III. THE PROBLEMS
- The bus must be a quick, clean, affordable, modern and co-ordinated service if it is to attract car drivers during the peak periods and help bring an end to the growing congestion problems. In addition, the bus must provide a service to a range of people without access to a car for a whole host of journeys essential to providing a decent quality of life and tackling social exclusion. However, it is clear that, despite the introduction of the Government's bus policies, a number of problems exist which mean that this vision is not being achieved.
- Across England there is enormous variation in all of the main factors that affect bus use such as traffic congestion, investment in bus priority, age of bus fleets, frequency and breadth of service, competition, fares and concessionary allowances. This makes understanding the problems faced by local authorities and bus companies in providing a good quality service difficult. The Minister for Transport told the Sub-Committee "We may not agree on solutions but at the moment there is not even agreement on the problems." This Chapter reviews the major problems identified through our evidence and sets out our recommendations to resolve these issues.
"Competition and choice between operators are the key forces working for passengers".
Office of Fair Trading
"The key forces working for passengers are well co-ordinated services that offer attractive fares and frequencies to the public".
Association of Transport Co-ordinating Officers
- The application of the Competition Act 1998 to on-the-road bus competition has created significant barriers to good quality, integrated, public transport services. This section describes the key provisions of the Competition Act, the problems encountered in applying the Act to the bus industry and possible solutions. The section refers specifically to the role of the Competition Act in managing on-the-road competition rather than competition through tenders. Competition for tendered services is essential to keep costs down, although it has led to a worsening of conditions for staff, particularly in London.
Provisions of the Competition Act
- The Competition Act came into force on 1 March 2000. The Act prohibits:
- anti-competitive agreements between operators preventing, restricting or distorting competition. This includes agreeing common fares, service timings and frequencies and the areas over which they will run.
- abuse of a dominant market provision. This prohibits activities such as setting fares at an unreasonably low level that removes existing competitors or prevents market entry.
In addition, the Transport Act 2000 provides for the Office of Fair Trading to "apply a competition test where local authorities make quality partnership schemes, ticketing schemes or award tenders for subsidised services". If any of these schemes are likely to have a significant effect on competition the Office of Fair Trading has to assess whether:
- the restriction on competition is justified because it secures improvements in the quality of vehicles, improves local transport services substantially for users or reduces traffic congestion, noise or pollution.
- the effect on competition is 'proportionate' to the benefits achieved.
The Minister for Transport told us that the competition regulations and their interpretation by the Office of Fair Trading may be causing difficulties to local authorities and bus operators in achieving benefits for passengers. However, he concluded "At the moment I am unclear, from what the operators, the local authorities and the Office of Fair Trading are saying to me, where the balance of the argument lies and where the balance of fact lies in this".
The degree of on-the-road competition
- The degree of competition between operators varies significantly between different parts of the country. In the first few years after deregulation extensive on-the-road competition took place in many areas, but this has now greatly diminished. In a few cases, competition on a number of main corridors in the same area continues (for example, in Oxford and parts of Manchester), but more often such competition takes place mainly at boundary areas where two operators' territories meet, as in Newcastle. Other areas such as the West Midlands, Bradford, Calderdale and Bristol have little significant competition to the dominant operator. Mr Hodgkins, Passenger Transport Manager at Buckinghamshire County Council, told us that there is "very little evidence of ongoing on-the-road competition", a view mirrored by many other organisations. The Office of Fair Trading believes that even where no competition exists, the threat of competition ensures that the dominant operator performs efficiently.
The effects of on-the-road competition
- Mr Vickers, Director General of the Office of Fair Trading told us that competition always generates benefits stating "I think the principle is a general one, that where competition is effective that is good for consumer choice in terms of price, in terms of quality and so on. That principle applies in the bus industry as it does in other industries". He was unable to provide specific evidence of the benefits of competition in the bus industry although he told us:
"There is up and down my road bus competition on that road. I am sure I and my family use the bus more because of that."
The County Transport Co-ordinator at Cheshire offered a different, more representative and starkly contrasting view:
"In my experience as a transport co-ordinator in a shire area, I find on-the-road competition, where it has broken out (and it has broken out sporadically) has been singularly unhelpful. It promotes enormous instability in the operation, which is the last thing the passenger wants. It has the effect of operators concentrating their efforts and resources into the competitive area so that they are inclined to deregister from other, less successful commercial operations. That puts more cost onto the local authority. For example, again in Cheshire, that sort of competition caused an operator to pull out and divert his new buses off the quality partnership route altogether. He reduced the frequency on the quality partnership route so that he could compete with a competitor elsewhere in his area."
- Timetables are changed frequently and are not co-ordinated between different companies, creating unnecessary uncertainty for travellers. Different operators are free to change their timetables, subject to providing 56 days notice, at any time during the year. The Social Exclusion Unit found that in 2001 in Merseyside, 396 changes were made to bus routes. It believes that "the number of changes to the bus network in recent years has reduced people's trust and familiarity with bus services". Oxford has some of the best bus services in the United Kingdom. However, Oxfordshire County Council no longer prepares a timetable of bus services for all operators as it is "out of date before we have printed it". The bus operators believe that many of the changes are small and have little impact on services. The flip-side of this argument is that, if the changes are small, then the timing of the changes is not critical. A voluntary scheme in South Yorkshire where operators only change their timetables at fixed points in the year is working well. The idea of voluntary local agreements for between 6 and 10 dates a year at which timetable changes are made was supported by First, Arriva and Stagecoach. Bus companies must commit to a fixed schedule of locally agreed timetable changes to enable the provision of co-ordinated and up-to-date information. To ensure that a stable network of bus services is provided, there should be no need to change the timetable more than six times a year.
Co-ordination of services
- Bus operators are not allowed to agree on the timing and frequency of services on a route. The bus operators claim that they would like to run buses at evenly spaced timings but are prevented from doing so by the application of the Competition Act. Mr Clayton, Managing Director of Arriva UK Bus, said "If there are two buses an hour running to a hospital, I would far rather one went on the hour and the other at half past the hour, because that would seem to me to be a more sensible approach for people, rather than have the two go together. So that is an issue where the competition law gets in our way because it is market sharing".
- The Office of Fair Trading believe that allowing operators to agree "headways" (the time between bus service arrivals) may also enable them to reduce capacity, leading ultimately to a poorer service for bus passengers. Mr Vickers elaborated, saying "I think in the generality of circumstances an agreement between operators --- if, for example, you and I were to agree that you go on the hour and I go on the half hour, among other things that would entail an agreement that we would each supply one bus per hour and I think that is highly likely to infringe the law". Instead, the Office of Fair Trading believes that a well co-ordinated service should develop through sensible business planning by the bus companies. It stated that "Operators may have concluded that scheduling a bus two minutes in front of a competitor's is likely to be self-defeating as the other operator may well react by changing his schedule so that his bus arrives first". The Office of Fair Trading pointed out that individual exceptions to the general rule were possible. Mr Lockhead acknowledged that First had not put any proposals forward for examination. The Office of Fair Trading confirmed that there are no barriers to two different operators co-ordinating services on inter-connecting routes, provided the two routes are not in competition with each other.
- The current application of the Competition Act means that services cannot be sensibly co-ordinated. The only method by which local authorities and passenger transport executives can specify service frequencies and timings of services is through tendered services and bus quality contracts. Oxfordshire County Council, despite being held up as an example of good practice by operators, the Office of Fair Trading and the Department, is frustrated that it cannot specify service levels and told us "it is also important that we have the power to even out headways", a view shared by Coventry City Council. The Leeds guided busway has achieved significant growth in passenger use along its route. However, the scheme could have achieved more by having co-ordinated fares and frequencies. The National Federation of Bus Users believes that the Office of Fair Trading's "strangulation of voluntary operator co-operation inhibits co-ordinated bus service provision and is not in the public interest".
Integrated Ticketing and Fares
- It is considered anti-competitive for two competing operators to agree to charge the same fares on competing commercial routes. However, the Office of Fair Trading believes that common fare structures are likely to occur through commercial pressures. Multi-operator Travelcards will only work, however, if the operators can agree the price at which they are sold. Since 1 March 2001, Travelcards have been subject to a block exemption from the Competition Act. Revenue from Travelcards is distributed according to the best estimate of passenger miles travelled on each operator's services.
- The uptake of the block exemption has been slow and some existing Travelcard schemes have even been withdrawn because of concerns about the Competition Act. Mr Hodgkins told the Committee that the guidance on the block exemption was a "very complex set of guidelines which, without doubt, is causing a great deal of confusion to the players within the passenger transport industry and, to a significant degree, I suspect within local authorities". Arriva Bus UK told us that although progress was being made over the guidance, it still needed more work. Its attitude to the application of the Competition Act was "if in doubt, we will do nowt". Travelcards, pre-paid tickets and electronic Smartcards can all help to reduce bus boarding times and speed up journeys. Progress in this area is essential to improving the experience of travelling by bus.
- The Office of Fair Trading believe that operators' fears of falling foul of the Competition Act are unjustified. Mr James, from the Office of Fair Trading, told us of a case in Hertfordshire where an operator had withdrawn from a joint ticketing scheme having been advised that the Competition Act would prevent the agreement continuing. He told us "They had not spoken to us or asked our views. We had not seen the agreement but we were open and said, 'Is this true? Would you like to come and talk to us?' They said, 'No, thank you very much, we would rather not'". The Minister urged bus companies to approach the Office of Fair Trading and discuss issues before taking decisions about integrated ticketing.
- The Office of Fair Trading is applying the Competition Act to the bus industry with little practical evidence of its impacts on current and potential public transport users. Many local authorities want to play some role in co-ordinating service frequencies and spacings and are frustrated by their inability to do so. The bus is the main public transport alternative to the car. If local authorities and passenger transport executives are to introduce bus lanes, which are unpopular with some car users, and other forms of car restraint they must have the confidence that they know exactly what the quality of the alternative will be.
- The Office of Fair Trading's position of investigating and approving any form of co-ordination of bus routes is a case of theory running riot over common sense. It is disproportionate for the Office to have to make a ruling on whether the number 12 and 13 buses can agree to run every 10 minutes, yet be able to ignore mergers between companies that are under £70 million in value. This creates an incomprehensible situation where it is easier for two companies to merge and run as a single provider on a route than it is to agree to run co-ordinated bus services. The picture is also mixed across the country. In some areas there is one dominant operator where almost all services are co-ordinated by this operator. In such circumstances, the Office of Fair Trading is happy that the 'threat of competition' keeps the operators efficient. Elsewhere, where there is competition between operators, no co-operation is allowed and timetables, service frequencies and fares remain unco-ordinated.
- The concerns that the Office of Fair Trading has about a loss of consumer benefit that co-ordinated timetables, fares and frequencies will bring are largely unfounded. If local authorities (rather than bus companies) wish to oversee the co-ordination of the services of two competing operators it will be to benefit bus travellers in their area. We cannot see the value of having every such decision across the country investigated and approved by the Office of Fair Trading, nor is it sufficiently staffed or expert to do so. We believe that it is unlikely that the bus companies would seek to take advantage of such a situation by reducing service levels and increasing fares because local authorities have the powers, under the Transport Act 2000, to run all services as tendered operations through the use of bus quality contracts were this to occur. The Office of Fair Trading must allow services to be co-ordinated. If the application of the Competition Act to the current de-regulated regime does not permit this then it is clearly at odds with the Government's aim of providing a truly integrated transport system.
- We find it unacceptable that the Competition Act is being applied without sound evidence, based on observation and research from the bus industry and bus users. There are significant negative side effects of on-the-road competition, including unco-ordinated services, instability of the network and restrictions on ticket use. Local authorities should be able to make common sense agreements with bus companies about services in their area without fear of investigation by the Office of Fair Trading. Co-operation and co-ordination are not synonymous with collusion. The application of the Competition Act, or the Act itself, must be adjusted to this sensible outcome. If it is not, many local authorities will request quality contract powers as the only means of ensuring a co-ordinated network of bus services.
- The block exemption of Travelcard ticketing schemes from the Competition Act is welcome. Some of the difficulties over interpretation of the exemption have been overcome by actions of the Office of Fair Trading although work is still on-going. Bus companies must push ahead with the introduction of multi-operator Travelcard schemes. They should not use the Competition Act as an excuse for failing to progress such schemes. New schemes should adopt Smartcard technology wherever possible, to reduce boarding times.
Bus Priority and Reliability
- All parties agreed that punctuality and reliability are essential to providing a good quality bus service. The National Federation of Bus Users note that "a third of all the complaints we receive concern buses which are late or do not turn up at all". Arriva told the Sub-Committee that "every piece of research that we do identifies that punctuality and reliability are the key measures that encourage bus use". First found that reliability was twice as important to passengers as service frequency and more than twice as important as the quality of the bus that arrived. Oxford recognised the need to make bus use more attractive a number of years ago, partly due to the constraints to car traffic of its historic city centre road layout. Mr Newson of Oxfordshire County Council told us:
"I think Oxford City is a good example of what has been done. There has been significant restraint on the private car, both through the pricing mechanism of car parking charges and the restriction on the amount of parking in the Centre, complimented by facilities like Park and Ride. The interesting thing is it is not just to encourage motorists to use Park and Ride; we have seen a big increase in people using the bus from much further out to come into Oxford."
- Bus priority is essential to combat the effects of rising congestion. Transport for London has introduced 150 kilometres of bus lane combined with traffic signal priority and other measures to speed up bus routes. The Mayor has recently set up new Operational Command Units at a cost of £25 million per year. The Units will patrol bus lanes and other aspects of highway policing such as box junctions to smooth bus flow and improve safety and security for passengers at bus stops. In spite of this impressive programme of measures the Director of Surface Transport at Transport for London told us:
"I should not sound too optimistic about bus priorities and enforcement because we are still fighting to produce a level of priority enforcement which will reduce journey times and improve reliability. The best we have achieved so far on some of the major corridors is to keep the running time the same in the face of worsening congestion".
Barriers to progress
- Progress with implementing bus priority has been slow. For example, local authorities in the West Midlands already accept that the target for improving bus speeds in the their area by 2006 will not be met. Centro believe that the less contentious bus priority schemes have now been put in place. The backlash from the motorists and businesses with frontages directly affected by bus lanes make some schemes politically difficult. Transport for London agreed and pointed to other issues that hampered progress in putting in bus lanes even when the political will is there:
"There is a shortage of trained highway engineers to design the schemes. Even within London, with a desire by the Mayor to properly fund them, there are still the normal public consultation issues, because when you propose to put the measure in you find a number of frontages and other interested parties who are not altogether happy with that, even if we are able to prove, as we are, that having a bus priority outside your small shop does not necessarily damage your business. Facts are no barrier to sentiment when it comes to some of those arguments."
The Association of Transport Co-ordinating Officers pointed out a long-list of technical, procedural and political issues that need to be resolved when introducing all of the infrastructure associated with a modern, high quality bus route. As lessons are learnt through experience in introducing these schemes, it should be possible to reduce the time required to introduce them. The Institute of Logistics and Transport was concerned that the implementation of priority schemes was too piecemeal stating that "bus priority lanes and other measures are often insufficiently lengthy or too infrequent to make a real difference".
- Bus lanes must be enforced if they are to be effective. Vehicles parked in bus lanes and those that drive along them reduce the benefit of the lanes not only to the bus users but also to other car drivers, as buses have to pull out of the lanes. Transport for London believes enforcement to be as important as the priorities themselves. Centro believe that bus priority enforcement is "never going to be sufficiently high up the priorities of the normal police force to police that, and, therefore, we think that the best way of doing this in our area seems to be evolving into decriminalisation". The Institute of Logistics and Transport contrasted the enforcement of bus lanes in England with that in Dublin where they are well respected by motorists and enforced by the Irish police. The Minister told us that where the police have taken enforcement seriously, they have found that the drivers who violate bus lanes are often wanted for other offences. Bus lanes must be enforced to be effective. The police have a responsibility to police bus lanes and must do so. The Government has promised to decriminalise enforcement of bus lanes fully by the end of the year. We welcome this initiative as it will allow a combination of static cameras, on-bus cameras and mobile patrols to catch offenders.
- A reliable bus service is essential to maintaining confidence in using the bus to get around. The Traffic Commissioners have the power to investigate bus service reliability and fine operators for poor performance. Under the Transport Act 2000 operators could be made to repay up to 20 per cent of the Bus Service Operators Grant they receive. Several operators have been fined as a consequence of poor performance under the Act's provision. Recently, the Traffic Commissioners have adopted an explicit national standard that 95 per cent of all services should run no more than 1 minute before, or 5 minutes after, the scheduled time. The bus operators generally supported a reliability target but believed that the target is overly stringent compared to those set for the railways. They questioned whether a national target was appropriate given the large regional variations in traffic congestion. The National Federation of Bus Users believes that the reliability targets were of limited value while buses continue to be caught in congestion. It believed more must be done to increase bus priority if reliability is to be achieved. The Traffic Commissioners should continue to take local traffic conditions into account when assessing the reliability of bus services.
- Bus priority measures must be implemented to ensure that buses are an attractive alternative to the private car. To be successful they should also be supported by other measures such as city centre traffic restraint and Park and Ride facilities. Enforcement of bus lanes is critical to their success. The main problems faced by local authorities are local opposition and the time taken to design and implement schemes. The Department should issue guidance on how to reduce the time taken to design and implement bus priority schemes. It should assess what regulatory burdens can be removed. The responsibility for implementation lies with local authorities. These schemes must be implemented if the speed and reliability of bus journeys are to be improved. The Department should link future local capital funding settlements to progress made in this area.
- Bus companies are withdrawing a small, but significant, number of marginal commercial services. This may involve reductions in the level of evening or weekend service or the withdrawal of a whole route. Local authorities may supplement evening and weekend services through agreements with the incumbent operator as discussed in Chapter II. If the whole, or substantial part of a route is withdrawn, the local authority may decide to pay for that service to be run, for which it must hold a tendering competition. Local authorities have a limited revenue support budget for bus services and when new routes are withdrawn other supported services have to be cut to keep within budget. Routes are often combined by local authorities to keep costs down while maintaining a reasonable standard of service.
- Many commercial bus services are not profitable throughout the whole day. Bus companies sometimes choose to subsidise less profitable parts of the day from more profitable periods and less profitable routes from more profitable routes (cross-subsidy). Mr Cochrane, chief executive of Stagecoach Group, told the Sub-Committee that "within that core commercial network, there will be elements that we will cross-subsidise because it is in our interests to provide a complete network of services". The level of cross-subsidy provided by some operators was questioned. Mr Donald, chairman of Centro, believed that in a competitive market, with low entry costs for new operators, if there was a large amount of cross-subsidy, new operators would be able to undercut existing operators by running only on the most profitable routes: this rarely happens.
- Arriva, Stagecoach and First were unable to provide the Sub-Committee with a breakdown of the number of commercial services withdrawn. However, Arriva and First noted that the total mileage run was 3.2 and 2 per cent lower respectively than in 1999, whilst Stagecoach ran 2.4 per cent less commercial miles than in 1999. These figures include the net effect of service reductions and increases in commercial mileage on other routes. As car ownership grows and land-use patterns change, demand for bus services can fall. Mr Lockhead, chief executive of First, told us that when passenger numbers on a route are low, "there comes a point, when, if there are just not enough people using it, then the option is that we would withdraw". The Minister told us "We are all aware of services that have been withdrawn from commercial and subsidised routes, but pinpointing why this has happened and just how much of a problem it is, is more difficult. For example, bus operators point to a number of new registrations which they say offset withdrawals".
- The withdrawal of commercial services has a significant impact on local authority and passenger transport executive revenue funds. Lincolnshire, Northamptonshire and Buckinghamshire faced increases of £100,000, £150,000 and £123,000 respectively to replace commercial services that had been withdrawn. Withdrawals are particularly prominent in smaller sized towns, shire and rural areas. Mr Chorlton, deputy chief executive of Devon County Council told us:
"Of the 320 registered bus services in Devon, only 125 of those are commercial. In the last year, 12 of those have been withdrawn, and 24 have had reductions in the service, either reducing at weekends or evenings. That is the sort of rate which seems to be accelerating."
Withdrawals have also occurred in cities, including from bus quality partnership routes. The Association of Transport Co-ordinating Officers (ATCO) estimates that 4 million commercial bus journeys were withdrawn last year. "Of these, almost 1.5 million commercial bus journeys will not run next year because they have been deregistered and cannot be subsidised and a further 0.5 million supported journeys will be withdrawn due to lack of funds for support". 39 per cent of local authorities surveyed by ATCO believed the rate of commercial deregistrations was greater last year than in 1999/2000.
- It is inevitable that, where bus use continues to decline, increasing numbers of routes will no longer be commercially viable. A commercial organisation or local authority must revise schedules to get the best possible value for the money being invested and some routes will therefore be revised. In some cases, bus service revisions may create new links, but also leave other links unserved. Service withdrawals represent only a small, but significant, percentage of total bus journeys. However, they have a disproportionate effect on the ability of people dependent on public transport in these areas to access key facilities. It is essential that alternatives are offered to people in such circumstances. Bus service withdrawals in one area are not 'offset' by improvements elsewhere. Improvements to other services do nothing for those left without a service or with a reduced service that provides inadequate timings and connections. The trend of increasing service withdrawals is worrying, as it can leave those most dependent on public transport without a service.
34 Q407. Back
35 BUS 42. Back
36 Q318. Back
37 Ensuring competition in public transport provision, John Vickers. Proceedings of Conference on Competition and Integration in Public Transport, 7 February 2001, Waterfront Conference Partnership. Back
38 Q380. Back
39 BUS 42. Back
40 Ibid. Back
41 Ibid. Back
42 Q425. Back
43 Q230. Back
44 Q550. Back
45 BUS 14 and BUS 43. Back
46 Q313. Back
47 For example, BUS 42, BUS 14 and BUS 20. Back
48 Q230. Back
49 Q222. Back
50 Q241. Back
51 Q243. Back
52 Q317. Back
53 BUS 52. Back
54 Q215. Back
55 BUS 10A. Back
56 BUS 14. Back
57 BUS 10A. Back
58 Q83. Back
59 BUS 42. Back
60 Ibid. Back
61 Q227. Back
62 Q85. Back
63 BUS 42. Back
64 See Chapter IV. Back
65 BUS 46. Back
66 BUS 43. Back
67 Q198. Back
68 BUS 8. Back
69 BUS 42. Back
70 Q246. Back
71 BUS 42. Back
72 Q547. Back
73 Q319. Back
74 Q89. Back
75 In this case, only two operators were taking part in the existing multi-operator ticket. One of the companies, Sovereign, took legal advice that three or more operators were required for such an agreement to be legal. Q547. Back
76 Q253. Back
77 Q406. Back
78 BUS 42. For a merger to qualify for investigation by the Competition Commission, it must either create or enhance a market share of at least 25 per cent of goods in the United Kingdom, or a substantial part thereof, or the gross value of the assets acquired must exceed £70 million. Back
79 Q277-Q279. Back
80 Q265-Q267. Back
81 See the Chapter IV discussion on bus quality contracts. Back
82 BUS 8A. Back
83 Q30. Back
84 BUS 10A Back
85 Q163. Back
86 BUS2. Back
87 Q349. Back
88 BUS5. Back
89 Q167, Q345. Back
90 Q345. Back
91 BUS 31A Back
92 BUS 38. Back
93 Q345. Back
94 Q168. Back
95 BUS 38. Back
96 Q472. Back
97 BUS 10A. Back
98 BUS 3, BUS 5, BUS 19, BUS 40, BUS 48. Back
99 Q76. Back
100 BUS 08A. Back
101 Subject to the de minimis limit. Back
102 Q567. Back
103 Q64. Back
104 Q62. Back
105 Q171. Back
106 BUS 10A. Back
107 Ibid. Back
108 Q34. Back
109 Q406. Back
110 Q130, Q115 and Q329. Back
111 Q114, Q133 and Q329. Back
112 Q133. Back
113 BUS 11 and BUS 17. Back
114 BUS 31. Back
115 Local Authority Bus Contracts: Price Expenditure and Competition Survey 2001. Association of Transport Co-ordinating Officers, November 2001. Back