Pity the humble bus, always the Cinderella of English transport. On 17th November, Louise Haigh, then secretary of state for transport, announced her new policy which included a “once-in-a-generation reform to deliver London-style bus services to every corner of the country”. Will the now former secretary of state prove to have been the bus’s Prince Charming?
Three different issues tend to get confused when it comes to buses: First, local authority bus tendering (as in London) versus deregulation (as in most other places); second, public ownership of bus companies versus private ownership; and third, how much public money is granted as subsidy for buses. There may be ideological reasons to change the first two, but without a big increase in the third, subsidy, not much will change from the passengers’ perspective. The crucial question is how much money is the government offering to improve bus services?
In the early 1980s almost all bus services were monopolies owned, planned and operated by local authorities. Employees were members of the union now known as Unite. The Thatcher government faced ballooning demands for bus subsidy and sought ways to reduce it without ruining the level of service. Their solution was to reduce operating costs by introducing competition between bus operators for passengers. Further, to expose the employees to competition in the labour market they privatised the bus companies so that the earnings matched those in similar, unregulated occupations, for instance lorry driving.
In London, competitive tendering was introduced from 1984. Transport for London plans the routes, sets the fares, collects the revenues and invites competitive bids to operate each bus route on a five-year, commercial contract. This is the system that delivers the “London-style bus service”.
Everywhere else in England there was deregulation from 1985: bus operators could choose to offer services and set fares on a commercial basis, always at risk of attracting competition from rivals. Crucially—and this is often forgotten—local authorities retained the power to provide services additional to the commercial offer, procured by competitive tender. In 2005, 22 percent of the buses were procured in this way; by 2023 that had fallen to 16 per cent.
The policy achieved most of its objectives. Bus operating costs fell—particularly quickly outside London—as the terms and conditions of employment adjusted to match the less-unionised, general labour market. In London service quality actually improved. This was a benefit of monitoring delivery under formal commercial contracts.
Bringing the bus industry back into public ownership now would not, in itself, make much difference—unless nationalisation were to lead back to the pre-1984 scenario, with its higher than average rates of pay, inefficiency and increased unit costs. After all, in the “London-style” system, which the Department of Transport has pledged to ape elsewhere, operators remain in the private sector. The set-up continues to be successful, and it has not been changed by any of the London mayors.
The real difference between the London experience and elsewhere has been the amount of subsidy. With the help of government grants mayor Ken Livingstone avoided fare increases and increased bus subsidies from very little in 2000 to around £1bn in 2007 (at today’s price levels). Bus service frequency and reliability improved—helped by congestion charges, which he introduced in 2003—and bus patronage grew in response.
But outside London, the government’s hope that competition would expand the bus passenger market was not fulfilled. The decline in passengers since the 1950s has continued. There has been a vicious cycle in which the fall in revenues has led to a relentless and distressing decline in the number and frequencies of services offered—and further decline in the attractiveness of bus travel to passengers.
The volume of bus journeys on offer on local authority supported services halved between 2010-11 and 2017-18. The statutory duties faced by councils, together with reductions in the central government grant they receive, have squeezed their ability to fund local bus services. Another factor has been the inevitable increase in unit costs of bus operation in line with real wage rates in the economy, because labour is the biggest cost item for running a bus service. That has hurt the volume of both commercial and subsidised services.
As private cars have become cheaper, better and more widely owned, competition from them has systematically reduced the fares revenue available to sustain bus services. Fare levels have varied but, in the round, they have not increased faster (relative to general prices) than they did in London.
It is a mystery as to why central governments have systematically treated buses so much less generously than the railways. The National Audit Office’s “Overview of the Department for Transport for the new Parliament 2023-24” shows that, in that period, the department spent £1.2bn on bus subsidies and concessionary fares outside London and £21.2bn on national rail plus a further £8.7bn on HS2. That is twenty-five times more on rail than on bus.
Arguably, there are reasons to give more subsidy to bus than rail, not less. A much greater variety of places are served by the former. Outside London, people make one-third more trips by bus than by train. Buses are more frequently used by the young and people above retirement age, and much more by women than men. Recent and well-evidenced analysis published by the Confederation of Passenger Transport suggests that the social benefit of each extra £1 spent on bus subsidy is typically between £2 and £5. This is good value for public money.
As the chart included in this piece shows, bus subsides generally benefit lower-income households, but the (much larger) rail subsidies benefit higher-income households because they are the ones that use them most. All this suggests that redressing the imbalance between bus and rail subsidies is called for. If the nation’s finances were in better shape this could be achieved by increasing bus subsides without reducing rail subsidies.
To the travelling public outside London, local services will only appear “London-style” if there are many more, and more frequent, services. But it is easy to forget how different London is. The capital has 16 per cent of the English population but accounts for 28 per cent of the bus miles and 52 per cent of the bus trips. So Londoners enjoy a better level of bus service (and always have) and the buses tend to be fuller. Bus trips in London receive an average 53p per trip in support whereas elsewhere it is 81p (which varies a great deal in different locations). This is partly because London is dense, which makes it “good bus country”, as the old hands at operating buses would say. Improving service levels outside big cities is expensive because the costs of providing a given level of service increase rapidly as density falls. This is because buses have to cover greater distances to service comparable population sizes. So, achieving London-like levels of service would require a big increase in the financial support available.
To the extent that Louise Haigh’s announcement did represent an increase in bus funding, that is to be welcomed. In 2010-11 and 2018-19 local authorities’ financial support for bus services fell by 38 per cent, adjusting for inflation. It rose during the Covid pandemic but has since returned to pre-pandemic levels. Just to return to the inadequate 2010 total, the November 2024 announcement would have to represent an increase of nearly 40 per cent. Bus funding is so complicated that it is surprisingly difficult to work out how much of an increase the announcement actually is, but it does appear that the Bus Service Improvement Plan element (about one-third of the total £1.2bn subsidy) has been increased by about that much for next year. It is also going to be distributed more evenly between local authorities by replacing a bidding system with a formula-based allocation.
Even so, there can be few local authorities where the announcement will allow “London-style” bus service levels, even if the London system of administration were installed. The former transport secretary moved things in the right direction, but turned out not to be Prince Charming.
Like her predecessor, the new transport secretary, Heidi Alexander, faces the daunting prospect of trying to deliver on public expectations that bus and rail services will improve while fares reduce. And all this in the context of a substantially reduced overall government budget for transport and ballooning demands for repairing disgracefully neglected roads, completing HS2 into Euston and increases in the rail cost base following recent wage settlements—not to mention the extra public funding needed to reach Keir Starmer’s new “plan for change” milestones.
Given the state of the government finances, Alexander is unlikely to be able to transform the bus services at a stroke, either. But she should absolutely try. The case remains powerful for continuing to redress the balance of government spending in favour of the humble bus.
