Funding for bus services

11 March 2014

Article by Andrew Minnis, National Assembly for Wales Research Service

Photo from Wikipedia. Licensed under the Creative Commons.

Photo from Wikipedia. Licensed under the Creative Commons.

This blog post includes information which members may find useful in advance of plenary debates on bus services and access to public transport for young people on 12 March.

It builds on the recent post on changes to transport planning and funding in Wales, published in January 2014.

Support for bus services – some history

In January 2012 the Welsh Government announced a reduction in both the Bus Service Operators Grant (BSOG) and Local Transport Services Grant (LTSG) to £17 million and £8 million respectively from 1 April 2012.    The Confederation of Passenger Transport (CPT), which represents the commercial bus industry, stated that this represented a reduction of 25%.    This decision was reversed in the short term pending a review of Welsh bus funding arrangements.

On 17 January 2013 a written statement from the Minister for Local Government and Communities announced a new Regional Transport Services Grant (RTSG), administered by Regional Transport Consortia, would replace BSOG and LTSG from April 2013.  The total budget in 2013-14 was £25m.

Support for services from April 2014

On 17 January 2014, the Minister for Economy, Science and Transport announced the replacement of the RTSG with a Bus Services Support Grant (BSSG) allocated directly to local authorities.

While final guidance has not been published by the Welsh Government at time of writing, the most recent draft guidance indicates that again £25m is available for 2014-15.  While this maintains the level of funding available in cash terms, in comparison to 2013-14, it represents a year on year real terms cut in funding.

Further, while 10% of RTSG funding was ring fenced for Community Transport services, the draft BSSG guidance suggests this may be reduced:

Local authorities collectively – at an all-Wales or area level – should allocate at least 5% of BSSG to support provision of services by community transport providers.  The Welsh Government strongly recommends that a figure of 10% is achieved.

Concessionary Fares

Bus operators are reimbursed by local authorities on the basis that they are “no better and no worse off” as a result of carrying concessionary fares passengers. This is achieved by applying a “modifying factor”, i.e. a percentage reduction applied to an average single fare for each operator to reflect the fact that, for example, the scheme encourages travel and that operators provide multi-journey tickets which work out cheaper than a single fare.

While concessionary travel is funded on the basis that operators will be “no better off and no worse off” as a result of participation in the scheme, concessionary pass holders represent 45% of all bus journeys in Wales  so that the scheme provides significant revenue for bus operators.

Between 2011-12 and 2013-14 a three year agreement made a total of £213m available to support the scheme, including local authority contributions. The modifying factor was 73.9%.

On 17 February 2014 the Welsh Government wrote to the Chief Executives of Welsh local authorities stating that the modifying factor will reduce to 64%, following a review of scheme funding. Total funding of £189m is available over three years reducing from £65m in 2014-15 to £61m in 2016-17, again including local authority contributions, representing a progressive reduction in both cash and real terms.

However, while the overall funding envelope for concessionary fares is reducing, it seems that the local authority contribution may not be.

The Welsh Government letter to Chief Executives of 17 February listed local authority contributions which in some cases increased compared to 2013-14 as a result of a change in the calculation methodology.

Subsequent correspondence to local authorities suggests that this approach has been adjusted, and that the contribution from at least some local authorities will “be not less” than 2013-14 levels.  It is not clear at time of writing what this means in practice or whether it applies to all local authorities.

Pressure on public sector budgets

The Welsh Government’s Programme for Government includes development of bus services and support for the bus industry among its commitments.

However, the Welsh Government is pursuing these commitments while facing significant reductions in its own budget since the 2010 Spending Review.    Notably, the Transport Minister’s paper for draft budget scrutiny in October 2013 indicates that the transport budget for 2014-15 includes a reduction in the total transport revenue budget of £18.7m, or 6% in cash terms, compared to 2013-14 with a further £6.5m reduction in the indicative budget for 2015-16.

Similarly, while local authorities also fund bus services from core revenue funding, the local government settlement for 2014-15 shows a 3.4% cash reduction compared to 2013-14.