Funding

An unhappy new year for public transport?

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It’s been a shaky start to the new year for public transport and it could get a lot rougher yet.

Let me count the ways…

  1. The ‘work from home where you can’ advice has hit public transport’s core commuting market hard. Meanwhile the pre-Christmas binge on shopping and socialising which kept public transport patronage afloat looks like it has been followed by a hard January comedown.
  2. Pre-Omicron, driver shortages were a serious problem for bus services with operators taking different approaches to managing them (in terms of whether the service reductions are short term or long term and whether they are focused on frequent routes or less frequent routes). Operators were also taking different approaches to how much effort and resource they were putting into recruiting staff.

    Also, and unlike for road haulage, where the DfT has a proactive strategy for addressing multiple aspects of the driver shortage affecting the industry, there was no equivalent strategy from DfT for the driver shortage crisis on the buses. This has now been exacerbated by Omicron and associated self-isolation. Industrial action is also on the rise.
  3. Additional COVID funding support for urban public transport for public transport outside London runs out by the end of March and it’s not clear whether that funding will be sufficient given Government won’t share with us the patronage projections on which it’s based (which may prove to be optimistic).
  4. HMT standard practice is to take any decisions on additional funding right to the wire, however local tansport authorities have to set budgets well before the end of March and plan any service changes that may be required.

All of which points to operators moving to rebase commercial networks at a significantly lower level than they were pre-pandemic (and some are now starting to break cover on this). The onus then passes to local transport authorities to step in and pay private operators to keep services running. But local transport authorities themselves have limited resources to do so and the prices that private bus companies are quoting for keeping those services running have soared (price increases of 50% are not uncommon). This reflects both rising costs and operators taking advantage of low levels of competition for tenders in order to name their price.

The funding challenge for transport authorities with large light rail systems is particularly acute given that most of the costs of light rail systems are fixed so significant cost reductions are difficult to achieve (short of closing them down). They also have legal and fiscal responsibilities for their light rail systems which they do not have for bus services. So, if light rail funding isn’t extended beyond March 2022, then transport authorities may be forced to make savings from spending on bus in order to keep their light rail systems operational.  

It wasn’t meant to be this way. The national bus strategy (‘Bus Back Better’) launched in March 2021 envisaged a new dawn for buses with more, cheaper and greener bus services everywhere. It was predicated on £3 billion of additional ‘transformational’ funding and on the tacit assumption that the pandemic would soon be over. However, the pandemic is still here and in the November 2021 Spending Review the Treasury didn’t countersign the £3bn cheque that Number Ten wrote. We still don’t know how the bus money that the Treasury did agree to will be divided up. If more of it isn’t purloined for additional COVID revenue support, then this additional investment will be a shot in the arm for bus services in the areas that benefit – including through more bus priority schemes.

But the danger is that this may be too little too late as the first half of 2022 sees another lurch downwards in the scale and extent of bus networks - following on from years of pre-COVID decline and the hammer blow of the pandemic itself. There’s still time (but not much) to avert this. It could be done through devolving adequate funding to transport authorities to support networks in a planned, integrated and cost efficient way (rather than allowing the DfT to continue to take the path of least resistance and route hundreds of millions of pounds of COVID funding to private operators so that they can manage the decline of bus services in a way that serves their own commercial and corporate interests). It would also require a national strategy for tackling driver shortages as well as pressing the fast forward button on allocating the funding promised in the spending review to improve bus services so transport authorities can crack on without further clawback and second guessing from Whitehall.

Time is running out though.

Jonathan Bray is Director of the Urban Transport Group

Read more about the threat to public transport in our city regions in our briefing.

Fighting smart to get passengers back on public transport

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In some ways, getting the funding to keep public transport going during the pandemic was the easy bit. During the pandemic it was important for Government to keep the public transport show on the road (and the companies that provide it) to prevent a wider sense of societal and economic breakdown. As a result, the wheels kept turning and nobody went out of business. No passengers, no problem. Government filled the funding gap.

But if - and it’s a big if - we are now moving beyond the pandemic’s ability to trigger another set of significant restrictions on movement - then the existential threat is no longer there. And then what happens to funding? June 21st is in Whitehall’s mind the point at which we transition from emergency funding to what comes next. And what comes next is very much up for grabs.

One thing for sure is that there will still be a funding gap to fill after June 21st. The best guess being that patronage will be significantly below what it was before the pandemic (which was shrinking anyway for bus). This is based on the assumption that there will be more people working from home and even greater antipathy to use of public transport from those that weren’t pre-disposed to it before.

Let’s look at the positives first for funding post June 21. For those who like their glass half full we now have a bus strategy - with a Prime Ministerial foreword - which wants more, better and cheaper buses. And it wants them everywhere. The pro-bus message was also part of the wider Conservative pitch to towns, like Hartlepool, which felt keenly that they had lost out as both the public and private sector shrank bank from post-industrial towns in recent decades. Backing that up is the largely unspent £3 billion transformational funding for bus – as well as other funding streams (like the intra-city fund) which buses could benefit from.

More widely, the consensus around backing public transport has never been stronger. You will struggle to find many politicians of any stripe who aren’t in favour. And now more politicians are evangelists for it too. Just as Johnson’s London experience, and ‘red wall’ ambitions have convinced him that buses are good politics for the Conservatives, for Labour, Andy Burnham’s decision to go all out for franchising has cut through perhaps more than any other single non-London mayoral initiative has ever done. It’s the only big Mayoral policy that most national journalists can name. Taking back control of the buses in Greater Manchester spoke to the conurbation’s sense of self like little else could. 

Meanwhile, as the pandemic becomes less dominant in lives and headlines, it creates a space for attention to return to the climate again. A transport decarbonisation strategy should drop soon which will set the terms of engagement over the level of the UK’s ambition on transport in the run up to COP26 in Glasgow. Importantly too, the environment is no longer seen as separate from, and indeed a drag on, the economy. Decarbonisation of key sectors of the economy has now scaled up sufficiently for the ‘green economy’ to become one of the drivers of the national economy. Green buses being one part of this.

So that’s the half full glass - but what is there for the pessimistic among us who suspect the glass is half empty? Whitehall is conflicted. Despite the big ambitions of the bus strategy, and on climate, there is the instinct to go back to ‘normal’ both on funding levels and on returning local public transport to a ‘commercial’ basis. This instinct is strongest at HMT which is in full on bean counting mode. Meanwhile the trajectory of recent spending reviews has been to screw down non-protected Departments’ core funding (including both for DfT and MHCLG). A lot of the DfT’s budget is also already spoken for on HS2, national rail and the national roads programme. All of which squeezes out support for local transport. And all of this is set against a backdrop whereby year on year use of local public transport gets more expensive when compared with car use. As long as this is the case, then you have to pour more and more money into public transport to have a hope of keeping it in the game.

So, which of these factors will prevail when it comes to funding from June 21st and beyond? It’s all to play for but the bus strategy feels like the strongest card we have. After all, what sense would it make to take decisions on funding post June 21st which will lead to fares hikes and service cuts on public transport when we have a PM-backed bus strategy which promises the exact opposite? As far as kryptonite to use on the Treasury goes – it’s the best we’ve got. But even so, a strong case will need to be made both in the run up to June 21st and to the multi-year spending review due in the Autumn. A case that brings to life the key role the sector has played both during the pandemic and will play in building back better afterwards. A case that needs to be part of a wider and smart fight back. What might the other elements of such a smart fight back be?

Evening up the comparative cost and ease of using local public transport compared with driving is never easy. Especially given the culture war dimension. But the Super Thursday elections give some hope. The anti-Low Traffic Neighbourhoods movement made no headway in the London elections (indeed, in general, the Mayoral candidates with progressive agendas and/or strong delivery records on transport, did well). The Welsh Government also now has a mandate to pursue its commitment in its transport strategy to ‘develop a fair and equitable road-user charging in Wales and explore other disincentives to car use…’. Alongside that there are cities that will now be pushing ahead with further measures to improve air quality which will also bring dividends for public transport.

As well as supporting and nurturing these kinds of initiatives, a smart fight back should also involve picking a few fights where money on transport is being spent on what can no longer be justified in a warming world. Good on the Rail Delivery Group for showing how it is done by fronting up in the media on making the case for Air Passenger Duty not to be cut. The absurd scale and costs of the zombie national roads programme is there for the taking. 

Alongside these efforts to level the playing field we also need to find other ways of getting people and politicians excited about public transport. Free fares certainly does this when it’s been introduced in some smaller cities and towns in Europe - but less attention has been given in the UK to the big European cities that are now seeking to emulate Vienna’s 365 Euro a year travel pass (one Euro a day). It’s striking, it’s simple, it’s cheap to use – whilst still raising some revenue. Meanwhile, in Scotland, the age groups that pay to use public transport is shrinking. If you are under 22 you now get free bus travel.

So, what does a smart fight back look like in summary? Find ways of getting people (and politicians) excited about public transport. Nurture every brave initiative that emerges to even up the score between the cost of using cars and the cost of using public transport - whilst picking some strategic fights with expensive and regressive transport policies that are obviously past their sell by date. Keep your eyes on the decarbonisation prize – all rails and bus lanes lead to Glasgow. Think about fares when seeking to win back as much of what we had – and in growing new markets where we can’t. Fight smart – because the tough bit is about to start.

Jonathan Bray is Director at Urban Transport Group

This blog first appeared in Passenger Transport Magazine

Budget 2021: Five key takeaways for urban transport

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1. The one year 2020 Spending Review, and the multi-year 2021 Spending Review, are more significant for urban transport than the Budget was likely to be – and indeed, proved to be. Also, between now and the 2021 Spending Review, we will have the bus strategy, and, if the road map to COVID-19 recovery works out, the Government will need to take some decisions on how it will fill the patronage/funding gap that COVID-19 will still leave behind. So plenty still to play for.

However, although public spending wasn’t the main focus of the Budget, it did put more flesh on the bones of the new funding streams that were announced in the 2020 Spending Review – perhaps most notably on the Levelling Up Fund. It also showed that the political dimension to funding choices, that are always implicit, are becoming more explicit through more ranking of areas to be prioritised and the greater involvement of local MPs.

2. Glass half empty? The Resolution Foundation analysis is that the Budget has further sharpened the axe which hangs over non-protected Government departments. They say: ‘Further planned cuts to public services spending will see budgets for unprotected departments (such as transport and local government) fall by £2.6bn next year (2022-23). And that by 2024-25, day to day public service spending per capita in unprotected departments will still be almost one-quarter lower than in 2009-10, with less than a fifth of the reduction in spending between 2009-10 and 2018-19 having been unwound. These spending cuts assume no further spending pressures elsewhere, which is highly unlikely given what’s in store for the NHS, schools and social care over the coming years.’

This is a particular concern in relation to the revenue support that public transport needs to recover, never mind, build its often low share of the trips that people make. It also has implications for the already denuded capacity of local transport authorities to retain and develop the skills and capacity they need to deliver capital investment and meet the increasingly complex environmental and social challenges that cities face.

3. Glass half full? Most of the extra £5bn promised for bus and active travel that the Prime Minister pledged in February 2020, is still to come. If you add in the existing Transforming Cities Fund and the new funds on their way, then potentially there could be significant capital funding on its way to spend on the right things on urban transport (public transport and active travel). Plus, few could argue that post industrial towns are not overdue an investment boost.

4. Meanwhile there’s a danger of a swing back to greater centralisation of decision-making with the risk that the Intra-city Transport Fund in particular becomes a tool by which HMT can manage the priorities of city regions which should be left to determine their own futures. More widely, the Budget reinforced the trend of recent years away from block funding towards places having to please and convince terribly clever people in London about the merits of their bids into multiple competitive funding pots.

5. One day a Chancellor is going to have to grasp the nettle of significant road vehicle taxation reform – not least because of the rise of electric vehicles. But yesterday wasn’t that day. The fuel duty escalator remains frozen. This further undermines both public transport’s competitive position and the slow progress being made to reduce transport’s drag on wider Government carbon reduction targets. But it could be that as the pandemic recedes, that 2021 is the year when more kites are flown around how a new and more progressive fiscal and charging regime for road vehicles could also fill the revenue gap that the electrification of vehicle fleets will cause in the current system.

Jonathan Bray is Director at Urban Transport Group