Bus services in England outside London Contents

3Funding of bus services

28.While 58% of revenue for bus operators comes from passenger fares,50 the Government funds bus services in several ways to a total of approximately £2 billion per year.51 The bulk of Government funding comes through the Revenue Support Grant paid to local authorities.52 This includes the monies for concessionary fare reimbursement that the local authorities then pay to bus operators. The Bus Services Operator Grant (BSOG) is paid to either local authorities or bus operators, and was originally introduced as a mechanism for bus operators to recover their fuel duty costs. The Government has also made available grant funding for specific initiatives, for example: the Ultra-Low Emission Bus Scheme,53 the Clean Bus Technology Fund54 and the Transforming Cities Fund.55 Local authorities and bus operators can bid for these funds.

29.Transport for Greater Manchester said that the current funding system was not always useful and that the Government has “masked the lack of long-term assurance over funding for a mode that, of necessity, must play a major role in tackling congestion and air pollution and in safeguarding economic growth and social inclusion.”56 FirstGroup told us that the “Government invests significant sums in the bus sector, but it is uncoordinated, fragmented and piecemeal, and there is an unfortunate habit of specifying the public policy outcomes but failing to fund the means (concessionary fares being the most damaging example).”57 These views were reflected by most of the local authorities and bus operators we heard from.

Certainty of funding

30.How local authorities spend public money on buses is a political choice. Most of the funding that can be used for bus services is not ringfenced and can be used to fund other local services. Each local authority will have different priorities and funding pressures. Some of these will be statutory duties, for example social care and other socially necessary services. It can be hard for local authorities to prioritise the funding of buses when they are already struggling to fund social care.

31.We heard that while grant funding was useful in treating discrete problems, it did not look at the bus network in totality.58 Grants for specific purposes, like green buses, are time-limited and can be withdrawn. Darren Shirley, from the Campaign for Better Transport, told us that local authorities often choose to fund critical services rather than bus services. He said: “We need to have the funding from central Government given to local authorities ring-fenced, so that it goes towards funding transport services locally, especially buses.”59 A consequence of funding bus services in this way is that there is no certainty from one year to the next on the total funding available for bus services and the Government can choose to withdraw schemes it deems no longer necessary.60 This limits effective planning for bus services, which can only take place when a local authority has a stable funding stream for a sustained period. The Chartered Institute of Logistics and Transport and ITS UK told us that current funding does not provide certainty for bus operators or local authorities.61 Giles Fearnley from First Bus also told us “certainty of funding is so important for investment decisions” by operators.62

32.The Government’s Transforming Cities Fund (TCF) is designed to improve transport links and promote local growth within city regions with five years of funding.63 It has been welcomed as it will provide certainty of funding and investment in transport. Paul Woods from the North East Combined Authority said that the TCF provides “a more effective funding source over the next four or five years.”64 But the TCF has limited coverage. It is only for cities; towns and rural areas cannot access it. The 10 city regions65 shortlisted for the Transforming Cities Fund were announced in December 2018.66 Even for those cities which are eligible for funds from the TCF, only limited spending plans have been confirmed by Government so far. A press release of 26 March 2019 stated: “As part of the first tranche of the £2.5 billion Transforming Cities Fund, Derby and Nottingham, the North East, Portsmouth and Southampton will see the deployment of bus priority traffic lights to speed up trips to the city centres.”67

33.We recognise that in the current financial situation additional funding for bus services is not likely to be found. Whilst we would welcome more funding, the Government and local authorities need to think about how best to spend the funds they already have. Consistent long-term funding for local authorities would help to provide local authorities and bus operators with a degree of certainty, making it possible for them to plan more effectively how to meet the needs of passengers. We recommend that the Government bring forward a more stable multi-year funding model for local transport, including bus services, by the summer of 2020.

Bus Service Operators Grant (BSOG)

34.Bus operators must pay fuel duty, while aviation and rail services do not.68 The Bus Services Operators Grant (BSOG) was originally conceived as a fuel duty rebate, although it is no longer calculated on that basis. In some areas the Government gives BSOG directly to bus operators. In others, such as Mayoral combined authorities, the local authority receives the payment and can decide how it is paid to bus operators. A local authority does not have to spend the money in the way outlined in BSOG guidelines, for example providing a rebate on fuel duty paid by operators, but are able to spend it on other measures, such as encouraging operators to invest in smart card readers for contactless payments.69 In some areas BSOG is spent on buses powered by alternative fuels. Electric buses do not have a “fuel” on which any duty is paid and so are not eligible for BSOG in areas where it is used as a fuel duty rebate.

35.We heard from the Government, local authorities and bus operators that BSOG was necessary for the bus industry to function. The Government told us that “BSOG keeps fares 3% lower, service levels 6.7% higher and patronage [bus passenger numbers] 4.4% higher.”70 Local authorities have told us that BSOG has lessened the impact of budget pressures71 and we heard from bus operators that they depend on BSOG payments.72

36.In October 2010, the spending review reduced funding for BSOG by 20%, saving £300 million by 2014/15.73 Further reform of BSOG has been proposed by two previous administrations in the last five years.74 The Coalition Government proposed further reform of BSOG in July 2014. In the next Parliament the Department for Transport said, “A decision on the changes to be made on BSOG is expected later in 2018.”75 To date nothing further has been published. Many of our witnesses welcomed the commitment by the Government to reform BSOG. But a decision is not imminent; the Minister told us that the Government would look at the funding of BSOG after the Spending Review in 2019.76

37.Claire Walters from Bus Users UK suggested that, instead of BSOG, fuel duty for buses should be removed: “If we could stop having to do all the work involved in BSOG and just exempt buses and coaches from fuel duty, it would make life a bit easier for the people running those services.”77

38.BSOG is clearly in need of reform. The Government claims that it is committed to reforming BSOG, but for five years little has happened. It now looks like no decision will be taken until after the 2019 Spending Review. The arrangements for BSOG appear to have evolved organically and there is no obvious rationale for the different arrangements under which payments can be made, or the different choices some local authorities can make in respect of the things for which BSOG is paid. In certain areas Government has recognised that local authorities are able to use this funding as they see fit, but this is not true everywhere.

39.We recommend that, before the start of the Spending Review later this year, the Government set out a plan for how BSOG will operate, what it is intended to achieve and how it will be reformed to achieve these aims.

Concessionary fare reimbursement

40.Free local concessionary bus travel, with the aim of improving the lives of older and disabled people,78 was introduced across England in 2008.79 The statutory scheme provides for travel between 0930 and 2300 on weekdays and at any time at weekends and on Bank Holidays on scheduled services. Pass holders can travel for free on any local bus service in England. There were 8.5 million concessionary passes in England in 2017/18, down 1.4% on the previous year. Concessionary passes are available to older people when they reach state pension age and eligibility is linked to changes in that age (i.e. rising to 66 by October 2020).80 The journeys taken by concessionary pass holders were down by 4.8% to 884 million journeys in 2017/18.81 There are separate statutory schemes in Scotland, Wales and Northern Ireland with different eligibility criteria and benefits. Local authorities can also fund additional discretionary schemes.

41.Local authorities are responsible for reimbursing bus operators for journeys made by passengers with a bus pass entitling them to concessionary travel. The Government funds this reimbursement as part of the main Revenue Support Grant for local authorities. Local authorities can offer more than the statutory concessions, for example allowing concessionary pass holders to use their pass before 0930. Local authorities are responsible for funding any concessionary travel that goes beyond the scheme introduced by the Government.

42.The reimbursement rate offered to bus operators for concessionary fares is based on a principle of “no better and no worse off” than had the scheme not existed. We have been told that, at present, the reimbursement scheme does not achieve this. The Minister agreed with the view that concessionary fares are not fully funded and that some of the cost of them is borne locally and indeed subsidised by full-fare-paying passengers.82

43.Reimbursement covers a single journey regardless of length; a journey of 1 mile and a journey of 10 miles are reimbursed at the same rate, irrespective of whether a normal fare would be greater for a longer journey. This affects rural bus services as journeys are likely to be longer. The rate at which bus operators are reimbursed for concessionary fares varies across the country.83 The average reimbursement per fare, per passenger received by bus operators across England is 99p. In London it is 84p, in metropolitan areas it is 99p and in non-metropolitan areas is 110p.84 The Department has issued guidance around concessionary fare reimbursement,85 and a calculator to work out the reimbursement rate.86 John Godfrey, from the TAS Partnership, told us that the base fares being used to calculate reimbursements are from 2005/6 and the reimbursement level tends to be below the level of current fares.87

44.At present reimbursement of concessionary fares for bus operators does not meet the principle of “no better and no worse off”. This principal is objectively impossible to test. The reimbursement calculator given to local authorities by the Department for Transport is based on fares in 2005/06. Local authorities, with already stretched resources, often feel compelled to cover the shortfall. This potentially puts bus services at risk. If services are withdrawn it could have a disproportionate effect on vulnerable people, and they may become more isolated. This runs counter to the stated aim of the concessionary fares policy: improving the lives of older and disabled people.

45.We recommend that the Government review how it finances concessionary bus passes, and the guidance to local authorities on reimbursement of bus operators, with a view to meeting the principle of both local authorities and bus operators being “no better and no worse off”. As a priority, the Government should re-baseline the reimbursement rates on ticket prices for 2017/18 prices; and should continue to re-baseline fares every four years so that the principle of “no better and no worse off” is maintained and the reimbursement rate remains broadly in line with current fares.

46.In this inquiry we specifically looked at the issue of reimbursement for bus operators from local authorities on concessionary travel on buses. Although we have taken evidence on funding from central Government for reimbursement to local authorities, this issue is complicated, and we wish to dedicate time to investigate it thoroughly. We also identified a number of issues regarding concessionary fares more widely on other modes of transport. There appear to be a great many inconsistencies in concessionary travel policy. We have also heard some evidence to suggest that the policy outcomes might be delivered more effectively by other means. We intend to return to the issue of concessionary travel, across different modes of transport, later in the Parliament.

Total Transport

47.Total Transport is the bringing together of budgets and expertise across policy divides, such as education, health and transport. In their report on “Passenger Transport in Isolated Communities”, our predecessors encouraged the Government to consider Total Transport.88 The Government accepted that recommendation and, in 2015, launched a Total Transport Pilot Fund.89 It allowed “Local authorities in England [to] bid for resources to implement a cross-sector approach to the delivery of supported public road passenger transport services.”90 The fund was intended to enable hospital transport, school transport and other services to be more coordinated and provide better value for money for the taxpayer.

48.Devon County Council told us that their Total Transport money had provided a real benefit for their rural area. It funded a patient transport advice service that was still operating even though the funding had ended.91 Karen Rose, from Devon County Council told us:

In terms of the passenger advice service, some lessons learned are that it does take a while to build up the partnership that is required to make things happen. The benefits are better planning, refining eligibility, as I mentioned, opening up a larger supplier basis, and good financial management of those processes. The challenge is marrying up the different processes of different parties and managing expectations […] Sharing data has been an issue. Perseverance is a big issue there. We have had a lot of different people come and go in that partnership and it is about maintaining contacts with people who have the relevant information to make sure we can help that process go forward.92

Nusrat Ghani MP told us that an evaluation of the Total Transport pilots would be published later this year.93

49.We are pleased that the Government accepted our recommendation to introduce pilots for Total Transport and are encouraged by the positive stories we have heard of these pilots. However, we are concerned that it has taken the Government four years to publish an evaluation of the pilots. We recommend the Government publishes its evaluation of the Total Transport pilots by the end of the summer 2019. If the results of the pilots are successful, the Government should continue to fund and roll out this approach.

Bidding for grants for bus services

50.The Government has provided grants for infrastructure and buses that local authorities and operators can bid for. Bidding for such grants is costly. Some local authorities are much more effective at bidding for such grants and as a result can benefit disproportionately from them.94 While there is variable interest in bidding for grant funding among local authorities, we heard that budget cuts and a loss of skills had made some local authorities less capable of applying for such funding.95 Paul Woods from the North East Combined Authority said “There is a kind of postcode lottery in where that funding might go and the benefits that might come from it.”96

51.The Minister told us that when looking at the bids for funding “sometimes the same bunch of names comes forward.” She said, “I have challenged the [Department for Transport bidding] team to do what we can to make sure that we are supporting the widest possible group of people”.97 Catriona Henderson, Head of Buses and Taxis at the Department for Transport, said that the Department had been told people “get really tired of bidding for things” and meeting the cost of bidding.98

52.Many local authorities lack the capacity and expertise to bid for grant funding. Local authorities with experience and expertise in formulating bids may be disproportionately benefitting from such funding. The Government has a responsibility to make funding accessible for all local authorities that could use it effectively to improve bus services in their area. In the short term, the Government should directly inform all local authorities of the bid-for funding available. In the longer term, we recommend that there should be a review across all bid-for funding for buses from the Department for Transport. By the end of 2019 the Department should, in concert with the Local Government Association, assess and publish details of how much it costs local authorities to bid for this funding, whether they receive the funding or not.

Socially necessary services

53.When the bus market was deregulated in the 1980s there was no clear definition of a socially necessary service. Rural areas are less likely to have bus services as there is less population density when compared to urban areas. It was expected that local authorities would be able to subsidise routes that bus operators did not find profitable, but there is no requirement for local authorities to provide socially necessary bus services. Over time, pressures on local authority budgets have made it more difficult for local authorities to fund services that are not commercially viable.

54.Local authorities have powers to provide services, under tender, to meet public transport requirements within their area that would not be met in any other way.99 This is common practice. Some services in any given area are likely to be subsidised as councils have deemed them important routes for social and economic reasons. Bus operators must give notice to the local authority and Traffic Commissioner that they plan to introduce, change or withdraw a bus route, as shown below.100 The longest notice period is 70 days (it was formerly 56 days) but this can be reduced—ultimately to 42 days—if the local authority responds before the end of the 28-day period it has to respond.101

The initial 28-day period is to allow the local authority to consider if they will provide a replacement service102 by putting the route out to tender as a socially necessary service.103

55.Local authority spending on tendered routes has fallen over time. The Campaign for Better Transport has highlighted that since 2010/11 local authorities have reduced their spending on supported bus services in England by 46%, a net reduction of £172 million.104 290 bus routes in England were reduced or withdrawn in 2017/18.105

56.In the absence of bus funding reform, the extent to which local authorities are able fund socially necessary services could be severely constrained. We recommend that the Government review, as a matter of urgency, the financial ability of local authorities to fund socially necessary services and report on this by the end of 2019.

57.While local authorities have the flexibility to make tendering decisions based on the particular circumstances of their locality, there is no clear direction or strategy about what services should be deemed necessary and protected. The Government should define socially necessary services by the end of 2019, and provide guidance on the services it expects local authorities to prioritise when tendering for socially necessary services.

52 The main un-ringfenced central government grant given to local authorities.

53 Department for Transport, Ultra-low emission bus scheme: successful bidders, 6 February 2019

55 Department for Transport, Transforming Cities Fund, 17 December 2018

56 Transport for Greater Manchester (BHC0167)

57 FirstGroup (BHC0122)

58 Q19, Q38 [Darren Shirley], Q118, Q402 [Paul Woods], Q404 [Giles Fearnley]

59 Q32 [Darren Shirley]

60 The Chartered Institute of Logistics and Transport in the UK (BHC0106), ITS United Kingdom (BHC0128)

61 The Chartered Institute of Logistics and Transport in the UK (BHC0106), ITS United Kingdom (BHC0128)

62 Q404 [Giles Fearnley]

63 Department for Transport, Record boost to R&D and new transport fund to help build economy fit for the future, 20 November 2017, Department for Transport, Transforming Cities Fund, 17 December 2018

64 Q402 [Paul Woods]

65 Derby & Nottingham, Leicester City, the North East, Norwich, Plymouth, Portsmouth, Southampton, Sheffield, Stoke-on-Trent and West Yorkshire.

66 Department for Transport, Transforming cities: shortlisted cities, 18 December 2018

67 Department for Transport, Bus revolution to put power in passengers’ hands, 26 March 2019

68 Mr Raymond Wilkes (BHC0006), Friends of DalesBus (BHC0037), Devon County Council (BHC0063), FirstGroup (BHC0122), Plymouth City Council-additional written evidence (BHC0177), Q37

69 Department for Transport, Bus Services: Grants and Funding, 29 September 2016

70 Department for Transport (BHC0052), paragraph 15

71 Devon County Council-additional written evidence (BHC0176), Plymouth City Council-additional written evidence (BHC0177), West of England Combined Authority (BHC0178)

72 Qq356–357, Q383. For more information please see House of Commons Library standard note, Buses: grants and subsidies, 4 December 2013

73 HM Treasury, Spending Review 2010, Cm 7942, October 2010, para 2.28

74 For more information please see the House of Commons Library standard note, Buses: grants and subsidies, 4 December 2013

75 Department for Transport, Bus Services: Grants and Funding, September 2016

77 Q37 [Claire Walters]

79 Department for Transport, Concessionary travel survey 2016/17 notes and definitions, 14 December 2017, p1

80 HM Treasury, Pre-Budget Report 2009, 9 December 2009, para 5.45

81 Department for Transport, Concessionary Travel Statistics England, 2017/18, 30 January 2019, page 1

84 Department for Transport, Concessionary travel survey 2016/17 notes and definitions, 14 December 2017, p6

85 Department for Transport, How to reimburse bus operators for concessionary travel, 26 November 2018

86 Department for Transport, Calculate your concessionary bus travel reimbursement, 10 January 2019

88 Transport Committee, Fourth Report of Session 2014–15, Passenger Transport in Isolated Communities, HC 288, para 42

89 Department for Transport, Total Transport Pilot Fund, 14 January 2015

90 Department for Transport, Total Transport Pilot Fund, 14 January 2015

95 Q39, Q60, Telford & Wrekin Council (BHC0079)

96 Q407 [Paul Woods]

99 Transport Act 1985, Section 63 (4)

100 Public Service Vehicles (Registration of Local Services) (Amendment) Regulations 2018 (SI 2018/439)

101 Increased from 42 days by the Public Service Vehicles (Registration of Local Services) (Amendment) (England and Wales) Regulations 2002 (SI 2002/182)

102 Traffic Commissioners of Great Britain, Notifying a local authority of a bus registration, 13 June 2018

103 If the operator receives a reply from the local authority indicating that they have received and considered the draft application before 28 days have passed, the operator can apply to the traffic commissioner straight away: Department for Transport, Bus Services Act 2017: Guidance on the New Arrangements For Registering, Varying And Cancelling Local Bus Services, accessed 24 August 2018, Page 4

104 Campaign for Better Transport, Buses in Crisis, 2 July 2018, page 2

105 Campaign for Better Transport, Buses in Crisis, 2 July 2018, page 7

Published: 22 May 2019