Examination of Witnesses (Questions 40-59)
MR DAVID
ROWLANDS, CB, MR
BOB LINNARD
23 JANUARY 2006
Q40 Jon Trickett: Yes. Someone has got
the figures. I will provide the evidence to the Committee. On
the use of a monopoly—first of all the use of old fleets,
and secondly to put up prices—are you aware of the extent
to which prices have gone up in the PTE areas?
Mr Rowlands: I am aware of the
increase in tender prices, yes.
Q41 Jon Trickett: Bus fares?
Mr Rowlands: Yes.
Q42 Jon Trickett: I am told that
bus fares in the PTE areas in London have gone up by 86%, and
in London they have gone up by 36%. Is that a figure that you
recognise?
Mr Rowlands: I do not recognise
the particular figures, but I think the general point you are
making must be right. To some extent it must flow from the Report
that the subsidy level per passenger in London is 31p and only
11p in PTEs.
Q43 Jon Trickett: It may be that
London is a more competitive market—I do not know. The fact
is that there is no competition in the PTEs, or very little competition,
and prices have more than doubled to the increase in London. Has
it occurred to you—because nothing else has so far—that
the increase in price, together with the elasticity of demand,
will produce a fall in revenue eventually for the bus operators
and hit their profits, but, more importantly, less passengers
will go on the buses if the prices continue to rise and—
Mr Rowlands: Forgive me, but I
think I would like to make the assumption that, whatever else
is going on, bus operators are economically rational and are not
trying to go out of business. Therefore, while they are certainly
profit maximising they are also passenger maximising. They have
no interest in driving passengers off their own buses.
Q44 Jon Trickett: Are you aware that
work has been done on elasticity of demand for buses?
Mr Rowlands: I am sure work has
been done.
Q45 Jon Trickett: Are you aware of
it?
Mr Rowlands: Not personally, no.
Q46 Jon Trickett: A figure for elasticity
has been produced, and it is quite clear that we are losing passengers
by the excessive increases in prices which the operators have
been imposing on the poor unfortunate public. Although the revenue
has been increasing, and the profitability, the number of passengers
has actually fallen. Are you aware of any of that work?
Mr Rowlands: Yes. I am also aware,
as I said earlier, that the level of subsidy in London is three
times the level of subsidy in PTEs. It impacts on fares and impacts
on wider issues.
Q47 Jon Trickett: Would competition
in the PTE areas help to defray the rising prices and therefore
help to retain passengers?
Mr Rowlands: If you have a bus
operator that is earning exceptional profits, then you would,
over time, expect them to be competing away through competition,
yes.
Q48 Jon Trickett: I have jotted down
(a) that there are quasi monopolies across the PTE areas and elsewhere
as well, which is resulting in mechanical breakdowns, older fleet,
rising prices and really super profits, all of which is resulting
in fewer passengers. You have not been able to verify or even
comment on any of those matters. The Department does not own these—it
is just evading responsibility and—
Mr Rowlands: Not at all. We, as
the Report very clearly shows, have tightened up the target. If
we were in the business of evading our responsibilities we would
have stayed with the old 12% across the piece by 2010, but we
chose in 2004 to put a very difficult additional piece in to—
Q49 Jon Trickett: You have not bothered
to analyse basic econometric factors and the implications for
passenger use, have you?
Mr Rowlands: No, we do. We are
actually building—
Q50 Jon Trickett: You have produced
no evidence this afternoon of that.
Mr Rowlands: We are building with
the bus industry and with the local authorities a model that will
take in costs, ridership, fares and demands, so that we are trying
to build and share with industry the very points you are making.
Q51 Sarah McCarthy-Fry: Can I draw
your attention to page 30, paragraph 1.24? "This two-year
project will build on good practice already identified and include
consideration of partnership working, the mix of public transport
services provided (for example by buses, taxis and community transport
. . ." Do you class taxis as public transport?
Mr Rowlands: Yes.
Q52 Sarah McCarthy-Fry: Given that
you have just said that you class taxis as public transport, can
you turn to page 51, diagram 15? "Concessionary fares: Wide
variety of schemes which are complex and confuse the public: "Budget
pressures limiting concessionary fares expenditure. Concessionary
fares resource not restricted to use on public transport."
What do you mean by that? What else is concessionary fares resource
if it is not on public transport? I assume that to mean that people
use their bus tokens in taxis, but you have just told me that
taxis are public transport.
Mr Rowlands: Mr Linnard will correct
me if I get this wrong. It depends what they mean by "public
transport" in the Report. They extend, I think, to community
transport.
Mr Linnard: Some local authorities
give concessionary travel on community transport, and I think
some do on taxis. Whether there is a definitional problem on what
is public transport in different parts I do not know.
Q53 Sarah McCarthy-Fry: This is the
point I am making because it is an argument that comes up in most
local authorities every year—those that have a half-fare
scheme—and it will come up even more when we spread nationwide
the full fare free scheme, because my constituents are asking,
"Am I still going to get my tokens?" Then the argument
comes up whether we are doing this to help our constituents to
travel around, in which case people who cannot use buses for disability
reasons or whatever reason quite rightly wish to use their tokens
on taxis. You hear other anecdotal stories of people who use their
tokens, which are a form of concessionary fare subsidy, for their
taxis to the airport, and you also get anecdotal stories of the
black market in tokens.
Mr Rowlands: There is nothing
happening that would prevent any local authority to continue to
give tokens in the way you suggest—I think that is right.
Mr Linnard: Yes.
Mr Rowlands: —or to extend
their local concessionary travel arrangements beyond buses—on
Merseyside, for example, I think it covers the ferries, for example.
What is happening is that whatever arrangements they had for which
they were getting from the Government support for half concessionary
fares, will move to the point where there is another £350
million going in so that there will be full concessionary fares.
That they can enter in any way they wish, and that can be included
in continuing token arrangements.
Q54 Sarah McCarthy-Fry: Do you believe
that this new concessionary fare policy will increase the number
of bus passengers?
Mr Rowlands: Yes.
Q55 Sarah McCarthy-Fry: My own local
authority believes the same thing. Is this what you believe is
one of the levers that local authorities can use?
Mr Rowlands: Yes. As I said earlier,
this is in part about increasing the attractiveness of bus use,
and some of that may be to do with the levels of subsidy. Our
forecast at the moment is that the new concessionary arrangements
for bus fares from April should increase ridership of the PTEs
by 5%, and outside of them in the rest of England and outside
London by about 14%, so we are expecting some significant kick-up
in ridership. As I said earlier, this is also about car restraint.
That is the evidence from London; it is not simply about the Mayor
of London or the London subsidies; it is about the willingness
to introduce a congestion charging scheme. It now costs you £8
to go into the centre of London, shortly to be extended to the
West End.
Q56 Sarah McCarthy-Fry: Coming back
to subsidy, I was a bit surprised to read in the Report about
the bus service operator's grant that subsidises companies for
the amount of fuel they use. You have had an opportunity to change
the requirement for that subsidy; you could possibly have directed
it in a more focused way at increase in bus usage, environmental
improvement, enhancing the passenger experience: why did you choose
to keep it as a fuel subsidy?
Mr Rowlands: I understand the
point you make. This was looked at two years ago. There was a
public consultation and there was little appetite either from
local authorities or from operators for any change. We modelled
various alternative options within the same sort of sum of money
so that it might be directed in different ways. It was very clear
that if it re-focused the money so that it was paid per passenger
for example, the urban centres would win and the rural bus services
would lose very substantially. It was the same problem with other
options that were modelled. There were inevitably some very substantial
winners and some very substantial losers. The conclusion at the
time, in the face of that and in the face of it being quite difficult
to understand what the impact would be network-wide, was that,
despite the point you make about the environmental side, it was
best to leave it as it was. What I would say is that in environmental
terms this still leaves the operators having to pick up the other
20% of fuel duty, plus the non-duty elements of fuel, so they
still claim something towards their fuel costs but obviously not
the entire bill.
Q57 Sarah McCarthy-Fry: Can I now
bring you on to the quality contracts. Am I right in understanding
that if a local authority took on a quality contract—and
none has opted to do that—they would have greater control
over the bus services and would be better able to direct them
to the needs of the residents?
Mr Rowlands: A quality contract
would allow the local authority to specify the times and the fares,
and that contract would be let to whichever bus company was doing
that contract, not necessarily the incumbent.
Q58 Sarah McCarthy-Fry: But no local
authority has opted to use it yet. Why do you think that is?
Mr Rowlands: I think, if you ask
some of the local authorities, they would say that the hurdles
are too high. We have certainly tried to lower the barrier, if
only in the sense that a little while ago we reduced from 21 months
to six months the period that has to elapse between setting the
quality contract arrangements and actually introducing it. However,
inevitably this barrier will be quite high because of Human Rights
Act implications. Under the Human Rights Act any legal entity
is entitled to the quiet enjoyment of their own property and you
may only override that in the public interest; and therefore to
move to quality contracts requires a strong public interest reason;
it cannot be done simply because somebody would like to have quality
contracts. This amounts, in human rights terms, to taking away
from the bus operator the business they are doing in a particular
locality, because the Act says it needs to be a proposal put to
my Secretary of State on the basis that this is the only way in
which they can deliver their bus policy.
Q59 Sarah McCarthy-Fry: So the bus
operators must be deemed to have failed the people who live in
that area with—
Mr Rowlands: No. Perhaps I can
just repeat what I have said. Mr Linnard will tell me if I get
this wrong, but the test in the Act is that a quality contract
can be put in place because that is the only feasible means by
which that local authority can deliver its bus strategy.
Mr Linnard: The only practical
way of delivering a bus strategy.
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