Devolution deals across the country could be in jeopardy after a blow for hopes of local authorities in the North East of England to take on powers to regulate bus services.
Councils in North East England had wanted powers over bus service franchising and regulation to tackle excessive fare increases.
But a Board making a recommendation on the issue has rejected the proposal because of the level of losses likely to be incurred by bus operators.
The Treasury has said it will support bus franchising being devolved to city regions, including in negotiations ongoing with the Sheffield City Region.
But today's report suggests any such devolution of powers on buses would have to address the issue of losses - possibly of as much as £226m - to the bus operators, and suggests compensation may have to be offered.
It could mean that areas that take on responsibility for local buses could have to reserve hundreds of millions of pounds to compensate bus operators for losses.
Labour's Shadow Transport Secretary, Lilian Greenwood, responding to the Nexus Quality Contract Scheme Board’s recommendations, said:
“The Board’s decision is hugely disappointing. It puts the needs of shareholders ahead of passengers and critically undermines one of George Osborne’s key ‘Northern Powerhouse’ commitments.
"We must reverse the decline in bus services outside London and it’s clear that the deregulated model has failed. Labour’s councillors in the North East were absolutely right to push for reform in the face of appalling abuse and they continue to have our full support.
“Today’s announcement proves once and for all that the current law is not fit for purpose and the onus is now on the Government to bring forward new legislation.
"The Board’s recommendation that bus operators receive hundreds of millions in compensation from stretched local authorities is a huge blow to the devolution agenda, and the recommendation risks leaving George Osborne unable to deliver one of his major ‘Northern Powerhouse’ commitments.
"It’s now vital that the Government does not cave in to pressure and duck the need to include radical measures in its forthcoming Buses Bill.”