Bus services after the Spending Review

Written evidence from Go West Travel Ltd (Norfolk Green) (BUS 41)

Introduction

1 This submission is made by Go West Travel, trading as Norfolk Green, also using the Coasthopper brand for bus services in the North Norfolk Coast area.

2 Norfolk Green (NG) started trading in 1996 and provides local bus services in the rural areas of West Norfolk, North Cambridgeshire and South Lincolnshire, as well as in parts of North Norfolk.

3 NG operates on about one thousand miles of road in an area of 3,500 square miles, and whilst it provides some market town bus services, it is predominately a rural operator. From a standing start in 1996, the company operates 63 vehicles and employs 120 staff.

4 NG has built a network of local bus services, in some cases where none existed before 1996, successfully deploying careful route and product design, selecting vehicles suitable for each route with 100% DDA compliance (five years before legally required), and supporting this with driver training and multi-media marketing and promotion.

5 In this way, NG has experienced consistent year on year passenger growth, including on like-for-like routes during the past five years. The annual rate of growth has slowed during the past six months to 7.8% amongst all passengers, but, significantly, at a higher level of 11.4% amongst those paying fares.

6 This success has been recognised with NG winning a number of UK Bus Awards in recent years, including Winning New Passengers in 2007, Bus in the Countryside in 2008, runner-up Independent Operator of the Year in 2009, and recently judged the UK Bus Operator of the Year for 2010.

7 This submission is based on our experience in an area with one of the highest proportions of population over 60, an area with a strong economy based on agriculture and tourism, including what is reputed to be England’s fastest growing short-stay location, the North Norfolk coast area.

8 In considering the issues to be addressed by the Committee, we have done so in a different order, thereby considering the impacts of the 2011 reimbursement and funding reductions before the 2012 BSOG reductions.

Summary of main points in the submission

1 NG is a successful provider of rural bus services and has grown investment and employment consistently in the area. This has been recognised through winning a number of national awards.

2 The changes to the way operators are reimbursed for providing free travel is being changed from April 2011 and some bus operators will be worse off, contrary to the legal principle, established in UK and more recently EU Regulations that we should not be. There will be loss of, or reductions to, services to most users, greater social isolation, increased dependence upon the private car, and job losses in the industry.

3 Local authority support for bus services in NG’s operating area is being reduced as result of funding reductions. This will impact frontline services. There will be loss of, or reductions to, services to most users, greater social isolation, increased dependence upon the private car, and job losses in the industry.

4 The combined impact of local authority funding cuts and simultaneous reductions in reimbursement for carrying eligible people free of charge is likely to lead to significant cuts in bus services. The amenity value of a free bus pass (especially for people over 60) is reduced if service provision is reduced.

5 The Department for Transport’s Impact Assessment on the changes to reimbursement for free travel fails to address these cross-impacts.

6 The reduction in BSOG is arguably something that the industry could assimilate if it was not additional to the cut in reimbursement for carrying eligible people free of charge and local authority grant support for bus services.

7 The change to BSOG from 2012 is in the rate per litre paid to operators. However, litres used will reduce as a result of the 2011 funding cuts, so the financial benefit to H M Treasury will exceed the 20% quoted figure. This will impact service reductions more than would have been the case if the 20% reduction applied to the overall fund for BSOG, based on 2010 payments.

8 The bus industry is essentially localised and it is therefore in the customer’s and potential customer’s interest that planning decisions are taken as close to the market as possible. The necessary professional skills may lie with the local authority or may lie with the operator but a rigid approach to where the responsibility for this activity lies will sub-optimise outcomes.

9 The role of Passenger Focus in bus service planning is therefore very limited. However, it does have a strong and important role in providing market signals from its evidenced-based research.

10 As public funding for bus services is being reduced, a reduction in the cost base of bus operators would help retain bus services that are otherwise at risk of being lost. The past decade has witnessed a growing regulatory burden that, left as it is, will lead to greater bus service loss than would otherwise be necessary as a result of the reductions in funding alone. The case for urgent reduction of this regulatory burden is clear.

The financial impact of free off-peak travel for older and disabled people on Norfolk Green

1 NG recognises the significant social, environmental and economic benefits derived from free travel for older and disabled people and recognises that it is the Government’s prerogative to develop such policies.

2 However this is underpinned by the legal principle that reimbursement to operators should ensure that they are neither better nor worse off, as a result of implementing Government’s social policy. This principle was first developed in Circular 1/1986 for what were then local authority discretionary schemes, but reinforced by EU Regulation 1370/2007.

3 Determining the correct reimbursement to ensure that this is so is not a precise science. The most appropriate macro measure of whether this is being achieved is to measure profit levels since the introduction of the mandatory scheme in 2006; since when they have fallen. This is not the same issue as whether or not profits are excessive, and it is not for the Department to use reimbursement to reduce profit levels that it may itself regard as excessive.

4 For NG, reimbursement under the new arrangements from April 2011, will potentially reduce by some 37%, equal to over 8% of total turnover and exceeding total profit in the entire business.

5 In September 2010, the Department opened consultation on a new reimbursement calculator, and for us this would have reduced reimbursement by a more manageable 10%. The significant worsening of the position arose from the Department issuing a further new calculator on 30th November 2010 following its consultation. In the latest calculator an element in the model was arbitrarily withdrawn even though such withdrawal was not subject to consultation.

6 The Department’s Interim Consultation Response, issued on 29th November, justifies the withdrawal of this part of the model, not because it has concluded that the rationale for it being included was wrong, but rather that the adjustment is "not easy to use" (para 2.11). It gave no prior indication that it may conclude thus, but now the calculator is fixed and, it says, the principle cannot be revisited. Further, the Department’s own Impact Assessment on the impact on bus service levels is vague and ill-considered. At a workshop for operators on 26th October, the department’s Chief Economist told operators they could challenge DfT in Court if they are unhappy with the calculator; it is not the role of Government to postulate payment based on little or flimsy evidence, even if it probably breaks the legal principle of reimbursement practice for social policy and then invite businesses to see it in Court. In the case of SMEs in particular that is as unrealistic as it is offensive.

7 The Department’s Guidance makes clear it is for local authorities to negotiate with operators to establish appropriate reimbursement, taking account of local evidenced data. However, they are paid on the basis of the calculator, and in the case of Norfolk County Council it calculates that it will receive 38% less funding for this purpose than the Districts spent in the former scheme. If they do not have the funds they cannot realistically negotiate appropriate reimbursement.

8 An analysis of funding for reimbursement from DCLG to local authorities indicates that seven new TCAs have funding cuts ranging from 31% to 50%. In each case they are either in tourist ‘honeypot’ areas (for which additional ring fenced funding was allocated in 2008 when free travel became national rather than local) or areas where bus travel characteristics would have been particularly taken account of in the element in the model that was arbitrarily withdrawn (see 5 and 6 above).

9 It is therefore almost guaranteed that local authorities will not be able to meet the legal ‘no better off, no worse off’ principle and that operators will suffer real loss of profit. Under these circumstances, operators may regard their ‘social contract’ with Government to have been broken by Government and for them to make their priority to safeguard profits in order to fund future investment levels. In these circumstances it is more appropriate to take immediate action to reduce service levels in accordance with new income than to engage in time consuming and uncertain recourse to the Courts.

10 Thus, NG will reduce bus services from April 2011. Work is now underway to identify the extent of those reductions but those communities where there is a high level of free travel use will be hardest hit, possibly including complete loss of service.

The impact of the reduction in local authority support to bus services

1 All three Counties in which we provide local bus services have indicated to us that their funding for local bus services will be reduced from April 2011. In Norfolk, NG has been told to reduce contract prices by some £120k, whilst Lincolnshire has to reduce funding for the entire bus network by £1.4m, and we await a precise figure from Cambridgeshire but have been told there will be cuts.

2 The extent of this for NG is in the order of £240k. We are currently evaluating the impact on bus service provision and in negotiations with each of the local authorities concerned. This will impact the delivery and extent of bus services for consumers.

3 There is a correlation between income derived from reimbursement we receive for carrying older people free of charge and that for local bus service support. In two-tier authority areas, from April 2011, for the first time, the same tier will be responsible for both payments. This offered the opportunity for a cohesive single approach to funding, especially in rural areas, for the first time. That has been lost by the apparently uncoordinated approach of DfT and DCLG to simultaneous overall funding cuts to the industry.

4 Thus, authorities that are cutting their support budgets anyway are less likely to be able to additionally fund the shortfall in free travel reimbursement under that scheme (see above section).

5 The impact to be considered, therefore, is not so much that arising from either one or other budget heading but the combined impact. The early indications are that this will be severe and especially so in an operation such as ours, with rising fare paying passenger trends (which is particularly penalised in the Department’s reimbursement calculator) coupled with a higher proportion of residents over 60 living in a rural area and therefore required to travel longer than average distances in order to access their basic goods and services.

6 It is the combined impact of these reductions in funding that the Department should have considered in its Impact Assessments but has failed to do, regarding them as separate and unlinked changes, each marginal in nature. But this is not the case, certainly not with the demographic of our operating area.

The impact of the reduction in Bus Service Operators’ Grant (BSOG) on bus services

1 The 20% reduction in grant from April 2012 is maybe less than had been anticipated, and is being introduced later than was anticipated and to that extent the Department’s intervention is helpful in this respect.

2 The impact of the reduction to reimbursement and funding for local authority contracts in April 2011 will reduce miles operated, and hence the number of litres of fuel used and level of BSOG claim. As the 20% reduction is in the rate per litre paid, the reduction in funding from 2010 to 2012 will thus be greater than the 20% headline figure included in the Comprehensive Spending Review.

3 The impact of the BSOG reduction would therefore be more equitable and reasonable had the 20% reduction applied to the total fund available rather than the rate per litre payment. It can therefore be deduced that there will be a greater impact on bus service provision than would have been the case had the 20% been applied to the fund for payments made in 2010.

4 For NG, based on our 2010 claim, we anticipate that BSOG reduction will cost us £120k. Added to the other funding cuts indicated above this will impact our bus network significantly because it is incremental upon the other reductions.

5 The Committee should be clear that BSOG used to be known as Fuel Duty Rebate. Fuel Duty is paid by the bus industry as it is by other road users, but then a proportion is reclaimed. This is unlike rail, internal air and ferry operations on which no fuel duty is paid at all. In this respect the reduction in BSOG targets discriminatorily those who use buses compared to other public transport modes.

6 NG will seek to take account of this 2012 impact when assessing service levels for April 2011 as it believes that, painful to all users though the service reductions will be, it is better to face the cumulative impacts in one cut in provision rather than sapping customer confidence by repeated cuts.

How passengers’ views are taken into account in planning bus services and the role of Passenger Focus

1 The bus market is localised and changes tend to be subtle and individually small in scale. For this reason the planning of bus services has to be equally localised and responsive.

2 In larger rural counties there is a danger that centralised decision-making, being distant from the market, will tend to be unresponsive. It is therefore essential that, if fare-paying passenger volumes are to be maximised, those that both know the market best and possess the necessary professional skills, make the decisions about the planning of bus services. These qualities will tend to be present in an individual with appropriate skills, and this skill-base is not widely available. The individual may be employed by the local authority or the operator. A fixed approach to where responsibility should lie is therefore unhelpful and the best interests of the customer not met.

3 In NG we encourage and receive frequent feedback from customers and potential customers through a variety of media. It is for precisely this reason that as a policy we do not promote the Traveline enquiry facility preferring to provide the necessary staff ourselves to interface with our existing and potential customers.

4 This bottom-up approach tends to diminish the role of Passenger Focus (PF) in engaging in this field of activity. Its representation of the bus passenger is new and therefore its value unproven, yet its input should be welcomed and the importance of its role recognised.

5 A valuable role will, we believe, emerge for PF in providing evidenced-based research to inform decision making, but that is fundamentally different from involving it in decision making itself.

6 We would resist the tendency evident over the past decade or more to increasingly over-regulate the bus industry and see PF as potentially providing valuable assistance rather than a regulatory role.

The impact of regulatory burden as public funding is reduced

1 It is clear that 2011 and 2012 will witness a significant reduction in the public funding for bus service provision and that the industry will contract in some areas, bringing real hardship to some, more isolated, rural bus users.

2 Yet the past decade or more has been characterised by a surge in regulatory control of the industry, all of which has increased the cost burden whilst, in some instances, adding little (if anything) to quality standards in the industry, or to its customers or employees.

3 At a time when the state is reducing funding for bus services, the need to review and reduce the regulatory burden cannot be overstated. This is not to suggest that safety standards should in any way be diminished, but rather that regulatory interventions that have brought no tangible benefits should be scrutinised for repeal.

4 It is recognised that this is not within the terms of reference of this Inquiry but as the funding reduces, and applying the principle of "no better off, no worse off" the industry cost base can be reduced, and bus services saved, if the regulatory burden is eased.

5 The impact of the funding reductions can therefore be minimised, with its impact on social isolation and job losses minimised as well, if a thorough and immediate reduction of the regulatory burden on the industry is commenced.

January 2011