Quality contracts are not as good as claimed, writes John Hibbs in Route One

For some reason the public at large seem less interested in debates about buses than they are about the trains. Yet buses carry twice as many passengers as trains – 4.75 billion a year. And when politicians interfere in the bus industry it is expensive. London spends as much taxpayers’ money on bus subsidies as the whole of the rest of England put together. London’s largesse could soon be inflicted on Yorkshire Council Tax payers.

The story goes back to 2000 when, under pressure from the Passenger Transport Executive Group (PTEG), the Department for Transport made provision for local authorities to impose ‘Quality Contracts’ on bus companies. These allow Local Authorities to control the bus network and its fares. Where Quality Contracts are introduced, they will reverse the key gains of the Transport Act 1985 which stopped the slow death of the British bus industry by liberating it from political control. Bus companies will be progressively strangled with bureaucracy and become servants of politicians instead of their customers.

There is now a real danger that councils will use these powers because central government has made it easier for local authorities to implement Quality Contracts. And the West Yorkshire Integrated Transport Authority, formerly West Yorkshire Passenger Transport Authority (Metro), is being encouraged by its officers to implement them. Metro recently announced “unanimous support for Londonstyle services” where a politically-controlled franchise system already exists. One result in London is that Transport for London (TfL) employed 231 people whose remuneration was over £100,000 last year (08/09) and, whilst bus customer satisfaction scores are a few points higher in London than in West Yorkshire, reliability and punctuality are lower. It seems that the beneficiaries of “London-style services” are the employees of the controlling transport authority.

The cost of buses to the taxpayer in London is also huge. Subsidies have mushroomed from £1 million to over £700 million per year. Even after allowing for the smaller network, if West Yorkshire follows a similar path there is a real risk of triple digit increases in Council Tax. The omens are not good: there are no European examples of quality contract or franchised bus networks which do not involve substantial public funding.

It must be hard to justify the substantial expense, when it is known that a Conservative government, made a manifesto pledge to remove the powers concerned. But those making the decision are not part of a democratic body, its members being appointed by the councils in its area from time to time, and they may have no detailed knowledge of transport matters. The document submitted by the Passenger Transport Executive (PTE) would move all bus services in the area to its monopoly control. Its press releases speak of a “failing industry,” but it ignores the dozens of places elsewhere – Brighton and Hull are good examples – where services are self financing, excellent and improving, and where councils have no wish for change.

Metro’s argument is that the deregulated system has failed. They say fares have increased too quickly and services have been cut. Regulation is responsible for a good part of the rapid fare increases and we know from the London example that franchise raises costs and ultimately fares. TfL has recently raised fares by 20%…

The PTE says that services are unreliable, yet every West Yorkshire driver knows that our congested roads guarantee unreliable journey times. Metro also criticises the lack of integrated ticketing. Yet there is already a range of integrated tickets available. The free market has produced ‘Plusbus’ which is a product that many other European countries would love to have. Further, there are integrated day tickets and season tickets: a First West Yorkshire Weekly is £18; a weekly Metrocard (for all operators) is only £19.50.

The scheme would return West Yorkshire to the state of affairs that applied in 1985 when bus services had considerable subsidy and there was no customer choice or route innovation. Supporters repeat a slogan frequently put forward by the PTEG, claiming that it would replace ‘competition in the market’ with ‘competition for the market’, but this makes no sense at all in economics: letting out bus franchises under quality contracts is, in fact, ‘competition for a monopoly’. But this would not be a monopoly in which business managers chose how to run services, set timetables and fares, in response to customer demand. Politicians and bureaucrats would have the whip hand.

The Quality Contracts scheme is not at all clear about the consequences for existing bus companies. Those who failed to secure a franchise would lose considerable investment, which could require compensation. As a whole, the Metro’s proposal represents a political desire to return powers which were lost in the 1980s, with little or no economic justification, and at great and continuing cost to the taxpayers of West Yorkshire. We should remember what life was like before the 1985 Transport Act. Year after year, risk averse bureaucrats carried on doing what they had been doing before: running expensive buses on routes that had been largely unchanged since the First World War.