioner do with that registration? What powers, if any, does the traffic commissioner have that he can exercise, either affirmatively or negatively, in relation to that registration? What practical consequence does registration have? I ask this because I am unaware of any reference in the Bill to something coming back from the traffic commissioner that has an impact on the procedure. So, why are we doing it? What happens with the traffic commissioner? What do they do in consequence of registration?

Subsection (3) amends section 123P of the Transport Act 2000 to provide that where an operator has been granted a service permit by the franchising authority—all good so far—

“The authority or authorities must inform a traffic commissioner”.

This is to ensure that a traffic commissioner is aware that the service has been granted a service permit. This is about the permit side of things, as well as the route side. If this is important, why are there the exemptions set out in subsection (4)? The way that subsection (4) is drafted, it is quite hard to get it—forgive me, Dr Allin-Khan; it is so complicated. Subsection (4) states, “After section 123P insert—” proposed new section 123PA, which, if it was not complex enough, is entitled:

“Registration exemption for services provided under service permits”.

Subsection (1) of that proposed new section states:

“The franchising authority operating a franchising scheme, or the franchising authorities operating such a scheme acting jointly, may grant an exemption from registration in respect of any local service which is, or class of local services which are, provided under a service permit in the area to which the scheme relates.”

That is not a safety-related issue. In that instance, there are other services operating in the area, but for some reason, the traffic commissioner does not need to be notified. I would be grateful if the Minister—I am sure he has his finger on the pulse on this—could explain why that exemption is necessary.

Subsection (2) states:

“Where such an exemption has effect, sections 6 to 9 of the Transport 10 Act 1985 (registration of local services) do not have effect in relation to the service, or class of services, so far as operated in that area.”

Then subsection (3) states:

“The franchising authority or authorities may vary or revoke an exemption granted by them under this section.”

The proposed new section provides a number of exemptions, but the reason for that is entirely opaque as far as I can see. It is certainly not based on service provision or safety grounds; there is no explanation for it. Subsection (3) states that authorities can decide not to exempt if they want to, so there is discretion under it.

Subsection (4) states:

“Where an exemption is granted, varied or revoked under this section, the franchising authority or authorities must…publish, in such manner as they think fit”

and

“before the end of the period of 14 days”.

That is the housekeeping paragraph at the end of the proposed new section. Can the Minister set out the rationale for that whole proposed new section? That is not clear in the Bill or in the explanatory notes as I read them. It seems to be persisting in an archaicism, which we could perhaps do without.

Briefly, clause 9 provides for the sensible removal of the need for operators of the services described in proposed new subsection 123J(8) of the Transport Act 2000 to apply for a service permit to be able to operate in a franchise area. That includes temporary rail and tram replacement services. From my perspective, that is eminently sensible. If a short-term bus replacement service is being provided, because there has been a problem with rail or tram provision, it clearly makes sense that those should be exempt from registration under the terms of clause 9. I absolutely understand and support the clause, but I raise the question about the opacity of clause 8(4).

I will be more brief. [Hon. Members: “Hear, hear.”] I have two points to make. I suspect that many of the shadow Minister’s points could be drawn from Hansard 40 years ago when bus deregulation was introduced. The great flaw of bus deregulation was it allowed private providers to cherry-pick profitable routes, leaving local transport authorities no opportunity to cross-subsidise their loss-making routes. That prioritised not passengers, but private providers. I fear that all the amendments would achieve the same end; they would simply allow private providers to cherry-pick profitable routes—often built up by local transport authorities that put effort, time and public money into them—without any provision for the non-profitable routes. I say to the shadow Minister that equating passengers with consumers oversimplifies the complex issue of rural connectivity, and ends up isolating rural communities. As he admitted, in many rural communities, market mechanisms will not work. These are simply unprofitable routes.

12:45:00

I fear that the hon. Member and I may agree more than he perhaps thinks. As I said, I accept that rural routes are unlikely to be profitable, but that does not mean they should not be provided. That is why I went on to talk about demand-sensitive transport, as well as to mention the suggestion from the hon. Member for North Norfolk about rural transport hubs. Those can be subsidised, either through an enhanced partnership or through a franchise process. I accept that they will not be part of a purely commercial result, but that is not what I was suggesting in the first place.

I heard the shadow Minister say that, and I understand it. However, there is a contradiction in his analysis. He admits that point, but constantly refers to consumers operating in profit-and-loss markets. He is making a very narrow equation, and I fear that allowing public providers in the way he wants would simply undermine the whole rationale behind what we—or the Government—are trying to do with the franchising process. It is too narrow and simply ends up completely undermining what we are trying to do.

Is it not the case that these are, in fact, not private providers at all? Many are subsidised by other Governments around the world—we see this in our rail and bus networks. Other states are stepping in to make a profit where Conservative Governments have stepped back.

I fear that is true. I do not think they are subsidising—I think they are coming in and taking a profit, and I absolutely agree.

It is a pleasure to serve under your chairship, Dr Allin-Khan. To refer to the general comments made by the shadow Minister, I am totally up for supporting things that put passengers first and are aligned to that purpose. I was regretful that the Committee disagreed to clause 1, on the inclusion of the overall purpose of the Bill, in our previous sitting. The shadow Minister gave a long and wide-ranging speech; I was disappointed that it did not extend to his own personal tactics for rope sabotage, given the provenance of his business background—but perhaps that is for a future hearing. I will leave the Minister to respond to the issues of the words “outweigh” and “persons”, because I feel that it is his Bill to defend, but I do not fear the potential to refuse to the same extent as the shadow Minister. Let us get back to what we are substantially talking about here, which is the cross-border issue. From my perspective—my constituency and that of the shadow Minister share many geographic characteristics—the whole point is that, however it is looked at, bus transport, even in urban areas, does not make a profit. Franchising is a welcome model because it allows the state, which is funding the operations, to contract to the providers who are going to deliver the service most efficiently and effectively. I do not see room for the entrepreneurial business model and profiteering that the shadow Minister refers to.

The risk of the franchising model, as we are already seeing in Greater Manchester, is that the size of the contract determines the amount of profit. Although the profit percentage is reduced, it is applied to the full size of the contract. Ironically, there is no incentive for the operator to reduce costs—for example, by pushing down wages—because wages are paid as agreed under the contract, and then the operator receives the 3% or 4% on top of that. My concern is that, as currently evidenced in Greater Manchester, we are seeing costs rise despite services being operated by private sector companies.

The shadow Minister makes a valid point, as is always the case, but it takes us into the philosophical domain again. I gently point out that there are other perfectly profitable industries where the cost-plus model is the industry norm, and where it is possible for investors to make a return. Nevertheless, to bring us back down to earth, I want to mention a couple of scenarios. One is from my own experience—in fact, from the shadow Minister’s constituency, which I travelled through growing up, where we had two providers leapfrogging each other from Aylsham to Norwich on commuter journeys. It was literally the same service, but if someone happened to get on the wrong bus, they could not get the same route back on the other operator. That is a fine example of why it would be appropriate to refuse a cross-border permit. Equally, my hon. Friend the Member for South Cotswolds (Dr Savage) sent me an example: “We also have an issue of cross-county boundary bus routes. For example it takes maximum 10 minutes to drive from Malmesbury (Wiltshire) to Tetbury (Gloucestershire) but up to 2 hours on the bus as there is a huge diversion to another big town and then on to Tetbury through the small villages”. These measures are about the practicalities of cross-border permits. With more rural areas likely to enter into combined mayoral authority arrangements, that will reduce the need for cross-border permits. Although I am grateful to the shadow Minister, I do not see the equivalence with open access in rail. This is, to me, what validates the franchising model overall, as well as providing for necessary moderation in common-sense, cross-border issues.

It may be tempting to think that the shadow Minister was particularly detailed, lengthy and comprehensive in his earlier contribution, but from where I was sitting, he was all too brief. There were a great range of issues that he failed to address, and I feel it is my role to address them. Before that, I will agree with what the hon. Member for North Norfolk said about different companies providing services to similar or the same destinations, where using one service in one direction means that another service in the other direction cannot be used. Unfortunately, the Government are currently unpersuaded that that is a problem for ferry services to the Isle of Wight, which is a shame, given that the Government—I agree with them on this—are reforming public transport. I will, however, save that debate for another time. It was good to hear some genuine philosophical disagreement between the shadow Minister and the hon. Member for Brighton Pavilion. I am sure that the hundreds of thousands—possibly millions—of members of the public listening to this Bill Committee will have noticed that it was done in a polite and respectful way. I think the shadow Minister almost went too far at one stage, and I was nudging the hon. Member for Brighton Pavilion to intervene—even though she is a Green MP and I am a Conservative—because I think she missed an opportunity to fight back, but maybe she will in a later sitting. I will make a few brief points on the principle, but they are anchored in amendments 46 and 50. They concern the idea that assessing whether a new proposed service will have an adverse effect on a current local service is slightly academic, contested and possibly futile, especially if we add in the possibility that, although the analysis and conclusion may have been done in good faith, they will not translate when a service is brought into effect and the market is tested. I therefore completely support the shadow Minister’s amendments seeking to get rid of the analysis of an adverse effect. It is entirely possible that an element of the service could be adversely affected by the introduction of a new service. To some people, that is a net gain; to others, it is a net loss. Who is to say which of those competing groups is more important than the other? I have a completely hypothetical example. The local economy of my constituency is heavily reliant on tourism, but people also use buses to get to work and my older constituents rely on them for their daily movements, such as going shopping, visiting friends or going to appointments, including at the hospital. We could end up with a bus franchising proposal that has a net positive effect on moving visitors around between the key tourist areas. That may have an overall positive effect on the economy—on paper and maybe in reality—and that effect may trickle down and raise the prosperity of the whole area. However, that proposal could also have a negative effect on the older population, who need bus services to move around year in, year out. They do not need to travel to the key hotspots that drive the tourist economy, but to GP practices and shopping areas, and not tourist shopping areas but those that provide essential goods for residents, particularly older residents. That example poses a very legitimate question: is it more important to provide a service that leads to a general raising of the economy and wellbeing by improving tourism, which some might say has a trickle-down effect on everyone, including older residents, or is it better to protect people who are more vulnerable and who have fewer opportunities, if any, to use a different mode of transport? People could come to fair but different conclusions about that. Whether a proposed new service will have an adverse effect on a local service is an unanswerable question, and it cannot be fitted into an assessment. If an assessment can be made at all, it will be entirely reliant on subjective, statist, planned, expert-led analysis. One can only hope that a conclusion drawn from that analysis would translate into the real world and be correct, but it is entirely possible that it would not.

The hon. Gentleman’s analogy ignores the passenger transport strategies that local government should already be undertaking, and the fact that local government already does a large piece of work to make sure that those strategies are relevant to the local economy. The Bill gives local government the opportunity to get the funding—that has not been mentioned—to start making bus services feel like what the local population and economy actually need.

I agree with the hon. Lady, but of course, it is more complex than that. Obviously, a local strategy will and should sit at the heart of any decision making, but there are great challenges in assessing whether a new service is fundamentally having an adverse effect on an existing service. Even approaching it in that way slightly negates the idea of holistic planning—rather than considering whether a new service conflicts with an existing service, we should be treating them both as one service. Ordered, That the debate be now adjourned.—(Kate Dearden.)

13:00:00