Bus Regulation

This measure was provided by INSTITUTE FOR TRANSPORT STUDIES (ITS) in 2014 under the CH4LLENGE project, financed by the European Commission.

Bus service regulation is taken here to refer to governance in which transport authorities either franchise bus service provision to private providers, or arrange partnerships, either with statutory or voluntary standing, with private providers. As such regulation is contrasted with deregulation in which private operators have significant freedom to determine routes, frequency and fares, in which new operators can enter the market. In both regulated and deregulated systems, public subsidy tends to be used. In deregulated systems, subsidies may be provided by public bodies to support affordable travel for social groups who may otherwise have difficulty in travelling, and subsidy may be used to support, to a greater or lesser extent, services which private operators would not find sufficiently profitable to run otherwise. In partnerships, public bodies will provide investment on the understanding that private providers will improve service provision in specified ways, and in franchises, private providers are paid to deliver a comprehensive bus service in a locality. 

Regulation is advocated by some in response to apparent limitations and failings of deregulated systems. These problems may be claimed to be failure to limit fare increases and facilitate integrated ticketing, to improve quality or information, to provide comprehensive and reliable services, and to sufficiently provide socially important but relatively unprofitable services. The advocates of regulation maintain that the ability to specify services is required either because deregulation has failed to produce a properly functioning competitive market which would meet passenger need, or because the market will not meet passenger needs even if it functions well.  Comparisons of regulated systems with deregulated systems indicate that within the regulated system bus ridership has increased over time, whereas ridership has decreased in deregulated areas. However the differences may be influenced at least in part by contingent factors such as public investment levels and the transport authority’s power to control other aspects of the highways (such as bus priority lanes).

Introduction and description

In discussing bus regulation, the first step must be to offer a little clarification.  Regulation might better be understood as a question of type and degree rather than a simple measure in itself, since it is unlikely except perhaps in cases of emergency or social breakdown that any bus provision will operate with no regulation at least on matters of vehicle safety standards and emissions. That is not to say there are not variations in how regulation is enforced.  

In this discussion we treat deregulation as governance of bus provision in which private operators have significant freedom to determine routes, frequency and fares, and in which new operators can enter the market.  Within this form of deregulation, safety aspects such as driver and vehicle licensing are still regulated.  Subsidies may be provided by public bodies to support affordable travel for social groups who may otherwise have difficulty in travelling, and subsidy may be used to support, to a greater or lesser extent, services which private operators would not find sufficiently profitable to run otherwise.

Regulation, for the purpose of this discussion, involves a range of measures involving private bus operators, and which can include quite diverse measures, such as:

1. Partnerships between local transport authorities and private operators: An example of this is the statutory ‘Quality Partnerships’ enabled in England by Acts of Parliament (Transport Act 2000 and amended in Local Transport Act 2008). In these local transport authorities have powers to seek to form Quality Partnerships with private bus providers by which the:
   
   

   “authority provides particular facilities at specific locations along the routes used by local bus services, and operators of local services who wish to use those facilities agree to provide services of a particular standard” (Butcher 2012, p. 17).

   
   The intention is that, as compared to the relatively deregulated system they are introduced into, Quality Partnerships will bring about:
   
   

   “ a higher bus ridership;
   a good rate of return on bus operator investment;
   a modal shift from car to bus; and
   a consequent reduction in vehicle emissions and accidents” (Butcher 2012, p 17).

2. Franchising or ‘quality contracts’ where local transport authorities specify service provision for their geographical area, and ask private providers to tender for this. Franchising can operate in different ways. Transport for London “plans the bus network and controls fares” and contracts providers on a “route-based tendering system” (Butcher 2012, p.11). Franchises are let competitively for sets of routes, with the overall London bus network being covered by X franchises. Transport for London explain that:
   
   

   “London Buses has a continuous programme of tendering with Invitations to Tender (ITT) being issued throughout the year. The rate of tendering is about 15% to 20% of London's bus network each year (circa 90-120 routes, depending on the number of performance related extensions) with ITTs typically issued every 2-4 weeks.”  (TfL, no date p. 11)

   
   In France, and in some German verkehrsverbunden, the whole network is franchised competitively every five or six years.  In the rest of England, local transport authorities have thepower, under certain conditions, to seek to establish and seek tenders for ‘Quality Contracts’ in which the transport authority will:
   
   

   “determine what local services should be provided in the area to which the scheme relates, the standards to which they should be provided and any additional facilities or services which should be provided in that area”  (Butcher 2012, p. 11).

   
   The franchise system in London was originally implemented by the Conservative Government in the 1980s (and amended by the Labour Government in the late 1990s) and replaced what was considered by the Conservative Government to be an inefficient system of public ownership of bus services.  Conversely, the (not yet exercised)  power to establish Quality Contracts was provided as a response to perceived problems with deregulation including views that deregulated bus provision required high levels of public subsidy to maintain socially important but less profitable services.
   
   Where, as in the EU, legislation requires that services which are not in full public ownership are subject to competition law, consideration must be given to ensuring that regulation is lawful.

Why introduce bus regulation?

Throughout these pages the default assumption will be that implementation of regulation is considered as a move from a relatively deregulated system of bus provision (as opposed to a publicly owned system). The discussion of regulation will focus on two forms: partnerships between transport authorities and private bus providers and franchise arrangements where transport authorities seek tenders for a contract which specifies routes and levels of service and potentially other aspects, such as integrated ticketing.

Where they have the legal powers to do so, local transport authorities may seek to introduce partnerships or franchise arrangements because they believe that deregulated services are failing in one or more ways to provide sufficient or effective services. For advocates of deregulation, the hope is that introducing competition will have the effect that service providers are motivated to be responsive to passenger demand, rather than having planners provide services designed on the basis of theoretical, and contested, ideas of economic welfare (see Beesley and Glaister 1985; Butcher 2012, p. 3).  Advocates of regulation hold that deregulated services result in lower bus ridership than would otherwise be possible, or that there is insufficient private investment in lower emission vehicles, or that deregulated services lead to requirement for high levels of public subsidy to support concessionary fares or to maintain what would otherwise be unprofitable but socially important services.

A large number of factors affect the levels, routing and quality of bus service provision and this complicates attempts to compare and assess regulated and deregulated systems. Nevertheless studies have sought to make these comparisons especially through consideration of London which did not go through deregulation, and the rest of England in which bus services were deregulated in the 1980s. In a study published in 2008, it was reported that between 1996/7 and 2006/7 there was an increase in bus trips (measured as ‘boardings’) within London and a decrease in bus trips in the rest of England (White 2008, p. 4). Over the same period, bus km run rose in both London and in the rest of England, while an index of estimated real fares showed rises in the whole of England including London but that the rise was much greater outside than inside London (White 2008, p. 5-6).  The study’s author argues that the increase in trips inside London is greater than would be expected allowing for factors expected to influence use, including fare increases, bus km increases and exogenous factors such as population increase and the introduction of the congestion charge (2008, pp. 7-10). On the other hand, the decrease in trips outside London is smaller than might be expected given fare increases, population increase and higher car ownership (2008, p. 13). The author concludes from this that other factors must be influential. He suggests that the higher than expected increase inside London may be attributed to factors including more service provision especially in evenings and weekends, integrated ticketing, information, and bus priority lanes (2008, pp. 7-10).

In making comparisons between the performance of regulated and deregulated bus services, care must be taken to remain aware that some factors will be contingent rather than necessary aspects of either regulated or deregulated systems. For instance, it is suggested that London benefits from higher subsidies than the rest of the country (Butcher 2012, pp. 7-8). Further, there is some acceptance that despite this being one of its major aims, deregulation in England was not very successful in introducing effective competition into bus service provision. Instead there was only effective competition on some very popular routes and further there is dominance by a few large private providers (see Mackie et al. 1995; Butcher 2012). There is however debate on whether this is an expected, or even inevitable problem for deregulation, or whether under different conditions deregulation could result in more effective competition, bringing hoped for benefits to passengers (see Butcher 2012, p. 6).

Among the disputes, there is some agreement on the impacts of deregulation. One such area is on operating costs, which fell after deregulation. However this apparent efficiency has been attributed to a lowering of employment conditions, and particularly wages for those working in the industry (see Mackie et al. 1995, p. 239). It is worth noting that unless mitigated by legislation, the same impact, of lowering of employment conditions, is cited as a concern if arrangements such as Quality Contracts are introduced especially if, as is held likely, successful tenderers are those who can reduce operating costs (see Butcher 2012, p. 12).

Demand impacts

Assessment of demand impacts below assumes that regulation is coupled with sufficient investment.

Short and long run demand responses

Assuming more reliable or greater service provision.

Supply impacts

Regulation, through franchising or through partnerships might bring more services, or wider geographical and temporal coverage of services. However there is no necessary relation between regulation and service levels. Regulation would be motivated in part by the view that planning of services is a more effective means of meeting demand than is leaving supply to a market in services. However this view is contested by some (e.g. Beesley and Glaister 1985). Service levels, especially for services that are not very highly used, will depend on levels of investment.

Financing requirements

Finance, in the form of subsidy, is required for regulated and deregulated service provision if it is to meet social requirements on levels or services and concessionary fares. However, there is evidence that a given level of subsidy will generate higher levels of bus use in a regulated framework.

Expected impact on key policy objectives

Expected impact on problems

Expected winners and losers

Barriers to implementation

Dalen and Gómez-Lobo (2003) conducted a comparative study of the approaches to bus regulation in Norway. They explain that in Norway, regional authorities “define the network route, schedules, fares and the subsidies given to companies” and that the authorities can choose which form of contract they use (p. 375). So the start point for Norway is regulated services, and the question is how this regulation is done.  The researchers describe how, at the time of the study, two types of contracts were prominent. In the first “regional authorities may bargain individually with transport companies on the subsidy levels to be granted during the forthcoming year “(p. 371). In the second, a benchmark (or yardstick) approach is taken where subsidies are determined by a formula based on operating costs, and these subsidies are applied to all bus operators in the county (p. 374-5). The theoretical argument is that the first type of contract provides a disincentive for operators to reduce their costs, since if they do so, they will find it harder to negotiate higher subsidies for the following year, and conversely operators may find it relatively easy to maintain that their subsidy should go up year on year (p. 374). The supposed advantage of the second type of contract is that operators do not stand to lose if they reduce costs since their subsidy is not so directly influenced by their own costs, but rather by the formula applying to all operators (p. 375). The authors find, following a panel survey of companies over time that the theoretical results are replicated in practice.

Davison and Knowles (2006) undertook an early study of attitudes to Bus Quality Partnerships covering two major routes in Greater Manchester (Bus Quality Partnerships are the statutory agreements between bus providers and local transport authorities which can exist in England). Their study used qualitative interviews with ‘non-bus users’ and quantitative surveys with bus users, and aimed to assess whether the Bus Quality Partnerships could be expected ‘to provide a more attractive bus service with the ability to achieve modal shift“ (p. 177). The study found that while the partnerships did offer a more attractive service, they were not successful in achieving mode shift. The reasons given for this include: a failure to tackle businesses’ perceptions that parking availability is important to retain staff; the difficulty in prompting mode shift among people who may have chosen to live in places inaccessible by public transport; and a lack of public awareness of the partnerships and the more attractive services available (p. 193).

White, P. (2008) Factors Affecting The Decline Of Bus Use In The Metropolitan Areas, Commissioned by PTEG (University of Westminster)

As noted in earlier sections, White’s 2008 conducted a study on bus use in Britain, ‘Factors Affecting The Decline Of Bus Use In The Metropolitan Areas’. This contrasted London with its regulation based on franchise arrangements with other parts of England, Wales and Scotland in which deregulation had taken place. He reproduced the following tables from the Department of Transport:

Table 1: Trends in Bus Passenger Trips 1996/97 to 2006/07

Trips are shown in millions. Source: Public Transport Statistics Bulletin GB: 2007 Edition. Department for Transport Statistics Bulletin SB(07)22, Table C, and 1995/96 data from 2006 edition supplement, table 1.

Table 2: Trends in bus-kilometres run 1995/96 – 2006/07

Units: millions
Source: Public Transport Statistics Bulletin GB: 2007 Edition. Department for Transport Statistics Bulletin SB(07)22, Table C, and 1995/96 data from 2006 edition, table C.

As White reports, over the same period an index of estimated real fares showed rises in the whole of England including London but that the rise was much greater outside than inside London (White 2008, p. 5).

Table 3: Trends in real fares 1996/97 – 2005/06

The study’s author argues that the increase in trips inside London is greater than would be expected allowing for factors expected to influence use, including fare increases, bus km increases and exogenous factors such as population increase and the introduction of the congestion charge (2008, pp. 7-10). On the other hand, the decrease in trips outside London is smaller than might be expected given fare increases, population increase and higher car ownership (2008, p. 13). The author concludes from this that other factors must be influential.

Table Four: Actual and Expected ridership changes due to real fare and service level changes 1999/2000 – 2006/07

Units: percentage changes on a base of 1999/2000

Data shown in the ‘expected’ column is based on short-run elasticities of -0.4 and +0.4 for real fares and bus-kilometres respectively, with data in brackets on the medium-run values of -0.55 and +0.55 respectively.” (Source White 2008, p.7)

White suggests that the higher than expected increase inside London may be attributed to factors including more service provision especially in evenings and weekends, integrated ticketing, information, and bus priority lanes (2008, pp. 7-10).

Contribution to objectives

Contribution to objectives

Contribution to problems

Appropriate contexts

Adverse side-effects

Operating costs fell after deregulation. However this apparent efficiency has been attributed to a lowering of employment conditions, and particularly wages for those working in the industry (see Mackie et al. 1995, p. 239). It is worth noting that unless mitigated by legislation the same impact, of lowering of employment conditions, is cited as a concern if arrangements such as Quality Contracts are introduced if, as is held likely, successful tenderers are those who can reduce operating costs (see Butcher 2012, p. 12).

Beesley M. E. and Glaister S. (1985) Deregulating the bus industry in Britain - (C) a response, Transport Reviews 5, 2, 133-142

Butcher, L. (2012) Buses: franchising, SN624, House of Commons Library

Dalen, D.M. and Gómez-Lobo, A. (2003) Yardsticks on the road: Regulatory contracts and cost efficiency in the Norwegian bus industry, Transportation 30, 371–386.

Davison, L. J. and Knowles, R. D. (2006) Bus quality partnerships, modal shift and traffic decongestion, Journal of Transport Geography 14, 177–194

Dodgson, J., Grayburn, J., Maunder, S., Veronese, B., Haug, T., Carter, S. (2006) The Decline in Bus Services in English PTE Areas: the Quest for a Solution, NERA Economic Consulting

Hensher, D. A., and Stanley, J., (2003) Performance-based quality contracts in bus service provision Transportation Research Part A, 37, 519–538

Johnson, D. Mackie, P. and Shires, J. (2014) Buses and the Economy II: Main Report, Institute for Transport Studies 2014

Mackie, P., Preston, J. and Nash, C. (1995) Bus deregulation: ten years on Transport Reviews, 15, 3, 229-251
Transport for London (no date) London’s Bus Contracting and Tendering Process,

White, P. (2008) Factors Affecting The Decline Of Bus Use In The Metropolitan Areas, Commissioned by PTEG (University of Westminster)