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London’s bus services have been thriving for a decade and a half. There are now more passenger journeys in the capital than in the rest of England combined. Other major cities are learning lessons from London’s success: Greater Manchester is taking on regulatory powers in their devolution deal; Nexus, Tyne and Wear’s passenger transport executive, is applying for the legal power to regulate its local bus routes.

Summary

Elsewhere, however – particularly in towns and rural areas – bus services have been decimated through a vicious cycle of falling patronage, rising fares and cuts to services, a process exacerbated by severe cuts to both local authority budgets and subsidies for bus companies. This has left many people isolated – particularly those without a car, which includes large numbers of young people, pensioners, disabled people, and those on low incomes or who are out of work.

IPPR proposes a new settlement for buses and other forms of sustainable public transport. The recommendations set out in this report build on the government’s successful total transport’ pilots, which supports initiatives that take a ‘cross-sector approach to the delivery of supported public road passenger transport services’, and which go with the grain of moves to devolve greater powers to city- and county-regions.

IPPR recommends the creation of ‘total transport authorities’ (TTAs) in travel-to-work areas which span multiple local authority geographies. These new bodies should take charge of all transport-related funding and regulatory powers, and encourage the delivery of bus services by a much wider range of providers, including social enterprises, community investment companies and municipal companies. TTAs would pool capacity and expertise rather than creating new bureaucracy.

In their first phase, TTAs would focus on the pooling of services already provided by local authorities, including school, community and welfare transport. Where appropriate, TTAs could regulate local bus services by franchising to provide greater certainty over routes, fares and services. In due course, TTAs could take on responsibility for public transport provided by other public bodies such as hospitals, GPs, further education colleges and higher education institutions. They should also help encourage innovation through the sharing of data, which is often protected by private companies, and by breaking the artificial barriers to cooperation maintained by the current competitive framework.

The government’s buses bill, announced in the 2015 Queen’s speech (HM Government 2015) could be amended to allow these reforms to take place. This would ensure that the coordination and innovation encouraged by total transport pilots could be rolled out across England. This would promote social justice by improving bus services for thousands of people in isolated communities, and reduce carbon emissions by providing a viable alternative to car travel.

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The networks of buses that serve England’s communities are essential. Buses underpin local economies by linking workers with jobs, and customers with shops and leisure opportunities. They provide essential services for those without access to a car, including many young people, pensioners, disabled people, those on low pay or who are out of work, and people who are disadvantaged in other ways. They also ease congestion on roads, reducing carbon emissions and improving the quality of life.

Yet despite their importance, England’s bus services are stalling. Outside London, bus patronage has been falling for years, and is now 36.5 per cent lower than it was on the eve of deregulation in 1986. In 2013/14 there were 2.32 billion passenger journeys in England outside London, compared to 2.38 billion in London alone – making it the second successive year that bus use was higher in London than in the rest of the nation combined.

This report investigates the nature and the causes of this decline, and examines a series of case studies in which local government or bus operators have innovated to improve services for consumers. We have focussed on small towns and rural areas, because England’s cities and city-regions have already benefitted (or stand to benefit) from a number of reforms and innovations, while less attention has been paid to services in less densely populated areas, where buses are especially vital for people without a car who need to access services and amenities.

Financial pressures on bus services in towns and rural areas

Bus services are currently funded by a mixture of fare revenues and various forms of public subsidy. The total operating revenue for local bus services was £5.6 billion in 2013/14, including £3.3 billion in passenger fare receipts, £1 billion in concessionary travel funding, £1 billion gross public transport support and £298 million in bus service operators grant (BSOG).

However, both the level and the composition of this funding have changed dramatically in recent years. There has been a proportionately large fall in public sector funding for buses since 2010. While almost all government departments have faced cuts, those applied to the Department for Communities and Local Government (DCLG) have been particularly extreme. Between 2009/10 and 2015/16, the DCLG’s current budget fell by £22.7 billion (65 per cent), while its capital budget fell by £6.6 billion (67 per cent). This has resulted in severe cuts to many local authority budgets, which have had knock-on effects on the bus services that they tender where particular routes are not commercially viable for private sector operators.

The 2010 spending review also cut 20 per cent from BSOG, which provides a subsidy to all local bus operators to reimburse them for some of the cost of fuel duty.

These central government decisions have directly and indirectly caused cutbacks to bus services in remote and rural areas. Although metropolitan areas have taken the brunt of cuts overall, non-metropolitan areas such as towns and rural areas have faced far greater cuts in local authority funding for buses. In addition, while the BSOG cut was proportionately smaller in non-metropolitan areas than elsewhere, analysis conducted in 2011 for the Department for Transport (DfT) projected that the impact of these cuts – in terms of higher fares and lower patronage – would be larger in these areas than in urban centres. Overall, the rise in fare receipts in non-metropolitan areas was not enough to prevent total operating revenue falling by 5 per cent. The lack of commercially viable bus routes in towns and rural areas therefore means they are threatened with a downward spiral of higher fares, lower patronage and poorer services.

As well as adversely affecting towns and rural areas generally, these cuts have had a particularly negative impact on the five key groups on whom we focus in this report: older people, younger people, the unemployed, low-income employees and disabled people (see section 2.3). With local authority finances under extreme pressure, some have chosen to cut back on tendered bus services. In North Yorkshire, for example, funding cuts have left many people without access to essential services. Given the new government’s commitment to further deep spending cuts in unprotected areas such as local government, these pressures are likely to worsen in the coming years.

New thinking and innovation

In the absence of additional funding for England’s buses, there is a need for fresh thinking and new policy ideas if they are to avoid becoming a ‘Cinderella service’. With this in mind, there are a number of existing trends that could be built upon.

  • Momentum has swung behind the reintroduction of bus franchising in some areas outside London, such as Greater Manchester, Tyne and Wear, and Cornwall.1 This reflects growing recognition of the fact that a liberalised bus market is not always in the interests of passengers.
  • The growth of alternative business models such as social enterprises and community interest companies, and the continued strength of some municipally owned transport schemes, demonstrate that conventional commercial operations are not the only option.
  • Where they exist, partnerships between operators (in areas such as smart-ticketing) have improved upon the status quo, while profit-sharing arrangements between operators and authorities also appear to have met with some success.
  • Technology is being utilised to create more ‘demand-responsive’ transport that is more capable of matching the demand for and the supply of local bus services in places like Lincolnshire and Staffordshire, and to develop integrated smart-ticketing systems that surpass London’s Oyster card.

Closely related to these developments and initiatives, there is growing recognition of the different publicly funded ‘shadow’ bus networks that could be consolidated more effectively. Local authorities, government departments and agencies are all funding different services within the same geographical area. Doing more to align these services would, therefore, be good policy regardless of any cuts to funding. Notably, local government spends almost £1 billion on meeting their obligations to provide special educational needs and home-to-school transport. While there is no question over whether this provision should continue, there is scope for policymakers to find much-needed savings by, for example, coordinating these services at a higher tier, maximising the use of their vehicles, and cooperating in the development of ‘travel training’ schemes.

The total transport pilots – 37 pilots funded from a relatively small pot of seed funding (£7.6 million) by the DfT – are an attempt to make these networks work more efficiently. They provide resources for the local integration of public transport services run by different public bodies, with the aim of ensuring that public funding is coordinated in order to better meet passenger needs and ensure the survival of essential routes. Areas in which these pilots have been successful range from Cambridgeshire and Staffordshire to a rural area corner of Greater Manchester.

Initial results suggest the potential for significant savings, which could be reinvested to maintain and develop services. Northamptonshire estimates that it will be able to save £1 million per annum; if this rate of saving was replicated across all English authorities in 2015/16, the savings would run to about £102 million.

Recommendations

In the course of the research presented in this report, IPPR conducted focus groups and interviews with service users, representatives of the specific groups mentioned above (older people, younger people, the unemployed, low-income employees and disabled people), and people working for bus operators, local government and government departments, and in academia.2 Our recommend­ations for how bus services in the UK can be improved, particularly for vulnerable people who are reliant on these services, are underpinned by four principles.

  1. Buses are critical to enhancing social justice and tackling carbon emissions.
  2. Decisions about the reregulation of bus markets are best made at the level of city- and county-regions, rather by central government.
  3. Better outcomes can be achieved through the integration of public funding on buses and public transport at the regional level.
  4. These reforms should be undertaken in a way that supports rather than stifles innovation.

Our recommendations build on:

  • the continuing success of franchising by Transport for London (TfL) and the extension of this model to Greater Manchester
  • the collaboration, cooperation and innovation stimulated by the total transport pilots
  • the government’s welcome devolution of powers towards cities and county-regions around the country.

We believe that there is a compelling case for the creation in towns and rural areas of new ‘total transport authorities’ that would bring together decision-making on bus services and other sustainable, public transport in travel-to-work areas. These bodies should be empowered to take on regulatory powers to franchise bus routes in their area, bring together all public funding for buses and other sustainable public transport – initially from local authorities but, in time, from other public bodies – in their region, and encourage innovation and cooperation by bus operators.

1. A new strategic body for public transport in towns and rural areas

New ‘total transport authorities’ (TTAs) that cross local authority boundaries should be created in non-metropolitan areas. These would be similar to passenger transport executives (PTEs), which already exist in many metropolitan areas, but would take on greater powers and funding responsibilities (see below).

Where local authorities choose to create TTAs, the new bodies would pool resources in order to build the capacity and expertise required to take on new powers; they would not necessitate new bureaucracy. They should cover functional economic or travel-to-work areas, such as those that already underpin combined authority or local enterprise partnership geographies. The resulting economies of scale would enable more strategic expenditure and stimulate innovation.

TTAs should explicitly align their transport strategies with the economic, environmental and social strategies of their constituent authorities and local enterprise partnerships – including, for example, their public health and economic regeneration strategies. TTAs’ transport plans should explain how they intend to deliver transport connectivity across all modes of transport, particularly for those vulnerable groups who are more likely to rely on buses. Their plans should be integrated with land-use planning, and should ensure that public transport is provided for new housing and commercial developments.

TTAs would mean more local democratic control over both bus networks and public expenditure on buses. If and when combined authorities are developed in non-metropolitan areas, there would be a strong case for TTAs being accountable to them. Otherwise, TTAs should be accountable to a local committee of councillors and independent members that is similar in structure to the old police authorities. Passenger transport users should be formally involved in scrutinising and advising TTAs, similar to the way in which local Healthwatch organisations engage with health and social care services. TTAs should be responsive to local demand – for example, they should respond to petitions from local people for the consideration of new routes.

2. Reforming and pooling public spending on buses

Over time, total transport authorities should take on responsibility for all public spending on public transport in their locality, and do so in order to spend it more strategically. We propose that this takes place in four stages.

First, BSOG should be frozen in real terms and devolved to TTAs if they reregulate their bus markets. The stability of this revenue stream is vital for transport authorities to effectively plan their networks and, having already been cut by 20 per cent, total expenditure on BSOG should be kept at current levels in real terms for a period of 10 years. Subsequently, and as is already the case in London, BSOG funding should be devolved to TTAs and PTEs in tandem with the power to reregulate. The DfT has previously indicated that this would be the case for areas that successfully pursue a quality contract scheme (QCS). It would then be for TTAs to determine whether and how to reform their allocations within their networks. The current allocation, which is based on fuel usage, is inefficient and does not target resources where they are needed – to rural areas, for example. TTAs could choose to, for example, allocate payments on the basis of patronage or distance travelled; equally, they could use it to fund other, non-commercial bus services.

Second, local authorities should be given the power to transfer their budgets for public transport – such as community, welfare and school transport – to TTAs. This would provide more rational geographies for policymaking, and by enabling larger scales and greater capacity could deliver better deals for residents and taxpayers. In time, TTAs could become responsible for more of the publicly funded bus routes within their area, such as those tendered by hospitals, GPs’ surgeries, further education colleges and higher education institutions. To that end they should learn from the total transport pilots that are currently underway, and draw on the idea of a ‘connectivity fund’ (PTEG 2014a; CBT 2015).

Third, local authorities should be allowed to transfer responsibility for statutory concessionary travel to TTAs. While this report does not advocate the removal of concessionary schemes for over-60s and disabled people, TTAs could consider innovations. For example, schemes could be developed to enable older, wealthier residents to voluntarily donate free transport to younger residents who need free travel in order to access work, education or other services.3 Spending on discretionary concessionary fares could be spent according either to the priorities of the TTA as a whole, or those of its constituent local authorities. Either way, the actual process of tendering of services could be undertaken by the TTA itself in order to get the best deal.

Finally, local authorities should be given the power to pool the capital expenditure that is currently spent on public transport, which would allow these resources to be spent more strategically. Central government should allow TTAs to borrow in order to fund capital investment, as TfL does currently. TTAs should also consider making more innovative use of capital expenditure. For example, the Strathclyde Partnership for Transport has demonstrated that investing capital in a fleet of buses and leasing these to operators on their subsidised routes can result in a significant revenue saving (SPT 2015). Such a move would also enable TTAs to invest in low-carbon vehicles.

3. Enabling a ‘whole network’ approach to franchising

Franchising has worked effectively in London for 15 years, and is now being adopted in Greater Manchester and possibly also in Tyne and Wear, West Yorkshire and Cornwall. Its main advantage is that it allows localities to retain fare revenue and to use it more strategically to cross-subsidise non-commercial routes. Franchising also allows greater democratic accountability over fares, services and routes, and makes smart-ticketing and data-sharing more viable. It ensures greater integration and efficiency at a network level by ensuring that competition laws cannot be used as an excuse for a lack of cooperation between different bus providers.

By contrast, the current system in the rest of the country means that people – many of them poorer and living in out-of-town areas – often have to take several buses, run by different operators, in order to get to low-paid jobs in other parts of a town’s periphery, incurring high costs as a result. This acts as a disincentive to work, increases poverty, and discourages people from using public transport networks. While some bus operators are now planning to offer multi-operator ticketing, these tickets tend to come at a premium.

The government should simplify the test for implementing a quality contract scheme, so that TTAs will have the option to undertake franchising. There are concerns that non-urban areas will fail to make franchising viable because they have only a small number of profitable routes. The geography of total transport authorities must therefore include a mixture of commercially viable and non-commercial routes. This would ensure that there is a reasonable level of profit within the area that can be used to cross-subsidise less profitable routes.

Franchising should be used to catalyse innovation by operators. First, attention must be paid to the size of contracts – getting the best deal for passengers and taxpayers may mean striking a balance between large, ‘bundled up’ contracts that cross-subsidise, and smaller contracts that enable healthier competition and realise the advantages of smaller local providers, as Nexus has done in their pursuit of a QCS. Second, TTAs may decide to award ‘non-compliant’ contracts (whereby an operator may innovate beyond the authority’s specification in order to deliver a better deal overall). Third, within some TTAs’ areas there may be a need to explore joint rail and bus franchising, franchising that links commercial tenders with community transport via consortium bids,4 or contracts that embed an element of demand-responsive transport.

There is no single model of reregulation, and a variety of options should be pursued. For example, under ‘gross cost contracts’ a franchising authority retains both fare revenues and risk, and pays a service charge to the operator (which makes a profit by putting downward pressure on its costs base). These have been taken a step further by TfL in the form of ‘quality incentive contracts’, which also reward and fine operators based on the quality of service they deliver. By contrast, ‘net cost contracts’ transfer the fare revenue and risk to the operator, which can make a profit by raising demand. In rural areas where demand may already be maximised, there are clear advantages to using gross cost or quality incentive contracts.

Another approach that TTAs might want to consider is a profit-share arrangement, which is working successfully in the case of HCT Group in Jersey. Municipal bus companies also provide the opportunity to share profits, and so may be a model worth considering for some TTAs.

4. Enabling and encouraging innovation

As outlined above, significant innovation is taking place in demand-responsive technology, new ticketing arrangements, and new business models. TTAs will have an important role to play in both encouraging innovation and ensuring that their rules do not stifle new thinking.

TTAs should provide an environment in which initiatives to experiment with new routes can be taken forward by either operators or citizens. TTAs should therefore, and within reason, allow and encourage new routes to be developed outside of the current tendered network. The financial circumstances of local government mean that providing grant support will be a challenge; however, they could provide in-kind support and intelligence, while communities or operators could make use of innovative financial streams (as they have in the past). Pilot periods would allow an organisation to experiment for a set period of time, with the proviso that this arrangement is temporary until a point in time when it is either put out to competitive tender or ceases to operate. This could help facilitate innovations, such as a volunteer bus schemes that use local authority vehicles. This has worked well in Jersey, where LibertyBus trialled a volunteer bus scheme called Parish Link. TTAs should monitor the uptake and quality of these services, and manage passengers’ expectations appropriately.

Open data is becoming increasingly powerful in the transport sector, and TTAs should encourage and promote it as far as is possible. Open data has well-recognised potential, from helping engineers to identify structural weaknesses in infrastructure to managing traffic and planning transport services (POST 2014). Transport authorities have always tended to collect large amounts of data, but TTAs should keep up with rapid advances in both the production and utilisation of big data in order to make better use of it themselves, and to enable others to innovate.

The government should clarify competition and state aid law as it applies to bus services. There is a great deal of confusion within the sector about whether community transport operators can form consortium bids with commercial operators, for example, and about how organisations in receipt of grant funding can compete for commercial tenders. This uncertainty appears to be stifling innovation.

TTAs should share best-practice and intelligence, and government should not set them against one another in competitive bidding processes. Rather, the government should facilitate the creation of a TTA network to enable knowledge-sharing and secondments between transport authorities in rural areas and small towns.

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Together, these reforms would underpin local, integrated transport networks that put passengers and their needs first. Local government would be put in charge of developing ‘whole place’ transport networks on behalf of local citizens; public spending would be used as effectively and efficiently as possible; and innovation in technology and business models would be supported and promoted across the country.

1 Franchising is one means of reregulating the bus market; the two terms are used interchangeably throughout this report.

2 These interviews and focus groups were conducted in North and West Yorkshire, the North West, Essex and Jersey; additional phone interviews were undertaken to inform some of the case studies. All took place between April and June 2015.

3 Although greater uptake would, of course, mean higher public expenditure.

4 In which case the community transport associations involved may need to set up trading companies.