Memorandum by the Labour Finance and Industry
Group (Bus 21)
In London, where bus services are regulated
and commercial bus companies tender to operate routes on behalf
of Transport for London, bus patronage is rising quickly.
There is a highly regulated system. Transport for London
sets the routes, schedules and fares, and operators provide the
service on a price per bus mile operated basis. The quality of
the bus fleet is being improved and services increased. Comprehensive
bus priority measures are helping to improve reliability and reduce
journey times. There are problems of labour shortage, as for most
public services in London, but generally speaking bus services
are improving and will far exceed the 10 per cent growth target
in the 10-Year Transport Plan. Whilst buses in London are far
from perfect, they are becoming more frequent, more reliable and
more comfortable. Patronage has been rising and fares remain constant
or are reducing.
Until recently, there was no overall subsidy
to London Buses, with profitable routes cross subsidising unprofitable
ones. London Boroughs contribute to the fares of the elderly and
disabled through the concessionary fares scheme. This should be
considered as a benefit to the recipients, not as a subsidy to
bus services, as London Buses receives payment in return for services
provided. The Mayor of London's policy of holding fares down and
improving services in advance of the introduction of congestion
charging has resulted in a small subsidy being required. We consider
that the financial and regulatory system in London is working
In Northern Ireland buses are still operated
by a public corporation. Our evidence does not address bus services
in Northern Ireland.
Outside London the situation is far worse, and
our evidence to the Committee is therefore concerned with bus
services in England, Wales and Scotland operated under the provisions
of the 1985 Transport Act. Buses are operated in a deregulated
environment, except for safety regulation, and the only requirement
is for operators to give eight weeks notice of changes in services
to the Traffic Commissioners. Local Transport Authorities (Counties,
Unitaries, and Passenger Transport Authorities) have powers to
support non-commercial services. Most of these supported services
are rural, evening and weekend services. Local authorities are
also obliged, under the Transport Act 2000, to operate a concessionary
fares scheme for the elderly.
The bus industry is facing rising cost pressures,
particularly in labour costs, and operators are withdrawing from
their more marginal services. At the same time tender prices are
rising for supported services, and so the local authorities are
faced with higher demands for support, and less available funds
to purchase services. In general there is a continuing decline
in patronage, although bus usage is rising in some areas. Generally,
though deregulation has seen increases in bus miles, real increases
in fares and reductions in bus patronage.
The Government's 10-Year Transport Plan sets
a target of a 10 per cent increase in bus use over the period.
There are, however, no mechanisms for achieving this outside London.
It is possible the target could be met with large increases in
London and static or declining usage elsewhere, but we consider
that this would be contrary to the spirit, if not the letter,
of the Plan.
It is reported that when MPs approach Transport
Ministers in the corridors of Parliament they are far more likely
to raise bus issues than roads, railways or the London Underground
PPP. The expectation is that, outside London, there will be a
significant reduction in bus services over the next year. What
action, if any, can be taken to avoid this problem? This government
has made "social inclusion" a priority. If the socially
excluded are to obtain access to jobs, services and leisure opportunities
then, in most areas, the bus is the main transport option.
The quality of life objectives in the 10-Year
Transport Plan and Government environmental objectives include:
Reduce emissions of greenhouse gases;
Reduce noise pollution;
Improve health, with cleaner air
and more walking.
Modal shift of journeys from car to bus contributes
to all these objectives.
The bus has an important role in reducing social
exclusion. It is the main mechanised means of access to jobs and
services for the socially excluded groups in society. For these
people the cost of fares is a significant factor.
There are therefore two conflicting requirements
for bus services to realise policy objectives. In order to transfer
people from car to the bus the services need to be high quality,
in terms of the frequency and reliability of services and the
nature of the vehicles. This is expensive, but this target market
is not particularly price sensitive. The socially excluded, however,
are price sensitive, and are likely to be prepared to trade off
quality for price.
If the decline in bus usage is to be reversed,
then action has to be taken to reduce the attractiveness of the
alternative, as well as improving bus services. The cost of car
ownership and use has remained constant or declined in real terms
over recent years, whilst bus fares have risen. Parking restraint
and congestion charging are considered essential in order to redress
the balance, and a transfer of tax paid by motorists from charging
ownership (through the road fund licence and purchase taxes) to
taxing usage (through fuel duty, parking charges and congestion
charges) would be beneficial.
Nationally about one third of bus journeys are
made in London, one third in the Metropolitan districts covered
by the PTEs and one third in County and Unitary authority areas.
In the Metropolitan districts bus use has declined 25 per cent
since deregulation. In Tyne and Wear, where car ownership has
risen fastest from a low base, patronage has halved, and prices
have risen 66 per cent in real terms. In most areas the network
is declining due to the withdrawal of the more marginal routes
and a reduction of evening and weekend services. For example in
the Metropolitan Districts alone there were 5,610 deregistrations
in 2001. However the mileage operated has often been maintained
with the main corridors and town centres having more bus services
than are necessary, with reductions in other services.
Deregulation was intended to stimulate competition
in the provision of bus services, and initially there was fierce
competition in some areas. However the smaller companies have
consolidated into a few large companies and these have established
dominance in their market areas. As a result there is very little
real competition and most areas are served by a local monopoloy.
Even in towns and cities where there is more than one bus company
operating the companies generally have their own defined territories
and do not seek to compete with each other. There have been a
number of cases of predatory practices by major companies and
of agreements not to compete, which have been considered by the
Office for Fair Trading.
The major bus companies are very profitable,
making 20-30 per cent return on capital. About £1 billion
of the industry's turnover of £3.3 billion comes from Government,
either as concessionary fares payments, fuel duty relief or as
subsidy for supported services. The total profit of the main companies
in the industry is about £300 million, which represents 10
per cent of their turnover. Return on capital and profitability
are significantly lower in London, with its tendered route network,
but are still sufficiently high for the major companies to wish
to serve this market.
The employees of the bus companies have not
shared in the profits generated by their work. The Government's
Integrated Transport White Paper (1998) reports that "The
standard of living of bus and coach drivers has fallenon
average by 4 per cent since 1985, compared with a 20 per cent
increase in real terms in the average wage".
Government funding to Local Authorities for
supported public transport services is provided through the Standard
Spending Assessment (SSA), not through the Local Transport Plan.
Many factors are taken into account in the calculation of SSA,
but the cost of providing supported bus services to a national
quality standard is not one of them. There is no national guidance
on the level of bus services that should be supported by a Local
Authority. Funding therefore competes with services like Education
(where there are defined pupil teacher ratios and dozens of targets
and tests) and Social Services (where there are statutory obligations)
and the calculation of SSA does not make explicit how much is
provided for supporting bus services.
The Transport Act 2000 provides for Quality
Bus Partnerships (QBPs), which are voluntary agreements between
Local Authorities and operators, and for Quality Bus Contracts
(QBCs), where the authority can set the routes, schedules and
fares, and prohibit competition from other operators. Although
not identical to the London regime, as operators could still take
the revenue risks, QBCs do permit the establishment of a pattern
of regulated bus services. This can control the excessive provision
on the most lucrative services and can therefore afford cross
subsidy to other services. Fares integration could be achieved
as the operator or operators could be required to offer inter
available tickets. QBCs require the approval of the Secretary
of State, as the Government has expressed a clear preference for
QBPs as the main way of improving bus services. To date there
are no QBCs in existence.
Local Transport Plans (LTP) relate to capital
expenditure, not revenue, and therefore, although they are designed
to develop integrated transport solutions at a local level, they
are divorced from the funding route for supporting bus services.
LTP expenditure is however supporting improvements in bus infrastructure,
including improved shelters, bus priority schemes and the provision
of bus stations and real time information systems. Many of these
are the local authority contributions to QBPs, with the operator
providing high quality buses and an agreed level of service. However
there is no sanction if an operator chooses to reduce services,
and operators outside the QBP have equal access to the facilities
provided, as to deny them would be deemed anti-competitive. As
a result there is no guarantee that the local authority investment
can deliver the benefits for which it is provided.
Some LTP expenditure makes bus operations less
attractive, through ill-considered traffic calming schemes. Standard
road humps and chicanes make rides more uncomfortable both for
passengers and drivers. The use of speed tables and speed cushions
can provide similar safety benefits without hampering bus operation,
and the Government should seek specific assurances in LTPs that
traffic calming measures are not to be introduced where they adversely
affect bus routes.
In some areas authorities have used LTP capital
funds to buy buses which are then provided to the operator to
provide the services that the authority wishes to secure. This
allows flexibility between capital and revenue allocations, and
allows authorities to guarantee the stability of service initiatives
over a period of time. This opportunity is not available to PTEs,
who are specifically excluded from owning buses by the Transport
Bus operating costs are rising, mainly through
rising labour costs in a situation of low unemployment. This is
a particular problem in the South East. As a result, commercial
services are being cut back, particularly the marginal services.
Tender costs for supported services are rising quickly. The result
is that there is an increasing demand for supported services and
a diminished resource to provide them.
The contributions provided by local authorities
through concessionary fares schemes do not empower the authority
to influence the services provided. Authorities are obliged to
provide concessions for the elderly, regardless of the ability
to pay of the individual concerned, and therefore there is therefore
a considerable expenditure that is poorly targeted to achieving
social exclusion objectives.
Increasing road traffic is increasing congestion.
Bus services are particularly affected by congestion, as unpredictable
journey times make it difficult to keep to schedules, as well
as increasing operating costs. Bus priority measures can significantly
reduce the effects of congestion but cannot eliminate problems
caused by increasing congestion, and measures to reduce car use
are therefore a necessary complement to a strategy of improving
Buses are ignored both by the media and by government.
The industry is as important as the rail industry, but does not
receive anything like the same attention. Bus users are not represented
on statutory passengers, committees. Regulation of the industry
is weak, with the Traffic Commissioners, whose main concern is
the road haulage industry, having few resources to inspect bus
services, and acting mainly on complaints. The Traffic Commissioners
cover very wide areas, not related to the Government's regional
agenda. The image of the bus is poor, although improved infrastructure
and vehicles are helping to change that perception. The role of
the Traffic Commissioners should be brought closer to the passengers.
The current regulatory regime causes particular
difficulties for operators facing temporary operating difficulties.
When a number of drivers resign simultaneously, an operator may
have to reduce the frequency of services until such time as new
drivers can be recruited and trained. Sometimes amendments have
to be made to services because of road works requiring extra journey
times or varied routes. The Traffic Commissioners are usually
sympathetic to granting a derogation in these circumstances. However,
when the operator is ready to resume the full service, the full
56 days' notice is required before the service can be reinstated.
Although we have said that there is little effective
competition, the OFT intervenes to restrict the ability of authorities
to mitigate some of the worst effects of competition. For example
common fares agreements which would permit through ticketing and
the acceptance of season tickets on all operators' services are
seen as anti-competitive, despite the obvious benefits to the
passenger. Similarly the provision of bus feeder services by rail
franchisees with through ticketing can be considered anti-competitive,
but it is a necessary part of achieving the Transport White Paper
objective of integration.
The use of QBCs could overcome many of these
problems, but the process is currently laborious. The Government
should actively encourage the establishment of a series of QBC
pilots, using both route and network contracts, and with both
net cost and gross cost contracts. Contracts could also be let
by specifying the level of subsidy available, and asking operators
to tender the services they are able to provide. Such pilots would
examine the opportunities created by the Transport Act 2000 and
determine whether its provisions are sufficient to achieve the
LFIG considers that Quality Bus Partnerships
have not delivered the benefits that are required to promote better
bus services generally. The use of Quality Bus Contracts could:
Ensure bus services were provided
to better meet social needs;
Allow authorities more control over
the services received for the contributions provided;
Increase the level of service that
can be provided within the existing resource constraints, by preventing
over provision on some routes, and reducing the profit level of
operators to a more reasonable level.
We consider that it is time to set standards
and targets for the provision of public transport services, with
the calculation of local authority resources being based on the
cost of ensuring that these standards are met. Criteria could
be established and costed. Criteria could include standards like
requiring a village with a population of a certain size to have
bus services to the nearest town that is a centre of employment
with a timetable that would allow residents of the village to
travel to work by bus. Another standard might be that every town
of a certain size should have bus services to the suburbs with
a last bus leaving the town centre after 11pm.
Research would be necessary to establish what
the criteria should be and could be based on the existing pattern
of supported services in different types of locations, with an
enhancement to reflect the 10-Year Plan objectives. It is understandable
and desirable that local authorities should be given more discretion
over spending, and it is not therefore essential that funds are
ring-fenced. However, if the funds were based on an assessment
of need against some defined criteria, then local authorities
would have to defend reallocation of funds to other purposes.
Far more people in the country are concerned
about bus services than railways. Buses are far more important
to the lower income groups and socially excluded and in many cases
rail subsidy is a subsidy to the more wealthy sections of the
community. The problem is likely to become higher profile in the
next few months. How should the Government react?
Recommendation 1: The Government should urgently
promote a series of Quality Bus Contract pilots, using different
contract approaches, and evaluate their effectiveness.
Recommendation 2: The competition considerations
should be amended to allow local authorities to broker network
and ticketing agreements in the public interest, and to promote
other measures which improve integration of different modes of
Recommendation 3: PTEs should be allowed to
own buses if they consider it desirable to do so, and lease them
to operators, as is possible in other areas.
Recommendation 4: When services are reduced,
with the Traffic Commissioner's consent, for temporary reasons,
the operator should be allowed to resume the previous level of
service without notice.
Recommendation 5: The Government should set
out a target for bus passenger growth outside London and set criteria
for the assessment of socially necessary services. Revenue funding
should relate to the cost of meeting those criteria in a particular
authority and should be part of the Local Transport Plan procedures,
not part of the Standard Spending Assessment. Local authorities
would then report their achievement in meeting the defined standards
in their Local Transport Plan monitoring.
Recommendation 6: There should be more local
discretion in the establishment of concessionary fares schemes,
aimed at targeting the funds available at reducing social exclusion.
Recommendation 7: The Traffic Commissioners
are not currently providing adequate supervision of the bus industry.
Either they should be adequately resourced and tasked to provide
more effective regulation or their role should be passed to the
In Metropolitan areas this role might be delegated
from the RA to the PTE. Regional Transport Passenger Committees
covering bus services, either combined with Rail Passenger Committees
or separately, should be established to represent passengers.
The Secretary of State's role in relation to Quality Bus Contracts
should also be devolved to the Regional Assembly or PTE.
Recommendation 8: LTP guidance should include
a requirement to establish real time information systems and procedures
for effective enforcement of bus priorities, in accordance with
nationally established quality standards. LTP guidance should
also require that actions taken in support of the LTP, such as
traffic calming, should not have a deleterious effect on bus operations.
Recommendation 9: Where the current legislative
framework does not permit these recommendations to be implemented,
then amending legislation should be brought forward urgently,
possibly as part of the proposed Competition Act.
The Labour Finance and Industry Group (LFIG)
is an association of Labour Party members with experience from
the financial and business world, who wish to bring their knowledge
and experience to bear to assist the Labour Party, whether in
opposition or in government, in developing and implementing policy.
The Transport Study Group has members from all sectors of the
transport industry, as well as from the financial sector, academia
and people in the public sector with responsibility for developing
transport policy and managing transport operations.
Chair of the LFIG Transport Study Group