Select Committee on Transport, Local Government and the Regions Seventeenth Report


  1. The London bus network is one of the largest in the world. Every weekday, over 6000 buses run on 700 routes, carrying 4.5 million passenger trips.[248] Bus services in London are operated as tendered services, similar to bus quality contracts, with the fares policy for all services set by Transport for London. Bus use has grown significantly in the recent past, with a 6 per cent growth in 2001/02.[249] The bus companies believe that there is no link between the tendering system in operation in London and the rise in bus use. They argue that reliability and punctuality are the key factors in encouraging bus use.[250] Indeed, there are a number of wider factors such as population growth, high congestion on the roads and an already crowded Underground that contribute significantly to growth.[251] Mr Hendy, Director of Surface Transport at Transport for London, provided his view of the reasons for growth in bus use in London:
  2. "It relates to a number of factors. There is no one factor. All of the market research suggests that frequency and reliability are the principal determinants of passenger growth on buses. To that, I would add frequency of network coverage because the London bus network has been growing in its coverage, particularly its night coverage and Sundays, for a number of years. A consistent fares policy, which is simple and integrated, has an effect. Competent, decent information, both before travel and real time, helps."[252]

  3. Transport for London does not believe that the improvements that they have put in place would be achievable in a deregulated market. The bus network will receive subsidies of 314 million, 453 million and 512 million[253] over each of the next three years. Mr Hendy told us "If you sought to deliver that in the deregulated market, nearly the whole network would need to be procured publicly in any case".[254] He also believed that closely monitored contracts were the only way to ensure sufficient accountability for the significant amounts of public money being invested.[255] London has achieved an impressive growth in bus use. The wide variety of factors that contribute to this growth mean it is not possible to attribute this growth to the use of a tendered system of bus procurement. However, there are a number of separate and strong arguments in favour of an approach similar to London being used in other large cities. London has achieved an expansion of services and a level of integration of information, ticketing and fares not seen elsewhere in England. The experience in London shows that if large amounts of public subsidy are used to improve bus services, quick and significant improvements can be made. If such investment is to be made elsewhere, tendering may offer the best way of ensuring accountability for public funds.
  4. The Department

  5. The Department has said that it will only approve a quality contract approach if it is the "only practicable way" of implementing the local bus strategy.[256] The Minister told us "My own view is that partnership is and should be the way forward but, where problems cannot be resolved through partnership, quality contracts provide an option".[257]
  6. Summary

  7. There are a number of different circumstances in which quality contracts offer an attractive alternative to de-regulated bus services, even with effective bus quality partnerships operating in some areas. It is unlikely that all local authorities will wish to, nor have the skills to, pursue a quality contract approach. Indeed, in some areas, a quality contract approach may not be the best option. Significant public transport improvements are required before car restraint measures become acceptable to the travelling public which, for most areas, means improving the bus. The Department must recognise that quality contracts offer a guarantee to local authorities and the travelling public of a level of bus service that will help overcome concerns about the introduction of such measures. It is unlikely that this will occur with de-regulated operations: operating extra services solely in the peak period can reduce bus company profitability. The Department should encourage those local authorities that have a strong case for introducing quality contracts to do so. It must remove the barriers to introducing quality contracts, such as the 21 month waiting period for which there appears little justification. The Department must also be prepared to find additional revenue support for areas seeking to boost bus use, particularly to pump-prime new services. It must ensure however, that those authorities given extra resources achieve best value in improving their bus networks and that the money is not siphoned off to other areas. The Department should monitor the first few quality contract schemes closely to ensure that the costs and benefits of quality contract schemes are properly understood in a variety of different geographic areas.
  8. The bus companies approach to quality contracts is negative, unhelpful and misguided. Local authorities recognise and are acting, albeit slowly, to improve priority for buses and will continue to do so through their local transport plan bids whether or not they pursue a quality contract approach. Quality contracts are not simply a tool for economic regulation. Contracts offer the advantage of improving the synergy between commercially viable and non-commercial services. In smaller towns and some rural areas, the commercial network is now so depleted that there can be little doubt that a new approach to service provision is required. Quality contracts do not have to stifle innovation; they could consist of minimum service provision requirements with opportunities for operators to offer new and extra services, as with rail franchising. We note that the main bus operators continue to compete for work in the tendered market in London and for specific tendered routes such as Park and Ride services in many towns. There is no evidence that bus quality contracts will cost more to provide the same service. Indeed, it may be that greater cross-subsidy between services will reduce some costs, as will a co-ordinated approach to tendering. Whether organisational costs rise or fall, there will be greater transparency of cross-subsidy under a quality contract regime. The bus industry should take a more positive approach to bus quality contracts. Instead of down playing contracts as heavy handed regulation, the industry should engage in developing forms of contract that allow for innovation and flexibility for bus companies whilst at the same time allowing local authorities to have influence over minimum service requirements and most importantly, co-ordination of services between operators and modes. Some of these desirable outcomes do not appear possible under de-regulated operation with the current application of the Competition Act. We believe that the bus companies preferred solution of quality partnerships works, but only for some areas and in a limited way.

    Quality networks

  10. The Association of Transport Co-ordinating Officers and the Institute of Logistics and Transport both suggested a half-way house arrangement between quality partnerships and quality contracts. The underlying principle behind such an approach is that the public sector and the private sector are both putting in resources to cross-subsidise and improve the bus network to varying degrees but the linkages between the commercial network and subsidised services are weak. More could be achieved if greater co-operation between bus companies and passenger transport executives or local authorities could be fostered.[258]
  11. The Association of Transport Co-ordinating Officers suggested that a clean sheet review of the operation and funding of transport services within the quality network area should be undertaken including local bus services, school transport and social services journeys. Bus operators would include their marginal commercial services in the analysis but quality partnership routes would be exempt, on the presumption that this would represent the best way forward for such a route. The object of the review would be to identify a minimum service requirement for each corridor and consider the potential for setting a new fares policy. Economies of scale produced by better co-ordination might lead to a better service for the same amount of money.[259]
  12. The Institute of Logistics and Transport proposed a 'Network Development Conference' where "in each authority, a 'conference' of the authority and all the operators within its area would jointly determine the overall requirement for bus services, following which operators would each assess the level of support necessary, including concessionary travel, to maintain the parts of the overall network provided by them. Negotiation between the authority and the operators would finalise service and support levels".[260]
  13. The Minister supported the idea of local authorities being given responsibility for brokering agreements between bus operators to achieve their bus strategy objectives.[261] The Office of Fair Trading provided its initial thoughts on the idea of quality networks and network development conferences, although it noted that the proposals are very high level and not yet completely clear. It had concerns about the proposal of the Association of Transport Co-ordinating Officers' idea for common fares. It was also concerned that such proposals should not be concentrated solely on existing operators in the area and that the deals might constitute market sharing agreements.[262] Similar concerns applied to the idea of agreements brought about through the 'Network Development Conference'.[263] The Office of Fair Trading believes that "even if the local authority orchestrated an anti-competitive agreement between operators, it could nevertheless still be subject to the Chapter I prohibition of the Competition Act".[264] However, it noted that such agreements might be exempt if they act in the best interests of passengers rather than bus companies.[265] It is difficult to imagine a local authority promoting a scheme that was in the interests of bus companies and not passengers.
  14. The idea of a halfway house between quality partnerships and quality contracts has some merits. We strongly support greater integration between local bus services, school and social services travel and the need to ensure greater synergy between commercial and non-commercial services. However, the concept is currently only loosely defined. It is unclear how, and how much, bus operators might be prepared to commit, or how the agreements reached would be transparent and fit within the Competition Act. The discussions surrounding a compromise agreement point to a general dissatisfaction with quality partnerships as a solution to all parts of local authorities' bus strategies and a reluctance from operators to engage in quality contracts. The Department should investigate whether the quality network proposal can be developed further. In particular, the Department should examine how agreements can be negotiated within the current Competition Act and how this might need to be altered. It must also examine what contractual obligation to the agreements might be required. Local authorities and bus companies should work together to bring forward collaborative proposals showing the extra benefits to the passenger of this new approach.
  15. New Funding Initiatives

  16. The Department has introduced two new 'challenge fund' initiatives to provide support for new public transport services. The Rural Bus Challenge was introduced in 1998 with the aim of stimulating the provision and promotion of rural public transport, improving quality and choice across the country.[266] The Urban Bus Challenge was introduced in 2001 to improve public transport for deprived urban areas.[267] The Department also introduced the Rural Bus Subsidy Grant to provide greater support for rural bus services.[268] This section concentrates on rural funding initiatives as it is too early to judge the success of the Urban Bus Challenge.
  17. Rural bus initiatives

  18. The Department has introduced two major initiatives to boost public transport provision in rural areas. The Rural Bus Subsidy Grant was introduced in 1998 and funding is committed to 2003/04. Money is awarded to local authorities based on the size of their rural population and is currently worth 32.5 million a year, set to increase to 48.5 million in 2003/04.[269] Up to 20 per cent of the money can be spent on saving existing rural bus services from closure. The grant was initially only to be used on services that operate wholly or partially outside settlements of 10,000 people or more. This has subsequently been increased to 25,000.
  19. The Government has also committed 129 million to the Rural Bus Challenge initiative. Competitions for the Rural Bus Challenge are held annually. Four such competitions have been held to date, resulting in 213 awards totalling 69 million. The remaining 60 million has been allocated to this scheme for the period to April 2004.[270] Bids may be for capital funds, revenue support or both but may not be used to support conventional bus services. The purpose of the grant is to encourage the development of new innovative public transport services, particularly for areas with little or no public transport provision. A conventional bus service is unlikely to be a cost-effective solution.[271]
  20. Impacts

  21. The two initiatives have been widely welcomed. Mr Chorlton told us "The Rural Bus Subsidy Grant and Rural Bus Challenge have been a major positive issue in terms of progressing rural buses, probably the biggest for 50 years in terms of actually making a difference. In my own case in Devon, that has resulted in nearly 900,000 extra passengers".[272] Lincolnshire County Council have established a project called InterConnect. The project concentrates on supporting the commercial inter-urban network operating in the county. Twelve new feeder services from remote rural areas were introduced with Rural Bus Subsidy Grant to connect to the main route. The frequency of the main route was enhanced from six per day to an hourly service. In March 2001, the fixed route feeder services were replaced with more cost-effective demand-responsive services which can be pre-booked. The project received 771,500 funding from the Rural Bus Challenge[273] enabling the services to be supported and new infrastructure, such as bus stops, to be installed. The system is managed through a call centre that allows the main bus to be held at a bus stop to ensure that the connecting services arrive.[274] Bus use in Lincolnshire has increased from 15.1 million journeys per year in 1995/96 to 17.8 million in 2001.[275]
  22. Funding

  23. The short-term nature of the new funds for rural bus initiatives has created a number of problems. Buckinghamshire County Council noted that 50 per cent of their funding for public transport is now in the form of time-limited grants.[276] A number of witnesses told us that very few of the schemes would be commercially viable at the end of this period and would therefore need continued support.[277] All of the local authorities are currently facing significant rises in tender costs for their existing supported services and they will not have the funds to continue to support extra services as the challenge funding expires.[278] Lincolnshire believe that the growth that they have achieved is in jeopardy because of growing costs.[279] Mr Carr, Director of Projects at West Yorkshire Passenger Transport Executive told us "The village in which I live, even within industrialised West Yorkshire, has a very successful rural challenge service. Almost certainly that service will now meet the criteria of my passenger transport authority to justify a subsidy to it. If, as is quite likely, we have got a fixed or perhaps even a declining subsidy budget that means that either we have to say, 'Sorry, you have passed the test but you cannot carry on' or we have to say there are other services which have got to be squeezed in order to make the money available".[280]
  24. Short-term funding and bid costs

  25. Many local authorities, whilst welcoming the opportunity to get funding for innovative new services, believe that the bidding process is too time consuming, often with little chance of success.[281] Mr Newson told the Sub-Committee that Oxfordshire are "not supporters of the Challenge Bid system, whether for bus grants or other things because they do tie up an awful lot of local authority precious resource, which often proves to be abortive".[282] Devon, Oxfordshire and Northamptonshire all supported a move to incorporate bids for innovative new services as part of the annual progress reports on their Local Transport Plans.[283] This would seem sensible, as bids for new public transport schemes are part of an authority's overall transport strategy. However, Local Transport Plans are for capital funding only, whilst the Rural Bus Challenge is capital and revenue funding, although this problem is not insurmountable. The Minister told the Committee "I always have a concern about time spent in putting together bids — not just here but elsewhere — and am certainly prepared to look at that aspect of it".[284]
  26. Summary

  27. The Government has put in place funding that has led to significant improvements in rural public transport provision for many areas. It must learn from the successes and failures of the many innovative schemes it has supported. It is clear that the Department must continue to provide extra funding for rural services to recognise the challenges of rising tender costs and to enable the most successful and cost-effective services to continue to operate once the challenge funding comes to an end. Few schemes will be commercially viable. The Department should publish urgently the results of its study into the effectiveness of the various schemes to enable all rural areas to benefit from the best practice it identifies. The Department should also reduce the bureaucracy surrounding Challenge Fund bids. We recommend that future bids be made as part of Local Transport Plan strategy progress reports.

    Flexible Public Transport Services

  29. The traditional bus service is not a cost-effective public transport solution for many areas, particularly rural areas, where demand for public transport is low. Public transport today includes taxis, shared-taxis, demand-responsive buses operating on flexible routes, car share clubs and community transport minibuses amongst others as well as the conventional bus, tram and rail systems. Many innovative examples of ways of tackling public transport shortages have already been developed in the UK and elsewhere in Europe, including the examples presented in the earlier section on Social Exclusion.
  30. The rules and regulations under which the various forms of public transport are governed are varied and extremely complicated. In addition, the funding mechanisms for different types of buses are different. In particular, the Sub-Committee was told:

  • Taxi operators and private service vehicle operators can both apply to run taxi-bus type vehicles with less than 9 seats. However, the mechanisms for doing so are different dependent on the licence held. Few operators have therefore been sufficiently encouraged to take up this option.[285]
  • Demand-responsive services are constrained under the Transport Act 1985 because they do not operate to a fixed timetable. The 1985 Act did not anticipate the need for flexibly routed services.[286]
  • There is a lack of volunteer drivers for community transport.[287] However, the rules under which drivers of community transport schemes can be paid are complex and this is restricting the expansion of schemes.[288]
  • The fuel tax rebate which is given to bus services is not currently available for demand-responsive services driven by paid drivers. Lincolnshire County Council estimate that this adds an extra 1 to the cost of every passenger carried.[289] The Department told us that they recognise this issue and will shortly consult on removing this restriction.[290]

The Social Exclusion Unit also identified many of these issues in its Interim report.[291] We expect that it will expand on the nature of these problems in more detail in its Final Report later this year. The Local Government Association has also suggested relaxation of a number of elements of primary and secondary legislation to provide greater flexibility, perhaps in a trial area.[292] It is currently too difficult for local authorities to put in place all of the innovative public transport improvements that they desire. A maze of regulations exist, dating from a time when many of these new schemes were not in place and they require simplification. Local authorities should not have to find ways around existing legislation to enable them to introduce new schemes that will benefit the public. We recommend that the Department undertake a full review of the regulations and legislation surrounding flexible transport services to remove these barriers.


248   BUS 2. Back

249   BUS 2. Back

250   Q52. Back

251   Q338. Back

252   IbidBack

253   Set against total cost of operations of 990 million, 1160 million and 1230 million. Back

254   Q340. Back

255   Q342. Back

256   BUS 1. Back

257   Q406. Back

258   Q540, Q333. Back

259   BUS 31. Back

260   BUS 38. Back

261   Q417. Back

262   BUS 42A. Back

263   IbidBack

264   IbidBack

265   IbidBack

266   BUS 1. Back

267   46 million has been allocated to the Urban Bus Challenge over three years. BUS 1. Back

268   IbidBack

269   'Government guarantees extra 100 million for rural buses', DTLR News Release 2000/0136, 28 February 2000. Back

270   IbidBack

271   'Rural Bus Challenge 2001: Guidance on Criteria and Arrangements', Department for Transport, 19 July 2001. Back

272   Q111. Back

273   BUS 1. Back

274   BUS 15. Back

275   IbidBack

276   Q330. Back

277   Q134, BUS 38 and Q325. Back

278   BUS 15, Q112. Back

279   BUS 15. Back

280   Q556. Back

281   BUS 15, BUS 39. Back

282   Q199. Back

283   Q134, Q199 and Q135. Back

284   Q460. Back

285   BUS 39. Back

286   Q113, Q141. Back

287   Q150. Back

288   Q332. Back

289   BUS 15. Back

290   Q476. Back

291   Making the Connections: Transport and Social ExclusionBack

292   BUS 7 and 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

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