Public transport is the most efficient way to move people around our cities, so why is it not more widely used? In many UK cities people use their public transport unwillingly. Increased privatisation has not fixed the problem. Outside of London bus passenger numbers have been in sharp decline since 1984/85, down 37%.
Although Labour has proposed some nationalisation of public transport, even if a government was elected tomorrow with nationalisation as a key manifesto pledge, legal challenges and the mechanics of government mean the process could take years. And more privatisation is around the corner – the (ironically delayed) 2017 Bus Services Bill introduced a wholly ideological clause to stop local authorities running their own bus services, even if offering a more cost effective service than the private sector.
Efficient public transport is vital to our environment and our economy, and I believe our overly privatised buses and trains are failing on both counts. Here I’m going to suggest a way to enable low cost public transport across the UK to improve our environment and increase passenger numbers. For an idea to work practically the devil is in the detail, so this is neither a political strategy nor a business plan. It is simply a starting point for consideration and discussion.
Nature of the problem
For commuters who own a car, congestion and lack of parking are often the only reasons to use public transport at all. Passengers resent having their time wasted as much as their money. Who wants to allow extra time for their journey because they cannot rely on public transport to stick to the schedules? Where passengers have alternatives they will take them, reducing passenger numbers to those who have little choice, and so increasing fares.
UK Government figures2 show bus operators’ profits average around 11%. But bus companies receive around 40% of their revenue from the taxpayer for a) concessionary travel (free bus passes), b) from national and local government to keep unprofitable but socially necessary services running, and c) The Bus Service Operators Grant (BSOG). Outside London, bus companies received a total taxpayer subsidy of around £1.7bn in 2014/2015.
So not only are you paying a higher ticket price than you should, your taxes are subsidising companies that cannot provide the minimum bus services deemed socially and economically necessary and be profitable. The simple fact is public transport will never trully be a business because it cannot exist without public subsidy.
The alternate route
The purpose of this post is to propose a national fund of several million (probably £100m) to enable the creation of bus and rail providers which set fares on a cost + growth basis (cost+ for the rest of this post). Instead of success being measured by profit, the success of these operators is measured by improved punctuality, increased passenger numbers and environmental performance.
I’m not suggesting a bunch of amateurs have a go at running public transport, or crowd funding – crowd funding is unlikely to provide adequate resources to compete with existing transport companies with assets and annual profits in the tens or hundreds of millions (see blockers below). The aim of the fund is to begin to level the playing field, allowing transport operators that run at cost into the transport marketplace, increasing public transport usage and benefiting the environment and economy. (I will call the operators cost+ for the rest of this post).
Before getting bogged down in the details, there is a simple assumption behind this post:
A reasonably well managed bus or train company, setting fares with a cost+ model, should always be cheaper and should therefore carry more passengers than a similarly well managed ‘for profits’ company, required to charge its passengers more to keep delivering profits and bonuses for its shareholders.
What has been missing until now is the motivation to make that initial investment, and the defined structure to ensure the investment is used properly.
The fund outlined
A few years back I wondered if large environmental groups could use some of their resources as seed money to improve our transport infrastructure. Greenpeace International has total assets of around €225m.4 Could Greenpeace start the fund with £5m? This is not a gift, instead a shifting of existing assets into a well-managed fund.
The remaining funding would come from other sources, bonds, ISAs, similar financial products, which individuals, pension funds, organisations like trade unions might buy into, knowing their investment is safe, and improving public transport. To the commuter frustrated with poor buses and trains such an ISA could be an attractive option – get returns on a par with a high street bank and help improve public transport throughout the country. The ISA could be provided via the banking infrastructure of ethical banks like Triodos or The Co-Operative Bank.
Find 100,000 such people to put £1000 into such ISAs and you’ve got £100m. And note, this does not mean £100m of new money. It is about attracting people with existing savings to move say £1000 into a Better Transport ISA.
As high street products like ISAs are regulated by the financial services authority they carry little risk for the investor. With millions being invested it’s important the fund is properly managed and evaluates the cost+ operators’ business plans and monitors progress to ensure they succeed, so banking industry requirements become a positive force – ensuring economic discipline in the management of the fund. And of course environmental groups and trade unions have a large base of supporters who are potential customers for the ISA.
It is also important the fund is neither political nor a source of income for the groups providing the original seed money, which could negatively affect the perception of the fund. To grow it needs the support of those on all sides of the political spectrum who simply want efficient and affordable public transport network. Other than environmental benefits any mission outside of that would be problematic. Whatever charter the fund operates under must include that proviso.
The cost+ transport providers
Potential operators would approach the fund with workable business plans – in the case of buses the fund could buy the first 50 or 100 buses, loaned to the various operators who are paying back to the fund the cost of vehicle depreciation. The operators’ fares would be set based on costs of employing drivers, insurance, maintenance, depreciation, administration. Plus an amount to grow the fund and pay the interest on the ISA or whatever other high street funding was used.
Railway profit to investment ratio is lower than bus services, so railway operators would need to start small, running Open Access rail services at low cost rather than attempting to bid for a franchise.
Financing the cost+ operators is the main hurdle. They cannot be financed in the conventional sense because the fares are low and surpluses are intended to increase less profitable routes, or go back into the fund, so the usual commercial investors aren’t an option.
I imagine the initial operating companies would be founded by a group of people with a sound business plan approaching the fund for assistance. The group gets start-up money and free use of the buses so the operator is financed for say 2 years. As the service runs and grows the company pays its own costs (outlined above) plus a small percentage to grow the fund. The ticket price should still be less than the fares of a ‘for profits’ commercial operator.
Companies should use new technology where there are cost benefits. Some bus operators already use e-tickets – the passenger shows the driver a pre-paid electronic ticket on the smartphone to board. The passenger is supposed to click the ticket so it’s activated and used once only, but many drivers don’t check or don’t care if they do, effectively giving a free ride. When running a low cost service, revenue lost like this is not an option. The cost+ operators are there to provide low cost, not free services!
There is one major advantage in transport compared to many other businesses starting up. Once a bus or train service is up and running it generates income from the start. Most businesses need time to build up their market share. Providing a transport operator has fair access to routes, the customers are waiting for them at the stations and the bus stops.
An end to rail strikes?
A key part of any successful organisation is a motivated workforce. Motivation is an energy that companies pursuing ‘the bottom line’ often waste. The short term pressure to keep wages low and have unfavourable working conditions leads to increased sickness, unwillingness to co-operate with management and creates a culture where staff resent going to work. That must be reversed. My assumption is given the right conditions the majority of people want a positive atmosphere at work and take a basic pride in doing a good job.
Whether a cost+ operator’s structure is Co-Operative, a partnership or something entirely new, staff and management must be motivated, and together set fares and decide most of the working practices – in agreement with the fund. There are only so many committed environmentalists who would make good bus or train drivers, so financial incentives like salary bonuses of upto 10% of salary for all employees if the operator significantly improves on punctuality and passenger numbers compared to ‘for profits’ operators. A sense of staff ownership and responsibility for the future is vital to success.
‘For profits’ operators also have a significant Achilles Heel. Short term cost-cutting creates a conflict of interest between management and workforce, sometimes resulting in costly industrial action. As seen with Southern Rail throughout 2016 industrial action is expensive and highly disruptive for passengers, employers and workforce. A ‘for profits’ operator can drop the quality of service and working conditions to maximise profit, profit which has no upper limit. However a cost+ operator must be a good employer, offer a high quality service and do all this while offering lower fares to the passengers.
There cannot be any adversarial gap between management and workforce, or the operator will quickly cease to exist. The fund enables cost+ operators to enter a privatised marketplace, operators which should grow with passenger numbers. But the fund cannot bail out operators that don’t deliver. So unlike a private company or a public sector employer, there is no ‘pot of money’ waiting to make up for poor decisions. Even so I believe environmental and service improvements compared to ‘for profits’ operators are possible within those bounds.
Improving rolling stock
One key aim of the fund is to improve the environmental performance of rolling stock. A simple switch to Bio-Diesel in a 100% concentration or petroleum diesel mix might be used to improve city air quality and reduce carbon. The sustainability of Bio-Diesel varies, so the specialist knowledge of a large environmental group investing in the fund should ensure operators switching to Bio-Diesel does not bring about other environmental damage6 (i.e. rainforest destruction for palm oil production).
Purchasing new vehicles is an opportunity to put better buses on our roads. Carbon neutral electric busses are some way off, as are hydrogen fuel cells. Maybe Hybrid and LPG are more realistic options? Although this means burning fossil fuels the main purpose of the fund is increasing passenger numbers, even if that means moving people out of their cars onto LPG or even diesel buses and trains.
Stockholm uses 85% Bio-Diesel7 and other renewable fuels. What other cities around the world operate significant numbers of low emission vehicles and what has their experience been? With Hybrid and fuel cells, possibly the technology is close to a tipping point where the fund’s significant investment in new technologies could help ‘pump prime’ further technological improvements?
Rail infrastructure usually limits rail to Diesel power only. UK rail rolling stock is 95% owned by three companies, but cost+ companies should be able to make service and environmental improvements by prioritising maintenance with both trains and buses, which often suffers with ‘for profits’ operators.
Measures of success
Lower fares and improvements in punctuality are how the fund measures the success of cost+ operators. According to government figures2 non-frequent services (less than 6 buses on a route per hour) were from 1 minute early to 6 minutes late 17% of the time. That’s nearly one in five services significantly late. I believe that’s a poor return for what we pay. That is a key area of improvement that can win passengers and increase usage. People have a right to expect reliable public transport.
I think the funds’ operators need a more ambitious target, no more than 1 minute late 95% of the time – perhaps that’s not feasible but if you don’t aim high you can only achieve mediocrity. The standard excuse from operators is that traffic is unpredictable. One thing you can predict about traffic is that it will be unpredictable! Solutions from the drivers and other staff are key in over-coming this. They are dealing with the issues day to day and are best placed to suggest solutions. With the right organisational structure it is also in their interests to fix the problem.
Essentially I’m describing a philosophical shift in how we look at our transport marketplace. The cost+ operators must run as efficient businesses to compete with ‘for profits’ companies, but the purpose of the fund is ensuring it is the passengers, workforce and the environment that benefit from efficiency, rather than a company board and its shareholders.
Public transport usage is far lower in the UK than it should be. However even if every bus and every train in the country was run at cost, even if services were more frequent, more extensive and achieved a high level of reliability, a point will be reached where passenger numbers will peak. Private cars will always be an alternative and people have the right to choose them. Whatever model might evolve must recognize there is a natural limit on public transport usage, and not waste large amounts of money chasing non-existent potential passengers.
Many of the UK bus and train companies make tens even hundreds of millions of pounds in profit annually. Non-profit operators threatening any of that market share will not exactly be welcomed with open arms. I would expect unfair practices, price wars, negative publicity and political influence would be employed to stop cost+ transport operators gaining any sort of foothold.
This is another reason for involving large environmental groups from the outset, as they have direct experience of fighting corporate interest in the courts. A significant part of the fund’s role is to take on these legal challenges when necessary, and lobby the industry regulators, local and national government to ensure the cost+ operators get a fair share of the market.
Such potential costs should be carefully assessed locally from the outset before the fund backs a cost+ operator. Legal action should be avoided because it is expensive, but in some cases there will be no option. I would start off by identifying cities and routes where fares are high and quality of service low, and likelihood of legal challenges is also low, so that the initial cost+ operators offer early visible improvement. Prove that the model works in one or two cities and it will attract more investors to the ISA and give the fund greater potential reach.
Probably the greatest barrier to success is poor management in the cost+ operators themselves. Poorly run companies that are too idealistic and don’t properly appreciate the need to operate within limited financial bounds, or fail to meet passenger needs on punctuality and reliability, simply won’t last. Any cost+ operator must run a measurably better service for lower cost than existing ‘for profits’ operators. As someone who works in Local Government forced to adapt to record cuts in resources, I know this is difficult but not impossible.
Surely the Government won’t allow it?
The mainstream of politics does lean towards increasing privatisation, and lobbying often ensures the interests of big business take priority over those of the average citizen. But it is lazy and simplistic to write off governments as being a bunch of fat cat politicians, blindly carrying out the will of their corporate paymasters. If a viable alternative model to ‘for profits’ ownership of our transport network comes along – one that proves it has a more reliable and efficient way of providing our transport services – no politician wants to be perceived as being in favour of bad services for large profits.
And remember the UK Government has other considerations; reducing emissions for climate change targets, reducing air pollution to cut cost in lost workind days and on the NHS, reducing subsidies paid to transport operators for subsidised routes, and the wider economic benefits of reducing congestion. Also 34% of bus journeys in 2014/2015 were concessionary, a cost met by the taxpayer which will only increase year-on-year with our ageing population.
It’s Enterprise Jim, but not as we know it
So is this an idealistic fantasy? Why has it not happened already? I consider the UK public transport network is under utilised partly because of ‘the bottom line’. Short term profit always takes precedence over service, reducing passenger numbers and increasing cost. The only solutions presented so far have been more privatisation vs less privatisation. Public ownership is unlikely to be an option soon, so increasing public transport participation needs a more imaginative solution. Publicly run or privately run, social enterprise or a company motivated solely by profit, you can find good and bad management, working practices and organisational structures in all of these.
As stated at the beginning of this post it comes down to this simple principle:
A reasonably well managed bus or train company, setting fares with a cost + growth model, should always be cheaper and should therefore carry more passengers than a similarly well managed ‘for profits’ company, required to charge its passengers more to keep delivering profits and bonuses for its shareholders.
Do you still believe in trickle-down?
This post is partly motivated by a wider concern than buses and trains. Since the 1980s deregulation and privatisation of public services was intended to stimulate economic growth which would then ‘trickle down’ to the wider population. Global wealth has increased overall but we have now reached the point where 1% of the world’s population control more than 50% of its wealth – world poverty continues, and most people in the developed world feel less secure in the current economic order, leading to disillusionment with mainstream politics, the Brexit and the rise of outsiders like Donald Trump. In fact a 2015 YouGov survey8 found the majority of the UK population now believe trickle-down economics has failed.
For many services, as with buses and trains, privatisation is not the most cost effective way of providing services – companies have to provide a service and make a profit – so the taxpayer is often subsidising profits that go to the already wealthy. As part the EU we faced the threat of the TTIP ‘trade’ deal, requiring EU governments to do more of the deregulation and privatisation that has already failed. The US makes similar deals conditional on trade with most nations, (ie The Transpacific Partnership TTP). Although Trump says he will scrap these deals I believe the corporate interest will win out, and with uncertainty post-Brexit any UK Government will find it hard to resist a hurriedly put together TTIP-UK.
I’m suggesting the creation of funds as described above, backed by the resources of individuals and groups with specific aims (for example environmental groups), may afford a way to keep in check a greater concentration of wealth and power to the wealthiest – for example, how about an ISA backed network of non-profit care homes for the elderly, using the advice and support of a group like Help the Aged? This is done by enabling efficient non-profit services to enter the marketplace, attracting more customers because quality of service not short term profit is their primary aim.
Such funds can only succeed with a clear and detailed plan, good open governance, and a realistic economic model. So whoever you are, the aim of this post is to engage your imagination and expertise about how this model may come about.
1. This post mostly discusses buses outside of London because London’s transport financial model is more complex.
2. Government data sets for UK bus transport.
3. According to this UK Government costing the effective cost of providing a city bus service outside of London was 310p per mile in 2014/2015 (including buses, drivers, insurance, maintenance, depreciation, administration etc). I haven’t found figures for average fare per mile against average cost, so this is a speculative figure – assuming an average single decker bus takes 45 seated passengers plus 25 more standing. The bus is full at peak times, empty at others and passenger numbers vary along the route as well with the time of day. Taking a low average of 15 passengers per mile seems a reasonable assumption, making the average cost per passenger per mile 21p outside of London.
4. Greenpeace International report for 2014.
5. Government retro fit to reduce emissions of Diesel buses.
6. EU places limits on Palm Oil use in biofuels
7. Bio-Diesel use at 85% in Stockholm
8. YouGov survey finds most people do not believe in Trickle down economics.