Something for the Authorities to Consider

It runs to just over 100 pages. It costs £150. We hope the OFT & Competition Commission can each afford a copy.

We’re referring to TAS’ “The Economics of Bus Operation and the Price People Pay”, published late last year and pertinent to the OFT’s referral of the bus industry to the Competition Commission. For the OFT feels that commercial bus fares are about nine per cent more than they would be if the market was operating properly.

We’d say the report was at least nine per cent over-priced and the cover price would reduce significantly were there more competition in this sector of the consultancy industry. Perhaps the OFT might like to look at that

There is a wealth of information, statistics and analysis within this report and it’s well worth a read, if you can justify the £150 investment. TAS demonstrates that historically higher-than-inflation fares increases have acted as a balance between service reductions falling more slowly than declining ridership. Even so, fares are still affordable, having risen at half the level of annual incomes.

Far from being too high, TAS concludes that fares are, in fact, set too low to justify investment in new vehicles, greener technology and in particular to cover costs—especially wages—rising ahead of inflation. TAS considered congestion-related costs that add expense and deter revenue growth. TAS claims that profit generated is half that needed for sustainability in the medium term.

What will inevitably result? We think:

1. Down-registration of marginal services


2. A slowing of investment ahead of key DDA deadlines


3. Increases in public subsidy, including likely QCs


4. You guessed it, increases in fares.

TAS also argues that those in the lower socio-economic strata make up a smaller proportion of bus users than is anecdotally believed to be the case (though, here, there may be a London effect). And this means, presumably, people are able to pay for a quality bus service.

There’s a strong correlation between cars per 1,000 population (x-axis, bottom) and bus trips per head (y-axis). Once you get a car, household bus trips plummet

There is also quite some variation in fares charged in similar areas. It might be that people unfairly compare the fare charged in one area against another. Without realising, that is, that the fare charged depends on the pricing history in the area, competition from private transport, punctuality & congestion costs, wage rates—and it has to be said, competition. Yet, TAS feels that competition doesn’t affect modal shift but, most significantly, that serious competition leaves all parties in an unsustainable position.

Here, then, is a report that balances the OFT view about costs, fares and competition. Add to this the weight of evidence recently produced by Réseaulutions—that monopolistic situations offer better networks than competitive situations—and there are clear issues that the Competition Commission needs to consider before adjudicating as to whether the OFT is right in its view that the market isn’t working.