Spend on Reimbursement to Bus Operators for ENCTS (English National Concessionary Travel Scheme) for the Financial Year 2019/20 - JUL19/CMDN/21
Decision Maker: Cabinet Member for Strategic Planning and Commercial Strategy and Investments
Decision status: Recommendations Approved
Is Key decision?: Yes
Is subject to call in?: Yes
Annex 1 should be treated as exempt in accordance with paragraph 7 of Schedule 12A of Part 1 of the Local Government Act 1972, as it provides commercially sensitive information regarding reimbursements and agreements with specific operators. The information provided by operators to allow discussions to take place is commercially sensitive and has been provided to us on the understanding that it is exempt.
The Cabinet Member approved:
1. The carrying out by the Council of the Cambridgeshire and Peterborough Combined Authority’s statutory duties to agree and administer Concessionary Fare reimbursements rates to individual Bus Operators for the 2019/20 financial year in the Peterborough area, in line with guidance from the Department for Transport, on behalf of and under the delegated authority of the Cambridgeshire and Peterborough Combined Authority (CPCA); and
2. The Council’s Concessionary Fare reimbursement rates to Bus Operators for the 2019/20 financial year (detailed in Annex 1), up to the total value of £3,060,343 per annum
Reasons for the decision:
There is a statutory requirement for Travel Concession Authorities (TCAs) to reimburse bus operators for carrying concessionary passengers. Regulations relating to (a) State Aid and (b) Procurement have been considered in the context of this reimbursement and it has been advised that neither apply for the following reasons:
(a) State Aid: State Aid occurs whenever state resources are used to provide assistance that gives one or more undertakings, which are engaged in economic activity, an advantage over others and distorts or has the potential to distort competition and affects trade between EU States. Such aid needs to be notified to and approved by the European Commission.
However, Regulation EC 1370/2007 recognises that compensation for public services may prove necessary in the inland passenger transport sector as a special category of services of general economic interest within the meaning of TFEU and therefore state aid given for these purposes is exempted from the usual rules of notification and approval.
The Concessionary Fares Reimbursement Scheme proposed by the Council for years 2019-2022, falls within the express scope of Regulation 1370, provided that the fare reimbursements are reimbursed in accordance with the provision of Regulation 1370 (see Regulation 1370 Annex 1) and on this basis they are not subject to the usual rules relating to State Aid under the Treaty..
(b) Public Procurement Regulations: As the Scheme does not constitute the award of contracts for services, but rather the discharge of a statutory obligation under the Concessionary Bus Travel Act 2007 (and other legislation), it is not the subject of the Public Procurement Regulations 2015, which define “procurement” as “the acquisition by means of a public contract of works, supplies or services by one or more contracting authorities from economic operators…………”. In addition to this the “eligible” bus operators who can benefit from the scheme are predefined by Statute (Travel Concessions (Eligible Services) Order 2002/amended 2009). There is therefore no element of competition.
Provision for travel concessions in England is at present contained in five separate pieces of primary legislation (in addition to Regulation EC 1370/2007): the Transport Act 1985, the Greater London Authority Act 1999, the Transport Act 2000, the Travel Concession (Eligibility) Act 2002 and the Concessionary Bus Travel Act 2007, and the reimbursement of bus operators by TCAs for carrying concessionary passengers is governed by European regulation No 1370/2007 as well as the domestic legislation.
The reimbursement guidance produced by the Department for Transport (DfT) states that by requiring operators to use their assets to provide a free service for a proportion of the population, this constitutes a major market intervention. The legislation requires that requirement to provide reimbursement to the operators on the basis that they are ‘no better off, no worse off’ than if the free travel scheme had not existed.
The methodology used to calculate reimbursement with individual operators uses the DfT’s preferred approach through its reimbursement calculator. The calculator has been developed by DfT, economists and academics, and is reviewed regularly, taking into account changes in the economy to ensure that it continues to enable calculation of reimbursement under the ‘no better off, no worse off’ principle. The principle of 'no Better and no worse off' is in relation to what the situation would have been in the absence of the scheme.
This means that Travel Concession Authorities need to compensate operators for the revenue forgone – i.e. the revenue they would have received from those concessionary passengers who would otherwise have travelled and paid for a (full fare or discounted) ticket in the absence of a scheme. This approach calculates the average fare foregone per passenger journey but recognises that the free concession generates travel, so only reimburses a proportion of concessionary passenger journeys undertaken.
However, TCAs also need to pay operators any additional costs they have incurred as a result of the scheme. This is the cost of carrying additional generated passengers (i.e. concessionary pass holders who would not have travelled in the absence of the scheme), or other costs that would not have been incurred in the absence of the concession such as scheme administration costs or the provision of additional vehicles to meet any peaks in demand caused by concessionary passengers generated by the scheme.
Legally, TCAs are free to use their choice of methodology in estimating reimbursement, and the DfT acknowledge that in specific certain circumstances it may be appropriate to deviate from them in order to give effect to the 'no better, no worse off' principle.
EU Regulation Number 1370/2007 states that an allowance for ‘reasonable profit’ must be made in the reimbursement of bus operators. There is an implicit allowance for operator profit within the revenue forgone element of reimbursement through the average fare forgone. In addition, the guidance recommends that a profit allowance be made, in the form of rate on return on capital employed for additional peak vehicle requirements (additional buses required to meet the demand presented from pass holders), should these apply.
In the event of appeals by any bus operators, the Secretary of State (or decision makers appointed on his behalf) will apply the law relating to the compensation of operators and will be guided by the DfT reimbursement guidance. The Secretary of State will also consider any evidence brought forward by parties when determining appeals. The Secretary of State will impose a financial settlement on both parties.
Reimbursements to individual bus operators are anticipated to be, cumulatively, within the budgeted value of £3,060,343 for the year.
However, it should be recognised that this will be dependent on the number of passengers travelling throughout the period. Officers will undertake regular budget forecasting to monitor spend against budget and follow the necessary governance procedures should there be any significant deviation.
Alternative options considered:
Not to comply with the requirements of the Concessionary Travel Act 2007, following delegations from the CPCA, would result in a breach of the Combined Authority’s statutory duties, for which, on the facts, it is likely the Council would be liable.
To provide a smaller budget for the Concessionary Fares scheme : Peterborough City Council would be unable to reimburse operators at the appropriate rate encompassing the ‘no better, no worse off’ principle, and would be the subject of appeal and legal challenge.
These options would also have an adverse effect on public relations, and introduce financial risk to the authority.
Interests and Nature of Interests Declared:
Department for Transport Concessionary travel for older and disabled people: guidance on reimbursing bus operators (England) – November 2018.
This is the link to the CPCA Annual General Meeting on 29th May 2019 at which the Combined Authority decided to delegate their Travel Concessionaire functions to the Council in the Peterborough Area for a further year and the agreed Transport Levy arrangements were confirmed.ed:
Publication date: 02/07/2019
Date of decision: 02/07/2019
Effective from: 06/07/2019