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.