Memorandum submitted by Nexus—the
Tyne and Wear Passenger Transport Executive
HAS DEREGULATION
WORKED?
Are Services Better?
A limited number of high-profile successes do
not disguise the steady attrition of services over the 20-year
period post-deregulation. There are examples in the UK of growth
in bus use, but these are often a product of local circumstances
in medium-sized towns and cities. However, the general trends
are those of concentration of investment at "honeypot"
locations, and of retreat elsewhere. This has accelerated the
drift towards car use for those able to do so, and has excluded
others from travel opportunities altogether.
In the last 20 years, bus use in Tyne and Wear
has declined by 48%, and has averaged about 3% per year over the
past 10 years, with bus kilometres operated in Tyne & Wear
decreasing by 12% over the past five years. This continuing downward
trend is unsustainable, with bus operators reducing costs to ensure
viability in a declining market. Fares on Tyne and Wear bus services
have risen by 163% since 1987, whilst the Retail Price Index has
risen by 90% during the same period. These trends are unsustainable
and beg the question as to the future for the bus industry under
current arrangements. The bus industry does not appear to have
a long term business plan or an overall development strategy to
grow the market. Across the country, exceptions do exist, often
due to a combination of unrelated causes.
Deregulation was designed to deliver good services
via competition, but it has led to the emergence of major bus
operators who dominate the market, do not compete at a local level
and discourage the entry of competitors. The deregulated bus industry
can deliver healthy rates of return for operators. Average pre-tax
profit margins for the main operators in the North East in 2004
was 10.7% (Source: TAS 2005 Industry Bus Monitor), well above
those of many other industries.
Are Services More Frequent?
The evidence suggests a mixed picture. On corridors
with high levels of demand, frequencies are often greater than
pre-deregulation. Protecting market share and the increased use
of single-deck buses are two reasons for this, along with efforts
to cater for the needs of the market. Frequency enhancements rarely
extend into periods of lower demand at the beginning and end of
the day. Overall frequency and service reductions outweigh gains
in frequency on most parts of the network. In a competitive and
uncoordinated environment increased frequencies do not always
produce the best service for the passenger as being ahead of a
competitor is more important that even headways.
Are services meeting passenger need?
Local evidence suggests that needs are not being
met, with concerns over bus reliability and punctuality, fare
levels and service reductions. Research consistently reveals that
the most important attribute required of bus services is a reliable
and frequent service. Unfortunately, this research also reveals
the largest gap between level of importance and satisfaction also
applies to frequency and reliability. Feedback suggests both bus
users and non-users believe that "things will never get better"
as the negative trends and personal experiences produce a very
pessimistic view of the future. A major current challenge for
the industry is to adapt to and reflect changing lifestyles: patterns
of movement are more complex and dispersed than in former times,
and networks based mainly upon daytime operations and arterial
routes do not fully reflect changing trends. This is bad for the
long-term prospects of the bus industry, and a more accessible
and sustainable quality of life.
Are bus services sufficiently co-ordinated with
other forms of public transport?
There is no incentive to co-ordinate bus services
for the overall benefit of passengers in a competitive and deregulated
environment, and indeed, some co-ordination could be seen as anti-competitive
by the Office of Fair Trading. Some elements of network integration
have been retained in Tyne & Wear between bus and Metro, but
this is very much opportunist rather than planned; there is little
true integration in the process of planning connecting timetables,
and interchange involves a fare penalty in comparison with a mode-specific
ticket or journey. The Metro system was planned and delivered
as an integrated network in the 1980s and existed for only a few
years as such, until the 1985 Act was implemented in October 1986.
Nexus and Local Authority partners have invested significant LTP
and other funding sources into improving the physical aspects
of integration (including rebuilt interchanges at Gateshead and
Four Lane Ends and new interchange at Park Lane Sunderland) but
Nexus have no powers to co-ordinate the use of such facilities
so as to improve network integration.
Are buses clean, safe and efficient?
Qualitative standards vary across Tyne &
Wear as operators seek to minimise costs, and some operators (but
not all) benefit from being on the most profitable routes and
areas. Some are able to cascade newer buses from TfL contracts
in London. On the issue of efficiency, driver shortages remain
a cause for concern and reduce user confidence, particularly when
these take place on lower-frequency services. We believe in Tyne
& Wear that efficiencies can be made by changing competing
bus services to co-ordinated headways and also through better
integration with Metro.
How can deregulation be made to work?
The deregulation model as applied to the bus
industry is currently not meeting the aspirations of local stakeholders.
Successful examples of deregulation are based on the premise that
competition will ensure choice, efficiency and the lowest possible
price to the consumer. The market for bus services only partly
obeys these principles. Deregulation has failed to lead to significant
continuing levels of competition, territorial oligopolies persist
and are strongly protected, and the safety net of local authority/PTE
funding to secure unprofitable but socially necessary services
is under-funded and over-subscribed. The deregulation model has
failed to deliver the core objectives of the Transport Act 1985.
Privatisation was seen as a means of achieving a more committed
management and better access to private capital, with competition
in the best interests of the consumer and the public interest
with reduced public support for the bus industry. However, experience
is that competition has rarely acted in the interests of the bus
user, with a single operator usually emerging from any competition
and rapidly reverting to pre-competition service levels and fares.
The bus market operates outside the control of the public sector,
thereby hampering common planning of appropriate priority measures,
on-street infrastructure and generic publicity.
Attempts are being made to make deregulation
work through voluntary partnerships and examination of a more
stronger partnership working (the third way) but to date these
have failed to reverse underlying negative trends in Tyne &
Wear.
Is statutory regulation compromising the provision
of high quality bus services?
Means of correcting poor delivery are ineffective.
The competitive model is flawed, often leading to local monopolies
or oligopolies, and commercial operators can "construct"
the market for socially necessary services to minimise competitive
threats. Members of quality partnerships may default on their
stated obligations without penalty, so long as they meet their
basic legal requirements . . .
Are priority measures having a beneficial effect?
What is best practice?
Traffic growth in Tyne & Wear is leading
to congestion which delays buses and affects reliability and punctuality.
Locally it is recognised that the bus must be given some advantages
over general traffic, with bus priority on some travel corridors
within Tyne & Wear. Best practice centres around two main
themes: consistency of approach, and effective enforcement. Priority
measures need to extend over the entire length of the route corridor
suffering congestion, in order to produce maximum impact; short
stretches of bus lane, whilst expedient and symbolic, rarely produce
the consistent journey reliability improvements required. Effective
enforcement of priority measures is also vital. Home Office guidance
to police forces affords a low priority to the abuse of bus lanes,
and the decriminalisation of moving traffic offences is only slowly
being picked up by highway authorities.
Is financing and funding for local community services
sufficient and targeted in the right way?
These important services have been consistently
under-funded over a long period. Urban and Rural Bus Challenge
funding provided a possible funding route until its withdrawal.
Local community groups experience difficulties in securing capital
and revenue, especially the latter—all too often a promising
community-based social enterprise founders because revenues cannot
be secured to continue operations; the burden then falls on the
local authority secured service method of provision which is often
unavailable, or ill-suited to the particular transport requirements
of individual communities.
Concessionary fares—what are the problems
with the current approach? Does the Government's proposal to introduce
free local bus travel across the UK for disabled people and the
over 60s from 2008 stand up to scrutiny? Should there be a nationwide
version of London's Freedom Pass—giving free or discounted
travel on all forms of public transport?
At present, concessionary travel is not available
for travel across county boundaries, and this puts restrictions
on travel opportunities, especially for those who reside close
to these political boundaries. It is not currently possible to
extend the concessionary fares scheme to groups other than those
specified in the Transport Act 2000. The Passenger Transport Authority
is therefore not currently allowed to help people on low incomes
through lower fares. A relaxation of these rules would enable
the PTA and its partner organisations to offer cheaper public
transport to socially excluded groups including job seekers and
single parents on income support. Currently, fares reductions
can be provided only via the direct intervention of, and funding
by, external organisations. This results in very limited scope
for policy leverages in return for the injection of large sums
of public money. The interim free travel scheme applying within
local authority boundaries between 2006 and 2008, presaging the
national scheme, has thrown up a number of difficulties for Nexus.
As the number of journeys made here per eligible person is higher
than in many areas, and resources are allocated according to population,
this has led to a significant notional financial shortfall which
has been addressed by reining-in funding from across the PTE's
activities. The national scheme applying from 2008 presents a
number of potential opportunities and threats. Personal mobility
will be increased, which is welcome, however, unforeseen capacity
and cost constraints may result from travel over longer distances
than currently takes place. The "bus-only" aspect of
the scheme may also come under pressure. Nexus already offers
its eligible customers free Metro travel on payment of £8
for a "Gold Card", and has found it necessary to do
this to preserve the market share of Metro relative to that of
commercial bus services.
Why are there no Quality Contracts?
Introduction of a Quality Contract(s) in Tyne
& Wear could address some of the key issues that Nexus believes
would improve public transport in Tyne & Wear, including a
comprehensive, integrated and efficient network that increases
the usage of buses and enhances modal shift, promotes social inclusion,
and encourages economic regeneration. A Quality Contract would
improve network stability and integration between modes and give
transparency on the performance of bus services, allowing the
benefits of particular schemes or initiatives to be identified,
and for actions to be taken where a route is not performing well
in comparison to others. However, there are substantial risks
and cost implications in seeking Quality Contracts as the solution
to improve bus travel, and this probably explains why none have
been progressed. Substantial time, effort and costs would be incurred
in seeking to implement a Quality Contract and the wording of
the 2000 Act will make it difficult to conclusively prove this
is the "only practicable way" of delivering the local
bus strategy. It is likely that any attempt to implement a Quality
Contract could be opposed by operators, leading to long delays
and additional cost. There are major transitional risks in implementing
a Quality Contract, and significant operational implications including
increased subsidy levels, at least initially until the anticipated
benefits start to produce the expected results in terms of increased
ridership.
Guidance issued by the DfT on QBC focuses on
the procedures for implementation, whilst some of the practical
issues of implementation are unresolved (such as the issue of
cross boundary services within a QBC).
A Market Consultation Exercise undertaken by
Nexus and South Yorkshire PTE reveals there is strong and serious
interest amongst a variety of operators in providing services
for a Quality Contract. They believe the QBC process of competitive
bidding for tendered bus network will provide a transparent competitive
process. Entry to the UK bus industry is currently being restricted
by the need to "compete on street" against well established
large operators whereas competition through tendering opens up
the market.
Nexus would welcome a review of the Quality
Contract provision in the 2000 Act to work towards a more acceptable
process for the promoter of any scheme. The alternative currently
favoured by Government, that of Statutory Quality Partnerships,
fails on two counts: they do not allow the public sector to have
a say in fare levels or service frequency, and that they essentially
maintain the status quo rather than provide opportunities for
new entrants and more competition. Quality Contracts are presented
as an option in the Transport Act 2000, but the hurdles to implementation
are formidable, and policy messages from the Department for Transport,
puzzlingly, now appear luke-warm (at best) towards them.
Are the powers of the Traffic Commissioners relevant;
are they adequately deploying the powers and resources that they
currently have? Do they have enough support from Government and
local authorities?
The powers are currently inadequate, and the
Commissioners are under-resourced; for example, powers are insufficient
in respect of intermediate timing points, and the creation of
administrative super-regions has diminished the local knowledge
and presence of Traffic Offices. Much of the monitoring of local
bus services is essentially undertaken by Nexus and partner authorities
at their own expense. There is currently little contact between
Nexus and the traffic commissioner—not surprising in view
of the large territory they have to cover and the very limited
staff resources they have available.
Is London a sound model for the rest of the UK?
The comparator is useful, but Nexus would not
directly adopt this model. Local circumstances differ in several
respects; the ability to use a car in London is much less than
in the rest of the UK, resulting in a high propensity towards
bus use. And the scale of resources, bolstered by the congestion
charge, is of a different dimension to that which is available
to Nexus. The existence of the London model of bus franchising
and its success in increasing ridership does however suggest that
the deregulated model is inappropriate in large urban areas; were
it not so, then it would surely have been introduced across the
capital. There are other regulated models across Europe that could
be used as best practice and be comparable to that required in
the UK.
What is the future for the bus? Should metropolitan
areas outside London be able to develop their own form of regulated
competition? Would this boost passenger numbers? If not, what
would? Does the bus have a future? In addressing rural railways,
the Secretary of State has said that we "cannot be in the
business of carting fresh air around the country"; is the
same true for buses?
To support delivery of and national quality
of life objectives, the negative trends of declining bus use,
declining bus network and fares increasing ahead of inflation
need to be reversed in Tyne and Wear, so the bus takes on a positive
role. Much effort is required to overcome general negative trends,
and may require a different approach to how bus services are provided.
The three major bus operators in Tyne &
Wear now provide around 98% of the area's services, mainly in
fairly distinct territorial areas with little competition. Fewer
local operators results in reduced competition for contracts,
with potentially higher costs for Nexus as the tendering authority.
It also lessens the likelihood of beneficial "niche"
operations by smaller companies. Also no new large operators (neither
UK nor European) have ever entered the deregulated market in Tyne
& Wear, although the 1985 Act was framed to allow for freedom
of competition and the claimed benefits this brings.
The voluntary partnership approach has been
developed in Tyne and Wear through the medium of the Superoutes
initiative, the quality bus service brand involving operators,
highway authorities and Nexus. 40 routes are included, and vehicle
and service standards are buttressed by highway priority measures
and accompanying bus stop infrastructure. Moderate progress has
been made.
Work is progressing with local bus operators
to examine the potential for developing a "3rd Way"
approach to partnership working, so as to deliver the objectives
of the bus strategy without the need for a Quality Contract. This
method seeks a more open and joint approach to planning and developing
the bus network in Tyne and Wear, including looking more closely
at a joint approach between the Local Transport Plan partners
and the bus operators to bus network planning and development,
and linking network development to effective bus priority measures.
The potential for a more integrated approach to modal operations
to benefit the passenger and offer more choice, better integrated
ticketing schemes, improved passenger information and data sharing
will be considered. In progressing the "3rd Way", it
is recognised that certain elements may require changes in legislation
or guidance relating to, for example, competition issues.
The framework of current legislation demands
that Nexus explores voluntary partnership arrangements further,
pending a thorough and independent evaluation of their effectiveness
in delivering Tyne and Wear's Bus Strategy. Doubts remain however
as to whether the legitimate aspirations of both the public and
private sector are sufficiently compatible to deliver the required
level of service to the passenger. In the interim, the bus industry
must not be allowed to wither on the vine, and appropriate powers
and resources should be made available to both preserve the current
network, and prepare for future expansion as will be required
if major urban areas are to successfully overcome the considerable
impacts arising from traffic congestion. If radical travel demand
management measures such as congestion charging are to become
a reality, then there must be in place a means of delivering a
high quality, and permanent, public transport alternative for
displaced car drivers (such as happened with the congestion charge
in London). The current deregulated approach does not provide
this guarantee, and while the DfT has recognised the importance
of the issue, no proposals for providing a solution have been
forthcoming.
Earlier Government policy pronouncements have
not been translated into positive action. The document "From
workhorse to thoroughbred: a better role for bus travel",
published in 1999, promised changes in the way bus services are
organised, a new framework for local authority influence over
buses, and "an end to the deregulation free-for-all".
The experiences of the intervening seven years have shown that
the barriers for the implementation of Quality Contracts are too
high, and the Government's delegation of responsibilities to the
local level has shown an abnegation of the industry's continuing
difficulties and the need for more radical policy levers to be
employed. The fact that no Quality Contracts have been introduced
at all despite difficulties in successfully implementing Bus Strategies
suggests that, under the current legislative tests contained within
the Transport Act 2000, they are unlikely to be a practicable
proposition. If this is the case, then the regulatory framework
needs to be urgently revisited.
The bus industry is lacking in long-term vision,
and appears focused upon profit maximisation and stringent cost
control. These factors fail to address how the industry will sustain
itself in a situation of prolonged and continuing market decline,
unless radical changes take place.
Buses must have an important future (supportive
to our economic, social and environmental requirements) especially
for the short-distance local trips which are most amenable to
modal shift away from car use. Unlike rail, network capacity is
not normally an issue. The flexibility of the mode in coping with
peaks and troughs in demand and changes in land-use patterns render
it of continuing relevance as part of a toolkit of public transport
choices. Existing networks therefore need to be protected, and
the evidence above suggests that the current regulatory network
is failing to provide such protection, and is need of reform.
25 May 2006
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