Select Committee on Transport, Local Government and the Regions Minutes of Evidence

Examination of Witnesses (Questions 40-59)



Chris Grayling

  40. In that case, what I am driving at is to try to get a sense of how many of your services truly depend, for their viability, on the availability, directly or indirectly, from the public sector, of some cash. If the public sector disappeared tomorrow, the local Council decided they were going to spend no more money whatsoever on buses, what proportion of your services would carry on happily and what proportion would disappear?
  (Mr Lockhead) It is extremely difficult to give—there are journeys, in your context, that are supported because we have concession travels on them. You would not want to take the journey off even though it is not viable because it has people on there—my point at the beginning was that 84 per cent of services are commercial and the other 16 per cent has some support from whatever of the categories you have talked about.

  41. The reason I am pressing on the point is that one of my local bus operators told me that the vast majority, if not all, bus services in this country depend to a greater or lesser degree on the public purse to exist. Was that an inaccurate statement?
  (Mr Lockhead) It is inaccurate. The subsidy that we get supports particular elements within the market we are in, either the discount fares or to give us relief on high fuel taxes, or to buy back services that were there before but we do not think are worthwhile any longer, or that have not been there, just something new that a Council wants to do. In each case, it is either competitive or it is transparent.


  42. Briefly on this, because I do not want to go on with it too long.
  (Mr Cochrane) If I could perhaps just add to Mr Lockhead's comments. I think it is important to understand Fuel Duty Rebate is paid on a "mileage driven" basis. That means that every passenger is benefiting in a sense from that Fuel Duty Rebate. So if your question is, "What would happen if there was no such thing as Fuel Duty Rebate?", then that would have a very significant impact on our industry in terms of the fares that we would have to charge to enable us to generate the returns to support the investment that we have been putting into the industry over the last 10 years.

  43. You are giving me the impression you are in a non-viable industry, but that cannot be right, can it, Mr Cochrane?
  (Mr Cochrane) Not at all. We are in a viable industry, and as part of that viability, we are committed to investment, but the point I am making is—because, of course, the bus industry only recovers 80 per cent of the tax paid on fuel, whereas other transport sources, rail and airlines recover 100 per cent of their duty.

  Chairman: We could also tell you, because they would tell you at inordinate length, what they have to pay.

Chris Grayling

  44. The other point I wanted to raise was the issue of cross-boundary services, and it is particularly an issue around London, but I would be interested to hear if it is an issue in other metropolitan areas as well. The London experience is that you have a fairly high level of public subsidy or public monies going into the bus industry within Greater London. On a much greater level that exists immediately outside Greater London, would the result be that you get a disproportionate level of operators based in London than is based outside when they come to meet in services going across the boundaries? Can you give us a sense of the issue from your perspective of companies that operate on both sides of the fence, and to what degree is it a national rather than a London and the South East issue?
  (Mr Clayton) Speaking for London and the South East, there is some tension in terms of the fares charged across the boundary from the subsidised London area with routes that are subsided from London operating into just outside the GLC boundary, and you will be aware that that has led to the operators in the Shire Counties having to withdraw services simply because the fares levels are so low. There is no-one subsidising them in the way that London is. The other issue is that there has also been a halo effect caused by the labour situation in the South East as well, which has led to the drawing in of labour into London. The South East labour market generally is extremely buoyant, although one has to say that in the London area itself, operators have made significant strides to improve the position. But what it means is that more and more people who might otherwise have been drivers in the halo around London now drive in London rather than drive outside of it, and that has led to the withdrawal of services as well, not necessarily marginal services, but simply services that the operator can no longer staff.

  45. Do you get a similar effect in other metropolitan areas with subsidy of the metropolitan areas higher than outside?
  (Mr Clayton) I am not aware of it being an issue outside of London.

  46. Last question. We have large numbers of your workforce here today making a noise about pay levels and the issues which quite clearly are there about affordability of housing and so forth. To what degree do you recognise—you alluded to it there—a significant problem that is threatening services with the financial issues of running the service and what you can afford to pay, and the realities of the cost of living in London and the South East?
  (Mr Clayton) We are the biggest operator in London, and what I would say is that our London wages have been improved significantly over the last two to three years. We have become more competitive in the marketplace and we have actually increased the number of staff in London that we employ by 7 per cent in the last nine months. Labour turnover in London has reduced dramatically. In fact, our London labour turnover is now one of the lowest in the UK. That does not mean to say that we do not need to do more for our staff, but clearly, as a Trade Union Official said to me once, the quickest way to fill a bath is to put the plug in first, and you need to retain the staff you have, so that is one of the things that we have been working on.

  Chairman: I think we can move on from the homespun philosophy. Mr Stevenson.

Mr Stevenson

  47. Mr Cochrane, you said that the strategy, and I take it all three companies will agree, would be to achieve the 10 per cent growth in passengers envisaged in the Transport Plan. Given that that could be more than achieved in London alone, what happens to the rest of the country?
  (Mr Cochrane) Our experience has been that we can actually achieve significant growth levels outside London as well. In Cambridge, for example, we have achieved a 20 per cent volume growth in the last six months on the back of a new network that was introduced in November last year. Similarly, in the Blackwater Valley, a 15 per cent increase. So there are lots of examples I can demonstrate that we can deliver growth across large parts of the UK by working in partnership with local authorities.

  48. Are those figures that you have quoted outside of London the general norm, or are they welcome exceptions?
  (Mr Cochrane) Those quantums of increases are clearly not the general norm. Our business overall outside London—over the last 12 months, our volumes have probably been broadly neutral. We have seen some growth in the South and some decline in the North.

  49. I am trying to get a handle on what is happening throughout the rest of the country. Your good selves are the only ones that can tell us, so "broadly neutral outside London". Would Mr Lockhead and Mr Clayton share that view?
  (Mr Lockhead) We are seeing just over 1 per cent growth, and a lot of people tend to think that is pretty neutral; for us it is a great success. We were seeing 3 and 4 per cent passenger loss for the last 25 years. To turn that round in the last three years has been fantastic. Outside of London, we can show growth beyond the 6 per cent London have got. We have an example in Leeds where we have had 70 per cent growth in the last five years, and there are other parts of the country where, when the model is implemented with the partnerships, it works.

  50. I will come to the partnerships in a minute, because, as you well know, your company and Stoke City Council have had some difficult times recently, and, as an MP from Stoke, I am very much aware of that.
  (Mr Lockhead) I understand.

  Mr Stevenson: I hope I can get away with that. Mrs Dunwoody's eye is dropping on me.

  Chairman: Speed is of the essence.

Mr Stevenson

  51. Nevertheless, we have a picture of considerable and sustained growth in London, the 10 per cent target which is achievable, and that is a strategy, but overall, neutral marginal growth, albeit from a low base in the rest of the country; that is the picture?
  (Mr Cochrane) Absolutely.

  52. Thank you. Why is it then, that your companies object to a more regulated system outside of London that we have inside London that is generating double-jetted performance increases year on year?
  (Mr Lockhead) Could I answer that. I think that there is simply no correlation between regulation and passenger growth. Economic regulation does not have any impact on punctuality, service reliability, delivery of service information and so on. It just does not have any impact at all, and those are the ingredients that our model, both in London and outside of London, achieve massive growth.

  53. But it is a different model inside of London.
  (Mr Lockhead) It is a different environment, as you know.

  Mr Stevenson: The model is different—


  54. It is a completely different way. As you know, the 1985 Bill was very precise, London is a completely different system.
  (Mr Lockhead) I agree with you, but it is not the regulation in London that has created growth.

Mr Stevenson

  55. Sorry to interject. What I am trying to get at, your collective objection to quality contracts is that is would reschedule commercial freedom, basically, and yet, in London we have the authority that sets the level of fares and routes it wants and so on, then it puts it out to tender, then your companies tender for them. A comparatively heavily regulated local authority involvement compared with outside of London. Certainly a different system altogether, and yet they are achieving substantial increases in passenger ridership which has not been achieved outside of London.
  (Mr Lockhead) Yes, but not because of the structure. I repeat what I said: it is because in London, you have car constraints. The alternatives do not exist. You cannot drive in London. You either use the bus, the Underground, or the Surface Rail system. Outside of London, there is still traffic congestion growing; inside of London it is constrained. The structure of the industry in London does not create the growth. Outside of London, growth is created by us working with our partners to provide better quality services and more reliable, dependable services. In London, what they have done is introduce more bus lanes than they have outside of London. That is a significant influence. We would like to see local authorities outside of London, particularly Passenger Transport Executives, have more influence, more direction on giving that sort of help to public transport.

  56. I will not push you on that any more because of time. Could I go on to cross-subsidy. Mr Lockhead, you said, I think I correctly wrote it down, in terms of cross-subsidy, "Many routes on the network are cross-subsidised."
  (Mr Lockhead) Yes.

  57. How many?
  (Mr Lockhead) Most routes. Most journeys off peak, Sundays, evenings, massive-cross-subsidy, yes.

  58. I am just trying to get this clear because it is an extremely important point because, a little later on, in answer to one of the questions put by my colleagues, I think you said, "Generally speaking, 84 per cent of routes are commercial."
  (Mr Lockhead) Yes.

  59. 16 per cent, therefore, need some sort of support.
  (Mr Lockhead) Yes.

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