Written evidence from the Go Ahead Group
plc (BUS 39)
0.0 INTRODUCTION
0.1 The Go Ahead Group plc (Go Ahead) is a leading
UK based public transportation group. We employ approximately
22,500 people and run bus and rail services principally in the
UK. Our rail services are franchises operated on behalf of the
Government and our current portfolio comprises London Midland,
Southern and Southeastern.
0.2 We have a bus fleet of 3,850 vehicles. 1,825
of these operate on behalf of Transport for London in the London
tendered market and are therefore outside the scope of this investigation.
The remaining 2,000 serve a number of communities based on the
following areas: Plymouth, Brighton, Dorset, Wiltshire, Hampshire,
the Isle of Wight, Southampton, Bournemouth & Poole, Oxford,
Surrey, East & West Sussex, Norfolk, Tyne & Wear, Northumberland
and County Durham. The businesses in these areas employ around
6,500 people and deliver comprehensive networks mainly in urban
areas but also in some cases serving semi urban and rural communities.
0.3 Go Ahead welcomes the opportunity to contribute
to this inquiry and present evidence to the Transport Select Committee.
0.4 The inquiry is looking into the funding of
bus services in England (outside London) in the light of the outcome
of the Comprehensive Spending Review (CSR). After a contextual
section the remainder of this memorandum addresses the subject
areas set out in the call for evidence.
1.0 CONTEXT
1.1 Table 1 identifies the level of turnover
of the local bus industry (outside London) and its key components.
Table 1
LOCAL BUS REVENUE IN ENGLAND (2009-10)
| Category | £bn
| Proportion (%) |
| Passenger receipts | 1.8 |
52 |
| Local bus services support | 0.54
| 16 |
| Concessionary travel reimbursement | 0.78
| 23 |
| Bus Service Operators' Grant (BSOG) | 0.31
| 9 |
| Total | 3.43 |
100 |
| Source: Transport Statistics Great Britain
|
1.2 Individually and together the elements of turnover that
are derived from public funding sources are extremely important.
The table shows that taken together public funding makes up almost
half (48%) of local bus turnover in England outside London and
concessionary reimbursement on its own nearly 25%.
1.3 It is important to make the comment generally and with
regard to assessing the impact of any cuts in public funding that
of the public support flowing into the local bus industry, only
BSOG is genuine subsidy. Of the other two components:
— — Local
bus service support—is payment principally by local transport
authorities to bus companies for publicly specified and procured
services. The vast majority of those payments are made to bus
companies after a competitive tendering process
— — Concessionary
travel reimbursement—is, in effect, compensation to operators
for revenue foregone arising from the legal requirement to carry
elderly and disabled customers free under the terms of the National
Concessionary Travel Scheme (NCTS)
1.4 In addition we would argue that BSOG is a
subsidy to customers rather than bus companies as it helps to
mitigate the cost of fuel which in turn means that fares can be
kept lower than they would be in the absence of the BSOG payment.
1.5 Go Ahead's deregulated bus companies are
broadly comparable with the industry proportions set out in Table
1. As would be expected those companies with networks in urban
areas tend to be less reliant on public support and have a higher
proportion of passenger receipts with the opposite applying to
those companies with a greater proportion of their networks in
semi urban or rural areas.
1.6 Go Ahead has, and continues to monitor closely
the likely impact on public funding into the bus industry arising
from public spending cuts contained in the CSR. We believe we
have strong resilient businesses in a generally strong resilient
industry. However work undertaken by independent consultants for
the Department for Transport (DfT) in the summer of 2010[23]
showed that Go Ahead is not making excessive profits with returns
on capital in line with costs of capital. This means we always
have to be mindful of the impacts of potential cuts in income
to maintain the balance between giving an effective service to
customers and reasonable returns to shareholders.
2.0 THE IMPACT
OF THE
REDUCTION IN
BSOG
2.1 As noted, BSOG effectively acts as an income
stream to bus operators which is specifically used to mitigate
fuel costs. Most operators express their fuel costs in net terms
ie the net fuel cost is the gross cost of fuel less the BSOG sum
which is a partial rebate on fuel duty paid. This is summarised
below:
— — Gross
fuel cost 100%
— — BSOG
reduction 47%
— — Net
fuel cost 53%
2.2 Regardless of the CSR a pertinent point to
make is that the percentage reduction in fuel costs that BSOG
gives to an operator has been progressively reducing as the base
rate of BSOG has been frozen compared to fuel duty increases.
It is acknowledged that this has generally been compensated by
enhanced rates for bio fuels and incentives for fuel efficiency.
Furthermore the bus industry has always lobbied hard that it is
unfairly treated compared with rail and the airline industry which
pay no duty on their fuel consumption. The comparison with air
is particularly striking given the comparative beneficial carbon
credentials of bus compared with air travel. Figures released
in 2008 revealed this was a hidden subsidy of £10bn to the
airline industry in the UK.[24]
2.3 Turning to the specific impact of the CSR,
the Government announced BSOG would remain unchanged in the 2011-12
settlement year and then would be cut by 20% in each of the following
three years. For Go-Ahead companies the impact translates to an
increase in overall costs of between 1 and 2%. We would not expect
this would lead to any service withdrawals but may require a small
fares increase to make up the difference in addition to the normal
annual inflationary percentage to cover for other cost increases.
It is possible that if the other incentives that have so far remained
in place for BSOG are maintained, such as the 8% increase above
the base for the fitment of working smartcard readers on buses
and the 2% increase above the base for automatic vehicle location
systems together with volume increases as the economy improves,
this could mean that the BSOG cut can be absorbed without any
need to increase fares above the normal inflationary rate.
2.4 Indeed one of the positives of the BSOG announcement
arising from the CSR is that there is at last some certainty in
this funding stream which has not been the case since the previous
Government asked the Commission for Integrated Transport to look
at its effectiveness in 2000. Since then the grant has been in
a constant state of review and uncertainty. We now have a commitment
from the Government to maintain the funding - albeit at a reduced
rate between 2012-13 and 2014-15—for the next four years.
2.5 The only slight uncertainty that remains
is how BSOG is paid to the operators with some local transport
authorities lobbying for devolution. We would argue strongly against
this: the way BSOG is administered at the moment is simple and
cost effective for operators and the Government but more importantly
it guarantees the money stays in the local bus sector. The general
move to a reduction in ring fencing of funding from central to
local Government means that it is unlikely that any local transport
authority would be able to provide such a guarantee if BSOG were
to be devolved.
3.0 THE IMPACT
OF THE
REDUCTION IN
LOCAL AUTHORITY
GRANT SUPPORT
AND OTHER
CHANGES TO
THE FUNDING
OF LOCAL
AUTHORITY BUS
SCHEMES AND
SERVICES BY
THE DFT
3.1 The formula grant paid to local authorities
by the Department for Communities and Local Government (DCLG)
is being cut by 28% with the majority expected to come in 2011-12.
This constitutes the biggest section of funding for local transport
revenue grant and the impact on local authority bus service support
for non commercial services (usually evening and weekend services
and those to isolated communities) is expected to be significant
especially as local bus support is not a statutory obligation.
Certainly a number of local authorities in our
operating areas (eg County Durham, West Sussex, Norfolk)
have already publicly stated their intention to significantly
reduce their spending on local bus service support. In the case
of West Sussex County Council the intention is to save £2
million out of a £4.7 million annual budget.
3.2 The reality is that the impact of this as
it translates from a stated high level intention to services on
the ground is difficult to judge because local transport authorities
are still assessing how to deliver these changes. There are some
patterns emerging however:
— — Some
of our networks are either 100% commercial or nearly 100% commercial
(ie none of the service provision is dependent on local authority
funding). This has been achieved by investment in reliability,
punctuality, high quality buses, better marketing and improved
frequencies. Although, as expected, these are principally in urban
areas, the result of the investment in these networks is that
we can provide services commercially even at supposedly less remunerative
times of the week such as Sundays and in the evenings. Our networks
in Oxford and Brighton fall into this category and as a result
they will not feel any impact from reductions in this funding
stream.
— — In
semi urban and rural areas there is a category of service where
the impact of potential cuts can be mitigated by active dialogue
between the local authority and the operator. In some areas there
are reports of rather misguided and poorly researched blanket
reactions such as "withdrawal of support for Sunday services"
or "withdrawal of support for evening services".[25]
Even if specified by local authorities, good operators will know
the strongest and weakest journeys they operate and may be able
to suggest savings which minimise the impact on customers. Withdrawal
of a few journeys at critical times of the day for the cost of
the operation can turn a subsidised service into a commercial
one. Conversely taking a blanket approach such as withdrawing
all Sunday services could catch popular individual journeys or
worse still undermine existing commercial services by giving people
a narrower range of times to travel.
In Surrey, where the County Council instituted a
review of local bus support in advance of the CSR, some network
changes have already been made. Constructive discussions between
the County Council and Go Ahead subsidiary Metrobus resulted in
the implementation of a new network which saved significant sums
of public money with a minimal impact on customers. This was mainly
achieved by converting subsidised journeys to commercial by not
serving some very lightly used stops.
— — There
is a further category of services for which it will be difficult
to justify continuing local authority subsidy in a tighter funding
environment and it is clear they are so marginal in terms of use
that there is no prospect of operators being able to do anything
to step in and take more risk themselves. West Sussex County Council
mentioned services which currently require £12 subsidy per
passenger journey. In such instances the justification for running
a conventional bus service in any funding environment has to be
questioned and the answer in terms of providing for the residual
demand probably lies in community based solutions. The 2008 Transport
Act has helped in this respect by, for example, allowing Section
22 community bus services to be staffed by paid drivers rather
than unpaid volunteers.
3.3 Turning to other sources of local authority
bus funding, since the mid 1990s when Transport Policy and Programme
funding bids were replaced by Local Transport Plans followed by
initiatives such as Rural Bus Subsidy Grant and Kickstart funding
there has been a good flow of funds, principally delivered by
local authorities as a pump priming exercise into initiatives
such as park and ride sites, bus priority measures, better information,
bus stations and other waiting facilities.
3.4 These have been particularly effective at
delivering local authority mode shift objectives but have also
given a boost to general bus provision especially when accompanied
by bus operator investment in vehicles, frequencies, customer
service training and better marketing. As an organisation that
provides both bus and rail services Go Ahead is comforted by the
extent to which most of the major rail enhancement projects have
remained relatively unscathed from the CSR cuts. But we are concerned
that smaller local transport projects such as those mentioned
also have a big role to play in terms of delivering economic growth
and environmental objectives and hope there will still be funding
available for local authorities and bus operators to work together
in continuing to deliver such schemes. In this respect we await
the guidance on the new Local Sustainable Transport Fund with
considerable interest as we hope this will partially compensate
for the one third reduction in block funding for small transport
improvement schemes.
4.0 IMPLEMENTATION
AND FINANCIAL
IMPLICATIONS OF
FREE OFF
PEAK TRAVEL
FOR ELDERLY
AND DISABLED
PEOPLE ON
LOCAL BUSES
4.1 The Transport Select Committee (TSC) looked
into the subject of concessionary fares as recently as 2007-08
and concluded that "the current no better no worse off
mechanism for reimbursing operators is unsatisfactory. It is arcane,
time consuming and a recipe for disputes. It does nothing to promote
good partnership working between travel concession authorities
and bus operators….. A new, more transparent mechanism is
required that compensates operators and avoids the waste and rancour
generated by the current system."[26]
4.2 Since the TSC's conclusions the national
free scheme has been implemented (April 2008) and much of the
difficulties that the TSC identified have continued. Go Ahead
is pleased to be part of a Government initiative that gives a
significant proportion of the population better mobility and access
but we must be reimbursed properly for it. The recent DfT guidance[27]
to Travel Concession Authorities (TCAs) for 2011-12 schemes has
again created a degree of uncertainty after a period of relative
calm. By their own estimates[28]
the new guidance, if implemented by TCAs, will result in up to
£100 million being taken out of the industry.
4.3 We believe there is a mistaken view that
operators have in the past been overcompensated[29]
and the guidance is intended to correct this but the DfT's own
review of bus industry profitability shows that Go Ahead's return
on capital is in line with its costs[30]
therefore not supporting the overcompensation view.
4.4 We are grateful that the DfT has moved on
its initial consultation guidance issued in September 2010 and
amended some of the most damaging aspects of their proposals but
there are still areas of the revised guidance which give us cause
for concern. We still await details of how TCAs will interpret
this guidance. The statutory requirement is for TCAs to notify
operators of scheme details 28 days in advance of the start date
of April 1 which means that publication can be as late as March
1 2011.
4.5 Our preliminary modelling (based on a number
of assumptions as the relevant TCAs have not yet published their
schemes in full) indicates the overall impact on Go Ahead bus
businesses could be a reduction of around 10% of concessionary
funding which we believe is manageable without major service reductions.
However, inevitably as the reimbursement rate declines there will
be scrutiny of those services particularly reliant on concessionary
boardings as revenue will be impacted and may not cover costs.
The universal nature of concessionary funding may also mean our
companies taking action plans which result in the loss of more
marginal services at the fringes of the operating day, some thinning
of frequencies and in a few cases withdrawal of complete services
which are on the edge of profitability.
4.6 Our experience on the Isle of Wight where
the reimbursement rate dropped from 76% to 32% by 2009/10 may
be illuminating. Typically to maintain profitability half hourly
services were reduced to hourly. High frequency services were
reduced from every seven to eight minutes to every 10 minutes
and some of the newer buses were taken off the island in an effort
to keep down costs. All in all the impact has been manageable
but a success story of significant patronage growth and investment
in the bus network in 2006-07 was turned into a situation of stagnation
by 2009-10. This is one of the more extreme examples and we would
hope to avoid such a situation elsewhere through careful negotiation
with TCAs, but it is an illustration of what can happen if reimbursement
rates reduce to untenable levels.
5.0 TAKING INTO
ACCOUNT PASSENGER
VIEWS AND
THE ROLE
OF PASSENGER
FOCUS
5.1 Go Ahead companies do not employ a set template
but we follow a number of models where we strive to seek the views
of customers when changes are proposed. Our Oxford Bus Company
has constituted a Stakeholder Board which discusses a whole range
of issues as well as service changes and virtually all of our
companies have embraced social media such as Facebook and Twitter
to seek feedback. In our Go North East operation the Managing
Director has live web chats once a week with customers and a comprehensive
market research programme is undertaken involving self completion
questionnaires before any changes are embarked on.
5.2 We welcome the involvement of user groups
such as Passenger Focus and Bus Users UK and have worked with
the latter organisation over a number of years in holding their
popular Bus Surgeries in town centres. Since Passenger Focus has
been asked to involve itself in bus services in 2009 we have worked
closely with them and support their evidence based approach to
identifying problems and issues through the use of extensive market
research. We understand their next round of surveying is suspended
due to reviews associated with the CSR but hope this can resume
as it provides an excellent year on year comparison of customer
attitudes.
5.3 The difficulty with customer engagement comes
when cutbacks need to be made of the nature likely as a result
of the CSR. If an operator is expanding routes or services, inevitably
there will be more engagement than if an operator seeks views
on service reductions.
It is not always possible to give customers exactly
what they want and difficult commercial decisions sometimes need
to be made. The other dimension is that time can constrain the
level of engagement. By law operators are required to give eight
weeks notice to the Traffic Commissioner of any changes to service
registrations. Planning a change in advance of this to devise
the right timetables and staff rosters can take an additional
three to four weeks at least. The sort of timescales local authorities
work to - for example not being required to publish concessionary
scheme details until a month before the scheme starts - means
that we may need to take swift action if funding is being reduced.
The statutory notification periods mean that sometimes it is just
not commercially viable to undertake a detailed time consuming
consultation exercise.
5.4 We always like to engage with customers,
particularly for our commercial networks where we usually have
more control but this is not always possible when the timing of
changes is controlled by third parties.
December 2010
23 Source: LEK for Department for Transport. Review
of Bus Profitability in England Final Report - Updated 27 July
2010. Back
24
Source: House of Commons Transport Questions, 8 June 2008. Back
25
For example Hertfordshire County Council, 50% cut in evening and
Sunday services. North Yorkshire County Council, withdrawal of
support for evening and Sunday services in Selby. Back
26
House of Commons Transport Committee, Ticketing and Concessionary
Travel on Public Transport. Fifth Report of Session 2007-08. Back
27
Guidance for Travel Concession Authorities on the England National
Travel Concessionary Scheme, 21 December 2010. Back
28
As above: Impact Assessment. Back
29
for example Secretary of State for Transport interview with Local
Transport Today Issue 558 November 2010. Back
30
Source: LEK for Department for Transport. Review of Bus Profitability
in England Final Report - Updated 27 July 2010. Back
| 
