Friday, 18 March 2016

Fares please

George Osborne has pursued a strategy of cutting public expenditure but forcing increases in fees, charges and taxes to mitigate the service impact.

Early in his reign, he pushed VAT up to 20%. This year, he has told councils to additionally increase council tax by 2% specifically to pay for adult social care and he’s told police commissioners to increase their precept by 2% to partially stem the cuts in police numbers.

With other services, Osborne has cut resources, reduced service provision but forced increases in charges every year. Bus services are a good example of this. Budgets for bus services have been cut in this region by 31%, and bus fares have risen by 27% since David Cameron came to power in 2010, whilst general inflation (RPI) has increased by 19%.

Margaret Thatcher effectively privatised bus services in 1985. Most bus routes run on a commercial basis, with the bus operator setting the fares and timetable. Since 1985, local bus passenger journeys (outside London) have fallen by nearly 40%; which partly explains the significant increase in congestion. Nowadays, one-third of all local passenger journeys are concessionary (elderly, disabled and youth).

Where no operator is willing to run a ‘commercial service’, the transport authority can fund services. Since 2010, more than 2,400 of these routes have been totally or partially lost as budgets have been cut. Local authority supported bus mileage (outside London) fell by 75 million miles between 2010 and 2015. On these routes, bus fares account for about 59% of the income (78% if concessionary income is included) with the rest being subsidy.

As budgets have been cut, young people have been hit badly in some areas. Seven authorities have already removed all fare concessions for young people and a number of other authorities have announced that they will have to remove them in the light of Osborne’s announcement in the December local government settlement that funding will be cut by a further 25% in real terms over the next 5 years.

Locally, in the Sheffield City Region, the first moves in moving to a different model of regulation were not managed well by either the transport authority or the bus companies. Hopefully lessons will have been learned.

Meanwhile, the largest bus operators continue to report significant profit margins: for example, last year, Stagecoach reported a 13.5% operating profit margin on its regional bus routes. This has been achieved by what the Competition Commission called ‘geographic market segregation’ and where ‘head-to-head competition is uncommon’; in other words, the bus companies act as oligopolies which have carved the market up between themselves.

The key challenge locally will be to see whether, through local innovation, the continuing decline in bus usage can be reversed.

Annual Bus Statistics

Public Transport Fares