Contact: Martin Robertson, ext 6997

1. Summary

1.1 This report contains information designed to assist the Committee in its consideration of the County Council's approach to the funding of local bus services. It is suggested that the Committee will, in particular, wish to consider the level of funding provided, the criteria for support of services and ways of achieving better value from resources employed.

1.2 The report includes sections covering the following aspects:

(i) national policy framework;

(ii) links to Hampshire corporate policies;

(iii) Hampshire's Public Transport Policies;

(iv) Best Value Review 2000;

(v) key issues addressed during Best Value Reviews;

(vi) trends in bus service support costs;

(vii) criteria for support for bus services;

(viii) analysis of services supported in Hampshire;

(ix) potential ways forward - the key questions; and

(x) next steps.

2. National Policy Framework

2.1 The County Council has a duty under Section 63 of the Transport Act 1985 to secure appropriate public transport services to provide for public transport requirements not met by other services. The reference to 'appropriate' services leaves each County Council with the responsibility of deciding on the extent of intervention and therefore the level of support to be given.

2.2 The Transport Act 2000 updated the policy framework at a national level. The Act does not substantially alter the regulation of passenger transport but did give local authorities additional powers, especially with regard to passenger information and the formation of quality partnerships with operators. The Act also required the local authority to produce a Bus Strategy which should set out the Council's approach to improving bus services and particularly how this work relates to the Council's wider transport priorities as set out in its Local Transport Plan (LTP).

2.3 The Government currently has two main priorities for bus services, one of which is further developed than the other. The first priority is to increase the use of bus services as an alternative to the private car. Local authorities were encouraged to include schemes that assist buses in their five year LTP submissions in 2000 and this is now being reflected in a range of bus corridor improvements, normally achieved through Quality Partnerships, which are coming on stream both in Hampshire and elsewhere. In July 2000 the Government set a target of achieving a 10% increase in bus usage by 2010. This national target is not very challenging since the entire increase could probably be achieved by growth within London alone, and is therefore likely to be revised. In Hampshire a target of 10% growth by 2020 has been set and recent commitments under the Public Service Agreements (PSA) project has further strengthened the short term targets for this to achieve 10% growth on 2000 levels by 2010.

2.4 The second priority relates to ensuring social inclusion. This priority has gained in importance since the middle of 2001 with the formation of the Social Exclusion Unit within the Cabinet Office, and has been further strengthened by the Interim Report published by the Unit in May 2002. This shows clear evidence of the social exclusion caused by inadequacies in bus services and suggests that more Government funding and tighter controls on commercial operators are required to address this issue. This priority is reflected in the new Urban Bus Challenge competitions which allocates funding to schemes that specifically target social exclusion.

3. Links to Hampshire Corporate Policies

3.1 The delivery of the Passenger Transport service is directly linked to the County Council's Corporate Strategy, contributing towards achievement of each of the following six aims:

Aim 1 - Provision of a high quality, convenient and accessible public transport network is an important element in maximising life opportunities.

Aim 2 - Encouraging modal shift by ensuring that the public transport network can provide a credible alternative to private car usage is a factor in ensuring stewardship of the environment.

Aim 3 - Ensuring that the public transport network allows people to effectively and efficiently meet their travel needs contributes towards achieving economic prosperity.

Aim 4 - Involving communities and other stakeholders in passenger transport issues and developing schemes with others assists in building strong and safe communities in Hampshire.

Aim 5 - The development of the Passenger Transport service in line with an agreed Best Value Improvement Plan is contributing to the aim of improving the Council's performance.

Aim 6 - Attention to staff issues within the Passenger Transport Group and to contractual relationships with transport operators ensures the provision of high quality services to the public through well trained, developed and motivated staff, including third parties where the County Council acts as an enabler.

4. Hampshire County Council's Public Transport Policies

4.1 Aside from the Section 63 duty referred to in paragraph 2.1 above the 1985 Transport Act requires the County Council to produce a statement of its public transport policies, reviewed from time to time in consultation with interested parties. The first statement was produced at the time of bus deregulation in 1986. More recently, the review of policy at national level, which resulted in the Transport Act 2000, highlighted the fact that while many aspects of the policies still applied, others required updating. The County Council's public transport policies also needed to be brought in line with the broader transport policies published in the LTP. A draft revised statement of policies was therefore prepared and consulted upon, and a final draft approved by the former Planning and Transportation Committee in May 2000.

4.2 The Statement of Policies contains the following seven key aims:

Aim 1: To make public transport as widely available as possible.

Aim 2: To maximise use of public transport.

Aim 3: To seek innovative approaches to transport provision.

Aim 4: To ensure social inclusion with regard to transport.

Aim 5: To ensure continuing improvements in quality of service.

Aim 6: To build successful partnerships.

Aim 7: To ensure effective consultation.

Further detail on each of these aims is shown on Page 40 of the Passenger Transport Report 2001/02 which was circulated with the advance papers for this meeting.

5. Best Value Review 2000

5.1 The 1999 MORI residents' survey showed that public transport in general, and local bus services in particular, were of great concern to the residents of Hampshire. The need for an improvement in bus services was the second highest concern, after personal safety. This result was instrumental in the decision that public transport should be the subject of an early Best Value Review.

5.2 The review was conducted between May 2000 and January 2001 and was externally inspected by the Audit Commission which reported in October 2001. The Improvement Plan arising from the review and the subsequent Inspection Report have both been circulated with the advance papers for this meeting.

5.3 An important part of the review was focus group work with both users and non-users of public transport, undertaken by a specialist consultant. This work again demonstrated the importance of bus services to Hampshire residents, even amongst the non-users, with the fieldwork suggesting that there is evidence that the County Council has an important role to play with regard to public transport and that in most respects its priorities are broadly in line with the expectations of stakeholders and the community. There is, however, plenty of scope for improving the delivery of the service, both as a Council and in partnership with the private sector. The external inspection concluded that the service was `Good' and `Likely to Improve'.

6. Key Issues Addressed During Best Value Review

6.1 The review addressed the question of: Why does the County Council have involvement in the support of local bus services? This allowed debate on the question of what would be the consequences of not providing such support.

6.2 As noted in paragraph 2.1 above, the 1985 Transport Act gives the County Council a duty to support local bus services which it considers are needed but which are not provided commercially, but gives no definition of need, leaving this for local authorities to determine. Taking an extreme view, the removal of support would result in the withdrawal of around 20% of existing bus services and leave many rural areas of the county with no services at all and most urban areas with no Sunday or evening services. By the nature of these services, very few would be likely to be run commercially by bus operators. This would result in significantly increased social exclusion, affecting particular social groups (such as the elderly, disabled and those on low incomes) and people living in areas with no commercial public transport facilities. In addition, the County Council would have difficulty in achieving the targets for public transport use and road safety reduction which it has set itself as part of the LTP process. Such an approach was, therefore, discounted by the review.

6.3 The review went on to consider the further key question of: What the level of spending on the service should be? In the final result, this issue was passed to the subsequent `cross-cutting' corporate review of transport since it was seen as a wider corporate issue. It was, however, agreed that there needed to be an assessment of transport needs to allow an evaluation to be made as to whether the Council's current level of activity in relation to this service is appropriate and whether adjustments to provision should be made.

6.4 The `cross-cutting' corporate review of transport was undertaken early in 2001 and in May that year an external inspection was undertaken by the Audit Commission which reported in December 2001. The review confirmed that the question of whether discretionary spending on passenger transport is provided in accordance with corporate priorities and customer needs required to be considered, with a target of completing this work to allow implementation in the 2003/04 budget.

6.5 The consultants Steer Davies Gleave have undertaken work to assess travel needs in Hampshire and the extent to which these are met by public transport. This work was originally undertaken in 2000 to assess the impact of Rural Bus Grant expenditure but has more general application since it involved the consultants using a travel needs assessment model to build up a picture for each parish in Hampshire. This used information on population and age structure, car ownership levels and local facilities to determine the level of need to travel by public transport. The model was then supplied with data on the public transport services available and it computed whether there were services available at the right time to the right location. This produced an analysis of the extent to which services met identified travel needs. This showed that at that time the Council was meeting around 88% of travel needs, which compared well with other counties.

6.6 The initial review considered the further key question of: How should the appropriate balance of expenditure between maintaining `socially necessary' services and introducing new services to promote modal shift on key routes be decided? Since 1985 the Council's policies had concentrated on the former, rather than the latter, and the question was whether there should be a change of emphasis from one to the other and also whether any such `modal shift' services should be funded by reducing expenditure on `socially necessary' routes or by identifying new resources.

6.7 The consultation undertaken showed that the public regard the work of the County Council in relation to public transport as extremely important and feel that the primary aim within existing resources should remain to seek to reduce social exclusion through the provision of transport opportunities, rather than the pursuit of environmental aims through the provision of services designed to promote modal shift. This implied continuing to place the emphasis remaining on the socially necessary services, thereby maintaining the current network subject to changes reflecting usage, commercial service patterns and value for money.

6.8 The review concluded that, in view of the fact that the consultation groups so strongly endorsed the County Council in supporting socially necessary services, this should remain the main focus. However, there is also a need to look for potential ways of releasing resources to allow expansion of local bus services and facilities to meet the County Council's overall transport objectives in terms of modal shift and a drive to take full advantage of other funding available. The Improvement Plan therefore includes an incremental approach involving:

(i) the re-planning of services to more effectively meet needs, with any resources released being used to introduce new `modal shift' services; and

(ii) the use of funding sources such as developer contributions and additional Government funding to expand such services, possibly supplemented by modest increases in revenue budget.

6.9 A fourth key issue considered by the Review was: How does the Council deal with rising cost pressures for supported services which ensure social inclusion?

6.10 The cost of operation of supported services has risen ahead of inflation for several years due to rises in transport-related costs and other market conditions (more detail is provided on trends and the current situation in section 7 of this report). There is also very little competition for supported services in many parts of the county. These factors lead to pressure on the budget which ultimately requires a stark choice between two courses of action:

(i) significant sustained budget increases, clearly very difficult to achieve in the context of overall budget pressures on the Council; and

(ii) reductions in services, giving the prospect of a gradually declining bus service network, leading to difficulty in meeting transport-related targets.

6.11 The review recognised that whilst both of the above courses of action are unpalatable, one or the other or a combination of both would potentially need to be taken. It is important, therefore, to ask in what ways these choices can be made less painful, and the review indicated some solutions which were included in the Improvement Plan, as follows.

6.12 Firstly, during the Best Value focus groups and stakeholder meetings there was a strong view that there should be more flexible innovative ways of providing services, especially in rural areas where fewer people travel. It was suggested that demand responsive smaller vehicles could be a better way of meeting local needs, including community based alternatives.

6.13 The current network of supported local bus services is generally operated by commercial operators to a fixed route and timetable, often using vehicles not to a fully accessible standard. Usage patterns are becoming more disparate, particularly in deep rural areas, leading to some services failing to meet criteria for support and a trend of decline and withdrawal. There is also evidence that some essential travel needs are not being met by current service patterns.

6.14 A more flexible approach to service routeings and timings leads to it being possible to meet more travel needs and potentially either produce cost savings or better value for money spent, particularly if integrated with other services and/or making use of voluntary sector resources. It is important to emphasise that many services are by their nature less suitable for such flexibility so this is not likely to be an approach that can be universally used across the supported network. Such an approach also requires a greater degree of partnership working and some pump-priming resources and is probably best approached incrementally on an area-by-area basis.

6.15 This approach was included in the Improvement Plan and subsequently 11 examples of demand-responsive services have been introduced across Hampshire, notably three taxi-share experiments in Eastleigh, Hayling Island and Lovedean and the `CANGO' group of services around Andover. Further new services will start in Leigh Park and the New Forest in November. It is intended that a bid for further services will be made in the latest round of the Rural Bus Challenge competition this autumn. The Government is proposing some changes to the financial arrangements for supporting the operation of such services that will assist with rolling out such an approach.

6.16 Secondly, consideration was given to ways of increasing the level of competition for supported services. There is a lack of such competition in most parts of the county, and this has become more acute over the past few years as the number of operators of bus services has declined. Benchmarking revealed this to match national trends. There is evidence to suggest that this trend is likely to continue, leading to rising contract prices.

6.17 The generation of increased competition would on the face of things be likely to reduce or at least contain contract prices. A further result may be the introduction of additional commercial services as operators gain confidence. To make such a change would involve the design and implementation of a pro-active strategy aimed to encourage involvement in bus service operation. Key elements of such a strategy would include:

(i) alternative types of contract, offering low-revenue risk;

(ii) tendering for vehicles rather than individual services;

(iii) longer term contracts;

(iv) seminars designed to explain the licensing, funding and contractual systems; and

(v) use of smaller vehicles where appropriate - including taxibuses (this approach ties in with the previous comments on flexible services).

The development and deployment of such a strategy is included in the Improvement Plan and is currently being implemented.

6.18 One of the key outcomes of the `cross-cutting' corporate review was the need to integrate operational provision across County Council supported services to maximise use of capacity, maximise efficiency through economies of scale, and ideally to do this in partnership with the commercial sector. A requirement of the Improvement Plan for this review was that this approach should be trialled in part of the Test Valley area by spring 2002.

6.19 To fulfil the above requirement a study was commissioned from a firm of consultants, Southern Vectis, with data provided by the County Council. The study re-planned transport to meet public, school transport and social services needs in the northern part of Test Valley, centred on Andover, and was completed in March 2002. The study suggested that savings could be made on transport costs, rising to £250,000 per annum, if some limited changes were made to school hours, and went on to demonstrate how such savings could be reinvested in service improvements if this was felt desirable. A unique feature of the work was the inclusion of certain marginally commercial services operated by Stagecoach. The scheme is now at the implementation stage with a number of service changes in place, and discussions are continuing with the Education Department regarding the potential school hour changes, with a view to achieving early introduction of this element of the recommendations.

6.20 To summarise the relevant Best Value outcomes, the Passenger Transport Improvement Plan includes the following:

(i) The need for an assessment of transport needs and provision to allow an evaluation to be made as to whether the Council's current level of activity in relation to this service is appropriate and whether adjustments to provision should be made.

(ii) The need to re-plan services to more effectively meet needs, with any resources released being used to introduce new `modal shift' services.

(iii) The need to identify additional sources of funding to allow expansion of local bus services and facilities to meet the County Council's overall transport objectives in terms of increased use of public transport as an alternative to the private car as part of wider transport policy.

(iv) The need to look for more innovative, flexible and efficient ways of meeting public transport needs as an alternative to the conventional bus service, particularly where needs are disparate in nature geographically.

(v) The need to increase competition for local bus service contracts through the development and deployment of a strategic approach.

6.21 The Improvement Plan arising from the `cross-cutting' Best Value Review of Transport includes the following outcomes.

(i) The need to integrate operational provision across services to:

(a) maximise use of capacity; and

(b) maximise efficiency through economies of scale.

(ii) The need to review discretionary spending on passenger transport is provided in accordance with corporate priorities and customer needs.

7. Trends in Bus Service Support Costs

7.1 The spend of local bus service support between 1986/87 and 2002/03 is shown in Appendix 1. Spending on local bus service support fell nationally following the introduction of the 1985 Transport Act as competition in the market place drove down tender prices. This trend was reflected in Hampshire and in the short-term led to falls in the requirement for revenue support for bus services, expenditure falling by 36% in real terms between 1986/87 and 1993/94. Although some of these savings were reinvested in the improvement of services, the majority were absorbed into the budget at a corporate level. The table shows the declining cost trend bottoming out in about 1994 and by 1996 it had reversed. From 1997/98 onwards the position has been one of steady increase in costs, disguised a little by the fact that service reductions have been made in certain years. The table shows that spending rose by 13% in real terms during the period 1996/97 to 2002/03.

7.2 For this report a survey has been undertaken of Best Value comparator authorities asking for details of trends in spending on this service over recent years, and whether any action has been necessary to contain spend within budget. This survey has been undertaken by the County Treasurer's Department and the pattern of expenditure for the authorities concerned is shown in Appendix 2. The table suggests that although Hampshire has experienced cost pressures, this has been less severe than in many other authorities.

7.3 The survey also sought to make a comparison of spend per head of population to indicate where Hampshire stands in terms of relative priority given to this aspect of service and spend per passenger, as an indication of market conditions and efficiency. The results are shown in Appendix 3 which shows that the County Council is broadly in the middle of the range of expenditure on both measures.

8. Criteria for Support of Local Bus Services

8.1 Since 1986 the County Council has used two simple criteria for determining whether to support services which would not otherwise be commercially provided:

(i) cost per passenger trip - a maximum of £2.50 per passenger trip; and

(ii) minimum passenger numbers - a journey should carry a minimum of three passengers if operating in a rural area and five passengers if urban.

8.2 Neither of these criteria has been revised in the intervening 16 years, although the then Public Transport Sub-Committee did consider a proposal to reduce the financial criteria (ie effectively to reduce support levels) in 1997, but resolved to make no changes at that time. Bus fares have risen by around 125% since 1986 implying a reduction in the proportion of cost paid by the County Council. If the criteria had been increased in line with the RPI, which has risen by 75% in this period, it would now be £4.38 and if in line with fares increases it would now be £5.60.

8.3 The comparator authority survey has enquired as to the criteria used to determine support for services. The results are summarised in Appendix 4. These shows that the cost per passenger is the mostly widely used criteria (eight authorities) varying from £1.00 to £5.00 per passenger and averaging around £2.75 per passenger. Minimum passenger loadings are used by three authorities, each with different minimum requirements. One other criteria used by five authorities (but not Hampshire) is the setting of minimum service standards for each community.

9. Analysis of Services Supported in Hampshire

9.1 The current forecast spend on bus service support for 2002/03 is £4,449,400, net of Rural Bus Subsidy Grant, Rural Bus Challenge funding and District Council support. The latter includes £205,000 from district councils, comprising £95,000 from Basingstoke and £110,000 from Eastleigh. This funding is spread over 220 services, of which 93 are totally supported and 94 are partially supported. Therefore only 33 services are operated on a wholly commercial basis, and of these only 11 offer a service during weekday, evenings and on Sundays. The following types of service are provided:

(i) all-day weekday services (including peak hours);

(ii) early morning or peak time (commuters) services;

(iii) off-peak weekday services;

(iv) evening weekday services;

(v) Sunday services; and

(vi) school services for non-entitled children.

9.2 The percentage of services in each category, approximate percentage of spend and passengers carried per annum are shown in Appendix 5. This shows that almost half of spending is on all-day operations, but that these represent the best value, reflecting the fact that they carry more than half the passengers. Peak hour services provided for commuters are the most expensive, reflecting the higher costs of operation at these times. Off peak services during weekdays, evening services and those provided on Sundays have similar rates of performance.

10. Potential Ways forward - the Key Questions

10.1 There are certain key questions for debate in the light of the information provided, these being as follows.

10.2 Firstly, what level of funding would be appropriate for the County Council on this service in future years, and if a change in the level of spend is felt advisable, how and when should this be done?

For service levels to be maintained in 2003/04 additional resources of around £500,000 would be required. This would take spend per head of population to around £3.83. This figure includes a `best estimate' of likely price rises on retendering of services during 2003/04, but is subject to variation if there are further commercially led changes in the bus market.

To contain the budget within cash-limit there would need to be a reduction in services by about 12% across the board. If this is to happen there is a need to decide how best this is to be achieved as soon as possible, so that the full year effect of any service reductions can be realised. Effectively this means taking a final decision by the end of January 2003, to allow for the legally required notice to be given to both bus operators and the Traffic Commissioners.

There are two main options.

(i) Strengthen the criteria across the board so that the weaker services fail the revised tests and are withdrawn. This could be done in full for 2003/04, having the most immediate effect on the budget position, or could be done over a four year period as contracts are renewed. The latter approach would mean that savings would only build up gradually over the four years but would allow a focus for negotiation with district councils for financial support as services are reviewed.

(ii) Removal of one or more types of service, such as all evening bus services (possibly on certain nights of the week only), all Sunday bus services or all school specials for non-entitled children. This approach would give a more consistent result spread across the county, but would remove some better performing services in the category or categories chosen. The most likely candidates for this approach would be evening or Sunday services which have higher levels of use for non-essential journeys.

10.3 The survey of comparator authorities enquired as to how service reductions had been targeted. This revealed a universal preference for generally targeting reductions across all poorly performing services, but with an emphasis on evening and Sunday withdrawals.

10.4 Aside from the budget issue, the second question asks: Is there a case for seeking to adjust the criteria for support for services to better reflect the needs of users, the relative cost and provision and actual use of services?

A study undertaken for the County Council by the TAS Partnership has suggested that there would be merit in revising the criteria. A Director of the TAS Partnership will attend the Committee meeting and will explain the basis for this view. The TAS study included:

(i) a review of the criteria used by other local authorities to allocate bus subsidy, to highlight best practice; and

(ii) developing an outline system which ensures that:

(a) there is a link between travel needs and the services supported, ie services should meet identified needs;

(b) services are provided by the most cost-effective means;

(c) there is a measure of value for money which relates the cost of a service to the number of passengers carried.

10.5 TAS proposes the following three criteria:

(i) Needs assessment - a new criteria. Based on the SDG work on travel needs (see paragraph 6.5 above) this would involve setting minimum service levels for each community, together with target levels for Quality Partnership routes and other strategic bus corridors.

(ii) Revenue/cost ratios - this would replace the cost per passenger criteria with a calculation of revenue as a proportion of support cost for any particular service. This would give a more equitable method of ranking performance of individual services. Such a criteria would require agreement on collection of summarised revenue data from operators.

(iii) Number of passengers per bus journey - this is one of the existing criteria and would be retained. This would demonstrate whether the needs analysis is translated into actual use for any particular service. This criteria could be revised to reflect the fact that where there are very low numbers of passengers (say less than five) then it would be expected that a `low-cost' solution would be used rather than support a conventional bus service.

10.6 To implement these criteria certain further work would be required. Firstly, the SDG needs analysis would have to be updated for the latest service provision and then be kept updated on a regular basis. The Council would then need to agree minimum service levels for each community demonstrating a certain level of travel needs. This would be in a banded structure, so that communities with similar characteristics would have the same minimum standards. A slightly different approach would be required for urban areas where the majority of services are commercially provided and the area is too large to consider as one community, possibly by relating supported provision to the level of that commercial provision or by banding communities within the urban area to allow the setting of minimum levels of service.

10.7 Secondly, target service standards would need to be set for the County's strategic bus network, that is for Quality Partnership routes and other key strategic corridors this would be done in conjunction with the operators concerned. These are the routes that will deliver the achievement of modal shift targets and where additional funding will be particularly targeted if and when it becomes available.

10.8 Finally, the calculation of the revenue/cost ratio will involve the collection of additional data from operators of supported services and this aspect would require negotiation with the operators of existing contracts It would also be desirable to enhance the availability of passenger usage data by collecting additional information from operators and this too would require agreement.

10.9 A final question is that of: How do we achieve better value from resources employed? Here it is suggested that there is a need to move ahead with the roll-out of the initiatives emanating from the Best Value work as fast as is practical and with full corporate backing. These would include:

(i) The rolling out of integrated network reviews to achieve a `Quality Network' approach with transport operators over the whole county. This will involve a number of area reviews similar to that undertaken in Test Valley. A further review has now been commissioned in south-east Hampshire covering the Havant and Petersfield areas and it is estimated that five more reviews will be required to complete the work for the whole county. This process would probably take between 18 and 24 months. The funding for this work would need to be identified but could be approached on a `spend to save' basis.

(ii) The implementation of the results of these reviews. The Test Valley work is partly implemented and a further group of changes will be introduced in January 2003. However, the major savings will be made from agreement on changes to school hours and this work still needs to be concluded. The establishment of a way forward here is essential to making progress on costs and the method used could then be rolled out across the county. This is an issue where the new Environment Department will need to work closely with the Education Department.

(iii) The need to roll out the use of more innovative, flexible and efficient ways of meeting public transport needs as an alternative to the conventional bus service, particularly where needs are disparate in nature geographically. To some extent this can be achieved internally by ring-fencing the budget for innovative service provision, in 2002/03 a sum of £100,000 was provided for this purpose and funding is identified within the Council's LTP for investment in vehicles for the community transport sector. Faster progress will require the attraction of external funding. To this end, bids will continue to be made to Government's bus challenge competitions and opportunities will be sought to achieve funding from developer contributions or through partnership with district councils. As a word of caution, however, there is a distinct limit to the number of services suitable for such a low cost solution, probably representing less than 10% of the bus service support budget.

11. Next Steps

11.1 The next steps will clearly need to reflect the debate held at this meeting. Subject to that debate, the intention would be to draw all of the above elements together and to produce for the December meeting a draft bus strategy for Hampshire which could be further debated before being put to the Executive Member for Environment for his consideration. This strategy would then need to be the subject of consultation with interested parties before confirmation by March 2003.

7432/MR