| SPOTLIGHT |
What does the future hold for Quality Contracts? Francis Tyrrell and Stuart Thomson examine the background to bus regulation.
It is perhaps unlikely that the coalition government will spend much time grappling with the thorny issue of bus regulation in its first months in office, but there is a potential storm brewing.
In many ways the passing of the Local Transport Act 2008 (LTA 2008) represented the first steps towards greater ‘localism’. Whilst the then Labour government preferred talk of greater local control, the new coalition government has already wedded itself firmly to localism and the Big Society – both shorthand for giving communities more control.
Amongst a raft of measures aimed at strengthening public transport at a local level, the LTA 2008 aimed “to give local authorities the right mix of powers to improve the quality of local bus services” (the system having been fully de-regulated outside London in 1986). Whilst the bus remains the most widely used form of public transport, outside of London its use has been in decline for many years, with a few high-profile and often cited examples. The LTA 2008 made changes to the existing legislation to make the delivery of Quality Contracts easier in an attempt to help local bodies reverse this decline.
Here lies the problem for the new coalition government. In opposition the Conservative Party were firmly against Quality Contracts and spoke repeatedly of their commitment to repeal the powers. During the debates on the Act, Stephen Hammond MP, then Shadow Minister for Transport, stated that: “We do not believe that quality contracts will be successful. We believe that they will be detrimental, and a future Conservative government will repeal them.” (27 October 2008)
Meanwhile, the Liberal Democrats thought that the LTA 2008 should have gone further in giving local authorities control over buses and bus operators. In Norman Baker, the government has appointed to the buses brief a man who embodies that belief in control over buses.
What do the powers mean?
The Department for Transport’s own figures show that while rail use has increased over the last decade, bus ridership in Britain’s cities outside London has declined substantially. This is due in part to growing prosperity and increased car ownership but also the fragmentation and lack of coordination in local bus services. On the one hand, this has led to increasing isolation of certain communities, in particular the elderly and those in outlying suburbs and on the other, leads to increased congestion on the roads and localised traffic pollution. There has been little co-ordinated oversight or control of buses with operators able to alter frequency and routes with very little (only 56 days) notice and fares with even less.
The LTA 2008 made a number of changes to powers previously introduced in the Transport Act 2000. The most significant of these powers, Quality Contracts schemes, had been largely unused because the criteria and processes involved were almost impossible to meet. The LTA 2008 attempted to make these powers more workable, to make Quality Contracts a viable option.
Quality Contract schemes allow a local authority in effect to require all bus services within a particular area/on a particular route to be provided pursuant to contracts let by that authority. In effect, the open access model is suspended in that area and a franchise model adopted. Contracts are then let by the authority to bus operators following a competitive tender. Operators running pursuant to a quality contract would not face any on-the-road competition and can concentrate, subject to the terms of the quality contract, on developing the local market for bus services delivering a better service for passengers and driving up ridership.
There are criteria in place on what a Quality Contract needs to achieve and there is external review, through the Quality Contract Scheme (QCS) Board, of any decision to progress with a Quality Contract Scheme. However, the final decision to make a scheme and to award a Quality Contract rests with local authority elected members at a local level.
Opponents, however, criticise a return to public sector control of bus services – they rail against second-guessing the market and claim that supporters cannot prove that they would deliver the purported benefits. There is a concern that local authorities will specify requirements as part of a quality contract scheme which are not necessary and which cannot be supported by the market. It is feared that the imposition of quality contracts would lead to growing subsidy of bus services out of the public purse. The effect on competition in those areas where it does currently exist on-street is also raised as a concern, as well as the additional costs which would be imposed by the QCS system.
Schism
Whilst Norman Baker may favour more control over buses, the new Secretary of State for Transport, Philip Hammond, certainly does not and would, it appears, still prefer removing the Quality Contract option, favouring instead the use of either voluntary or statutory partnership schemes between local authorities and bus operators.
Liberal Democrat policy may be evolving – Mr Baker most recently explained in Parliament: “The legislation on quality contracts is as it is; it was set out and passed under the previous government, and it remains in place. The Competition Commission is undertaking an investigation into the bus market, and it would be premature for me to make any further comments until it is completed.”
It seems therefore unlikely that there will be any changes proposed whilst the Competition Commission is investigating the market for local bus services.
The Office of Fair Trading’s (OFT) referral of UK local bus services (not including London and Northern Ireland) to the Competition Commission was taken following a consultation on the results of its market study into the industry. The study found evidence: that “limited competition between bus operators tends to result in higher prices and lower quality for bus users and may represent poor value for money for taxpayers”, elements of the local markets that “prevent, restrict or distort competition” and that “fares are higher in those areas where operators with a strong market position are not challenged by a large, well-resourced rival”.
The government cannot be seen to pre-empt the outcome of the Competition Commission so any new policy on buses is extremely unlikely. However, an outcome may be several years away and bus operators will be looking to defend their position with the government vigorously.
Given this timescale, a local authority that wanted to introduce a Quality Contract scheme, would have the time, if not necessarily the finance, to do so. Such an established scheme might then present the government with a difficult issue in the event that it does abolish Quality Contracts.
The powers contained in the LTA 2008 certainly represent a move to empowering local decisions to give tailored local solutions, in line with coalition government ‘Big Society’ and localism principles but it remains to be seen if Quality Contracts, representing as they do the reintroduction of public control over bus services, simply offend Conservative basic principles too greatly to be retained, notwithstanding the influence on the coalition of the views of the Liberal Democrats and of Conservative local authorities (many of whom are in favour).
Francis Tyrrell is a senior associate and Stuart Thomson is a public affairs consultant at Bircham Dyson Bell.
