Select Committee on Transport, Local Government and the Regions Appendices to the Minutes of Evidence

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 well.

  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 congestion;

    —  Improve air quality;

    —  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 fallen—on 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 Act 1985.


  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 bus services.

  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 changes required.

  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 transport.

  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 Regional Assemblies.

  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.

Hugh Collis

Chair of the LFIG Transport Study Group

April 2002

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