Lord Moylan:

Moved by Lord Moylan

20: Clause 18, page 13, line 35, at end insert—“(4A) In relation to the award of a local service contract by one or more franchising authorities pursuant to a franchising scheme, any contract to be awarded pursuant to that franchising scheme shall not be an exempted contract under the Procurement Act 2023 unless awarded to a local government bus company that is an Exempted Local Government Bus Company and Schedule 2 to the Procurement Act 2023 shall be construed accordingly.(4B) An Exempted Local Government Bus Company is a local government bus company as defined by subsection (5) and which was in business providing local services on 17 December 2024.(4C) In section 3 of the Procurement Act 2023 (public contracts), after subsection (6) insert—“(7) Section 18 of the Bus Services (No. 2) Act 2025 restricts the circumstances in which local service contracts awarded to a local government bus company are to be regarded as exempted contracts.””Member’s explanatory statementThis Amendment ensures that any contract awarded under a franchising scheme by one or more franchising authorities cannot be exempt from the Procurement Act 2023 unless it is awarded to a local government bus company that meets specific criteria - specifically one that was actively providing local services as of December 17 2024, and aligns with the provisions outlined in section 18(5) of the Act.

My Lords, I hope noble Lords will agree that in my speeches so far this evening I have been as brief as possible. This Amendment is of some technicality and legally quite complex. Not being a lawyer, I hope that I can get it right and explain it correctly in as brief a compass as possible, but if I go on a little bit longer than I have otherwise, I hope noble Lords will indulge me.

I will start at some distance from the Bill, with European Union procurement law, to which we were subject for so many years. Anybody involved in local government or any departmental procurement will remember that it obliged us to put out to tender any contracts that were above a certain threshold. We had to advertise them and go through what was known as the OJEU process.

At that time in European law, a question arose: what was the situation of a public authority which had set up its own company? Could it award work to a company which was its own subsidiary, without going out to tender? This case, which was called Teckal, went to the European Court of Justice, which determined that in certain circumstances, especially those in which the subsidiary was doing substantially most of its work for the public authority, contracts could be awarded to it without the need for any tendering. So, you have a public authority which has a subsidiary, the subsidiary does most of its work for that public authority, and contracts can be awarded without going out to tender—the Teckal exemption.

Of course, we left the European Union and in the course of time we replaced that procurement legislation with our own Procurement Act, seen so ably through the House, if I may so, by my noble friend Lady Neville- Rolfe. That procurement legislation carried forward the provisions of the Teckal exemption—I do not know whether it is still called that but I am going to call it that because everybody in the procurement universe does—so that the situation I described still pertains in UK law.

The Bill offers to local transport authorities three ways of carrying forward the provision of bus services: through an enhanced bus partnership, through the franchising route, or through establishing their own bus company subsidiary. It is manifest to me, even as a non-lawyer, that a bus company that was established and owned by a local transport authority, which inevitably would provide practically all its services to that local transport authority, would qualify for the Teckal exemption —that is, work would be given to it without going out to tender. I am going to park that for a moment.

Let us now travel to a different part of the Bill, relating to the franchising route. Permission is given to local transport authorities to make initially what is called a “direct award”, which is to give to the existing incumbent bus company the contract to carry out the franchised service without going out to tender. This provision would apply for only a limited period. One understands the Government’s thinking on this: if you are going to adopt a franchise model and you have only one bus company operating, then perhaps you should be able to give it to that company for the sake of continuity and smooth operation and then develop the market later, so that when you next arrange your franchising there is a market into which you can tender. The direct award route is not in itself objectionable— I am not saying that anything in this is objectionable.

I come to the interaction of the two, because the anxiety is that the legislation is so drafted—not deliberately, I imagine, but I will come to that—that it may be possible for a local authority on the one hand to use the route of setting up its own subsidiary bus company: a so-called LABCo, which seems to be the terminology that is going round; I depreciate it as much as I think the Minister does, from the shaking of his head. On the other hand, a local authority could then use the direct award mechanism to give the whole contract to its own subsidiary immediately and without any tendering.

I think the Minister can respond to what I have said by saying one of three things. Fortunately for him, I have given him my own inadequate explanation of this case in advance, so he has had some time to think about it. He can say that I have got the law wrong—he has the benefit of the Government Legal Department behind him, and I have my poor resources, so that may be the answer. He will be able to explain why I have got the law wrong and put the House right as to what the legal position is. That is one thing. He could say that I have alighted upon a loophole and a weakness in the legislation which should be addressed, that he is going to take steps to address it, that my amendment is therefore unnecessary and that something will be done between now and Third Reading. Or he could say words to the effect that I have got the law right, the loophole exists, and he is going to do nothing at all about it. In the last case, I give notice that I suspect I would want to the test the opinion of the House, but in the first two cases, if I was corrected on the law or if the Minister said that he agreed with me on the law and was going to do something about it, then I would of course expect to withdraw my amendment.

I am very interested to hear what noble Lords have to say about this exciting argument that could, for all I know, provoke widespread debate in the House, but I am particularly interested to know what the Minister has to say when he comes to reply. I beg to move.

This is a rather technical Amendment, as the noble Lord, Lord Moylan, stated, and one about which I have received several pieces of correspondence in the last 24 hours. Although I understand the intent of the amendment, I am not sure that it is actually necessary. I find it hard to imagine that local authorities, which often struggle with capacity and the financial means to deliver, will want to suddenly introduce their own bus company just ahead of awarding contracts directly to this new company. I hope the Minister can clarify the situation and allay any fears.

Amendment 20, as the noble Lord, Lord Moylan, said, seeks to prevent new local authority bus companies—I will not say LABCos; I cannot make that work—from being able to directly award franchising contracts using what he described correctly as the Teckal-style exemption in the Procurement Act 2023.

Clause 18 will help to support public ownership where desired by repealing the ban on new local authority bus companies, but the Bill is not prescriptive about the structure of any of those new companies. Local authorities can consider a range of options for structuring a new bus company. One of these options could be to establish a new company as a Teckal company, which would, as he says, allow a local authority to directly award service contracts to that company without the requirement for a competitive procurement exercise at any time.

The noble Lord referred to Teckal as a loophole, but it is part of a much wider landscape of public procurement law, which, as he says, was enacted in the Procurement Act 2023 by the previous Government. Use of the Teckal exemption is complex and subject to challenge, given that it allows contract awards outside the usual controls imposed by the public procurement regime, and specific and rigorous tests are required to use the exemption. Local authorities must be careful to ensure that these companies are within the Teckal parameters if they pursue this option, which would likely require significant funding and investment in organisational capacity and capability, as the noble Baroness referred to. All this means that any local authority looking at Teckal would need to consider very carefully whether this is appropriate for its local context.

Existing precedent for Teckal local authority bus companies in the UK, while limited, is that Teckal has been used only in scenarios where private operators are not interested or fail—for example, as an operator of last resort. For existing Teckal companies, the exemption is utilised only in the event of private operators being unable to do so, rather than as the default option for providing local bus services. Teckal is open to all public bodies that own any type of commercial company; it does not apply only to local authorities, only to local authority bus companies, or only to transport companies. Removing Teckal as an option only for new local authority bus companies would be an unusual—and, I believe, unnecessary—departure from the status quo around existing procurement legislation. As it stands, there does not appear to be a compelling reason to isolate new local authority bus companies as the only type of public company that cannot use Teckal, and no evidence has been provided to support what would be an extraordinary diversion from established procurement rules.

My department plans to publish guidance on local authority bus companies after the Bill comes into force, which will address the use of the Teckal exemption. We will of course work very closely with stakeholders when developing and drafting the guidance to help ensure that the exemption, if used, will not be about local authority bus companies having the upper hand over the private sector but about genuinely improving bus services for local passengers in that area. I therefore hope that the noble Lord can withdraw his amendment.

It might be convenient if I briefly move on to Amendments 21, 22 and 23, tabled in my name, which are also about helping to provide a level playing field between new and existing local authority bus companies. Clause 18 gives all local authorities the freedom to set up a new bus company if they choose to. Under this clause, new companies are not subject to restrictions regarding how they might secure funding or financing. This is at odds with the five existing local authority bus companies that are. Restrictions, as set out in the Transport Act 1985, mean that the existing local authority bus companies are unable to access private finance, which creates inconsistencies. My department has engaged extensively with stakeholders while developing the measures for this Bill and feedback has been strongly in favour of greater parity between how new and existing local authority bus companies can finance their operations.

The amendment will remove restrictions on existing local authority bus companies accessing private borrowing, if they are doing so for the purposes of, or in connection with, providing local services. As I have mentioned, this will help to provide a level playing field for both new and existing local authority bus companies. It will provide greater choice for local authorities in how they potentially fund a local authority bus company, which will give them more freedom to achieve ambitious and far-reaching improvements to local bus services. Amendments 21 and 22 are consequential to Amendment 23.

I finish by saying that I do not believe that there is likely to be a large-scale establishment of new local authority bus companies, but the powers contained in this Bill are necessary because, frankly, the bus market is not what it was. There is not much competition in some areas, and in others there is none. In those cases, a new local authority bus company might well be the way in which a local transport authority seeks to provide bus services in the future. It would be, as a postscript, a fitting riposte to some of the excesses of previous eras of competition in bus companies. I will not repeat it now, but if noble Lords were to look at the sorry story of the Darlington bus wars, where a perfectly satisfactory municipal bus company was reduced to being put into liquidation by the predatory activities of private companies, they would see why there might be some interest in local authorities to set up new local bus companies in the future. There might even be a little interest in using Teckal to do so.

My Lords, I apologise for not addressing in my opening remarks the government amendments in this group, which I am happy to say I am content with. I mean, if one is as short of money as the Minister and his department probably are then giving local transport authorities the power to borrow money is probably the best that you can hope to get away with. We have no objection to those amendments.

I am disappointed—well, not entirely disappointed; I am rather thrilled—that the Minister has more or less agreed that I got the complex legal position right, but I am disappointed that he feels that the loophole should stay open. It should not. One of the purposes that the Government have set out is to encourage competition, where it can be stimulated, between bus service providers. To allow those two provisions to operate together in a way that would exclude competition would be an abuse. The abuse should be closed down. It is simple to do so: they could just say it was not going to be allowed. It would not upend procurement law. It would not overturn the sacred rules of procurement. It would simply say, in this specific case, because of the way these two statutes will interact, you cannot actually do the thing that would be an abuse. So I am sorry to say, because I know it is getting on—actually, we have made good progress and there is time—that I am afraid I am going to have to ask the House’s opinion on this matter, because I do not think the Government should be allowed to take this lackadaisical approach.

Ayes 54, Noes 125.

Amendment 20 disagreed.