Examination of Witnesses (Questions 538-559)
MR JOHN CARR, MR PAUL MATTHEWS AND MR GILES FEARNLEY
TUESDAY 21 MAY 2002
538. Good afternoon, gentlemen, how very nice to have you here. May I just break the rules and say, Mr Carr, I am delighted to see you. You will remember you and I suffering through the 1985 Buses Bill and I hope you have come here to say "I told you so". Can I ask you to identify yourselves for the record.
(Mr Carr) Thank you for the welcome, Chairman. We represent the Institute of Logistics and Transport and in terms of your inquiry we perhaps have a fairly unique position in that we have within our membership the professionals within the local authorities, the professionals within the operating companies, the professionals within the highway authorities and so on, so we can identify objectively the issues, perhaps point out consensuses, perhaps point out where some effort is required to identify options to go forward. I am John Carr, Director of Projects, Metro, the West Yorkshire Passenger Transport Executive.
(Mr Fearnley) I am Chairman of one of the independent bus companies, Blazefield Holdings Limited, which operates in Yorkshire, Lancashire and the South East.
(Mr Matthews) I am Paul Matthews. I am Managing Director of the bus company Go North East which is part of the Go Ahead Group plc.
539. Thank you very much indeed. Do you mind if we go straight into questions?
(Mr Carr) Not at all.
540. Your organisation suggested middle ground between Quality Partnerships and Quality Contracts, Network Development Conferences. What are these and how will they work?
(Mr Carr) It is an idea that, as you say, represents a middle ground but a middle ground in which we say we are probably not getting the results from the bus industry that we should be getting for the level of support that is going into it. It is at the moment still receiving 30 per cent plus public support, which is actually about the level that it was getting around deregulation in the better areas of the country. What we are saying is that Quality Partnerships have worked to some extent, have worked very well indeed in some areas, the Guided Busways in Leeds are a good example and there are a number of others throughout the country.
Quality Contracts have been proposed by a number of people in order to put in some of the things that are missing in Quality Partnerships, first of all that you move from a corridor to an area approach, secondly, most importantly, that you are able to look at periods of operation so you get over the Sunday morning problem, that sort of thing, and, thirdly, to recognise as well that fare level is an important dimension, it is not one which local authorities can interfere with, it is one where you have to recognise that a truly commercial operation has got pressures on it in what it charges in order to balance its books. The idea of the Network Development Conference is to say the commercial operators are putting a certain amount of resource into these areas, a number of revenue streams are coming from the public sector, the largest of them is probably concessionary travel and then the tendered services, there is then the bus operator subsidy/fuel duty rebate. If you look at those and rather than tie them down so specifically in the way that they are allocated, say that the public sector in order to round off the network to something that meets wider social objectives is able to put them on the table having had a look at what the operators are prepared to contribute and there can be a genuine negotiation between all parties, then you should be able to get a whole which is greater than the sum of the parts at the moment.
541. Negotiations that would lead to agreement?
(Mr Carr) Yes. There would obviously have to be rules which put a time limit on that negotiation. My own view is, although it is only a concept at the moment, that there would probably be a couple of rounds of discussion in order to get to it.
542. A concept that nevertheless you have put forward as a suggestion as an organisation.
(Mr Carr) Yes.
543. Would agreements such as you have suggested between operators and local authorities that would be dealing with how resources were best utilised not fall foul of the competition rules?
(Mr Carr) That is one of the big paradoxes that we have, quite frankly, within the bus industry at the moment. We have seen in a number of areas of the country joint fare agreements failing because of the concern of operators about the view of the OFT about them. What I think would probably have to go with this would be a certain amount of delegation to say here are the factors that can be considered in these agreements and give protection for operators and local authorities, in a similar way to the railways, who can do very much this sort of thing with the franchising authority (SRA) and bodies like the PTEs that also participate in setting the level of service. They can do that negotiation without falling foul of the competition authorities. It may be possible that using the Traffic Commissioners or another suitable body you could do the same for the bus industry.
544. The Office of Fair Trading told us that there is no obstacle as far as they can see to the introduction of integrated ticketing schemes. They have been very clear about that. They have also said that as far as they know, and we have heard it this afternoon from the Minister, there have not been any operators who have sought to clarify this with the OFT. Would you accept that?
(Mr Carr) I would accept that operators are hesitant about posing questions directly to the OFT because of the fear of
545. Hesitant to the extent of no question being asked whatsoever?
(Mr Carr) I have to say, and maybe my colleagues would like to comment on this, I am aware, and Hull is one example, of the loss of a pre-existing interoperable fares scheme to the benefit of the public because the view of the legal advisers to the operators concerned was that continuing with that scheme would put them in breach of the 1998 Competition Act.
546. Finally, the OFT are quite adamant that their responsibilities under the Competition Act are to ensure that there is not a threat to competition but is there a real threat to competition, to the dominant bus companies in big cities? They are essentially monopoly operators, are they not?
(Mr Carr) In fact, not only the big cities, Mr Stevenson, I think if you look across the whole country by and large we are in the situation where apart from a few marginal cases operators have their territories, it is very much the same as it was in NBC days, and the level of competition you have heard about from many of your previous witnesses is very, very small. I think the average number of bids per tender is now less than 1.5 and in many parts of the country substantially less than 1.5.
547. Before you go on, do you actually agree with that, Mr Fearnley?
(Mr Fearnley) If I may make two or three points. Firstly, on the OFT competition issue, my own group did let go of a joint ticketing arrangement in Hertfordshire with Arriva because of the problems of the Competition Act and that was because there were only two parties in that arrangement and the guidelines set out by the OFT indicated that three or more parties had to be involved and, to be quite blunt, we could not find a third party in that situation. We are looking at finding ways through this. With an industry hat on, I have today written a letter to the OFT asking for clarification about through bus-rail ticketing schemes that the industry as a whole, together with the rail industry, want to implement.
548. Should that third party not be the local authority?
(Mr Fearnley) It could be.
549. Is that not a Quality Contract?
(Mr Fearnley) No, that would not be a Quality Contract if it was for a commercial ticketing arrangement but it may be that the local authority could be the third party in respect of tendered services.
550. Can I ask you, Mr Matthews, do you agree?
(Mr Matthews) I think in terms of the ticketing side, certainly within Tyne and Wear and I am sure it is the case in many other cities in the country, there are integrated ticketing schemes which exist and will continue to exist that we do not feel at this present stage fall foul of the OFT. There is more of a worry as an operator from the point of view of interavailability of tickets between one operator and another. Adding to something Mr Carr said about competition, it is fair to say that we do operate in fairly defined geographical areas but I would not want the Committee to go away with the impression that there is therefore no competition. In my own area in Tyne and Wear there are large numbers of common corridors in major urban areas, like Sunderland, like Newcastle, that do have competition on the road between the major groups and indeed some other companies as well. Although on a map we might be seen to be having geographical territories, the reality is on common corridors there is fairly healthy competition on all aspects.
551. You would not dissent from the view that the bulk of the country is now operated by what is in effect one large company in most cases?
(Mr Matthews) In the bulk of the country I would say that is true.
552. Could I just ask one question on competition policy. Do you think that the Competition Act would need to be changed to allow the benefits to passengers which were originally envisaged?
(Mr Carr) I think it is a question of whether you change the Competition Act, which I can understand that Parliament would probably be very reluctant to do, or whether you do, as is the case in other utilities, and I think bus travel may well in fact be a utility rather than a series of services and products, provide a regulator or regulatory powers that allow the public interest to be served. I agree with the points that are being made by my two colleagues but there is no doubt, and I think, Chairman, if I may say to you, one of the things we did not anticipate in 1985, was the extent to which the passing down of control, initially at least, although it has retrenched a bit since, to local management would in fact produce a fair degree of innovation in the bus industry. We have representatives of two of the middle ranking groups, as I would term them, here where you have got very, very good operation and are probably more responsive to local public needs than, if we are honest, was the case when it was a monolithic approach in the days of the old PTEs for example. But I think the parallel probably goes most precisely with the railways where part of the job of the rail regulator is to say there is no such thing as genuine competition between train companies because of the sharing of the common track, because of the fact they are operating in a travel market, not just a railway market, and therefore we will allow these agreements on common timetabling, these agreements on fares which are interoperable between companies and so on. If that applies to the rail industry it seems to me there is at least a substantial degree of logic in saying something similar could well be applied in the bus industry.
553. The Challenge Fund schemes are time limited. Do you believe that they will be commercially viable at the end of that three year period and how do you believe they should be funded if not?
(Mr Carr) I think that raises a very, very interesting question. The village in which I live, even within industrialised West Yorkshire, has a very successful rural challenge service. Almost certainly that service will now meet the criteria of my passenger transport authority to justify a subsidy to it. If, as is quite likely, we have got a fixed or perhaps even a declining subsidy budget that means that either we have to say, "Sorry, you have passed the test but you cannot carry on" or we have to say there are other services which have got to be squeezed in order to make the money available. This is why we have said in our evidence that the Government perhaps should require more attention to be given to exit strategies in terms of its assessment of Challenge Funding but I do not think that any of us would deny the challenges have been good in promoting innovation in that both public and private sectors had perhaps somewhat run out of steam with the resourses that were previously available to them.
554. Do Mr Fearnley and Mr Matthews agree?
(Mr Fearnley) I do not actually operate any of those services.
(Mr Matthews) I would support exactly what Mr Carr has said. In terms of the level of innovation that has come forward from those schemes we are presently involved with a number and hope that they will continue.
555. When you actually mentioned exit strategies, Mr Carr, is that allowing people operating the service to get out of the scheme? There must be a certain expectation of passengers that that scheme will carry on.
(Mr Carr) It is more to say if this scheme is successful can we look at ways of ensuring that the funding is there to allow it to continue.
556. If there was a choice to be made between more innovation or continuing with successful schemes at the end of three years, which would the three of you choose?
(Mr Carr) I think I would go for having a richer network but that perhaps comes back to the original question, the mythical third way perhaps. Essentially if you look at the service I was talking about you then say what are the criteria that have led to that success, it is because it is giving a more direct service than the traditional bus routes that are around it, it is because it is specifically designed to link at both ends with rail services, and it is because it is operated in such a way that it is giving perhaps a slightly higher level of quality in terms of the dedicated pool of drivers, dedicated vehicles, than is available for the conventional services that do what I call the string of pearls around the villages in between. My belief is, and I have argued this with my colleagues on the co-ordination side, if you could look at the resources of the largely commercial services within the same corridor and then re-plan that section of the networks and took advantage of the success of the direct services then probably by combining the two sets of resources you would get something which delivered considerably greater benefits than keeping the two separate. That is partly the sort of thinking which goes into the thinking of a Network Development Conference. What we have lost is the synergy effectively between the two networks and-the Chairman wanted me to say "I told you so" and I will in this instance-that is precisely what we said would happen prior to the 1985 Act.
557. Never hesitate to gloat, Mr Carr. In this building people are very ready to tell you when you are wrong so it is very nice to be able to say that you are right.
(Mr Carr) You have told me that frequently, Chairman.
558. Do we need more subsidy for bus services and, if so, how should those subsidies be applied?
(Mr Carr) I now find that a difficult question to answer. I think if you went back a fair number of years we would probably almost universally have said yes. I think what we have seen is that we can get efficiencies and the way in which some of those efficiencies have been gained is open to political debate, but we can get efficiencies, we can get better standards of operation for the same level of resource input or a lower level of cash subsidy, if you like. What concerns me is the fact that we are subsidising bus services to the extent of 30 per cent plus. If you look at the Spains, the Frances, the Germanies, their better operations have got subsidies which are in the high 20 per cent. I have not looked at these figures for four or five years now. I do not think they are comparatively collected as they once were unless someone like Professor Peter White does so regularly. There is an overlap between the two ranges. Everybody universally says their services are much better than ours. I think part of that is the grass is always greener scenario but undoubtedly some of the rest of it is that they are getting a better return for the money that they are putting in. I think that comes from two things. One is the greater stability but the second is by and large the political agreement that good public transport services are just as necessary as good roads, good electricity, good water supply and so on and so on.
559. Do you think that that is not accepted here by Government?
(Mr Carr) Choosing my words carefully, I think it is a matter which is perhaps debated too frequently in this country rather than reaching a consensus and letting sleeping dogs lie for a reasonable time.