Transport Committee - Competition in the local bus market - Minutes of EvidenceHC 10

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House of COMMONS



Transport Committee

Competition in the local bus market

Tuesday 17 April 2012

Beverley Bell

Mike Cooper, SteveN Salmon, Giles Fearnley and James Freeman

Bobby Morton, Martin Mayer and Phil Bialyk

Evidence heard in Public Questions 104 - 290



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Oral Evidence

Taken before the Transport Committee

on Tuesday 17 April 2012

Members present:

Mrs Louise Ellman (Chair)

Jim Dobbin

Mr Tom Harris

Julie Hilling

Kwasi Kwarteng

Mr John Leech

Paul Maynard

Iain Stewart

Graham Stringer


Examination of Witness

Witness: Beverley Bell, Acting Senior Traffic Commissioner, gave evidence.

Q104 Chair: Good morning, Ms Bell. Welcome to the Transport Select Committee. What role does the Traffic Commissioner have in dealing with competition in bus services?

Beverley Bell: A very limited role with regard to competition. The Commissioners feel that our general role with regard to the operation of bus services by licensed operators has two parts. The first part is the general rule of fair competition, making sure that we only allow into the industry and retain within the industry those operators who are fit to conduct bus operations. Let me give you a good example. If a bus operator is running off route to fill its vehicles with diesel because it does not have enough money to fund its diesel, then we would potentially take the licence off the operator. That is a general overriding competition issue.

With regard to specific registered services, I think all Commissioners would agree that our role is extremely limited. It is very much for the marketplace to determine how and when operators will operate their services, but we have a very limited role when it comes to enforcing. The only part of the legislation where we can look at enforcement is if there has been intentional interference by one operator against another.

Q105 Chair: Do you think there should be a local regulator of competition?

Beverley Bell: Generally?

Chair: In the bus services.

Beverley Bell: We like to think that we are regional local regulators and that we know and regulate our own traffic area. I would see no difficulty with there being a specialist regulator who looked at the region.

Q106 Chair: How would that work? Would that be in the Traffic Commissioners or something separate?

Beverley Bell: The Traffic Commissioners, in my view, would be well placed to deal with competition regulation because it sits naturally with their other role of general regulation of the industries, but we would have to increase our skills substantially. That is what I told the Competition Commission. We are not currently trained or skilled to look at competition issues, although I suppose we could act as a post box to the Competition Commission and the OFT if we received complaints.

Q107 Chair: Could you see a role for the Commissioners in promoting competition rather than reacting to the situation you found?

Beverley Bell: I would like to think that we do promote competition. I would like to think that we promote an industry that does effectively allow anybody to enter the profession subject to them reaching the right standards.

Q108 Jim Dobbin: On the issue of competition, would you like to see what happened a number of years ago when bus deregulation was introduced? All the little mini coaches were certainly running all round Greater Manchester but not for very long. They soon disappeared, basically because a couple of big companies came in and more or less split the whole of Greater Manchester in two. Would you like to see that return so that you had that on-street head-to-head competition?

Beverley Bell: I am not interested in competition per se. I am interested in a good level of reliable, punctual services for operators. The difficulty is that the current legislation does not allow Commissioners to promote that. For example, if we have a large operator running a half-hourly service and then a new operator comes in, whether they are large or small, and wants to operate five minutes in advance, I cannot do anything to stop that. That does not improve competition for the bus passenger. Maybe if we could say, "You can run that service but only at 15-minute intervals", so that you offered a 15-minute service through different operators, we would actually improve the service to the customers-to the passengers.

Q109 Jim Dobbin: From memory, these mini coaches were just chasing each other all over the place. I did not see any benefit for the passengers at all. Do you see a benefit?

Beverley Bell: No, not at all.

Q110 Paul Maynard: You mentioned earlier that you felt you would need more skills to be able to perform some of the roles we have been discussing in terms of promoting competition. Can you talk a bit more about what sort of skills they might be and maybe a bit about what the background of Traffic Commissioners tends to be? Do you come from a legal background or an economic regulation background? What sort of background do Traffic Commissioners emerge from? They have always seemed to me a bit like the tooth fairy: one believes they are there, but one is not quite sure what the point of them is.

Beverley Bell: I have never thought of myself as being analogous to the tooth fairy before. Mostly, Traffic Commissioners have tended in recent years to come either from a legal or military background. There is a very good reason, Mr Maynard, why they came from a military background. We do still have some powers for deploying vehicles in emergency civil situations. That is why historically they were. At the moment, of seven Traffic Commissioners, five are qualified solicitors. We have just recruited two new ones, neither of whom are qualified solicitors and both of whom, interestingly in fact, were civil servants.

Your question about improving our knowledge of competition is simply that. It is improving our knowledge of competition legislation, but also, there would have to be a provision for us to be able to apply that competition legislation or to know when to refer it on where appropriate to the OFT, for example.

Q111 Paul Maynard: All things being equal, if you had those skills and abilities, and you had the legislative powers to do so, would you require greater resources to implement those powers or would you be able to do so from your existing budgets and capabilities?

Beverley Bell: When we interviewed for the post of Traffic Commissioners recently, one of the interviewees asked me if I felt that I would like more resources. I said, "There isn’t a public regulator in the country who wouldn’t like more resources." But, if you read the annual reports, you will see that historically Commissioners have complained for a number of years at a lack of resources with regard, particularly, to compliance on registered services-in other words, bus compliance monitoring. My message to the Committee today is very clear. Commissioners feel that they do not have enough resources to even cover their existing powers under the legislation. Therefore, if we were to have greater powers we would certainly need more resources to enable us to deal with those.

Q112 Paul Maynard: We are discussing at great length in this inquiry the regulation of competition in local bus markets. Lots of ideas are emerging as to how that regulation could be improved, how competition could be promoted, why there are not more Quality Contracts, and all that sort of thing. Do you think it is the case that there are lots of ideas in search of a body to implement them and it just so happens that people have alighted upon the Traffic Commissioners as being the only extant body possibly capable of doing it, or do you see it as a more natural progression of what you have been doing anyway?

Beverley Bell: I definitely see it as a natural progression of what we have been doing. We are specialist regulators. We only deal with the commercial vehicle industry and I think it sits very well with our current role. It depends what you mean <?oasys [pc10p0] ?>when you use the word "competition". It depends whether you mean competition between existing and potentially new bus operators or whether you mean competition with other forms of transport-for example, the train, the tram or the car.

Q113 Paul Maynard: You have almost posed the question to yourself. In terms of competition between different modes, would you see yourself as potentially having a role?

Beverley Bell: No. It is more oblique than that. My role is to promote a compliant bus industry of which passengers and operators can be proud. I see that very much as my role. The bus industry suffers from a very negative press at times, which is unfortunate. My role in promoting fair competition and running reliable, punctual services fits in with that promotion of the bus over other methods of transport.

Q114 Chair: You referred to the problem of resources. A recent VOSA consultation showed that of the £13 million that is received in fees from the industry the Commissioners receive only £1.4 million. Were you aware of that before that consultation was published?

Beverley Bell: I was not until I became the Acting Senior Traffic Commissioner. First of all I became the Deputy Senior Traffic Commissioner and I am currently the Acting Senior Traffic Commissioner. One of the things I have been doing is working very closely with VOSA to examine the budgets and the figures in detail and to ask some very searching questions. Indeed, I have raised it previously with VOSA and also with Norman Baker. I had a response from Norman Baker that dealt with the aspects of that. Suffice it to say that I am looking in detail with VOSA at the allocation of that money. I am also having a meeting with the industry through the CPT, the RHA and the FTA this Thursday, and that is one of the things I am going to be discussing with them.

Q115 Mr Leech: Last month FirstGroup were fined £285,000.

Beverley Bell: They were.

Q116 Mr Leech: When was the last time that a bus company in the north-west was fined for unreliable services?

Beverley Bell: That is a question I was not expecting; I am sorry. I cannot tell you the last time that a bus company was fined in the north-west. What I can tell you is that in the year 2010-11 there were no public inquiries in the north-west traffic area involving bus reliability, and the year before that there was one. Commissioners feel-and I certainly feel in the north-west-that that is as a result of the distinct lack of resources with regard to bus compliance work being referred to Traffic Commissioners.

Q117 Mr Leech: In terms of not just the north-west but the rest of the country, is there any evidence to suggest that where there are Quality Partnerships in place your role as a Traffic Commissioner is easier in terms of taking action against bus operators?

Beverley Bell: We have not yet had to take any action with regard to Quality Partnerships. There are many Quality Partnerships up and down England, Scotland and Wales. Many of those are a success and are seen to be working both by the operators and by the local authorities. We have not yet had to become involved with those. I am very keen, and I know my colleagues are very keen, to promote that partnership working between the industry and the local authorities, because they also have their part to play in this.

Q118 Mr Leech: Would it be fair to suggest that, by introducing Quality Partnerships, the need for the Traffic Commissioners to get involved in the fining of bus companies for not being reliable and punctual is reduced?

Beverley Bell: Absolutely not. There will always be those operators who cannot comply. There will always be those operators who will not comply. In my view you will never get 100% of operators being involved in Quality Partnerships.

Q119 Mr Leech: But, so far, you are not aware of Traffic Commissioners having to get involved in fining a bus company where those partnerships have been in place.

Beverley Bell: No, not yet. I would also say that when you look, for example, at the role of Transport for Greater Manchester, Merseytravel, and in my area the ITAs, the local authorities, they have a whole host of information about operators that they have historically not been terribly keen to pass on to Traffic Commissioners because of the relationship between them. That is changing. Once those organisations start to pass on data to Traffic Commissioners, you will see Traffic Commissioners taking a greater role in ensuring compliance.

Q120 Mr Leech: Do the Traffic Commissioners take any view on how helpful Quality Contracts would be in ensuring better services and a lack of need for intervention?

Beverley Bell: I think everybody is watching and waiting. There have not yet been any Quality Contracts. We understand that there will be one coming up later this year in one of the northern areas. I cannot yet comment on that because I may have to sit on that Quality Contract application, but I know that there is great interest in the industry to see how those develop.

Q121 Mr Leech: Finally, this is in the north-east, and it is said that the bus operators have suggested they might have a scorched earth policy to try and scupper any chances of a Quality Contract. I assume that the Traffic Commissioners would take a very dim view of that if the operators were to act in that fashion to try and scupper improving bus services.

Beverley Bell: I would never make any comment at a Transport Select Committee hearing with regard to any individual operator or any individual traffic area. <?oasys [pc10p0] ?>That would be inappropriate. What I could do is talk about general approach. If we felt that an operator was trying to circumvent that, just as if we felt they were trying to circumvent our orders, then, yes, we would take a dim view.

Q122 Graham Stringer: I want to follow up on Mr Leech’s question. How did you decide on the level of the fine to FirstGroup?

Beverley Bell: I cannot discuss that. I meant to flag it up at the start. The reason is that the appeal period is still outstanding with regard to FirstGroup because the order that I made was in the last 28 days and it would be inappropriate of me to comment. I can say as a general answer that Commissioners are generally working to the practice direction that was issued by my predecessor Philip Brown, the then Senior Traffic Commissioner. That sets out the circumstances and the factors that Commissioners should take into account, such as how proactive the operator has been in ensuring their services run on time and what has been the role of other individuals within the organisation and so on. There is a scale that is then looked at and considered, if that assists.

Q123 Graham Stringer: There has been a decade of appalling services by FirstGroup in north Manchester. I do not think it was you; it was probably one of your predecessors who held an inquiry where they found that the wheels were literally falling off FirstGroup’s buses in Rochdale and north Manchester. There has been a distinct lack of action from the Traffic Commissioners over a decade. One is talking here about 25% of the services not following the registered timetables and my constituents suffer from that. Do you feel that you have not done enough to fulfil your obligations to my constituents?

Beverley Bell: Let me deal with the two issues. I have been in post in the north-west since 2000. I have dealt with FirstGroup and indeed many other operators at public inquiry for maintenance issues. I am conscious of the people sitting behind me. I doubt that any of them would ever suggest that I was ever seen as a soft touch by the operators. If I am, and if I am turning into the tooth fairy, then it is time for me to take a harder line. But I do not think there are any operators in the north-west who think that they can appear at a public inquiry before me or my colleagues and not expect robust action on maintenance because the public are entitled to expect robust regulation. This is a phrase I use day in, day out, in public inquiry.

If you look at the statistics with regard to PSV operations, at one stage my colleagues and I were revoking 50% of operators who appeared before us. If I look at the statistics last year, my colleagues and I did about 49 public inquiries in the north-west traffic area, of which we revoked about 16 licences. So I hope I am robust.

I will also say that, whenever we do have a public inquiry of interest to people like your constituents, the social networking and social media sites go bananas and haywire. We get people making comments. This <?oasys [pc10p0] ?>is all still very new to us as regulators. These people make comments about the level of service that they receive. After I dealt with a recent large operator at public inquiry I got lots of letters from people saying, "I’d also like to complain."

It grieves me, Mr Stringer, that I am not told about this sooner and that I am only told about it when it is in the public domain. That is why, in my view, it comes back to resources and proper enforcement by VOSA and the other enforcement agencies. My message is: bring it on and we would be delighted to take action.

Q124 Graham Stringer: There are two points from that. You really did not answer the point about 10 years of monitored failure by FirstGroup in north Manchester, both on its maintenance and safety levels and on the punctuality of its service. The Passenger Transport Authority, the Integrated Transport Authority and Transport for Manchester-they are the sequence of authorities-have all had evidence of that. Are you saying that you have not talked to those bodies to get the information?

Beverley Bell: I would love to answer your question in detail, but, as I said to you a moment ago, there is an appeal pending with regard to FirstGroup.

Q125 Graham Stringer: Can I interrupt? I accept that answer in terms of the justification for that level of fine. Prior to that, there is a decade of failure to improve this appalling bus service in north Manchester.

Beverley Bell: When you say "bus service", do you mean the running of the registered services or do you mean things like vehicle maintenance?

Q126 Graham Stringer: I mean both.

Beverley Bell: You mean both.

Graham Stringer: Yes.

Beverley Bell: Dealing with vehicle maintenance, as I said, a number of years ago I did deal with First Manchester at a public inquiry for maintenance. I remember it very well and I took action against them.

Q127 Graham Stringer: That was the one where the wheels were falling off a bus.

Beverley Bell: That was the one where there were problems with maintenance- absolutely. VOSA monitor any operator that has been to public inquiry and monitor them extensively. If there had been any further problems, I am absolutely satisfied that VOSA would have referred them to me and that I would have called them to public inquiry.

With regard to the running of registered services, I am sorry if I did not answer the question fully enough. After I had dealt with First Manchester at the public inquiry for the fine, I then received a lot of letters and comments from people who lived in Manchester complaining about the services that they were trying to use. I have now passed all of those on to First Manchester and asked for their comments. If I can take action, if it is appropriate to do so, I will. The <?oasys [pc10p0] ?>point I was making, obviously not terribly well, is that I wanted to know about these things sooner, not after the public inquiry. My concern is that VOSA does not have the time and resources to investigate it fully.

Q128 Graham Stringer: I understand that point. What I am saying is that most of the complaints, not just about FirstGroup but about other bus services in any area, and we are talking about Greater Manchester, primarily go to the transport authority. Do you not go to the transport authority and ask them for what information they have?

Beverley Bell: I have regular meetings with Transport for Greater Manchester, I attend the Merseyside Bus Board and I liaise with the local authorities. Indeed, last year I had a conference with all the local authorities with regard to bus compliance. I have asked Transport for Greater Manchester in certain circumstances to provide me with data, and we are in the process of working up an agreement whereby they will be able to provide me with data regarding non-compliant operators. I regard that as really important because there is a role for the ITAs and the local authorities. They must also play their part in ensuring proper, reliable registered services. Yes, I do meet with them and we are drawing up agreements so that they can disclose data to me. Some of it is obviously commercially sensitive and the operators would not want me to see it.

Q129 Graham Stringer: On that point, the best information that is available on the reliability of the services and where the buses are at particular times is with the bus companies themselves. Do you not feel that you should have a right to access that information?

Beverley Bell: I often ask them for it.

Q130 Graham Stringer: Do you get it?

Beverley Bell: Absolutely. Nobody has yet refused to provide it to me. When I did my very first bus monitoring case, which was in the early 2000s down in Derbyshire, that involved Stagecoach. I asked Stagecoach to provide me with their bus monitoring data for a period of time, together with details of the remedial action taken when they found that they were not reaching the 95% compliance. I saw that as a much better way of spending the money that I could have imposed as a financial penalty. Historically, that is something that my colleagues and I have tended to do over the years if an operator is not complying. We ask them to send us the data on a regular basis, together with details of the remedial action. I have never yet had an operator refuse to give it to me. If they did refuse to give it to me, then that would be a very interesting scenario.

Similarly, the practice direction that we currently work to, which I am amending this year, refers to the requirement for all operators to actively monitor their own services, and there are still many that do not.

Q131 Chair: I am surprised that the picture you have given is of something very non-reactive. Don’t the transport authorities come to you?

Beverley Bell: No, not generally.

Q132 Chair: They never come to you with problems.

Beverley Bell: They do sometimes. They will assist us.

Q133 Chair: Or passenger groups.

Beverley Bell: Yes. I want to be clear that I am speaking on behalf of all Traffic Commissioners here. We have talked about Manchester, but my answers relate to England and Wales, and to a lesser degree Scotland. Traffic Commissioners will go to events. For example, I go to TravelWatch conferences and speak to bus passengers. My colleagues go to TravelWatch conferences. We go to Bus Users UK events if we are invited to speak.

Q134 Chair: But do these groups ever approach you as well and you go there?

Beverley Bell: Yes; we invite them to approach us. An awful lot of people don’t know that Traffic Commissioners exist. One of my things to do for this year is to speak to Bus Users UK and to say, "In what circumstances do you refer cases to Traffic Commissioners for them to take action?" To my knowledge, the Bus Appeals Body has never referred anything to Traffic Commissioners. We would love to get the cases so that we can take the action.

Q135 Chair: How many people did you have working in the north-west?

Beverley Bell: For me?

Chair: Yes.

Beverley Bell: It depends. If you are talking about the compliance team who support me in my public inquiry role, there are probably about 10 or 12 maximum. If you are talking about people who are looking at general licensing, there are five, and I share that with the north-east. If you are looking at bus registrations, which are all the bus registrations for all the operators in England, Scotland and Wales, you are looking at three and a half people. Traffic Commissioners have historically expressed their concern at the lack of resource with regard to PSV work. We do understand it is a difficult economic climate and we do understand that it is the operators who pay for the service. We don’t want to put the fees up so we have to become more efficient. That is why we need to be reliant on third parties bringing matters to our attention.

Q136 Iain Stewart: I would like to pick up on some of the points that Mr Maynard and Mr Dobbin made earlier about your role in preventing unfair competition with a new bus operator coming in five minutes ahead of an existing operator. The logical extension of your interest there is for you to have a proactive role in timetable setting. At what point do you stop policing the market and start trying to influence it? Where do you see that boundary lying?

Beverley Bell: It is a very interesting question. Certainly in my time and since deregulation, we have never been involved in setting the times at which vehicles will run. That would be an absolute sea change for Traffic Commissioners. I can really never see that happening, which is what makes our job all the more frustrating. The only way that we can try to ensure some sort of safety, if you like, is through a traffic regulation condition where the local authority will approach us and ask us to make a traffic regulation condition. They are made up and down the country to make sure that the roads are safe, that people are not going to be knocked over by too many buses and so on. I do not see us having any role unless you bring back regulation. I suspect the people behind me would not be very happy if you said bring back regulation. Of course the current political climate is deregulation.

Q137 Iain Stewart: I just want to be clear in my mind at what point you have the powers to stop that happening.

Beverley Bell: I don’t.

Q138 Iain Stewart: You don’t have those powers.

Beverley Bell: I don’t.

Q139 Iain Stewart: Would you like them?

Beverley Bell: It would be a major change to the way in which we currently regulate if we were to have those powers. Where we do have those powers is if an operator has failed in the past. If they have not been running their services properly and they have been guilty either of under-running or over-busing, and where they have done that to prevent the passengers getting on to other operators’ vehicles, we have the power, after a public inquiry, to take their registrations off them or to prevent them registering new services in the future. But that is after the event rather than before the event.

Q140 Julie Hilling: I want to go back to this notion of complaining. Are you saying to us that there is a lack of mechanism for the public to raise issues? My colleague was talking about 10 years of failure. You are saying that after you have done the inquiry you get all these letters from the public. Is there something missing in the jigsaw? If so, what should be in place for those issues to be raised?

Beverley Bell: Probably the reason for us not getting referrals from members of the public is because most people do not know what Traffic Commissioners are. They do not know who they are and they do not even know that they exist. When a bus passenger wants to complain, they do one of two things. They write to the operator or they write to their local authority and say, "I want to complain about this." Often, the local authority will deal with that complaint. Traffic Commissioners in the past have worked hard with the local authorities to say to them, "When you get those complaints, please pass them on to the Traffic Commissioner." The Traffic Commissioner will then deal with it where appropriate.

Q141 Julie Hilling: So you are saying there is a gap in the knowledge.

Beverley Bell: There is.

Q142 Julie Hilling: What needs to be done?

Beverley Bell: I suppose the obvious answer, unless I have missed something, is to make the public more aware of the existence and the powers of Traffic Commissioners. Maybe we need a publicity campaign. "Learn to love your regulator." It is a serious point. You have to love your regulator because, without having the regulator, you are not standing up for the decent operators; you are not standing up for the passengers. That is very much how we see our role. Passenger Focus, as an organisation, has become the public face of who you complain to. I might add that some Traffic Commissioners, including me, were very annoyed when public money was being spent. I am being forthright here and I promised myself that I would not be. We were very annoyed that Passenger Focus was being given all this money to spend on standing up for passengers. I said, "That is my job. I am here to stand up for passengers." As it turns out, Passenger Focus are really nice people, and my colleagues and I are working really hard with them. I sit on one of their working groups so that we can work together for the benefit of the passenger public.

Q143 Chair: They are nice people, but do you think you could have used the money better?

Beverley Bell: I am not saying I could use the money better because I don’t want in any way to criticise what they do, but I would have liked to have been able to spend that money.

Chair: That is very diplomatic.

Q144 Julie Hilling: With regard to those companies referred to, is there any difference between the large operators and the small operators? Do you get more issues with the small operators? I am talking about safety and reliability of the delivery of service. Is there any difference?

Beverley Bell: In what way?

Q145 Julie Hilling: Do you get more complaints coming forward about large operators or small operators? Are the standards equivalent?

Beverley Bell: No. Passengers complain no matter what the size. It will obviously depend very much on the route. If you have a small operator and a large operator running a route, and the route is not being run properly by one operator, the passenger does not care who it is; they just write and complain.

Q146 Chair: What role do you think the Traffic Commissioners would have if the Competition Commission’s report is put into practice?

Beverley Bell: This is something that we have discussed with DfT. Lots of the proposals are a natural extension of what we do now anyway. We do not see any problem with the 56-day notice period being extended to 90 days. We do not see any problem with the 14-day notice period. I think frequent services and having the banding is quite a good idea. I know that some of the operators don’t think it is quite a good idea, but I do think it is a very useful tool. May I be allowed just to give an example on that?

I have a case in a far northern town at the moment where two bus operators are potentially looking at maybe they might fall out at some stage in the future. One of them runs a frequent service. What I would like to do is say, "This is the band you can operate in. You can run no less than six buses an hour, but you can’t run more than 10 buses an hour", picking a figure out of the air. If I do that, then I am limiting the number of buses that the operator can operate at any one time, preventing over-busing. The situation with banding is potentially going to be very useful.

I do not see a problem with all of those, which are bread and butter to us, subject to the funding. The only other issue is the code of conduct. That is a much more difficult issue with regard to a code of conduct.

Q147 Chair: Are you developing a code of conduct now?

Beverley Bell: If DfT says that is the way forward, then yes, the Commissioners will have to look at developing a code of conduct.

Q148 Chair: But that is not happening at the moment.

Beverley Bell: I am afraid not. I haven’t got the time.

Q149 Chair: Have you tried?

Beverley Bell: I haven’t got the time. I am sorry to be blunt. I still have to draft the new statutory guidance documents that relate to running reliable punctual services. That should have been done last year. It was not. As you know, I have taken over from my predecessor and I am still the Acting Senior Traffic Commissioner. It is on my "to do" list for 2012. Once that is done, then the Commissioners will be able to look at drafting a code of conduct. In any event that will fit in with the Government’s time frame and the DfT’s time frame. There would have to be secondary legislation for some of the matters that the Competition Commission referred to, and indeed primary legislation for some other matters.

Q150 Paul Maynard: I get many complaints about healthcare provision in my constituency from constituents. I know the complaints process. I write to the hospital, and if we don’t get a satisfactory reply we end up at the ombudsman. I get just as many complaints about bus services, predominantly regarding routes, changes to routes, deregistering of services and so on. Yet there does not seem to be that clear pathway for complaints and resolving disputes that exists in other areas of public services. Do you see yourself as an ombudsman in a very precise, technical meaning of the term?

Beverley Bell: No. I see myself as a regulator.

Q151 Paul Maynard: Do you think there is a role for an ombudsman?

Beverley Bell: They are really good questions. I think there is a role for a spokesperson, if you like, or a post box for bus issues because the people to whom you complain vary so much. I had a letter the other day asking if I could arrange for a new bus stop to be put in because people had heard there is a Traffic Commissioner. That person got a reply and I referred them to the local authority. When people write in, they just don’t know who to write to, and it is our job as <?oasys [pc10p0] ?>public servants to say, "This is who you need to complain to." Maybe there needs to be one focus point, one post box. Whether that is Passenger Focus I don’t know, but at the moment it tends to be the local authority. That is who people write to.

Q152 Paul Maynard: You are making quasi-judicial decisions about the provision of bus services.

Beverley Bell: Yes.

Q153 Paul Maynard: You have other organisations like Passenger Focus, the local councils, and I am sure I can think of four or five others if I put my mind to it, that are all making quasi-judicial decisions. At what point does democratic accountability need to cease and a public service obligation commence? For example, if a private company wishes to cease providing a particular service that is not a tendered service and it is not going to the same destination that it always used to go to, a lot of people are rightly very angry.

Beverley Bell: Yes, they are-very.

Q154 Paul Maynard: But there is no mechanism by which that decision can be tested or as to whether it is an appropriate decision to have taken.

Beverley Bell: There is not; that is right.

Q155 Paul Maynard: When we had our previous inquiry into bus services, we spent a lot of time discussing how bus companies and local authorities develop route maps of where should and should not be served. Do you not see any role for the Traffic Commissioners in looking at overall route networks to make sure that they are comprehensive and meet passenger needs? Who should be doing that, for example?

Chair: Would you see that in your remit?

Beverley Bell: That goes against everything that we have ever done since deregulation. Again, that would be a major sea change if we were to cover and look at the routes that should be run. That is very much a local authority role. If we were going to do that, there would have to be a change to the legislation. We would have to sit with experts. When I started this job, Mike Betts, the then Senior said to me, "Beverley, don’t think you can ever tell a bus company how to run its services because you can’t; that is not your job." I am saying that in all seriousness, because we are not skilled to know how a bus operator can send out its vehicles to cover the hospitals and the schools.

Q156 Chair: You say to do that you would need a change of legislation. Are you saying you do not think that is part of your role, and in fact it is not with the present legislation?

Beverley Bell: It has not been part of our role since 1985, so to bring that back would require primary legislation and a complete sea change in how we currently regulate.

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Q157 Graham Stringer: Just following up the first questions that Louise asked you, were you saying you are in favour of changing your role from what it is now to something like being Ofbus, where you could judge whether or not there was sufficient competition in the market?

Beverley Bell: No. I think my job and my colleagues’ jobs are to regulate the licensed industry.

Q158 Graham Stringer: Your job at the moment is to make sure that people are doing what they say they are doing in a safe way, is it not?

Beverley Bell: Yes.

Q159 Graham Stringer: But the public interest in the bus industry is really seeing that competition exists, it keeps prices down and keeps good services up?

Beverley Bell: Yes.

Q160 Graham Stringer: There is nobody who does that. If you look at the energy industry and other industries where there is monopoly behaviour, then there is somebody who can interfere with the prices. Do you not think that should happen in the bus industry, whether it is you or somebody else who becomes Ofbus?

Beverley Bell: I do not know that that is a question I can answer.

Q161 Graham Stringer: But you are right at the heart of the bus industry and you can see some of the failings and successes of it. I think it is a very good question.

Beverley Bell: I think it is a very good question.

Q162 Chair: If you had that power, would that solve some of the problems that you are unable to deal with at the moment?

Beverley Bell: Yes, it would, but it would require a sea change, and that would be a political decision, would it not?

Q163 Graham Stringer: It would require primary legislation, as you said before, but at the moment there are parts of the country where people do not get bus services. There are parts of our urban conurbations where one bus company will charge bus fares 20% higher than another bus company, and nobody does anything about it.

Beverley Bell: Yes, I know.

Q164 Graham Stringer: Nobody has the power to do anything about it.

Beverley Bell: I agree.

Q165 Graham Stringer: Don’t you think you should be given those powers?

Chair: Would you like to have those powers?

Beverley Bell: I would always like to have more powers and my colleagues would always like to have more powers, but there have to be resources and skilling with it.

Q166 Chair: You would like them but they would have to have resources with it.

Beverley Bell: We would have to have resources and skilling because it would be a sea change from how we have regulated in the past.

Q167 Graham Stringer: I have a final question. A week or so ago Peter Hendy from Transport for London-

Beverley Bell: Yes, I know Peter.

Graham Stringer: -in the "Great Bus Debate" said that there were some people in the industry who quite frankly should not be there. Do you agree with him?

Beverley Bell: I would hope that does not apply in the north-west traffic area. I would hope I have got rid of them all.

Q168 Chair: Do you agree with him nevertheless?

Beverley Bell: That there are some people who should not be in the bus industry?

Q169 Chair: Yes, who are still there.

Beverley Bell: There will always be non-compliant operators. It is really important that VOSA finds those non-compliant bus operators quickly and brings them to our attention quickly.

Q170 Chair: Is it not doing it now?

Beverley Bell: It is, but it is down to resources. I am sorry; that sounded peremptory.

Q171 Chair: Let us just focus on the question that Mr Stringer put. Are there operators currently in business who should not be?

Beverley Bell: Of course.

Q172 Jim Dobbin: This is an interesting debate, quite honestly, about rules and regulations. You keep describing the Traffic Commissioner as a regulator, but you are regulating within a deregulated system. How does it work, and would you like to see deregulation out of the system altogether? Let us be blunt about this because this is what the debate is about.

Beverley Bell: I want regulation to be proportionate. I am very much of the view that the vast majority of PSV operators do an excellent job. I sound like a politician, for which I apologise profusely.

Chair: You must not apologise to us as politicians.

Beverley Bell: But I do mean this. Generally, most PSV operations are offering a great service to passengers. Yes, it is incredibly frustrating that there are large areas, as Mr Stringer said, where people are not getting the service that they should be getting. I really do not see it as my job to say whether or not we should have more regulation because I see that as a political decision. Of course, as a regulator, I would say, "Yes, I would like more powers. Yes, I would like more resources." But these are political decisions. They are not for people like me, which is why I could never go into politics.

Q173 Chair: Could you tell us why there have not been any Quality Contracts finalised up to now?

Beverley Bell: I don’t know. You would have to ask the local authorities and the operators. The Traffic Commissioners are the end product when there is an application for a Quality Contract. We can only wait for them to come in; we can only wait for the Quality Partnerships. I distinguish myself here now, talking to you with my north-west Traffic Commissioner hat on. When they were introduced, I did go to the industry at our bus summit and say, "I really don’t want to do a Quality Contract ever because I want operators to work in partnership with the local authorities, industry and the passenger groups. I really want to go down a Quality Partnership route." That tends to be what has happened in my traffic area. Those words have come back to haunt me because in the north-east traffic area there is a Quality Contract pending and it will be me that has to deal with it potentially. We will just have to wait and see what happens.

Q174 Chair: Thank you very much for answering our questions.

Beverley Bell: Can I go now? I can’t bear to listen to what the operators say. Thank you for your time; I am grateful.

Chair: You can go.

Examination of Witnesses

Witnesses: Mike Cooper, Executive Director, UK Bus Operations, Arriva, Steven Salmon, Director of Policy Development, Confederation of Passenger Transport, Giles Fearnley, Managing Director UK Bus, FirstGroup, and James Freeman, Chief Executive Officer of Reading Buses, Association of Local Bus Company Managers (ALBUM), gave evidence.

Q175 Chair: Good morning, gentlemen. Welcome to the Transport Select Committee. Could I have your names and organisations, please? This is to help our records.

Steven Salmon: I am Steven Salmon from the Confederation of Passenger Transport, which represents operators large and small.

James Freeman: I am James Freeman. I am Chief Executive Officer of Reading Transport Ltd, and I am here today representing ALBUM, which is the Association of Local Bus Managers.

Giles Fearnley: I am Giles Fearnley. I am Managing Director of FirstGroup’s UK Bus Division.

Mike Cooper: I am Mike Cooper. I am Managing Director of Arriva’s UK Bus Operations.

Q176 Chair: The Competition Commission found that there was not any or enough real competition in geographic areas. They spoke about market segregation and non-aggression pacts between operators. Do you think the Competition Commission has let the industry off lightly? No one has anything to say. Mr Salmon, should the Competition Commission have more to say about the industry, given that finding?

Steven Salmon: It is always important to remember that they had unprecedented access to data and analytical capacity. There was an enormous amount of effort that went into those conclusions. Of course people talk about "the bus market", but it is actually made up of thousands and thousands and thousands of very small markets. People decide whether they are going to compete with each other or whether there is only enough demand maybe to support one operator, who is of course always competing with other ways of moving about that you do not see so easily.

Q177 Chair: Mr Cooper, the Competition Commission is saying that there is not real competition in local areas. Is that a failure of the industry?

Mike Cooper: I would make two points. First, if you look at the focus of the Competition Commission’s work, they were trying to assess prevailing and relative levels of fares on the one hand with relative levels of customer satisfaction on the other. Mr Stringer said earlier that they were important dimensions. In any consumer goods or any consumer product industry they are critical. I do not think anyone can doubt the logic of what they were attempting to assess.

There is a further point in terms of the degree of competition in the marketplace. We did a piece of work during the Competition Commission’s analysis looking at the proportion of our routes that could sustain an additional competitor. In the short term, it is 0.1% of our routes that could sustain an additional competitor. In the medium to long term, that rises to 9.9%, the point being that this is a very mature industry that cannot sustain additional competition in many different parts of the UK. After two years, the Competition Commission came to that same conclusion.

Q178 Chair: The Competition Commission calculated that bus users are suffering £110 million to £295 million a year of detriment due to inadequate competition. Do you accept that figure?

Mike Cooper: It is quite interesting that two bodies in the space of 18 months came to dramatically different conclusions. When the OFT tried to assess that same number, they said there was a 9% differential in fares in competed and non-competed areas. When the Competition Commission ran the same analysis, they came to a very different conclusion. It is a moot point and it depends on whichever bunch of economists is assessing it on any particular day of the week; so I don’t know1.

Q179 Chair: How will the Competition Commission’s remedies affect the smaller companies?

James Freeman: Some of them will not be terribly helpful. The small companies need the ability to react in the market. To give an example, the extension of the notice period for changes of registrations is certainly not being welcomed by individual smaller operators where there is a need to be flexible to respond to circumstances. That certainly seems a constraint by colleagues of mine, representing, as I do, both new entrants to the market who are very small companies and municipal operators, which are in their own areas quite substantial and often have semi-monopoly powers. I must not say monopoly powers.

I have to say we were relieved that, overall, what has come out of this very lengthy process is not a complete revolution. What we do not want to see is a huge amount of disturbance to the marketplace that is going to make it even more difficult for particularly the smaller operators to invest and to run their businesses.

Q180 Chair: Does anybody else want to comment on the remedies?

Steven Salmon: We have certainly had a very positive response from some of our smaller members on the remedy around multi-operator ticketing because they are keen to do exactly what the Competition Commission wants, which is to become more active in certain markets if they can get more easily into the area-wide tickets, which at the moment tend to be priced slightly higher if they are for multi-operators. There is a lot of interest in that remedy among a particular kind of smaller operator.

Q181 Chair: The Competition Commission also spoke about the rates of return on capital that the larger bus companies have attained in recent years and have said this was higher than the market rate of return. Do you accept that? Could you tell us what has been done with the profits made?

Giles Fearnley: We have to bear in mind that, since the Competition Commission looked at financial data, the financial matrix and the foundation of the industry has changed quite dramatically, particularly with reductions in public funding-whether it is a reduction in BSOG, a reduction in concessionary fares funding through local authorities or a reduction in tendered service budgets, which affects some operators in some areas more than others but which is creating great uncertainty for operators around the strength of those networks going forward. We have to be very careful not to rely on historical data when we look forwards.

In terms of what the industry has done with the returns it has made, it has invested very significantly over the last 10 years. I would say that is as much for larger operators as smaller operators. It is not only in vehicles but more recently in ticketing equipment, as an example, in partnership agreements with local authorities, and indeed with the softer issues with regard to matters like staff training to meet CPC requirements. There is a huge amount of money that has been ploughed back so that we have sustainable businesses serving our customers.

Q182 Chair: How much has actually been reinvested in new buses or in services?

Giles Fearnley: I do not have that figure for the industry. I know what FirstGroup is doing2.

Q183 Chair: Can anybody give me any information on that?

Steven Salmon: After the caveats about using the latest information, I can certainly say, because we did this exercise at CPT, that we had a period in the 2000s of more than five years in which the industry, taken as a whole, was investing more in each year than it was making profits.

Q184 Chair: Do we have figures for that? Can somebody show them to us?

Steven Salmon: I will dig them out for you3.

Q185 Chair: We would like to see the concrete evidence on that. Are the medium-sized companies and municipal companies making the same rates of return?

James Freeman: They do not always work to quite the same circumstance. For example, to take my own company in Reading, our owners expect a different level of return from the commercial operations. On the other hand, we have to make a return and we reinvest it very firmly. We have a very modern fleet, for example, in Reading, which is all about reinvesting.

The much smaller independent companies have to make a return; otherwise there is no point in them being in business. It is certainly not a dirty word to make profits out of running buses.

Q186 Chair: The issue is whether excess profits have been made and whether some of those profits have actually been reinvested in the industry. It is very unclear to me what has happened.

Mike Cooper: It is interesting that Giles talked about the industry today. You yourself said that we are living through "the greatest financial challenge the bus industry has seen for a generation". When the Competition Commission looked at the period prior to that-the supposed good times-what they found was that the difference between the typical average cost of capital in the industry, which was 9.7%, and the returns that the industry was making, which was 13.5%, was not huge. Within that 3.5%, the industry has to reinvest on the one hand and provide some pretty meagre returns to shareholders on the other. That is in the good times.

In terms of reinvestment, typically Arriva over the last five years has reinvested £90 million each year in capital expenditure and predominantly in new buses.

Steven Salmon: I want to make the broader point, which I do not think everybody has appreciated from this report. The Competition Commission used the word "excessive" both in relation to the returns of the bus companies and also the adverse effect on competition, which you mentioned, not in a sense as being absolute examples of something that is wrong but as a comparator between what operators were doing in the market as it exists compared to a market that worked perfectly. We would say that all these figures are an indication of the imperfections of the market. Without comparators from another market-I know they are about to investigate private healthcare, for instance-it is difficult to know whether we should somehow hang our heads in shame over these figures or actually they show it is quite a healthy market.

Q187 Chair: What would you say? Does it show a healthy market?

Steven Salmon: I would say that, without comparator figures from another market, it is impossible to tell.

Q188 Mr Leech: What are the reasons for us not having seen a single Quality Contract so far?

Giles Fearnley: I think it is demonstrating that the market is working and that passengers are being satisfied. There are of course huge financial issues around a Quality Contract and liabilities on an authority that enters one. In the world in which we live that is perhaps itself a major deterrent. I believe the market is working. We are seeing very significant numbers of new partnership arrangements building up to support those already in place. That is where real benefit can be achieved for passengers and for customers rapidly.

Q189 Mr Leech: Can you honestly say that in every single part of the country you believe that the market is working?

Giles Fearnley: It works better in some areas than others.

Q190 Mr Leech: Do you think it is reasonable for bus operators to use the language of scorched earth policies and the like in areas where local authorities or transport authorities are considering Quality Contracts?

Giles Fearnley: I am not involved in the north-east.

Q191 Mr Leech: I was not accusing any particular operator, but would you say that that sort of language is helpful in terms of creating partnerships between operators and authorities?

Giles Fearnley: Where relationships are deep seated between operators and authorities and where an awful lot of progress has been made over the years to serve passengers and meet their needs, then I suspect there is frustration when the issue of Quality Contracts develops. I suspect that is what is being seen here.

Q192 Mr Leech: Mr Freeman, do the smaller operators have the same level of opposition to Quality Contracts as the major operators?

James Freeman: It is hard to say until one actually comes about. The smaller operators quite often do very well out of the Quality Partnerships that have evolved in various parts of the country. One of the issues about Quality Partnerships themselves is that they vary according to the people and the organisations that are part of them. The issue with a small operator in a Quality Contract that would be a matter of fear for that operator is that they would be very insignificant and not taken much notice of. There is not likely to be, in my view, a huge attraction to the Quality Contract if there is not some other way of getting a good quality bus service into operation.

Q193 Mr Leech: Are you suggesting then that the larger operators would benefit more from a Quality Contract than the smaller operators?

James Freeman: No, I am not suggesting that at all. I am merely saying that from the smaller operator’s point of view it is not attractive, but that is not to say that it is attractive from anybody else’s point of view because I am not sure that it is. Certainly from our perspective, the aim ought to be to create a partnership of willing parties rather than creating a contract that feels rather top-down to me.

Q194 Mr Leech: What about those areas where that partnership working is not really in place and there is not a strong relationship between the transport authority and the bus operators?

James Freeman: I think it is for the transport authority to try and foster that relationship.

Q195 Mr Leech: Not the bus operators.

James Freeman: Also, equally, and very much so. In my part of the world we believe fundamentally in working together with the local authorities across the areas. One of the difficulties in the shire counties is that quite often local authorities are very fragmented. Transport authorities in small unitaries characteristically have very small amounts of resource available and know very little about the provision of bus services. In those circumstances, which are often the sorts of places where the smaller operators will find their niche, it is very hard to see how anything other than a Quality Partnership type of arrangement would be deliverable.

Q196 Mr Leech: Do you accept, though, that it is horses for courses and there may be some areas in which Quality Contracts are necessary as opposed to Quality Partnerships?

James Freeman: I think it would be a pity if that was so.

Q197 Graham Stringer: Mr Fearnley, how much money did you spend as a group trying to influence the Competition Commission during this process?

Giles Fearnley: I do not have the exact figure to hand. It is in the range of £2 million to £3 million.

Q198 Graham Stringer: You spent that on lobbyists trying to stop the Competition Commission from coming to a conclusion that Quality Contracts would be a good idea.

Giles Fearnley: No; that is not correct. We spent that money on legal advice in the preparation of our submission to the Competition Commission in our answer to their very many queries and questions.

Q199 Graham Stringer: So it was just answering questions; it was not lobbying them for a particular outcome.

Giles Fearnley: Obviously in the way we answered questions we gave our views as to where we believed they should look in their investigation and what we believed should be the proposals that they came up with. We did this through the question and answer session.

Q200 Graham Stringer: Did you sue Private Eye when they said that you were lobbying for a particular end?

Giles Fearnley: No, we did not.

Q201 Graham Stringer: Why not?

Giles Fearnley: I personally and the committees I have worked for have been quoted in Private Eye many times over my working life and I don’t think it is time well spent.

Q202 Graham Stringer: Is it not because the Private Eye story was true and accurate?

Giles Fearnley: No, it is not.

Q203 Graham Stringer: You said previously that the market works well in different parts of the country. Does the market work well where FirstGroup has a virtual monopoly in my constituency in the north part of Greater Manchester?

Giles Fearnley: I accept we are the largest operator in the north part of Manchester, but there are several other operators, many competing with us on many corridors there.

Q204 Graham Stringer: That does not answer the question. Does the market work well?

Giles Fearnley: We believe we are meeting our passengers’ needs. I am not saying we can’t do better. We are striving continuously to do better, and on the issue most recently of punctuality we have given further commitments.

Q205 Graham Stringer: That is 25% failure in terms of your registered service and about 20% higher fares than Stagecoach operating in the south of Manchester.

Giles Fearnley: There are two issues there. If I deal with the punctuality one first, as the Commissioner said, we are appealing against the severity of her decision.

Q206 Graham Stringer: I am not asking about the level of the fine. I am asking whether or not you think the market is working adequately when there is a 25% failure in your services and you are charging 20% more in fares.

Giles Fearnley: I am coming on to deal with the 25%, Mr Stringer. The issue that we are appealing on is that during the period when VOSA was carrying out roadside checks-it was January and February 2011, just over a year ago-there were very significant roadworks in the Salford area, including some short-term roadworks. The data we supplied to Transport for Greater Manchester during that period demonstrated that we were unable to meet the timetable or any other timetable that we may impose for a short period because of the volatility of those roadworks and the traffic conditions that went around them. We do not believe that information was sufficiently held in regard in the Commissioner’s decision. That is absolutely appropriate to your challenge about the 25% because we believe there were extraneous circumstances that would significantly reduce our failures during that period.

In terms of fares, our operating area for your constituency and others to the north of Manchester is very different, if I may say, to that in the south of Manchester irrespective of who the operator is. The average length that our passengers travel with us is significantly further than it would be south of Manchester because of demographics-university locations, hospital locations and so forth. To a degree our fares represent that. We are working to provide absolute value for passengers. Irrespective of where the fare scales are, one to the other, for a successful and sustainable business we have to offer value for money. As an example, we have just reduced the child fare from January of this year to try to increase patronage and provide better value for money to those passengers.

Q207 Graham Stringer: But you are still 20% above Stagecoach. What percentage of the delays of that 25% where you don’t make schedules is because the buses do not come out of the depot because you have not maintained them properly?

Giles Fearnley: Less than 1%.

Q208 Graham Stringer: That is an improvement on a third of the failures the last time I got statistics out from the Government on this. Can you send us the detail of that 1% because it is very different from the previous statistics we have had on it?

Giles Fearnley: Yes, I will do4.

Q209 Graham Stringer: Do you operate in Greater London?

Giles Fearnley: We are contracted to Transport for London, yes.

Q210 Graham Stringer: What is your rate of return on capital in London compared to the rest of the country?

Giles Fearnley: It is approximately 60% of the figure that is outside London.

Q211 Graham Stringer: Isn’t that the real reason you are against Quality Contracts-because you are exploiting the travelling public outside London in a way that you can’t in a regulated system in London?

Giles Fearnley: No, it is not. We believe-

Q212 Graham Stringer: It is not. So you are happy making 60% less in London. That is a satisfactory situation. That is not a credible answer, is it, Mr Fearnley?

Giles Fearnley: We have just sold one of our operations in London to one of the other operators. We have said quite publicly that the reason for that sale is because effectively we do not believe we are achieving satisfactory returns in that part of London. We are not satisfied with the returns in London.

Q213 Graham Stringer: Is that the reason you are against a similar system for the rest of the country: you can’t exploit the travelling public in those areas?

Giles Fearnley: No. We need a satisfactory rate of return in order to invest in our fleet and in our people. As an example, in the north of England, in West Yorkshire and Manchester ITA areas, there will be 200 new double-decker vehicles put into service this autumn.

Q214 Graham Stringer: You heard the Traffic Commissioner’s evidence earlier. Why don’t you publish all the details of the reliability of your services? Do you have GPS on those buses?

Giles Fearnley: We have data capture, yes.

Q215 Graham Stringer: It would be a very simple matter to publish the reliability and the routes and whether you comply with the routes that are registered as well as the timetables, would it not?

Giles Fearnley: We provide reliability data in full to Transport for Greater Manchester, as we do to a number of other authorities around the country who request it, as I believe other operators also do.

Q216 Graham Stringer: All your information is publicly available, is it?

Giles Fearnley: The information that goes into TfGM is subject to information confidentialities set by guidelines that the industry have put down with local authorities.

Q217 Graham Stringer: Why shouldn’t the travelling public know where your buses are? If they have the time they can see where they are, but why shouldn’t you publish that information? Then we can know if the buses are on the routes they are supposed to be on.

Giles Fearnley: The buses are on the routes that they are supposed to be on. If they are not, then we have issues in front of the Commissioner, as we have been talking about last month.

Q218 Graham Stringer: Will you publish the information publicly?

Giles Fearnley: I will not undertake to publish it route by route publicly, no. FirstGroup has previously publicly produced its punctuality and reliability data on a company-by-company basis.

Q219 Mr Harris: Mr Fearnley, you mentioned that the reason no Quality Contracts have happened is because the travelling public are so happy with the service-high customer satisfaction. Do you have survey figures that you could let the Committee have to demonstrate that?

Giles Fearnley: The best figures to quote, because they are independent, are Passenger Focus’s recent data on the industry, which they published in March following very extensive surveys that they carried out last autumn. That is showing high levels of passenger satisfaction. I am not suggesting they cannot become higher, but it is broadly in the range of 80%. They are surveys, and we will arrange to send a copy to the Committee if you do not have them. There is a breakdown by area and it shows differences between areas. Clearly that is very helpful information to operators. It supports information I am sure we all take from our customers, but that is the independent data that is publicly available.

Q220 Mr Harris: Yet passenger numbers on buses outside London, if you take out the effects of concessionary fares, have gone down over the past 10 years. Are those people leaving the bus industry because they are so satisfied with the service?

Giles Fearnley: People leave travelling within the industry for a whole host of reasons. In most recent times we are suffering quite significant recessionary effects, particularly in some areas.

Q221 Mr Harris: Over the last 10 years.

Giles Fearnley: That has occurred over the last three to four years. There has been increasing car ownership during that time. As we know, the average cost of motoring has fallen in real terms compared with the cost of providing bus services. There have been a number of factors working against us, but all bus operators-FirstGroup and all others-are in business to carry passengers and to have satisfied passengers. We are all striving in our network planning and in our service delivery to maintain the numbers of passengers we carry at the highest level.

Q222 Mr Harris: Do all the factors that apply to the bus industry outside London not apply to London at all?

Giles Fearnley: The London model is entirely different. The London model is in receipt of several hundred million pounds worth of public funds each year, which enables a relatively low fares policy. One also needs to reflect on the demographics-the population density of London, which is twice what it is anywhere else in the UK and so will drive more people to use passenger transport, whether it is tube or bus. That is a factor one sees very strongly in London, as one does in other areas outside London that have high density levels.

Q223 Mr Harris: This question is for all of you. Is it the view of the industry that there is nothing from the London experience that can be learned for the rest of the country; that London is a separate country and you are doing it far better everywhere else except London?

James Freeman: If I might answer that by repeating something, the fact is that in my area, in Reading, if we had the same level of public support for public transport that is enjoyed in London, we would have an amazing public transport system and we would have ridership levels to cry for. That is the real difference between what happens in London and what happens in the rest of the country. It is profound and it affects everything that goes on in London compared to the way that we can provide services in the rest of the land. That is the reason why, in the industry, we tend to see it as a different game.

In my own company over 95% of our operation is commercial. We simply take the money that is generated by our activities. We do not have the level of public support that is enjoyed in London. I do not think anyone else does either.

Q224 Mr Harris: This is quite an important point if what you are saying is true. What you are saying is that the reason bus passenger numbers in London have gone up at the same time as passenger numbers outside London have gone down is nothing at all to do with the regulatory regime but all to do with investment. Is that right?

James Freeman: Giles quite rightly said that of course the great thing about London is that it is incredibly densely populated. That is always good news for public transport provision. It is also to do with the fact that, if you can run a very dense service and you can run it at night, in the early mornings and on Sundays, at times when the buses are not necessarily full but that complements the total service, you get a very different offer to the public and the public will react. One of the issues of this whole Competition Commission issue is that the real enemy to the bus outside London is the private car. It is private travel. It is the ability of people to decide not to use the bus.

Q225 Mr Harris: It has been for 40 or 50 years.

James Freeman: Absolutely right. That is really the enemy that we have outside London because in relatively few places do you have the situation that we have in London, which is that basically it is not sensible to drive a car in London.

Q226 Mr Harris: I just want to be absolutely clear on this. The regulatory regime in London has little or no effect on passenger numbers or passenger satisfaction. It is all to do with public investment and population.

James Freeman: And the scale of the service that is offered. That is why passenger numbers-

Q227 Chair: The scale of the service offered. That is to do with the system.

James Freeman: That is to say, the number of routes, the frequency of service, the penetration of day and night and all these things, which are now a part of the London scene. They were not so much at one stage but they certainly are now.

Q228 Chair: That is part of the planned nature of the service, isn’t it, rather than the delivery of it?

James Freeman: It is part of the planned nature, but it is paid for.

Q229 Chair: It is paid for by public funds.

James Freeman: It is not possible to do it unless someone comes up with the money.

Mike Cooper: Another huge differentiator is the congestion charging that takes place in London and elsewhere in the country.

Q230 Graham Stringer: I want to follow up those two answers. There is the congestion charge now in London, which clearly alters the nature compared to the rest of the country. From the period of deregulation until the Mayor of London was imposed and put a lot of extra subsidy into buses, you could compare what happened to the London bus system with what happened to the rest of the UK system in terms of patronage. What happened was that the London system flatlined and the rest of the country lost, in round terms, about 50% to two thirds of the passengers. Isn’t that a more sensible way to understand the difference between a regulated and a deregulated system rather than investment in the system or the density of population?

Chair: Would anybody like to comment on that?

James Freeman: My own view is that the London situation is more accentuated now and the numbers involved are much bigger than they were. The fact is that London has never been the same as the rest of the UK and never will be because of the way the urban area has been developed over a very lengthy period. Some of the things that have been happening in the provinces, apart from car ownership, are issues of planning decisions and things that decentralise. Lots of shire towns have had things like their justice centres moved away from the centre of the town, where they were easily accessible by public transport, to an outside town place where they are not. A lot of things have been happening outside London that work against the use of local bus services, and they are not to do with regulation; they are to do with a wider marketplace.

Q231 Graham Stringer: That is true, but do you not see that, when there was this big change in the rest of the country in 1985, when the bus service was deregulated, it held all those other factors constantly? Where the patronage patterns in London and the rest of the country had been similar and consistent-there had been a decline since the oil shock in the 1970s-the real change in the late 1980s was between a regulated and a deregulated system. The regulated system retained its passengers and the deregulated system lost its passengers. Is that not a wonderful experiment for holding all the variables constant apart from the regulated system?

Steven Salmon: "Yes, but" is of course the answer you would expect me to say. We are in the history books here. At the time when deregulation took place, when we moved from a planned system to a market-initiative system, a whole load of money came out. Shire councils that had been subsidising bus networks by millions of pounds suddenly stopped, so all of a sudden people were looking towards the operators and saying, "What are you going to do?" The authorities had the power, as we all know, to come back and fill up what was there. A whole load of money came out at the time that deregulation came in, so it is impossible to say that the effect is all down to the regulatory system. It is also down to money.

Chair: I am sure we will come back to this.

Q232 Iain Stewart: My question follows on from that. The Competition Commission concluded that there was effectively a geographic market segregation and there were non-aggression pacts between major operators so that they would not encroach on each other’s areas. Mr Cooper, you earlier said that less than 10% of routes could sustain another operator.

Mike Cooper: In the long term.

Q233 Iain Stewart: If that is the default state of the bus market, shouldn’t we look at moving to the London system, leaving aside the debates about subsidies and all the rest of it, whereby the competition is for the contract rather than head to head?

Mike Cooper: It is interesting because there seems to be a prevailing view that all the big operators have this rabid animosity to franchising, and that is not necessarily true. Arriva operates in a franchise world right across Europe. What is interesting to see is the relative levels of public investment across Europe compared to the UK. Oxera is a hugely respected consultancy which has performed work for the Department for Transport in the past. It is instructive to see their comparison in terms of the regulated/deregulated world in the UK: Government support for passenger journey in London, 31p; out in the regions between 13p and 19p.

Copenhagen in Denmark is often held up as a great example of where franchising is working effectively. In 2011 the Danish transport authority invested £1.30 per passenger journey in its bus network. Economics has a huge part to play and people should be conscious of that fact5.

The other point is that, if you look at the European regulated environment, there is no single example of any system having moved from a deregulated world to a regulated world with some of the migration issues that come with that. The Committee should be conscious of that fact.

Q234 Iain Stewart: To go back to the Competition Commission’s findings, are they accurate in saying that there are these non-aggression pacts and there is effectively a geographic market segregation, or have they got that wrong?

Mike Cooper: There is no pact. It is an economic reality in a very mature environment. Arriva has a reasonable footprint across the UK, and I have no reason to believe that the geography elsewhere would be any different. If I analyse my routes and reach a conclusion that within the short term there is a tiny proportion-only 0.1% of my routes-that could sustain an additional competitor, and even in the long term where you have lost money to get to that position there are less than 10% of routes that could sustain it, then surely that position must hold sway in the rest of the UK.

Giles Fearnley: I would echo that. Fundamentally, it is a lack of demand for bus services. Demand for bus services can be increased most effectively through bus priorities, through measures to control the use of cars and car-parking spaces, through capital investment and ticketing, and through the frequency and quality of services provided. That is what will influence demand.

Q235 Iain Stewart: Do you think you are the best people to judge the needs of the market? If there is a demand for a particular service on a particular route, are you the best people to judge the provision of that service?

Mike Cooper: Yes. Raw capitalism takes over.

Q236 Iain Stewart: There is no role for the local authority or any other regulator to determine that pattern of service.

Steven Salmon: We have a system at the moment which is market initiative, but we have this fall-back that, if there is a need that is not strictly speaking going to be met by the market because we can’t make a profit out of it, then there is the option for it to be secured under a competitive contract by local authorities. It happens to be the other way round to the classic European model where the main network is decided by the authorities and maybe there is a bit of commercial stuff at the margin. I do not think there is any evidence that the relationship that our members have with their customers means they are not aware of where demand is changing, where demand is growing and where even other operators are not doing their job properly.

To come back to talk about market segregation, every operator has an estate of premises, buses and people. It is all thousands and thousands of tiny markets. It is much easier to change what you do within the areas that you know around your depots. It costs a lot of money to take an empty bus to a town 20 miles away just in order to compete. I know I am making it sound unimportant, but that is why the market develops as it does. Every stop to every other stop is a different market. People know those markets depending on where they are used to trading and where their assets are.

Q237 Chair: The Competition Commission points to the situation where a commercial operator may decide not to operate a route any more and it is then taken up by the local authority. The Competition Commission says that the operator is then in an advantageous position against other possible tenderers because of information about that route. It calls for more disclosure of information. Would you all be prepared to disclose that information when you have been running a route that you are no longer going to run?

Mike Cooper: Yes.

Q238 Chair: Would everyone else say yes?

James Freeman: We do already do that. I have been in a situation in Newbury where we have deregistered operations and we have provided all the data in terms of passenger numbers, revenue and obviously the timetables.

Q239 Chair: Mr Fearnley, what is your view on it?

Giles Fearnley: As Mr Freeman has said, we work very closely with our local authority partners, and where we have to take a decision such as this we would be very open with them as to the reasons we have taken that decision. That openness would include sharing data.

Q240 Chair: Mr Salmon, what is your view?

Steven Salmon: You have heard real operators. You don’t need to ask me.

Q241 Jim Dobbin: I am interested in the case you are putting forward here. Do you seriously believe that outside London there is such a thing as a public transport service?

James Freeman: Most assuredly there is where I come from and in many other places. There are parts of the United Kingdom where public transport does not exist as it once did, but in the urban centres particularly we still have the option for people to make a lifestyle choice to use public transport and not to use their car, despite everything that has happened. So I do not think it is true to say that at all. There are some areas where the network has degraded dramatically, but they will be areas where there is low concentration of demand. Wherever there are concentrations of people who want to get around, we still offer remarkably good-and incredibly cheap to the taxpayer-public transport services. I know little about this in relation to Europe and my colleagues know much more, but a lot of what goes on in the UK is very cheap. Sometimes that is the reason why in some areas there is precious little service.

Q242 Jim Dobbin: You appear to be making a case for increased public finances outside London with reference to what happens in Europe. Is that right?

Steven Salmon: Can I finesse that a little bit? What we are saying is that we are quite good at judging where we can make a business. Where there is not a business of public transport, then the best people to decide on allocating resources to that are the public authorities who have the whole panoply of things that they can spend their money on. Their choice of where they choose to spend it is theirs.

Q243 Jim Dobbin: That brings me to a point that the Traffic Commissioner was making when we were discussing regulation and deregulation. I got the impression, although she did not say it outright, that she would have preferred more regulation in the system. Do you think you could support the Traffic Commissioner or somebody in that kind of position having more powers?

Chair: Should the Traffic Commissioner have more powers? Silence. Maybe not.

Mike Cooper: It is difficult to generalise unless you have a particular proposal on the table.

Q244 Jim Dobbin: It is just a specific question. You are asking for more public funds. With that come responsibilities and accountabilities. Therefore we are back to this discussion about regulation and deregulation.

Mike Cooper: It is interesting that within the last couple of years a consumer champion has been created for the bus industry that did not exist. There are relatively few other consumer industries where that takes place. The consumer champion, Passenger Focus, performs some pretty robust quantitative market research and has said that 85% of customers are satisfied with the service that they are getting. It is almost as if there is a feeling that people are dissatisfied with the regulatory system that exists, "So, I’ll tell you what, let’s get the OFT involved." Then, "I’ll tell you what, the OFT did not quite do it so let’s get the Competition Commission involved", and then, "Let’s have a new consumer champion."

Q245 Chair: What does all this mean, Mr Cooper? Where is this going to end up? Do you think there should be more regulatory powers anywhere?

Mike Cooper: I have worked in three other consumer goods industries and I have never seen customer satisfaction as high as I see it in the bus industry. My view would be that we are doing a good job for the customer. The ethos, the culture and the practices of the industry are exactly where the consumer needs them to be.

Q246 Mr Harris: I would love to ask a follow-up question on what you have just said, Mr Cooper. These other industries that you worked in where customer satisfaction was less than the bus industry were not banking, by any chance.

Mike Cooper: It was not, no. I am not a banker.

Q247 Mr Harris: From listening to what you have said today and at previous hearings, it seems quite clear that in general the bus industry is opposed to Government intervention when it comes to regulation but welcomes Government intervention with open arms when the Government comes with a big cheque. In my own constituency FirstGroup has once again withdrawn one of the local bus services knowing, as I knew, that in a few weeks’ time the taxpayer would come in with a subsidised service on exactly the same route with exactly the same operator. This is a racket that has been going on ever since regulation. It does seem to me that you are very principled and opposed to any kind of regulation, but you are constantly asking for more public subsidy for these unregulated services. Is that not a contradiction?

Giles Fearnley: No. As an industry for our commercial networks we accept the political decision as to how much funding the Government will put in, and principally here it is through BSOG. The particular example you have mentioned in Scotland, Mr Harris, is a result of a very dramatic and sudden change, without consultation, to the BSOG formula affecting city services.

Q248 Mr Harris: But those were the sort of services that happened before. They have been happening throughout certainly the area of Strathclyde when I worked for the Strathclyde Passenger Transport Executive. You are right-the SNP have a lot to answer for in this latest move; but this has been happening for many years, ever since 1985. It is a regular event.

Giles Fearnley: But we are in those situations withdrawing the service as I believe any other operator would commercially, because we cannot generate sufficient passengers at a fare they are prepared to pay to be able to run that service economically in a sustained way.

Chair: We cannot pursue just one service, Mr Harris. Mr Maynard, did you have a question?

Paul Maynard: I don’t think I wish to ask any questions after what I have heard from my semi-esteemed colleagues.

Q249 Julie Hilling: I want to follow up on the line of giving up routes. First of all, what is the rate of return across the industry?

Mike Cooper: On average, the rate of return across the industry for 2005-06 and 2009-10 was 13.5% return on capital employed.

Q250 Julie Hilling: That is 13.5% profit being made across the industry.

Mike Cooper: But the cost of the money that we need in order to put that investment in, as I said earlier, is about 10%.

Q251 Julie Hilling: Do you know how many routes are given up across the industry each year because they are no longer commercially viable and therefore are put to the taxpayer to pay for?

Giles Fearnley: I do not think that data is held nationally.

Steven Salmon: No. We cannot easily find that out.

Giles Fearnley: Local authorities will have their own information.

Q252 Julie Hilling: Is this one of the reasons why people are so against Quality Contracts? It does seem to me that across the whole of the transport industry it is a good place to be to put your money. When it is making profit you get good returns, and if it dips at all then the taxpayer bails it out. What is your view on that and is that one of the reasons against Quality Contracts? It would be a whole package wrapped up together rather than bearing any cost of a route that is not making as much profit.

Steven Salmon: I will start with the way you have put that. Yes, it is true that our members do have a choice of whether they operate or not, but if they stop operating, this idea that the taxpayer will bail it out is very uncertain, never more so than at the moment. We have a number of authorities who, if we stop running a route, will not come back and buy it in. We have a quite interesting choice sometimes between making a very small return in the hope that things will get better or even losing money in the hope that things will get better, because we know that the local authority has no budget to buy it back if we stop running it. This idea that we light another cigar and wait for the tenders to come out is not entirely the world as it is.

Q253 Julie Hilling: Where does the interest of the passenger come in, who then will not be able to get out of their house if the bus is not there when, yes, there is not that money in the public sector any more to bail out those services?

Steven Salmon: Who should pay for the service if the passengers don’t? Of course we know our services are important to people. We know the human consequences. We are very close, because of the way we work, to the people who use our services, but if we cannot make a turn on running a service and suppose we did want to carry on running it because of the human cost, the only place we can get the money from for that is from the other passengers. They will then say, "You are overcharging us and making super-profits on our route so that you can run a service that loses money but is important for people somewhere else."

Mike Cooper: I want to build on that. The default position for the industry, certainly Arriva, is not to hit the customer. The default position is self-help. We knew, as we discussed in a previous Committee hearing, that there were going to be a number of financial hits on the industry. We knew that, and we put our house in order to try and mitigate that point in terms of productivity, efficiency improvements, headcount reduction and fuel savings. That is the instinctive reaction of the industry, not to say "Let’s clobber the customer." We want more people on our buses. It may sound peculiar but we do.

James Freeman: In the Reading example we are municipally owned. We are responsible to the local authority, to the elected members and to the people. We have also had to deregister commercial services and they have had to go into the supported sector because we could not justify the losses that we were making operating those services. As Steven rightly says, the only way you can deal with that otherwise is simply to start reducing the better services or overpricing the better services and you end up with fewer passengers using them. There is a distortion to the market, which, in the end, undermines the viability of the local bus network.

Our operation in Reading is completely driven by the need to run the best services with the highest frequencies and the lowest fares so that they generate big numbers of people making lots of money. That does mean that at the margin we end up having to say, "We can’t do this any more; we do not have the right people to do it; there just are not enough passengers using it; and maybe a bus is not the right way to meet this particular social need." It is jolly uncomfortable when you do it, but you have to do it, otherwise you end up with a distorted provision of the market. That is the difficulty.

Q254 Chair: Are we going to get more multi-operator ticketing systems?

Giles Fearnley: Where there is demand they will be developed. My colleagues and I are all party to a whole host of multi-operator ticketing schemes around the UK, some of which have been in place for very many years. In FirstGroup we have been party to two or three new schemes in the last 12 months where we believe there is passenger need and demand for those schemes.

Q255 Chair: Concern has been expressed that some of the big operators might present single tickets to undermine multi-operator ticketing. Is that likely to happen?

Giles Fearnley: If you mean own-operator tickets versus multi-operator tickets, own-operator tickets will tend to be cheaper than multi-operator tickets because they have less validity and very often they may be available in a smaller area and for a smaller range of services; so it is producing a product that meets different market requirements for individual passengers.

Q256 Julie Hilling: Why can’t we have an Oyster card outside London?

Steven Salmon: The biggest underlying problem is this. If you replicate what is known as "pay-and-go", which is what people generally talk about when they talk about Oyster, it is relatively easy in London because TfL is a single organisation. They have a deal with the railways so they have an understanding about how the money will get divided up if you go on a frenzy of riding around on your Oyster card. There is no equivalent deal between the hundreds and hundreds of potential operators that you could use a national Oyster card on about how much, let us say, a trip in the evening might be worth if you have already reached your cap so that you are not paying any more for that trip in the evening. You end up with very complex deals, which might include one of Giles’s operators in Manchester where you had gone to in the evening, TfL in the morning and Virgin Trains in the middle. We know it is a tremendously strong prospect for consumers. If we had a monopoly of all trains and buses and were simply competing with cars, we would probably do it.

Q257 Julie Hilling: Why couldn’t you just have it on a Greater Manchester basis or a Cheshire basis?

Steven Salmon: That is easier, and I would be surprised if, in a couple of years, you don’t see those schemes coming forward.

Q258 Chair: That is a matter for negotiation at that level. What is the impact of the Government’s changes on BSOG?

James Freeman: I think the solution that has been brought forward is really quite elegant. I will say for my own part that we were very worried about what was going to come out of this. The money that BSOG brings to the market is enough to tip the balance on many commercial services. The fact that the current proposals for BSOG allow the commercial services to continue to receive BSOG is very welcome. Equally, the idea of paying BSOG to local authorities for tendered services seems appropriate.

We are pleased to see the retention of the various incentives to speed up the improvement of electronic ticketing and all these sorts of things. The bit where I struggle personally is the Better Bus Areas concept. If someone were to come to Reading and say, "We are going to take away all your BSOG payments from your commercial services," which are currently part of our income stream, "and use them to provide some amorphous improvement such as better streets, more priority or whatever it might be," on the day that that happened we would end up being dramatically out of pocket and the network would have to respond by increasing the prices or changing the network downwards in scale and scope. I find it really difficult to understand how Better Bus Areas are going to work, but that is only a part of it. Overall, it seems to have something for most people in the proposition, so, overall, a big sigh of relief from ALBUM members.

Q259 Chair: Are there any differing views?

Giles Fearnley: No. I would very much endorse what Mr Freeman has said. On the tendered service front, it is very important that moneys are ring-fenced so that they are not lost to bus provision both from the time of the transition from the existing scheme while existing contracts are in place to the new scheme but thereafter as well. In terms of the Better Bus Areas, likewise we are putting our minds to how this can work and particularly how to deal with the drop-off that Mr Freeman has just mentioned. It was only yesterday, Steven, that DfT did write to CPT asking for representatives on a working group to look at this whole issue of how BSOG and Better Bus Areas can come together. As operators I am sure we will all actively participate in that because it is so key.

Chair: Thank you very much, gentlemen, for coming and answering our questions.

Examination of Witnesses

Witnesses: Bobby Morton, National Officer for Passenger Transport, Unite, Martin Mayer, Unite Executive Member for Passenger Transport, Unite, and Phil Bialyk, Regional Organiser, South West England, RMT, gave evidence.

Chair: Good morning, gentlemen. Before we proceed I wish to declare an interest. I am a member of Unite. Other members may wish to declare an interest.

Julie Hilling: Similarly.

Jim Dobbin: Same here. I am a member of Unite.

Graham Stringer: I am a member of Unite.

Mr Harris: I am a member of Unite.

Iain Stewart: I am not.

Julie Hilling: I am sure they have membership forms.

Phil Bialyk: You should join the RMT.

Q260 Chair: Could you give us your names and your organisation?

Phil Bialyk: My name is Phil Bialyk. I represent the Rail, Maritime and Transport Workers Union. Just to explain, we have about 5,000 members.

Chair: We just want the organisation. This is for our records.

Martin Mayer: My name is Martin Mayer. I am a bus driver and union rep in Sheffield. I am obviously a member of Unite and I have been on Unite’s Executive Council.

Chair: It is just the organisation we need.

Bobby Morton: Bobby Morton. I am the Unite National Officer for Passenger Transport.

Q261 Chair: What do you think are the most pressing reforms that are required to improve the buses for passengers?

Martin Mayer: The most pressing reform that is needed is regulation and the reversal of deregulation. I have experienced that as a worker, but, and my union would agree with me, the experience of deregulation since 1986 has been a disaster for the industry. We saw a massive reduction in passengers from the instability that was caused, particularly in those first five years. That reverse has not stopped since. The only area of the country where there has been a change to that and an increase in passengers has been in the only area of regulation, which is in London.

Q262 Chair: How much would that cost the public purse?

Martin Mayer: The fact is that the British bus industry receives about a third of its income from the public purse as it is. There is still a lot of money going into it. The point is whether it is going into it in the right way to get the right results.

Phil Bialyk: What Martin has said is very important. Since 1986 we have seen that deregulation has changed the emphasis from providing a public service. You mentioned about the Traffic Commissioners in the earlier questioning and more of a role for them. Of course, once upon a time they used to have that role in determining services. One of the criteria that the Traffic Commissioner would consider when an operator wanted to put a route in which may have competition was whether it served the public interest. That is the point that is being lost here. People have been exposed to no bus services because they don’t turn a profit. In the south-west there are a lot of fields but a lot of people live there as well. They are in the main disconnected. We have seen recently, with the withdrawal of subsidies from the councils, operators having to make cuts because they are not turning a profit. That is where everybody loses.

Bobby Morton: Although I spend a lot of my time representing Unite members who work in the passenger industry, I am a bus traveller. I have a car but I am conscious of what is going on in the atmosphere. I tend to use buses a lot more than I use my private vehicle. I live on the Wirral Peninsula. The service that I get there from the bus companies is what I would describe as abysmal. Just to give an example-

Q263 Chair: But the question is, what are the major changes you want to see at the moment in the industry as a whole? Do you agree with what Mr Mayer said?

Bobby Morton: Yes. The major change for me is that, because of the deregulation, I am not able to leave the Wirral Peninsula at the time-

Q264 Chair: I am asking for a general statement at this point about major changes. You are saying you want re-regulation.

Bobby Morton: Re-regulation, yes.

Q265 Mr Leech: Would the model that we have here in London with franchising solve the problem of deregulated bus services in other parts of the country?

Martin Mayer: Not entirely. It is not the system that we would like to see, although it is an improvement on deregulation. Our members are suffering very greatly from the route franchising system that happens in London at the moment. They are of quite short duration, and, when they change hands, our employees, our bus drivers, are being transferred to other depots and other companies across the other side of London possibly. This is leading to big problems in terms of retaining your wages and conditions but particularly your pensions and personal disruption.

This would not happen if we had an area network concept, which is behind the idea of Quality Contracts. If you look across the channel into Europe, where this is a much more common form of privatisation, it has been considerably more successful. The European Commission, when it was preparing its evidence for the PSO regulation 1970, showed that, where there was an overall franchising operation across a whole city with one operator getting that contract, this was a much more successful form of privatisation and led to a lot more stability, both for the employees but also for the passengers.

Q266 Mr Leech: What differences would the passengers see? You gave a good example of why your members can suffer under the franchise system in London, but what difference would the passengers see?

Martin Mayer: Probably there is not a huge amount of difference from the passengers’ point of view, but I do think there are overall benefits from the local authorities’ point of view in having a much less complicated tendering regime. In other words, it is one network that is contracted out probably on a much longer-term basis to one operator and then that contract comes up for renewal. That is the typical experience in Europe. That is much less complicated and therefore has less bureaucracy. There will probably be cost savings because of it.

Phil Bialyk: From the passenger point of view stability is a very important thing. As an example, in Cornwall, contracts have been won by another company and the passengers are upset to some degree because their particular bus company is not running it. Some people feel quite emotional about that. Stability and certainty is a main thing. A Quality Contract and franchising is not the best thing, as Martin has said, but it would go a long way to providing stability in the network.

Q267 Mr Leech: In London, though, do you think passengers recognise the difference between the different operators of different routes? I don’t know which operators operate the buses that I get on in London.

Phil Bialyk: No. I would agree with you in London. That is where passengers can be quite fickle. They will catch the first thing that comes along because we all want to get to where we’re going, don’t we? You want to pay a reasonable fare and I do not think they notice. But when you go outside London there is a slight difference in some rural areas.

Q268 Mr Leech: On that basis what would be the problem with going for the London-type franchising model in other parts of the country?

Phil Bialyk: It would be an improvement, as Martin said. It is not the answer to everything. You most probably would not want to countenance what I really would want you to do, but that would be a step in the right direction.

Q269 Mr Leech: What would you really want to do then?

Phil Bialyk: We used to have BET and Tillings-two major operators. Somebody came up with a wonderful idea, "Let’s nationalise this," in 1968, and that is what they did. Traffic Commissioners regulated it. True, they did not do the best job then in the businesses at that time. Then somebody said, "Let’s deregulate," and, hey ho, we are on that circle and round again.

Q270 Mr Leech: What would be the impact for the passenger if we went down the RMT route of completely re-nationalising the bus services?

Phil Bialyk: Accountability; we are paying the subsidies. We would have a say through elected members, and also we would have the authorities running it and meeting the needs of the people. It is a public service.

Q271 Mr Leech: What would the additional costs be? Clearly there is an issue about how much bus services cost the Treasury. What would the impact on cost be?

Phil Bialyk: As Martin has said, a great amount, if not the majority, of the revenue that the companies get-basically their profit-is through the public purse. Of course, can you buy it all back again? Most probably not in these times. There has to be another route, and that is why we have to go down the Quality Contract route perhaps. Even we in the RMT are aware of that from time to time.

Q272 Mr Leech: So you accept then that that would be too expensive a model to go for and the Quality Contract is a more reasonably costed way of improving regulated services.

Phil Bialyk: I would be happy to attend a Select Committee that determines how we best spend the public finances. When we are talking about the transport budget, I suppose that is the only way we could go. Do we spend the nation’s money in the best way? That is another debate, isn’t it?

Q273 Mr Harris: I was going to ask for clarification but you have made your position clear, Mr Bialyk. What does Unite see as the ideal solution? You opposed deregulation in 1985. Would you want to go back to the situation where local authorities either directly owned or operated bus services, or would you be satisfied with a halfway house of Quality Contracts?

Bobby Morton: It would not be the ideal situation, but the Local Authorities Transport Act 2008 provides for a lot of what we would wish for in the terms of Quality Contracts. It is all there. People such as you spent a great deal of time researching, debating and then putting the Act on to the statute, but unless the bus operators are prepared to bring a bottle to the party then the party is not going to take place. There is already something there for us to work on, but we need some regulation behind that to bring the bus operators that I have mentioned to the party.

Q274 Mr Harris: When the Passenger Transport Executives were here as part of this inquiry it became clear that there was a problem with political motivation. Councillors from councils throughout the country seem reluctant to go down this road of Quality Contracts. I do not think it is just the bus operators. There is a lack of political will in this. What is your understanding of the reasons why councils do not want to take advantage of that legislation that you have mentioned?

Bobby Morton: I can only quote what I was reading on the way down. People were talking about the north-east and one of the bus operators said that before they accept a Quality Contract in that area they will close the depots down, transfer all of the buses and make everyone in that area redundant. I am sure that, if that happened and the councillors were brave enough to support the Quality Contract, then when it came to election time people would remember. Councillors are afraid because the bus companies are putting the strong arm on them. They are threatening them. They are threatening whole communities with mass redundancies. It is totally unacceptable.

Q275 Mr Harris: We have had the same threats in Scotland. When it comes to Quality Contracts-and I do not think it has been explored with this Committee yet-do you have a view on the ideal time scale for a franchise? Is it five years or 10 years? Mr Bialyk, you were talking about passengers wanting some kind of continuity. If you have too short a franchise term, you do not get that continuity.

Phil Bialyk: I would agree with that. We have seen it on the railways. Short terms can mean problems, but you could buy in a problem with a long term. In my view it would have to be something round about 20 or 21 years, but there must be some provisions within it for opt-in or opt-out arrangements. The contract must be quite tightly regulated to allow it to come forward.

On your remark about the local authorities, this may be a bit harsh, but my view is that I think the relationships between the companies and some of the local authorities are not the best they should be. Perhaps the accountability line does not go right through to officer level. When you talk about local authorities, I am a member of a local authority and we would love to run the transport provision because we would see it as a public service benefiting the people of this city.

Q276 Mr Harris: I have one question following that up, Mr Bialyk. What has your council done to advance Quality Contracts?

Phil Bialyk: My council is only a district council-a city council, unfortunately. We were hoping to become a unitary authority. It is Exeter. We got that one kicked back. We would have loved to get hold of it and we would have done all we needed to do in that provision.

Q277 Chair: Quality Contracts could affect your members and the companies that lose out, could they not? Is that something of concern to you?

Martin Mayer: It is a concern, but we were involved very closely with the last Government’s drawing up of this legislation. We were very keen to ensure there were proper measures in place to give protection for employees that were caught up by the transfer from several companies into one Quality Contract. We were fairly satisfied that the legislation that came out in the Local Transport Act does have a wide range of protections: for instance, to ensure that the Transfer of Undertakings (Protection of Employment) provisions would be made to apply even though technically they would not in normal circumstances, and we would put every effort into ensuring that every single employee within the industry covered by that Quality Contract had a job under the new employer. There were also provisions there to try and ensure that pensions were protected in transfer. There are a number of concerns, obviously. We were also very pleased that we were able to secure the important role of the trade unions as stakeholders and that we would be consulted throughout that process.

Phil Bialyk: The TUPE arrangements do apply. We have seen a situation in North Devon. FirstGroup have sold on their operations business to Stagecoach. It is about 50 or 60 buses and about 80 or 90 staff. Stagecoach is not going to compete against itself; so there are going to be some changes if that goes through the DfT. That sort of thing is happening where two people apply and contracts are exchanged. As I have mentioned, in Cornwall members of staff have their employment rights, and to my knowledge all those will be honoured. It is not something that is going to be a problem, if you see what I mean. We will deal with it. There are issues, if you understand what I mean.

Q278 Chair: Do you think they can be dealt with?

Phil Bialyk: Yes, because they have got to be dealt with.

Q279 Chair: Would the Competition Commission’s proposals improve services for passengers?

Martin Mayer: No, because they are coming from the angle that the problem with the industry at the moment is that there is not enough competition, whereas what we have seen in the industry is that it was competition that was doing the damage. One of your previous presenters here was from Arriva. He mentioned this being a mature market. I am not sure I would use exactly the same term, but I know what he means. Since deregulation there was suddenly an explosion of competition in the industry. We had a lot of instability. A lot of companies came in for the first time with very low wages and very old buses. They had very attractive fares, maybe, but they were competing in a chaotic way. It caused a great deal of damage to the stability of the industry and passengers left it in droves.

What happens with the market is that some of those companies are unsustainable. In the end the market consolidates in a private sector situation like that and you end up where you are today. To try and introduce more competition to take us back to those chaotic days does not strike us as being the answer. The answer needs to be a return to a much better system, and that can only be achieved where the public sector has some kind of control and regulation over it. We believe Quality Contracts give us that solution.

Q280 Chair: Mr Bialyk, in your written evidence you talk about the need for a "restored and robust regulatory system". Could you tell us more about that?

Phil Bialyk: Yes. As I said, once upon a time the Traffic Commissioner used to do it. It may not be the best way in these times but we need the vision. We heard some of the evidence this morning. If a company is running a particular route commercially, what you see them do sometimes is divest out bits of that route and say, "We can’t run it commercially," leaving the local authorities with no option but to pick it up, knowing full well that another operator is not going to step in and just pick up that little bit of route for five miles somewhere else. They are strangulating it. In my view, it is not a proper way to run the bus service. We do not see anything wrong in sensible cross-subsidy because that is what would happen in a Quality Contract. That is where the regulation would come, and a full discussion with all the stakeholders to meet the public need makes sense to us.

Q281 Chair: Where have Quality Partnerships been successful, or have they?

Martin Mayer: There has been some success with Quality Partnerships, but the problem is that they don’t really ever go far enough. In some parts of the country the Passenger Transport Executive or the local authority has come into an arrangement with an operator, or perhaps more than one operator, to upgrade the corridor, for instance, with improved bus priority measures, improved bus stops and lay-bys and ticket information, in return for a guarantee that the operators will maintain a certain level of service and perhaps investment in new buses. There is some benefit that can come from that. The trouble is they really do not end up giving you the comprehensive solution that a Quality Contract would do.

Q282 Chair: Are there any places where the Quality Partnerships have worked? Could you name anywhere that you think is a good example?

Martin Mayer: Currently in my city, Sheffield, we have in effect a statutory Quality Partnership where two operators have been at it, head to head, on certain major corridors. The PTE has stepped in and in effect brokered discussions to ensure that both operators run a joint timetable and try and make the best of that service. That appears to be a success compared with where we were before.

Q283 Chair: The Competition Commission also criticised what they call "cheap exclusion" tactics. That is one operator trying to impede a possible competitor. Have your members reported any incidents where they have been pressured into taking such actions?

Martin Mayer: No, I do not think so. I am not aware of what actions we are talking about. There is a certain amount of fiction here.

Q284 Chair: The examples the Competition Commission give are deliberately blocking or delaying services on the road; preventing them from using bus stops and stands; intimidating drivers; and causing damage to a rival’s vehicles. Those are the examples.

Bobby Morton: I think what it refers to is going back three or four years ago in Greater Manchester, where I used to operate, where we had a number of bus wars going on at the time. There was one company in particular that the Traffic Commissioner threw out of the area, put them out of business, where just the things the Competition Commission are describing were happening. It was like wacky races on the roads of Greater Manchester, with buses cutting in in front of other companies’ buses in order to get the passengers and fares. It threw health and safety out of the window. Passengers were fearful for their safety just standing at bus stops. There were occasions when drivers from rival bus companies would engage in physical violence because of the things that were going on. I think that is what it refers to.

Q285 Chair: Yes; those are the sorts of things in the report. Are you saying that is something in the past and it is not happening now?

Martin Mayer: Yes.

Bobby Morton: Yes. We are very afraid that, if more competition was introduced on routes, then we would return to the past.

Q286 Chair: Is personal safety for your members or for passengers getting better or worse?

Martin Mayer: I think there have been some improvements. One of our main problems is the fear of assault. In most of the major operators where we have union representation we have negotiated better protection and better systems. I believe it is fair to say that the number of assaults has now reduced from where it was before. All bus drivers still do face an unacceptable level of verbal abuse. Our ethnic minority members particularly constantly receive racial abuse.

Phil Bialyk: I would say that has changed. The days when I used to do the "throwing out of the pubs" run is not quite the same now, to be quite honest. You are more at risk during the afternoon with people just being aggressive if the bus isn’t on time. Everybody is stressed out, are they not, and there is a bit more verbal abuse as opposed to the physical sort of violence? You do get the reporting of spitting and these sorts of things, which I have to say was unheard of 30 years ago when I was doing it. It is not as bad, and Martin is quite right that it is a bit better.

Q287 Julie Hilling: Is it BT police or the ordinary police that deal with buses?

Martin Mayer: Ordinary police.

Q288 Julie Hilling: Do you have the spit/saliva testing response there is now on trains in terms of prosecution through using saliva? Is that current on buses?

Bobby Morton: We have engaged with the bus companies and the packages are available to our drivers in case anyone does spit on them. The problem we have is that because of the lack of resources the police are not always interested. We do have the DNA testers but it is what we do with them when we have tested. It depends on whichever police force you are dealing with. Some are very co-operative; others will tell you, "We do not have the resources or the time, so we can’t help you with that."

Q289 Chair: When services have transferred from one operator to another, have TUPE conditions applied or have there been adverse impacts on your members?

Martin Mayer: It depends on the situation. If the main large incumbent operator loses some mileage to a new operator operating on lower costs, for instance, it is not necessarily important that TUPE does apply because the company may well retain those drivers on other routes. We have had to fight for TUPE in London to ensure that drivers are transferred because there is often no other work for them. The work goes with that mileage, and if they lose that mileage they do not have any other option but to transfer with it to the other employer.

Phil Bialyk: There was a small example in the west country, although this was coach services, where the contract was lost by FirstGroup in Plymouth. Eight drivers quite clearly identified with the work were transferred to a small private operator, who refused to take them under TUPE. I have to say that FirstGroup were quite supportive in this, but, even so, they would not take them and we had the ludicrous situation of eight drivers reporting for work on a Monday morning with no job and no income. FirstGroup said, "They are not ours," and the new company said, "We are not having them under those terms." Those people had mortgages. We got a settlement some months later-a very good one-because they had breached TUPE, but that was no good for those employees at that time who had bills to pay. There would need to be something about that. That was a ludicrous situation.

Q290 Chair: How are your members affected by the current system? Are there very widely differing rates of pay and conditions?

Martin Mayer: Yes, there are. They range from a little above the minimum wage right up to £13, £14 or £15 an hour in London. It depends a great deal on how well organised we are as bus workers, how strong the union is, and it has a lot to do with market conditions as well. There is a huge variety, but even within one particular city different operators will be operating on quite differing rates of pay and conditions.

Chair: Thank you very much for answering our questions.

[1] See supplementary written evidence from Arriva plc (LBS 26A).

[2] First has spent just over £300m on buses in the last five years in England and Wales.

[3] Steven Salmon of the Confederation of Passenger Transport was subsequently unable to provide figures.

[4] In the financial year 2010-11 the overall lost mileage at First Manchester due to vehicle non availability was 0.05%, which can be expressed as one journey lost out of every 2178 journeys scheduled.  For the periods in question, for January 2011 the figure was one journey in every 2347 and for February 2011 one journey in every 1014.

[5] See supplementary written evidence from Arriva plc (LBS 26A).

Prepared 13th September 2012