CfIT is an independent body established by the Government to
give it advice on various aspects of transport policy.
Local bus passenger receipts (including concession fares
reimbursement) for England outside London in 2000-01 were
£1,784m, rising to £2,195m with FDR and secured route
payments added, of which £703m (32%) was from public
sources.
The Bus Industry Monitor 2002, covering 85% of the UK market,
estimated industry pre-tax profits for 2000-01 to be 9.3% of
turnover, down from 10.7% the previous year. Operating costs
per kilometre rose 5% but are still 30% lower in real terms than
before deregulation in 1985-86, and CfIT's own work on
European Best Practice shows that bus operating costs in the
UK are the lowest in the EU.
We believe buses can and must play a bigger role in delivering
better public transport in Britain. No other mode can deliver
patronage growth as quickly or as cost-effectively. Buses have
been for too long the poor relation to heavy and light rail,
receiving neither the levels of public investment nor the
commitment. While railways get large subsidies and media
coverage, bus operators continue to carry nearly 70% of all
public transport passengers in an economic climate and
physical conditions that are increasingly difficult.
The bus moreover is best able to deliver social inclusion benefits
quickly and efficiently. Its flexibility allows it to provide access to
services, both to key destinations (such as employment, health
& shopping) and for leisure and social benefits.
We want to see a healthy, growing and financially stable bus
industry that can continue to build on its public and private
investment achievements of the last ten years. Changes will be
necessary to achieve this. The gap between bus fares and the
perceived costs of motoring has been widening, and motoring
costs are expected to fall by a further 20% in real terms in the
next 10 years, while bus fares are likely to increase further due
to industry cost pressures. Without fresh action, bus patronage
will decline further and congestion will worsen.
There are real opportunities for growth. It is already being
achieved in some areas where investment in vehicles and bus
priorities has been accompanied by the introduction of well-
marketed simple, quick, frequent, punctual and reliable
services. Such services can stand comparison with light rail and
European bus services, at much lower levels of public support.
We need many more of them if we are to see growth spread
more widely across the country.
We believe two fundamental requirements must be met if this
vision is to be achieved - challenging targets and clear
incentives for all those involved in the delivery of bus services.
The present 12% bus and light rail patronage growth target
includes London, and could easily be met by growth in the
London market alone. This provides insufficient incentive for
delivering growth in the rest of the country, without which a
virtuous circle of growth and service quality improvement is
unlikely to be achievable. We therefore recommend a similar
target for England outside of London, of 10% bus patronage
growth from 2002 to 2012.
Our objective is a subsidy regime that incentivises bus operators
as well as local authorities to deliver better commercial services
for passengers. This will allow public subsidy to be focussed
where it is most needed to combat social exclusion and
encourage modal shift to reduce congestion and pollution.
CfIT believes that the current legislation needs time to fully take
effect. Its effectiveness should be monitored but CfIT sees no
need for fundamental change. Two issues which however
emerged in consultation are the scope and coverage of
statutory Quality Partnerships, and guidance on the introduction
of Quality Contracts.
Effective partnership between the key stakeholders -
Government, local authorities and bus operators - is essential
to success, with each recognising the aspirations of the others.
Best Value Study
We commissioned a number of studies (TAS Partnership, Colin
Buchanan & Partners, NERA) to help us reach our conclusions,
three in 2000 and 2001 covering likely future industry profitability
and options for change. Following these, we commissioned a
major study from LEK Consulting to examine the best use of
subsidy, with objectives to:
- achieve at least 10% bus patronage growth in England
outside Greater London
- encourage modal shift to bus, particularly modal shift leading
to congestion relief
- improve accessibility for those socially excluded due to
transport issues
- reduce pollution from buses
LEK developed efficiency indices to measure for each option
the cost in extra subsidy to attract each extra passenger, with
the options then ranked. Their report in March 2002 contained
the following main Best Value proposals, estimated to cost
£355m in additional annual revenue subsidy and generate 25.1-
38.3% additional patronage (before allowing for any decline that
would otherwise occur):
- Fuel Duty Rebate should be replaced by an Incentive
Payment per Passenger (IPP), with additional funding to
protect rural and inter-urban services affected by the change
- more Quality Bus Partnerships (QBPs) and Park & Ride
schemes should be introduced
- half fare concession travel should be extended to additional
socially disadvantaged groups, and, where not already
provided, to under-16s and for education journeys for those
over 16, but restricted to 65% for elderly people
- additional bus and demand-responsive services should be
provided in rural areas
- there should be a framework to help establish rigorous
criteria for secured services
- there should be consistency in the calculation of concession
compensation payments to operators
- trials should be undertaken of dedicated home to school bus
services to reduce school runs by car
Of the estimated additional cost of £355m, £239m (67%) was
for social inclusion proposals, and the balance of £116m (33%)
for measures aimed primarily at encouraging patronage growth
and modal shift. The total figure would rise to £450m, including
increased IPP payments of £95m, if the forecast patronage
growth was achieved.
LEK also examined a constrained funding scenario, within
existing subsidy levels. This scenario, which offered poorer
value, included the following main differences:
- a lower IPP rate with funding netted off for services affected
by the change
- a more limited extension of concessions to additional
groups, funded by reducing existing concessions for elderly
people, wherever currently more generous, to the statutory
50% minimum, and under-16 concessions to education
journeys only
- deletion of Park & Ride proposals, which would require
additional revenue funding as well as capital funding
Consultation and Testing
We consulted key stakeholders on the LEK study and found a
large measure of agreement with the thrust of LEK's proposals.
There were however concerns, particularly from bus operators,
and from others about the use of Best Value criteria for
decisions on rural service provision.
We also commissioned a supplementary study
(FaberMaunsell/NERA) to test the likely impact of replacing FDR
with an Incentive Payment per Passenger. This concluded that
busy urban routes would become more profitable, and that
there would as a result be an incentive for operators to increase
patronage in these areas. Other routes were expected to
become less profitable, with some service rationalisation, and
with less incentive for operators to increase patronage. Major
network changes were not anticipated in the short term, as
operators were generally expected to seek to protect their
networks for strategic and competitive reasons. The study
therefore broadly confirmed LEK's findings, while raising some
doubts about the effectiveness of the proposed incentive
regime.
We evaluated the findings of all of our studies, and our
consultation, against Government policy objectives and our own
criteria, before finalising our recommendations.
Our Conclusions
It is very clear to us that in the absence of new policy initiatives,
passengers in many areas will get worse services, and buses
will continue to play a declining part in meeting transport needs
except on major urban routes. As a result the bus industry will
not deliver our vision, or meet long term policy objectives. We
think there is a strong case, with measurable benefits, for
additional funding, and that existing subsidies are not sufficiently
focussed on policy objectives and can be better directed.
We believe the LEK proposals offer a sound foundation for the
first steps to deliver these new initiatives, if strengthened by a
challenging patronage growth target and local authority
incentives. We believe that better value can be obtained from
existing subsidies, but that additional funding, determination,
innovation and closer partnership working will be needed to
meet our vision and to obtain best value.
We believe better value can be obtained from existing subsidies
by incentivising local authorities to develop more, and more
effective, Quality Partnerships, and implement them sooner. We
believe sufficient capital funds are already available within the 10
Year Plan for this. Restriction of concessions for elderly and
disabled people, where currently more generous, to 50% (rather
than the 65% suggested by LEK) would release funds that could
bring patronage growth and better value. We acknowledge that
this may be politically sensitive, but it has already been done in
some places. More rigorous appraisal of the need for
subsidised services would ensure that funds were used most
effectively and where most needed. This would also apply to
Challenge funding, which we would prefer to see integrated into
the local transport plan process and used for potentially
sustainable services. [Recommendations 1 to 6 cover these
and associated issues].
These proposals will provide a framework for moving forward,
but will barely deliver sufficient extra patronage (3.4% in the
short-term and 3.7% in the medium-term) to offset expected
continuing decline. We do not recommend the move from FDR
to IPP in such a constrained funding scenario, because we do
not think the level of incentive available (either financial or
political) would drive growth sufficiently to justify the uncertainty,
the upheaval, or the attendant changes to audit requirements.
We nevertheless believe that operator incentives are at least as
important to encourage patronage growth as those for local
authorities. Fuel Duty Rebate is a reasonably efficient subsidy,
but offers no direct incentive for growth. A direct measure such
as IPP would incentivise operators to find the best growth mix of
fares levels, frequency increases and service quality
improvements, and hence make the best decisions for their
passengers. We therefore support a move to IPP if
accompanied by appropriate local authority incentives, and if
IPP is complemented by additional funding to support sociallynecessary
services (mainly rural and inter-urban), as well as, if
needed, for a national smart card scheme to facilitate the
management of IPP. There should be an independent review
process to monitor the operation of these incentive structures.
We stress again that commercial incentive and real political will
to implement pro-bus measures is the best guarantee of
success, particularly if backed up by complementary highway
demand management, parking and land-use policies. These
should include additional Park & Ride schemes, with associated
bus priority measures, which are effective in delivering modal
shift and are important in reducing congestion on key urban
radial bus corridors. They also re-acquaint car users with buses (or
even introduce them to buses for the first time). They are however
expensive and ways need to be found to provide them more
cheaply. [Recommendations 7 and 9 cover IPP and Park & Ride].
We want to see more encouragement for young people to use
buses, and to reduce congestion caused by the car school run.
We therefore propose the general extension of under-16 half
fare concessions, where not already provided. We also propose
additional trials to test the effectiveness of providing new types
of dedicated home-to-school bus services, building on
those already taking place in Yorkshire and elsewhere.
[Recommendations 8 and 10].
Buses already play a major role in helping to reduce social
exclusion by improving accessibility to essential services for
those without access to a car. This role could be significantly
extended with additional revenue funding, and we believe that if
government wishes to reduce transport social exclusion, and
promote less car dependent lifestyles, provision of easier
access to bus services is the most effective way to do so.
Where levels of demand are low, demand-responsive solutions
(including community transport) may be more appropriate than
traditional bus services. Our proposals include the extension of
half fare concessions to additional socially-excluded groups and
to over-16s for education journeys, and some additional
services in rural and other areas where there are difficulties in
reaching necessary services, provided on the basis of defined
accessibility criteria. [Recommendations 11 to 13].
LEK identified, through surveys, a high level of suppressed
journeys in rural areas. We think local authorities and the
relevant rural agencies should start working together on this
matter without delay, particularly on demand-responsive
solutions, which are likely to be most appropriate.
We believe our recommendations should be extended to
Scotland and Wales, where the issues and regulatory
environment are similar. We believe FDR should be replaced in
London by a new equivalent additional grant to Transport for
London, in view of the different regulatory structure there. The
proposals for the extension of half fare concessions, where not
already in existence, should include London.
We see our recommended strategy as the first steps towards
delivering a renaissance in bus provision and use. It will require
additional funding but the potential gains are large, in terms of
patronage growth, service quality and modal shift. Although we
have not carried out cross-modal analysis, the sums proposed are
not large as a proportion of total planned transport expenditure,
and we believe they represent good value for money.
The time is right for bold and effective decisions to lay the
foundation for a healthy and successful industry capable of
playing an increasing role in meeting national transport strategy
objectives. Government should be much more positive about
buses, and make the necessary funding for growth available
quickly, if necessary by switching funds from other modes.
We believe that the best result will be achieved by implementing
all our recommendations as a package. We have however
prioritised them (as A: Highest, B: Medium and C: Lower Priority)
with the highest priority given to measures that deliver growth at
the lowest incremental cost, provide a more rigorous structure
for ensuring best value, or give more long-term financial
certainty for the industry. Taken alongside existing policy
measures, our Priority A measures should deliver the CfIT
growth target outside London.
We think existing users need a much stronger voice than they
have at present, to ensure their views on future services are
taken fully into consideration by bus operators, local authorities
and agencies such as the Office of Fair Trading. We think a Bus
Passenger Council should be established and funded centrally,
on a similar basis to the Rail Passengers' Council, to give users
a strong and independent voice, and to supplement and give
added force to the efforts of existing user groups.
We believe a strong and effective implementation and review
process, representing all stakeholders, is needed to ensure the
successful implementation of our recommendations. We think
the Government's new Bus Partnership Forum, extended to
include user representation, should take on this role. In addition,
it should address other issues identified in this report, including
the role of Quality Contracts and statutory Quality Partnerships,
OFT matters, and industry skills development.
Summary of Our Recommendations
Patronage Growth Target
The Government should formally adopt a bus patronage growth
target for England outside London of 10% by 2012 compared
with 2002 [Priority A]
Measures to Obtain Better Value from Existing Subsidies
1 Incentive regimes should be established to encourage
Local Authorities to develop and implement pro-bus
strategies, with capital funding released from 10 Year Plan
allocations dependent on progress towards the delivery of
bus targets [Priority A]
2 A rigorous evaluation framework should be established for
the appraisal of subsidised services [Priority A]
3 National guidelines should be established for fair and
consistent application of concession fare compensation
payments for operators [Priority A]
4 Challenge funding should be integrated into the Local
Transport Plan process and resources re-allocated
according to policy objectives and subsidised service
criteria [Priority A]
5 Government guarantees on tax rebates for alternative fuels
should be extended for a period sufficient to incentivise the
take-up of cleaner technologies [Priority A]
6 Where more generous concessions are currently applied,
concessions for elderly and disabled people should be
reduced to 50%, with funds saved re-allocated where they
can achieve better value [Priority B]
Measures to Further Promote Patronage Growth and Modal Shift
7 Fuel Duty Rebate (FDR) should be replaced by an Incentive
Payment per Passenger boarding (IPP); additional funding
should be made available for socially necessary rural and
inter-urban services in areas adversely affected by the
change; and a formal independent review process should
be established [Priority A]
8 Under-16 half fare concessions available for all journeys
should be introduced where not already provided
[Priority B]
9 Funding should be made available for additional Park &
Ride schemes [Priority C]
10 Further trials should be carried out of dedicated home-toschool
bus services aimed at reducing school car runs, to
build on those already taking place [Priority C]
Measures to Further Reduce Social Exclusion
11 Funding should be made available for additional bus or
alternative services in small towns, rural areas and isolated
urban communities where accessibility is limited [Priority A]
12 Half price concession fares should be extended to sociallydisadvantaged
groups on means-tested benefits [Priority B]
13 Half fare concessions should be introduced, where not
already provided, for education journeys for 16-18 year
olds and others in full time education [Priority C]
Costs and Benefits
The estimated costs and benefits of our individual
recommendations, based on the LEK analysis, are set out in
Table 1 and summarised below, including second-order costs
arising from growth in IPP payments (short-term and mediumterm
figures):
- Priority A: additional annual revenue subsidy £69m-£96m,
capital over 10 years £267m, estimated patronage growth
8.1%-18.7%, broadly meeting our growth target allowing for
trend decline
- Priority B: additional annual revenue subsidy £196m,
estimated patronage growth 10.6%
- Priority C: additional annual revenue subsidy £121m-£124m,
capital over 10 years £883m, estimated patronage growth
4.3%-5.4%
All Recommendations: additional annual revenue subsidy
£386m-£415m, capital investment over 10 years £1,150m,
estimated patronage growth 23.0%-34.5%.
Table 1: Summary of Estimated Incremental Costs and Benefits of Recommendations
| short term taken to be 3 years and medium term 5 years after implementation | Priority
A,B,C | Annual Revenue Subsidy | 10 Year Capital £m | Cost per Incremental Passenger £ | Percentage Growth | Notes |
| Recommendation | Short Term £m | Medium Term £m | Short Term % | Medium Term % |
| Measures To Obtain Better Value from Existing Funding |
| 1 LA Incentives & linking 10YP allocations to bus strategy delivery |
A |
11 |
11 |
258 |
0.85 |
2.5 |
3.4 |
additional to existing LTP schemes; capital assumed already encompassed in 10 Year Plan |
| 2 Evaluation framework for appraisal of subsidised services |
A |
|
|
|
|
|
|
should realise efficiency gains leading to patronage growth |
| 3 Concession fare compensation guidelines |
A |
|
|
|
|
|
|
- |
| 4 Challenge funding to be integrated into LTP process |
A |
|
|
|
|
|
|
potential patronage gains from re-channelling these funds |
| 5 Restriction of OAP Concessions to 50% & funds re-allocation |
B
B |
-42
31 |
-42
31 |
|
|
-0.9
1.8 |
-1.5
1.8 |
patronage loss and cost saving from restriction of OAP concessions to statutory 50%element of Rec.12 extension of concessions to socially-disadvantaged gained from net OAP saving |
| 6. Extended guarantees on alternative fuel until at least 2010 |
B |
|
|
|
|
|
|
assumes no change from current funding |
| Total from Obtaining Better Value from Existing Funding |
|
0 |
0 |
258 |
na |
3.4 |
3.7 |
|
|
| Measures to Encourage Patronage Growth and Modal Shift |
| 7. Replacement of FDR by Incentive per Passenger |
A |
23 |
23 |
|
0.22 |
4.3 |
12.6 |
costs as estimated by LEK but could reach £30-50m; excludes any costs for Smart Cards |
| 8. Extension of under-16 half fare concessions |
B |
19 |
19 |
|
1.51 |
0.5 |
0.9 |
- |
| 9. Additional Park & Ride schemes |
C |
56 |
56 |
883 |
2.60 |
2.8 |
2.8 |
indicative figures based on desk research: less capital-intensive solutions needed |
| 10. Dedicated Home to School service trials |
C |
|
|
|
|
|
|
annual costs of full roll-out possibly £117-342m and growth 6.0-18.5% |
| Patronage Growth and Modal Shift Package Total |
|
98 |
98 |
883 |
na |
7.6 |
16.3 |
|
|
| Measures to Reduce Social Exclusion |
| 11. Additional accessibility funding for rural & other communities |
A |
15 |
15 |
9 |
0.47 |
1.3 |
2.7 |
figures relate only to additional bus services for larger rural communities; annual cost of meeting all identified suppressed "deep rural" journeys could be as high as £518m |
| 12. Half fare concessions for socially disadvantaged groups |
B |
161 |
161 |
|
0.72 |
9.2 |
9.2 |
additional to element covered in Rec.5 |
| 13. Extension of education concessions for over-16s |
C |
54 |
54 |
|
1.45 |
1.5 |
2.6 |
- |
| Social Exclusion Package Total |
|
230 |
230 |
9 |
na |
12.0 |
14.5 |
|
|
| GRAND TOTAL BEFORE ADDING IPP COSTS OF GROWTH |
|
328 |
328 |
1150 |
na |
23.0 |
34.5 |
|
|
| Additional IPP Cost resulting from growth |
| Priority A Measures |
A |
20 |
47 |
|
|
|
|
based on growth from existing FDR of £253m |
| Priority B Measures |
B |
27 |
26 |
|
|
|
|
based on growth from existing FDR of £253m |
| Priority C Measures |
C |
11 |
14 |
|
|
|
|
based on growth from existing FDR of £253m |
| Total Additional IPP Cost resulting from growth |
|
58 |
87 |
|
|
|
|
|
|
| GRAND TOTAL |
|
386 |
415 |
1150 |
na |
23.0 |
34.5 |
|
|
| By Priority including IPP Costs from Growth |
| Priority A |
A |
69 |
96 |
267 |
na |
8.1 |
18.7 |
|
| Priority B |
B |
196 |
195 |
0 |
na |
10.6 |
10.4 |
|
| Priority C |
C |
121 |
124 |
883 |
na |
4.3 |
5.4 |
|
| Total |
|
386 |
415 |
1150 |
na |
23.0 |
34.5 |
|
| By Package including IPP Costs from Growth |
| Patronage Growth and Modal Shift |
- |
135 |
159 |
1141 |
na |
10.1 |
19.7 |
includes Recommendation 1 |
| Social Exclusion |
- |
252 |
256 |
9 |
na |
12.9 |
14.8 |
includes Recommendation 5 |
| Total |
|
386 |
415 |
1150 |
na |
23.0 |
34.5 |
|
| Reconciliation to LEK (excluding cost of IPP growth) |
| Totals as CfIT recommendations |
|
328 |
328 |
1150 |
na |
23.0 |
34.5 |
|
| OAP Concessions restricted to 65% rather than 50% |
|
20 |
20 |
|
na |
0.5 |
0.8 |
|
| Inclusion by LEK of QBP growth already in LTPs |
|
7 |
7 |
|
na |
1.6 |
3.0 |
|
| Totals as LEK's Proposals (excluding cost of IPP growth) |
|
355 |
355 |
1150 |
na |
25.1 |
38.3 |
|
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