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03.11.15

Plans for public control of bus services blocked by commissioner

Nexus, the transport executive for the North East Combined Authority, had its proposal to introduce franchising across bus services in the Tyne and Wear region rejected by the government’s traffic commissioner after it failed to meet the necessary tests.

The transport executive for the authority submitted a recommendation to the Quality Contract Scheme (QCS) review board for the bus system in the region – where services are commercially funded by bus operators – to be brought under public control through the letting of contracts.

It had argued that it was paying hefty subsidies to fund unprofitable routes but was not allowed to run public services on profitable routes under the deregulated system.

But the QCS board found today (3 November) that the proposal did not meet necessary criteria, and failed to comply with the statutory requirements on consultation. It claimed the proposed scheme would not increase the amount of bus services, that its affordability could not be proven and that its structure did not provide value for money.

The board, chaired by Traffic Commissioner for the North East of England, Kevin Rooney, also found that the scheme would impose “disproportionate adverse effects” on operators in the region, although the Metro operator’s initiative did end up prompting new proposals from regional bus operators Stagecoach, Arriva and Go North East.

The board’s final report said: “This is the first time that the 15-year-old legislation supporting quality contract schemes has been put to the test. It seems to us that the legislators probably had in mind that it would be tested [at] a rather smaller scale first.

“By its very nature, everything that Nexus was trying to assess was a novel intervention. There was little, if any, truly relevant research for them to draw upon. It is the board’s view that they have done exceptionally well to get where they have to go to today.

“In the voluntary partnership agreement, Nexus can be proud that it has led three bus companies to put forward a proposal that is in itself novel and ground-breaking, with the makings of potentially effective governance allowing citizens real influence over their bus services.”

Go Ahead and Stagecoach welcomed the review board’s decision to block the franchising scheme after having argued that attempts to take control of routes would be in breach of their economic rights.

Stagecoach, which runs around 40% of bus services in the region, claimed that the decision has “clear implications” for bus franchising powers tied to the region’s devolution programme – a significant part of which is control over the transport budget.

“The forthcoming Buses Bill must provide a legislative framework for enhanced partnerships, and ensure any franchising proposals are subject to proper safeguards and a transparent public interest test,” it added in a statement.

It shot down Nexus’ proposal which, according to the operator, would force taxpayers to assume the risk of the local bus network while replacing a currently “successful system”.

The review board did, indeed, state it was not convinced that the scheme was affordable, and that it actually seemed “more likely than not” that it would run into funding issues and put pressures on fares and the network.

It added that the scheme’s effectiveness was “significantly overstated” because of errors in modelling, material errors in the consultation and incorrect assumptions.

‘Pessimistic and surprising view’ of financial risks

But the transport executive’s managing director, Tobyn Hughes, said the decision was “extremely disappointing” and refused to agree with certain aspects of the conclusive report.

“Of particular concern is that the board took a highly pessimistic and surprising view of financial risks, suggesting that Nexus must budget for costs to be up to 40% higher than we know them to be, while at the same time suggesting the bus companies should be compensated out of public funds for missing out on future profits from the very same network of routes.

“The board was not convinced by aspects of the economic modelling of the benefits of the proposal, and was concerned by changes to the presentation of economic benefits after consultation.  Nexus will look at whether these issues can be rectified,” he added.

But Stagecoach Group’s chief executive, Martin Griffiths, urged the combined authority to respect the board’s findings and put passengers first by abandoning the “misguided franchising plans”.

“Instead, we call on them to work in partnership with bus operators to build on Tyne and Wear’s excellent bus network and deliver on our joint responsibility to give local people even better bus services,” he continued.

Griffiths also suggested that there are “far better models” for improving public transport in major cities through partnerships between the public and private sectors – an approach which should be “actively encouraged” in the Buses Bill.

“It should address the competition law issues which would assist the delivery of multi-modal ticketing and improved operating standards.

“At the same time, this would retain innovation and competition in a dynamic market alongside meeting the social and economic requirements of growing city regions,” Griffiths said.

He also made clear that Stagecoach is open to discussing and developing an enhanced partnership based on these principles with the combined authority, or other authorities which receive devolution powers.

Richard Collins, lawyer at the national law firm Bond & Dickinson LLP, suggested that, although operators won the battle, Nexus’ move still managed to open a debate on the effectiveness of the current regulatory system.

He said changing the current system looks likely to happen sooner rather than later, especially with the forthcoming Bill, which may introduce franchising and further encourage partnerships between councils and operators.

“Against the background of the drive towards a Northern Powerhouse, which implies devolution of power to local authorities, more challenges to bus operators may be around the corner as local authorities take more control over regional infrastructure and services.

“That creates opportunities too – and may in turn motivate operators to think seriously about introducing and enhancing partnership arrangements with local authorities in advance of having their hands forced,” he concluded.

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