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

Memorandum by Arriva Passenger Services Limited (Bus 40)


  Arriva is one of the largest transport services organisations in Europe, employing over 30,000 people and providing nearly 800 million passenger journeys a year. We operate buses, trains, commuter coaches, taxis, waterbuses, ambulances and other demand responsive vehicles. Arriva is one of the UK's largest bus operators, with over 6,000 vehicles serving customers in the North East, North West and South East of England, Yorkshire, the Midlands, Scotland and Wales. We are the largest bus operator in London. We welcome the opportunity to contribute to this inquiry; our comments are arranged in line with the Sub-Committee's Terms of Reference.


  Viewed in general European terms, the levels of public expenditure on the provision of bus services in the United Kingdom are low. The commercialisation of the industry in 1986 led to a substantial reduction in public spending on bus services. Over 80 percent of bus services now operate without public subsidy. A figure of £1.2 bn is often quoted as the current annual public expenditure on buses. Some 45 percent of this sum is paid in concessionary fares for passengers who receive financial support to reduce their travel costs. The costs of tendered services are also included in the figure; public spending by local authorities to secure additional services for public policy reasons is a legitimate call on public funds. It recognises that some services that are necessary for social reasons would not otherwise be provided.

1.1  Fuel Duty Rebate

  Fuel duty rebate is the only form of public support for the general provision of bus services; it is an efficient and easily auditable mechanism. It should not be seen as a "subsidy" as such—it is, in effect, a tax that is set at a lower level for bus passengers than for car users.

  The rebate of 80 percent of the duty on fuel used on local bus services has a direct effect on the provision of bus services, both to secure services that would otherwise not be provided commercially by operators and to keep fares lower than would otherwise be the case. The rebate was reduced from 100 per cent in 1994 and we would support a return to this figure so as to maintain the positive effect that this policy decision has had. There are arguments about equitable treatment of bus passengers when compared to both rail and air passengers. There are also general policy objectives of maintaining the competitive position of buses in relation to cars. Motoring costs have increased at a much slower rate than bus fares over recent years and are predicted to drop by up to 20 per cent in the next 10 years. Bus fares have to reflect higher wage, fuel and insurance costs.

1.2  Tendered Services

  Local authorities and Passenger Transport Executives (outside London) secure the provision for social reasons of services that are not provided as part of operators' commercial networks. Through this mechanism, authorities pay for services or journeys that would not otherwise operate. This is a subsidy to the passengers who use these services, and is public expenditure to secure a service that the authority determines is necessary for social reasons. The residents of the local authority area benefit from the provision of additional services, often in the evenings, weekends and to more rural communities.

  The cost of tendered services has increased in recent years. Increases appear when tenders are re-let at, for example, three year intervals. New prices reflect changes in circumstances since an earlier contract was let. Higher specifications by local authorities (eg new buses), higher wages, fuel prices and insurance have increased the general cost of bus services at a level somewhat ahead of general inflation. These cost pressures will continue. We believe that it is important that local authorities and PTEs should:

    (a)  be encouraged to determine the levels of tendered services against criteria established in their Local Transport Plans;

    (b)  be allocated sufficient funds to secure services;

    (c)  be encouraged to secure services on a long-term basis, so as to maximise revised de minimis arrangement with an increase in the limits imposed on authorities at present and the abolition of the total limit that an authority may pay to any one operator.

1.3  Concessionary Fares

  Concessionary fare schemes operated by local authorities provide a direct subsidy to certain groups of passengers to reduce the fares that they would otherwise pay. This mechanism secures the public policy objective of subsidising the travel costs of these groups, using bus operators as the conduit by which that subsidy is channelled. As the schemes ensure that operators are neither advantaged nor disadvantaged ("no better and no worse off"), concessionary fare schemes are not a subsidy for bus services or operators; they are a subsidy to certain groups of passengers.

  Problems with revenue spending for local authorities have led to cuts in concessionary fare schemes in some areas where authorities were previously providing higher levels of concession than the statutory minimum introduced by the Transport Act 2000. In cases where authorities have been forced to reduce spending, the increases in fares paid by passengers who are part of the concessionary scheme have substantially exceeded the increase in fares set by operators. This has reduced travel by these groups, sometimes running counter to trends of growth in other passenger numbers in the same areas.

  Concessionary fare schemes target key groups (the elderly, people with disabilities, children and those in education) for whom social exclusion criteria strongly justify public expenditure. We believe that local authorities should be assured of sufficient revenue to maintain the schemes that they believe are appropriate. We believe also that this should not been seen as "public transport" expenditure, but should be separately included in authorities' spending assessments so as to ensure that the delivery of transport policy objectives, such as bus priorities, is not jeopardised by subsidising travel costs for defined groups.

  Similarly, we are concerned that budgetary pressures can lead local authorities to seek to reduce the amount that is paid to operators under the "no better and no worse off" provisions. This has the effect of passing some of the costs of securing public policy objectives on to other groups of bus passengers. We do not believe that this is equitable.

  We also believe that there should be a review of the concessionary fares mechanisms themselves. This could consider what incentives might be offered to operators to encourage travel by these key groups. The "no better and no worse off" provision and pressure on local authority budgets tend to suppress options for such initiatives.

1.4  Rural and Urban Bus Challenge

  We support mechanisms that encourage local authorities, in consultation where possible with local bus operators, to develop innovative local transport solutions. The first schemes are being introduced, and we believe that it would be appropriate to continue the present arrangements while monitoring the success of these early schemes. It would not be appropriate to discontinue this approach in view of the length of time over which it is necessary to evaluate some of the more novel approaches being developed.


  We distinguish here between three types of delivery mechanism:

    (a)  Voluntary Quality Partnerships (QPs)

    (b)  Statutory Quality Partnership Schemes (QPS)

    (c)  Quality Contracts (QCs)

  The success of the QP approach is well known. Schemes have delivered high levels of passenger growth. The fundamental importance of a co-operative partnership between operators and local authorities and others cannot be over-emphasised. All the parties to a QP should see some benefits, both from the pooling of knowledge and expertise and from the delivery of better bus services, carrying more passengers. Each party will contribute according to its area of influence, expertise and activity; operators will deal with vehicles, ticketing schemes, staff training, services levels and frequencies (etc); local authorities will deal with infrastructure issues; the Police will deal with enforcement; other partners can deal with specific matters such as education transport, environmental travel plans, etc. The complex nature of the interaction between different factors affecting travel choice is clear from London, where traffic congestion and the cost and availability of parking are a significant factor in encouraging the use of public transport.

  The introduction of the QPS concept in the Transport Act 2000 develops the QP system: operators can be excluded from the use of new facilities provided by a local authority if they do not meet the quality thresholds.

  With both QPs and QPSs, there is an emphasis on the whole journey, including both the vehicle and the infrastructure. This is in marked contrast to QCs, where the emphasis is on the times, frequencies and fares of buses in isolation. There is no provision to ensure that QCs are linked to bus priorities. Indeed, the transfer of decisions about services and networks to local authorities would remove the clear relationship between operators and passengers in favour of a structure where passengers' interests are filtered through local authorities, whose political priorities may not match passenger needs and interests.

  Additional public expenditure would be necessary to secure a QC regime. Local authorities do not in general have the resources to manage the design, implementation and monitoring of contracts; this would be a considerable additional cost. Operators' bidding costs would inevitably be passed on to authorities over time, since such costs are always borne by the client base in the end. Crucially, contracts lead to downward pressures on wages, with the inevitable consequences that this can have for service reliability. In Gothenburg, for example, where contracts are let for approximately one third of the network each year, the local authority reports that approximately 20 per cent of bus drivers choose not to transfer to a new operator when a contract changes hands.

  Operators have long-term investments in depots, vehicles and staff. We continue to invest in our services and have done so since the passing of the Transport Act 2000, as this provides a settled policy framework. We believe that the disruption that would come from the introduction of QCs would lead to a severe reduction in the level of investment by the operating industry. Although industry profits are reducing, investment by operators exceeds the industry's annual profits.

  We welcome working with authorities on QPs and QPSs. We support the provisions of the Transport Act 2000 that provide for QCs when they are the only practicable way of implementing a Bus Strategy, and we believe that this is a realistic recognition that QCs will not generally be an appropriate delivery mechanism.


  Reliability is consistently the main priority for bus users and for the general public. Adequate capital funds are available to most local authorities to secure greater levels of bus priority; these funds need to be accompanied by revenue funding to secure planning, development and enforcement and by the political will to take difficult decisions to re-allocate road space in favour of bus passengers. Technology to give priority to buses at traffic signals is a less contentious but very valuable benefit. Bus priorities not only produce time savings for passengers and operators alike, they also improve levels of reliability, which is more highly rated than pure speed.

  The apparently simple issue of bus priority needs to be accompanied by a clear determination to recognise the social and environmental benefits of giving priority to bus passengers. Enforcing traffic regulations in general and bus priorities in particular is a key feature of the delivery of more attractive bus services.

  As travelling by bus is much safer than travelling by car, ensuring attractive bus services can also have road safety and accident reduction benefits.


4.1  European Legislation

  A draft regulation proposed by the European Commission seeks to create grater levels of competition in the bus operating industry, aimed particularly at those countries in the Union where markets are closed. The draft Regulation would affect the structure of contracts for the provision of all types of public transport services (including ferries, heavy and light rail as well as buses), including matters such as the length of contracts and the protection from competition given to certain large operators in Continental Europe.

  Representatives of the Passenger Transport Executive Group, Transport for London and CPT have a common position in seeking to ensure that the Regulation, when adopted, does not have an adverse impact on bus services in the United Kingdom.

  Separate discussions at a European level have been looking at the arrangements for working time in the transport industry. We believe that the current arrangements for the control of working time for urban transport are well developed in the United Kingdom. UK regulations set clear restrictions on the length of the working day and week. No issues relating to safety or staff welfare are adversely affected by these regulations, nor, more significantly, by the locally negotiated arrangements for drivers that are in place throughout companies such as Arriva. We would be concerned if greater restrictions on working time reduced the period of the day for which operators could realistically provide services.

  From time to time the European Commission proposes other measures to impose additional regulations on the operation of public transport services in the Union. It is our general view that such regulations need to take account of differing circumstances in the different member states where matters such as the length and structure of the working day put different obligations on those seeking to provide efficient and effective transport by bus, tram, train or metro. We work through trade associations in the UK (CPT) and at an international level (UITP) so as to seek to ensure that proposed regulations are appropriate in their effect on services.

4.2  Local Authorities

  The actions of local authorities are controlled by general local government rules, the Transport Act 2000, the Transport (Scotland) Act 2001, specific regulations in London and regulations in Northern Ireland. In the UK, Arriva operates in England (both in and outside London), Wales and Scotland; we cannot comment in detail on the situation in Northern Ireland.

  The Transport Act 2000 and the similar legislation in Scotland introduced a "Competition Test" by which the actions of local authorities in implementing some aspects of their transport policies are subject to scrutiny by the Director General of Fair Trading. In particular, the actions of local authorities with regard to the letting of tenders, ticketing schemes and Quality Partnership Schemes fall within the range of matters to be considered under the Competition Test. We note that recent guidance from the DG OFT may conflict with some of the duties that we would expect local authorities to fulfil when dealing with public funds. Some local authorities are, for example, advising operators that they believe that putting together more than one tendered service so as to achieve economies in operation may not be viewed favourably by the OFT. This may lead to an unnecessary increase in public expenditure at a time when local authority budgets need to be directed towards achieving maximum benefit in securing improvements in the quality of public transport in partnership with operators.

4.3  The Operating Industry

  Bus operators are subject to general regulations that are common to all companies, covering areas such as health, safety and welfare of staff, employment law, company law, competition law, etc. In addition, a wide range of transport specific regulation affects the freedom with which operators can change their services and closely controls the operation of services. Some of these regulations are subject to interpretation by the regulatory body, the Traffic Commissioners. On behalf of the operating industry, CPT has drawn attention to the unrealistic nature of recent statements of interpretation by the Traffic Commissioners about service reliability. We believe that a rigid interpretation, failure to comply with which can lead to substantial financial penalties, can lead to a situation where operators will adjust their services to meet a set of criteria drawn up by the Traffic Commissioners, which is at odds with the expectations of our passengers.

  We have drawn our concerns to the attention of the Traffic Commissioners, and we believe that the regulatory regime will develop to take account both of what is achievable and, crucially, what is desirable from the point of view of the passenger.

  We look forward to receiving further guidance form the OFT about the implementation of the Ticketing Block Exemption, as we believe that it should be possible to ensure that there are no artificial barriers to the creation of through ticket schemes. Although the level of interchange between services and between modes is comparatively small, we hope that the OFT guidance will allow us to offer additional products to passengers in appropriate circumstances.


  There are complex interactions between social exclusion and transport. As society has developed, with changes in land-use patterns and an increasingly complex matrix of trips to satisfy employment, education, health, shopping and leisure demands, new types of social exclusion have appeared. As people live longer, many more people find that it is harder to make trips that were once easy.

  Buses can be a vital tool in supplying transport where there are large numbers of people travelling on a defined corridor—delivering people to town centres for shopping, for example (and already providing about a third of high street turnover); buses do not necessarily provide the most cost or environmentally-effective solution where major traffic flows do not exist along defined corridors (eg out-of-town shopping centres, business parks, etc).

  There is no presumption that essential elements of life are provided through public expenditure (food, water, clothing and shelter, for example, are only part of public expenditure as a safety-net). Similarly, it would be unrealistic to expect the Government to fund unconstrained demand for travel between all possible origins and all possible destinations. There are many ways in which social exclusion can be reduced with regard to essential services; reducing the demand to travel has a major environmental benefit. In the longer term, encouraging more people to live in towns will also be important.

  In this context, buses already make a major contribution to the social inclusion agenda, including employment and shopping trips and greater levels of physical accessibility through investment in bus fleets. Arriva, for example, is working with the RNIB on a showcase route to assist people with visual handicaps; all our timetables match RNIB criteria and we are experimenting with the DTLR on audible and visual announcements on buses. All these measures will make travel by bus easier.

  As is well known, poorer households tend to make more journeys by bus than other groups and those in households without cars use buses up to three times more than those in households with cars. "Bus passengers" are not, however, a discrete group as many journeys by bus are made by those who use a car or taxi for other journeys or who will walk for shorter trips. Buses are the predominant mode of public transport and almost a third of the population makes at least one trip by bus each week.

  If buses are to provide adequate facilities for jobs, education, leisure, health, etc, it is important that proper levels of bus priority ensure that bus passengers are able to benefit from increasing levels of reliability.

  In summary, the contributions that buses make and can make to social exclusion are:

    (a)  providing high levels of transport access in many low-income areas;

    (b)  providing a mechanism by which public expenditure can assist with transport costs for the elderly, people with disabilities and the young through concessionary fare schemes;

    (c)  providing high levels of transport access to town centres and to well-located shopping, leisure, education and health facilities.

  Traditional bus services cannot provide a solution to all transport demands, and for this reason we believe that the development of demand-responsive transport solutions in both urban and rural areas will be increasingly important.

April 2002

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