Bus Services after the Spending Review - Transport Committee Contents

Written evidence from Firstgroup (BUS 43)

This document has been produced in response to the invitation issued by the Transport Committee on 11 November 2010 to submit written evidence to an inquiry into the funding of bus services in England (outside of London) in the light of the outcome of the Comprehensive Spending Review.

As requested by the Committee it focuses on:

—  the impact of the reduction in Bus Service Operator's Grant, including on community transport;

—  the impact of the reduction in local authority grant support to bus services and other changes to the funding of local authority bus schemes and services by the Department for Transport;

—  the implementation and financial implications of free off-peak travel for elderly and disabled people on all local buses anywhere in England under the Concessionary Bus Travel Act 2007; and

—  how passengers' views are taken into account in planning bus services, and the role of Passenger Focus in this area.


At this stage it is very difficult to predict the exact effect of the various cuts in funding on local bus services. It is, however, not difficult to predict that these will have a deleterious effect on the provision of local bus services, and that each local market will be adversely, but differently, affected. It is only when the detailed implementation of the changes to concessionary fares reimbursement, and the impact of local authority public transport budget cuts, are confirmed, that the nature of any response that a private sector operator will be obliged to make, in order to ensure that service operation remains viable, will be identified.

The comments that are offered below apply in respect of FirstGroup's expectations of the likely impact upon its own operations, and the consequences of these on third parties. Other commercial providers of bus services will also be affected, as will community transport operators, but FirstGroup has not offered any comments on the likely impact on these bodies.

In submission of oral evidence, FirstGroup will provide actual examples of the impact of these various policy changes and the detail of the measures will no doubt be developed further by the time of such evidence, enabling a more quantified impact to be presented to the Committee.


It is fair to say that, given the various reviews of funding streams allocated by central government to the bus industry over the last 10 years, the various consultation exercises that have been conducted on BSOG revision, and the work of the Bus Subsidy Advisory Group in recent years, it was not unexpected that there would be some reduction in BSOG in the Comprehensive Spending Review (CSR).

BSOG was originally introduced in 1969 as a method of ameliorating the effects on rural communities of the large increases in fares that bus operators had been forced to implement, in order to allow them to cope with dramatic fuel price increases. When originally introduced, BSOG was a total reimbursement of the duty that operators paid on fuel used for operation of local bus services. Since the 1990s the proportion of duty rebated has declined (it is currently approximately 75%) and the direct link to duty has been cut, meanwhile the duty levied has continued to increase. Thus the benefit to the passenger has been eroded over time, and a further erosion of 20% will, despite operators' best endeavours to manage this loss of income within improved operating efficiencies, lead to price rises for passengers and service cuts.

Improvements in vehicle technology, including the introduction of low floor easy access buses and engines that produce reduced atmospheric emissions, have led to increased vehicle weights and reduced fuel efficiency of engines. These have created a trend of increased fuel use for the same level of service provision, thereby increasing the proportion of operators' costs that the fuel bill represents. In the face of operators' endeavours to reduce expenditure on fuel, this has had the opposite effect and the reduction of BSOG will further exacerbate this, leading to an estimated 2% increase in operating costs on a like for like basis. In order to maintain the same level of profitability, a prerequisite for external investment in the industry which creates the opportunity for operators to renew and improve assets, this will require a corresponding 2% above inflation fares increase just to stand still, or a reduction in the service mileage operated at the margin.


It is much harder to predict the effects of such funding changes, with the funding for local transport being contained within the overall block grant allocations made by central to local government rather than ring fenced for that specific purpose.

The announcement of the impact of the CSR on individual local authorities indicated that almost without exception they would individually see reductions in their overall level of annual funding of up to 8.9% in 2011-12. The CSR indicated that there would be an across the board reduction in levels of local authority budgets of some 7%, year on year, for a four year period, so the expectation is that similar reductions are to take place in the three following years. It is for each local authority to decide how it is going to implement such reductions. Some may elect to apply a blanket reduction across all expenditure. Some may decide to protect spending on, for instance, the provision of socially necessary local transport services, ie subsidised contracted bus services. Others may priorities other areas of expenditure to the detriment of such local transport. These decisions are to be taken at a local level and as yet we are unaware of the likely impact on public transport expenditure.

However there will most likely be an impact on local bus services in any event, as local government expenditure is cut in general. Areas likely to suffer, with consequences for public transport, include bus priority and other infrastructure improvements, road maintenance, traffic regulation enforcement, home to school transport, discretionary educational visits, and public transport information provision. As transport is a derived demand, reduced provision of other local authority services will also lead to a fall in use of local bus services. There is also a significant interaction with concessionary travel reimbursement as explored later in this submission.


Since April 2008 bus operators have been carrying increasing numbers of elderly and disabled passengers under the English National Concessionary Travel Scheme. Whilst operator participation in mandatory, and requires carriage of eligible passholders without charging a fare, compensation for such action is subject to a complex set of legislation, guidance and case law. There is a broad principle of concessionary travel reimbursement that requires that bus operators are, in accordance with the regulations made to accompany the Transport Act 2000 and with EU Regulation 1370/2007, "no better and no worse off" than they would otherwise be in the absence of the concessionary fares scheme. In practice, that principle, known as the Objective, is frequently not met in respect of individual operators and individual concessionary fares schemes.

Local authorities responsible for the administration of concessionary travel (until April 2011, district or unitary councils in England; thereafter, county or unitary councils) are each required to engage with local bus operators in their area to reach an agreed position on concessionary reimbursement that accords with the Objective set out above. However, in many cases agreement cannot be reached, with operators believing that they will be under compensated under the provisions of the reimbursement arrangements dictated by the local authorities. Provided that the correct procedure is followed, operators are permitted to appeal to the Secretary of State for Transport against any scheme that they believe fails to meet the Objective or is otherwise unlawful, and this has led to many appeals each year against such schemes.

Major revisions to the Guidance, issued by the Department for Transport to local authorities and operators, specifying how reimbursement arrangements should be calculated and implemented, has taken place prior to the publication of local authority concessionary travel arrangements to take effect from April 2011. Whilst there remains much scope (and need) for negotiation between operators and authorities between now and that date, initial indications are that the revised schemes, taking account of the new (and more prescriptive) guidance, will significantly reduce the reimbursement which will be paid to operators from April 2011. The scale of the reduction varies by geographic area, tending to be most draconian in rural areas and in those with longer distance services charging generally higher fares. The impact has been initially estimated as reducing operator income from concessionary reimbursement by between 20% and 50% for most FirstGroup schemes, with an overall reduction across all schemes of at least 13%. Given that concessionary travel can now account for up to 50% of total patronage in many local areas, this adds a further significant burden to those being faced by operators, as it effectively leads to a revenue reduction of 10%-25% in those areas. Once again, this needs to be recovered by operators if long-term stability and sustainability is to be maintained, and this will have to be achieved largely through increases to fares and reductions in services.

The impact of the new concessionary schemes will be to leave operators considerably worse off than they are today. Irrespective of the relativity of reimbursement compared with costs and revenue at present, this can only lead to one effect: that operators will be forced to adjust fares and services in order to achieve the same level of profitability which is required to ensure that sufficient funding is available to maintain investment and improve services. So there must be a reduction in services and a fares increase, the impact of which will be to reduce social mobility, to reduce the accessibility of jobs and services, and to increase the relative reliance on the private car for transport, thus increasing congestion, greenhouse gas emissions and carbon production.


Bus operators do not generally reduce service provision or increase fares without having taken into account the views and requirements of passengers. Service reductions not only render individual services less attractive to passengers, but also can often have the effect of making public transport no longer viable for a particular journey. This can undermine the viability of a far wider network of services in a relatively short time.

Fares increases are always unpopular with passengers and, with public transport being a derived demand and there being alternative modes available for the essential journey, demand is elastic with respect to fares. Therefore implementing a 5% fares increase to compensate for a 5% increase in costs, occasioned by (for instance) a reduction in BSOG or in the rate of concessionary fares reimbursement, will not yield a 5% increase in revenue, since a proportion of passengers will elect to travel by bus no longer. Typically this might instead yield only a 2-3% increase in revenue, so to achieve the sought 5% revenue uplift, a 10% fares rise may be required.

As demand gradually wanes in response to such service cuts and fares increases, the vicious spiral of decline takes hold, with services ultimately becoming unsustainable and resulting in entire communities no longer being served by local buses.

It is therefore essential that operators consult with passengers before implementing such measures, as is generally the case today. Reading press cuttings will reveal many examples where operators have proposed cutting or revising services, either to address cost increases or for other reasons, but have ultimately revised their proposals in the face of adverse public reaction. There is a role for Passenger Focus in the process, but First believes that this role should be one of "neutral observer", initially, whilst the facts of the case are confirmed, followed by an advocacy role to support operators in pursuit of actions being proposed to redress the various funding cuts that are affecting the industry, once they are satisfied that the case for such actions is proven.


First will be pleased to submit oral evidence to the Committee, building upon this initial submission through the presentation of actual examples of these various phenomena and an identification of the actual impact these have had on local bus services and the wider impact on the local communities these serve.

As FirstGroup noted in its response to the recent consultation on revisions to concessionary fares reimbursement, there are significant consequences for the wider community from these various actions and policies. These will impact particularly adversely upon rural communities; social exclusion; network growth, investment and development (sustainability); fares; climate change; environmental policy; health and wellbeing; and employment.

All these impacts are in direct conflict with wider government policy, therefore it would seem to be essential that efforts are made to quantify the likely effects, in order to determine that the policy imperative driving the alterations are not in fact contrary to wider governmental objectives. This was a particular failing of the Impact Assessment produced for the revised concessionary reimbursement guidance.

The problems from reductions in BSOG and concessionary reimbursement are in fact compounded by, and themselves compound, the effects of the reductions in local authority funding. First believes that it is unlikely that local authorities will be willing or able to step in to replace services cut by operators as a result of these cuts, at a time when local authority funding for provision of non-commercial services is already being cut.

There remain many people, even if they are a minority, who are reliant upon the bus as their sole means of transport. Any suggestion that local authorities may step in to replace services cancelled by operators again ignores the point that these authorities are themselves highly unlikely to be able to afford such additional expenditure.

January 2011

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