Public Service Obligations in Transport Regulations 2023

Motion to Approve

Moved by

That the draft Regulations laid before the House on 16 October be approved.

My Lords, these draft regulations relate to arrangements to support the effective and efficient provision of transport services to customers, particularly in relation to rail passenger services. It will use the powers provided by the Retained EU Law (Revocation and Reform) Act 2023 to revoke what is called EU Regulation 1370/2007 and replace it with the Public Service Obligations in Transport Regulations 2023. In doing so, we will take advantage of the benefits of Brexit to put in place a regime which is better tailored to the transport sector in Great Britain, supporting the provision of services to customers. This will allow us to retain a flexible regime for contracting public transport services, separate to the mainstream procurement and subsidy regimes. It will provide greater clarity and certainty to industry by retaining the interpretive effects of relevant EU case law and underlying principles where this is in Great Britain’s interest. In addition, it will streamline the existing regime by removing duplicative or unnecessary provisions.

I will start by providing some background information about these regulations. While the UK was a member of the EU, Regulation 1370/2007 created a bespoke procurement and subsidy regime for public service contracts in the transport sector. This was in recognition that such contracts are needed in the general interest of the public and cannot always be operated on an entirely commercial basis. The regulation contains some important exemptions from the complex rules surrounding subsidies and procurement. It recognises the special status of public passenger services as critical national networks. It also provides contracting authorities the freedom to let passenger services contracts more efficiently via simpler competitive processes, and when necessary, via direct award. This flexibility helps to minimise disruption to these important public services.

The intent of the regulation is to encourage competition, and this will remain the default process for the award of passenger services contracts. The regulation recognises, however, that in certain circumstances it will be necessary to award a contract without competition by instead making a direct award to maintain the continuity of essential public services; for example, the contracts which were put in place following the pandemic to secure train services. Discussions with experts from the transport sector have identified opportunities to remove some of the ambiguities and conflicting provisions in the regulation. This will provide greater certainty and clarity to industry and contracting authorities.

I now turn to the detail of the regulations. We are using this opportunity to use our post-Brexit flexibilities to revoke and replace Regulation 1370/2007. This will ensure that a robust and reliable regime for public transport service contracts is maintained, which is independent of the mainstream procurement and subsidy regimes. It will also increase efficiency by removing duplicative or unnecessary provisions and clarifying drafting wherever possible; for example, by defining terms which were previously left undefined in the EU regulation. The instrument will also bring the regime in Great Britain into compliance with the subsidy control chapter of the EU-UK Trade and Cooperation Agreement.

My Lords, I thank the Minister for his introductory comments. These regulations are one set of many that will undoubtedly be required to amend legislation as we establish British legislation separately from the EU legislative framework. It serves to illustrate how complex this process is going to be, and how much intensive work by officials is being required in order to produce it. It also, by the way, illustrates that the original concept of the REUL Bill was absolute pie in the sky.

This is modelled on the principles of the Procurement Act, which itself had some issues for debate as it went through this House. I noted the difference in the way in which Scotland and Wales are referred to in these regulations, because in Scotland, procurement is stated to be devolved, but not in Wales, where procurement is embraced by the same system as in England.

As the Minister knows as well as I do, if not better, rail and bus services and their management are devolved to the Senedd and the Welsh Government. Can the Minister explain what consultation has taken place with the Welsh Government on the terms in which these regulations are placed? Are they content with the way they have been put forward? For practical purposes, the Welsh Government make the decisions on the procurement of public service provision for rail and bus services in Wales. As I stated, the whole purpose of this instrument relates to rail and bus services, and it is a matter of great regret that the amount of money available for the public service procurement of these services is so very tight these days and has declined considerably.

The Government do not have a shining record on the procurement of anything—from PPE to HS2. Therefore, can the Minister give us an absolute assurance today that nothing in these regulations waters down the principles of transparency and fairness that were enshrined in the EU-based legislation? It may be expressed differently, but is there any intrusion on those basic principles? Can he give us an assurance that this is not, in any way, a second best?

My Lords, I welcome this instrument. The Government are right to permit the making of direct awards for PSO contracts and to ensure that they are able to meet the obligations under the EU-UK Trade and Cooperation Agreement. I have no intention of opposing the regulations.

I had a number of questions, but the Minister has already answered most of them—although I will not go as far as saying that he did so satisfactorily—and at this late hour, I do not intend to repeat them. Along with the answers he will give to the noble Baroness, Lady Randerson, I think that this will be sufficient debate.

I thank the noble Baroness and the noble Lord for their consideration of the draft regulations. I will turn to the points raised.

Regulation 1370 provides a bespoke, flexible procurement and subsidy regime for public service contracts, reflecting the fact that they are vital public services and cannot always be operated on an entirely commercial basis. Now that we have left the EU, we are able to preserve essential flexibilities and simplify the regime where possible, giving contracting authorities a strong basis for providing these key public services. Simply revoking the regime altogether would mean allowing to fall away direct award powers which provide government and franchise authorities such as Transport for London with important flexibilities in awarding rail contracts. That would create significant challenges in ensuring the effective operation of public transport services, particularly rail services.

Following privatisation 25 years ago, passenger numbers had more than doubled before the pandemic, rising more quickly than in most of Europe. The private sector has invested billions in new, modern trains and upgrading our stations—investment that would not have happened under nationalisation.

It is the Government’s intention to return to competition as quickly as possible. The intent of regulation 1370 is to encourage competition, so the default process for the award of a passenger services contract is primarily through competition. However, regulation 1370 recognises that, in certain circumstances, it will be necessary to award a contract without competition by instead making a direct award. The powers to award directly are not new but were due to expire under EU legislation. We feel that it is in the best interests of the railways and passengers in Great Britain to retain them, and leaving the EU has given us the flexibility to do so. We have committed to restart the competition for contracts as soon as possible, which will require stable market conditions and sufficient long-term certainty.

Motion agreed.