Select Committee on Transport, Local Government and the Regions Appendices to the Minutes of Evidence

Memorandum by First (Bus 03)



  First is the UK's largest bus operator and one of the largest train operators carrying nearly three million passengers a day in more than 40 towns and cities across the UK.

  We are committed to growth by delivering safe, reliable, comfortable, easily understandable services. We have invested in more than 3,300 new buses over the past six years.

  As industry innovators, we are introducing new technology and new services such as the traditional American yellow school bus service which we are pioneering around the UK.

  We operate the UK's only guided busways, are investing in infrastructure, running high frequency networks, delivering rural bus challenge services and running demand responsive transport.

  We are developing innovative new fare deals for our passengers and using information technology to tailor services to demographic needs.

  We have introduced the UK's only commercial citywide smartcard initiative.

  We have introduced rail bus links, including a train taxi, to complement our widespread integrated ticketing and timetable initiatives.

  We are delivering real growth up to 100 per cent in five years for some East Anglian services and up to 6 per cent per annum in a range of towns and cities that we serve.

  This growth comes from listening to our passengers, focussing on the services they want from us and introducing root and branch reforms to the way we operate.

  1.1  We believe that the Government's target of 10 per cent growth in patronage over 10 years is a modest one and that, if some of the barriers to growth are removed, there will be an opportunity for significantly better performance.

  1.2  We have achieved strong growth in ridership over the past year in places like Glasgow (6 per cent), York (2.5 per cent) and Leeds (2.2 per cent). On key corridors like those served by the Leeds guided busway we have achieved 65 per cent growth over five years and believe we have identified the factors to achieve that growth such as:

    —  fast and reliable service through effective and enforced bus priority;

    —  traffic restraint through parking, volume and pricing;

    —  simplified networks;

    —  simple ticketing and value-for-money offers;

    —  strong marketing and high quality passenger information;

    —  attractive accessible vehicles.

  1.3  These are in stark contrast to the barriers to delivery of old, unattractive vehicles, poorly branded and stuck in the same congestion as other vehicles on infrequent services within complex networks trying to serve everyone but which no one understands. The 40 years of declining bus use in areas with these services has to be contrasted with the up to 6 per cent a year growth in quality partnership areas.

  1.4  The Committee has sought views on a range of issues and our perspective is set out below:


  2.1  The Government has three broad transport objectives—to reduce congestion through modal shift; greater social inclusion and a better environment. The bus industry is well placed to help deliver these objectives and the operating industry is already broadly aligned with government objectives since all three aims ultimately depend on passenger growth.

  2.2  Ticket price is a key factor in determining whether passenger numbers rise or fall. However price is not the major factor affecting demand. Market research demonstrates that frequency and reliability are the top priorities for improving bus services. However, operational costs depend largely on market forces beyond the industry's control—crucially wage, insurance and fuel prices—and these have risen sharply in recent years. Pension costs are now also beginning to rise. Externally, parking policy, land use planning and the extent and quality of the competing highway network are also crucial and have a fundamental impact on the level of demand.

  2.3  Support payments such as fuel duty rebate have a crucial role to play in keeping fares at affordable levels but the last government removed their automatic indexation. Nonetheless buses and coaches are the only high capacity public transport services in the UK where operators pay any significant fuel duty. A Commission for Integrated Transport report last year showed that UK bus operations received the lowest level of government support in Europe—running at less than half the level of some other countries.

  2.4  In Europe bus subsidies involve a block grant made up of the difference between costs and revenue. There is no transparency. In the UK the system is very different. Any support is totally transparent, tendered for or the benefits go straight to the passenger. Fuel duty rebate is paid against mileage run and independently audited; non profit making routes are tendered by local authorities which can take services back if they are not comfortable with them while the benefits of concessionary fares go straight to the passenger in a system policed by local authorities to ensure the operator merely covers his costs. There is no general subsidy to UK operators.

  2.5  In the towns and cities where we operate, services normally receive no public support except for late evenings and at weekends on routes that are deemed to be socially necessary and which we have to bid for through the competitive tendering process.

  2.6  Those are the services that cost most to operate since the number of passengers are frequently very low and our staff, like other people, prefer to be at home and have to be rewarded with premium payments for working anti-social hours.

  2.7  However, while bus mileage has gone up by 11 per cent since 1986, Government support for services such as these has fallen by around a third. Meanwhile there is no evidence of any recent marked increase in mileage being withdrawn. Bus services have to change as demographic patterns change and that means new services as well as withdrawn services.

  2.8  To redress the balance we believe that Fuel Duty Rebate should be restored to 100 per cent—from the current 80 per cent—returning £90 million a year to the industry which could be used to reduce pressure on bus fares and incentivise bus travel. Initiatives could be introduced to vary payment of the rebate to encourage social inclusion initiatives. This would be consistent with the tax treatment of aviation, heavy and light rail and the government's decision to end the fuel duty escalator for private car fuel.

  2.9  Bus passengers would also benefit from the availability of more revenue funding to support passengers on services that are not commercially viable. Over the years to 2000-01 the costs of these services (per bus km) increased by between 11 and 12 per cent per annum. These rises reflected operators' costs pressures, particularly labour costs, which are set to continue. They also reflect some catching up of tender prices with previous cost increases. (In the previous three years the average cost of these services to local authorities fell despite fuel and labour cost increases).

  2.10  While bus industry wages have risen by 7 per cent over the past year, insurance costs rocketed by 30 per cent and fuel prices risen by 74 per cent over the past six years, local authorities have been making massive savings each year on the prices they would have been paying for services before the mid 1980s.

  2.11  We support the continuation of rural and urban bus challenge funding. Their main advantage is that they involve both revenue and capital funding which local authorities have to compete for.


  3.1  First has more quality partnership agreements with local authorities than any other bus operator in the UK with nearly 100 in operation. We strongly support this Government's own Transport Act which advocates statutory quality partnerships, with quality contracts only to be used as a last resort where partnerships are seen to have failed.

  3.2  Quality partnerships are driving growth in the bus sector. They are a marriage of new bus fleets with priority measures such as bus lanes which need to be underpinned with effective enforcement. Together they bring faster, more reliable and comfortable services for passengers encouraging growth of 6 per cent and more a year on key corridors. But we are concerned about the rate of delivery since roll out on the ground is currently too slow due to the poor progress in implementing local transport plans.

  3.3  The skills and experience of local authorities and operators complement each other in partnerships. The vision, planning and political pulse of the local authority are matched by the entrepreneurial, investment, marketing and short idea to action times of the industry.

  3.4  Local authorities, operators and the travelling public want the same things—less congestion, faster and more assured journey times and alternatives to the car. Quality partnerships are the only vehicle for delivering this.

  3.5  Quality contracts do nothing to drive change since they deal solely with the economic regulation of the bus industry and not the operator-highway environment that is the fundamental driver of demand. They would lead once again to over provision in politically sensitive areas and under provision on core routes, leading to huge cost increases.

  3.6  Nationwide the industry estimates that it would cost the public sector an extra £60-£70 million just to administer, and billions of pounds more to run, basically the same level of services as now. Across the country the bidding process would cost operators up to £40 million a year which would be passed on in tender prices while diverting top management time from providing services into bidding for them.

  3.7  The London quality contract bus network alone currently costs the taxpayer £1 million a day and is forecast to rise to nearly £2 million a day by 2004-05. Extending those costs across the country would mean the Treasury having to find billions of pounds to replace quality partnerships which cost the taxpayer nothing while delivering real growth.

  3.8  Quality partnership schemes have not failed; they have not been given a chance. Although the pilot schemes have shown significant patronage growth the rate of roll outs is low and local authorities have been slow to establish "statutory" schemes with operators as they are empowered to do under the Transport Act 2000. Operators are keen to introduce them since the private sector is incentivised into growing the market and partnerships provide the opportunity to do just that. However, there is no incentive for local authorities to deliver partnerships and there can be short-term local political risk as precious road space is allocated to bus use and shopkeepers and motorists object to parking constraints.

  3.9  Quality contracts would not in themselves deliver growth, would be more expensive to run and would not deliver the infrastructure and bus priority measures which are so essential to growth. Local authorities would revert to historical practice of specifying complex networks which no one would understand. What the bus passenger needs is a process for incentivising local authorities to deliver with future funding withheld without the evidence of delivery. Currently there are examples across the country of partnership schemes agreed and funded but not delivered. For example in Sheffield in the last financial year we understand just £26,000 has been spent out of a block allocation of £3.5 million. This could be due to resourcing issues we are not familiar with but it illustrates the issue.


  4.1  Bus priority measures such as bus priority lanes are the critical factor in delivering improved services for the passenger and encouraging people to switch from the car to public transport in congested areas. Unless passengers are able to travel faster than the car they have no incentive to change their behaviour. After all, if their bus is going to be stuck in the same traffic jam as they are in their car, they might as well sit in their own vehicle with the stereo on. The key issue here is the relative speed and reliability of bus services versus competing modes such as the car.

  4.2  And if there is no incentive for passengers to change behaviour there is no incentive for operators to invest in new buses since there will be no business case to support the investment.

  4.3  Buses and their passengers earn their dedicated road space. A bus takes up less road space than three cars but, by carrying 70 passengers in the rush hour, can remove 50-70 peak time car journeys. Where they get their dedicated space passenger growth has been remarkable. We are regularly seeing growth of more than 6 per cent a year on key corridors.

  4.4  But as well as delivering faster journeys, bus lanes offer reliability—a crucial factor in delivering passenger confidence and behavioural change.

  4.5  Enforcement of bus priority lanes is critical to their success. Delivery vans and other vehicles parked in bus lanes not only slow down bus services but other traffic too as buses are forced to edge their way outwards on to the remaining carriageways. Just a few parked vehicles encourage others to park too. Penalties need to be severe and the enforcement presence visible and active.

  4.6  Currently the police say they do not always have the resources to support 12-hour bus priority measures and not all local authorities have adopted the powers available under the decriminalisation of parking enforcement. There are also more benefits to be had from on board video camera evidence of bus lane abuse. The legal position on the acceptability of video imaging needs to be clarified and the hypothecation of revenue from enforcement fines could fund additional public transport priority. PTEs and local authorities need more traffic direction powers—such as the Traffic Director's role in London.


  5.1  We operate in an already highly regulated industry. Bus services are regulated by:

    Vehicle Inspectorate

      —  Vehicle maintenance standards.

      —  Timetable adherence.

    Traffic Commissioners

      —  Financial viability.

      —  Vehicle maintenance standards.

      —  Timetable adherence.

      —  Service registration.

    OFT and Competition Authority

      —  Pricing, tendering, competition.

    Health and Safety Executive

      —  Staff and passenger safety.


      —  Vehicle design, construction and use.

  5.2  In addition local authorities and PTEs exert considerable influence on the industry through their powers and policies over concessionary fares, tendered networks, school transport, transport planning and lane use planning.

  5.3  The principal pressure on the industry stems from the need to attract passengers in a market that involves competition between operators and with other modes—principally the private car. Our real competition is the car and passenger figures demonstrate very quickly if they are unhappy with either performance or price. It is in our own interests that we provide the quality and frequency of services that allow us to grow the market.

  5.4  A sector economic regulator for the bus industry would cost more, go against the utility trend, add an extra tier of bureaucracy and undermine the autonomy of local authorities and PTEs.

  5.5  The costs of a new regulator would—by the standards of other regulators—be significantly more than £5 million a year and would fall on the operators—who are currently the only people investing in new bus fleets.

  5.6  Such a policy would be inconsistent with the government's wider commitment to competition as the principal instrument of regulation. In other utilities where there is a competitive market the predicted trend is for them to disappear as market forces do their work for them.


  6.1  Bus services have an important role to play in social exclusion but they are not the only answer. The average bus fare in urban areas is still relatively low at 80p. As a result buses are already heavily used by low income groups and the bus industry is taking steps to increase trip-making opportunities through a variety of measures:

    —  Investment in more accessible vehicles.

    —  Use of midibuses to improve penetration of housing areas and provide more door-to-door services.

    —  Creation of simpler, more frequent networks to make them easier to understand and use.

    —  Targeted ticket products—such as the support we give New Dealers around the country with special fares.

  6.2  In urban areas, some of the core bus markets naturally coincide with social exclusion areas. Growing the bus market offers the best opportunity for these communities. Bus services are not normally running at full capacity. Some growth can therefore be achieved at marginal cost. As that is delivered there is an incentive for operators to introduce more services and reduce fares, encouraging further growth.

  6.3  In rural and less densely populated areas there is less room for growth and it may be that traditional bus services do not always provide the solution. There is a market here for on demand services where the Challenge Fund and non bus solutions have a role including car sharing and taxis.


  We firmly believe that the Government's target of 10 per cent growth in patronage in 10 years is a modest one and that if the barriers to delivery referred to in this paper are removed there will be an opportunity for significantly better performance.

Moir Lockhead

Chief Executive


previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2002
Prepared 12 September 2002