‘(2A) Two years after the commencement of this Act the Secretary of State shall conduct a review into the reimbursement of operators by travel concession authorities and shall lay before Parliament a report setting out his findings.’.
The amendment is in our opinion another entirely sensible one. It is far from clear that operators will receive the correct reimbursement. The experience of the 2006 concessionary scheme has shown considerable disagreement arising in a number of areas between local authorities and bus operators about the level of reimbursement for carrying concessionary fares. The Government have stipulated that reimbursement should be on a no better off, no worse off basis. Yet there is some dispute about what exactly that should mean. The Transport and General Workers Union, for instance, has already said that it thinks that the concessionary scheme has provided a source of subsidy for already profitable bus operators. However, the 60-odd appeals by operators to the Secretary of State over the reimbursement arrangements would suggest otherwise.
It is, of course, from the very profits that bus operators make that reinvestment is made in new upgraded vehicles. The evidence for that is clearly that the average age of buses on the street has fallen by more than a third since deregulation. Several bus companies claim that the compensation that they receive from the travel authorities for operating concessionary fare schemes does not cover the full operating cost, and takes no account of depreciation or capital costs. They argue, further, that in all too many cases their recompense is given, not negotiated. Hence the appeal procedure.
Reimbursement on a no better off, no worse off basis is in reality an extremely difficult balance to achieve. After all, the marginal cost to an operator of carrying a few extra passengers is virtually nil. One could almost make a case for saying that for carrying one extra passenger on a concessionary fare, the operator would need no reimbursement. However, when, as is likely under the Bill, numbers are likely to reach the point at which extra vehicles must be bought and extra drivers hired, the cost becomes considerable. At that point, should not the authority be responsible for not only the operating costs but the extra capital costs?
A review of the systems put in place by travel concession authorities after two years of operation would allow the Government to establish whether costs were being borne fairly between authorities and operators. That would further enable the Government to establish best practice and to advise travel concession authorities on how to improve efficiency and to achieve savings. It would allow the Government to re-examine the no better off, no worse off approach, to consider the capital costs element, and to ensure that operators apply best practice in their delivery of their service to the concessionary passenger. It would also allow an examination of procedures, and reassessment of the concessionary fare reimbursement levels.
The 2008 scheme will involve many variables and unknowns. There is unlikely to be a perfect forecast of the levels of reimbursement necessary to operators. Therefore, a review after two years of operation is not only desirable, but essential if the Bill is to be seen as fair and equitable to both providers and operators.
We are happy to support the amendment. It is vital to ensure that the system of payments to operators works effectively. The added complication of widening it to a national scheme will no doubt make it more complicated. Ultimately, we want to see the swift implementation of a smartcard system that allows direct payments to operators, so that no local authority is better or worse off under the payments scheme.
When we reach the next amendment, I am sure that the hon. Member for Tyne Bridge will explain how the existing scheme has caused Tyne and Wear PTA serious trouble. We therefore need a review after two years, but we also need to look at a smartcard system in the longer term to ensure that payments for every single journey go directly to the operators.
The amendment proposes that, two years after the commencement of the Act, a review be carried out of the reimbursement of operators by local authorities. Of course, I accept the principle that policies should be properly evaluated, and we will naturally review how the national bus concession is working after implementation in April 2008. However, the amendment looks at just one particular aspect and is not necessary.
There is already a procedure in place by which operators can appeal to the Secretary of State if they consider that they are being unfairly reimbursed for carrying concessionaires. Any formal review of reimbursement arrangements would conclude that a wide variety of such arrangements was in place, and that would reflect the different discretionary concessions and local circumstances around the country. I therefore see no real need for the amendment.
Under existing arrangements, authorities must balance their desire to secure value for money from their dealings with operators against the risk of appeal should their arrangements leave operators worse off. Although there is inevitable variety in the way in which those principles are applied, they remain the most appropriate and fair. Indeed, we have already set up a reimbursement task group involving local authorities and bus operators to look at improving the existing process.
The hon. Member for Wimbledon asked for an explanation of what “no better, no worse off” meant. Let me add to the points that I have made by saying that it is about taking account of the fares that would have been received, plus any extra costs from carrying new eligible passengers. That refers to both capital and revenue.
I am grateful for that explanation, but I did not actually ask about that. I said that we accepted that principle, but that it was an extremely difficult balance to achieve.
I note the hon. Gentleman’s comments. If he has any suggestions about how we might improve things, I would be delighted to hear them in Committee or outside.
There is no need to wait two years—my invitation can be taken up now.
With those comments, I hope that the hon. Gentleman will agree that the amendment is unnecessary and will duly withdraw it.
‘(2A) After subsection (1) (as substituted by subsection (2) above) insert—
“(1A) The Secretary of State shall provide to each travel concession authority in England by means of a direct annual revenue grant sufficient funding for the authority to comply with its obligation to reimburse operators under subsection (1).”.’.
‘(aa) enabling the Secretary of State to reimburse travel concession authorities where they incur a deficit of over £500,000 as a result of reimbursing individual operators under this Act.’.
New clause 2—Reimbursement of travel concession authorities—
‘After section 149 of the 2000 Act (Reimbursement of operators) insert—
“149A Reimbursement of travel concession authorities
(1) Where a travel concession authority has responsibility for the administration of mandatory travel concessions under section 145A, including the administration and issuing of permits under section 145A(4) and the reimbursement of operators under section 149, the Secretary of State shall reimburse the authority the full costs of administering mandatory travel concessions by means of a direct annual revenue grant.
(2) The Secretary of State shall reserve a proportion of the funding allocated to the mandatory travel concession scheme to provide a contingency fund.
(3) A contingency fund under subsection (2) shall be used to reimburse any travel concession authority for any unforeseen capital and set up costs incurred by that authority in introducing a scheme to comply with this section.”’.
New clause 4—Review of reimbursement arrangements—
‘Two years after the commencement of this Act the Secretary of State shall conduct a review of arrangements for allocating funding to local authorities necessary for the reimbursement of operators under section 3(2) of this Act, and shall lay before Parliament a report setting out his findings.’.
New clause 5—Funding statement—
‘At the end of each financial year after the commencement of this Act the Secretary of State shall make a statement to Parliament setting out—
(a) the total sum of funds made available to local authorities for the purposes of providing bus services and concessionary fares thereon in the financial year just ended, and
(b) the method by which those funds have been made available.’.
As a former Government Whip and a loyal supporter of the Government, for the most part, I regret the necessity to table amendments to a Government Bill. However, as has been suggested, particular problems in Tyne and Wear are not dealt with under the Bill, so I make no apologies for taking a little time to refer to them and to suggest some possible solutions.
At the time of the Chancellor’s announcement of free off-peak bus travel after 9.30 am for pensioners and disabled people on local buses only, Tyne and Wear had a half-price travel system for pensioners and disabled people on buses to a maximum of 50p after 9 am; a 50p fare on Tyne and Wear Metro, the Tyne ferry and Northern Rail, and concessions for children and students. It was a popular and well used system. Indeed, the concessionary travel take-up by the elderly alone amounted to some 75 per cent. of eligible riders. It is the largest outside of London, which is 80 per cent. and way above the average in England of 49 per cent.
Yes, indeed, and the welcome new move forward will have a similar effect on ridership. Some 36 million bus journeys a year are subsidised under the current scheme in Tyne and Wear. It was estimated after the Chancellor’s announcement that the additional cost to the Tyne and Wear passenger transport executive of free local travel would be £20 million a year. The Minister said that the Bill applies only to buses and not to other modes of transport, but matters are not quite that simple.
In Tyne and Wear, we have the publicly owned and run Metro system. At the time, it had a charge of 50p to the eligible concessionary travellers. If we had left it as it was, it would have meant that buses would be free, but that it would cost 50p to travel on the Metro. That would have had two effects: first, it would be unfair to those who rely heavily on the Metro to travel from the east end of Newcastle into the centre. They would have had to pay, as opposed to people in the west end of Newcastle where there is no Metro who would have had free bus services. That could not be tolerated.
Secondly, such a system would have had a detrimental effect on the Metro itself. If there were a charge to travel on the Metro, but buses were free, people would obviously be tempted to move their mode of travel from the Metro to buses. Bus operators would be tempted to compete with the Metro, and they would be receiving the benefit of the additional public subsidy, while the Metro system would suffer from the loss of ridership, something that a Labour Government would not want to encourage.
On 28 November 2005, my hon. Friend the Member for Regent's Park and Kensington, North (Ms Buck), then a Minister at the Department for Transport, wrote to hon. Members saying that
“we are providing an extra £350 million” to finance the scheme. “We” was used rather riskily because it was not the Department for Transport that was providing the money. The Government were providing the money through what was then the Office of the Deputy Prime Minister, which we now know as the Department for Communities and Local Government. It was to be distributed through the revenue support grant mechanism.
By the way, there was no attempt at the time by the Department for Transport to negotiate anything in return from bus operators who were already receiving £1.3 billion a year in public subsidy. The local government revenue support grant system is not fit for the purpose of distributing the money. Calculations on the basis of population are okay for most services, but not for the particular service that we are discussing. It does not take account of the high levels of use, low car ownership and higher dependency on public transport in areas such as Tyne and Wear.
Tyne and Wear was told to expect £12.7 million from the formula grant system, which was £7.3 million short of the estimated cost of introducing the new scheme. Meetings with Ministers and civil servants were to no avail and we were told that it was impossible to correct that anomaly through the revenue support grant system. I thought that that was a rather curious argument because the education system already has a system for financing schools on the basis of bums on seats. I still do not know why we cannot have such a system for public transport. The result was that in 2006-07, £2 million had to be taken from Tyne and Wear passenger transport authority balances. There were cuts in secured bus services, which was rather bizarre as it meant that we were saying to elderly and disabled people, “There is a new free travel scheme, but the services on which you most rely—the subsidised, secured services—will have to be withdrawn in order to pay for it”. There were cuts in subsidies for students and young people, which was unpopular with elderly people, who felt that they did not want the advantage of free travel if it was at the cost of cutting travel for young people and students. Indeed, some elderly people feared that when they travelled on buses there may be some backlash from young people as a result. Thankfully, our young people are more sensible and that has not happened.
That was the situation in 2006-07. During 2007-08 there will need to be further adjustments to continue the current scheme. In total, by the time we get the national scheme in 2008, it will have cost Tyne and Wear—one of the poorest regions in the country—some £9 million to run the Government scheme up to the introduction of the national scheme.
I was one of the first people to call for a national scheme. Indeed, days after the Chancellor’s announcement, I suggested to him that the scheme should be extended nationally because the way it was being proposed at the time was nonsense. I welcome the increased flexibility, but, if the same formula for distribution is to be employed, which the Bill suggests is the case, the funding problems will remain. I still have not given up hope that some way will be found to refund Tyne and Wear the £9 million that it has lost over the past two years.
Order. May I remind the hon. Gentleman that we are discussing amendments to future legislation and although it is quite right for him to explain what has happened in his locality in the past as an explanation of why he wishes to make the amendment, we cannot debate the financial position of his local authority in past years as part of the debate on the Bill.
Thank you, Mr. Bayley, for that guidance. I was just about to come on to the amendments. However, I will just say that, unless the £9 million is refunded, when the national scheme to which the amendments refer starts next year, Tyne and Wear will be starting not from a level playing field, but from a £9 million shortfall.
I understand that in Scotland and Wales the system of funding for subsidised travel is not through local authorities, but directly from the Executive. Amendment No.20 proposes a similar system for England. It is a specific measure and the funding would be directly targeted to where it is intended, so that the full costs to the transport authorities are met. Under the current system, it is nonsense that some councils can have a surplus from the funding and use that for purposes for which it was not intended while other authorities, such as Tyne and Wear, have serious shortfalls. Amendment No. 20 would deal with that anomaly.
In the event that shortfalls do occur in future, amendment No.6 would limit the damage to local authorities. I admit that the figure of £500,000 is somewhat arbitrary and I accept that I would not get away with an amendment that said that every single penny had to be accounted for; that just would not be possible. However, £500,000 seems to be a reasonable figure. If such a measure had been enacted from the beginning, Tyne and Wear’s losses would have been £500,000 and not the £7.3 million which we had to subsidise, which would have been far more manageable. The introduction of the national scheme is welcome, but it will result in an increased take-up and a change in passenger and operator behaviour that cannot be predicted. It will mean higher costs, particularly in areas where public transport is already heavily used and where increased usage is being encouraged.
I hope that the Minister will accept that those two amendments are sensible and practical and that she agrees that they should be incorporated into the Bill. This is a Government initiative and it should be underwritten by the Government in case of any losses for the local authorities concerned.
I listened with great interest to the hon. Gentleman. I wish to speak to new clauses 4 and 5. New clause 4 deals with the review of funding allocation arrangements, and new clause 5 seeks to have an annual statement of funding, and the method of funding, laid before Parliament. The new clauses go to the heart of what the hon. Gentleman just said, and it is important to address them in conjunction.
The provisions deal in different ways with the funding for the scheme, which is giving concern to local authorities. There are two aspects to funding: whether enough money will be available—that is, whether the quantum sum provided will be sufficient to cover the cost—and the mechanisms by which funding will be given to local transport concession authorities and thereafter to operators, and whether the mechanisms will be seen to be equitable.
New clause 5 deals with the broad aspect of funding—the quantum sum available—and how the monies will be made available. The question of whether the sum provided for the scheme will be large enough to cover costs goes to the heart of the scheme. If it is not, the scheme cannot proceed.
The annual statement is key. The Government have provided initial funding for other schemes but then after a period not provided the year-on-year increases to ensure that local authorities are properly compensated. It is likely that demand will increase under the scheme. When the local concessionary fare scheme was introduced last year, demand increased substantially. In fact, it would be fairly ridiculous if it did not. One of the reasons for providing such schemes is to facilitate access to transport. If demand did not rise, access would not be facilitated and the whole intent of the Bill would be lost. We have clear evidence that take-up is increasing, and that those who take up the scheme use the pass more frequently.
Finally, there is the issue of cost increases to the bus industry. They have consistently outstripped general inflation. Bus fares are rising above the retail prices index, and industry costs have risen some 7 to 9 per cent. per annum over the past three years. That is due not only to fuel costs but in part to extra costs imposed by the EU and by health and safety regulations.
The need for a statement on the method of delivery of funds is also key. The proposed scheme has ramifications for the method of delivery in all areas. In some specific cases, extra provision needs to be made. The proposed system for reimbursement is via the local authority block grant to district and unitary councils. The first problem is that those councils are not in all cases the travel authority. There is no requirement or guarantee that the district or unitary authorities will pass on the sums that they receive to the travel authority. Secondly, the block grant is a relatively crude instrument. It cannot measure and therefore be responsive to the key thing in the Bill: the number of journeys made.
There is a danger that in areas where high-quality, improving services for concessionary bus travel are well promoted, demand will increase much faster and the authorities could be penalised financially. If that were to happen, local authorities would have only two mechanisms for dealing with a shortfall in funding: they could raise council tax or cut local services.
The Opposition made it clear on Second Reading that there is considerable scope for some authorities in so-called hot-spot or honey-pot areas to find themselves heavily out-of-pocket. The funding for the 2006 scheme was shown to be insufficient even when based on relatively static residents over-60 figures. As nationwide eligibility for over-60s is being established in the Bill, the potential for error and for a shortfall in funding to some authorities will be hugely exacerbated.
New clause 5 would oblige the Secretary of State to make an annual statement to Parliament on the total sum of central Government funds made available to local authorities in the previous financial year for the provision of bus services, and the funding of concessions on those services. Moreover, it would oblige him to set out the method by which such funds were made available. That approach has two major advantages. First, it would highlight the continuation of the Government’s tendency to take credit for their policies while passing some, or indeed a substantial amount, of the cost on to local authorities. Given that the doubling of council tax in the past 10 years has hit the elderly and those on low incomes hardest, it is an issue that should concern us all. As my hon. Friend the Member for Epsom and Ewell (Chris Grayling) said on Second Reading:
“There is no point in giving our pensioners free bus travel if they just have to pay the bills through their council tax instead.”—[Official Report, 14 May 2007; Vol. 460, c. 414.]
The annual statement to Parliament would allow local authorities to demonstrate the degree to which the Government are actually providing free bus travel, and the degree to which the Government was making the authorities pay. In short, the new clause would create accountability on whether the Government are providing enough. The Government cannot will the end if they do not will the means. Under the new clause, accountability would be clear.
The second benefit of the new clause is that it would throw some light on the calculations that have resulted in Ministers often telling us that total funding for the implementation of the Bill will be £1 billion. The 2006 scheme was afforded £350 million of Government money; the 2008 scheme will be afforded an extra £250 million. The other £400 million to which the Government refer in its calculation of £1 billion must be and is being provided in myriad guises. Some of those guises such as the bus service operator grant, the rural bus subsidy grant and the block grant, the problems of which I have already explained, are difficult to nail down.
In order that we can be certain that Ministers are being as generous as they claim—I am sure that they are—it is vital that they set out exactly how the sums that they talk about are being distributed. New clause 5 would ensure Government accountability for their actions. Will the Government’s proposed £250 million extra in the first year be enough for the scheme? Will the Government provide enough total funding in successive years, and will they deliver the funds to those who are actually providing the services? New clause 5 is sensible and necessary.
New clause 4 asks for a review of the arrangements for allocating funds necessary for the reimbursement of operators to local authorities. In Lords Committee, the overwhelming view expressed was that of unease. There was also substantial unease among local authorities because of the experience of the previous scheme, and they expected that there would not be enough money for the 2008 scheme and that the money would not be properly targeted to the correct authorities. The new clause deals with that latter aspect of the matter. It would allow for a review of the funding allocation arrangements two years after the commencement of the 2008 scheme.
It will take some time for the true extent of the take-up and cost of concessionary fares to become apparent. It is certain that in the transition and initial take-up period, some authorities will be underfunded. The review would go hand in hand with the annual financial statement established by new clause 5, and it would provide the basis for authorities to appeal against their funding allocation.
The Government may say that the Bill amends section 149 of the Transport Act 2000 to require transport concession authorities to reimburse operators for providing the national concession or for journeys starting in their areas, and that the current legislation requires the operators to be no worse and no better off for carrying concessionaires. It is still not clear, however, that that will be able to take account of hot spots, where journeys start, which exact journeys are the responsibility of particular local authorities and how local authorities will seek compensation from one another.
“We are confident in broad terms that the £1 billion that we are providing
“will be sufficient to meet all demands”.—[Official Report, House of Lords, 8 January 2007; Vol. 688, c. GC25.]
Funding needs to follow the passenger, and the Government have not yet made it clear exactly how that will happen. The new clauses would provide the mechanism by which to ensure that it is clear that funding is following the passenger and how the allocation of the funding is working. If the Minister shares the confidence of her colleague Lord Davies, she can show that by accepting the new clauses. The clauses are of such importance that although I will listen carefully to the Minister, I intend to press the matter to a Division.
As the hon. Member for Tyne Bridge stated earlier, the introduction of the local concessionary bus scheme had a number of unintended results, although some hon. Members warned the Government at the time about what was likely to happen. The use of the block grant and/or the revenue support grant as a mechanism for funding is, as anybody who has been involved in local government will know, a notoriously unreliable and inaccurate means of funding local government for the services that it provides.
The hon. Member for Tyne Bridge spoke about a shortfall of £9 million that affected Tyne and Wear. The London boroughs have estimated that the actual cost to them of the basic concessionary travel scheme was £100 million, yet they received only £53 million. Clearly, there is a huge shortfall. As the hon. Gentleman said, such a shortfall can only be met by increasing council tax or cutting services elsewhere.
All hon. Members support concessionary bus fares, but we want to ensure that the scheme, when operating, delivers what it is said that it will deliver. Anybody using concessionary buses should able to do so without affecting other services. It is clear that where huge numbers of people are travelling to a tourist destination—London, for example, or Blackpool, Scarborough or York—the revenue support grant, which calculates the number of people in the local authority area, is not the best means of delivering a fair recompense for the additional costs.
If we are to have confidence in the operation of the Bill, full costs have to be reimbursed. I do not wish to see a nationally administered scheme, as has happened in Scotland. The local authorities—the passenger transport authorities—should continue to have discretion to provide additional services or concessions that would not be available under the national scheme. However, the basic scheme must provide full compensation. New clause 2, which is similar to the amendment moved by the hon. Member for Tyne Bridge, ensures that full costs are reimbursed. It will ensure that all the local authorities introducing measures under the Bill can do so while ensuring that other vital services will not be compromised.
New clause 2 also deals with capital costs, which we discussed earlier. The Minister has reassured us, with regard to London, that she will provide a grant to meet the additional capital costs of replacing the Oyster card and the freedom pass for London. We do not know what the total capital cost of introducing the scheme throughout the country will be. The new clause would ensure that there is a contingency scheme, making sure that local authorities and passenger transport authorities can bid into that concession for the costs that they have incurred. I hope that the Minister can provide some reassurance about those issues, because although we know that there will be increased usage, we cannot predict what it will be. We need to ensure that local authorities, and particularly those where there are tourist destinations, are fully recompensed for the costs that they incur.
On Second Reading, I asked the Secretary of State whether he would be willing to meet a cross-party group of local authorities affected by this scheme. There is huge concern about what the additional cost will be in, for example, London and Blackpool, because there are no figures on how many 60-year-olds visit those destinations. I therefore fail to see how the Minister can give an assurance that the full costs of the scheme will be reimbursed to the local authorities affected. That can be done retrospectively, by putting a commitment in the Bill to reimburse the full costs. Relying on the block grant will once again ensure that there are winners and losers, and I suspect that this time round there might be more winners than losers.
I am grateful to you for calling me, Mr. Bayley. The county council in Derbyshire has implemented the existing scheme to a greater extent than required by its minimum legal responsibility, in that the scheme is available during the evening rush hour as well as throughout the rest of the day from 9.30 am onwards. However, we have experienced a problem recently, which I hope my hon. Friend the Minister will address, about the way in which the bus companies are claiming back money from the local authority. That has meant that the half-price scheme, which previously ran before 9.30 am, can no longer be operated. It appears to many that the bus companies have, in effect, put a stranglehold on the local authority, by insisting on a greater level of payment—a couple of million pounds is being talked about—in order to continue to provide the above-minimum scheme upon which Derbyshire has embarked.
My question, which relates to the reimbursement of operators, is this: can we make absolutely clear the basis on which the reimbursement takes place in order not to have bus companies making extreme or exorbitant demands on local authorities? In the Derbyshire case, those demands have resulted in a lessening of the service that was previously available, albeit not in the concessionary fares window from 9.30 in the morning onwards, but in the concessionary fare scheme that operated before 9.30, which is no longer possible because of the bus companies’ demands on the local authority.
We return in this clause to the important issue of funding for local authorities. I am happy to tell the Committee that I agree with the sentiment that local authorities should be adequately funded by central Government for the costs to them of administering a mandatory concession. After all, it is Government policy to fund new statutory burdens fully. However, I say at the outset that it is in all our interests to get things right. There is no underhand plan to try to deprive anybody. The scheme is popular and will benefit 11 million people, and we want to get it right. I can confirm to the Committee that that is why we are paying so much attention to it.
The Government are providing up to an extra £250 million of funding a year for the new concession. The hon. Member for Wimbledon asked for a calculation of the £1 billion a year. I confirm that the figure for getting to the full-fare national scheme is £250 million, which is new money for 2008, and that the figure for moving up to the full-fare local scheme was £420 million, while the figure for moving to the initial scheme—that is, the half-fare local scheme—was £400 million. I hope that that is helpful but, as I have said, I am always happy to provide any further information.
I am confident that the £1 billion will be sufficient. There is indeed no mention of the funding of concessionary travel in the Bill, but for good reasons. Circumstances change, and flexibility needs to be built into the legislation to enable future improvements to concessionary travel to be made as efficiently and effectively as possible. It would be neither appropriate nor wise to lock ourselves into a particular approach now, when the important issue of funding is being considered and discussed across government and beyond.
Amendment No. 20 and new clause 2 propose a direct annual revenue grant to fund authorities. It is important to recognise that the freedom and flexibilities provided by the unhypothecated formula grant are generally supported by local authorities. Indeed, local authorities have long argued against having their hands tied by hypothecated funding schemes, and if I did not listen to them, I am sure that hon. Members would be the first to criticise me.
Concessionary fares reimbursement is only one of the many obligations that authorities must meet from their council tax receipts and from the funding provided by central Government through the formula grant process. I am aware that the Local Government Association strongly supports a specific grant for the extra funding for the national bus concession, at least temporarily. We are considering the merits of temporarily distributing the extra money through an unhypothecated specific grant. We need to be clear, however, that such a move would break from the policy of greater freedom and flexibility in funding, which is generally welcomed by the local government community.
I assure hon. Members that we continue to talk to the LGA and to the concessionary fares working group, which consists of representatives of all tiers of local government, about methods of distributing the extra money, including the option of a specific grant. I hope that that reassures the hon. Member for Rochdale about the level of consultation that we are undertaking in addition to the regional roadshows, nine of which have been held around the country in recent weeks, to talk directly to local people.
New clause 2 would require all the funding for the statutory concession to be distributed by direct annual grant, which would mean that existing funding for concessionary fares would have to be extracted from the formula grant system. I am not sure whether that is the intention of the new clause, as there is little support for such an approach. Moreover, the LGA and our concessionary fares working group support the idea of the current funding staying in the formula grant. They are all too well aware of the council tax turbulence and fiscal uncertainty that would result from the transfer of existing funding from the formula to a specific grant. With great respect to hon. Members, I can see little point in introducing something that local authorities do not want.
The Treasury, the Department for Transport and the Department for Communities and Local Government are carefully considering the merits of different funding mechanisms for statutory concessions. We are aware of the feedback from our working group. I referred earlier to the nine regional roadshows that my officials recently completed, to which all local authorities were invited. I assure my hon. Friend the Member for Tyne Bridge that Nexus representatives were present, and I am sure that he will wish to speak to them about how useful it was. According to the feedback that I have had, it was extremely valuable.
It is important that we get our approach right. We will continue to talk to interested parties in the coming weeks before coming to a view on the mechanism for the extra funding. The new clause is misplaced. If we decide that a specific grant is the right option, we will formally consult local authorities on the formula for distributing the specific grant. In any case, there is no need for the Bill to oblige the Secretary of State to fund concessionary travel as proposed by the new clause. The Secretary of State already has the power to fund local authorities for concessionary fares by direct grant, if he wishes. It would be inappropriate to require the use of such a funding mechanism in perpetuity without consulting all those with an interest.
The hon. Member for Rochdale expressed his dislike of funding for concessionary fares coming from revenue support grants, but local authorities have long argued for non-ring-fenced, single-pot funding. That is what the Government have provided, and that approach has been generally welcomed. New clause 2 would specify that a contingency fund be set up. The extra funding of up to £250 million a year for the national bus concession is based on a number of key assumptions, which include the generation of an extra 100 million journeys and a pass take-up of 85 per cent. Those are generous assumptions, because in some regions of England, pass take-up is less than 60 per cent. The £250 million figure also includes a contingency allowance to recognise the difficulties of allocating money on a formula basis. We are confident that the extra funding is sufficient to cover the extra costs to local authorities.
The hon. Member for Wimbledon raised the point that he was concerned about demand increases leading to higher costs and fare increases. I reiterate that the extra funding includes moneys to address uncertainties, and we have taken into account fare inflation in our calculation.
We are also sensitive to the issue of set-up costs. Earlier in Committee, we said that we would provide extra funding in addition to the extra £250 million a year to pay for the extra costs associated with implementation, such as the issuing of new passes. We are discussing the figures and the mechanics with the LGA and the concessionary fares working group.
In addition, proposed new subsection 149A(2) in new clause 2 proposes that a contingency fund be established to fund any unforeseen costs of the mandatory concession. Again, as previously, I am sure that the amendment is well intended. However, it is not practical or proportionate. How do we define unforeseen costs? That is a rather tricky task that will create its own bureaucracy, because every local authority will be incentivised to make a claim and there will be no balancing provision that such claims must be reasonable. The amendment erodes the incentives for local authorities to negotiate cost-effective schemes with operators and to manage overall costs effectively. That has happened in Wales, where local authorities pass on the full cost of their schemes to the Welsh Assembly. As a consequence, the total cost of the Welsh national scheme has been increasing significantly year on year. I am sure that the Committee will agree that we cannot sanction such an approach.
The existing arrangements contain appropriate checks and balances to ensure that public funds are spent wisely. They include an incentive for local authorities to reimburse cost-effectively by a fair amount and a right of appeal for any operator that believes it has been disadvantaged. Although the system is not perfect, it is fair to the taxpayer and operator alike.
The proposal for guaranteed funding carries with it the risk of unnecessary expenditure incurred by local authorities and bus operators going beyond what is fit for purpose. It is crucial that we get a good deal for the taxpayer. Giving an unconditional commitment, as requested, to fund any cost does not provide that. As I have said, extra funding already includes a contingency.
The same arguments apply to amendment No. 6, which specifies that the Secretary of State must reimburse local authorities when they incur a deficit of more than £500,000 as a result of reimbursing individual operators. Under section 31 of the Local Government Act 2003, the Secretary of State already has the power, with the consent of the Treasury, to make grants to local authorities to cover their expenses. Therefore, the amendment would add little. In addition, I do not find it helpful to introduce arbitrary thresholds with the potential to distort local negotiations.
New clause 4 proposes yet another review—in this case of the funding arrangements for local authorities. As the Committee has heard, we have embarked on a great deal of consultation with local authorities and other interested parties about all the issues surrounding the implementation of the national bus concession. We will continue fully to consult local authorities in line with existing statutory requirements. The Department for Communities and Local Government already has in place a well established annual process for consulting local authorities, both informally and formally, about the formula grant distribution. I see little to be gained from adopting this amendment.
New clause 5 proposes that the Secretary of State makes a statement every financial year about the amount that is made available to local authorities and the method of distribution. Again, I see little benefit from that. There is already the yearly local government finance settlement that sets out central Government’s funding of local authorities. That settlement does not, and cannot, earmark different sums for different purposes for the very good reason that the funding is not hypothecated. That is generally welcomed by local government, because it makes it clear that local government is responsible for choices on local spending priorities.
Referring to the comments made by my hon. Friend the Member for Tyne Bridge, there was indeed a problem in Tyne and Wear in respect of Nexus, which I was very glad to meet in recent months. Following consultation, the formula grant was adjusted to reflect support for disabled people and the needs of areas in which the take-up is likely to be high. That benefited not only Tyne and Wear, but all areas that had a higher than average number of residents who were disabled. The measure reduced the shortfall by about £7 million.
I would also make the point that extra funding was given to the metro to reflect the unique circumstances in Tyne and Wear. £1.7 million was made available last year, and also this financial year, to cover the financial impact on the metro.
With all of those points in mind, I hope that hon. Members will agree with me that the amendments are unnecessary and that the lead amendment will be withdrawn.
I listened with interest to what the Minister had to say. I readily acknowledge the support that Tyne and Wear has had from the Department for Transport to enable it to extend the free travel service to the metro system, and we are very grateful for that. Nevertheless, the shortfall was as it was, regardless of all the efforts that were made by the Minister and others in the interim. I heard what the Minister said about the flexibility in the Bill and the fact that funding mechanisms are still being discussed. I was particularly interested to hear that she believes that amendment No. 6 is unnecessary because the Secretary of State already has that power, and I look forward to his exercising it to deal with those losses at Tyne and Wear. Perhaps between now and Report, we may be able to have some serious discussions as to how that might be done. On that basis, I beg to ask leave to withdraw the amendment.