The Economic Value of Bus Subsidy



The Economic Value of Bus Subsidy

Authors

Pedro A L Abrantes, Passenger Transport Executive Group

Description

We develop and apply a cost benefit framework to assess the economic value of three bus subsidy measures: free travel for elderly and disabled people, fuel subsidy and subsidy of non-commercial bus services.

Abstract

Bus networks carry 4.7 billion passenger trips a year in England, around three times the total
number of trips made on national rail. In the six English metropolitan areas alone, over one billion bus trips are made every year. But although buses are the backbone of public transport in large urban areas, they are largely ignored by the national policy debate, which tends to focus on higher profile infrastructure investment.

Moreover, public support for bus networks tends to come mainly through operating subsidy and concessionary reimbursement rather than capital grants. This tends to put buses at a disadvantage for two key reasons: (1) there is a notion amongst many decision makers, and promoted by the UK Treasury, that revenue spending offers a lower return on investment than capital spending and (2) transport appraisal tools are better geared at assessing the economic value of capital schemes.

In this paper we develop and apply a comprehensive cost benefit analysis framework to estimate the economic value of three revenue-based bus policy measures in the context of the six English metropolitan areas: free travel for elderly and disabled people, fuel subsidy and subsidy of non-commercial bus services.

We find that all three types of measure can have a Benefit Cost Ratio (BCR) in excess of 1. In the case of fuel subsidy and subsidy for non-commercial peak services this can be in excess of 3, which is higher than for many infrastructure schemes. We also find that a significant proportion of benefits accrues to other road users in the form of reduced congestion.

This work addresses an important gap in the empirical evidence base and also serves to highlight to decision makers the mechanisms through which revenue funding generates social and economic benefits. We show, in particular, that bus subsidies can be a highly effective distributional tool in addition to generating considerable transport benefits. Our framework should be easily transferable and could therefore be of value to other researchers and practitioners.

Publisher

Association for European Transport