Community Transport and the Department for Transport's proposed consultation Contents

3EU Regulations, legal challenges and events since 31 July 2017

EC 1071/2009: common rules for road transport operators

35.The legal challenges to CT practice have intensified since EU Regulation EC 1071/2009, which became applicable in December 2011. It sets out common rules for road transport operators, whether profit-making or not, in relation to passengers and goods. The Regulation requires operators that deliver services for which passengers pay a fare to employ professionally qualified drivers, engage a professional transport manager and obtain professional operator licences.

36.Article 1 of the Regulation sets out two main derogations from these requirements for operators that:

A third derogation is less clearly defined; member states may also exempt operators whose operations have “only a minor impact on the transport market because of […] the short distances involved.”38

37.Until a letter to permit issuers of 31 July this year (described below), the DfT’s position had been that the terms “not-for-profit” and “exclusively for non-commercial purposes” are essentially synonymous. The exemptions from professional licensing requirements for permit holders set out in the Transport Act 1985 and the Department’s Section 19 and 22 permits: not-for-profit passenger transport guidance have therefore been widely considered compatible with the European Regulation.

38.Concerns were, however, raised in 2009 by the Confederation of Passenger Transport. Steven Salmon, the CPT’s Director of Policy Development, told us “We felt that the wording of the EU regulation meant that the UK ought to change those parts of the 1985 Act [but] the DFT disagreed.” The CPT did not appear, however, to consider this a major concern. Pressed on the extent to which the CPT had pursued the issue, Mr Salmon said it had been raised “now and again”, but essentially the CPT and DfT had “agreed to disagree”.39

39.Mr Allen took up the fight on behalf of a breakaway group of commercial operators by forming the Bus and Coach Association.40 He claimed his attempts to engage with the DfT over the last six years had been “totally dismissed”. He felt the Department had simply tried to ignore him; he claimed, for example, to have received only one reply to numerous emails during this period.41

40.Mr Allen further claimed the Department received legal advice in 2014, at significant cost, that its position was “unsustainable”. He believed this had represented a “golden opportunity” to begin to address the issues, prior to his taking a formal complaint to the European Commission.42 Instead, Mr Allen’s complaint to the European Commission resulted in a “notice of infraction”43 of EC 1071/2009 to the UK Government, which appears to have set in train the events of this year.

41.Stephen Fidler, who was the DfT’s Head of Buses and Taxis Division, with responsibility for CT, from 2015 until very recently, emphasised the difficulty for his predecessors in engaging fully and openly with Mr Allen in the circumstances they faced. While he acknowledged “there may have been opportunities to do things a little differently”, he also told us:

[…] I do not think it would necessarily have led us to a fundamentally different place, given the fundamental difference in what the BCA were seeking as an outcome and what the community transport sector were looking for. Even if there had been some sort of improvement in the process of dialogue with them along the way, we could still have ended up in a very similar situation to the one we have.44

42.As acknowledged by the Department, UK legislation and guidance have not kept pace with developments in community transport practice and European Regulations, and, under intense legal pressure, some changes have now become necessary. The Department did not respond appropriately to address valid concerns over many years, and it acted too slowly. The Department must consider whether a satisfactory outcome may have been achieved earlier had it tackled relatively localised issues head on several years ago; while now a moot point in relation to the issues at hand, the Department must learn the lessons for its future regulation of policy areas which are its responsibility.

Individual DVSA investigation of Erewash Community Transport Ltd

43.Mr Allen has made complaints against numerous CTOs in recent years. In 2016, the DVSA, the executive agency of the DfT with enforcement powers in respect of road traffic law, decided to act upon Mr Allen’s complaint against a CTO in Derbyshire, Erewash Community Transport Ltd (ECTL).

44.ECTL shared with us, in confidence, the DVSA’s letter of 31 July, which set out the findings. The key finding was that, because some of ECTL’s local authority contracts had been won under competitive tender, the operator could not be considered to be engaged in the operation of transport services “for non-commercial purposes”. This was clearly at odds with the DfT’s longstanding position that “not-for-profit” and “non-commercial” were essentially interchangeable terms for the purposes of deciding eligibility for s19 and s22 permits.

45.The letter explained the DVSA’s finding that licensing exemptions did not apply. The fact that ECTL had charitable status, and did not distribute profits, was not, in itself, sufficient in law to justify the exemptions. The DVSA advised the operator that it must “take action to bring its operations into line with all applicable legal requirements.” This applied to all its drivers and services, not only those provided under the terms of tendered contracts.45

The DfT’s response following the DVSA’s findings

Letter of 31 July

46.On the same day, Stephen Fidler, then the DfT’s Head of Buses and Taxis Division, wrote to all permit issuers, spelling out the potential broader implications. The key paragraph was as follows:

An operator whose activities are essentially those of a bus company (in that it employs salaried drivers and carries out passenger transport services under contracts won in contestable markets and/or in exchange for fares charged to passengers at more than nominal rates) cannot be regarded as carrying out its activities “exclusively for non-commercial purposes”. That is so even if the operator is a registered charity or other “not-for-profit” organisation.

47.The letter asserted that additional licensing requirements were likely to apply mainly to large, transport-only organisations, and that many, perhaps the majority, of other, smaller, community-based permit holders were likely to remain unaffected. It said the Department intended to:

[…] explain all of this at greater length in a public consultation which we expect to launch in the autumn. This will set out the detailed changes which are required in order to update current guidance, together with proposed amendments to the Transport Act 1985, all of which may help to clarify for permit issuing authorities and permit holders the relationship between the conditions set out in that Act and the derogations set out in Regulation 1071/2009. We will also invite permit holders to provide the Department with more information, so that we can better understand developments in the sector.46

Uncertainty about potential effects of 31 July letter

48.Despite the Department’s assurances that the new interpretation of the law would affect mainly large, transport-only CTOs and that many, or most, permit holders would likely be unaffected, it was clear from written submissions to our inquiry from more than two hundred CTOs of various types that a wide range of operators expected to experience serious detrimental effects. These included those which, on the face of it, appear to satisfy one or both of the two main derogations from EC 1071/2009, i.e. charities and other groups with a main purpose other than transport and organisations that do not have contracts, openly tendered or otherwise, with local authorities or other bodies, and whose services therefore appear to fall within even the new, narrower, interpretation of “non-commercial”.47

49.The CTA explained that:

The nature and scope of a community transport operation cannot readily be defined by size and many smaller organisations will be affected, especially by the changes to driving licensing, even if they continue to operate services using a permit.

It believed many smaller organisations would be unable to meet the costs of PSV operator requirements. While some larger CTOs would be able to meet the costs, the additional burdens would likely force them to scale back services significantly.

50.The CTA reported that a range of organisations were deeply concerned about the implication in the 31 July letter that any service for which passengers pay fares “at more than nominal rates” would be to subject to changes to driver requirements:

The DfT letter suggests that organisations who run services not under contract will be largely unaffected by these changes. […] we do not believe this to be the case. Initially, it is unclear whether drivers who run services where fares are received to cover costs will have to hold Driver CPC. If so, this would mean many organisations having to fund expensive driving qualifications […].

The CTA emphasised that CTOs of all kinds rely on volunteer drivers to some extent. It believed a requirement to undertake additional driver training would deter volunteers, and leave “many organisations” with insufficient drivers.48

51.The CTA and others noted the complete lack of data on the potential impacts of the changes implied by the 31 July letter.49 Mobility Matters reported its own data from a survey of CTOs carried out in October. The perception amongst CTOs was that the impacts would be substantial, and potentially catastrophic for some. Some 40% of CTOs that responded reported the implied changes would force them to “cease to operate and withdraw all services”; 14% would have to “consider closing”; and 20% reported the implied changes would lead to “job losses and redundancies”:

Table 1: Impacts of DfT Proposals - Organisational

Source: Mobility Matters (CTT0271)

52.The CTA told us that transport-only CTOs that “run a mixture of contract and non-contracted services” would be the “hardest hit”. These CTOs were by no means all large, with the financial wherewithal to absorb the costs. The CTA reported that these types of organisations were already running the most “marginal” services and PSV operator requirements would likely make many services unviable.

53.Referring to the larger CTOs, which the DfT’s letter of 31 July described as acting “like bus companies”, the CTA said:

[…] this new guidance risks altering the fabric of what community transport is about. The increased cost of training and licensing will force organisations to compete for more commercial work, and act more like commercial bus operators. Community transport has always worked to deliver more than a contract, and there is a real risk that this unique feature of the community transport sector could be lost.50

Real effects on local authority commissioning

54.The 31 July letter had several immediate and tangible effects. The Association of Transport Co-ordinating Officers (ATCO, the professional association for local authority transport professionals) put out a statement on 15 August. It stated that due to the letter’s “sudden and unexpected nature” it had “not had time to conduct a full review of the implications”. Its advice to ATCO members at that stage was:

As the advice refers to a specific case and circumstances, and the DfT have stated their intention to consult and review s19 and s22 legislation, in the interim our advice is that it is not prudent to award new contracts to community transport groups until issues are resolved, but we do not believe that councils should make any changes to existing contracts it holds with section 19 or section 22 groups until further advice is received from the DfT and/or DVSA, as current contracts were issued in good faith and in line with thinking at the time.51

55.On 13 November, CTOs reported that some local authorities, including Wirral Council, had already taken steps to withdraw contracts.52 Frank Phillips, Chairman of ECTL, claimed that, as a direct result of the letter, “many county councils are already setting timetables for the withdrawal of section 19 permits”.53 ATCO’s survey results, provided to the Department in October, showed that 65% of local authorities were not at that stage awarding contracts to permit holders.54

56.Kevin Rooney, Traffic Commissioner for the west of England, representing the Traffic Commissioners for Great Britain, said the Commissioners had considered the letter “revised guidance”, to which they must have regard. They had considered, over a period of “a few short weeks” the implications for permit applications, which had caused a “little hiatus” in the applications process. On 27 November, he reported that the applications process had resumed.55

57.The DfT’s written submission implied that the Department had not fully understood the nature and scale of the effects of the implied new approach to CT licensing when it issued the 31 July letter. It said it had sought to understand the potential effects, including by asking ATCO, the Local Government Association, the CTA and the Mobility Matters campaign for their assessments, but had not become aware of the scale of the issues until “mid-October.”56

58.In oral evidence, Mr Fidler defended the decision to send the letter before all the implications were understood. With the benefit of hindsight, he may have chosen to “make things clearer” in the 31 July letter, but believed not sending the letter at that time may have allowed a worse situation to develop:

There was going to be a vacuum following the decision, if we did not put something out. The choice was whether we, as the Department, put something into that vacuum to seek to provide some information, or whether we allowed it solely to be the domain of the people taking the legal action against DVSA and their approach to it, which would no doubt be put to every relevant local authority directly. I think we would have ended up in a very similar or possibly even worse situation than we are in now.57

59.The Department’s letter of 31 July to all section 19 and 22 permit issuers was well-intentioned but, in the light of its new understanding of the potential effects, some of its content could be deemed ill-judged. In trying to clarify and calm the situation, it achieved the opposite, creating confusion and a level of panic in the community transport sector. The uncertainty led to some local authorities halting commissioning processes and, in some cases, unnecessarily beginning the process of withdrawing contracts from community transport organisations.

Confusion about the status of the ECTL findings

60.There was considerable confusion amongst witnesses about the status of the DVSA’s findings against ECTL, and the extent to which the implications for the broader CT sector could be drawn with any certainty. Mr Phillips told us it was ECTL’s understanding that the findings set out in the DVSA’s letter of 31 July were preliminary. He emphasised that ECTL had been invited to respond with any concerns or disagreements of fact, which it had done through its lawyers.58 The CTA believed the ECTL case needed to be settled before the DfT launched its proposed consultation. Bill Freeman, Chief Executive of the CTA, said:

As it is a live case and has yet to run its full course, the nature and content of that consultation cannot be fully appreciated. If the consultation is seeking to take the issues further, as the letter says, there is likely to be a read-across between the situation that faces that community transport operator and others, and it is important that that process is fully exhausted and complete prior to any judgment being made of its wider implications.59

Mobility Matters noted that the DfT had referred to the DVSA’s findings as a “decision letter […] as if this was a final ruling”. It emphasised that the legal position was that the matter could only definitively be settled by a Traffic Commissioner, or a court.60

61.While the DfT confirmed the ECTL case was still live in the sense of ECTL having a right to reply, it considered the DVSA’s findings an “enforcement decision”: the DVSA had concluded its investigation and “the operator needed to comply”. At the moment this decision had been made, a precedent had been set and if “another case […] came across DVSA’s door, they would be obliged to follow the precedent […]”. Mr Fidler argued the Department had acted in the best interests of the CT sector by setting out the potential broader implications and giving potentially affected CTOs time to make appropriate changes to their operating models. In relation to the timing of the proposed consultation, he said:

Our view was that operators could face action at any moment, potentially. As DVSA said, they are under an obligation to respond to complaints. The reason why we put our letter out in the first place was to seek to clarify the position. We think the consultation will help to clarify the position further, providing a degree more detail. Our view is that it will be sensible to progress with the consultation.61

The respective roles of DfT, DVSA and Traffic Commissioners

62.Some witnesses noted divergence in approaches to CT permits between the DfT, the DVSA and the Traffic Commissioners for Great Britain, particularly in recent years as the legal challenges have escalated.62 To illustrate this point, Staffordshire County Council reported a situation that arose in 2016. It told us it carried out a routine compliance check at a special school that contracted a CTO, using s19 permits, to deliver school transport services. It found the CTO was using drivers with a D1 entitlement, without driver Certificate of Professional Competence (CPC). Its view was that this was in line with the official guidance. Furthermore, it was “representative of home to school transport operated under contract across the country.”

63.Nevertheless, DVSA Traffic Examiners “unexpectedly […] interviewed drivers of the CTO’s vehicles under caution”, in relation to their licence entitlements and lack of driver CPC.70 Staffordshire County Council reported that this incident had a “serious impact” on both the Council and the CTO in question, with the local authority left with no option but to suspend the contracts at issue and find alternative provision at considerable expense. Staffordshire County Council told us neither the DfT or the DVSA “were forthcoming in helping to bring the matter to a timely conclusion”. Neither could provide “a definitive answer as to their interpretation (at that time) of the relevant legislation.” The Council reported that:

It was particularly concerning that no information was forthcoming as to the guidance given to Traffic Examiners in relation to dealing with drivers of Permit vehicles. The matter was, however, concluded when all drivers were written to by DVSA stating that no action was being taken. Contracts were subsequently reinstated on the basis that no enforcement action was taken combined with there being no stated change to guidance.63

64.It was clear from oral evidence on 27 November, however, that the DfT, the DVSA and the Traffic Commissioners now share broadly the same interpretation of the law. Kevin Rooney, Traffic Commissioner for the west of England, representing the Traffic Commissioners for Great Britain, said:

We considered that [the DfT’s letter of 31 July] was in line with decisions that we had made, or that personally I had made, with operators in terms of the interpretation of commercial. […]. There was just a period when we had to reflect on the new guidance—it was different from what was published—to see whether we agreed with it. Broadly speaking, we agree with it.64

65.Peter Hearn, the DVSA’s Head of Operations (North) told us the DVSA, as the relevant enforcement agency, had been obliged to investigate the complaint against ECTL. He told us the agency had worked with the DfT “in terms of the guidance they offer”, implying that the DVSA was guided in its investigation by the interpretation set out in the DfT’s 31 July letter. It was clear that any investigations of other CTOs in analogous circumstances would be guided by the same interpretation. Asked if the DVSA was actively seeking to investigate other CTOs, or waiting for further complaints to be made for before doing so, Mr Hearn confirmed the agency would only act in response to specific complaints.65

66.The DfT summarised the position as follows:

Unless [the ECTL], or a future, enforcement case leads to a decision from a court or Traffic Commissioner to the contrary, DVSA will be obliged to consider similar enforcement action if it identifies another CT operator in analogous circumstances. The Agency intends, though, to continue to take a proportionate approach. Where changes are necessary, CT operators should demonstrate to DVSA the urgent steps they are taking to comply with the legal requirements […].

67.It was also clear that both the DVSA and the Traffic Commissioners were beginning to think about the capacity implications for their respective organisations from a new approach to CT licensing in the longer term, after the consultation and any necessary changes to legislation and guidance (if there were to be significantly more applications for PSV operator licences and PCV driver training, for example). Both believed the scale of change and the capacity implications within the DVSA and Traffic Commissioners’ offices should be considered as part of the forthcoming consultation.66

9 November clarification

68.On 9 November, the DfT issued a note to all local authorities to clarify the circumstances in which CT services might continue to be considered “non-commercial”. These include where:

These clarifications now form part of the DfT’s Section 19 and 22 permits: not-for-profit passenger transport guidance—a link to the clarifications was added on 28 November, the day after our final oral evidence session.67

69.On the face of it, these clarifications do appear to address some of the concerns of the CTOs that submitted evidence to our inquiry, for example those that have stepped in where local commercial markets have failed, and those who are delivering contracts that were not contested by commercial operators. The guidance is clear that contracts being delivered by CTOs in any of the above circumstances need not be suspended or withdrawn. The note to local authorities included a template letter designed to help communicate the changes to local CTOs, including those whose contracts are already in the process of being withdrawn.68

70.These clarifications may significantly reduce the impacts of change. ATCO, however, reported that the views of its members were “mixed”, and some were reporting that further clarification was still required, for example about the exact definition of passenger fares “substantially less than the cost of delivering the service”. Sue Davey of ATCO said there were still substantial concerns about the capacity of small-to-medium-sized CTOs caught in the definition of “commercial” to transition to new arrangements. Concerns remained, even amongst the larger CTOs, about maintaining a sufficient number of volunteer drivers, or putting a sufficient number through additional training requirements. She also confirmed a continuing level of paralysis in the CT sector, with “the majority” of local authorities still not commissioning new CT contracts. She said:

Whether that is sustainable for the long term, in terms of budget constraints and the impact that it will have on the operators themselves financially, is very questionable.69

71.The Department’s note to local authorities of 9 November is welcome but is itself evidence of the need for very substantial clarification of its letter to permit issuers of 31 July. That it took the Department more than three months to provide a potentially more workable definition of “non-commercial” in the context of community transport services demonstrates the Department’s lack of understanding of the sector and the potential effects of its initial proposals. There is still more work to do in fully understanding the implications. This is highly regrettable and must be addressed. The Department must enhance its expertise, understanding and oversight of community transport, and be able to demonstrate how it has done so.

72.The implacable position of the Bus and Coach Association, driven by Mr Allen, appears to have resulted in the need for change, the Department for Transport’s proposed consultation and our inquiry. We recommend the Department seek to re-open constructive dialogue with Mr Allen.

38 Council Regulation (EC) No. 1071/2009

40Section 19/22 Permit’, BCA, accessed 1 December 2017

42 Bus and Coach Association (CTT0045)

43DfT acknowledges infraction notice”, Bus and Coach Buyer, 12 May 2015

45 Letter from DVSA to ECTL Ltd, 31 July 2017 [not published]

46 Letter from Stephen Fidler, Head of Buses and Taxis Division, DfT, to all s19 and s22 permits issuers, 31 July 2017 [not published]

47 See for example, Compaid (CTT0004); Age UK (CTT0222)

48 CTA (CTT0197)

49 See, for example, West Norfolk Community Transport (CTT0058); CTA (CTT0197); Mobility Matters (CTT0271)

50 CTA (0197)

51Initial ATCO response to the DfT S19 & S22 letter’, ATCO, accessed 4 December 2017

52 Q75 [Bill Freeman]

54 ATCO (CTT0281)

56 DfT (CTT0234)

60 Mobility Matters (CTT0271)

62 See, for example, Staffordshire County Council (CTT0191); Strathclyde Partnership for Transport (CTT0210)

63 Staffordshire County Council (CTT0191)

66 Qq152–3 [Kevin Rooney and Peter Hearn]

67Operating using community transport (CT) permits—Exemptions from Regulation 1071/2009’, GOV.UK, 27 November 2017, accessed 4 December 2017

68Section 19 and 22 permits: not for profit passenger transport’, GOV.UK, accessed 4 December 2017

70 The original version of this report incorrectly stated that the regional Traffic Commissioner interviewed drivers under caution. The Traffic Commissioners for Great Britain subsequently emphasised they had no involvement in the case cited by Staffordshire Country Council

13 December 2017

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