Letter from the Right Hon John Spellar
MP, Minister for Transport (Bus 01A)
Thank you for your letter of 23 May, requesting
certain further information from this Department following my
appearance at the Transport Sub-Committee's inquiry into the Bus
Industry on 21 May.
1. SERVICES COVERED
BY BUS
SERVICE OPERATORS
GRANT (FORMERLY
FUEL DUTY
REBATE)
The Bus Service Operators Grant (England) Regulations
2002 define those services which are eligible for the grant as
from 1 May this year. These regulations re-enact previous provisions
which made eligible those local bus services following a route
and timetable registered with the Traffic Commissioner and on
which a member of the general public is able to make a journey
between any two stopping places (those stopping places being at
locations where they are likely to be used with reasonable frequency
by the general public).
The regulations also for the first time extend
eligibility to a wide range of services operated by non-profit
making bodies (``community transport") under a permit under
section 19 of the Transport Act 1985. These services do not follow
a fixed route or timetable and are for use by particular categories
of passengers, rather than the general public. The services eligible
under this provision are those used wholly or mainly by those:
— aged 60 or over or are disabled;
— in receipt of income support or jobseeker's
allowance;
— who are socially excluded because
of poverty or other economic factors, homelessness, geographical
remoteness, ill health, religious or cultural mores or who believe
that it would be unsafe to use other forms of public transport.
We will be considering as part of forthcoming
consultation on changes to the local bus service registration
rules whether there should also be changes to grant rules to enable
flexibly routed registered services to receive bus service operators'
grant.
2. STATUTORY
QUALITY PARTNERSHIPS
We are not aware of any local authority that
is actively proposing to make a statutory (as opposed to voluntary)
quality partnership scheme. We can confirm that the Traffic Commissioners
have to date received no applications from operators to register
that they will meet the quality standards laid down by the local
authority in a Quality Partnership scheme when they are using
the Quality Partnership scheme facilities, nor have they been
consulted by local authorities about any proposed scheme. Local
authorities are not required to apply to the Department for Statutory
Quality Partnerships, though they are required to give prior notification
and to consult bus operators, the relevant traffic commissioner
and bus user interests.
By contrast, there are voluntary quality partnerships
in around 130 areas in England. Many of them have been very successful.
A statutory Quality Partnership scheme under the Transport Act
seeks to take this a stage further. It envisages a more formal
arrangement—in effect representing a commitment on
the part of the authority to provide certain facilities to improve
local bus services, and an obligation on the part of participating
bus operators to meet the quality standards prescribed in the
scheme.
It is difficult to say why no authorities have
so far chosen to use the new powers available to them. It seems,
however, that those authorities which have successful voluntary
schemes see no advantage in putting them on a formal footing.
It is more puzzling that authorities without a scheme have not
been more willing to take the statutory route. Some authorities
have, however, claimed that the provision in section 114(6)(b)
of the Transport Act 2000 specifically preventing them from specifying
frequency or timing of services in a statutory partnership acts
as a disincentive.
3. LOCAL AUTHORITY
FUNDING FOR
EXTRA SERVICES
ON A
ROUTE ALREADY
SERVED BY
A COMMERCIAL
SERVICE
Local authorities have always been able to use
their bus subsidy powers under the Transport Act 1985 to provide
higher frequency of service on a route where they considered that
the frequency already being provided commercially was not sufficient
to meet public transport needs.
However, some authorities argued that they were
reluctant to use their powers in this way because in particular
of the requirement in section 92 of the 1985 Act that they do
not use the powers in a way which might inhibit competition between
those providing or seeking to provide bus services commercially.
Changes brought in by Section 152 of the Transport
Act 2000 sought to deal with this concern. Section 152 replaced
the do not inhibit competition provision with a broader formulation
requiring that authorities have regard to the interests of the
public and of those providing bus services in the area. The section
also introduced a broader best value test for authorities in deciding
whether to subsidise a service.
It is of course up to authorities to decide
in particular cases whether to subsidise increased frequencies,
taking account of local circumstances and priorities.
We expect that the decision recently announced
by Ministers to more than double the tendering "de minimis''
limits will be helpful to authorities in this regard. It will
give them a great deal more flexibility if they consider it appropriate
to issue a contract for increased frequency—perhaps to an
incumbent operator—without having to use competitive tender
procedures.
4. POSSIBLE RESTRICTIONS
ON THE
USE OF
SMARTCARDS
The new legislation that you refer to seeks
to protect the consumer by regulating issuers of e-money. An annex
is attached, explaining the scope and purpose of the legislation
and its possible impact on transport schemes in detail.
5. THE NATIONAL
FEDERATION OF
BUS USERS
We are not persuaded of the case for the creation
of a new statutory body at national level to represent bus users.
Buses are essentially local services, and effective representation
at the local level is what really matters. Indeed, the strength
of the National Federation of Bus Users (NFBU) is in its network
of local groups. The NFBU is well respected by the bus industry,
and is in regular contact with this Department. The bus industry
has also set up an independent Bus Appeals Body to handle representations
not satisfactorily resolved at the local level.
20 June 2002
Annex A
THE REGULATION OF e-MONEY IN THE UK AND ITS
POSSIBLE IMPACT ON TRAVEL OPERATORS
BACKGROUND
The Financial Services and Markets Act 2000
(Regulated Activities) (Amendment) Order 2002 is the UK's enactment
of an EU Directive (2000/46/EC) which requires Member States to
implement measures on the taking up, pursuit and prudential supervision
of the business of electronic money institutions. The Directive
was originally championed by the European banking community who
felt that their control over the financial services market was
being undermined by non-bank organisations (eg High Street retail
chains) issuing smart cards carrying monetary value.
The banks wanted legislation that obliged issuers
of "e-purses" and other monetary value instruments to
be subject to the regulatory regime currently applied to full
financial services. However in drafting the Directive the declared
intent of the European Commission is different—the legislation
is intended to offer opportunities:
— to open up the financial marketplace
to third party competition—particularly to non-financial
institutions who were supplying other smart card services and
who could therefore offer alternative payment mechanisms as part
of the service from a single service provider;
— to facilitate technological innovation;
— to establish a regulatory level playing
field by imposing a supervisory regime on electronic money institutions
that is much lighter than that for banks but which severely restricts
the activities that electronic money institutions may undertake;
and
— to give consumers confidence in the
security of "e-money" in the same way that they trust
cash and the current protections for standard financial transactions.
WHO WILL
BE REGULATED?
The Directive seeks to regulate only issuers
of e-money. As with cash now, retailers, banks, bureaux
de change and consumers would be free to hold, sell and exchange
e-money in the normal course of business. The Directive allows
any type of organisation to issue and manage e-money provided
that it meets specified criteria for financial management and
prudent control mechanisms. The new UK regulatory regime requires
the FSA to ensure inter alia that:
— the company has sufficient capital;
— the "float" is invested
in low risk and highly liquid financial assets;
— the management has the necessary
expertise and standing;
— the systems, controls, fraud detection
and risk management procedures are robust;
— the issuer may not undertake any
business activity other than the issue of e-money and the provision
of financial and non-financial services closely related to e-money
issuance; and
— the bearers of electronic monetary
value may require redemption at par in notes or coin or by transfer
to a bank account.
The Order defines electronic money as "monetary
value as represented by a claim on the issuer which is:
(a) stored on an electronic device;
(b) issued on receipt of funds; and
(c) accepted as means of payment by undertakings
other than the issuer".
The UK implementation of the Directives gives
the FSA considerable discretion in ruling on specific applications
and it is too early to say precisely how this definition of e-money
will be applied. However, item (a) above appears to exclude from
regulation all paper tickets, and paper based points or voucher
schemes. Item (b) should exclude schemes where points or value
is not bought but is given, won, or for example, earned as a bonus
for frequent travel, unless the electronic value issued is prepaid
by a third party. Item (c) should exclude for example schemes
in which customers pre-pay for some form of "right to travel"
points or value which can only be used to purchase travel
and other related services from the issuing travel operator. [However,
the fact that the definition of electronic money refers to monetary
value means that an electronic season ticket that was valid on
the services of more than one operator would not constitute electronic
money since it is not actually "spent" as it is used.]
Together these three points should exclude from regulation many
of the schemes operating or being planned in travel.
Any electronic ticketing scheme which permitted
stored value on a travelcard to be used for purchases of other
goods from third parties (eg station retailers) would prima
facie constitute electronic money unless it qualified for
a waiver on size or relationship grounds.
THE POSSIBLE
IMPACT ON
TRANSPORT SCHEMES
Many transport card schemes have been designed
on the assumption that the scheme promoter—a PTE, transport
operator, LA—would issue the smart cards and the associated
e-money. The introduction of the e-money legislation is already
prompting a re-evaluation of existing schemes, although without
detailed knowledge of individual proposals it is not possible
to estimate the size of the impact and its likely consequences.
Operators of transport ticketing schemes which
aim to allow customers to purchase stored value from one travel
operator which then can be used to purchase tickets or travel
or other goods from a different operator are likely to have a
number of choices. These include:
— taking steps to conform to the legislation;
— converting the scheme to use "stored
travel tokens"; and
— seeking a waiver if the scheme is
relatively small in scope.
Current schemes have a period of six months
from 27 April 2002 to make such changes or become authorised electronic
money issuers. Loyalty point schemes may also have to be restricted
in terms of what the points can be converted into. Many Local
Authorities are considering "citizen card" schemes which
typically involve value on a card which could be used for both
transport and for local applications eg travel on buses and a
swim at the local sports centre. Unless the scheme applies to
a very small geographic area, when it might be eligible for a
waiver, these would also be subject to the new legislation.
However, for the larger schemes, and for schemes
that wish to see value accepted by third parties, there is likely
to be no alternative to either becoming a regulated e-money issuer,
or of sub-contracting the issuing of value to someone who already
has or intends to obtain regulatory approval. Typically this would
be a bank or the operator of an existing regulated scheme. It
is possible that the costs, complexities and likely delays required
to organise either option could damage the commercial viability
of some of the currently planned schemes. On the other hand the
substantial safeguards provide by the new legislation give consumers
very much enhanced protection against fraud or financial mismanagement.
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