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Grand Committee

Wednesday, 12 December 2007.

The Committee met at a quarter to four.

[The Deputy Chairman of Committees (LORD TORDOFF) in the Chair.]

Local Transport Bill [HL]

(Second Day)

The Deputy Chairman of Committees (Lord Tordoff): I start by making the usual statement that if there is a Division in the Chamber while we are sitting, the Committee will adjourn as soon as the Division Bells are rung and will resume after 10 minutes.

Clause 17 [Regulations about schemes which specify frequencies, timings or fares]:

[Amendments Nos. 18 to 21 not moved.]

Lord Hanningfield moved Amendment No. 22:

The noble Lord said: A quality partnership approach would function in the intended way only if it is fair and reasonable to both bus operators and authorities. I am not certain that the clause in question gives a reasonable balance of power to both parties. I am afraid that this may lead to undermining the quality partnership approach. Clarity and transparency are needed to ensure that there is no ambiguity in this section.

The Bill states that,

While I can see that this has a legitimate application, I would be very grateful if the Minister could confirm whether the present drafting would allow an authority to change requirements pertaining to frequency, timings or maximum fares without an operator’s consent.

We talked about admissible objections from relevant operators and what they may constitute. While I agree that the point needs clarification, I do not think that it is fair that an operator might have an unreasonably modified requirement imposed without any grounds for discussion or disagreement. For instance, if the maximum fare proposed by an authority is not agreed in the first instance, what is to prevent an authority from modifying the fare at a late stage unchallenged? I contend that at present the drafting is not sufficiently attractive to operators, bringing into question how many quality partnerships would be opposed at the earliest stage. The operator should have a mechanism for objecting if a material change is made after the scheme has commenced. Indeed, it is unclear what would happen to a quality partnership application after an admissible objection has been filed. Can the Minister please clarify that? The amendment seeks for all revisions to be regarded as a variation of a scheme under Section 120. I beg to move.



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Lord Bassam of Brighton: Before I get on to the amendment, I want to record my thanks to the noble Lord, Lord Hanningfield, and the noble Earl, Lord Mar and Kellie. We have had some discussions about having an extra session in Committee before Christmas, and I know that this has caused some difficulties. I want to thank colleagues for their forbearance on this. I hasten to add that it is not a problem that has been caused by my own side. I understand that there have been some difficulties—

Lord Hanningfield: If we manage to finish at a reasonable time on Tuesday, that is—

Lord Bassam of Brighton: I understand that the noble Lord has other responsibilities, and I am very sensitive to that. I shall certainly do my bit to make sure that matters are kept as brief as possible. I want to record my thanks also to other colleagues who have played a part in this.

This is an interesting amendment, but not one that I ultimately find attractive. It raises some interesting points and subjects.

The effect is that every change in the requirements for frequencies, timings or maximum fares in a quality partnership scheme would need to go through an extensive consultation process. I understand that the noble Lord wants fair and reasonable treatment for operators; I understand that he seeks clarity and transparency. We seek a balanced approach. We certainly regard consultation as an excellent thing—I have not heard many speeches against the value of consultation in my time in your Lordships' House—but one has to have a sense of proportion. It is important to approach things in that way.

I see two problems with the approach adopted by the noble Lord. First, fares and frequencies are market-sensitive issues—I am sure that the noble Lord appreciates that—and a scheme is more likely to be acceptable in competition terms if there are provisions that allow such matters to be regularly reviewed, so that operators in the scheme are not bound to standards that may have been realistic at the outset but are not in the longer term, and so that new operators are not crowded out of the market by the high frequencies demanded of those in the scheme.

A regular review process—perhaps once a year—should be an integral part of the system. It should be agreed at the outset so that all the participants know exactly where they stand. That would not be compatible with going through the variation procedure with full public consultation. That could take almost a year to complete in itself. There is a danger that the process gets so cumbersome that there are not enough resources to put into the scheme and it would not then deliver its objectives.

A second concern is that if there is not the reassurance that any provision on frequency, timing and fares can be revised quite quickly and easily, operators are less likely to make the commitments in the first place and may well have admissible objections to doing so. All those factors are interrelated and we could easily upset the balance.



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Bus operators will have to be fully engaged in the review process. It is perhaps worth reminding the Committee of the regulation-making powers that Clause 17 would insert into Section 122 of the Transport Act 2000. Those include, in paragraph (3)(c), a power to make provision,

So it would be possible, under the provisions as drafted, to provide that such revisions could not take place without consulting relevant operators, without the need to impose the full, heavy-handed and perhaps sometimes overbearing consultation process in respect of such changes.

I hope that the noble Lord is satisfied on that point. I certainly understand his desire for greater clarity and transparency in these matters, but we need a sense of balance and proportion. I have a feeling that if the noble Lord were, in his own patch, to go along the route that he is recommending in the amendment, he could find himself rather bogged down and mired in consultation that could be never-ending.

Lord Hanningfield: No one wants to be bogged down in consultation that is never-ending. I repeat, as the Minister said, that we are looking for some clarification and transparency about the processes. We will read carefully what he said today to make certain whether we want to clarify the matter any further at a later stage but, with that, I beg leave to withdraw the amendment today.

Amendment, by leave, withdrawn.

Clause 17 agreed to.

Clause 18 [Quality contracts schemes]:

The Deputy Chairman of Committees: In calling Amendment No. 23, I should point out that, were it to be agreed to, I should not be able to call Amendments Nos. 24 to 31 because of pre-emption.

Lord Hanningfield moved Amendment No. 23:

The noble Lord said: I am uncertain that quality contracts are the right approach for local transport authorities to adopt. It is all too easy to forget the problems with the regulated market and to assert that the London model provides a paradigm applicable—or, indeed, affordable—in all areas. The amendment seeks to remove revised proportionality criteria when setting up a quality contract, leaving the original with no other practical way for criteria to apply.

It should be borne in mind that there are currently no quality contracts anywhere in the country. The inference is that the nature of the scheme and the interim period before a functioning scheme can operate are not sufficiently attractive prospects for local authorities. Since there is currently no precedent, I contend that the one factor precluding the uptake of quality contracts is the legal uncertainty surrounding the implementation of the scheme. The Bill goes some way to streamlining the appeals process, but I am afraid that the time and resources required will remain an insurmountable barrier.



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I have much confidence in the quality partnership approach, done properly and, with respect to both sides—the consideration we have been talking about—collaboration can produce excellent results. Can the Minister provide evidence to demonstrate the superior benefits of quality contracts over and above quality partnerships? After all, that is one of our aims.

An additional reason for removing this subsection is the ambiguity of some terms. Further to the comment of the noble Lord, Lord Bradshaw, at Second Reading, what, exactly, constitutes an economic, efficient and effective contribution to local transport policy? Furthermore, the lack of mention of financial compensation is likely to aggrieve bus operators. There is an argument that the loss of assets such as buses and depots without compensation is likely to cause operators to be opposed to a scheme from the outset. It should be remembered that not all the assets will necessarily be transportable. Urban vehicles such as articulated and double-decker buses would not be suitable for redeployment in a rural area. We therefore oppose the revised criteria for quality contracts. I beg to move.

Lord Rowlands: I want to ask the Minister briefly about the application of these quality contract schemes to Wales. In an otherwise extremely helpful note in the Explanatory Memorandum on the territorial applications of the Bill, there is no reference to Clause 18. Can we first clear up whether these quality contract schemes will apply and, if so, how they will be implemented and by whom? Secondly, what consultation has taken place, not only with Ministers in the National Assembly but also the National Assembly itself? I know a later clause is the subject of proper consultation, but these clauses have not been. I wonder whether we can get some clarification as to the exact territorial extent and application of Clause 18 and the quality contract schemes.

Lord Snape: I do not wish to detain the Committee by having a Second Reading debate on quality contracts and their necessity, but I ask the Minister what consideration has been given by the department to the question of compensation raised by the noble Lord, Lord Hanningfield, if companies themselves lose certain routes, or parts of routes, because of a franchising scheme which would be the natural outcome of Clause 18. What consultation, if any, has taken place with shareholders in bus companies? Despite the generally held myth, they are not all Montecristo-smoking fat capitalists. Indeed, many of those working in the bus industry are shareholders in the company for which they work. I have already drawn your Lordships’ attention to my entry in the Register of Members’ Interests, and do so again. Certainly, the two bus companies for which I have worked both have a considerable number of their employees as shareholders. In the National Express Group, accepting shares was actually a condition of employment. Obviously, any diminution of earnings for those companies arising from this clause about quality contracts will impinge on those shareholders and the employees as well, as many of them are one and the same. Will the Minister therefore address the point about compensation for shareholders and the impact of the franchising system in the clause on local bus services? Again, although it

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might sound superficially attractive to some to say that there should be a franchising system in a particular area, one cannot imagine that the losing applicant, if that is the right way to put it—the person or the company that already operates the services—will be prepared to walk away, handing in the keys to garages and passing over their assets, without seeking some compensation. I have no idea what the likely outcome of such an approach is—I am glad to say that I am not a lawyer—but one can envisage a fairly protracted and difficult situation arising in the circumstances that I have just outlined. I therefore hope that the Minister will spend some time on this point when he replies.

4 pm

Lastly, aside from my own interests in these matters, I believe that a partnership is a far superior method of operating bus services than a quality contract is. However, I appreciate that other people might have different views. Does the Minister agree that a quality contract, in most circumstances if not in all, really should be the court of last resort, and that, if all else fails, it is an avenue that should be explored if other aspects of bus operation have not been tried? I have no wish to repeat points that I made earlier in this debate, but your Lordships will be aware that I mentioned cases in which I have been involved when local authorities, for various reasons, were not prepared to participate wholeheartedly in the successful operation of quality partnerships. That is why, whether the blame lies with operators or with local authorities, I would be grateful if the Minister underlined the fact that, in his opinion and, I hope, that of the Government, the clause really will be the last resort and that everything else has been tried before quality contracts are applied in any area.

Lord Bassam of Brighton: I am grateful to noble Lords who have contributed to the debate, and I will try to deal particularly with the points made by the noble Lord, Lord Snape. It is rare indeed for us to hear any words in favour of what has become known as the “only practicable way” test. One must concede that at the outset. The noble Lord, Lord Hanningfield, was right to remind us that, as yet, no one has gone down the quality contracts route.

One of the main objectives of the Government’s policy document, Putting Passengers First, onwards has been to replace the “only practicable way” test with something that is more suitable yet still sufficiently exacting to ensure that quality contracts schemes are not made unadvisedly or without regard to the cost or the consequences. The noble Lord, Lord Snape, is right to pick up on some of those consequences. It is certainly right to understand them, and obviously we have endeavoured to do so. I assume from what the noble Lord, Lord Hanningfield, said that the main purpose and drift of his amendment is in essence to preserve the status quo—I think that that is where he is coming from—where quality contracts schemes are a theoretical possibility but bus operators are pretty confident that they will never be used. The noble Lord, Lord Snape, reminded me that when, back in 2000, Ministers described quality contracts schemes as a last resort, they assumed that they would be an option that could be resorted to in the right circumstances. We

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have moved on from that experience, and the experience of the past few years suggests that even that may have been a touch overoptimistic. For various reasons, even the local transport authorities that are convinced that only a quality contracts scheme can deliver the improvements in bus services that the public rightly demand are daunted by the task of proving that there is absolutely no other practicable way of making those improvements. Probably, on reflection, the “only practicable way” test is somewhat odd in other ways. In theory at least a local transport authority could develop a policy that by its very nature could be implemented only through a quality contracts scheme. A uniform fare structure across the whole area of the authority might be an example. That could never be achieved in a deregulated market or even under a quality partnership scheme. Perhaps it is worth noting that only maximum fares and not the actual fare could be specified under the amendments proposed in Clause 12—at least not without blatant breach of competition legislation. So, on the face of things, the “only practicable way” test could be passed by an authority whose public interest case did not have much merit.

Rather than relying on that test, Clause 18 will substitute a series of positive criteria that a proposed scheme will have to satisfy, and against which it can be measured when a decision is needed on whether to keep it in force. Without these criteria, against which an independent approvals board can check and evaluate a scheme, much else in this part of the Bill would not work as intended. The additional requirements on consultation and affordability in Clause 19, which we shall come to shortly, would make the whole procedure even more daunting than it is at present.

I come close to agreeing with the noble Lord, Lord Snape, in his assertion that we see this very much as an approach of last resort. There may be occasions when it is deemed a sensible approach when all else has failed and when a quality contract—a quality partnership—clearly is not delivering the goods. We need to increase bus patronage and usage. If that is not happening in a particular area, the provisions set out in Clause 18 on quality contracts schemes would be the right approach. I know that there is some enthusiasm for that approach, and understandably so.

The noble Lord, Lord Snape, asked about consultation with operator shareholders. I understand where the noble Lord is coming from. We have had several consultations with bus companies, which have been very responsive in telling us exactly what they thought. It is only fair to say that bus companies and their shareholders’ interests will be very much aligned. The noble Lord also asked me about compensation, which has been raised forcefully by bus operators in response to consultation on the draft Bill. In the end we cannot accept their arguments. A quality contracts scheme will not deprive operators of their assets—primarily the buses themselves. Of course, they would be free to deploy them elsewhere on a network that they operate if they do not wish to tender for quality contracts, or fail to win any tenders. Of course, the buses themselves will retain a substantial value if the companies ultimately had to dispose of assets. The same applies to land holdings and depots, which might become surplus to an operator’s requirements.



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The provisions in Clause 18 mean that a local transport authority would need to satisfy fairly exacting criteria to get a scheme approved. There is still agreement on that point, and that would include a proportionality test. That test is an important protection. Any adverse affect on operators’ businesses would need to be proportionate to the increase in public benefit from achieving the objectives of the scheme.

I am sure that Members of the Committee will be aware that the department has published a draft of its proposed guidance for local authorities, which should assist them in understanding how to apply the proportionality test, and encourage them to ensure that all operators have a fair opportunity to compete for quality contracts in the areas affected.

The noble Lord, Lord Rowlands, asked about the application of this part of the Bill to Wales. Local authorities in Wales can make a quality contracts scheme at present and still will be able to do so. But, unlike the operation of the scheme in England, Welsh Ministers will continue to approve the schemes as now. In a sense, that it is not a particularly relevant consideration. New criteria will apply in Wales, as in England.

I understand where the noble Lord, Lord Hanningfield, is coming from on this. I am confident that we will make nearly all the progress that we want to make through the quality partnership route, which is the major thrust of government policy. There may be occasions when the quality contract route, because all else has failed and because of local circumstances, ends up being embarked upon. But there are important tests and protections in place to ensure that that approach will be proportionate and appropriate, with each party understanding their part.

Lord Hanningfield: Does the noble Lord have knowledge of any authorities that want to take up quality contracts?

Lord Bassam of Brighton: There apparently are a few considering the approach, but we do not have any hard and fast data at the moment. In fairness, we are at quite an early stage of the journey of legislation through Parliament and it is not surprising that there is not a mad rush of enthusiasm at this stage.

Lord Snape: I have no wish to detain your Lordships unduly, but I want to raise two points arising from the Minister’s reply. I am grateful to him for what he said. Many people on both sides of this argument in the bus industry would be grateful for clarification on how he sees the way forward. I caution him on two matters. I do not mean to be insulting, but the Minister rather brushed aside what happens to companies’ assets—I shall come to compensation in a moment. He implied that vehicles can always be deployed if a company loses a contract or a franchising system is introduced, but that is not always the case.

I have bored Members of the Committee before on the subject of bendy buses in Birmingham and I do not wish to do so again. But they were bought specifically for one route. Usually, it is operators who are condemned for reneging on discussions. In this

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case it was one of the highway authorities. I do not want to cause too much grief to the Liberal party, but they were part of this decision. However, a particular bus lane was removed and, in a city such as Birmingham, it is very difficult to imagine bendy buses being deployed on many routes. The city does not lend itself to the use of those vehicles. Some Members of the Committee might feel that no city does.


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