88 Stagecoach

Stagecoach in Scotland – Response to ConsultationProposed Bus regulation (Scotland) Bill – Iain Gray MSP East Lothian

Introduction

This document is the formal response by Stagecoach in Scotland to the consultation on the proposed Bus Regulation (Scotland) Bill promoted by Iain Gray MSP, Member for East Lothian. In this response Stagecoach in Scotland refers to the various Stagecoach operating companies of Highland, Bluebird, East Scotland and West Scotland.

Stagecoach in Scotland is part of Stagecoach UK Bus Division, which in turn is part of Stagecoach Group plc. Stagecoach Group is a leading international public transport group, with extensive operations in the UK, United States and Canada. The Group employs around 36,000 people, and operates bus, coach, train, and tram services.

Stagecoach is one of the UK’s biggest bus and coach operators with around 8,000 buses and coaches. Around 2.5 million passengers travel on Stagecoach's buses every day on a network stretching from the Highlands and Islands to south-west England. The Group’s business includes major city bus operations in London, Liverpool, Newcastle, Hull, Manchester, Sheffield, Oxford, Cambridge and Exeter, and in Scotland Inverness, Aberdeen, Dundee, Perth, Edinburgh, Glasgow and Ayr. Low-cost coach service, megabus.com, operates between around 60 towns and cities across the UK.

Stagecoach is a major UK rail operator, running the South West Trains, Island Line and East Midlands Trains networks. It has a 49% shareholding in Virgin Rail Group, which operates the West Coast intercity rail franchise. Stagecoach also operates the Supertram light rail network in Sheffield.

In North America, Stagecoach operates around 2,800 buses and coaches in the United States and Canada. Megabus.com links around 100 key locations in North America. Stagecoach is also involved in operating commuter and transit, contracted bus services, charters, sightseeing tours and a small number of school bus services.

The Group business strategy is to run high quality services with well trained staff and high levels of investment in its fleet, equipment and depots. The Group has won numerous business, innovation and environmental awards both within and outside Scotland. The UK bus division is acknowledged as an industry leader in its service delivery standards, and has been independently recognised as having the highest passenger satisfaction ratings in its peer group (Passenger Focus) and the lowest fares by as much as 20% in its peer group (TAS). It is also worth noting that the Group is a major employer in the Scottish economy, and is a significant contributor to the exchequer through corporation tax, employment taxes, fuel duty and business rates.

In Scotland Stagecoach currently operates 1,265 buses and coaches on local, interurban and express services, with 3,100 staff, running some 68 million miles and carrying some 86 million passengers per annum. In the last 5 years to 2012/13 Stagecoach in Scotland has invested over £75m in 460 new buses and coaches, most of these from Scottish manufacturers. Stagecoach in Scotland has, in partnership with Comfort Del-gro, pioneered and expanded its low price inter-city megabus.com express coach services, has expanded Scottish Citylink and introduced megabus gold and megabus sleeper coach services. Stagecoach has also developed and expanded its local bus services in all the areas it serves with low price day and weekly tickets, is 100% smartcard equipped and almost 100% low floor bus equipped.

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Innovation and Growth

The proposed Bill portrays the Scottish bus industry as one of decline with constant cuts in services. This is not true. In a contracted regime where services are decided by local authorities it is highly unlikely that they would have sufficient knowledge of the local market or would be willing to risk public expenditure on untried service development and innovation which may succeed or fail. In such a regime the contracted operator has no incentive to develop services unless the contract price is increased. In contrast Stagecoach has been willing to take commercial risk at its own expense to invest in and expand local bus services to attract more passengers to travel by bus, to the benefit of the economy and the environment. Below are some of the examples throughout Scotland, and it should be noted that all these improvements have been made during a period of severe economic recession –

X99 Caithness-InvernessIn 2011 Stagecoach improved this service to provide better connections with both Orkney ferries and to improve journey times between Thurso and Inverness, with 6 new wheelchair accessible coaches. Passenger numbers have increased by 7.3%.

727 Inverness-AirportThis new service was introduced in 2010 every half hour with new high specification airport buses. In 2012 the frequency was increased further to every 20 minutes with early morning and late evening journeys. Passenger numbers have increased from nil to 185,000 in year 1, and to 382,000 in year 2.

X17 Aberdeen-WesthillIn 2012 Stagecoach increased this service frequency by 50% to every 10 minutes with 10 new accessible buses. To date passenger numbers have increased by 17.5%.

X7 Dundee-Arbroath-Montrose-AberdeenIn 2011 Stagecoach introduced this new hourly express coastal service with high specification wheelchair accessible coaches, by linking together several shorter routes. Passenger numbers have increased by 11.1%.

99 Dundee-St AndrewsIn 2012 Stagecoach increased this frequency by 50% to every 10 minutes with 11 new accessible buses. Passenger numbers have initially increased by 7.2%.

57 Blairgowrie-PerthIn 2012 Stagecoach doubled this frequency from hourly to every half hour with 6 new accessible buses. Passenger numbers have initially increased by 3.9%.

X25 Cumbernauld-GlasgowSince 2011 Stagecoach has progressively improved this service with simplified routeing, later evening journeys and increased frequencies, now operating up to every 5 minutes at peak times, every 15 minutes during weekdays and every 30 minutes on Sundays with newer wheelchair accessible coaches. In 3 years passenger numbers have increased by an impressive 153%.

3 Ayr-Kincaidston-WhitletsIn 2012 Stagecoach increased this frequency by 50% to every 10 minutes with 6 new wheelchair accessible buses as part of our Statutory Quality Partnership with SPT and South Ayrshire Council. Despite underlying patronage decline in Ayr, the improvements have generated 24% increased passenger numbers.

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The Proposed Bill - Summary

We agree with the opening statement in the Introduction to the proposed Bill – “Good public transport – effective, reliable, safe and affordable – is a hallmark of a modern, forward-looking society.” However, we do not agree with much of the content, conclusions and proposals of the proposed Bill, and we totally disagree with the principle that local bus services should be confiscated by government and put out to tender. Our overall view is that the proposed Bill would have adverse effects on taxpayers, passengers and bus workers. We set out our reasons for this view in our comments on the proposed Bill, but these can be summarised as –

Legal

As the proposals note, the former Scottish state owned bus companies were privatised under the Transport Act (Scotland) 1989 for a consideration of £90m. Stagecoach in Scotland acquired some of these companies. The proposed Bill would deprive existing operators of their businesses leaving them with employees, vehicles, depots and pension liabilities, destroying shareholder value and threatening employee pay, conditions and pensions. There is no legal precedent in a liberal western economy for confiscation without compensation of the right to trade, and such action would be subject to a lengthy and expensive test in the European Court of Human Rights. It would be unimaginable that any Government would seek to treat any other industry in this way.

Financial

The basic premise of the proposed Bill is that local bus service routes, timetables and fares would be designed by local authority officers with little or no practical operating experience or contact with passengers, and tendered under bureaucratic public procurement procedures in bundles of profitable and unprofitable services. This would require a large number of additional local authority staff to design, procure, monitor and manage the contracts at considerable additional cost to the taxpayer.

The presumption is that profits on profitable services would be applied to support unprofitable services. This is to ignore the lessons of history when 55 years of regulated monopoly from 1930 to 1985 resulted in excess fare increases and service cuts on profitable services to support increasing numbers of loss making services with declining patronage and rising subsidies. The proposed Bill would revert to an era when the least affluent passengers on the most profitable routes were forced to cross-subsidise the more affluent passengers on the less well used routes – a form of regressive taxation on the poorest members of society.

The presumption is also that there are excess profits to be “confiscated” and applied to support loss-making services. This was investigated in the Competition Bus Industry study in 2011, which found a very minor excess return on capital across the UK, but using disputed methodology; profitability has fallen since then. An independent report by TAS for CPT Scotland notes that average Scottish bus industry operating profit margins for the 5 years 2007 to 2011 have averaged 7%. This is insufficient to provide for interest, taxation, sustainable investment and an adequate return on shareholder capital. It follows that in a contracted regime, operators are likely to tender for higher returns at additional taxpayer or fare-payer cost. In addition, as

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operators would be unable to change the level of contracted service or fares, the full financial risk of cost inflation or patronage decline would have to be borne by the public sector.

Unless the proposed Bill will also result in an increase in public expenditure on local bus services, every £1 spent on additional bureaucracy and administration will be £1 less spent on service provision. We fail to see any benefit in this.

Practical

The transition from a commercial to a contracted business model would involve an industry wide upheaval similar in scale to that following implementation of the Transport Act 1985.

All other things being equal, we would expect tenders for contracts to be awarded to the lowest price bidder. Labour costs form up to 60% of total bus operating costs for drivers, engineers, cleaners, supervisors and managers. It follows that the bidder with the lowest labour cost would have the greatest bidding advantage, and it would be very difficult and undesirable for existing operators to cut wages, benefits and pensions. That places new bidders with cheaper labour costs at an advantage over existing operators. In addition State owned overseas operators have recourse to lower cost capital than commercial UK operators, and would be likely to repatriate any profits on successful contract bids.

Current employees would be left in an uncertain state of limbo. EU TUPE Regulations do not easily apply to the bus industry, where routes in an existing depot might transfer to a remote location or to several different operators. Even if a form of TUPE could be applied, current pension schemes could not be protected in law, and many employees would be left in a much worse pension situation.

Current operators could be left with surplus vehicles and half empty or vacant depots, with no assurance that they could realise the value of these surplus assets. Current shareholders, many of whom are employees or pension and trust funds representing millions of people could see their asset value and incomes reduced. There is the prospect of a significant loss of investor confidence in the industry, which would be ironic given that two of the UK’s largest passenger transport Groups are based in Scotland.

The proposed Bill suggests that the Regional Transport Partnerships will design, procure, monitor and manage the contracted bus networks. This would require unanimity between neighbouring local authorities.

o Who will decide which routes are profitable and which are not, and how will it be decided which services to “bundle” together?

o Will local authorities agree on the design and fares of cross boundary services?o Will an authority with profitable routes be expected to cross subsidise loss making

routes in an adjacent authority area?o Will services crossing RTP boundaries be included in the “service bundles” and if so,

how?o Will cross boundary and cross border express coach services be included?

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The proposed Bill is silent on all these practical issues which the authors must address before it is a practical proposition.

The Proposed Bill – Commentary

In this section of our response we comment in detail on the statements made in the proposed Bill consultation document. As a general comment we find the supporting evidence to be limited and weak, and the supporting statistics to be selective and unrepresentative. We view the proposed Bill as an opportunistic attempt to revert to the discredited system of state controlled regulated monopoly, largely based on a couple of unfortunate incidents at a time of deep economic recession and public spending cuts. We also find the biased tone of many comments to be insulting to our workforce, who have striven to maintain the best possible service and fare levels through a period when less people are travelling to work, shops and leisure activities, a tone which seems to imply that the industry is in some way responsible for the difficult economic situation.

To put our comments into context it is necessary to explain the historic background more fully than is done in the consultation document.

Bus industry patronage reached its peak in 1950 with the end of post war austerity. Since then it was in continuous decline due to increased car ownership, changing social behaviour (e.g. television), replacement of high density urban housing with low density urban sprawl, relocation of public services such as hospitals, schools and colleges to less accessible locations, relocation of urban centre shops to out of town retail parks, relocation of jobs from labour intensive industrial sites to low density peripheral industrial estates, etc. All these factors combined to increase road traffic and congestion, slowing down buses making them less attractive and more costly to operate. This was further exacerbated in the 1970s with high fuel price increase, high wage inflation and industrial unrest. The regulated monopoly solution was to increase both internal cross subsidy between services and to increase external subsidy. Ultimately even profitable services became unprofitable due to excessive fare increases and frequency cuts.

The Transport Act 1985 was intended to arrest the spiral of decline over 35 years by introducing commercial discipline, in addition to generating funds to reduce the national debt through privatisation. With hindsight it is easy to see that there would be a period of instability as new owners of generally unprofitable companies with high levels of debt sought to make their businesses viable.

However, by 1999 the industry stabilised and was able to concentrate on generating patronage growth. Since then the number of Scottish bus passengers increased year on year from a low of 424m in 1997/8 to 513m in 2007/8, in part due to the national free concession scheme. It is unfortunate but not surprising that patronage has since fallen with the deepest economic recession in 80 years coupled with cuts in public spending on buses, increased unemployment and reduced shopping and social activities.

Despite all the adverse effects of recession and public spending cuts, the number of Stagecoach in Scotland fare paying passengers has declined by only 0.1% in the 5 years from 2008/09 to 2012/13. We consider this to be a highly creditable result, and not the “commercial market failure” alleged in the consultation document.

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Introduction

The proposed Bill correctly identifies that as car ownership rises year on year, bus patronage falls; this has been the case for over 60 years. However, it concludes that “despite being the most common form of public transport, in many areas bus services have let people down”. We do not seek to comment on the specific circumstances of the withdrawal of services in East Lothian, Midlothian and to a lesser extent in Falkirk, except to note that the market mechanism has provided alternative services in most cases. However, we object to these isolated examples being generalised across the whole of the bus industry. In the last 5 years to 2012/13 Stagecoach has lost only 0.1% of its commercial fare paying passengers, despite the deepest economic recession in 80 years. To seek to confiscate our business on such evidence is wholly disproportionate and opportunistic.

Aim of the Proposal

(2) We have commented above on the “bundling” of profitable and unprofitable services together so that one will cross subsidise the other. This form of protected monopoly failed to stem the decline in passengers and increase in subsidies between 1950 and 1985. It is a form of regressive taxation, whereby the poorest members of society who tend to use the busiest and most profitable services are charged higher fares than necessary and receive lower levels of service than necessary in order to generate excess profits to support less well used and less profitable services, usually in more affluent areas or at times of low demand.

The proposal states that it would “set a minimum level of service within the franchise, agreed with the operator”. We do not see where agreement has any place in a local authority specified contract. The operator would simply deliver the specified level of service. In the London contracted bus market operators have no concern for the number of passengers carried, but are concerned simply to deliver the contracted level of service.

The proposal to “Use local authority fleets to provide socially useful services where there are gaps in provision” seems contradictory. If the level of service is determined by the local authorities we would not expect there to be any gaps in provision.

(3) We see no need for additional powers to impose financial penalties on operators who do not meet the terms of franchises or redress for retendering routes as we would expect such penalties to be contained within the franchise contract.

(6) We fail to understand the expression “Used at the discretion of the transport authority”. This appears to imply that some franchises will contain profitable and unprofitable services, and others will not; if the entire network is to be franchised it is immaterial how the “bundles” are packaged, other than that they be operationally efficient and effective – we doubt the ability of local authority planners to determine this. Or it means that some local authority areas may be contracted and others not, which would create considerable confusion given that many bus services cross local authority boundaries. Clarification is required.

(9) Current legislation requires there to be market failure before a local authority can effectively seek to “confiscate” services under a Quality Contract Scheme (QCS). This is a

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perfectly proper safeguard for a responsible operator. No local authority has ever sought to prove market failure, not even in the case of East Lothian and Midlothian cited as evidence of need for the proposed Bill. It is therefore incorrect to say that the process is difficult.

(11) We have no knowledge or comments on the circumstances in East Lothian and Midlothian, but we would point out strongly that these were the exception not the norm. To infer that similar situations have prevailed throughout Scotland is entirely wrong.

(12) The fact that Moray Council has decided to cease financial support for unprofitable bus services is totally irrelevant to the debate. This is a political decision and the proposed Bill would make no difference in any way.

(13) Our comments in relation to Falkirk are the same as those to East Lothian and Midlothian above – they are the exception and not the norm in Scotland.

(16) The statement “The unregulated market has failed to protect those that depend on local services” is typical of the exaggeration and bias throughout the proposals. In the first instance the industry is not “unregulated” – it is highly regulated through operator, service, driver and vehicle licensing enforced by the Traffic Commissioner and VOSA. The industry is deregulated only in so far as it may change commercial services subject to advance registration procedures.

(17) Whilst we fully support action to encourage people to travel more by bus than by car, we see no evidence or appetite for Government or local authorities to take positive steps to achieve this. Most often we hear objections about parking charges and bus priorities. No amount of regulation of buses will change this.

(18) The advocates of the Quality Contract Scheme of regulation always cite the example of London as evidence of success. They refer to this as a “franchise model” although this is incorrect. Under a franchise the franchisee has a financial stake in the business and shares the profits of success. In London the bus operators are contracted to deliver a specified level of service, but have no interest in the number of passengers or the level of revenue, and no long term security beyond the term of each route contract.

There is no doubt that London has an enviable public transport system and has been successful in increasing bus patronage, but it is important to understand the reasons for that. London is unique in the UK for its size and population density. These give rise to high levels of commuting which is impractical by car due to limited road and parking space, congestion and cost. London has a growing population of younger people, immigrant workers and tourists, all with a higher propensity to use public transport.

To meet this high and growing level of demand Transport for London has a much higher public transport support per head of population than elsewhere in the UK (42% of all UK expenditure on 15% of the UK population, £103 per head of population in London compared with £5 in SPT). It seems highly unlikely that Scottish Government would be willing to commit such a high level of resource to public transport, even if it had the funds to do so.

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(19) The claim that “authorities hand over cash to run unprofitable services but with little say in how they are run” is simply untrue. Local authorities specify the routes, times and fares of such services and award contracts through competitive tendering. They also monitor service delivery and have a range of penalties for failure at their disposal.

(20-23) We have commented above that it is unclear what agreements with operators would entail under a contract to supply specified services.

(27-31) This section of the consultation on Deregulation and Privatisation is factually correct, but as we have noted above, it fails to consider the failure of the regulated monopoly system which led to the Transport Act 1985. Since 1999 the number of Scottish bus passengers has stabilised, a situation never achieved under the former regime.

(32-43) This section of the consultation document on the Current System is also factually correct except for its final conclusion. Authorities already have the powers to apply financial penalties in the event of an operator failure to fulfil its tendered service contract. No further powers are necessary. The section of the consultation document on Quality Partnerships and Quality Contracts is also factually correct.

(43-49) We totally disagree with the proposal to remove the need to prove market failure in applying for a Quality Contract Scheme. This is an essential safeguard for responsible operators to protect their business from confiscation without very good reason, and also an incentive for responsible operators to deliver good services. We would observe that most local authorities display little interest in the potential for Quality Partnership schemes, probably because they are unable or unwilling to commit to enhanced facilities for buses.

(50-57) This section of the consultation document moves from a factual statement of the local governance structure (50-54) to a highly subjective assertion of an unproven need for change. Of course people grumble in general about bus services as they do about local and national government services, or the price of beer. That is not a reason to potentially put responsible bus operators’ businesses at risk. Independent evidence by Transport Scotland puts bus user satisfaction at a high level which most other service industries would envy and aspire to.

(58-64) This section of the consultation document on Decline in Public Subsidy and Bus Use is key to the debate over regulation of the industry. As the document notes, public sector support for bus services has been cut by 15% whilst support for rail services is being increased by 11% between 2010/11 and 2012/13. In addition the payment for carriage of free concession pass holders has been frozen for 4 consecutive years despite increased costs of operation. To put this into context, public sector payments to Stagecoach in Scotland over the 5 years 2008/09 to 2012/13, including concession travel, scholars travel, supported services and BSOG has reduced by £0.84m, despite an average cost inflation of around 3% per annum. In such circumstances the only recourse for Stagecoach and other operators is to increase commercial fares above inflation or reduce services, or a combination of both. No amount of regulation will substitute for reduced income, and the additional costs of regulation will simply reduce the amount of public expenditure available to support bus services.

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(65) Passenger satisfaction in Scotland is high, as demonstrated by the latest Scottish Transport Statistics. This does not reflect widespread dissatisfaction claimed in the consultation, and Stagecoach is constantly seeking to further improve satisfaction levels.

73% of passengers feel that buses are on time 79% of passengers feel that buses are frequent 74% of passengers feel that buses run when they need them. 85% of people feel that journey times are reasonable Scottish bus fares are consistently and increasingly below the UK average.

(66-80) Transport Scotland statistics show that 84.2% of all Scottish households in 2011 were within a 6 minute walk to their nearest bus stop and 93.6% within a 13 minute walk. Even in rural areas 75.2% were within a 13 minute walk. 46% of all households enjoyed bus service frequencies of 3 or more buses per hour and 71% of at least 1 bus per hour. This is an exceptionally high level of accessibility in a country with low population density outside the urban areas. Inevitably accessibility is less in rural areas as there is considerably less demand to support the need for services.

The consultation document notes that 542 registered services were cancelled in Scotland last year as evidence of a contracting bus network across Scotland. However, it fails to note that over the same period 718 new service applications were accepted. It also fails to note that about half of all service registrations are due to changes in local authority supported services, a wholly disproportionate number compared with the proportion of total service km run on these services. In the two year 2010/11 to 2012/13 Stagecoach has recorded –

184 (29%) new commercial registrations 169 (27%) cancelled commercial registrations (many replaced by new registrations above) 173 (27%) new supported service registrations (tenders won) 107 (17%) cancelled supported service registrations (tenders lost)

This demonstrates a healthy commercial and tendered service market. We would also note that the great majority of service registration variations are designed to improve service punctuality and passenger satisfaction.

(81) We comment below on each of the suggested improvements from the Government Social Research survey ‘Understanding why some people do not use buses’ –

- Conductors on buses would increase costs and fares, and would reduce driver wages (driver only operation incurs a 25% premium), but would also speed up buses. Stagecoach still employs conductors on its Dundee ‘Tayway’ service, but the economics do not support a return to conductors elsewhere.- Stagecoach in Scotland has invested £75m on 460 new buses and coaches in the 5 years from 2008/09 to 2012/13 (36% of its fleet) at an average cost of £163,000 each. We have continued to invest in mainly Scottish manufacturing industry throughout the recession, but have only been able to do so by remaining sustainably profitable. All new buses are equipped to the latest safety and comfort standards.- Public sector investment in lighting, shelters and information has not kept pace with our own private sector investment. Stagecoach UK bus is about to commence a multi million pound

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investment in Automatic Vehicle Location (AVL) on its entire UK fleet, which will provide a data feed to Real Time Information (RTI) to any local authority requiring it.- We see little evidence of a serious attempt to improve the speed and reliability of buses through bus priorities, with some notable and welcome exceptions. In general we feel that local politicians are unwilling to challenge the interests of motorists and local traders to reduce traffic congestion through parking controls. - We agree that better information should be more widespread and are currently updating our web services to be available on a wide variety of platforms. Stagecoach produces comprehensive paper timetables free of charge for all its commercial services, often delivered door to door.- Stagecoach has twice been independently assessed by TAS as offering fares up to 20% cheaper than its peers, and has pioneered the widespread use of low price day, week and period unlimited travel tickets. We could not reduce prices further, and seek to minimise any increase caused by cost inflation.- Stagecoach UK bus was the first large operator to fully equip its fleet with interoperable smartcard readers, and we are expanding our sales of commercial smart and online tickets to offer better value for money, reduce fraud, and speed boarding times. We are party to many UK multi operator ticketing schemes, and willing to engage in others.

(82) From our comments above it is evident that Stagecoach is consistently investing in service improvements to passengers. We have commented above that bus patronage has stabilised in recent years under private sector ownership, compared with decades of decline under public ownership and regulation. Whilst we agree that there will always be room for further improvement, we totally refute the claim that commercial operators are responsible for the historic long-term decline in bus patronage.

(83) To update the Transport Scotland statistics quoted in the consultation document

- The percentage of buses in Scotland fitted with CCTV has increased from 24% in 2005/06 to 63% in 2011/12, an average annual increase of 6.5%. All new Stagecoach buses are CCTV equipped- The percentage of buses in Scotland fitted with Automatic Vehicle Location equipment has increased from 22% in 2006/07 to 76% in 2011/12, an average annual increase of 11%. Stagecoach has a national programme to achieve 100% fitment.- 89% of buses in Scotland were fitted with smartcard readers in 2011/12. Stagecoach is 100% equipped.- 84% of buses in Scotland were fully DDA compliant or low floor in 2011/12. Almost all Stagecoach buses are accessible with the exception of some school and limited services.

These statistics clearly demonstrate that the commercial sector has continued to improve standards for passengers, even throughout the economic recession.

(84-86) We agree that community transport has a role in meeting low and specialised demand as part of the overall public transport network and must be adequately funded. However, we believe that community buses should also meet all PCV vehicle and driver safety

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standards, and should not use public grants to compete unfairly for tenders against commercial operators; this is especially important to small operators.

(87-96) We have commented above on the recent fall in bus patronage caused by a combination of economic recession and public expenditure cuts. We agree with the statement that “the key challenge is to break the link between economic growth, increased traffic and increased emissions”.Stagecoach has high environmental credentials and has won numerous Scottish and UK awards for its environmental strategy and actions. We have pioneered the use of bio diesel from sustainable waste product sources in Scotland, have trained all our drivers in eco driving techniques and fitted fuel monitoring equipment to our vehicles, and have reduced our depot use of electricity and gas.However, the cost of running private cars has become cheaper in recent years, in part due to more efficient engine technology and in part due to the freezing of fuel duty rates. In contrast, modern buses have become heavier and less fuel efficient due to better accessibility, safety and comfort features, increasingly stringent EU engine emission standards which are less fuel efficient, and cuts in BSOG which have increased the net cost of fuel.Work published by independent consultants TAS demonstrates that demand for bus travel is affected by the generalised cost of journey time, including the walk to the bus stop, wait at the bus stop, travel on the bus, and walk to the destination. When monetary values of time are added to the bus fare, the bus is always less competitive than the private car, no matter how low the fare, because the door to door journey time by car is much less than the generalised cost of journey time by bus. TAS estimates that bus operating costs increase by 0.8% for each 1% increase in congestion delay. Stagecoach estimates that our services become up to 1% slower per year due to increased traffic volumes and congestion. The current economic recession has reduced the level of congestion but it is expected to increase again when economic growth returns.TAS concludes that to achieve a significant modal shift from car to bus requires positive discrimination by national and local Government in favour of bus passengers, through parking restrictions, increased parking charges, congestion charging, bus priority or other similar measures. It should be noted that all these measures have contributed to the increase in bus patronage in London. However, we acknowledge that such measures can be unpopular with electors.Stagecoach and other operators are improving standards of service with fleet investment, smart ticketing, value for money pricing, real-time information, staff training and other measures, but we have no control over the roads we use. No amount of bus industry regulation will achieve modal shift without a significant increase in public expenditure on bus services.

Questions to ConsiderThe consultation on the proposed Bill asks respondents to specifically address 8 questions. We respond to these below.

1) ‘Do you support the general aim of the proposed Bill? Please indicate “yes/no/undecided” and explain the reasons for your response?’

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Stagecoach does not support the general aim of the proposed Bill. Our reasons are set out at length above but these can be summarised as –

Legal – We doubt whether proposed legislation to confiscate the freedom to operate commercially will comply with EU Human Rights legislation, and in any event we consider such action would be immoral.

Financial – A return to a system of regulated monopoly would increase costs to the taxpayer and would result in either higher fares or lower service levels or both for the passenger. This system resulted in declining bus patronage for over 35 years from 1950 to 1986.

Practical – The proposed Bill fails to address any of the practical aspects of implementation. The proposed system of regulated monopoly would take 2-3 years to implement at considerable cost, could destroy successful businesses, would offer no protection to employee job security, pay or pensions, and would shake shareholder confidence in the Scottish bus industry.

2) ‘What would be the main practical advantages of the legislation proposed? What would be the disadvantages?’

Stagecoach can see no practical advantages of a return to a failed system of regulation, where local bus services are designed by local authority officers with no experience of serving passengers. The main disadvantages are increased taxpayer cost, which would reduce funds available to deliver services to passengers, together with uncertainty for operators, employees and shareholders.

3) ‘In what ways do you envisage regulation being used to improve bus services?’

There is already sufficient regulation to improve bus services. Aspects such as licensing, safety and punctuality are already strictly regulated. Where local authorities wish to improve local bus services current legislation provides for Statutory Quality Partnership schemes, which Stagecoach is happy to join. Where there is clear evidence of market failure current legislation provides for Quality Contract Schemes. No authority has sought to apply for a QCS so it cannot be said that they are onerous to achieve in appropriate circumstances.

4) ‘How can community transport be better utilised to serve local communities and particularly low passenger volume routes?’

The Regional Passenger Transport Partnerships are best able to identify gaps in conventional bus service networks and determine whether there is sufficient demand to justify alternatives. Community transport requires adequate public expenditure support; this should not be at the expense of reduced support for conventional services.

5) ‘Do you agree that the Traffic Commissioner should be able to impose greater financial penalties on operators who a) fail to meet the terms of the franchise or b) walk away from the franchise altogether?’

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Stagecoach does not agree that such penalties are necessary. Local authorities letting tenders for supported services already have sufficient powers to specify financial penalties to contractors who fail to deliver the full terms of the contract. It is not uncommon for local bus service tenders to include a provision that a contractor seeking to terminate the contract prematurely shall pay the difference between the current and the retendered contract price.

6) ‘What is your assessment of the likely financial implications of the proposed Bill to you or your organisation? What other significant financial implications are likely to arise?’

It is impossible to quantify the likely financial implications of the proposed Bill to Stagecoach. In the most extreme case Stagecoach could fail to win any of the proposed bus service contracts and exit the Scottish bus market.

We are unable to quantify the likely public sector costs, but the Competition Commission estimated that a single Quality Contract scheme would cost around £1m per annum to administer; assuming one scheme per local authority area would result in 32 separate schemes to cover the whole of Scotland costing the taxpayer an additional £32m.

In the short to medium term if the proposed Bill were adopted by Scottish Government shareholder confidence in Stagecoach would reduce and investment in new vehicles would cease until resolved. Operators and the public sector would incur significant costs of legal challenge to such proposed legislation.

7) ‘Is the proposed Bill likely to have any substantial positive or negative implications for equality? If it is likely to have a substantial negative implication, how might this be avoided?’

Stagecoach has argued above that unless there is a significant increase in public expenditure to accompany the proposed Bill, there will be an increase in public sector administration and bureaucracy costs and consequently less funds available to deliver bus services. The result would be a reduction in services or increase in fares or combination of both. Any of these outcomes will disproportionately affect the less well off, young people and elderly people who form the majority of bus passengers.

If bus services are reduced and/or bus fares increased as above less passengers would travel by bus and inevitably more would travel by car, resulting in increased congestion and pollution.

8) ‘Do you have any other comment or suggestion that is relevant to the need for or detail of this Bill?’

Stagecoach believes that the ongoing debate concerning bus service deregulation is sterile almost 28 years after the Transport Act 1985 changed the structure of the industry. Time wasted on such debate would be better employed by local authorities to improve local bus services in partnership within available resources. We note that Scottish Government provides £58m to local authorities for bus service support, but this is not ring-fenced, and we doubt it is fully spent on the services it is provided for (the example of Moray Council is an extreme example).

We recognise that there may be scope for improvement to existing regulation of the industry to prevent destructive commercial competition without removing the commercial incentive to be

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efficient and effective operators. Passenger satisfaction is already high, and can be improved further by operators working in partnership with local transport authorities.

The proposed Bill has arisen through a couple of unfortunate incidents of instability in the local bus market, which are not typical throughout Scotland. The proposed Bill is therefore totally disproportionate to the issues. This instability has arisen through a combination of circumstances affecting all operators in Scotland and the UK – the worst recession in 80 years, rising operating costs, especially fuel, and reducing public expenditure in real terms on supported services, BSOG and concession travel payments. The real issue is to restore stability of public expenditure which we acknowledge is difficult in the current economic circumstances. However, we do question how more funds can be provided for rail and roads, but less for buses which serve the most deprived communities.

Conclusion

Stagecoach does not agree with the proposed Bus Regulation (Scotland) Bill for all the reasons given above. We do, however, recognise that the Bill sponsor is concerned to see improved local bus services, a concern which we share. We would invite the Bill sponsor to discuss with us what practical and affordable measures could be taken to improve services, rather than engage in a debate over regulation and control.

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Documents

88 Stagecoach