As threatened a number of times, I’ve finally pulled together this piece on why bus privatisation isn’t all it’s made out to be (cross-posted to Slugger O’Toole)
I simply want to walk through the scenarios for privatisation we have seen in GB since 1986 and their pitfalls.
The main model followed in GB outside London was to deregulate bus transport. All publicly owned bus companies, including municipal fleets, were privatised, either by sale or Management-Employee Buyout, and were no longer regulated. They and any bus company holding the appropriate accreditation could operate on any route having given 56 days notice, and charge as they pleased.
Popular routes saw plenty of competition and some at best doubtful (and in some cases quite illegal) practices designed to get competitors off the road, such as selective price reductions (which presumably had to be paid for by higher fares on less profitable routes) and running extra buses just before the competitor’s bus arrived. Former multi-operator ticketing schemes being undercut by operator-specific schemes (as in Birmingham) have seen it made harder for entrants to gain access because of the convenience and price to the customer of sticking to the incumbent operator.
Off-peak services and rural routes saw very little competition, and this has got worse because the market is dominated by five main operators – Arriva, First, Go-Ahead, National Express and Stagecoach – who largely run monopolies in local areas with little outside competition.
Public subsidies were restricted to unprofitable services, which meant that fares in former metropolitan areas rose by 47.7% in real terms between 1986 and 1994, compared to a GB-wide general rise of 16.9% over the same period – Sheffield, for example, had to increase its fares by 35% due to the ending of subsidies. Between 1984 and 2010, bus fares would rise by 60% in real terms from 1986 to 2010 against an increase in motoring costs of 10% – which in itself is enough to push people off public transport.
Unprofitable services, which include evening and Sunday services on otherwise profitable routes, had to be subsidised. In one case I read of, but for which you won’t find the citation in my further reading at the bottom of this article, a bus company gave notice that it was going to withdraw a particular bus service because it wasn’t profitable. The local authority decided it was socially necessary, and tendered it as a subsidised service. The same company won the tender, where in the past they would have cross-subsidised against other routes where possible, costing the ratepayer/council tax payer money.
There were two added problems with tendered services. Firstly, a local authority might not be able (or might not even wish) to subsidise all routes that might be considered “socially necessary,” and routes would therefore cease.
Secondly, as would happen in the course of rail privatisation, a minimum service would be specified. Unless there was sufficient farebox income to be made from running additional services, the successful company would not operate more that minimum.
The effect of the cut in subsidy in 1986 was to increase the proportion of bus operating costs paid for through the fare box from 64% in 1985 to 72% in 1986. Falling demand and increased subsidy of unprofitable services saw this proportion fall to 50% by 2009.
London followed the opposite model. Route planning and fare setting were centralised, and private companies were able to tender to operate London bus services – so no competition on the ground, but rather companies were able to compete to receive the farebox income for the duration of their contract.
This model was actually quite successful, with the rise in passenger numbers far eclipsing the fall in the rest of the country, although much of this can be attributed to increased subsidy, particularly since 1999.
The key problem with privatisation is that every privately-owned commercial company has the same object in its Memorandum of Association: to carry on the business of a company, or, in short, to make money.
The immediate cost to the staff of a privatised company is downwards pressure on wages, which in the case of bus drivers was to see their average wages fall from 7% above the average manual wage in 1985 to 13% below in 1995. This was caused by a number of factors, such as more part-time drivers, and the explosion in the use of minibuses, for which new drivers could be paid a lower rate (as indeed happened on Ulsterbus – new drivers would start on 25-seaters at a lower rate of pay, and be promoted to big buses later)
The cost to the council tax payer is that the tolerance of a private company for cross-subsidisation is low, which has pushed up the burden on them of supporting unprofitable services. By way of contrast, the Rural Transport Fund in Northern Ireland subsidised a number of Ulsterbus services, including tourist services, but Metro is expected to cross-subsidise all of its services from the profitable ones.
The advantage of the London model is that because the farebox income goes to TfL rather than the operator, it means little to the operator whether they carry five passengers per bus or 50.
There was a massive increase in subsidy for London services from 1999 to 2002, coinciding with the establishment of Transport for London, with the clear intention of pulling more people onto the buses to aid congestion. A further country-wide increase in 2003/2004 can be attributed to expansion in concessionary fare entitlement.
The Northern Ireland picture
Translink is painted as a monopoly, which isn’t actually entirely true. As in GB, express services (with stops more than fifteen miles apart) are already open to competition, as with AirCoach and the excellent Eamon Rooney coach service to Rostrevor. Local services not currently operated by Translink are I believe open to a private operator to tap into, and I don’t think this is restricted to school services.
The same subsidies are available to private operators as are available to Ulsterbus and Metro: concessionary fares and, until April of this year, fuel duty rebate – so the services have to be run commercially. This mirrors the situation in GB, where fares for commercially viable services cannot be artificially lowered through subsidy.
Significantly, apart from the Rural Transport Fund, there is no operating subsidy for Ulsterbus and Metro services in Northern Ireland. Actual buses are paid for through the capital budget of DRD, partly due to Executive policy to reduce the average age of buses and keep it low, but otherwise the two bus subsidies of Translink are left to balance the books between farebox income and operating expenses.
What I was not able to do was source figures on public transport subsidy all the way from 1985 to the present day – something I suspect Salmon of Data could dig up rather more quickly. Rail subsidy is known to have escalated quite considerably (it doubled within a year of privatisation, and had gone up a further 50% to £3 billion by 2003), and I would want to see figures excluding the impact of concessionary fares to be able to comment accurately on the potential impact of privatisation on subsidy levels for Northern Ireland.
What I can do is present some general principles.
It is known that DRD do not intend to deregulate bus or train services in Northern Ireland, probably because of the examples throughout Great Britain where services have been lost because of lack of profit to the operator and the cost to local authorities of maintaining unprofitable services.
They do intend to follow one of two models: to invite tenders for baskets of routes (some profitable, some not) where either the operator keeps the farebox income in return for a fixed sum, or where all farebox income is handed to DRD in return for a higher fixed sum.
With the number of unprofitable routes being operated in Northern Ireland (and of course unprofitable journeys on otherwise profitable routes), I think they are tending towards the latter model, one with its own dangers.
One of the things that has pushed Translink subsidy up over the last fifteen years has been bus replacement, partly to get rid of buses with increasingly difficult to source parts due to engine age, and because old buses are not attractive to passengers. Private bus companies would be required to buy their own vehicles, and would tender on that basis – or, indeed, tender in such a way that average bus age considerably increases so they can avoid renewing vehicles at all to save money. This is considerably less obvious than when one could board an aging Leyland Leopard or Bristol RE in the 1990s compared to the new Cityliners and Goldliners from 1989 or so, because passenger comfort is in a completely different world from when I went to school in the 1980s, but even to compare the oldest vehicles in the Metro fleet with the newest shows the newer buses off well.
It also changes competition from an illusion to non-existent. The passenger is likely to get the same bus (purchased from Translink by a private operator) and the same driver (different uniform) in the same traffic jams at the same time (if not less frequent), with fares theoretically set to balance the books (certainly this side of 2020, where DRD and its successor are likely to remain substantially underfunded), and making the same complaints about the buses being late, and probably seriously considering moving back into their car. In other words, nothing will change.
There also lies within this a question of responsiveness to customer demand. Translink used to issue monthly amendments to its timetables, although these have decreased in frequency. With tendered services, there will be restrictions on how quickly DRD can expect a private company to respond to increased demand, including obtaining vehicles and the services of drivers.
The final aspect for now is the prospect of selling Translink off to the private sector wholesale. The NI Audit Office report highlighted that the big firms in GB experience a lot lower overheads due to sheer size, but there would have to be considerable reorganisation before this could happen – if bus operations in NI are not to be deregulated, transport planners currently working for Translink would have to be transferred to DRD, for example. Both the NIAO and the Committee for Regional Development have raised questions about DRD’s ability to plan transport effectively, and since Translink would need to retain some planners to deal with private hires, drivers’ rosters etc, it isn’t clear that enough professionals would be available to move to DRD. It also isn’t clear how much Translink would raise on the open market due to its dependence on public subsidy.
Between that uncertainty, the expectation I would suggest that will maintain pressure to keep fares up to maintain the profits of the private company (whether directly through the farebox or indirectly through the tender to operate) and the lack of funding available from the Executive that goes way beyond the problems of Stormont House it is hard to see how any of the suggested benefits to the ratepayer and passenger of privatisation in terms of lower subsidy, lower fares and certainly better timetables would actually come to fruition beyond the short term.
Alan Howes Associates (2011), Overview of Bus Industry Performance, Great Britain, since Deregulation
Balcombe, RJ (1988), Bus deregulation in Great Britain: a review of the first eighteen months, Transport Planning Div1sion, Transport and Road Research Laboratory, Department of Transport
Butcher, L (2010), Buses: deregulation in the 1980s, House of Commons Library
Donald, R & Pickup, L (2007), The effects of local bus deregulation in great Britain on low income families—the case of MerseysideHouse of Commons Transport Committee (2oo6), Bus Services across the UK
Lawton-Smith, H, Deregulation and privatization in the UK freight, and bus and coach industries, Regulatory Policy Research Centre, Hertford College, Oxford
Matthews, B, Bristow, A & Nash, C (2001), Competitive tendering and deregulation in the British bus market – a comparison of impacts on costs and demand in London and the British Metropolitan Areas, Institute for Transport Studies, University of Leeds
Mayer, M (2004), Public Transport – the Real Cost of Privatisation, Radical Statistics
Pond, R, (2006), Liberalisation, privatisation and regulation in the UK local public transport sector, Working Lives Research Institute, London Metropolitan University
Preston, J (2004), The Deregulation and Privatisation of Public Transport in Great Britain: Twenty Years On, Transport Research Foundation
Savage, I (1993), Deregulation and privatization of Britain’s local bus industry, Departments of Economics and the Transportation Center, Northwestern University