Memorandum by First (Bus 03)
THE BUS INDUSTRY
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
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;
simple ticketing and value-for-money
strong marketing and high quality
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
objectivesto 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 controlcrucially wage, insurance
and fuel pricesand 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 Europerunning 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
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
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 centfrom
the current 80 per centreturning £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
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. RELATIVE MERITS
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
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 thingsless congestion,
faster and more assured journey times and alternatives to the
car. Quality partnerships are the only vehicle for delivering
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. THE IMPORTANCE
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
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 reliabilitya 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
powerssuch as the Traffic Director's role in London.
5.1 We operate in an already highly regulated
industry. Bus services are regulated by:
Vehicle maintenance standards.
Vehicle maintenance standards.
OFT and Competition Authority
Pricing, tendering, competition.
Health and Safety Executive
Staff and passenger safety.
Vehicle design, construction
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 modesprincipally
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
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 wouldby
the standards of other regulatorsbe significantly more
than £5 million a year and would fall on the operatorswho
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. THE CONTRIBUTION
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
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 productssuch
as the support we give New Dealers around the country with special
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