Profile of Respondent

I am a lecturer in Transport Economics at Edinburgh Napier University. I teach

undergraduate and postgraduate courses in transport economics, public transport, freight
transport and transport policy. I have published several research articles on bus and rail
economics and regulation, and I am author of the book The Economics of Transport,
published by Routledge in 2010. The views expressed are purely that of an academic
working at a UK university.

Response to Questions
Question 1- support the general aim of the proposed Bill
Yes. I think there are some issues that need to be reviewed further, some of which I have
discussed below, but overall I do support the general aim of the proposed Bill.

Question 2 - advantages and disadvantages
Advantages
More public control of bus services, there is therefore a greater chance that buses could be
run on the basis of the public interest (in all respects, not just social necessity). Bus
transport plays a vital component in the running of local economies and the functioning of
local communities, however both of these activities do not always equate with profitable
bus operations. The proposed bill should allow for the operation of more services of this
nature.
Following from the above, it could be reasonably argued by some that given the relatively
high ratio of the industrys revenue that is made up of public finance, there is an insufficient
return for that level of finance, and hence public finance should be better targeted at
public interest goals, which again the bill seeks to achieve.
It may help to create a far better sense of partnership working between the public and
private sectors, which ultimately can only be beneficial for the wider communities and local
economies that they serve. Under the current arrangements, local authorities and bus
operators are forced to work in partnership due to the legal division of responsibilities
between infrastructure and buses, however my experience on this is very mixed, with some
excellent partnerships and also some very poor ones. These proposals should help to
improve the prospects for the former and reduce those of the latter.
There is the possibility that the level of subsidy could be reduced, either that or the same
amount in real terms used to procure a larger number of services. There is a fairly large
body of evidence that certainly GB wide, competition/contestability is not working in the
sense that it is not (self) regulating the market in terms of fares, profits or costs
profitability in London for example is considerably lower than elsewhere in England. That
function therefore could be provided by regulation, and hence the benefits of a more
competitive industry could spill over into the subsidised segment of the market. Some real
care is required here however, as the situation in Scotland is not as clear as England, and
this of course assumes a big bang approach with regard to re-regulation which is probably
not the best way forward either.
There is probably also an argument that it is time for a full review of public transport
subsidies in Scotland across both the bus and rail industries, as well as concessionary fares,
and the bill provides an opportunity to undertake such a review.

Disadvantages
The major drawback in my view is the issue of cross-subsidy - if loss making bus services are
considered to be socially necessary, then why should only bus users pay for them and not
car users? The general argument is that if something is considered socially necessary, then it
should be funded through the tax system, hence everybody contributes. A further problem
with this issue is if the long run trends of falling patronage continue, then revenues from
profitable services fall until many of these may also become unprofitable, so who therefore
pays for these? This was one of the major drivers of the increase in bus subsidies in the late
1970s/1980s which led to deregulation/privatisation in the first place.
Following on from that, the running of socially necessary routes is dependent upon bus
company profitability, and it assumes that this is at a level where, in economic terms,
abnormal profits are being made - in plain English, this assumes that profitability could be
reduced to a point that it is still financially worthwhile for companies to continue to operate
in the Scottish bus market. Profitability in Scotland however is considerably lower than in
the equivalent English deregulated market, and this must bring into question as to just how
much bus company 'profit' would be available for cross subsidy.

Question 3 - re-regulation being used to improve bus services
The limited research on the topic basically shows that where there is competition or
contestability (the threat of competition), then the deregulated market does tend to work -
it produces companies closer to economic efficiency, that is low unit costs, lower
profitability and lower fares. The problem however is that such companies are in the
minority in the British market - recent research puts a rough figure of around 30% of
companies in the English deregulated market. The market therefore does not appear to be
working, hence reregulation could be used to increase the economic efficiency of the whole
industry. As with above however, the situation in Scotland is slightly different to England,
and this area needs further research to establish just what potential improvements, in
economic efficiency terms, could be achievable.

Question 4 utilisation of community transport
No comment.

Question 5 financial penalties imposed by Traffic Commissioners for failure to meet the
terms of the franchise.
I am not convinced that the argument re current arrangements with the Traffic
Commissioner applies, as that relates to breach of rules, whilst what is proposed would
relate to a breach of contract. The franchising authority should be the authority that
imposes such fines, or indeed pay any incentive payments, such as happens in the rail
industry. I think this is an issue that needs to be considered further, particularly the legal
position with regard to this and contract law.

Question 6 financial implications of the proposals
One of the general problems faced by the bill is that no empirical evidence exists with
regard to the movement from a deregulated bus market to a fully or partially reregulated
bus market, and without that it is difficult to see how this could be achieved without a
substantial increase in the role of the public sector in the planning of bus services. This
would inevitably come with increased public sector and legal costs, and the danger is that if
this was to be taken up by a large number of local authorities, the financial implications of
moving to such a system could be considerable. Using Calmac ferries as an albeit bad
example, the whole new structure took around l5m to set up, and it has been estimated
that the transaction costs of running the new structure could be anything up to l0m per
annum. Similarly the railways experienced considerable increases in transaction costs with
privatisation. One of the major advantages of the current deregulated market is that there is
no need for contracts and the whole planning function is contained in the private sector,
hence does not need to be funded out of public finances. With a (fully) regulated market
however, the planning function would need to be taken into public administration, and
when added to tendering, legal/contractual and monitoring costs and duplicated across the
whole of Scotland, this could be a considerable financial cost.
On the other hand, as noted above, direct levels of subsidy would not have to increase and
there could even be a possibility that under certain circumstances these could be reduced.
This would depend upon how the services offered were packaged. There may also be
possibilities that the tendering process could be organised in such a manner that the
planning costs need not necessarily fall on the public sector for example, the tactical
planning of what services and frequencies to run could be part of any tender. This would
ultimately be dependent upon the scope and extent of the franchising model adopted.
Furthermore, subsequent re-contracting rounds need not necessarily go through a
tendering process, which would save on public administration and operator costs, although
any approach such as a negotiated contract would need to be consistent with EU law.

Question 7 - implications for equality
The bill could have both positive and negative effects on equality.
In terms of progressive effects, there is a view that access to transport is a participative
requirement, in other words it is a basic requirement that individuals need access to in
order to participate fully in modern society, which if the bill leads to the provision of more
socially necessary services, then this would be a progressive measure.
Due to cross subsidisation however, one view is that the bill could also be potentially
regressive. Bus services are used by many different groups, but one group where usage is
particularly high is in lower income groups. Under the provisions of the bill therefore, on
profitable services higher fares are imposed to cover the losses of the socially necessary
routes which are bundled with this. Given high usage in lower income groups, this 'burden'
falls disproportionately higher on these groups. Hence it is the lower income groups that are
paying more for these socially necessary services, whilst the higher income groups, usually
car owners, pay nothing.

Question 8 - Other comments
I'm not an expert in geographical dispersion of income/organisation of public administration,
but whilst Scotland as a whole has a high level of subsidised bus services, these are
geographically polarised, hence some authorities such as Dumfries and Galloway and
Highland have mainly subsidised services and very few commercial ones, others, notably
Glasgow and Edinburgh, have mainly commercial services and few subsidised ones. The
opportunities for cross subsidisation, at the 'local' or 'network' level therefore, may be
limited.
Does Scotland have the public administration expertise to implement such a policy,
particularly at a local authority level? I honestly do not know the answer to that question,
however some consideration may have to be given to a role for a centralised authority to
run/assist with any tendering processes, with Transport Scotland being the obvious
candidate to house such a function.


Jonathan Cowie
Lecturer in Transport Economics, Edinburgh Napier University
26
th
July 2013.