EXCLUSIVE: Competition law prevents National Bus Strategy objectives

New documents reveal that the Competition and Markets Authority (CMA) has warned councils about the legal risks of ‘Enhanced Partnerships’. With no guidance from the Department for Transport on how to proceed, all English local authorities are now at risk of legal action from bus companies if they get it wrong.

Department for Transport and Competition and Markets Authority Logos above three pictures of buses in Reading

Following an FOI request to Reading Borough Council, we can exclusively reveal the details of the Competition and Markets Authority’s objections to Enhanced Partnership (EP) plans for bus services. Email correspondence from March – April 2022 includes the CMA’s general feedback, as well as their specific concerns about Reading’s EP.

The concerns were first raised publicly at a Transport Select Committee hearing in May 2022, when the Deputy Leader of Reading Borough Council, Councillor Tony Page, revealed that: “The CMA is already indicating that it does not like, and will not support, some of the ticketing and fares initiatives that are a fundamental part of the EP, and which the DFT supports…. It is a serious issue, and one that our officers are flagging up. It could be a curve-ball that has not been anticipated. The DFT should have anticipated it because it has been a long-standing concern.” He warned that Reading Borough Council would require further legal advice “that could be a delaying element and could be highly costly”, calling for the DfT to “get the CMA properly aligned and give us proper guidance.”

The CMA informed us that, as an enforcer of competition law, it is able to consult upon, but unable to approve EPs. All local authorities will therefore proceed at their own risk, and are advised to get independent legal advice. The CMA may still open an investigation into any EPs thought to be in breach, as is its duty under the Transport Act 2000 and Schedule 10 of the Competition Test.

The Department for Transport did not comment on whether it plans to issue guidance on the competition concerns, nor whether it still intends to enforce the requirement for all English local authorities to sign up to an EP.

The CMA’s competition concerns:

Fare simplification

In their EP Plan, Reading Borough Council originally intended to introduce simple ‘short hop’ fares, like those available in London. Following consultation with the CMA they dropped the idea from their bus services plan, stating that “It is clear that changing single fares is not allowed.” With the CMA expressing “caution over an intention to set a single price that operators must adhere to given the potential impacts on competition“, it appears that fare simplification and consistency will not be achievable under the EP model.

Multi-operator ticketing

In a list of overall feedback points about EPs, the CMA warned: “The removal of single operator tickets will have a potentially significant impact on the incentives of operators to compete against each other. We encourage careful consultation with operators, so that operators who are uncertain about the legal risks of offering multi-operator tickets are not excluded. We would recommend seeking legal advice to ensure that any scheme is compliant with competition law as the CMA as the UK’s lead competition enforcement agency cannot provide this.”

Governance and service standards

Under EPs, council plans for bus services can only be implemented with 80% of bus operator support; known as the ‘operator objection mechanism’. The CMA makes further recommendations about this governance arrangement, suggesting better representation for smaller operators, and for larger operators’ representation to be ‘defined by contestable criteria (eg total mileage) rather than fixed, named operators.’

Councils must also be careful not to impose too many new requirements at once. The CMA recommends the use of ‘appropriate transition periods’ and suggests that ‘non-prescriptive/outcome based objectives may give greater flexibility to operators to deliver…objectives.’

Passenger compensation schemes

If you have plans for introducing refund guarantees on certain routes, again we would encourage careful consultation with operators, so new schemes do not create the unintended consequence of providers not wanting to service routes or enter the market.”

Network identity

“Where an authority wishes to require buses to adopt a standard livery or branding scheme we would recommend that operator brands should be clearly visible, particularly where operators are competing on overlapping routes. Care should be given to the impact on operators of cross-border routes.”

Demand-Responsive Transport (DRT)

‘Some EPs include proposals for encouraging flexible business models, like Demand Responsive Transport, though the level of thinking and evidence base that has gone into those business models across the EP plans varies. We would encourage you to explore existing trials of these models and learn from best practice in other authorities, where it exists.’

Competition restrictions on Reading Buses

As one of the UK’s few municipally-owned bus companies, Reading Buses can bring back around £3 million, or 12-15% of its annual turnover, per year to be reinvested into the bus network. Because Reading Buses serves more than 80% of the market, Reading Borough Council’s EP plan could not be blocked by the ‘operator objection mechanism’ and went through relatively quickly compared to other local authorities.

However, private bus operators Arriva and Go-Ahead still objected to the plans. According to Reading Borough Council: “Concerns were expressed by Arriva and Go Ahead to aspects of the EP and whilst we did attempt to reassure then that there was and is an arms length relationship with Reading Buses, they did officially object to the EP formation.

The CMA advised: “We note the council owned operator, and considerable market share, of Reading Buses – any decisions taken by the council should be taken at appropriate distance from the operator and the council should adhere to the principle of competitive neutrality (public sector trading operations should not enjoy a commercial advantage solely because of their ownership by or association with government).”

The demand for ‘competitive neutrality’ means that the full potential and economic value of Reading Buses cannot be realised while the deregulated market environment remains in place.

The urgent need for public control and ownership

In September 2021, we predicted that competition issues would turn out to be one of the main reasons that Enhanced Partnerships would fail to deliver on National Bus Strategy objectives, and waste taxpayers’ money:

“The primary condition of funding is for councils to commit to ambitious public investments – especially an increase in bus priority – while bus companies are encouraged to form a ‘collective joint position’ and a ‘shopping list’ of demands from the earliest possible stage. Invitations for ‘reciprocal investment’ are to be ‘heavily weighted’ towards what local authorities can provide, to allow for the commercial uncertainty felt by bus operators as they emerge from the pandemic. Only minor improvements are expected from bus operators in return, as competition law prevents councils from imposing anything but ‘indispensable’ restrictions on the deregulated market. The ability for councils to cross-subsidise services, set prices or generally lower fares will also be banned by law.”

The new information from the CMA confirms our prediction, and highlights the urgent need for councils to gain more powers to implement public control and ownership. This can only be achieved by: 1) ending the requirement for councils to form EPs; and 2) amending the Bus Services Act 2017.

In the National Bus Strategy, the government recognised the “strongly performing examples” of public ownership and promised to review the ban on councils setting up their own municipal bus companies. However, they are currently requiring all local authorities to sign up to Enhanced Partnerships, which will entangle them in the deregulated market for years to come.

To support the campaign against the public ownership ban, please sign We Own It’s petition: ‘End the ban on public ownership now.’

For more information: contact@abcommuters.com

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