IV. THE SOLUTIONS
- In March 1999, the Department proposed a number of initiatives for improving bus services set out in From Workhorse to Thoroughbred: A better role for bus travel. In particular, the Department proposed measures to build on successful 'quality partnership' initiatives. Such partnerships involve bus operators providing new buses and improved marketing whilst local authorities improve the infrastructure along the route. The Transport Act 2000 provided statutory powers to enable these partnerships to be formalised. The Act also enabled local authorities to run all of the bus services within their area as tendered services through 'bus quality contracts'. In the course of our inquiry there was considerable disagreement over whether quality partnerships or contracts offered the best way forward. We describe the two approaches in more detail and present our conclusions on the merits of the approaches below. In addition, this section reviews a number of new challenge fund initiatives established by the Department in rural and urban areas to improve public transport.
Bus Quality Partnerships
- Bus quality partnerships are a joint initiative between local authorities and bus operators to improve bus services on a route or in an area. Typically, local authorities invest in traffic management schemes which give buses priority on the road, new bus shelters, improved interchange facilities and other facilities for passengers including information. Bus operators invest in higher quality services, including new vehicles and staff training. There are currently quality partnerships in around 130 areas in England. Many quality partnerships have achieved significant increases in bus passenger journeys. For example, in Cambridge a 20 per cent increase in bus use was achieved on 5 routes in six months, in Leeds a 70 per cent increase was achieved on a dedicated guided busway and 48 per cent increases were found across a number of routes in Nottingham. Oxford has achieved significant growth in bus use by working in partnership with the local operators without developing formal partnership agreements. However, the growth in Oxford is also due to the simultaneous application of other measures to favour bus use such as Park and Ride and higher city centre parking charges.
- The Transport Act 2000 introduced legislation to put quality partnerships on a statutory level. The Department believes that statutory partnerships provide greater confidence to invest as both parties are under statutory requirements to achieve their commitments. "Failure by the bus company to meet the agreed standards would be treated as a breach of his bus registration and would attract penalties from the Traffic Commissioners. There is a clear duty on the authority to provide the specialised facilities while the scheme remains in operation; failure to do so would be actionable in court". In England, bus service frequencies and timings cannot be agreed through quality partnerships. In Scotland, minimum service frequencies may be defined.
- No local authorities have yet applied for approval for a statutory quality partnership. The Department believes that the reasons for this are twofold:
- Those authorities with successful voluntary agreements see no advantage in formalising agreements which work.
- The inability to specify frequencies and timings may be a deterrent to statutory bus quality partnerships being brought forward.
The Institute of Logistics and Transport described the procedures for approving statutory quality partnerships as "tortuous". Mr Preston, highlighted the benefits and limitations of quality partnerships in summarising the success of the Leeds guided busway:
"That was a scheme where the operators, First Group and Arriva, together with the PTE and Leeds City Council, paid for the infrastructure something like £20 million, with operators actually contributing to the infrastructure costs of the guideway as well as investing in new vehicles. It was a very good partnership, well branded, but the problem that we had because of the Office of Fair Trading was that we could not together specify either frequency or fares."
Application of quality partnerships
- The bus operators are adamant that quality partnerships are the best way to improve bus services. Mr Lockhead told us that First believes "every route we have should be part of a partnership. Every part of the network should be part of a partnership. The partnership gives us free movement of our buses on the very limited road space some of the communities we serve have". Mr Cochrane of Stagecoach said that quality partnerships were applicable to cities and small and medium sized towns such as Oxford and Cambridge. We were concerned about the potential for expansion of bus quality partnerships as it is not possible for all areas to receive new buses. Mr Clayton of Arriva told us:
"There is a dilemma in that you have vehicles that are due to last 14 years and their average age at the moment is 8. If you have assets that still have life left in them they have to be used, and so I think the issue is about ensuring that the new vehicles are placed in areas where they represent the best value, both to us and to the customer."
The strategy of a rational commercial operator is therefore to concentrate the newest buses on the routes with highest passenger numbers, where the investment can be paid back faster. In turn, this will allow the whole fleet to be replaced slightly faster.
- Bus quality partnerships are only suitable for a limited number of routes. The Public Transport Consortium, representing local authorities outside Metropolitan areas, believes that only 10 to 20 per cent of routes in their areas are suitable for quality partnerships. On the remaining routes it believes that there is not enough potential for revenue growth to pay for new buses, echoing the opinion of Arriva. Mr Goddard told us that in Cheshire over 60 per cent of the buses are over 6 years old and that in the future, quality partnerships in Cheshire will only receive buses that are three to four years old rather than new buses. Mr Robertson told us that in Hampshire there are "about 64 per cent of those services carrying about 50 per cent of our passengers, for which the quality partnership approach is not going to work". The Association of Transport Co-ordinating Officers expect that bus quality partnerships will have adverse impacts elsewhere on the network:
"Away from the star performers, there is a second division of services where any investment by the local authority is in danger of being matched by little more than vehicle investment, most of which was probably already due, there being no corresponding improvement in service levels, fares or marketing".
- Existing quality partnerships may already be concentrating resources on a few routes to the detriment of others. Surrey County Council told us that "There is evidence that where Quality Bus Partnerships have been signed, commercial services in adjoining areas have been reduced to meet the operators' new commitment to provide better services on partnership routes". Quality partnerships also do not guarantee an operator's commitment to frequencies or long-term service provision in an area. Operators have withdrawn from routes that had been developed as quality partnerships in both Stoke and Eastleigh.
- Rural areas and small to medium sized towns will have very few quality partnerships. Northamptonshire County Council point to the difficulties experienced by towns with populations between 25,000 and 100,000. In Corby, five out of seven services were recently withdrawn from commercial operation. Oxfordshire County Council said that they had "no direct experience of the quality partnership in a rural area at all", despite the successful collaborations with operators in and around Oxford city centre.
- The Passenger Transport Executive Group believes that in the Metropolitan areas, quality partnerships have been a success. It noted that "in almost every case it was the Passenger Transport Executive that initiated these partnerships" and that while joint working can continue to improve the quality end of the bus market "we do not believe that bus operators are capable of delivering social inclusion objectives". However, the Passenger Transport Executives' greatest concern is over the lack of control that they have over the quality of services provided. Mr Donald told us "We spend almost £200 million per year in the Passenger Transport Executive areas funding concessionary travel. It does seem very strange to us, given the other Public/Private Partnerships we are involved in that the public sector is not even able to specify the quality of service that the passengers, for whom it is paying, actually get in various ways. They cannot specify that at all".
- Bus quality partnerships, where local authorities and bus companies have worked together to achieve improvements to both infrastructure and bus quality, are essential to make the bus an attractive alternative to the car. However, not every route has the potential to achieve the levels of growth being seen through partnerships at the moment. The evidence shows clearly that the current approach will create a two-tier level of bus service. Main routes in cities and major towns and some inter-urban routes will achieve growth in bus use, whilst the rest of the network becomes increasingly marginalised, receiving older buses and less marketing attention. In addition, bus quality partnerships do not allow agreements on service frequencies, timetables and fares, falling some way short of meeting all of the requirements of an integrated system. Bus quality partnerships have shown the benefits of bus companies and local authorities working together. However, bus quality partnerships will only improve services in some parts of major towns and cities, effectively creating a two-tier bus service. Whilst this will help to reduce congestion in major cities, it will offer little to improve services in smaller towns and across rural areas and there is a danger of these services deteriorating still further. The Department must ensure that operators have obligations to improve services outside quality partnership routes. Bus quality partnerships should be strengthened by allowing local authorities to agree minimum service frequencies and fares with operators using the route. Where road space is handed over to buses, the local authority must have some guarantee of the quality and level of service provision.
Bus quality contracts
- The Government proposed bus quality contracts to be used where quality partnerships were not offering sufficient improvements. Under a quality contract, local authorities are given powers to grant exclusive rights to operators to run defined bus routes or routes within an area. The Department believes the advantages of quality contracts to be "stability of the network and services, local authority control over fares and the ability of the local authority to specify the quality and quantity of services, and the connections with other buses - or other modes. There is also an argument that passengers would benefit if operators used revenues on the busier routes to subsidise the less busy ones". Potential problems include less incentive to innovate, the potential for competition to be based on cutting conditions for workers and smaller operators being driven out of the market. Any local authority wishing to pursue a quality contract scheme must obtain the approval of the Secretary of State and demonstrate why quality contracts are the best solution. The Department has set a 21 month period after the scheme is established before the contracts come into force. This contrasts to a 6 month period in Scotland. No applications have yet been made for a quality contract.
Bus company opposition
- All of the bus companies are opposed to the introduction of quality contracts. They believe that such contracts will stifle competition, lead to oversupply of services in some areas for local political reasons and that contracts do not provide any incentive for local authorities to invest in bus priority. National Express Group said "Quality contracts would be detrimental to the growth of bus travel and should not be introduced on urban bus travel". First believe that "Quality contracts do nothing to drive change as they deal solely with the economic regulation of the industry". In addition, the major bus companies also believe that quality contracts will create significant extra costs to set up and manage the contracts. The First bus company estimate these costs could be as high as £70 million and that it would also cost "billions of pounds more to run the same level of services as today". However, the local authorities strongly rejected the bus companies claims that quality contracts will cost more to run than the current system. Mr Donald told us "we have a myriad of contracts in passenger transport executive areas with bus companies of various sorts, and we would wrap all of that up into one contract for the area".
Support for quality contracts
- The local authorities and passenger transport executives disagree with the bus operators over the merits of bus quality contracts. Bus quality contracts may be pursued for a variety of reasons:
- To increase the accountability of public support funding for the bus industry.
- To manage a network of mainly subsidised services in a more cost effective way.
- To provide a step-change in the frequency and quality of service that is not commercially viable.
- To allow service frequencies, timetables and fares to be coordinated.
This section examines the suitability of each of quality contracts to achieve these different objectives.
- The Passenger Transport Executive Group is critical of the lack of influence it has over the level and quality of services in its areas. Mr Donald told us that around 40 per cent of the funding of bus companies in the passenger transport executive areas is from public funding. He said that there was no way of assessing whether this was good value for money or not. This contradicts the general principle of ensuring best value from all public investment at a local level: "the present means of subsidising services is not transparent and is not related to performance, quality of service or meeting public sector objectives." The Passenger Transport Executive Group is examining whether quality contracts will offer a more economic, efficient and effective way of improving bus services. Mr Donald told us that the bus companies objection to quality contracts is profit driven:
"To be quite frank, if we were running the levels of profit that we just talked about, and getting in a marketplace that does not seem to have real competition going on, near monopoly positions in most of the passenger transport executive areas, then any suggestion that quality contracts come along which have the prospect of introducing competition into that marketplace is obviously something that financially, and I think rightly, from a commercial point of view, they would resist."
- The bus companies argue that public support for bus services is transparent. Local authorities purchase extra services through an open tendering process, bus operators receive fuel rebate for every kilometre run, which is audited, and concessionary fare contributions are based on a refund dependent on the number of concessionary journeys made. The Commission for Integrated Transport is currently undertaking a review to determine how subsidy provision could be improved. We expect it to provide recommendations on how the current system could be changed. However, if public support for bus services is increased to perhaps 50 per cent of bus company income in some areas, greater control over the obligations of the bus companies will be required.
Networks of largely non-commercial routes
- Small towns such as Corby, Wellingborough and High Wycombe have very few remaining commercial services. In such areas, where quality partnerships will not be undertaken, quality contracts appear to offer an attractive way of meeting the local authority's bus strategy. Northamptonshire propose the following scheme:
"A quality contract would be a contract for the provision for the whole network of internal passenger services within a defined area, excluding commercial inter-urban routes but possibly including some non-commercial rural services into the town. It would be specified to a minimum standard with the operator/partner being given every encouragement to beat the standard to increase service usage. In Northamptonshire, the operator would take the revenue risk, apart from new services to areas of new development, and therefore, have the incentive to grow the market by increasing ridership."
This seems a sensible approach to bus service provision. In some areas, the majority of services are currently run by piecemeal support contracts. It does not represent good value to the taxpayer for local authorities to pay for all but the most profitable of services in an area and still be unable to co-ordinate services, timetables and fares. The Social Exclusion Unit also believes that the quality contract approach should be tested.
Increased public transport provision
- A MORI poll, conducted on behalf of the Commission for Integrated Transport showed that in England, 80 per cent of people agreed that much more investment was needed in public transport before measures to reduce car usage should be introduced. In London, where the first major urban congestion charging scheme is being implemented, the bus is being used as the main alternative for car drivers; 200 new buses are providing an extra 10,000 seats to cope with the mode shift. Mr Hendy, Director of Surface Transport at Transport for London told us:
"There are some particular circumstances, notably the congestion charging scheme, where the mayor is being exhorted to improve public transport provision before there is any further transfer of people from cars. In those circumstances, it is not only much easier; it is almost inevitably the case that the public sector would have to procure extra services in advance of some of the extra people using them. That is not a feature which is ever likely to occur in an environment of deregulation." He added "Why would you run a service in anticipation of people travelling on it?".
Bus company costs are highly dependent on the levels of bus provision for peak periods. Increasing bus patronage at peak hours may not be profitable for bus companies. The Transport Act 2000 has provided the opportunity for local authorities to purchase additional services which are in the interests of the public and of those providing bus services in the area. This should remove the concerns previously expressed over the provision of extra services inhibiting competition between those seeking to provide services commercially. It might therefore be possible to provide extra services within a de-regulated system. However, the overall service provision would still not be co-ordinated, different fare structures would exist and the service pattern would remain subject to changes by the bus companies. If the local authority is to be responsible for tendering extra services on commercial routes, it may be as efficient for it to tender the whole route through a quality contract.
- Coventry City Council proposes the introduction of bus quality contracts to improve public transport in the city. It told us "There is no realistic alternative to the bus for the vast majority of people. Heavy rail plays a very small part. There is no realistic chance of us getting a metro system in the foreseeable future, so public transport in Coventry rests on buses, and, to a very small extent, on taxis". Coventry proposes to achieve a big improvement in bus use by improving the infrastructure with a large number of high quality bus corridors with bus priority and improved waiting facilities. On top of this, it believes that quality contracts will: improve competition between operators to run routes, increase service stability, allow an influence on fares, facilitate integrated ticketing, permit greater integration with other public transport services and give it the ability to specify new services. Centro, who are supporting Coventry City Council's bid told us "we are not talking about route by route franchising, as in London, we would be talking about broad specification, what we want to see that network providing in various ways, and then allow bus companies to compete and plan a network in bidding for that".
- Transport for London provide significant levels of revenue support for services. It is anticipated that in 2004/05 revenue support of £512 million will be given compared to a total cost of operations of £1,230 million. Transport for London cautioned against seeing quality contracts as a panacea to problems in the bus industry without providing increased revenue support stating:
"A contractual regime put in place at a time of above-inflation pay and conditions, and requiring new accessible vehicles and high levels of service for social inclusion, yet lacking the revenue support to pay for these items will not succeed. If therefore, a contract regime were to be instituted outside London, it will fail unless there is sufficient long-term revenue support to pay for the quality and volume of services desired from its introduction."
Co-ordination of services
- Under quality contracts, local authorities can specify the quality and quantity of services and have control over timetabling, integration with other services and fare levels. Competition occurs between operators at the bidding stage. The franchises are let to the winning operator for a maximum of five years. As discussed in the previous section on the Competition Act, it is currently extremely difficult for local authorities and bus companies to agree service frequencies, timings or fares in a deregulated environment, including through bus quality partnerships. Some local authorities may therefore see quality contracts as the only mechanism to achieve the common-sense co-ordination required for bus services in their area.
- Oxfordshire was highlighted by both parties as a successful demonstration of the benefits of partnership between local authorities and bus companies. In Oxfordshire, 94 per cent of the network is commercially operated and could therefore potentially benefit from bus quality partnerships. However, Oxfordshire County Council do not feel that the powers afforded them under bus quality partnerships are sufficient. It intends to introduce a number of high quality, high frequency bus corridors, each with two or more operators running the route but is unable to specify minimum service levels or gaps between buses. Oxfordshire conclude "If the Quality Partnership powers cannot be strengthened to secure effective control of frequencies and headways, it may well be that authorities like ourselves will feel compelled to proceed down the Quality Contract route, if it is seen as the only appropriate way to protect our investment".
In the discussion of the Competition Act in Chapter II, we proposed a number of measures be taken that will allow local authorities such as Oxfordshire to enable them to pursue quality partnerships with greater local authority influence and co-operation between operators. However, if the concerns over the application of the Competition Act cannot be resolved, it is inevitable that some local authorities will feel compelled to use quality contracts.
- The Government has stipulated that after a quality contract is approved, it cannot be introduced for a further 21 months: this period is only six months in Scotland. The Association of Transport Co-ordinating Officers, the Institute of Logistics and Transport and the Social Exclusion Unit all believe that the 21 month period will be damaging to existing services in the area as operators that have not been awarded contracts will lose interest in the area, creating instability. Mr Carr from the Institute of Logistics and Transport told us "The impression to the casual reader of the initial Bill anyway was that the Government did not seriously intend these things to be used but that seems to have changed a little bit over time". ATCO also raised concern that in some areas, a local authority could be faced with a single bid, at inflated prices, and thus incur significant costs in procuring its bus services through quality contracts. However, it was also suggested that quality contracts may break up some of the historic monopolies that currently exist in some cities. The Public Transport Consortium were uncertain as to whether bus companies would need to be compensated for assets, such as bus garages that they did not need, if they lost the right to operate in a city and over how inter-urban routes would be integrated with contracted urban routes.
176 From Workhorse to Thoroughbred: A better role for bus travel, Department of Environment, Transport and the Regions, March 1999. Back
177 Bus priority can be through the provision of dedicated 'bus only' lanes, exemptions to turning restrictions and being given extra green time at traffic signals to pass through without delay. Back
178 Ibid. Back
179 BUS 1A. Back
180 Q47. Back
181 Q49. Back
182 Q406. Back
183 BUS 46. Back
184 BUS 1. Back
185 Ibid. Back
186 Ibid. Back
187 BUS 1A. Back
188 Q568. Back
189 Q35. Back
190 Ibid. Back
191 The industry has agreed to work towards an average fleet age of 8 years. Back
192 Q37. Back
193 BUS 45. Back
194 Q335. Back
195 Q321. Back
196 BUS 31. Back
197 BUS 16. Back
198 BUS 11, BUS 17. Back
199 Q114. Back
200 Q189. Back
201 BUS 14. Back
202 Ibid. Back
203 Q217. Back
204 From Workhorse to Thoroughbred: A better role for bus travel, p27. Back
205 Ibid, p28. Back
206 BUS 1. Back
207 BUS 3, BUS 5, BUS 40, BUS 48. Back
208 BUS 5. Back
209 BUS 3. Back
210 BUS 3. Back
211 Q322. Back
212 Q181. Back
213 Q180. Back
214 BUS 39. Back
215 Q207. Back
216 BUS 46. Back
217 Q190. Back
218 BUS 14. Back
219 Margins at Travel West Midlands approach 25%, but show little sign of volume growth, Transit, 26 October 2001. The operating profit margin for the year ending 31st December 2000 was 24.8 per cent. Back
220 Q180. Back
221 Q38. See also Chapter II. Back
222 BUS 39. Back
223 Q503. Back
224 The CfIT Report 2001: Public Attitudes to Transport in England, A Survey Carried out by MORI for the Commission for Integrated Transport, July 2001. Back
225 Q355. Back
226 Q342. Back
227 Q356. Back
228 Joint Position Statement on Buses, Association of Transport Co-ordinating Officers, Confederation of Passenger Transport, Local Government Association, Passenger Transport Executive, 2 July 2002. Back
229 BUS 1A. Back
230 Q320. Back
231 Q207. Back
232 Ibid. Back
233 BUS 43. Back
234 Q182. Back
235 BUS 2. Back
236 BUS 2. Back
237 From Workhorse to Thoroughbred: A better role for bus travel, p27. Back
238 BUS 1. Back
239 Q163, Q562, Q35 Back
240 Q189. Back
241 BUS 46. Back
242 Ibid. Back
243 BUS 31, BUS 38, BUS 52. Back
244 Q568. Back
245 BUS 31. Back
246 Q180. Back
247 BUS 45. Back