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Subsidies: the balancing act
Coach and Bus Week – 12 July 2006

Mark Smulian

The chances are that bus operators do not much concern themselves with the costs of care for discharged hospital patients, the conduct of the 2001 census or the intricacies of the council tax system.

Maybe they should.

These factors and more have lain behind the decisions of many councils to take an axe to their subsidies for bus routes, leaving operators out of pocket.

Operators who suddenly found this source of revenue cut off will feel aggrieved, as no doubt will voters who used the former routes and who can make their displeasure known at the next election.

But councils are not fully masters of their own finance, and that is why their use of the subsidy system has become so erratic.

Councils may subsidise bus services that they deem socially necessary but which no operator is willing to run commercially.

They are typically routes that serve small villages, or run in fringe urban areas in the evenings and on Sundays.

This year has seen a tough spending round for councils, because in a bid to keep control of public spending and limit unpopular tax rises, the government threatened to cap those that intended to increase their council tax by more than 5%.

Capping means that the government steps in to cancel any increase that exceeds that level a fate that hit Medway and York councils.

The result was a spate of 4.9% or less increases around the country, although some councils that faced elections in May even managed a zero increase which meant a real terms cut.

Buses can get clobbered in the search for lower tax increases.

This is because spending on subsidised services is discretionary it is something that councils can do but do not have to.

Large chunks of council budgets are obligatory chiefly in education, social services are so savings fall on the discretionary spending areas.That would be difficult enough for councils, but the budgets they do allocate to buses face additional pressure when commercial services are deregistered.

Operators of course have no wish to run unprofitable routes. But something has to give when councils are asked to support previous commercial routes, on top of the existing subsidised network, and at a time of budget pressures.

Something gave at Wiltshire County Council, historically a generous spender on bus subsidies. Its tendered network is being cut as a somewhat improbable side effect of financial troubles in the National Health Service.

One of the primary care trusts that services the county decided at 24 hours' notice in March to stop paying for care for discharged hospital patients who are looked after at home by the council's social services to prevent 'bed blocking' though unnecessarily long hospital stays.

This provoked a financial crisis. Faced with the need to save 4m on top of cuts it had already made for this year's budget, subsidised buses were among services in the firing line.

Wiltshire cut 200,000 off passenger transport, in addition to 700,000 already cut, and decided to reduce its support for services to once an hour between towns, and for school and work trips.

It ominously noted that about 1m of savings could be generated next year.

Council leader Jane Scott said: "The cuts in bus services will have an impact on social inclusion, but we have been at the top of the subsidy range."

The most extreme example of withdrawn subsidy is at Southend Council, where spending on subsidised routes was axed altogether last year, saving around 300,000.

Southend argues that it is in dire straits financially because the 2001 census miscounted the number of residents in the town.

The census figure is used to calculate the amount per head that the government gives to councils in grants, with the result that Southend has money for 26,000 fewer people than it should have.

David Garston, the council cabinet member for sustainability, admits the cuts became an election issue this May, but says, "we saw the cost was increasing and it was very expensive to subsidise services that were little used.

"The census says we have only 150,000 people but we know we have 176,000. We have only had a 2.2% budget increase from the government, so we are on the floor as far as finance is concerned.

"There was not much public reaction at first but there has been since and it became an election issue, although the cancelled services were only about 4-5% of routes."

Mr Garston says Southend is not anti-bus and has spent on a bus corridor for the main A13 road and a new town centre bus station.

But he says a 'dial-a-ride'-style taxi bus is the only replacement the council can afford for the axed services.

North Yorkshire County Council increased its spending on bus subsidies to 5.12m this year but found rising costs meant it was still 311,000 short of what was needed to maintain the network.

It reacted by withdrawing 10 routes that it said were poorly used, and provoked an outcry from opposition parties and some of the affected public.

Clare Wood, the council's executive member for environmental services, said the council subsidised 160 contracts last year .

She said some routes ran with few or no passengers and that one contracted service, which cost 86,000, averaged three passengers a journey at a subsidy equivalent to 18.18 per head.

"We have a duty to the taxpayer to ensure that we spend wisely what money we have," Ms Wood said. "Very few residents will be disadvantaged.

"There will continue to be a shortfall in overall funding as we balance the needs of other essential services such as working with vulnerable older people. Meanwhile we face rising costs passed on to us by the bus operators."

North Yorkshire consulted users on the service changes, a common approach among councils that both wish to know the state of public opinion and give themselves some political cover for potentially unpopular cuts.

A similar exercise in Herefordshire revealed enough public concern about rural buses that the amount of money for subsidies actually rose as a result.

Public transport manager Jim Davies said: "The consultation was to get some response to the fact that routes had to be re-tendered and we were facing price increases way above inflation and anticipated problems in letting contracts."

Councillors took a political decision to increase the budget for public transport following consultation responses, and will spend 960,000 this year, plus rural bus grant.

Subsidy was previously used for village services, but Mr Davies said withdrawal of commercial routes meant "we also now have to use our funding to prop up services in Hereford itself".

Durham County Council has blamed "inflation-busting costs" for cuts to its 3.5m subsidised network, which was overspent by 700,000 last year.

It concentrated cuts on poorly used and Sunday services, and removed around 4% of the subsidised network.

A council statement said: "The county council pumps millions of pounds a year into helping bus companies keep unprofitable bus services on the road to maintain as comprehensive a network of public transport as possible.

"In recent years the bus industry has suffered from significant cost increases, with rises in drivers' wages, fuel costs and insurance all outstripping inflation. While the costs have risen, the number of passengers has fallen, in line with the national trend."

Poole Council is conducting a punningly-titled 'route and branch' review of its support for buses after stepping in with increased subsidy when local operator Wilts & Dorset rationalised its network last year.

The council covers an urban area, although some services cross the boundary into rural Dorset, and its subsidies have been concentrated on evening and Sunday services, says public transport manager John McVey.

But Wilts & Dorset has redesigned it services so that they run fast on main routes and offer an alternative to car travel.

It is a policy that is working, Mr McVey says, with 30% increases in ridership on some routes, which he believes is one of the highest rates outside a major city.

But the flip side is that residential areas off main roads have been missed out by the new routes.

Mr McVey says: "The pattern is changing, where four years ago it was evening and Sunday services that were subsidised, but now W&D has rationalised its services onto corridors the estates can be missed out and we have had to fire-fight these changes. We are really up against it."

Poole spends 620,000 a year on subsidies and Mr McVey has asked councillors to find another 100,000.

"If that is not agreed we could see a lot of services go in September", he says.

Subsidy and contract prices are negotiated individually between operators and councils, and the Confederation of Passenger Transport says it does not do any specific lobbying on the issue with the Local Government Association, the councils' umbrella body.

Councils see costs rising fast, according to the Association of Transport Coordinating Officers.

Its annual survey last November found the costs to councils of funding bus services had risen by more than inflation for the eighth year running.

The survey, which included school services, showed retendered contract prices were on average 11.2% higher than those they replaced, and that councils spent 6.8m last year on replacements for withdrawn commercial routes.

ATCO chair John Hodgkins says: "The continuing rise in bus operating costs and withdrawal of commercial services is a big worry for transport coordinators.

"Without more money the bus will not be able to play the central role that it should in helping to reduce social exclusion and combat congestion and pollution."

Mr Hodgkins says the picture was mixed after councils agreed their budgets for this financial year in March.

He explains: "Some local authorities have been subject to pressures and others less so. Those in a more fortunate position have stood still with inflation but they have not had any substantial increase in services. It may hit some places quite hard."

The subsidy system faces a vicious circle of rising operator costs, and falling council budgets.

If it passes the point where cuts begin to hit well used services, the public reaction could force the government into either specific bus grants to councils, increased regulation or an expansion of taxi-style services.



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