QCS hearing Tyne and Wear: A disaster in waiting?

As the Tyne and Wear QCS hearings open in Newcastle-upon-Tyne this week, operators claim that the scheme would be a disaster to the public purse and passengers. Legal Journalist Mike Jewell reports on the first arguments from Stagecoach, Go North East and Nexus.

Stagecoach, supported by Go North East and Arriva, is claiming that the Quality Contract Scheme (QCS) for the Tyne and Wear area would be a disaster, maintaining that it will be badly harmed with a massive detriment on its businesses.

It also claimed that there is a potential detriment to the public at large because of the risks involved, when the hearing by the QCS Board, the first of its kind, opened in Newcastle-upon-Tyne on Monday (13 July).

Under the scheme, operators have to bid for contracts to run services rather than operate the services they decide should be operated commercially.

For Stagecoach, Tim Ward QC said that what is at stake is the viability of the bus network in Tyne and Wear up to 2027 and beyond.

Nexus has admitted that the current network is very good, yet the QCS threatens a radical shake up of the network, he said. It is Stagecoach’s view that the QCS would be disastrous, destroying the company’s viable business built up over decades.

There is also the wider public interest, he said. The scheme has a huge potential to damage the bus service network. Even on Nexus’ own case, the scheme exposes the network and the public purse to enormous risks.

 

‘Mistake after mistake’

Mr Ward said that Nexus in its analysis had proceeded with mistake after mistake.

The QCS is far more risky than was previously put forward, and it is likely that Nexus would have to go to the District Councils for more money, he said. Nexus had argued that the scheme would result in 88 million extra journeys over 10 years, charging lower fares and saving threatened services without costing any more money. If that is so, why had nobody else tried in the 15 years it had been on the statute book?

He said the benefits had been hugely exaggerated and the QCS is worriedly rigid.

Nexus has dismissed a proposed Voluntary Partnership Agreement (VPA) which would have resulted in an extra 50 new buses, some of which were already being delivered to Stagecoach, said Mr Ward. Nexus is proposing to run the same bus routes with no new buses.

The VPA was ahead in both economy and value. It was more effective and efficient even on Nexus’ own analysis. All that could be achieved without any commercial risk to Nexus and the public purse. The commercial risk would be on the operators and their existing businesses would not be destroyed. The VPA was better on every single criterion.

Nexus had admitted that it would be open to a much greater financial risk than currently, which meant that the commercial risk would be on the hard-pressed local authorities. The VPA offered substantial benefits at massively less risk.

The QCS would cost 1.6bn over 10 years, yet even if the Nexus figures were correct there would only be a surplus of 2.7m at the end of 10 years, he said. The scheme barely breaks even. There ought to be a sensible back-up plan if things went wrong, and there is not. There is massive unpredictability about the outcome of the scheme. If Nexus ran out of money the services would suffer, with service cuts and higher fares which would reduce passenger usage.

 

Analysis a ‘shambles’

He said that the Nexus analysis is a shambles. It had had to admit error after error. That was bound to undermine the quality of the economic analysis before the Board. Both the Board and the operators had faced a continuing moving target, with constant changes and twists and turns to the Nexus model projections.

In the analysis, the benefits of the simplified ticketing measures had also been applied to people who had bus passes and did not buy tickets, something like one-third of the passengers carried. That inflated the benefits of the scheme by 16%.

Nexus had also applied the combined benefit of simplified ticketing to both existing and new bus passengers just to existing passengers, which inflated the benefits of the scheme by 19%, he said. In addition a lot of simplified ticketing is already in place. Nexus had made assumptions that were not backed by the evidence.

When operators made bids for contracts under the scheme the Nexus model was for bids at a margin of 8%. In fact viable margins outside London were said to be between 10.5-11%. Operators were going to bid at a sustainable level.

He said Nexus has projected the depreciation of new buses required in a straight line over 16 years, when in fact depreciation is significantly higher in the first few years and the scheme is for 10 years. It has also underestimated the cost of the refurbishment of buses, which alone would wipe out the 2.7m.

For Go North East, Alan McLean QC argued that a misunderstanding of the law had led Nexus into a major error, in saying that the question for the Board was what it proposed was reasonable. The Board should not start with the presumption of whether Nexus was right or wrong. It has to consider whether the required criteria had been met.

He said that Nexus has conceded that it was relevant to look at the VPA when considering proportionality. Its assessment of the soft measures, including simplified ticketing and smart ticketing, is fundamentally flawed. He maintained that the QCS is unaffordable.

 

‘Not designed for profit’

For Nexus, James Pereira QC said that they believe that the QCS offers good value for money; increasing patronage and quality, with an integrated intermodal system. Each year about 130m bus trips are made in the region, more bus trips per head than in any other Metropolitan area outside London.

He said that currently there are a number of problems: There has been a 50% fall in patronage since the 1980s, requiring strong measures to be taken.

About 42% of the operators’ income comes from public subsidy, he said. So far successful steps have been taken to prevent financial restrictions affecting bus services. However, that can only be temporary, and time is running out to provide a long-term solution. Without intervention, matters will only get worse. Fares will rise and passenger patronage will fall, leading to services being withdrawn, further reducing passenger numbers. He said Nexus is preparing to take steps to prevent that occurring.

The value of the secured services cannot be overstated. They have an important role to play. The operators cannot be expected to run them if they are not making a profit, he said. About 10% of all services in Tyne and Wear are secured services and such services have been put at risk in other areas because of financial restrictions.

He said Nexus will take steps to ensure its operation in Tyne and Wear. Nexus does not seek to make a profit and the QCS is not designed to be profitable. Any money made will be ploughed back into the network. The VPA would not secure all the secured services, and cannot guarantee fare levels.

He said that Nexus has been grateful for the feedback from the operators, which has led to Nexus amending its proposals. The QCS would deliver a consistent and durable bus network. Fares would be lower and rises would be in line with inflation. Ticketing would enable passengers to use any bus, and smart ticketing would enable passengers to use the Metro.

Mr Pereira said it is conceded that there would be adverse impacts on the operators, but Nexus believes that they are proportionate to the benefits that would arise.

The hearings are scheduled to take a fortnight, with the Board publishing its report on whether the QCS meets the statutory public interest criteria and whether due process has been followed by Nexus in October.