The Regulation of Bus Services in Great Britain

1 Introduction

• This paper is about the various laws governing the operation of bus services in Great Britain. It has been prepared on request of the (pilot) Associations in order to inform concerned 'actors' stimulating urban passenger transport reforms in RF cities, and to inspire them to find their own solutions which could be practically applied in Russia.

• It explains that—whilst the market outside London is fully deregulated—operators must achieve high standards of maintenance, reputation, competence and financial standing before they are allowed to operate. While operators are, in principle, free to determine routes and fares, they must advise the Director of the Operator Licensing Authority (“Traffic Commissioner”) of the routes and timetables in advance and must keep to them. In addition to the checking of the vehicles’ mechanical condition, inspectors check that the timetables are being observed. Operators can make changes to their timetables and routes, but they must give advance notice of their intentions to do so. This is to ensure that the public is given adequate notice of changes to their service and it reduces opportunities for unfair competition by the sudden commencement and abandonment of routes.

• The paper also discusses subsidies for routes which are socially necessary but financially unprofitable, subsidised fares for children, the elderly and disabled and explains briefly the law of monopolies.

2 Permissions to Operate a Bus Company

If an operator wishes to make any kind of charge giving passengers a right to ride on a vehicle, he must first obtain an operators licence.

The operator licensing system can affect all sizes of passenger vehicle, from small minibuses right up to the largest urban buses and coaches.

• If a vehicle has more than 8 passenger seats, the operator will need an Operators Licence if it is used for “Hire or Reward”.

• If a vehicle has up to 8 passenger seats, the operator will need an operators licence in case (1) it is used for “Hire or Reward” and (2) the passengers are each paying individually for the right to be carried. This additional requirement distinguishes bus and taxi licensing, as in the case of a taxi there is one obligation to pay the fare – which usually applies to the hirer – even though several passengers may in fact be carried.

• The term “Hire or Reward” has a complicated definition. It includes
• Payments giving a right to be carried – for example fares paid to the driver or to a ticket office which give a right to be carried
• Payments for season tickets covering a number of modes, provided the ticket includes rights to travel on a bus
• Payments for a package of services including a right to travel on a bus. For example, if a hotel owns a bus and offers “free” transport to and from the airport terminal, the operation will still be classified as being for “hire or reward”. This is because the passengers will have made a payment to the hotel – for the use of a room, a meal in the restaurant, etc. It does not matter that some of the passengers have made no payment at all, provided some do.
• The operation is also classified as being for “hire or reward” if a payment is made on behalf of a passenger – for example if a parent or a regional administration pays for a child to go on an educational trip.

In all these cases, the operator must obtain an Operators Licence, but there are two exceptions.

• Operators of two types of service are exempted from the need to hold a licence, providing they first obtain a special permit. The permit rules are explained below (section 2.2).

• There is a special rule allowing passengers to share a car and contribute to the cost of petrol without the need for a licence, provided that no profit is made.

There are three types of Operators Licence: Restricted, standard National and standard International.

Restricted licences allow the operation of up to two vehicles by an organisation whose main business is not the carriage of passengers. For example, a hotel which operates on or two ‘courtesy’ buses will need a restricted licence.

Standard licences cover operations where the main concern is the carriage of passengers. There is no overall limit on the number of vehicles which may be covered by a licence. The Traffic Commissioner will set a limit for each operator, based on the number of vehicles the operator asks to be allowed to operate, the extent of his financial resources, his maintenance facilities and his previous conduct.

All operators must meet the legal requirements for maintenance and safety. Holders of a restricted licence are exempted from the need to have a competent person. Also, fewer questions are asked about the financial standing and good reputation of a restricted licence holder. Holders of an international licence have to meet stricter financial standards and their competent persons must have passed an additional examination covering international transport procedures.

Great Britain is divided into 6 “Traffic Areas” – administrative districts for the purpose of operator licensing. An operator must hold one licence in each Traffic Area in which his vehicles are usually parked. A licence may therefore cover more than one parking place. The official responsible for granting and revoking licences is known as the “Traffic Commissioner.” Each Traffic Area has a Traffic Commissioner, who has sole responsibility for his territory. Traffic Commissioners are appointed for life. Provided he observes the law, behaves correctly and honestly, it is not possible for a Traffic Commissioner to be removed by politicians.

The decisions of Traffic Commissioners are subject to appeal. If the appeal relates to the conclusion reached by the Commissioner – there is a special appeal body known as the “Transport Tribunal.” The Tribunal officials also independent and protected from political interference. Tribunal appeals arise when an applicant-operator believes the Traffic Commissioner’s decision is too harsh, but there is no allegation of bias or improper behaviour by the Traffic Commissioner.

There are strict rules which govern the factors taken into account by the Traffic Commissioners when making a decision. If an applicant believes that the Traffic Commissioner has acted improperly – for example he is biased in favour of another company and did not act fairly when making his decision, it is possible to appeal to the Court. The court may order that the decision be reconsidered. This second appeal mechanism—known as “Judicial Review”—can also be used in a number of circumstances where an official has a substantial discretionary decision making power; examples include applications for planning permission to construct a building or for a licence to operate a radio station.

There are strict standards of operational safety and quality which must be met before an operator can obtain a licence. These rules are separate from—and in addition to the service quality requirements and cover vehicle maintenance, financial solvency of the operator, competence of the operator and his managers, good reputation of the operator and his managers and road safety aspects of the vehicle parking place. The service quality rules ensure that operators provide buses at times promised in the timetable.

Two types of Hire or Reward operation are exempted from the requirements to hold an Operators Licence. Operators of these services must instead obtain a special permit.

Section 19 Permits are named after the law that created them. They allow groups concerned with education, religion, social welfare or other activities of benefit to the community to make a charge for giving passengers a right to use the bus. They are commonly used by schools, sports clubs and welfare organisations. The charge made must be such that there is no profit. The income may cover only the fixed and running costs of the vehicle, including a reasonable allowance for vehicle replacement at the end of its working life. The driver may be a professional, paid driver or a volunteer.

There are two types of section 19 permit – “small bus” (up to 16 passenger seats) and “large bus”.

The bus may be used only by members of the organisation to whom the permit is issued. The service must not be open to the general public. There are three main advantages of a section 19 permit, compared with an operators licence.

1. The fees are much lower for both types. The fee for obtaining an operators licence is at least US$ 700, plus an annual fee for each vehicle used under it. Permits cost about $10 and are valid until revoked or surrendered. Voluntary groups – such as charities which provide food and clothing for elderly people – cannot afford the licence fees.
2. Small section 19 permit buses may be driven by the holder of a car licence. Vehicles with more than 16 passenger seats may only be driven by the holder of a bus licence. The rates of pay for a licensed bus driver are much higher and the training is expensive. Some people argue that this exemption should not continue because it is important that passengers are driven by a driver who is competent to deal with this type of vehicle and driving a minibus is more difficult than driving a car. There are additional restrictions covering drivers who passed their car test on or after 1^st January 1997 – see driver licensing section (3).

These cover only vehicles with up to 16 passenger seats. They are available to e.g. volunteer organisations who wish to run a minibus service in an area not served by public transport – for example a remote village. The driver must be a volunteer, the public may be carried but the service must not make a profit. The advantages are similar to those of section 19 permits.

2.3) Operator Licensing : Maintenance and Testing of Vehicles

There are detailed rules governing the mechanical fitness of all vehicles used on the public road. If a vehicle has a mechanical defect that breaches one of these rules – for example it has a defective light or tyre – both the operator and driver commit an offence. For minor violations, the driver will be given a “fixed penalty notice” – a notice to pay a fixed fine – normally about $60 – at a Police Station. For more serious violations, the fine will be imposed by a court. Where the operator is to some extent responsible for the defect – for example the vehicle has not been maintained properly, both the driver and the operator can be prosecuted. Detailed records are kept of all fines imposed.

In addition, if the vehicle has a defect that makes it too dangerous to be allowed to continue on the road, an “Immediate Prohibition Notice” can be imposed. This prevents movement until it is repaired.

Apart from requiring that all vehicles must be in good mechanical condition, the law also requires that the holders of an operators licence take certain steps to achieve this standard.

An operator must declare that he will implement a system of preventative maintenance when he applies for an operators licence and inspectors will check that he does so. Failure to maintain vehicles properly is one of the main grounds on which disciplinary action can be taken against an operators licence.

The type of disciplinary action taken will vary with the seriousness of the problem. If a number of maintenance related problems are discovered – either in a road side check or by an inspector examining vehicles in the operator’s yard, a more detailed examination of the operator’s vehicles and records will inevitably follow.

If many safety-related minor faults are found, the operator will receive a warning letter from the Traffic Commissioner.

If the problems are more serious, a disciplinary hearing may be called, e.g. when the Traffic Commissioner is worried that the operator:-

1. has insufficient financial resources to fund a maintenance programme or
2. has insufficient access to qualified engineers or equipment or
3. has not made suitable arrangements for maintenance with a commercial garage

The Commissioner may reduce the number of vehicles the operator is allowed to operate. It is not a valid excuse for the operator to say that he will not be able to provide a registered service if his licence is so reduced. If the problem continues, the licence may be suspended (taken away for a time) or revoked.

2.3.1) The Elements of an Operator Licensing Maintenance System

1. Driver daily checks
2. Periodic safety inspections
3. Manufacturer’s recommended servicing
4. Annual Testing

Drivers are required to perform a visual examination of a number of safety related items on the vehicle, such as the operation of the doors, the condition of the tyres and lights. Operators must give drivers training in how to do the checks and must monitor the driver to ensure that they are being done correctly.

Drivers must record any defects found during the check, and report to a person competent to decide upon appropriate remedial action – such as an engineer or a manager who can authorise the sending of the vehicle to a garage. This person must decide if it is safe to allow the vehicle to be used or if it must be checked or repaired immediately.

The law requires that drivers must fill in a form if they find a problem. The operator must keep these forms for at least 15 months, along with records of inspections, servicing and tests for each vehicle. Many operators require that drivers sign and submit a form if they find the vehicle to be in good condition as well, so that they can prove to an inspector that the checks have been done. If an operator has some new vehicles which are under manufacturer’s warranty (guarantee period), the manufacturer will often make it a condition of the warranty that certain items, such as the oil level, are checked at least once a day. Records of the checks, even if no problem is found, are useful if the operator claims that the manufacturer has supplied a defective vehicle or component.

Vehicles operated under a goods or passenger vehicle operators licence must be inspected regularly by a competent engineer. This inspection will consist of visual examinations and instrumental tests, similar to the Ministry of Transport Annual Test. The periodic inspection will cover all the vehicle’s safety – related systems, including brakes, steering, tyres, mirrors, lights and light adjustment, doors and the safety of the passenger compartment. The inspection can be done by the operator’s own staff or by a commercial garage. Records must be kept of the items inspected and the remedial actions taken. These must be stored in good order for at least 15 months. They must be open to inspection by Ministry of Transport officials and the Police.

The manufacturer of a vehicle will make recommendations as to its service intervals and the items to be checked. These services are in addition to the inspections outlined above.

Vehicles with more than 8 passenger seats must be tested annually from the end of their first year. The test must be performed by an approved Ministry of Transport Test Station. The operators pass rate (records) at the annual test will be available to the Traffic Commissioner. If a number of vehicles are presented for the test in an defective condition or if serious defects are found, it will be a ground for an investigation by the Vehicle Inspectorate and possibly disciplinary action against the operator’s licence.

All passenger vehicles used for hire or reward (defined in section 2.1) must have a Certificate of Initial Fitness. This is similar to an annual test and is conducted before the vehicle is first put into service. It confirms that the vehicle has been built to a standard which complies with all the relevant technical requirements – for example concerning performance of brakes, width of gangways, number of doors, number of fire extinguishers etc.

There are two ways in which this Certificate can be obtained.

1. By examination

The vehicle is physically examined and tested against a checklist, similar to an annual test. If it complies fully, a Certificate will be issued.

2. By “Type Approval”

If a manufacturer mass-produces a passenger vehicle, it is possible for a sample of vehicles to be submitted for examination as in (a). If the design is satisfactory, the manufacturer will supply a “Declaration of Conformity” with each one, confirming that it is built to the same standard and design as the examined model. The operator sends this declaration to the Ministry of Transport and a Certificate will be issued without examination.

If a vehicle has been issued with a Certificate of Initial Fitness by either method, the Certificate states that it complies with the relevant technical standards at the date of examination.

If the vehicle is modified subsequently, for example the operator changes the number of seats or the location of the doors, re-examination will be necessary to check that the design is still legal. This is known as the “Notifiable Alteration” procedure.

The Police or the Ministry of Transport Vehicle Inspectorate can examine vehicles at the operators premises or at the roadside. If serious defects are found, the vehicle can be issued with a “Prohibition Notice” preventing movement until it is repaired. It is also possible with a Prohibition Notice to allow the vehicle to be moved only subject to conditions – such as a low speed and distance limit – in order that it can return to the workshop. The latter will be used in less serious cases. Prohibition Notices can be nullified (cancelled) only by a Ministry of Transport testing station.

Operators must declare on their application form if they or their managers have received criminal convictions. The Traffic Commissioner will be most concerned about offences concerning the proper operation of vehicles – for example mechanical defects and failures of maintenance. Other convictions, in particular for offences concerning theft, fraud and violence, can also be taken into account. English law contains rules relating to “Spent” or “Expired” convictions. This means that after a set period of time it is no longer necessary to declare the conviction. The minimum period is 5 years and the prescribed time increases for more serious offences. A lack of good reputation is a ground for refusing to grant an Operators Licence. If the Traffic Commissioner is concerned only about one or two directors and he is satisfied that the remainder are honest, he may grant a licence subject to a condition that the ‘doubtful’ individuals are not connected with the running of the company.

Applicants for a standard operators licence must be “professionally competent” or employ one or more professionally competent managers.

To achieve this status, the person must hold one of a list of professional qualifications. There are many training organisations able to offer these courses in the UK.

The number of competent persons required will vary according to the size of the vehicle fleet and the location of the depots. The Traffic Commissioner will specify a minimum number, to be sure that each competent manager will have sufficient time and access to supervise the depots for which he is responsible.

In the event of the death or resignation of a competent person, the Traffic Commissioner will set a time limit for finding a replacement.

The Traffic Commissioner needs to be satisfied that the applicant has sufficient space to safely park his vehicles when they are not in use. The operator must declare the location of his parking place on the application form and must use it. The Chief of Police and the local administration will be given the opportunity to comment on the road safety aspects of the parking place. For example, if vehicles cause a hazard by reversing out on to a major road, the Traffic Commissioner may decide to impose a condition that a one way system must be installed.

The system of driver licensing is based on the European model. The categories of licence are similar to those used in Russia.

The holder of a car licence issued before 1^st January 1997 can drive a vehicle with up to 8 passenger seats – category B.

These drivers were also granted a special permissions to drive minibuses with up to 16 passenger seats in restricted circumstances :-

1. if the vehicle is not used for hire or reward (defined in section 2.1) or
2. under the authority and within the terms of a section 19 or 22 permit (see section 2.2)

This means that these car licence holders are allowed to drive minibuses used for educational, community or non profit making social purposes.

Holders of later car licences were restricted to vehicles with up to 8 passenger seats. The special permission was retained but reduced in scope pursuant to the limits of the European directive. Holders of a car licence issued after 1^st January 1997 may drive a minibus with up to 16 passenger seats only if they meet all the following requirements:

1. they are aged 21 or over and have held a licence for at least 2 years and
2. they do not drive the bus as part of their job and
3. the vehicle is used for non commercial purposes by a social organisation and
4. the maximum gross weight of the vehicle does not exceed 3.5 tonnes

The car driving licence test consists of a multiple choice theory test and a 30 minute practical examination.

To drive larger vehicles, or minibuses for purposes not covered by the special concessions, the driver must pass a second test. He must first pass a multiple choice bus theory test. He must then pass a longer practical test. If the test vehicle is at least 9 metres long, the driver will be given entitlement in category D – covering all sizes of rigid vehicle. If the test vehicle is shorter, the driver will be given entitlement only in category D1 – up to 16 passenger seats – with no limitation on the use to which the vehicle is put.

The category D entitlement allows the towing of a trailer with maximum gross weight of up to 750 kg. Until recently, this was sufficient for nearly all operations. However, British bus companies are now buying vehicles that are closer in design to those used in Europe. Recent legislation and a desire to maximise the number of potential customers has caused operators to buy ‘low floor’ vehicles. Where a high capacity is required, until recently this was provided only by “Double Deck” two floor vehicles, typically seating 70 passengers. Because only half of these seats are accessible to a disabled or elderly person, operators are now experimenting with articulated single deck vehicles – which have been common for years in Europe (and Russia). The rear articulated part of the vehicle is treated as a trailer. Because its maximum gross weight will exceed 750 kg, the driver must pass a further (third) practical test in such a vehicle – category D + E.

For any licence requiring a second test, the driver must undergo a medical examination and submit a form to the Ministry of Transport signed by a doctor certifying physical fitness. In the case of car licences, the applicant need only make a declaration that he does not suffer from a disease which might affect his driving – such as epilepsy. The medical examination is repeated at the 45^th birthday then every 5 years. A bus driver aged 25 would not need to undergo a compulsory medical for 20 years unless there was a suspicion that he was ill – for example he faints at work or suffers a heart attack.

Traffic Commissioners – the officials responsible for granting and revoking operators licences – also have special disciplinary powers over the licences of truck and bus drivers. If the driver commits a violation, it is possible that the Traffic Commissioner may suspend or revoke his truck or bus entitlement. This power is in addition to the sentence imposed by a court. It is most commonly used where a bus driver is prosecuted for being drunk when driving his own car. Drink driving incurs an automatic one year ban in Great Britain. When the drivers licence is returned, it is quite possible that the Traffic Commissioner will not allow the bus entitlement to be re-instated until the driver has demonstrated that he can drive a car responsibly for two or three years.

The holding of an Operators Licence is not sufficient to enable the operator to offer certain bus services to the public.

One of the major worries at the time of deregulation was “guerrilla war” competition – with operators suddenly changing timetables so that their buses appear a few minutes before a competitors service – the competitor then changing his timetable so that his buses were the first to arrive and so on. The travelling public would not benefit from such tactics as there would be no advance warning of changes to their service.

Another concern was that operators would experiment with services – starting and cancelling the service at short notice. For example, an operator observes that there is an inadequate service to a residential district. He decides to experiment by running a new service there. The public learn of this new service and rely on it – expecting buses to arrive as advertised. But then, if the revenue from the service falls below the expectations of the operator, he decides to abandon the service at short notice – preferring to experiment in another district. The passengers do not realise that the service has ended – or possibly they have insufficient notice to make alternative travel arrangements. As a result they are inconvenienced – possibly late for work or school.

The final reason for service registration was to reduce the likelihood of short term aggressive competition. For example, one operator is running a successful route to/in a town centre. His competitor sees that he is making a profit, attracting a satisfactory number of customers, and then decides to try running a service in competition. The second (new) operator happens to be a larger company and has more money than the first operator. Operator 2 decides that he will try to provide this service charging a fare, much lower than that charged by the first operator—and not profitable in itself. But operator 2 believes that he will be able to attract the passengers that currently use operator 1’s service. After a few weeks operator 1 will withdraw his service because he cannot afford to run it at the lower fare level. Operator 2 then takes over the service and increases the fares. This behaviour does not benefit the customers and discourages good small operators from providing services.

Therefore, the law requires that :-

1. If a licensed operator wishes to provide certain types of service, he must register the route and timetable details with the Traffic Commissioner before doing so.
2. There is a minimum notice period for registration.
3. Operators must give a period of notice to the Traffic Commissioner before they change the timetable or route

It is necessary only to register services on which it is possible for a passenger to make a journey of less than 15 miles (25 km) measured in a straight line. Therefore, it is not necessary to register timetables and route details of long distance express services.

The reason for this distinction was that the Government believed that the risk of unfair competition was greatest in towns – where there is the largest number of passengers. The frequency of long distance services is usually lower – typically hourly or two hourly – whereas urban service run every few minutes. Therefore, it is less likely that passengers will wait at a bus stop for a long distance service without knowing the details of the timetable, in the hope that a bus will arrive soon. A long distance journey is generally preceded by careful planning. Passengers often buy tickets in advance for these services. For these reasons it was considered unnecessary to require operators to register timetables and give minimum notice periods of changes to the service. These services would be ‘self-regulating’. If the operator failed to give customers proper notice of when to expect a service he will be at greater risk of losing customers.

In London, the rules are slightly different. Most services in London are provided under contract to London Transport (“LT”), which is a state organisation

LT determines the routes, frequencies and vehicle specifications. The operator is paid a fee for providing the required service and the operator is selected by competitive tender. These competitions are usually held every 5 years.

LT decides upon the service requirements by conducting surveys of passenger demand and passenger flows. LT also consult with local authorities about bus services in the authority’s area.

The law also allows an operator to make a proposal to London Transport, requesting that he be allowed to run a service. For example, LT may not provide a service in a particular area or a service connecting two districts. A local operator may believe that there is a demand for such a service.

As with services outside London, it is compulsory only to register services on which it is possible for passengers to make a journey of less than 25 km measured in a straight line (this may correspond to route lengths of 30-35 km).

An operator wishing to provide a local service in London on his own initiative must apply for a “London Local Service Licence” (“LLSL”). LLSLs are granted by the Traffic Commissioner. The operator submits the details of the route and timetable to the Traffic Commissioner. The Traffic Commissioner then consults with the Local Authorities, the traffic police and the trade unions in the area concerned.

The Traffic Commissioner must grant the LLSL unless it is in the public interest not to do so. An example of a ground for refusal would be as follows. Operator 1 provides a service under contract to LT. The contract expires at the end of 5 years and a tendering competition is held. Operator 2 wins the competition and takes over the service. Operator 1 then applies for a LLSLicence over the route, taking passengers away from operator 2. Operator 2 calculated his tender bid on the basis of carrying 100% of the passengers on the route and this has been reduced to say 50 % because of the actions of operator 1. Operator 2 makes an unforeseen loss. It is likely that a LLSL will be refused in this case.

In the example above, if operator 1 applied for a LLSL on the basis of providing a service that was materially different, perhaps a service that offered additional benefits to the customer, such as adding a new direct connection with a railway station, it is likely that a LLSL will be granted, even though most of the route duplicates that of the operator 2.

Diagrammatic Example

Operator 1 decides to apply for a LLSL to run a similar service, also from district A to district B, calling it route 101.

Service 100 – Operator no.2

District A District B

Service 101 – Operator no. 1

District A District B

It is likely that operator 1 will be refused a LLSL on the ground that it would not be in the public interest to allow competition when operator 2 has won a tender on the basis of anticipated income.

In London, fares are set by “London Transport” (LT, the Transport “Authority”).

Operator 1 decides to start a new service, to be named route 102 – which duplicates route 100 but offers additional destinations. The route is extended to cover district C and passengers can now travel directly to the Railway Station.

It is likely that a LLSL will be granted for route 102, as it will be considered that a direct train connection and the improvement of service to district C will be in the public interest.

Service 102 – Operator no. 1

District A District B District C

Railway station

When deciding whether it is in the public interest to grant the LLSL, the Traffic Commissioner must take into account any objections received (for example comments from local authorities) and the public need for transport services.

The Traffic Commissioner can impose conditions upon a LLSL – for example minimum frequencies, times (e.g. to avoid operator 1 running a service every hour but only two minutes before the service of operator 2) and vehicle specification. For example, the Traffic Commissioner can require the operator to use modern vehicles with low floors to improve their accessibility for elderly and disabled people.

A LLSL is normally valid for 5 years. It is possible to apply for a LLSL to be varied.

The Traffic Commissioner can revoke or suspend (temporary revocation) a LLSL if any conditions imposed are breached, or if the operator does not provide the service he promised to offer.

If the Traffic Commissioner refuses to grant a LLSL, or the operator is unhappy about conditions imposed on it, the operator has two ways of appeal:

1. If the operator believes that conditions are inappropriate, unnecessary or not in the interests of customers, he can appeal to the Minister of Transport.
2. If the operator believes that the Traffic Commissioner has acted unfairly, or was biased in favour of another operator, or did not give the applicant a fair hearing before refusing to grant a LLSL, the applicant can appeal to the courts. A judge may order the Traffic Commissioner to reconsider his decision.

To register any local service, an operator must supply the following information:-

1. name address and operators licence number
2. details of proposed route
3. details of proposed frequency
4. proposed stops
5. proposed turning (terminal) points
6. proposed commencement date
7. proposed times

The operator may not start to run the service until at least 42 days after the Traffic Commissioner has accepted the registration.

The operator must give at least 42 days notice of changes to the registered details.

The operator need only give 21 days notice of changes to registered details if the changes result from a public holiday time. For example, if the operator wishes to run only a limited service at Christmas or Easter.

Traffic Commissioners can give special permission for services to be changed at short notice, but only in permitted circumstances. For example, if operator 1 becomes insolvent and ceases to operate, operator 2 may be given special permission to take over the service quickly. Operators can make minor changes to the timetable without re-registering it, if the changes are to allow connections with trains or ferries.

It is acceptable for two or more operators to make an agreement to provide a service jointly – for example they produce one timetable, give their buses the same number and accept each other’s tickets. The joint service may be registered by one operator or by both of them. NOTE: Joint services may cause a problem if they are seen as a monopoly – see section 8 “Monopoly and Competition Law”.

Traffic Commissioners have the power to impose conditions affecting the running of any registered local service. Conditions are imposed to resolve problems in the operation of the service. There are several types.

These are restrictions on routes, stops and parking places. The Traffic Commissioner can impose a Traffic Regulation Condition if the Highway Authority requests him to do so. The operator must be given the opportunity to comment in a hearing before the Traffic Commissioner. Traffic Regulation Conditions are imposed if the operation of a registered local service causes a traffic problem.

For example, there are two competing operators working on a route outside London. Their buses cause a blockage of the traffic as they queue to pick up passengers in the town centre because the vehicle of one operator blocks the parking place. A Traffic Regulation Condition would enable the Traffic Commissioner to require them to stop in different places – creating space for the traffic to move around the buses.

These are named after the law that created them. If an operator fails to keep to the timetable that he has registered or attempts to obstruct another operator in the operation of registered services – for example obstructing access to stops – or does not maintain his vehicles correctly, the Traffic Commissioner can forbid him from operating all or some of his registered local services.

Again, these are named after the law that created them. British bus operators can claim from the Government a partial refund of the tax charged on the sale of diesel. If an operator fails to operate local services properly, part of this refund can be stopped. This has the same effect as imposing a fine on the operator.

Many categories of person are offered discounts on public transport. Generally, discounts are offered to people who are not able to travel independently. As all bus services in Great Britain are operated by private companies, there is an obvious problem in that the operator will wish to maximise the revenue from the service. If he offers travel at a lower price to some people, he will lose money. Therefore, the categories of people eligible for a discount are determined by local authorities and bus companies are required to offer a discount to those people. The operator can then claim back the lost revenue from the local authority.

There is some variation in the policies of the various local authorities. Some offer unlimited free travel by the issuing of passes. Others offer tokens or tickets which give a restricted number of free or subsidised journeys per month. The cost of the scheme has to be met from local taxes.

Concessions are offered to pensioners (men aged 65 and over, women 60 and over), children under 16 and students under 18, the blind and disabled, the mentally handicapped, travelling companions of disabled persons and those unable to drive on medical grounds. The Minister of Transport can add categories of persons to this list.

An authority may restrict the times of use of concession passes. For example, pensioners and children may be offered a discount only after 9.00 a.m. This will enable operators to maximise the space available for commuters during the morning peak hour.

Operators must offer the discount if the local authority requires it. Operators can appeal to the Minister of Transport within 28 days of being told of the discount scheme. The operator must offer the discount until the Minister makes a decision. The permitted grounds for appeal are:-

2. an operator will be disproportionately affected. For example, the route passes several hospitals or old peoples apartments and a much higher proportion of passengers will be eligible for a discount.

In practice, it is quite rare for operators to appeal. The reason is that there is a relatively high proportion of car ownership in Great Britain and the bus must compete for business. Operators try hard to attract customers. If a person has access to a car, they will normally use it, unless there are good reasons to use public transport. Mothers with children, people visiting shops and people travelling to and from work prefer to use the car, unless parking or traffic conditions make it difficult or impossible. The main users of buses are school children, pensioners, people who are unable to drive and mothers who do not have access to a private car. An operator will reduce his income significantly if he refused to carry concession passengers. The only exception will be commuter services into London and other big cities, where there is a sufficiently large market of full price passengers.

The following observations are based on ‘users’ experience and do not result from scientific surveys.

Prior to deregulation, large towns each had a municipal bus company. Inter-urban services were provided by subsidiaries of the nationalised “National Bus Company”. It was necessary to obtain a special permission from the Traffic Commissioner before an operator could provide a service on his own initiative and such permissions were the exception rather than the rule. In most cases the companies were heavily subsidised. Most updated their fleets regularly. Vehicle purchasing was standardised in many cases, but there was little incentive to use different sizes of vehicles on different routes, nor to experiment with variations in frequency.

Deregulation allowed any licensed operator to provide a bus service when and where he wished, provided that the service was registered where necessary. The National Bus Company was split into operating subsidiaries, which were privatised. Most were sold to the management. Many local authority (transport) companies were sold to management or were bought by an N.B.C. subsidiary. There are now only a few local authority companies remaining in public hands.

Several developments followed this initial dispersal of management.

The industry is now dominated by four major and two smaller groups, which now control about 80% of the market. The groups formed through a series of mergers and acquisitions as companies fought to gain territory and customers.

The original idea of deregulation was that competition would encourage several operators to compete for passengers on the same route – using lower fares and / or better vehicles to encourage customers. In rural areas, where passenger numbers were low, there was little scope for competition and operations remained a natural monopoly.

In cities, there was an explosion of competition. Many operators, often using lower quality second hand vehicles, registered the same routes. In some cases this resulted in an improved service to the customer with increased frequencies and lower fares. This situation was not sustainable in the longer term however, as the lower cost operators could not afford to replace ageing vehicles. Some ceased to operate or had their operators licences reduced because they were unable to afford good standards of maintenance. Traffic Congestion due to many buses trying to park at stops was relatively common in town centres.

In some cities, such as Birmingham, the long established municipal operator, now privatised , protected its territory effectively. This company used a variety of season tickets which were priced so that for a little more than the fare for a single journey the customer could travel on all the company’s buses for a day. This encouraged loyalty. It was difficult for smaller companies to compete because they could not afford to run the number of services operated by the main company.

Though there is some scope for increasing profitability through the attraction of more passengers, the popularity of the private car and the settled patterns of everyday life make it difficult to achieve substantial growth in overall passenger numbers. Therefore, growth can be achieved in two main ways :-

i) Taking over a competitor and capturing his customers

2. Achieving economies of scale by having sufficient turnover and profit to be able to afford new vehicles which are less expensive to maintain. Ordering of large numbers of new vehicles also enables the negotiation of favourable prices for vehicles and parts. Diesel and tyres can be purchased in bulk. Wages can be negotiated centrally.

There is still room for smaller operators in the market, but mainly in closely defined (sub-)sectors, e.g.:

The operating system for buses in London is different from that in the rest of the U.K. Bus services are managed by London Transport, which is a state organisation. Until recently, LT also operated all the vehicles and employed the drivers. Now, all the bus services are provided by private contractors.

LT ’s bus operations were divided geographically into operating companies. These were sold to the private sector. Almost all were purchased by the large national groups. LT determines the routes, numbers, fares, frequencies and vehicle specifications. Any licensed operator able to meet the requirements of the contract – whether or not they were formerly a LT subsidiary – can bid. In addition, a licensed operator who believes that there will be a benefit to the public in providing a service additional those tendered by LT can apply for a London Local Service Licence.

Typically, contracts are awarded for a five year period.

It is not possible to operate a local bus service in the area of LT ’s jurisdiction without either a LT contract or a LLSL. An operator of a service other than a local service – for example a long distance commuter coach – can enter London without formality provided it is not possible for passengers to make a journey of less than 25 km measured in a straight line.

The favoured system for tendering in London is for the operator to state the fee that they will charge for providing a service complying with the contract specification. LT takes the fare income. LT specifies the fares and tickets that will be accepted, prints and sells season tickets that must be accepted by all contractors. LT therefore bears the financial risk in most cases. The operator will receive the contracted fee whether or not a profitable number of passengers is carried.

This system enables operators to invest in new vehicles with confidence – they know that providing the contract terms are met they will be guaranteed a set income for the next five years. LT commonly specifies that new vehicles must be supplied when a route is due for re-tendering. Where the LT contractor is part of one of the national groups and either a LT contract is lost at re-tendering or there is an obligation to buy new vehicles, it is common for the newer redundant vehicles to be transferred to a provincial sister company. In some cases, operators negotiate changes to the contract – for example increasing the frequency of services using smaller vehicles.

The disadvantage of this system is that there is little incentive for an operator to increase the number of passengers on his service – for example by marketing or by the voluntary introduction of new vehicles. Operators will do only what they are required to do by their contract. Also, there is no incentive for the operator to ensure that fares are collected – they are paid as long as the service runs. Marketing, revenue protection and fare setting are all done by LT. Another possible problem is that when a contract is nearing the time of expiry, the operator will be tempted do only the bare minimum to satisfy the terms of his contract. He will not – for example – spend money painting or re-upholstering a bus if there is a possibility that it will soon be redundant. Therefore, LT will have to strictly monitor service standards.

The advantages of this system to the customer is that vehicles are often newer and built to a high specification set by LT. This is because the contract will specify the maximum age and technical specification. Customers also benefit because LT designs the ticketing arrangements. One season ticket will be valid on all operator vehicles. Information and timetables can be produced centrally in the certain knowledge that LT will know about the services of all operators.

Tunbridge Wells is a prosperous town about 50 km south of London. The main sources of employment are office based – three insurance companies are based in the town. The town is a regional shopping centre and its historic parts are a tourist attraction. A substantial proportion of the workforce works in London. The town has a railway station on one of the main lines between London and the south coast and there is a train service every 30 minutes in each direction. It is possible to travel to nearby towns by train, so for many journeys the bus must compete for business. The percentage of car ownership is high and the town has major problems with traffic congestion. A special bus lane has been constructed on the main road into the town from the North, which enables considerable journey time reductions by bus in the peak hours.

The main bus operator in the town is “Maidstone and District” – named after the next town to the North East in which it is based. The company was part of the Nationalised “National Bus Company” until deregulation, when it was sold to its management. “Maidstone and District” had a fleet of about 200 vehicles. Two years ago the company was sold to a large private company operating about 5,000 buses throughout Great Britain. Its new parent “Arriva” has invested heavily in new vehicles. About 90 new vehicles have been purchased in the last 3 years.

The fleet consists mainly of 40 – 50 seat medium length single deck vehicles – about half have low floors for easy access by the elderly and disabled. Until the change of ownership, the company had preferred to buy the traditional British double deck vehicle, seating about 70. Many are still in use, particularly on the busiest routes and at peak times. The company has also a large number of Mercedes 20 seat minibuses, many of which were replaced by new vehicles in 1997. The average age of the fleet is now about 8-9 years.

Tunbridge Wells is a fairly typical example of a country town in that there is a mix of heavily used routes – linking the town centre with residential areas and its nearest neighbouring towns and quiet rural routes. The former typically have a 15 minute frequency throughout the day with an hourly service in the evening and on Sundays. The latter have typically an hourly service during the working day and no service in the evening and on Sundays.

There are also hourly or half – hourly services to nearby towns. Some of these journeys are 1 – 1.5 hours long. The company has made economies by routing these longer distance services through populated suburban districts – reducing the need for additional buses to operate shorter services.

All the vehicles in the town are operated by just a driver, who collects fares and issues tickets. Fares are scaled according to distance. For example, an 8 km journey to Tonbridge – the next town to the North – costs about $2 one way, $3 return. Arriva provides season tickets, which are sold by the driver or from the company’s own shop in the town centre. There are several types – covering travel at all times and travel at off- peak times only.

Children under 16 and students under 18, pensioners and the blind travel for half price but the discount is offered only after 9.30 a.m. The regional administration provides free travel passes for school children who have to travel more than 5 km to school and tokens giving a number of free journeys to pensioners. The generosity of regional administrations varies according to the type of population in its area, the state of its finances and the allegiances of its politicians. Bus companies claim back the income lost by accepting the free or discounted pass/tokens.

“Maidstone and District” does not provide all the services in the town. About 25 – 30% are not profitable. These services are subsidised by the regional administration, who award a contract by competitive tender. These contracts usually run for 5 years. The most common method of tendering is for the operator to quote on the basis that he is allowed to keep the fare revenue. This reduces the risk to the regional administration , who have to pay only a fixed subsidy on top of this – typically paid every three months. The operator must therefore estimate the number of passengers who will use the service. The operator can, however, benefit from this system if he is clever. For example, there is a subsidised service from Tunbridge Wells to East Grinstead – the next town to the west. The successful operator has extended the route to Gatwick – London’s second airport which is about 10km from East Grinstead. This has increased passenger numbers and the operator keeps the money. The operator’s only obligation is to ensure that he provides at least the minimum standard of service required by the contract from Tunbridge Wells to East Grinstead. Most of the unprofitable subsidised routes are operated by smaller independent companies, whose rates of pay are lower and vehicles older.

Some subsidies are paid only for services which run at certain times. For example ,a route may carry enough passengers to be profitable during the day, but there is insufficient demand to justify its commercial operation during the evenings and on Sundays. If the operator cannot afford to run services at these times and the regional administration considers it socially desirable to provide an 18 hour service, it may offer a subsidy for these off peak services. The operator will be chosen by competitive tender. The daytime operator will not be offered the work automatically.

Each bus company produces its own timetable leaflets giving details of its services. In addition, the regional administration is responsible for the maintenance of bus stops and timetables at stops. The administration also produces a large booklet once a year giving details of all the routes and operators in the town. This is distributed free to each house. It is considered politically desirable to reduce reliance on the car if possible.

The system of fare collection and ticket issuing will vary with the company that operates the bus, but the vast majority of tickets are sold by the driver. The standard British system involves the passenger stating his destination to the driver, who will issue a ticket. The driver will collect the money and will usually issue change. In some cities (such as Birmingham) the driver is protected by a security glass screen. The money is deposited in a box, the driver counts it and a ticket is issued from a machine inside the bus.

Outside the large cities, fares are usually charged according to distance and by a tapered scale. This means that the rate of increase in fare decreases the further the passenger travels. In Tunbridge Wells, the local bus company charges typically $2 for a 6 km journey and $3 for a 10km journey. It is also common for bus companies to issue “return” tickets – covering a two way trip – for about 1.5x the price of a one way ticket. The rate of price increase can vary from route to route, depending on its profitability and the location of residential areas.

In the large cities, bus companies tend to create radial fare zones. The price of a ticket increases for every zone crossed.

Almost all bus companies issue a variety of season tickets – daily, weekly or monthly. These can cover either:-

1. Between specific points on a specific route
2. Travel within a specified zone or zones in a city
3. Unlimited travel on the company’s vehicles for a period of time

The types of season ticket offered and the prices charged vary between companies. Many operators offer special season tickets at a discounted price offering unlimited travel outside the peak hours and at weekends – to encourage custom at otherwise quiet times.

It is important to note that these tickets are issued by and on the terms of the various private bus companies. It is not normal for one company to accept another company’s tickets. This can cause problems where services are less frequent. For example, imagine a village which is served by two bus companies. Company A’s buses call every hour on the hour. Company B’s buses call every hour but at 30 minutes past the hour. If the operators do not accept each others tickets, a customer wishing to purchase a return ticket or to use a season ticket may find that only one bus an hour is available to him. This situation was common in the early days of deregulation (since 1986) when there were many small companies and the Government tended to regard agreements for selective mutual recognition as anti–competitive behaviour, making it difficult for a third operator to enter the market. Today, the problem is less apparent for two reasons:-

Imagine a busy town centre. There is a large area of residential housing about 5 km outside the centre. The road between them is very congested. Passengers prefer to use their cars and the bus is slow. Buses are caught in the same traffic jams as the cars. The buses are old and there is insufficient ticket revenue to justify replacement. The old design of bus has a high entrance step which makes them unpopular with elderly people and mothers with push chairs and small children – potentially a large market.

In an attempt to reduce traffic congestion and to increase use of public transport, the bus operator makes an agreement with the local administration. The administration promises to improve the route’s infrastructure – for example creating special traffic lanes for the buses, new stops and improved information. They raise the kerb at the bus stops so there is less of a step to board the bus. They produce marketing brochures telling potential customers about the timetable and route. The bus company’s obligation will be to invest in new vehicles that are less polluting, have lower entrance steps and offer a higher standard of accommodation. More passengers are encouraged to use the route and the investment is justified.

Since deregulation, the bus industry has been subjected to the same laws as the rest of industry.

The official responsible for supervising monopolies is the Director General of the Office of Fair Trading, part of the Ministry for Trade and Industry.

If an operator acquires 25% or more of the market in the U.K. or a region of the U.K., he will ask the Monopolies and Mergers Commission – a committee of experts – to investigate and report on whether it is in the public interest for this situation to continue.

Investigations often follow the take-over of a smaller company by one of the larger groups, because often this will give the large group a 70 – 80 % market share in a town. The investigation will examine whether fares have increased as a result of the monopoly and the standard of services – for example whether frequency has reduced significantly to the detriment of the customer.

It is not automatically assumed that monopolies are bad. For example, if some or all of the following benefits accrue to the travelling public, the MMC may decide that the acquisition is in the public interest.

1. Fleet replacement

Imagine a town has a small management or municipal bus company which is making little or no profit. The fleet is old and increasingly unreliable. There is insufficient capital to fund a proper fleet replacement programme. The local administration cannot or will not offer more subsidies. The directors agree to sell the company to the large group which operates in the surrounding area. The larger competitor may reduce the size of the fleet and the staff. The fleet and garages may be amalgamated. If there is no significant reduction in service levels in the town, fares are not increased significantly and the acquiring company invests in newer vehicles - particularly if the vehicles offer improved access for the elderly and disabled and produce less pollution – the acquisition will probably be allowed.

2. Integrated Ticketing

If companies merge or are taken over, it is likely that tickets will be valid on more buses. This advantage will count in favour of the acquisition. Similarly, integrated timetables and information will benefit the consumer.

3. Linked services

If the merger or acquisition will enable the provision of better routes – for example longer routes avoiding the need for customers to change buses – this will benefit the consumer.

The Monopolies Commission can and does sometimes prevent a take-over. If the deal has been completed, it can order that all or part of the “victim” company be sold back to its management or to a third group. The most common reason for such a decision is if the acquiring company has engaged in “Predatory Pricing” tactics.

For example, in the town of Luton there was a small minibus operator. Its costs were low – the vehicles were quite old and the drivers were paid relatively low wages. The small company targeted only the most profitable routes in the town and operated buses only at profitable times of the day. Its fares were significantly lower than the large company in the area. The large company retaliated by operating free buses on the routes where there was competition. It could afford to do so for a time because of its income from other routes. It would not have been possible for the large operator to make a profit on the competitive routes. It is acceptable for an operator to charge loss making fares on some routes – many do in order to provide a complete service which retains customer loyalty – but not if the reason is to hurt a smaller company. The smaller company saw that it would become (financially) insolvent if the situation were to continue. The larger company made an offer to buy it for a low price which was accepted. As soon as the small company ceased to compete the higher fares of the large company were restored.

The Monopolies Commission ordered that the small operator be sold and that its old management must have first refusal. The larger operator was prohibited from charging predatory prices in competition with it.

Other aggressive tactics, such as blocking the access to bus stations, will also be regarded as predatory.

Operators can make agreements to work together. This may benefit both the operator and his customers. In some circumstances this behaviour could be seen as being anti – competitive.

Examples of Restrictive Agreements

8.2.4) Allocation of Operating Areas

Therefore, the law requires that these agreements must be registered with the Office of Fair Trading within 3 months of their being made and before they come into effect. If the agreement is not registered, it is legally void. The Director General of Fair Trading will examine the agreement. The law assumes that these agreements will be against the public interest unless it is proved to the contrary. If the Director General believes that the agreement may be against the public interest, he may refer it to the “Restrictive Practices” Court – a committee of experts, who will consider the benefits and dis-benefits to the operators and the public. If the Court believes the agreement is not in the public interest, it can declare it is void.

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