Labour’s
policy for buses is a key part of reversing the impact of
neoliberalism on transport since the 1980s. It is redistributive:
it helps those who cannot afford to drive to work. Nearly half of all
bus journeys are taken
by those who have no car, and two thirds of those who travel on buses
have an annual income below £25,000 per annum. But it is also a
brave policy. By far the most popular mode
of transport is by car (or van), and the policy will be portrayed by
opponents as putting road building at risk. .
The
money recently promised
by Labour will mainly go to undoing another impact of austerity. Outside
London fares on commercial routes are set by bus operators. Local
authorities can provide subsidies for routes that are socially
important but not commercially viable. Local authority-supported
services outside London have halved in vehicle mileage since 2009 as
austerity has squeezed local authority budgets.
But
Labour also plan to change the way buses are run outside London. Bus
operation was privatised by Mrs Thatcher in 1986. Yet privatisation
has in most cases failed to bring the benefits of competition. Largely
as a result of a long-term process of consolidation through merger
and acquisition, the UK bus industry is highly concentrated
with three businesses (Arriva, FirstGroup, and Stagecoach) dominating
the sector. Head-to-head competition between operators is uncommon,
producing what is effectively a monopoly.
The
market failure in this case may be the ability of a large bus
operator to stifle any competition by temporarily cutting prices or
increasing frequency. That makes the routes unprofitable for a time
for the large bus company, but it is also unprofitable for the new
entrant. As the financial resources available to the big company are
much greater, they have the ability to kill off or take over any
competition.There is no regulator preventing this kind of unfair
competition.
With
new entry unlikely to happen because of the possibility of such
threats, the large bus companies can do what every unregulated
monopoly does: raise fares and reduce services. That is good for
profits and dividends, but bad for passengers. The large bus
companies make good profits, and the passenger gets a more expensive
or less frequent service. Since 2009, for example, the average price
of riding a bus has increased
in real terms by over 15%, while the cost of using a car in real
terms has hardly changed.
There
is a vicious circle here. The cost of running a bus is largely
independent of how many people use it, so if usage declines firms put
prices up, which in turn discourages passengers. But one important
area has seen bus use rise rather than decline, and that is London.
The
system in London is rather different from the rest of the country.
Contrary to common belief, Transport for London does not own its
buses. What it can do that local authorities elsewhere cannot is set
routes and fares, with private companies bidding to run each route.
That avoids the high fares that come from monopoly, and it also makes
it easy to establish a common ticketing system which is absent in
places like
Manchester. The system used in many European countries for their bus
services is similar to London. An important advantage London has is
that there is effective competition between bus companies to bid for
tenders on routes, which helps keep costs down and maintains
efficiency that might be lost in a completely nationalised system.
The
success of London compared to most other areas of the country
suggests the neoliberal ideal of a bus system free from government
‘interference’ does not work, and local control over routes and
fares can provide a better service. It is a classic example of where
economics, which recognises the social costs of monopoly, beats a
neoliberal ideology that is often blind to the dangers of monopoly.
This is why Labour also plan
to encourage areas outside London to re-regulate bus services, and
support the creation of municipal bus companies that are publicly
run.
While
a comparison between London and elsewhere shows the dangers of
private monopolies charging too high a price for services, is there
not a danger that if local government can set fares it will tend to
set fares too low? I don’t think this is likely to be a major issue
because of two other problems (what economists call externalities)
with a profit-based bus service. If people use many cars rather than
a single bus this increases congestion and pollution.
Anyone
familiar with large towns and cities during rush hour will know what
a nightmare congestion can be. Buses can reduce congestion by
persuading people not to use their cars. Basic economics tells us
that the congestion externality justifies subsidising bus travel or
taxing cars. Exactly the same point applies to CO2 emissions and
pollution. In this respect underpricing bus travel can be
advantageous.
Unfortunately
the experience of UK cities suggest that cheap fares alone may not be
enough to prevent congestion. In addition congestion outside London
may be having a serious impact on the productivity of our cities, as
well as increasing
pollution and CO2 emissions.
Tom
Forth writes
about a recent study that starts with a puzzle. In many countries
large cities tend to be more productive than small cities, and
economists explain this by talking about agglomeration
effects.
However this pattern does not seem to be true for the UK if you
exclude London. Another way of putting the same point is that UK
cities outside London are not as productive as they should be.
The
study then looks at transport times to the centre of Birmingham,
where the transport system is mainly based on buses. At peak times,
when congestion is high, bus journey times into work can double on
bad days, and anyone using a bus route has to plan for bad days. So
if we think about the effective size of Birmingham in terms of a
reasonable time to get to the centre, the city shrinks substantially.
This
study shows that as long as cars are free to come into the centre
those travelling on buses also suffer. Birmingham is using this study
to target investment in bus lanes, which provides a partial answer.
Park and ride schemes can help too. Another approach is to again
follow London and introduce a congestion charge, but this will only
be politically feasible if alternatives are easy, cheap, frequent and
reliable.
If
we look at cities in France, the big difference with UK cities is
metros. Lyon has 4 lines, while Lille and Marseille have two lines
each. Birmingham and Manchester have none. Last week I visited the
French city of Rennes, population 215,000, that has one metro and is
building another. Manchester has a good tram network similar to Lyon,
but Birmingham has just one and Leeds none (compared to three in
Marseille and two in Lille).
In
short, cities outside London lack the transport infrastructure that
can make them work productively, but also in a way that reduces CO2
emissions and other forms of pollution. One difference
with France is how money is provided. In France every city larger
than 100,000 people has a ten-year transport plan, with significant
national investment in five-year allocations with ten-year
strategies. In the UK cities are good at the strategies and visions
but cannot secure funding to realise them.
Once
you have well functioning cities you need to provide easy connections
to nearby towns. Towns flourish
when they are well connected to dynamic cities. Many will argue
that this kind of local investment is money better spent than HS2,
but I don’t think we should think of these as alternatives. Cities
that link quickly to other cities are likely to be more productive,
and France’s TGV network puts the UK to shame. The UK has
underinvested in non-road transport infrastructure outside London for
decades, and we need to make up for this quickly to create a more
prosperous and greener future.
