Geordie Lad wonders about unintended consequences when it comes to fare *decreases*. Omnibuses welcomes contributions
As the euphoria and mutual back-slapping over South Yorkshire ITA’s decision to abandon its quality contract scheme dies down, I began to wonder if the dreaded law of unintended consequences was about to rear its head again.
Received wisdom is that bus fare increases drive passengers away, so the logic must be that bus fare decreases help attract people back to buses from their cars. Hence the warm welcome for cheaper fares in Sheffield for more than a third of the people near the routes in that city.
The section that appears to get overlooked is the bit about ‘the income effect.’ The theory goes something like this: imagine you’ve got a family on modest means that hypothetically spends about 20 per cent of its income on fares. At the end of the week, again hypothetically, they are left with 10 per cent of their income that might be called ‘disposable’. They can spend it on a few luxuries. Along comes a well-meaning PTE that halves bus fares overnight. Now the same family only spends 10 per cent of its income on fares and its disposable income shoots up to 20 per cent. And what happens when families have more disposable income? They buy cars, they desert their bus services and patronage falls, because, as economists will tell you, car users view buses as an ‘inferior good’. Thus, the views of the Joesph Rowntree Foundation are fulfilled.
Now, here’s an argument that you won’t find any PTE spouting, but it does make me wonder if the policies of our PTEs over the years, however well-meaning, might actually contributing to decline rather than reversing it.
Geordie Lad—staring wistfully into his Broon
8 comments:
Surely the cost of fuelling and parking the said car is the real elephant in the room?
Nope, I don't buy that one.
If you have £x per month after providing a roof and food and other essentials, that pays for transport and luxuries. If it costs more to buy and run a car than it does to travel by bus, people on a tight budget will travel by bus. As the price differential increases, there is more incentive to travel by bus.
Yes, so when bus fares drop, people are theoretically saving money on transport. Those savings are going to be pretty small, all things considered, and only a drop in the ocean of total car ownership costs. So anyone using money saved by cheaper bus fares to fund car ownership would need to save up for quite some time before they had enough, and would have to do so knowing that when they did buy a car, they would have less disposable income than they did before the bus fares dropped.
I think it's pretty implausible that there are more than two or three people across the country who would make such a bizarre choice – especially given that most people, it seems, are congenitally incapable of saving for anything more than a pint of beer...
There's another factor on demand elasticity as well - smartcards.
If I just put 20 quid on my Oyster and forget about it, I might then take a few journeys that feel like they cost nothing, whereas if I paid the same cash fare I might feel I should have saved money by not taking the journey or walking instead.
This might be quite a powerful tool for bus companies.
Neil
I'm not sure the maths add up here.
How much does someone spend on bus travel a year? A grand? £80 seems to be about top whack for a monthly ticket and so 12 months of that comes in at just under £1,000 a year. £2,000 for a couple.
Then the article supposes that if they spend just half of that on fares, so £1,000 between them, they'd use the other 10% to buy a car. In other words a poor family (they'd have to be poor to be spending 20% of their income on buses) would spend a grand to buy, insure, service, MOT, fuel etc a car, but would only use it selectively and still use the bus?
Of course they wouldn't. People on low income will use either a bus or a car. Why use a bus if they have a car which is largely already paid for? They would be far more likely to use the full £2,000 to buy a car and not use the bus at all.
Then on top of this, there's the old question about getting people who have cars to use buses. One-off fares are generally too high in some areas and offer little savings compared to using a car and thus don't serve as much of an incentive. Buses are usually better value the more you use them, but why would you use a bus regularly when you have a car?
In short, while I'm not totally dismissive of the argument, I don't think it stacks up particularly well.
“Along comes a well-meaning PTE that halves bus fares overnight. Now the same family only spends 10 per cent of its income on fares and its disposable income shoots up to 20 per cent. And what happens when families have more disposable income? They buy cars, they desert their bus services and patronage falls”
It’s true that for some, that 10% will make the difference and allow them to buy and run a car, but I suspect that for many, the 10% may not run to it and will instead finance things that are more reachable. Maybe a holiday (or better holiday), clothing, new TV/phone/other gadget, more beer, etc etc.
If the fares reduction is marketed correctly, a few other things could happen. Some existing bus travellers might actually travel more. Some walkers who felt that the bus was previously too expensive may now be able to afford the ride. Those who have discretion over transport modes may opt for the bus given its increased value over the alternatives. In fact, I’d expect this could be made to outweigh the losses from converts to the car, and there is some evidence from history to back it up.
A relative in the Highlands has given up her car, the second car in the household, for her commute from Alness to Smithton. The AA Planner shows a journey time of 35 minutes (no allowance for rush hour traffic) whereas her trip by bus takes an hour with one change in Inverness. Two reasons she does it ... 1)Cost: The Stagecoach Megarider for 7 days is £25 and 2)No stress! This is a genuine choice to change her mode of travel. How we all wish others would follow her example! Of course her continuing to do this depends on the services remaining the same over the long haul and the fares not going up when the 'powers that be' think they have 'hooked' enough people who will then pay a lot more as that would still be marginally less expensive than getting another car. Transport companies have to play fair and demonstrate the same commitment to passengers as passengers do to the company.
Interesting post, though I don't know whether reducing bus fares will necessarily increase disposable income to such an extent that people run out and buy cars.
However, the question of whether PTE (and local authority) policies have helped or hindered bus services is a really pertinent point. There is a fine balance that PTEs have to meet in assisting the promotion of commercial services and the mass movement of people. Similarly, there's the need to provide socially necessary services and some areas don't always get the balance right.
In some ways, the PTEs particularly seem hamstrung by the past, when they operated the local bus network, or constrained by the need to appease particular parties or local councillors.
That said, there are a number of excellent local authorities who seemingly manage to keep "squaring the circle" by supporting and encouraging operators to enhance commercial operations (either through pump priming of operations or infrastructure projects) whilst maintaining socially necessary services. However, these generally just get on with things without making a song and dance.
There is a difference between car ownership and car usage. I would think that the level of bus usage by car owners is much higher than it was 30-40 years ago.
Whilst accepting that bus travel has been regarded as a Giffen good by economists, I do think this is changing. As people are living longer, they are more likely to give up the car. The spread of social media, kindles and even Metro increase the value of time spent on the bus as opposed to driving.
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