Full costs of competition failure are higher than CC estimates
pteg’s response (published on the pteg website today) to the Competition Commission’s provisional report on the bus industry, calls on the Commission to use the Local Transport Act 2008 as the foundation for lasting and effective reforms to the bus sector.
David Brown, lead Director General for pteg on bus issues, said:
‘The Competition Commission report provides sound analysis of the market failure that is taking place in the bus market. The opportunity costs of this failure are far from insignificant, despite the claims of some critics. If externalities are taken into account then we could be losing out on half a billion pounds of potential benefits for passengers over the next five years. That’s more than enough to transform urban bus services for millions of our passengers.’
The provisional Competition Commission report put the cost of the ‘adverse effect on competition’ in the bus industry as being worth in excess of £70million a year. However, this figure did not take into account externalities. If these are taken into account then this would put the figure closer to £100 million a year across the study area – or half a billion pounds over five years.
To put this figure into context:
- It exceeds the amount PTEs currently spend in supporting non-commercial services;
- It is more than the main annual DfT funding stream (‘Integrated Transport Block’) for bus priority for the PTEs;
- It would be enough to install smartcard technology across the entire CC study area;
- Over a 10 year period, this would be enough to replace the entire PTE areas' bus fleets with highly fuel efficient hybrid buses.
On the CC’s proposed remedies David Brown said:
‘The next stage of the Competition Commission’s work is the most crucial part of the process as it involves turning the outline of potential remedies into hard and fast recommendations that could underpin wider Government reform of the sector. In our response we urge the Competition Commission to come up with a package of remedies that are cohesive and build on the progress made in the Local Transport Act 2008.’
‘That legislation provided three ways forward for better bus services, and is being used right now through more effective voluntary partnerships and Statutory Quality Partnerships, as well as making franchising a more realistic option. In our response we make constructive proposals on how the report’s draft remedies could be further developed in a way that builds on existing legislation, creates a more structured format for competition, and most importantly of all, delivers better bus services for passengers.’
Main themes of the pteg response
On franchising, pteg welcomes the provisional report’s view that franchising is a legitimate response to market failure, particularly in conurbations. pteg’s response says:
‘Franchising is a proven and effective format for the provision of local transport services and Local Transport Authorities are in the best position to determine, when and in what format, it should be deployed…we therefore contend that the CC should not seek to tinker, or pursue theoretical perfection, by introducing any additional hurdles or constraints to the franchising process. Instead the existing legislation should be supported and potentially reinforced…’
On preventing disruptive bus wars, the response argues:
‘We share the provisional report’s contention that short-lived, fares reductions and service changes (‘bus wars’) are not the way forward. The provisional report implies that the Traffic Commissioners could take on a competition moderation role to tackle this problem. We would argue that Local Transport Authorities are far better placed to exercise a moderation of competition role as we are closer to local markets, have the economies of scale to take on the task, and have a public interest remit.’
On ticketing, the response argues that:
‘The global evidence shows that simple, unified (for example through zonal fares) and integrated ticketing structures (preferably delivered by smart means) leads to significant passenger benefits and patronage growth. London’s Oyster card is the most prominent UK example. This form of ticketing is most easily delivered through franchising, thus providing a further reason why no additional hurdles should be introduced into the franchising process.’
‘In areas where franchising has not been applied there are clear benefits to passengers and small operators of having multi-operator products where the premium, when compared with the cost of single operator tickets, is proportionate to the benefits. PTEs are therefore concerned that large operators can – and do – manipulate the availability, promotion and price of multi-operator tickets in order to maximise the market share of their own discounted products. We suggest that this could be tackled through giving small operators and LTAs a stronger role in the governance arrangements for multi-operator tickets, and through requiring operators to promote and market such tickets through their own network and retail sales outlets.’
The pteg response can be downloaded below.
For more information contact Jonathan Bray on 0113 251 7445 / 0781 804 1485