The Role of Government Support in Local Bus Services: is It Justified and How Should It Be Allocated?
Adriana Moreno Pelayo, KPMG
This paper addresses the debate about how much government support should be allocated to the local bus industry and in which form. It presents the latest analysis and considers the economic theory from a policy perspective.
The role of government support in local bus services: Is it justified and how should it be allocated?
The UK local bus industry receives £2.2 billion every year in net government support. This support is justified in terms of socio-economic benefits, as it is well established in the economic literature that buses play an important role in supporting local economies as well as wider social and environmental impacts. However, the quantity and form of support paid by the government is subject to substantial debate.
In the case of BSOG, critics of this grant argue that it does not encourage environmentally friendly behaviour by operators and suggest alternatives, such as an incentive per passenger or incentive per km based payment. In addition, concessionary fares are also a frequent cause of concern, as the population ages and more resources are needed to fund them, placing increasing pressure on government spending. There is therefore a need to clarify the arguments supporting the use of these subsidies, the incentives they generate and the evidence for their benefits.
In this context, this paper builds on previous years’ papers, by presenting the latest evidence and analysis undertaken by KPMG over the last year, in particular on the economic benefits of BSOG and concessionary fares. In doing so, this paper will take a thought provoking approach on the current debate about how much support should be given to the local bus industry and in which form, addressing trade-offs and impacts on incentives.
This paper will first compare the existing level of support in the UK with other European countries to present the overall picture of government support to local bus services in Europe. This is likely to contain a comparison of the ratio of concessionary fares relative to standard fares as well as data on government support to bus services that are run commercially.
This paper will then present the results from the estimation of economic benefits of BSOG and concessionary fares in the UK prepared by KPMG for Greener Journeys, a campaign group encouraging the use of buses and sustainable travel. These benefits include time savings, benefits from reduced car externalities, tax impacts and wider socio-economic benefits. Our estimation monetises benefits that are sometimes ignored in previous studies, such as the contribution of retired people to volunteering and caring activities facilitated by reduced transport costs.
Finally, this paper and presentation will address the economic debate about subsidies in the bus industry about how much government support should be allocated to local bus services, who exactly should receive it and in which form. In order to answer these questions, the paper will present the relevant economic theory and what the different options might be from a policy perspective, based on possible reforms being considered by the government and existing models across different countries. The paper and presentation will take a thought-provoking approach by considering different scenarios and asking a large number of questions to the reader/audience with the aim of encouraging the debate.
Existing studies by KPMG that will form the basis of the paper are available online:
Association for European Transport