Select Committee on Transport, Local Government and the Regions Minutes of Evidence



Examination of Witnesses (Questions 340-359)

MR PETER HENDY AND MR ALAN TEER

WEDNESDAY 15 MAY 2002

  340. It did have quite a dramatic effect on the number of staff who left.
  (Mr Hendy) It certainly had an effect on the staff turnover but that cost structure was unsustainable. Deregulation per se? I said no because our vision of deregulation is one of largely commercially self-supporting services with the rump at the margin supported by public funds. That clearly is not sustainable. If you look at the evidence, we are now consuming public subsidy of the order of 300 million on a turnover of 1 billion. If you sought to deliver that network in the deregulated market, nearly the whole network would need to be procured publicly in any case.

  341. You would not want to swap? You do not want a deregulated scheme?
  (Mr Hendy) I do not think the Mayor would, no.

  342. We are asking for your expert advice. I am sure the Mayor, with his normal modesty, would never dream of saying anything but occasionally he has been known to say the odd word.
  (Mr Hendy) If you are going to put public subsidy into the bus network at the level at which it is now being put in, it is inevitable that there is a high degree of control in it. There are some particular circumstances, notably the congestion charging scheme, where the Mayor is being exhorted to improve public transport provision before there is any further transfer of people from cars. In those circumstances, it is not only much easier; it is almost inevitably the case that the public sector would have to procure extra services in advance of some of the extra people using them. That is not a feature which is ever likely to occur in an environment of deregulation.

Chris Grayling

  343. I have a particular area of concern which is that of cross-boundary services and the impact of the relatively high funding levels provided by the public sector for buses in London with subsidised fares and the corresponding impact on operators just across the boundary. There have been cases in my area in Epsom where services have been lost. Operators have pulled out because they are not able to compete with the subsidised services coming across the border from London. Could I ask you both to put a little of your own perspective on that issue?
  (Mr Hendy) There is a statutory duty on Transport for London which is not only to provide services within Greater London but from and to Greater London. In the evidence, we have referred to a review that we are currently conducting, but it is inevitable that some aspects of the London bus policy spill over into outside. It might be more of a residual problem if there was not such a crisis generally in the service provision in some of the outer areas. In a number of cases, we have continued to procure services crossing the boundary that would otherwise have been withdrawn. There is a need for greater consistency. When we have finished our work in reviewing it in conjunction with the county councils and with the London Transport Users' Committee and others, we will probably conclude that there is a still greater need for uniformity on those services. It becomes very difficult. We have a very simple fare structure inside London. The fare in suburban London is 70 pence. We are pursuing all sorts of ticket simplification. If you drive between one stop and another and suddenly you inherit a set of fares which are complex and far higher, you raise all sorts of issues which are actually quite difficult. We have now sought to extend more consistently some of the service provision. Obviously the buses are the same but in conjunction with some of the county councils we are putting in the same level of stops and stop information on shelters in an effort to make at least those services that are contracted across the boundary consistent with the ones inside it.
  (Mr Teer) The service concerned was the last commercial service that we had running within the M25. Every service[1] running within the M25 up to the London boundary is now run under contract to London Buses or Surrey County Council. At the time, members did take a decision. They were concerned about the local fares that were employed on competing services, which were contract services which we supported at the same time. We were in a difficult position and, at the end of the day, consumers were benefiting from low fares. That service has been retained under contract and there is no doubt that there will be a benefit overall to the residents of Surrey.

  344. The route concerned clearly went out to Surrey. What the operators have said to me is that the loss of routes across boundaries makes it very difficult to operate extended routes across the county. Clearly, the funding levels that Transport for London receives are very significantly higher than they are for the shire counties around London. The drop off of public subsidy means that the bus operators in London and outside, if they are operating commercial services, are operating on a totally different playing field.
  (Mr Hendy) It is very difficult but I clearly am spending more public money on the provision of bus services than my colleague sitting next to me and that does result in a difference. However, as he says, there is not a service in Surrey inside the M25 that does not now need council support. The complainants as operators have finally gone and we are in a new position where he has to support his network within Surrey with the money he has and we are trying to do Greater London.
  (Mr Teer) The major problem is that you have areas like North Cheam and Stoneleigh which have a very similar density of population, but you have totally different levels of service. That is our major problem. We cannot fund up to the same level as London can to provide and compete with the car. We also want to maintain a standard of bus service that would be required in those sorts of areas. We do need additional funding.

Mrs Ellman

  345. Have you been able to introduce bus priority measures in London because of the very high flows of buses compared with other areas?
  (Mr Hendy) We have. The London road network is variously controlled by Transport for London, my colleague the managing director of street management, and by the London boroughs. There are a number of initiatives which are seeking to produce bus priorities and importantly enforcement which is as important or more important than the priorities themselves. We do have some problems in their delivery. Up to now, there has been a stop-start in funding which has not contributed to the effective use of the resources. There is a shortage of trained highway engineers to design the schemes. Even within London, with a desire by the Mayor to properly fund them, there are still the normal public consultation issues, because when you propose to put the measure in you find a number of frontagers and other interested parties who are not altogether happy with that, even if we are able to prove, as we are, that having a bus priority outside your small shop does not necessarily damage your business. Facts are no barrier to sentiment when it comes to some of those arguments. Nevertheless, we are pursuing those schemes vigorously. There are whole route schemes called Bus Plus, which started off with government funding, and we are working very hard on enforcement. It has been suggested that it would be okay to stop your car in a bus lane to buy a packet of cigarettes or a newspaper outside the rush hour. I cannot tell you when the rush hour stops in London. What we are seeking to do by a variety of enforcement means is to deter people from doing that at any time at which the lane is operational. We have fixed cameras by the side of the road, cameras on buses, service level agreements with borough parking attendants and now an initiative to, in effect, buy police and warden time from the Metropolitan Police to control these priorities.

Andrew Bennett

  346. You are looking forward to catching the Minister?
  (Mr Hendy) I am sure he would not stop in a valid bus lane during the hours in which it was in operation.

Mrs Ellman

  347. When are the Mayor's operational command units to be brought in?
  (Mr Hendy) We are starting on 10 June with the first two routes. If you are able to quote correctly its title, you probably know what its functions are. The police officers and wardens will not only patrol bus priorities; they will also do other highway policing. It is as important to us, for example, that box junctions are kept clear. They will also look at crime on and around the bus routes. They will be multifunctional and we expect great things from that.

  348. Mr Teer, you told us when you came in about the depression in your note about the bankruptcies in the bus companies. Is that still continuing?
  (Mr Teer) Unfortunately, yes. There was one about a month ago. Our money is on another operator but you just do not know how long they will last. It is a very difficult problem to deal with. It is driver shortages, rising staff costs, fuel that have caused costs to rise enormously and we do have a special problem with obtaining drivers in Surrey.

  349. How much are costs rising because of that?
  (Mr Teer) Our contract costs are going up between 25 and 30 per cent at least, some even more than that. It is very significant and there does not seem to be any abeyance in that.
  (Mr Hendy) I should not sound too optimistic about bus priorities and enforcement because we are still fighting to produce a level of priority and enforcement which will reduce journey times and improve reliability. The best we have achieved so far on some of the major corridors is to keep the running time the same in the face of worsening congestion. There is a cost buried in the costs of the subsidy of the bus service in London which is simply the cost of putting in more buses to obtain the same level of service.

Chairman

  350. That is presumably a mixture of elements?
  (Mr Hendy) It is.

  351. You are not saying it is one particular thing; it is not people being deliberately obstructive. It is a number of factors?
  (Mr Hendy) It is rather difficult to disaggregate. When you go on to the rising costs in the bus industry one of the questions that I am usually asked is whether or not this London model is applicable elsewhere. The answer is, without sufficient funding, it will not work because the costs in the bus industry are rising far faster than inflation. Your next witnesses will say quite rightly so because it is not right that it is done on the back of bus drivers and conductors. The costs of correcting previous low wages, getting to a level at which you can obtain sufficient drivers, are very much higher than inflation.

Andrew Bennett

  352. You say that it cannot be applied outside London, the same experience, unless the same sort of level of subsidy is there. Is the key thing the subsidy or, as the bus operators told us, is the key thing congestion? Unless you have the levels of congestion in London, you could not replicate the London model for transport for buses in other big cities.
  (Mr Hendy) I roll in both. If you could guarantee that the combination of bus priority, highway design and enforcement allowed buses to roll about smoothly in any size city, undoubtedly you would produce a much more desirable environment to generate passenger growth. I do not think it is solely that because if you do the other things that we have done in London there is a level of cost there which it is hard to see how you can recover out of the fare box unless you continue to put up fares.

  353. You are tendering services rather than on street competition. Do you think there is a big advantage in tendering services rather than on street competition, so-called?
  (Mr Hendy) If you are putting a measurable amount of public money in, it is probably very desirable that the public sector does specify what it wants and seeks to have it delivered. I do not see how you can do it without doing that. It would just be large scale handouts of public money without being clear what was being delivered.

Mr Stevenson

  354. To what extent do you cross-subsidise your routes in London?
  (Mr Hendy) Heavily. This is a question about how you plan services, I suppose, and what you have to start from is that the network is already there. We look periodically at the demand on the network. We seek to accommodate it in an efficient way and, from time to time, we put out services to tender. We do not spend a lot of time trying to work out which elements are commercial and which elements are not because we do not need to do that. It is almost inevitable that there is a heavy degree of cross-subsidy. One of the things we are doing which is costing a lot of money is putting on more peak buses. Clearly in the London bus network, there are places where the peaks have been heavily under-served for many years and my predecessor was not in a position to increase them because peak buses cost a lot of money.

Chairman

  355. Could you bring congestion charging in, if you did not have that?
  (Mr Hendy) What would be extremely difficult would be to obtain extra bus services in advance of the people who are going to transfer to them. We have a programme this year which will expand the London bus network by about 4 per cent in mileage terms, which is about 200 buses, or more than that. Some elements of that are to cope with existing demand; some are to correct for existing unreliability and some elements of that, amounting to about 10,000 seats, are to cope with people that we expect to transfer to public transport because of congestion charging. Commercially, you would find it very difficult to get bus operators to put those services on in advance of the passengers materialising to pay the fares on them.

  356. They would not have the same interest or the same ability to do that.
  (Mr Hendy) No. I have been one. Why would you run a service in anticipation of people travelling on it?

Mr Stevenson

  357. The operators in London require a rate of return. That presumably is an important factor in your discussions and negotiations for the contracts for the service.
  (Mr Hendy) Yes. We seek bids for individual routes which are generally put out in fairly big packages. People are able to bid for routes either individually or together. We ask them to break their bids down into the constituent elements. It is one of the things I have done since I got there because I used to be a bus operator so I quite like to see what they say their costs are. They do seek a rate of return. There are two confusing statistics in the bus industry. One is the operating profit as a percentage of turnover. People quote variously targets of 15 to 18 per cent. The other is the rate of return. When the Mayor came to power, which was July 2000, he commissioned a full review of the London bus network. Fairly on in there, we had investigated the idea that perhaps we could have a different model where you set a rate of return on capital investment and let people get on with providing the service. We rather quickly withdrew that suggestion when it transpired that the rate of return on capital was so low that we would have to improve the profitability of the bus operators, which did not seem like a very good idea in those circumstances.

  358. What criteria do you use to determine whether a route is viable or not? When these negotiations are going on and you let a contract, you clearly cross-subsidise heavily overall. Do you expect the operator to cross-subsidise or is there an element of operator cross-subsidisation that can affect their rate of return on their profit?
  (Mr Hendy) This system is different. What we do is say we would like a bus service from Victoria to Clapham Junction 18 hours a day with a 50 seat vehicle every 10 minutes. We get bids in for that. We can see roughly how they have broken down their bid. It is clear that some operators put different levels of overheads into different bids, depending on what they think the competition is. We run a public sector comparator in order to have some material to challenge them. We are freely cross-subsidising within the bus network. We hold them to account on the prices that they submit to us for the routes that they want to operate.

  359. Are you able to identify that cross-subsidisation on individual routes?
  (Mr Hendy) Within the network, I suppose we could try but the definition of services is not about cross-subsidising route 11 with route 22; it is about fulfilling the statutory obligation of the Mayor's transport strategy.

 


1   Note by witness: This applies to bus services operating cross border into London. Back

 
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