Greater Manchester Bus Franchising Assessment

Discussion in 'Buses & Coaches' started by HSTEd, 17 Aug 2017.

  1. Bletchleyite

    Bletchleyite Veteran Member

    Messages:
    43,263
    Joined:
    20 Oct 2014
    Location:
    Up and down the south WCML (mostly)
    I don't think you would lock people into using a given depot. However, owning it does mean that the incumbent, who does have the depot, doesn't have an unfair advantage. I suspect over time it would evolve into a London-like situation.
     
  2. carlberry

    carlberry Established Member

    Messages:
    1,633
    Joined:
    19 Dec 2014
    There are rules about who can make a compulsory purchase however, I suspect, that's what will happen. Of course you could just flog the depot off beforehand for a different purpose and, if you cant get permission in time, just close it and fill it with scrap buses until the local authority does what you want. (I cant imagine anybody doing that of course!!!)
     
  3. TheGrandWazoo

    TheGrandWazoo Veteran Member

    Messages:
    12,093
    Joined:
    18 Feb 2013
    Location:
    Somerset with international travel (e.g. across th
    But that's the point - you don't have a London like situation.

    In London, the cost of the depot sits with the operator. They tender for routes and so it's incumbent on them to fill the depot and spread the overhead.

    If you have a package of routes based on Leigh (which is currently served by depots in Wigan predominantly but also Jim Stones, Rotala in Tyldesley*/Bolton, Warrington) then, as TfGM own Wigan depot, are you going to specify that routes will be moved out of that depot?

    Given the proximity of depots in London and the company ownership, routes can and do swap between operators and depots. Own the actual depots and it becomes incumbent to fill them up.
     
  4. NorthernSpirit

    NorthernSpirit On Moderation

    Messages:
    1,627
    Joined:
    21 Jun 2013
    In response to the GMCA consultation as linked by Telstarbox.

    Since they use Fort Transit minibuses, I can see South Pennine Coummunity Transport reciding from Greater Manchester should bus franchising go ahead. They'd recide only because of the type of vehicle used which probably wouldn't fit GMCA's franchise terms.
     
  5. edwin_m

    edwin_m Veteran Member

    Messages:
    16,443
    Joined:
    21 Apr 2013
    Location:
    Nottingham
    I have to admit I'm a bit baffled by the depot business too. If all the franchises in an area go to operators that already have nearby depots or prefer to set up their own sites, then TfGM is either stuck with a big depot or has to sell it off so it isn't available to future franchises.
     
  6. Bletchleyite

    Bletchleyite Veteran Member

    Messages:
    43,263
    Joined:
    20 Oct 2014
    Location:
    Up and down the south WCML (mostly)
    That does seem a potential downside. I guess the upside is that they can potentially attract in other operators by having a ready depot site to lease to them, rather than being limited to those operators already established in Greater Manchester.
     
  7. Robertj21a

    Robertj21a Established Member

    Messages:
    5,602
    Joined:
    22 Sep 2013
    Something doesn't add up here - or it's all just half baked and will be amended at some point.
     
  8. Bletchleyite

    Bletchleyite Veteran Member

    Messages:
    43,263
    Joined:
    20 Oct 2014
    Location:
    Up and down the south WCML (mostly)
    It's at proposal/consultation stage so this is entirely understandable.
     
  9. TheGrandWazoo

    TheGrandWazoo Veteran Member

    Messages:
    12,093
    Joined:
    18 Feb 2013
    Location:
    Somerset with international travel (e.g. across th
    I think it's possibly a bit of both.

    It is a consultation so not cast in stone but then again, to publish such proposals shows a level of consideration without those quite obvious questions.

    It would almost seem to indicate that they would tender on a depot by depot package basis rather than the London model; if you're not locked into using the acquired depot then that leaves TfGM with an asset on the books potentially.
     
  10. 158756

    158756 Member

    Messages:
    902
    Joined:
    12 Aug 2014
    The idea seems to be 10 big bundles based around the GMCA depots, and then a number of smaller bundles which would be operated from wherever the operator chooses. Jim Stones is an interesting situation - for them to have much chance of survival in the short term they probably need a contract centred on Leigh, no frequent routes, no high spec buses etc. Would anyone else cry foul if the routes did happen to be packaged that way?

    The big franchises are intended to be work for a full depot. The only way to operate 150 buses working around a particular depot is to use that depot - the costs of a new setup would render any other bid uncompetitive, hence why the depots need to be bought in the first place. TfGM have looked at the possibility of selling off some of the depots they buy anyway - this is only an idea for the future, not a commitment, but one of the documents discusses the possibility of consolidating operations to a smaller number of larger depots, perhaps just 5.
     
  11. carlberry

    carlberry Established Member

    Messages:
    1,633
    Joined:
    19 Dec 2014
    Of course Andy Burnham isn't just responsible for transport in Manchester so large areas of land which have been acquired at fairly cheap prices might be attractive to deal with issues such as health or housing.
     
  12. edwin_m

    edwin_m Veteran Member

    Messages:
    16,443
    Joined:
    21 Apr 2013
    Location:
    Nottingham
    Thanks for the last few responses, which do help to clarify why they might be considering buying the depots.
     
  13. TheGrandWazoo

    TheGrandWazoo Veteran Member

    Messages:
    12,093
    Joined:
    18 Feb 2013
    Location:
    Somerset with international travel (e.g. across th
    As I said (about two mins before you posted ;)) that it really does point to depot based packages. Split out smaller packages (e.g. Leigh or Rochdale) and again, leaves a bit of a gap in an existing depot location.
     
  14. WatcherZero

    WatcherZero Established Member

    Messages:
    9,189
    Joined:
    25 Feb 2010
    The depots would mostly be existing depots, purchased or compulsory purchased. Where the owner digs in and fights the compulsory purchase they plan to just set up a rival using development powers.

    The big franchises would be packages of routes requiring around 100 to 200 buses and the winning bidder is given the depot to operate for the length of the franchise. In addition to the 10 big franchises there would be around 25 smaller franchises similar in scale to existing subsidised service contracts for which the bidder would have to source their own space, they are intended to be the entry level to allow independents who wouldn't have the resources for a big franchise to continue/set up.

    They arent offering to provide buses to franchise winners but to give a bit of financial security for the prospect of an operator losing their franchises in the next round and have buses with no home they are offering a regulatory asset base system. Winning bidders could sell their buses to TfGM and lease them back, at the end of their franchise they will be able to cash out the residual market value of the buses and TfGM would find them a new home.
     
  15. Alexbus12

    Alexbus12 Member

    Messages:
    203
    Joined:
    19 Jul 2018
    Wouldn't surprise me if all this ends up in the courts soon. Stagecoach are definitely not keen on it..
     
  16. nerd

    nerd Member

    Messages:
    524
    Joined:
    4 May 2011
    I think you have put your finger on it TGW; by purchasing the depots, GM remove any advantage/barrier value to entry, favouring the current owner-operator. So all prospective operators start on a level playing field in respect of all franchise contracts.

    Of course, if a current owner has invested in improvements to a depot, that should be reflected in the price (if they think it isn't, then there will certainly be legal proceedings). If that same operator then goes ahead and wins a contract from that depot (and given that their inside commercial knowledge of the routes, they may have an advantage) then they will still enjoy the use value of the improvements, while having pocketed compensation for lost financial value. So, win both ways.

    Plus buying out the depots removes any possibility of legal challenge over 'loss of business'. It was fundamental to the deregulation legislation that no ownership value could ever be acquired in operating a bus route; so routes and networks could not, legally, be sold from one operator to another. The sole value in bus operation was legally restricted to ownership of buses and depots. So, even if Stagecoach (say) were to win no franchise contracts in the new GM system, so long as GM had bought their depots and leased their buses, Stagecoach would have no basis for a legal claim for compensation.
     
    Last edited: 18 Oct 2019
  17. Cesarcollie

    Cesarcollie Member

    Messages:
    203
    Joined:
    5 Jun 2016
    What part of the deregulation legislation (I presume you mean the 1985 Transport Act) does that conclusion come from?
     
  18. Bletchleyite

    Bletchleyite Veteran Member

    Messages:
    43,263
    Joined:
    20 Oct 2014
    Location:
    Up and down the south WCML (mostly)
    I found it odd too. However I think the point is that anyone can register a route, there is no need to purchase it from another operator. But it sometimes does happen that an operator is sold complete with routes and relevant "goodwill".

    However in the new world they couldn't, and so there is an "opportunity value" that has been removed.
     
  19. TheGrandWazoo

    TheGrandWazoo Veteran Member

    Messages:
    12,093
    Joined:
    18 Feb 2013
    Location:
    Somerset with international travel (e.g. across th
    Yeah, I'm not certain that is enshrined in any legislation. There was, IIRC, a view from a select committee that reckoned that as you were free to set up any service, there was no inherent goodwill value that could be attributed. However, two things:

    • They were marking their own homework so that wasn't a totally unexpected conclusion and...
    • Working on that premise, you can virtually nationalise anything on that basis
      • Anyone can open a corner shop so you can nationalise Tesco Express by buying the premises, stock, transfer staff, but have no regard for goodwill
    It's prescient given this week's CBI's assessment of the nationalisation of areas such as utilities. They said "the confidence of international investors in the UK would be severely hit should Labour refuse to pay full market value for the industries."

    That's true, we should have due regard for the genuine worth of a business. In constructing a cost benefit analysis, both the cost and the benefits should be accurate and realistic! The CBI weren't as the costs were arguably overstated (ignoring the rail stock issue) because of how the value of utilities and the underlying covenant of the government affects that, and the benefits (in revenue generation) are also open to question.

    Giving the operator simply the value of their property really is nationalisation on the cheap, and that's not good for business confidence.
     
  20. Robertj21a

    Robertj21a Established Member

    Messages:
    5,602
    Joined:
    22 Sep 2013
    So, essentially, it's the 'quality' and the good name of the business that is going to be totally ignored by this approach ?

    In effect (and to use theoretical UK-wide examples), the recognised quality operations of Stagecoach, Ensigns, Brighton & Hove, Trent etc wouldn't be taken into account any more than, say, Rotala or any other poorer quality operation ?
     
  21. nerd

    nerd Member

    Messages:
    524
    Joined:
    4 May 2011
    you don't need to look very far TGW; this is section 1 of the 1985 Act;

    " Abolition of road service licensing.

    (1)The provisions of Part III of the 1981 Act (road service licences) shall cease to have effect.

    (2)Those provisions are replaced—

    (a)in relation to London local services, by Part II of this Act; and

    (b)in relation to other local services, by sections 6 to 9 of this Act.

    (3)Schedule 1 to this Act shall have effect for the purpose of making amendments in other enactments consequential on this section."

    Since 1930, stage carriage of the general public had been restricted to persons holding 'road service licenses'. This created, for any incumbent operator, an asset value in holding such a licence; an asset that could be shown on a balance sheet, and sold on if need be. To run a route, you needed a licence; but once an operator had a licence for a route, no non-licensed competitor could pick up or set down passengers on stages along that route. In 1981, this licensing had been substantially relaxed in respect of express and inter-urban bus transport (and there was provision for pilot schemes in which multiple operators could be licensed along the same route) but the essential restriction remained in place for stage bus services in towns.

    Of course, a high proportion of these asset values were, by the 1980s, vested in local authority transport undertakings; which made them prime targets for central government financial appropriation. The Thatcher government had found that an easy way to balance the books of national government was to plunder the assets of local authorities, and sell them commercially. Local transport undertakings were rich in land and other assets, and crucially had no legal status to challenge such actions in the courts.

    In effect the 1985 Act abolished all road service licenses, and hence nationalised the asset values of all rights to operate stage carriage services along particular routes, without compensation; incumbent operators being allowed to instead to register their existing routes, knowing that any (suitably qualfied) competitor might, in the future, register a service covering the same stages on the same route. The operators might have challenged this loss of assets without compensation at the time; but did not, as they were reckoning to gain overall from the forced disposal of publicly owned transport undertakings.
     
    Last edited: 18 Oct 2019
  22. TheGrandWazoo

    TheGrandWazoo Veteran Member

    Messages:
    12,093
    Joined:
    18 Feb 2013
    Location:
    Somerset with international travel (e.g. across th
    I'm a little confused. The first part relates to the abolition of road service licenses and that's a direct take from the legislation.

    Where do the three paragraphs come from?
     
  23. nerd

    nerd Member

    Messages:
    524
    Joined:
    4 May 2011
    They all arise from the abolition of road service licenses.

    Think of it from the perspective of National Accounts; before 1985, the asset value of bus routes stood as road service licence assets on the books of road transport operators (many of whom were municipal transport undertakings). After 1985, they stood (in London) as bus franchise assets on the books of transport operators. So far, so good. But what happened to the asset value of bus routes after 1985 in the rest of the UK? The new registered operators could no longer include them on their books; as they no longer 'owned' them exclusively. But assets cannot 'disappear' from the national accounts if the activity they stand for still continues; so after 1985, that portion of bus route value would have been transferred to the Treasury. Hence, as I said, the 1985 Act had the effect of nationalising the asset value of bus routes outside London (and incidentally making central government 'richer' at the expense of local government).

    Ironically, the current GM franchising scheme (if implemented) will result in at least a portion of the bus route asset value currently on the Treasury books being transferred 'back' to the new franchisees; as the new franchises will be commercial assets. But the same principal is being observed; for every debit in the National Acccounts there must be a corresponding credit. The 1930 Act created bus route asset value out of nothing; but once they existed, they had to belong to someone; value can be created out of nothing, it cannot be destroyed out of nothing. And so when the road service licences were abolished, the asset value of all bus routes outside London belonged to the Treasury. Consequently, it would have been illegal for anyone other than the Treasury to claim them as their property.

    Youi were speculating that the Select Committee were engaged in wishful thinking when they stated that incumbent bus operators could not claim any asset value in respect of loss of bus routes due to franchising. Not so; they were relying on an exact understanding of the 1985 Act. Before 1985, outside London, incumbent operators could legally include road service licenses as assets in their accounts. After 1985, they could not; as the licences has been abolished, and their asset values assumed by the UK Treasury (along with all the other assets of the former muncipal operators). But as that value is now legally owned by the Treasury, continuing commercial operators cannot claim compensation for its loss due to the new Act.
     
    Last edited: 19 Oct 2019
  24. TheGrandWazoo

    TheGrandWazoo Veteran Member

    Messages:
    12,093
    Joined:
    18 Feb 2013
    Location:
    Somerset with international travel (e.g. across th
    No, I meant what is the source material for those paragraphs. Where are they from? Have you a link?
     
  25. radamfi

    radamfi Established Member

    Messages:
    8,551
    Joined:
    29 Oct 2009
    I thought the bit after the quoted section from Transport Act 1985 was commentary from nerd.
     
  26. RT4038

    RT4038 Member

    Messages:
    568
    Joined:
    22 Feb 2014

    This is all a bit nonsense. I don't think Road Service Licences were ever an 'asset' to be quantified in accounts. The Traffic Commissioner could withdraw or amend such licences, or issue competing licences if he so wished. Holding a Road Service Licence did not guarantee any profits to the holder.
    The question is the difference between the value of the pure assets of the business and the value of the business as a going concern. (aka 'the goodwill') If the government take away the right of the business to be a going concern then this is where the claims for compensation by the owners of the business come in.
    As to whether substituting a freedom to trade on the streets with a freedom to bid every 5 years for a contract to run on the streets constitutes taking away the right of the business to be a going concern - I know which way I would be thinking as a bus operator, whatever a select committee might pronounce.
     
  27. Robertj21a

    Robertj21a Established Member

    Messages:
    5,602
    Joined:
    22 Sep 2013
    Quite. I see a court case before too long.
     
  28. nerd

    nerd Member

    Messages:
    524
    Joined:
    4 May 2011
    Traffic Commissioners could withdraw or amend licences, but only with reasonable cause; hence the establishement of a statutory appeal process. The issue is not whether an incumbent bus operator had 'goodwill'; but whether such goodwill attached to a right to pick up and set down passengers at states along a particular defined bus route (over and above the ownership of their buses and depots). After 1930, road serivice licences provided exactly that; they guaranteed that the operator could not legally face direct competition along a defined route, and such licences did indeed feature as assets in operator accounts (as counterpart franchises do today in London, and may do in the future in Manchester).

    You would recognise, I am sure, that if a transport authority were to contract with an operator other than an incumbent franchisee, to run bus services on a route covered by the franchise; then the franchisee would have a case in law for compensation. Equally, a franchisee can sell on their franchise to another operator. Once both of these rights applied to holders of road service licenses; but after 1985, they could not. Generally, if legislation abolishes the asset value associated with an activity, while leaving the activity itself still happening, there are clauses in the legislation for disposal of those assets - or otherwise provide compensation. But if, as in this case, there were no such clauses, the legal effect is simply to tranfer all that asset value back to the Crown (since the Crown is legally the fount of all value, in the first place).
     
  29. edwin_m

    edwin_m Veteran Member

    Messages:
    16,443
    Joined:
    21 Apr 2013
    Location:
    Nottingham
    Surely that's only the case if the franchisee gets to keep the revenue and therefore would lose out from abstraction? On a London-style contract the operator is paid to provide a certain level of service and the revenue goes to TfL. If they continued to provide that service but had fewer passengers they'd actually be marginally better off (less passenger-related disruption, small reduction in fuel costs due to less weight).
     
  30. radamfi

    radamfi Established Member

    Messages:
    8,551
    Joined:
    29 Oct 2009
    Would it be worth taking TfGM to court, given that they are already going to get their depots bought out? Would the extra compensation be worthwhile, given that it would probably harm their chances of entering into TfGM franchises in the future?
     

Share This Page