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Decision by Tyne and Wear Quality Contract Scheme Review Board

03 Nov 2015

Stagecoach Group plc ("Stagecoach") welcomes the decision of the Tyne and Wear Quality Contract Scheme Review Board (“the Review Board”) that the bus franchising scheme proposed by the North East Combined Authority (“NECA”) has failed to meet the necessary statutory tests.

Stagecoach also believes the decision has clear implications for bus franchising powers linked to the government’s devolution programme. 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.

Nexus, the transport executive of NECA, had proposed that bus services should be franchised in Tyne and Wear through the letting of contracts, with local taxpayers assuming the risk of the local bus network. This approach would have replaced the current successful system where services are largely commercially funded by bus operators.

The Review Board received a written request to consider the Tyne and Wear scheme on 22 October 2014. It subsequently reviewed the consultation responses to the proposed scheme and held oral evidence sessions involving Nexus, bus operators and other parties.

The independent Review Board’s remit was to provide an opinion on whether the proposed scheme – which has a 10-year operating cost of £1.6 billion - meets statutory public interest criteria, and whether due process has been followed. 

Any scheme must demonstrate that it will:
• result in an increase in the use of bus services in the area;
• bring benefits to bus passengers by improving the quality of local bus services;
• contribute to the implementation of the local transport policies of the Local Transport Authority;
• contribute to the implementation of those policies in a way which is economic, efficient and effective; and
• ensure any adverse effects of the proposed scheme, such as on bus operators, will be proportionate to the wider benefits to people in the area.

The Review Board report contains wide-ranging and fundamental criticisms of the bus franchising proposals in Tyne and Wear, which failed to meet key practical and financial tests. The main findings are that:
• the franchising scheme failed to satisfy the core test of being economic, efficient and effective. The Review Board remarks that the effectiveness of Nexus' scheme has been "significantly overstated", with similar benefits able to be achieved under operators' partnership plans. In addition, the Board criticises Nexus for "reverse engineering" in an attempt to justify its proposals
• the Review Board is "not convinced that the scheme is affordable". Indeed, the Board states that "it appears more likely than not that the scheme will run into funding issues and that will put pressure on fares and the network"
• Nexus has failed to demonstrate that its proposals will lead to an increase in bus use, or even reduce or arrest decline
• while the Review Board ruled that the scheme met the test on providing benefits, the Board noted that "any quality improvement whatsoever" would, as a technicality, satisfy this criterion.
• although the Review Board believes the scheme contributes to the implementation of local transport policies, it raises "concern" over the financial viability of the scheme.
• the Review Board said it had "no hesitation" in concluding that the "negative impacts on operators are wholly disproportionate to the benefits" to bus passengers and citizens of Tyne and Wear. Furthermore, the Board says it finds it "highly unlikely" that Parliament intended such schemes to lead to such harsh impacts on individual businesses.
• Nexus also failed to comply with its statutory duty on consultation and consultees were "misled" by claims that the franchising scheme was superior to operators' alternative partnership proposals

Commenting on the Review Board findings, Stagecoach Group Chief Executive Martin Griffiths said: "We welcome the Review Board's confirmation that the core franchising proposal was unaffordable, inflexible, high risk and not in the public interest.

"Tyne and Wear already has 90% bus customer satisfaction, amongst the highest levels of bus use in the country, and smart ticketing is being introduced across the region. Franchising does nothing to build on that successful, high-quality network.

"Nexus's franchising plans envisaged no more buses, no new routes and no more services. When subjected to proper public scrutiny, it admitted its plan had a close to 1 in 3 chance of financial failure, it had no money to fund the bus network after 10 years and it had made numerous multi-million-pound mistakes in its calculations.

“We would urge the North East Combined Authority to respect the findings of the Review Board, and put passengers and local people 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.”

In addition to its formal findings, the Review Board comments on the government's planned devolution programme and linked potential changes around bus delivery. It says that whatever approach is taken, there are "valuable lessons" to be learned from the examination of the Tyne and Wear scheme.

Stagecoach notes the Board’s recommendations include that:

• there should be a "staged, independently scrutinised, approach to the process of development and assessment of any proposal", including the use of independent experts, and an "annual scrutiny review" of what any scheme has delivered
• "legislation enabling franchising should specifically address the issue of proportionality of financial loss of bus operators". The Board adds that "it may be that some form of compensation is considered appropriate".

Mr Griffiths added: “The only fully worked up proposal for bus franchising in the UK outside of London is in Tyne and Wear. But the independent scrutiny provided by the Review Board has exposed the serious risks to bus passengers and taxpayers from franchising in any part of the country.

“Independent research* suggests it would cost up to an estimated £3.2 billion a year to run a franchising system across England. This would be a tax on the public that would dwarf the cost of the HS2 high speed rail project in less than 20 years. We support the principle of devolution, but it is clear that bus franchising is a one-way ticket to worse services, higher fares and tax rises for local people.

"We believe there are far better models for improving the public transport offer in major cities based on true partnership working between the public and private sectors. This approach should be actively encouraged in the forthcoming 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.

"We are open to discussing and developing an enhanced partnership based on these principles with NECA or any other authorities which receive devolution powers, sharing risks appropriately between the public and private sectors."


For further information, please contact:

Stagecoach Group plc