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Deregulation And Privatisation Of Bus Services Tourism Essay

In order to review the organisation of public transport in Great Britain a closer look at the modes of transport need to be taken namely- Bus and Railways. In this review, Bus deregulation and privatisation has been discussed and its possible outcomes in Great Britain and in London.

The Buses White paper was the basis of the 1985 Transport Act. The Act included the Deregulation & Privatisation process that started in Great Britain. In this review the actual and proposed appropriate levels of regulation, different forms of competition/ ownership in the UK and elsewhere in the world are taken into account and their effects on the Bus industry as a whole. The actual bus system in London/outside London and the proposed bus system in Great Britain outside London shall be seen. The History of Deregulation first needs to be taken into perspective without which a clear picture cannot be seen.

Buses are the backbone of a country’s public transport system, as they are the most intrinsic part of the transport system in the UK and elsewhere in the world. They have a key role to play as two thirds of all journeys were made by buses in 2005-06 in Great Britain. To tackle congestion on the roads and to develop a new travel path for the future, necessary importance must be given to the bus industry (Department for Transport,2006).

The deregulation of buses first began in 1980 by the Transport Act which deregulated the fares and by the 1984 London Regional Transport Act, the tendering of bus services was started in London.

The deregulation of Bus services first took place by the 1985 Transport Act which had deregulation of local buses including all cities of Great Britain outside London, privatisation of NBC,SBG and PTC’S which took place on 26 October 1986 which started on a real basis.

The concept of deregulation was created by the British government to have a free local bus service market among the developed economies of the world.(Gwilliam et al, 1985)

Table 1

Trends in local bus ridership and bus-kilometres operated since deregulation.

Changes in (%), from 1985-1986 to 1992 inclusive

Area Passenger trips Bus-kilometres Real fares

Metropolitans -28.4 15.2 39.3

English Shires -16.0 21.0 6.2

Wales -18.4 26.3 -

Scotland -14.7 24.6 -3.2

GB (except London) -21.6 20.4 12.6

London -0.3 15.4 13.2

Source: Nash [19]; Department of Transport(1992),”Transport Statistics Report, Bus and Coach Statistics 1991,1992” HMSO London.

Through the above table it can be seen that due to deregulation competition had improved the quality of service and new innovations like minibuses were developed.(Ellis and Silva,1998)

Why is Deregulation needed?

It has been seen that bus travel has largely become the ‘mode of last resort’. (Department of Transport,1993a) .Hence, immediate steps were to be taken to gain confidence in the passengers minds. Deregulation is done to bring new operators in the market and improve the quality of services, decrease fares and increase bus patronage.

It needs to be seen what type of regulation do we want to use, for example is it for driving the standards up or to meet the ever increasing demands of the public?

Why is a ‘successful’ privatization needed?

Successful privatisation is needed for-

Sustained and fair competition.

To maximize sale proceeds.

To promote the acquisition by employees of a controlling interest in their companies.

By 1985/86, 91% of local bus kilometres were operated by public sector companies. The

1985 Transport Act changed all this as in 1996/97 this figure was down to 4% (DETR, 1997).

Tendering avoids wasting of resources and keeps the fares in control as it is done in London as it reduces the operating costs & cost per passenger.(Mackie et al,1995)

Practically, regulation can be done by 3 main types:

Net subsidy contracts at a route level as done in Scandinavia.

Management contracts or franchises at an area level as in France.

Hybrid contracts as in Australia (ISOTOPE, 1996).

It was suggested that tendering would reduce the costs of on the road competition and increase the benefits.(Gwilliam et al,1985)

As tendering would be gradual and be combined with regulation it would be limited to one or a maximum of two competitive bidders. (Beesley and Glaister,1985)

By introducing minibuses and eliminating big bus services has benefitted immensely in deregulation. (Mackie et al,1995)

Bus patronage has fallen due to increase in car ownership which affects the use of public transport. Due to this the bus operator is forced to increase prices of fares which in turn reduces the service quality level. (Mackie et al,1995)

The White Paper of 1985 felt that the operating costs would reduce by 30% as well as reductions in fares and subsidies too. (Mackie et al,1995)

Table 2

Key trends since reforms of 1985/86

Local bus outside London

Local bus London

Demand

-35%

25%

Fares

40%

8%

Service

25%

39%

Costs

-43%

-43%

Subsidy

-33%

-18%

From the table we can see that demand for local bus has gone up in London by 25% and that for outside London has fallen by -35%. Fares have increased vastly outside London, whereas the costs have remained same for both London as well as outside London at -43%.(Preston,2005)

Actual Problems in Bus Services-

The number of operators and services increases in the short term, especially on main routes to increase the bus patronage.

Bus fares generally decrease significantly, especially in the short term, due to competition within the bus industry and between buses and other modes, mainly rail. Costs are reduced to some extent and the overall effect is to reduce profit margins. In the long term fares may have to increase to some extent in order to finance investment.

On some secondary routes with declining traffic, which have been cross-subsidized by other routes in the past, fares increase and services continue to decline.

Many larger operators with major route networks and bus stations manage to increase their businesses and, in the long term, some of these may come to dominate parts of the long distance scheduled bus route business.

New operators may establish themselves through aggressive marketing and providing high quality services, especially on unscheduled excursion and private-hire services.

Increase in ownership of cars has led to decrease in number of passengers in the bus industry.(White,1997)

The level of investment is very low in the Bus industry as very little funds are being put into the Bus depots and facilities for passengers by the Bus operators.(White, 1994)

The privatization of National Bus Company (NBC) has created an erratic pattern of ownership among the bus industry.(Mackie et al,1995).

The future of the Bus industry looks bleak as there has been a consistent decline in passenger km’s by 2.2% annually since 1990s and will further fall by 40% by 2020.

The predictions made for bus deregulation were-

Table 3.

Bus deregulation (Machie et al,1995)

Subject For deregulation Against deregulation

Competition As new operators could enter Big operators have advan-

the market it would create free tage over smaller new ent-

equal terms. rants.

Fares There would be a decrease in Fares would increase due

Passenger fares due to compe- to decrease in subsidy.

tive market.

Patronage Due to this there would be an Higher fares and unstable

increase on some routes due service would lead to a

to low fares. decrease in patronage.

Table 4.

Composition of the British bus market

outside London.(Mackie et al,1995)

Year 1986

PTCs

7

NBC

62

SBG

11

Municipals

50

Large private operators

2

PTC = Public Transport Companies (ex Passenger Transport Executive bus fleets);

NBC = National Bus Company; SBG = Scottish Bus Group.

Reasons for declining Bus Patronage-

The bus industry is counting on elder persons, students aged 16-25, children which themselves are declining.

Loss of consumer confidence due to loss of information, instability in routes/network which falls on the customers as larger queuing times near bus stops.(Mackie etal,1995)

The increase in bus fares has resulted in decline of bus patronage by passengers.(Romilly,2001)

Table no.5

Predicted and actual changes

in bus patronage from 1985-93(Mackie et al,1995)

Predicted

Actual

Difference

London

-12.6

+3

+9.6

Eng. Mets

-22.6

-35.5

-12.9

Eng.Shires

-4.9

-20.2

-15.3

Scotland

-1.5

-21.6

-20.1

Wales

n.a

-20.3

n.a

Total

-9.2

-22.5

-13.3

Proposed Suggestions or Alternatives for Bus services (Outside London)-

Tendering or Franchising system can be considered outside London for off the road competition than full deregulation.(Mackie etal,1995)

Tendering in itself has been one of the major successes of deregulation.(Glaister,1993)

Sufficient capital grants should be given to every bus operator to make sufficient profits for investment in new buses.( White, 1994)

To make quality contract proposals without threatening the interests of the bus operators and ensure that the Traffic Commissioners get punctuality data of buses from the owners.Greater powers must be given to the local authorities for strong and effective leadership.

All these measures hereby mentioned need to be carefully studied and implemented to sustain a long term future for buses, as private sector’s strength lies in management, innovation and investment.(Department for Transport,2006)

The Bus system outside London needs both Bus operators as well as Public authorities to work in tandem but with substantial amount of funding and have a quality partnership. Together they have to take responsibilities in raising the quality and standards of bus services, plan out the services offered and specify routes along with fares.(Ippr seminar,2004)

To increase the regulation of the services by offering a better contracting system outside London will be a good way to move forward.(Preston,2004)

There should be contract flexibility due to which increase in bus patronage could be seen.(Ippr seminar,2004).

Powers of Traffic Commissioners should be increased. The Government should offer a minimum standard of service for buses as it is done for health and education in Great Britain.

Table.6

The six big bus groups in 1993-94

(Machie et al,1995)

Bus Groups Fleet size

Badgerline

4087

British bus

3067

Go-Ahead

970

GRT Bus

1095

Stagecoach

3079

GMT

873

Advantages due to Deregulation-

The cost per bus km, including depreciation, has decreased by 47%, while the cost per passenger journey has decreased by only 3% outside London since 1985/86. In London, bus operating costs have decreased by 46% since 1985/86 if measured per bus km and by 33% if measured per passenger journey.(Preston,1999)

Privatisation has helped in facilitating the Bus industry by eliminating the old regime by commercial interests.

By introducing minibuses and eliminating big bus services, the industry has benefitted immensely.(Mackie et al,1995)

Introduction of Travelcards has seen drop in fares during the deregulation period , concessionary fares for children n elder persons have benefitted the most by this.(Mackie et al,1995)

It has been noted that no accidents have been caused due to deregulation of bus services.

There is no evidence that safety of buses has deteriorated due to deregulation.(Astrop et al,1991)

The introduction of minibuses in cities like Bristol and Exeter has seen demand grow by 20% & 300% respectively.(Glaister,1997)

Disadvantages of Deregulation-

Employment in the bus industry has decreased by 20% since 1984. (Preston,1999)

Bus deregulation has led to decrease in service quality outside London.(Mackie et al 1995)

Due to deregulation the passenger fares have increased and quality of service has decreased outside London.(Preston,1999)

There was an increase in fares due to lower operating costs wholly done by subsidy cuts and no room left for fare reductions.(Mackie et al,1995)

There was a decline in the wages of bus workers due to deregulation.

There is excessive competition between private bus operators.

Main failure of deregulation has been the decrease in passenger journeys.(Romilly,2001)

Fares have increased due to the reduction in subsidies.(Romilly,2001)

The Local government has little freedom in pursuing its own priorities in Great Britain as the control over spending and the sources of income are monitored.(White,1994)

Actual Bus system in London-

The Bus system in London is a big success due to 3 most important factors namely-

Strong regulatory powers to the local authorities

Public subsidies

A very strong political backing and commitment

The Mayor of London has all the rights to issue tenders on basis of routes, frequency and the type of bus instead on a cost basis. Cheap fares are due to the subsidies provided in London. Due to strong political commitment congestion on the roads has been minimised.(Bus Regulation outside of London,2004)

The growth of buses in London is because cars are not a feasible option in some areas. The buses in London are different due to the rail system and different tourist attraction places to visit.(White,1997)

Due to tendering in London welfare gains of £205 million was achieved between a period of 1985-86 to 1994-95. According to the macro analysis done by Preston (1995) ,the bus system in London around year 2004 was up by 35% in bus patronage and fares were down by 54%. The Bus System in London done by contracting out / or tendering which was first introduced in 1985 and since then bus patronage has increased by 12%. (Preston,1999). Due to the introduction of Travelcard the increase in passengers was 20% /km & revenue was up by 4%. Tendering avoids wasting of resources and keeps the fares in control as it is done in London as it reduces the operating costs & cost per passenger.(Mackie et al,1995)

The London model of off-the-road competition has out-performed the dual model in the rest of Great Britain as :

It permits appropriate determination of service levels in relation to demand rather than as response to actual competition:

It balances the fares in a social way.

It does not impose real costs on consumers and reduces long run confidence.

It permits network-wide ticketing and marketing initiatives including Travelcard.

To promote real competition for the market through tendering, while monitoring quality.

To be flexible enough for accepting Government policy changes. (Mackie etal,1995)

Tendering in London has caused reductions in cost and subsidy on one hand and consumers benefitting on the other hand. Hence, the old maxim applies-what is good for London is good for the country.(Mackie et al,1995)

Conclusion-

To produce welfare gains in the Bus industry it is essential to adopt limited competition(tendering) than deregulation (full competition).Instead of considering only regulation(no competition) , deregulation should be adopted as it is more efficient. (European Commission`s Green Paper,1995)

“A good experience of using buses when young, could influence travel choices later in life”.(Gwyneth Dunwoody, Chairman, Transport committee)

Overall deregulation does have its share of positives since the pre-regulated 1985-86 system.

The 1998 White paper suggests that by increasing the powers of the Traffic Commissioners accompanied by quality partnerships specially in non-metropolitan areas can improve the Bus industry.(Preston, 1999)

The tendering of Bus industry is both profitable and contestable and that deregulation does not give a competitive market. According to the White Paper of 1985 the cost reductions of vehicle/km has been reduced. Bus patronage has decreased and fares have increased due to deregulation.(Mackie et al,1995)

Comprehensive tendering can be considered a better alternative than both regulation or deregulation. It has worked in some cities like Oxford and Exeter due to the introduction of minibuses than large buses.(Mackie et al,1995)

Bus patronage can be increased by providing efficient, reliable and cost effective measures to the passengers.(Department for Transport, 2006)

Quality contracts should be considered where partnerships between the local authorities and bus operators tend to be ineffective. Such contracts can be-

Of short duration around 3 to 5 years.

Small area based.

Such contracts should be designed by different departments.(Transport Research Foundation,2004)

From the overall discussion it is clear that Deregulation can be applied outside London in Great Britain but there should be quality partnership between the local authorities and the bus operators. To develop an intermediate solution is the way forward. The tendering system in London produces off the road competition which applies good to itself .One thing is universal:Both local authorities and the bus operators should ensure that they put the passengers first.(Douglas Alexander,MP)

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