Select Committee on Trade and Industry Minutes of Evidence

Memorandum submitted by the Confederation of Passenger Transport


  The bus and coach industry contributes significantly to Britain's competitiveness. To enable the industry to fulfil its key role providing inexpensive and comprehensive public transport, CPT would like to see:

    —  the Fuel Duty Rebate for local buses increased from 75 per cent to 100 per cent;

    —  the 75 per cent rebate extended to coach services or a general reduction in diesel duties.


  The Confederation of Passenger Transport UK (CPT) is the trade association for bus, coach and light rail operators. Our membership ranges from nationally-known transport groups to small coach operators. We present the views of the industry to government and the media. We also provide a forum to share information nationally and regionally and deliver a number of quality services to our members.

  The bus and coach industry is important to the UK economy. It provides 70 per cent of all public transport journeys, directly employs over 150,000 people and has an annual turnover of £4.5 billion. Coach based tourism is worth £2 billion annually to the UK economy. The industry's contribution to reducing congestion is immeasurable.

  Through a combination of the operators' efficiency and commercial acumen, and with comparatively little public subsidy, Britain enjoys a denser and more frequent network of public bus and coach services than most European countries. We believe that UK competitiveness is enhanced by this. Well-planned bus services move more people per litre of fuel than cars ever can. Fuel which is expensive to all users should, therefore, work to the advantage of the bus and coach industry.

  However, when competing with the car, buses have an important additional cost to bear: the driver needs to be paid. The total annual wage bill of the industry is over £2 billion. Fares have to cover these costs, as well as the cost of fuel taxation and the fuel itself.

  To be able to compete, bus and coach operators need relief from fuel taxation. At present operators pay fuel duty of over £300 million per annum, even after allowing for the Fuel Duty Rebate. This is a tax on public transport, which has increased steadily during the last decade. These tax levels need to be reduced and the inconsistencies between the taxation of bus and coach fuel need to be addressed.

  The rest of this submission discusses measures for buses and coaches in turn.


  Local buses account for 63 per cent of all public transport journeys in GB. They are an efficient form of transport. Official statistics show that at typical occupancy levels they use less fuel per passenger kilometre than cars. They also use less road space per passenger and therefore help reduce congestion, which is so costly to British business.

  The scale of the bus network is reflected in the fact that a half-hourly service is within six-minutes walk of two-thirds of the GB population. In the context of the EU, the level of service provided (in terms of vehicle kilometres) is second only to Italy—sixth after adjusting for population. This is achieved despite having the second-lowest level of public funding. Information from Jane's Urban Transport suggests that the level of public funding for 15 comparable cities across the EU is lowest in Ireland (Dublin), followed by the UK (Manchester).

  In GB the main form of public support for operators is the Fuel Duty Rebate (FDR). The FDR effectively reduces the amount of fuel duty paid by 75 per cent, but operators still have to pay 25 per cent of the duty, which costs them about £115 million per annum. This is a tax on public transport and makes it more difficult for buses to compete with cars.

  Figure 1 shows that before 1994 the rebate was worth 100 per cent of the duty and no duty was paid. It was the previous government's policy of freezing FDR between 1994 and 1997, while increasing duties, that led to the industry paying substantial duty. The present government has increased the FDR steadily since April 1998, but it still remains at 25 per cent below the full duty rate.

  Since February 1999 Figure 1 shows that the industry has suffered from a 40 per cent increase in diesel prices, due to the increase in world oil prices. During the decade as a whole, diesel prices have increased by about 125 per cent, from 15p per litre to 34p, mainly due to the increase in duty paid (from 0p to 12p).

  Notes: The graph shows prices/duty rates for April each year until 1997 and then for every month. All prices are expressed in current terms and exclude VAT. The figures take account of the switch from standard diesel to ultra low sulphur diesel between 1997 and 1999. Source: ONS survey of retail prices—bulk prices would generally be slightly lower.

  Even these increases in prices understate the increase in diesel costs because of a reduction in average fuel efficiency during the decade, as a result of Government policies relating to disabled access and emissions:

    —  Disability Discrimination Act regulations require that all new buses have low-floor access—this reduces fuel efficiency by about 5 per cent, according to a report by ETSU published by DETR (Fuel Management Guide for the Bus and Coach Industry);

    —  progressively tighter emission regulations for new vehicles have reduced fuel efficiency. Euro two engines typically have 4 per cent to 6 per cent worse fuel efficiency than pre-"Euro 0" (Directive 88/77/EEC) engines, according to the same report.

  Combining these factors, Table 1 shows that the fuel efficiency of new single deck buses has deteriorated by 13 per cent between 1990 and 2000 If this is added to the 127 per cent increase in diesel prices, the cost of diesel per mile for new buses has increased by 155 per cent over the decade. This represents an 88 per cent increase in real terms, allowing for general inflation.

Table 1


Engine type
April 1990
Pre-Euro 0
April 1991
Euro 0
April 1994
Euro 1
April 1997
Euro 2
July 2000
Euro 2
+ low-floor
Miles per gallon
Gallons per mile (1990 = 100)
Diesel price per litre (pence) after FDR
Diesel price (1990 = 100)
Cost per mile (pence)
Diesel cost per mile in current prices (1990 = 100)

  The increase in diesel costs has been a key factor behind the increase in bus fares during the decade. Between 1990 and 1999 local bus fares have increased by 24 per cent in real terms, while motoring costs have risen by just 10 per cent.

  Without some relief bus operators will be forced to increase fares further and/or cut services. Over the year to July 2000 operators managed to keep fare increases at about 2 per cent above RPI, despite a 22 per cent increase in diesel prices (allowing for the FDR). However this is not sustainable, if diesel duties and prices stay at or above current levels, operators will need to increase fares much faster—or cut services—to restore profit margins.

  In summary, the increase in diesel duties has damaged the bus industry's competitiveness over the last decade. The main way in which the industry could be assisted is:

    —  Increasing the rate of FDR for local bus services from 75 per cent to 100 per cent. We estimate that this would cost about £115 million per annum. Raising the rebate to 100 per cent would return the industry to the situation before 1994.

    —  This policy would result in lower fares and/or higher service levels than would otherwise be the case. The increase in FDR would be equivalent to about 4 per cent of passenger receipts or a similar proportion of operating costs.


  Operators of coach services do not receive the FDR and pay the full rate of duty. They have an important role to play in the public transport system, but receive no help from the government on fuel.

  These services include long-distance "express" scheduled coach services, contract school bus services, contract works bus services, and tour, day excursion and private hire coach services. Only "local bus" services currently receive the rebate.

  Express coach services are used disproportionately by poorer people, but they receive no form of relief on fuel taxation, unlike competing rail and air services—rail pays only 6 per cent duty and air pays no duty. They also receive no other form of public subsidy, unlike rail.

  The Government is keen to encourage children to travel to school by public transport instead of by car, but tax policy does not encourage this. School services, unless they are registered as local services and used by the general public, have to pay for fuel at the fully-taxed rate. When public-spirited parents club together to organise a school coach run, operators find it difficult to operate to a price that competes with taking the pupils by car. Similarly the Government aims to promote green commuting to work, but although some tax concessions have been introduced these have not been extended to the fuel used by buses or coaches laid on by employers.

  Coach services are important to the tourism industry. A report commissioned by CPT (The Role of the Coach in the Economy, David Simmonds Consultancy) estimated that coach-based tourism is worth over £2 billion to the UK economy and supports 55,000 jobs. Of this total, tourists from overseas spend £400 million pre annum and support 10,700 jobs.

  Figure 2 shows that diesel prices for coach operators have increased sharply since February 1999—by 17p per litre (from 54p to 71p). This represents a 30 per cent increase in prices, and follows several years of above-inflation fuel price rises. Over the year to July 2000, prices increased by 13 per cent. The increases since 1999 mainly reflect the increase in world oil prices, although the duty has also increased over this period.

  Notes: See Figure 1.

  These price increases have put the coach industry under severe financial pressure. Data from the Office for National Statistics shows that coach hire charges increased by only 6 per cent during the year to the first quarter of 2000. Clearly the industry has been unable to pass on the extra diesel costs to customers, even though fuel accounts for over 20 per cent of total operating costs.

  Unless some relief is given coach operators will have to increase their prices sharply and/or reduce their services, and more operators will go out of business. The competitiveness of the coach industry would be reduced and the extra costs would be passed on to customers, including UK businesses and overseas tourists. The main options for relief are:

    (a)  extending the Fuel Duty Rebate to coaches. CPT has advocated this policy throughout the last decade. The cost of applying FDR to coach (and non-local bus) services at the same rate as for local buses, at 37p per litre or 75 per cent of the full duty, would be about £150 million per annum. (This takes account of the higher average fuel efficiency of coaches relative to buses. The rebate would only apply to Public Service Vehicles). The price of diesel for coach operators would be halved. The cost of applying FDR to coaches at 100 per cent of the full rate would be about £200 million per annum.

    This policy would result in lower hire charges or fares and/or higher service levels than would otherwise be the case. The FDR at 100 per cent would be equivalent to about 15 per cent of total passenger receipts.

    (b)  a general reduction in fuel duties. This would obviously help coach operators, but would be much more expensive. Reducing diesel duties by 4p per litre would cost about £750 million per year. Equivalent reductions in petrol duties would cost even more. (Another option would be to extend red diesel to coaches.)

23 October 2000

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