Memorandum by Greater Manchester Passenger
Transport Authority (Bus 04)
THE BUS INDUSTRY
1. EXECUTIVE
SUMMARY
1.1 The Greater Manchester Passenger Transport
Authority submits the following memorandum to the House of Commons
Transport Select Committee's new inquiry into the bus industry
with a view to providing the Committee with information relating
to its experience of working to improve bus services within the
current financial and regulatory environment.
1.2 This submission complements that provided
by the Passenger Transport Executive Group (PTEG) and looks specifically
at the role of the public sector subsidy to the bus industry in
one of the UK's largest Metropolitan areas. It is based on the
work done by the Authority as part of its Best Value Review of
Bus Revenue Support which was completed at the end of 2001. (A
copy of the final report is available at the Committee's request).
During this review the Authority has had cause to consider:
— The role of the public sector bus
subsidy to the private sector bus industry;
— The dynamics of the commercial bus
market including levels of competition, regulation and development
of the market; and
— The effectiveness of bus services
as a mechanism for tackling social exclusion and encouraging people
to move from the private car onto public transport.
1.3 The purpose of the review was to establish
how the public sector subsidy might be used more effectively as
a lever to achieve improvements to the quality and accessibility
of the commercial bus network. Its conclusion was that the priorities
of the public, bus users, the bus industry and the Authority would
be best served by the development of a voluntary quality contract
environment in Greater Manchester. Through an active partnership
with local bus operators, the intention of the Authority over
a period of three to five years, is to reallocate some or all
of the concessionary fares payments to a central "pot"
for operators to then determine how they can deliver a specified
network (commercial and supported combined) determined by the
Authority and the 10 metropolitan district councils.
1.4 The Greater Manchester Passenger Transport
Authority wishes to draw the Committee's attention to its proposal
in the belief that it offers an effective way of delivering improved
bus services for passengers more cost effectively, more quickly
and, it is hoped, with more support from the bus industry than
would be achieved by pursuing Quality Contracts.
1.5 However, this cannot be achieved without
some of the myriad of regulations surrounding this area, designed
to prevent any public sector interference or regulation of the
commercial bus companies, being relaxed by the Government.
1.6 It is the belief of the Passenger Transport
Authority of Greater Manchester that the most effective way to
improve bus services in the long-run is through a balance of regulation
and investment delivered through a real partnership with the industry
that ensures its engagement with the priorities of the Government
and the public.
2. BUS SERVICES
IN GREATER
MANCHESTER
2.1 Greater Manchester has a population
of over 2.5 million, covers 10 district councils and of the 214
wards 32 per cent are in the 10 per cent most deprived in the
Country. Buses carry around 220 million passengers each year in
the conurbation. Putting this in context, the hugely successful
Metrolink tram system carries around 17 million passengers each
year while the whole of the Greater Manchester rail network carries
some 14 million passengers.
2.2 While the numbers of passenger trips
is large at 220 million, bus patronage has declined steadily since
1986 when it was 355 million (in the last two years patronage
levels have levelled off and there is some recent evidence of
growth). This trend is consistent with trends in other metropolitan
areas but not with London where patronage levels have increased
considerably. While some of this decline in patronage is undoubtedly
due to increased car ownership, the experience of London would
suggest that other market factors are playing a part. These other
factors include fare levels, service punctuality and reliability,
network reach and quality of buses, infrastructure at bus stations
and stops and the fact that outside of London the market is totally
deregulated.
2.3 Those people who have transferred from
the bus have, in the main, moved to using cars. While the introduction
of the tram system has seen an increase in the number of public
transport trips, evidence suggests that most people travelling
on the tram have switched from the car rather than the bus. Greater
Manchester has one of the highest levels of commuter journeys
made by car of any metropolitan county at 73 per cent.
2.4 Given this scenario a major policy imperative
of the Authority is to achieve modal shift. It recognises that
if the share of journeys made by public transport is to increase
the bus must play a bigger role in meeting transport needs. The
districts and the PTA/E of Greater Manchester are working to deliver
the bus initiatives as outlined in the Local Transport Plan which
focus, in the main, on making bus a more attractive alternative
to the car. Initiatives such as quality bus corridors are an important
element of the Authority's portfolio of measures aimed at improving
the reliability, punctuality and public perception of the bus.
Such initiatives build on the lessons learned from modes such
as the Metrolink tram system where regular, reliable services
have encouraged people from their cars.
2.5 Bus priority measures are welcomed by
the bus industry which has difficulty achieving regularity of
services as a result of congestion. Such measures also support
an overall trend in the bus industry towards a concentration on
the more lucrative core radial routes. The delivery of Quality
Bus Corridors has been made easier by partnership working with
the bus industry and this has contributed to a level of confidence
that has meant local operators have been willing to discuss arrangements
for the joint monitoring of the punctuality and reliability of
the network. This is a major step forward as in the past there
were very limited measures in place to enable us to assess the
success of such schemes.
2.6 Such initiatives represent, however,
a relatively small contribution to the overall improvement of
bus services. Overall satisfaction levels for bus services in
Greater Manchester are running at only 57 per cent (close to the
average for metropolitan counties). Buses are not held in high
regard by users and potential users. The poor image of the bus
industry which does not seem to provide the quality of service
across the county that people demand, combined with the extremely
limited degree of public leverage in spite of significant public
subsidies is an issue of major local concern. We are pleased to
note that this is also now becoming a matter of national debate.
3. THE IMPORTANCE
OF BUS
IN REDUCING
SOCIAL EXCLUSION
3.1 The bus is not the preferred choice
of most people as a method of transportation. This means that
the regular bus user is typically someone not able to own or access
a car. As the Government itself has identified (Workhorse to Thoroughbred)
the bus user is usually female, often elderly or with children.
3.2 The bus remains, however, the main form
of public transport in Greater Manchester. This means that many
people are reliant on it for access to work, hospitals, leisure
facilities and so on. To this end, the bus is a crucial contributor
to the social, economic and environmental wellbeing of the conurbation.
Unfortunately the trend of the bus industry to concentrate on
the core routes has to some extent been at the expense of more
peripheral services and makes cross town or city journeys difficult.
Recent trends have exacerbated the isolation of rural and certain
urban communities. The gradual contraction of the network around
core routes combined with increased incidences of anti-social
behaviour has led to certain areas (housing estates) becoming
areas with no bus service. These are often areas with high levels
of social deprivation and the withdrawal of bus services only
adds to existing problems. The Authority, through the Rural and
Urban Bus Challenges and through partnership working with the
police and other agencies, has been able to improve the level
of transport provision in key areas of the conurbation very effectively
and, thereby bridge the gap left by the commercial network.
3.3 However, this is not a long-term or
comprehensive solution. The commercial bus network is undergoing
a change, partly in response to changes in people's travel patterns
and lifestyles. Bus services need to respond more effectively
to these trends by seeking to address travel needs of different
areas in a more tailor-made way. Combining community services,
demand responsive subsidised services and commercially provided
minibuses is arguably better value for the public purse and likely
to provide a better service to the public. This user-led approach
is, therefore, one that the Authority wishes to place increased
emphasis on, supported by funds switched from the currently opaque
subsidy for concessionary fares.
4. THE ROLE
OF BUS
SUBSIDY IN
DELIVERING BUS
SERVICES
4.1 Bus subsidy takes the form of reimbursement
to bus operators for participation in the concessionary fares
scheme and the procurement of non-commercial bus services at times
of the day and to parts of the conurbation that commercial services
do not cover. Greater Manchester's concessionary fares scheme
allows the elderly, disabled people and children to travel on
buses at reduced fares and is accessed by 25 per cent of the population.
Procured services account for 15 per cent of the Greater Manchester
network and over 60 per cent of bus services have some subsidised
element. These statistics indicate the crucial role of public
sector monies in ensuring that socially excluded groups can travel
and the extent to which the commercial network is supported.
4.2 Greater Manchester, in line with other
passenger transport authorities, spends a considerable part of
its revenue budget on bus revenue support. Just over half of its
revenue budget (excluding the rail grant), £54 million in
2001-02, is spent on bus subsidies. This expenditure has come
under increasing pressure and scrutiny from the district councils
that provide the PTA's levy as it:
— competes with other local imperatives;
— increases year on year often above
the rate of inflation; and
— is non-transparent and it is, therefore,
difficult to assess its effectiveness.
The public subsidy paid to the bus industry
is unusual in that it is paid with virtually no link to the performance
of the service. There is little requirement on the bus industry
to be fully accountable for the subsidy. Further, the Concessionary
Fares Regulations 1986 require that the PTA undertake on-board
patronage surveys for the purposes of the reimbursement calculations
and yet have no access under law to this data. Thus, while patronage
data for the industry is already available it can not be accessed.
4.3 Greater Manchester Passenger Transport
Authority, through its review of the bus subsidy that it pays
to operators, has concluded that efforts need to be made to find
a way to link the subsidy more closely to the performance of the
bus industry and to the delivery of service improvements. Within
the current legislative and regulatory environment this can only
be achieved by reallocating funds from concessionary fares into
support for the network in the form of procurement of socially
necessary services. At least here there is an opportunity to evaluate
the outputs and judge whether value for money is being achieved.
4.4 This does not go far enough however,
and we would like to reach a point where all the money paid to
the bus industry is linked in some way with outputs. For us to
achieve this we need the Government to re-examine the regulatory
and legislative framework surrounding this area. We believe that
an effective mechanism for achieving this would be for the GMPTA
to be given the opportunity to enter into a Public Service Agreement
where challenging targets for patronage growth and improved accessibility
criteria could be agreed along with regulatory and financial freedoms.
5. THE SIGNIFICANCE
OF BUS
SUBSIDY ON
OPERATOR ECONOMICS
5.1 It is argued by the bus operators that
support paid for concessionary passengers is a payment for a service
and leaves them in a neutral financial position. The Greater Manchester
Passenger Transport Authority, however, firmly believes that,
at one-third of operators' revenues, concessionary support acts
effectively as a network subsidy—if it were sharply reduced
there would undoubtedly be a major reduction in service levels/increase
in fares and an effect on operators' rates of return. The payment
is not transparent in terms of the outputs which it delivers to
the public at large. The Concessionary Travel Regulations, which
govern reimbursement, have not been revisited since deregulation
in 1986 and, in many ways, act as a perverse incentive to bus
operators in the sense that because they are linked to average
fares any sudden reduction leads directly to fares increases (driving
up the average fare) or service reductions—in either event,
the net effect is patronage loss and a vicious circle of decline.
It is the firm view of the Passenger Transport Authority that
these regulations need revision in order to improve transparency
and to establish (along with other subsidies) the basis for an
agreed set of outputs for the public sector and certainty of payment
for the operators. Based upon such an agreement it would be possible
to improve collaboration between the public and private sectors
using subsidy in a manner which can encourage a "virtuous
circle" of increased patronage and investment in the network.
It can also, through improved transparency, show clearly whether
or not there is a case for increased subsidy to meet public sector
objectives.
5.2 Lack of transparency in subsidy also
makes it difficult, if not impossible, to show the role of subsidy
in operator returns. It is quite clear from independent research
that the rates of return to operators in metropolitan areas are
high in absolute terms but, as importantly, higher than those
earned in London and other non-metropolitan areas.
5.3 At deregulation it was believed that
competition in the bus market would force efficiencies which would
reduce costs and, therefore, fares and drive service improvements.
This has not materialised. While it is certainly the case that
early inefficiencies were driven out of the industry, the expansion
of bus services has not happened and over recent years the effectiveness
of local bus services in providing for the travel needs of people
who are dependent on bus services has been deteriorating.
5.4 It should, however, be noted that the
overall level of subsidy in the UK at 32 per cent (22 per cent
for Greater Manchester) is the lowest in Europe. In some countries
up to 70 per cent of operator income comes from public subsidy.
This is not to say that 70 per cent is, of itself, a "good
thing" and can often hide industry and structural inefficiencies.
Nevertheless, to achieve improved service from the bus industry
without substantially increasing the level of subsidy requires
an engagement of the industry and an improved alignment of their
strategies with the policy aims of local and national Government.
6. CONCLUSION
6.1 Revenue funding in the bus industry
compares unfavourably with the levels in many European countries.
Furthermore, because of the way the public subsidy is paid to
the industry, little accountability exists within the industry
for the quality of the service offered in return for the public
funds paid.
6.2 The Transport Act 2000 does allow us
to improve bus service performance by way of quality partnerships
and, ultimately, quality contracts. However, delivery of quality
contracts is a very lengthy process. It is also likely to be an
expensive option and will be heavily resisted by the bus industry.
6.3 Given this situation the PTA has attempted
to find a way of achieving greater accountability and enhanced
service performance from the bus industry through more effective
use of the public subsidy paid in a manner that engages the industry.
To be effective, this requires the full engagement of local bus
operators, a relaxation of regulations and importantly Government
support. Should this approach be unsuccessful, it is the intention
of Greater Manchester Passenger Transport Authority, in line with
other UK PTAs, to pursue quality contracts since the poor overall
level of bus services can no longer be tolerated.
April 2002
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