Bus Services after the Spending Review - Transport Committee Contents

Written evidence from the Go Ahead Group plc (BUS 39)


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.


1.1  Table 1 identifies the level of turnover of the local bus industry (outside London) and its key components.

Table 1

Category£bn Proportion (%)
Passenger receipts1.8 52
Local bus services support0.54 16
Concessionary travel reimbursement0.78 23
Bus Service Operators' Grant (BSOG)0.31 9
Total3.43 100

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.


2.1  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.


3.1  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.


4.1  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.


5.1  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

previous page contents next page

© Parliamentary copyright 2011
Prepared 11 August 2011