On the buses

The UK bus sector has prospered in recent years, despite all the prophecies of gloom when Lady Thatcher’s Conservative Government decided that competition was the best answer to reversing decades of under-investment, lousy service and poor time-tabling.

First up was the 1980 Transport Act which introduced competition on long-distance coach routes. Subsequently, sector leader, National Express, saw demand rise sharply.  And, despite serious setbacks on the railways, National Express’ bus operations have continued to thrive, with much expanded services. Apart from travelling on much more comfortable buses, passengers are also being offered highly competitive fares. For example, single fares of c£13 are currently available on the six-hour plus London to Newcastle route.

Given that these fares are just 3x the cost of a one-station hop on the London Underground, they offer remarkably value – as National Express sharpens its pencil in the face of competition. On the shorter routes, the stimulus was provided by the 1985 Transport Act, which introduced bus competition locally - the franchise arrangements for London, though, are very different.

In recent months, both sector leader, First Group, and the ever-controversial Stagecoach have reported robust revenues and divisional operating profit increases of an impressive c20%. Whilst all bus operators have to cope with rising fuel prices, heavy investment is underway. First Group plans to invest £160 million over the next two years in modernising its fleet – with 955 new buses.

Looking forward, the UK bus sector stands to gain from the rising costs of motoring. When introduced in the 1980s, the aggressive bus competition initiatives were roundly condemned, especially with regard to the viability of many poorly patronised rural routes: some now receive substantial subsidy. A few bus businesses remain Local Authority-owned and they are ripe to be sold off.

Overall, though, the story of UK buses since the 1980s has been impressive. Embracing the competitive market has been fully vindicated.

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Who pays for parking?

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There’s more than one row going on in Westminster. Over the weekend, Westminster Council announced changes to its parking policy that would charge for spots on evenings and weekends (you can read the details here). Churchgoers plan to protest the Sunday parking fee, the effect of which would surely be nothing less than mass apostasy. The Council is due to weigh such grievous harms and decide in August whether to implement the proposal.

I doubt that the Council will make its decision on the basis of Church objections, or I at least hope that it will not. A secular government has no business subsidising access to religious services. The bigger question, though, is whether the government has any business subsiding parking at all.

Free parking is something of a misnomer. Automobiles are unique among modes of transport for the enormous terminal capacity they require. Unlike trains, airplanes, and ships, which require their respective – ports, cars demand several parking spaces each. The high cost of this parking is not borne by the motorist but is subsidised by local governments, business owners, and employers. Donald Shoup, the author of The High Cost of Free Parking, claims that the annual invisible subsidy for free parking in the United States may approximate that country’s yearly national defence budget. The UK does not have the same “car culture” as the U.S., but it is still subsidising parking space. The free parking Westminsterites currently enjoy comes directly out of their own pockets, regardless of whether they use it.

This is unfair. The government does not have a responsibility to facilitate car ownership. There is no right to own a car. Many of the people whose taxes pay for parking never use the service. The subsidy makes car ownership artificially cheap, and is distortional. Westminster Council should not only charge on evenings and weekends, but should charge market rates at these and all other times. (As with all new government charges, this should be offset by a general council tax cut.) Or, better yet, sell off parking spaces to the private sector. Now there’s a heretical idea.

A busman's lottery

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The Economist reports on an interesting innovation in Singapore. To encourage more people to take the bus to work, travellers will be entered into a lottery every time they get the bus – and three times for every off-peak journey they take. The idea is that people are risk-taking when the stakes are small:

Offer individuals 20p to leave the house an hour earlier, and most will say no. But a 1-in-50 chance of winning £10 may seem more enticing.

The risk-seeking effect is amplified in small networks: regularly hearing about other winners leads individuals to overestimate their own chances of success. This worked particularly well in Bangalore, where Infosys commuters shared a workplace, and scheme winners were advertised through the company. The scheme in Singapore would aim to create a social network among users to produce a similar effect.

The hope is that the project will eventually be self-funding.

So, could a Singapore-like system work in London? I’m sceptical about how effective Singapore’s plan will be for them, but on the margin it might make things a bit better. The problem is that city bus companies are bad at innovating at the margin – picking the low-hanging fruit first – and usually end up wasting money on white elephant projects, like the new bus designs churned out every couple of years with great Mayoral fanfare.

TfL’s bus service is OK, but it gets around half a billion pounds worth of subsidies every year. Congestion in the capital is also crippling for the service: though many people do get the bus during rush hour, it goes incredibly slowly. Compared to the even more heavily subsidized Tube network, it’s a pretty unappealing option if you’re in a rush to work.

So, what’s the solution? Honestly, I’m not sure. A sophisticated road pricing scheme coupled with privatized roads might be the best option but, in cities at least, it’s a political fantasy right now. I think the next best solution would be to privatize the bus system and open it up to new competition. It’s happened in Manchester, with quite good results, and could happen here as well. I don’t know how to make buses nicer, but there’s no greater discovery process than the free market. If a Singapore-like lottery scheme works, great. If it’s something we haven’t thought of, even better. The great upshot of a private municipal bus system is that there will be “neighbourhood benefits” for everyone who doesn’t use the bus – a better, more competitive bus network would take cars off the road and reduce congestion in the capital for everyone.

Major Public Transport Projects - Just Look at the Numbers

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In recent months, New Labour's vacuous mantra - 'it seems the right thing to do' - has apparently attached itself to several key public sector projects. Instead,they need more rigorous financial analysis.

The HS2 project, currently the subject of public consultation, is an obvious case in point. It is fast becoming a lobbyists' paradise. The DfT's advocacy of HS2 is built around its weak argument that 'it is these non-monetised benefits which underpin the strategic case for high-speed rail'.

Of course, by 2032/33, Phase 2 of HS2 may have made a contribution to closing the widening North/South gap, but at very considerable cost - of a minimum £30 billion and probably far more.

Revealingly, Transport Secretary of State, Philip Hammond, confirmed last week-end that HS2's financing was likely to be based on a pay-as-you-go principle. Instead of the much criticised PFI model, Phase 2 of HS2 would be - in part - financed by leasing off Phase 1 shortly after it was completed.

Given that HS1 - the Channel Tunnel Rail Link - was sold on a 30-year lease at a discount of over 60%, major financial shortfalls seem likely, especially if significant operating losses are sustained.

Cost/time overruns would also adversely impact this model.which can hardly be described as robust.

Another controversial transport project, the Edinburgh tram system, is facing continuing problems, despite this week's decision by Councillors to endorse the Airport-St Andrew's Square route. The project's cost is now estimated at over £770 million, with over £200 million of the funding currently unaccounted for.

Given the efficient Lothian Bus service, few expect Edinburgh's tram network to make a material profit. In reality, Edinburgh's bus fares may be raised to finance the interest on the additonal cost of constructing the City's tram network.

With the statue of Adam Smith looking down from the Royal Mile, it is revealing - and rather worrying - how the sound principles of financing public sector projects continue to be eroded.

Design for life

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The worst part of my recent trip round the Far East was the last hour – getting through the cesspit that is Terminal 3 at London's Heathrow Airport any morning or evening. The Vatican envoy described the experience as 'like landing in a third world country' and got roundly condemned as a racist. But even a non-racist must see the similarity – shabby, dirty, unloved, airless buildings seething with huge, confused crowds waiting in seemingly endless queues.

It's a great contrast to Shanghai, whose vast, glassy airport is reached by a 400kph Maglev.

Mind you, the socialists pride themselves in such prestige projects. The trouble is that they don't always work either. At Shanghai you walk the length of the terminal to the international check-in; the trouble is that the terminal is about third of a mile long. Then you have to walk a quarter of a mile back to get to the security check. I hate airports designed by airport designers, rather than airport users, almost as much as I hate the old bit of Heathrow, which seems never to have been designed at all.

There's a compromise, of course – airports (and other public facilities) that are uplifting (or at least, not depressing) and built on a human scale. It can't be too difficult.

Shanghai, of course, built its airport, and much else, for the 2010 Expo world trade fair. They recognised the importance of impressing visitors. I dread to think what the 2012 Olympics visitors will think when they step off the trade and into the middle of a directionless, sweating mass of humanity. The decision to spend billions on a high speed train to take 15 minutes off the London-Birmingham trip for the locals just can't be right. Better to spend it taking 45 minutes off the trip through Britain's premier airport for all those people who want to visit and invest in Britain, and who must wonder where they have dredged up.

Edinburgh's Millennium Dome

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Visitors to Glasgow taking a taxi should be carefully about commenting on local football matters. But, in Edinburgh, the great no-no for taxi drivers is the shambolic tram project that began in earnest in 2009.

So far, it has cost c£440 million, it has defiled the world-renowned Princes Street and is years away from becoming fully operational – even along a much truncated route. Like several notorious and highly ambitious projects - the East African groundnuts scheme, Concorde and the Millennium Dome come to mind - things seem to have gone from bad to worse.

Long before Edinburgh’s tram project was given the go-ahead, there were serious doubts as to whether it was really needed. After all, a high-quality bus service currently plies the route between the airport and Waverly Railway Station. Relations between Transport Initiatives Edinburgh (Tie) and the infrastructure contractor, Bilfinger Berger and Siemens (BBS) have often been fraught. But, having got so far – at such massive cost - what does Edinburgh City Council do now?

On May 11th, it confirmed that various works will be undertaken over the next eight months to deal with the most urgent road repairs. Beyond that, it is doubtful whether – and when – Edinburgh’s tram system will be completed. Furthermore, the obvious route – the airport via Princes Street down to Ocean Terminal/Newhaven – seems likely to be curtailed.

And, of course, considerable additional funds will be needed. To date, some 80% of the £545 million projected cost has already been spent – and the project is nowhere near being 80% completed. No doubt, more than one party should shoulder the blame for this fiasco. Surely, though, 160 years after the completion of the legendary Isambard Kingdom Brunel’s pioneering Great Western Railway, we should be capable of laying a few miles of tramway and supporting equipment without all the grief that the Edinburgh project has thus far encountered.

Edinburgh's Millenium Dome

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Visitors to Glasgow taking a taxi should be carefully about commenting on local football matters. But, in Edinburgh, the great no-no for taxi drivers is the shambolic tram project that began in earnest in 2009.

So far, it has cost c£440 million, it has defiled the world-renowned Princes Street and is years away from becoming fully operational – even along a much truncated route. Like several notorious and highly ambitious projects - the East African groundnuts scheme, Concorde and the Millennium Dome come to mind - things seem to have gone from bad to worse.

Long before Edinburgh’s tram project was given the go-ahead, there were serious doubts as to whether it was really needed. After all, a high-quality bus service currently plies the route between the airport and Waverly Railway Station. Relations between Transport Initiatives Edinburgh (Tie) and the infrastructure contractor, Bilfinger Berger and Siemens (BBS) have often been fraught. But, having got so far – at such massive cost - what does Edinburgh City Council do now?

On May 11th, it confirmed that various works will be undertaken over the next eight months to deal with the most urgent road repairs. Beyond that, it is doubtful whether – and when – Edinburgh’s tram system will be completed. Furthermore, the obvious route – the airport via Princes Street down to Ocean Terminal/Newhaven – seems likely to be curtailed.

And, of course, considerable additional funds will be needed. To date, some 80% of the £545 million projected cost has already been spent – and the project is nowhere near being 80% completed. No doubt, more than one party should shoulder the blame for this fiasco. Surely, though, 160 years after the completion of the legendary Isambard Kingdom Brunel’s pioneering Great Western Railway, we should be capable of laying a few miles of tramway and supporting equipment without all the grief that the Edinburgh project has thus far encountered.

Rail subsidies must end, says minister preparing to spend £17bn on rail subsidies

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Philip Hammond, the Transport Secretary, says he wants to end the government subsidy for rail use:

"In the long term the taxpayer will not be prepared to just continually increase the level of subsidy that they give to the relatively small number of people who ever use trains – something like only 12% of the population. And of course those who use trains tend to be better off anyway," he said.

Wow – robust stuff, and great to hear from a senior government minister. But, sadly, other areas of transport policy don't reflect this. Consider this article by Hammond on the High Speed Rail 2 project:

The evidence from abroad is that high-speed rail is the only effective sustainable answer to our intercity transport challenges. Many of our competitors recognise the huge benefits of high-speed rail, and are pressing ahead with ambitious plans. Britain cannot afford to be left behind.

And this response to the businessmen who argued that HS2 was a white elephant:

Our railways are increasingly crowded, and more and more people are having to stand. We need to invest in new lines and new trains – sticking our heads in the sand, as these people seem to wish, is simply not an option.

No mention of cost anywhere – £17bn for the first leg, and up to £33bn for the whole project – or of why this portion of “the relatively small number of people who ever use trains” should enjoy a public subsidy. Hammond says he understands how silly it is to favour one mode of transport over others, but the HS2 project does exactly that. The government cannot pick winners, nor should it try to – the prestige of HS2 should not obscure the economic realities that make it a waste.

Market prices are the key to railway reform

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The McNulty Report on the railways is to be broadly welcomed. In particular, a greater emphasis on ticket prices that are market-related is crucial: this should be the starting point for any reform. Hence, the proposal for far more shoulder-type fares – those applicable between peak and off-peak periods – is eminently sensible. The aim should be to manage demand, via the pricing mechanism, so that trains operate at high capacity throughout the day. Both Ryanair and EasyJet have load factors of around 85% compared with the 50% figure applicable on the London-Birmingham railway line.

And why cannot more long-distance trains operate during the night, like airlines, offering ultra cheap fares which would free up more capacity at the most popular travelling times? Surely, many students would travel during the night time if the fares were extremely low. Compared to many overseas railways, which are heavily subsidised, UK railway tickets are undoubtedly expensive. In part, this is due to the excessive costs incurred by Network Rail – a company in desperate need of restructuring – that are passed onto rail franchise holders.

Every effort, therefore, should be made to tackle Network Rail’s bloated cost base and its soaring capital expenditure. Importantly, the adoption of these market-orientated policies would further weaken the poor financial case for HS2, which was highly unconvincing even before the DfT’s recent sharp (8%+) cutback to its previous aggressive revenue growth assumptions.

Indeed, the DfT’s economic case for HS2 seems now to rest heavily on the nebulous "non-monetised benefits, which underpin the strategic case for high-speed rail". Overall, in reforming the railways, the priority should be to let the market set rail ticket prices, with some back-up regulatory protection to prevent price-gouging. Getting that right - and also addressing Network Rail’s excessive costs - would give the UK railway a sensible financial base on which to grow.

Choo-choo-choosing stability in the railways

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There is an important entry in the diary of Sir Richard Branson, boss of Virgin Trains. On 31 March 2012, the company's fifteen-year franchise to operate on the West Coast Main Line (WCML) – the important stretch of Britain's rail network that links London, through the West Midlands and North West to Scotland – is to be re-let. He seems confident enough, though, having recently ordered four new trains.

Franchising isn't a perfect system. It arose as part of the effort to introduce choice and competition into the old state-run British Rail (BR) monopoly. BR didn't just run the trains, it made the trains, owned the track, signals and platforms and even ran the station buffets with their infamous dried-up, curly sandwiches. The whole monopoly was no more appetising – bloated and lazy like all monopolies.

One idea was to return to the old Victorian structure, with new private companies running trains across their own tracks and between their own stations – one serving London to the West, one up the North East coast, one up the West Coast, and so on. The trouble is that British Rail had become far more integrated than this, a true national network, with trains running from one end of it to the other, through any number of the old Victorian boundaries. To split it up again would be to cut against the grain of the organisation, and would lead to problems when one company wanted to run its trains across tracks owned by others.

Following an Adam Smith Institute report by Kenneth Irvine, The Right Lines, it was decided to keep the network whole but to allow different companies to run their trains across it, like coach companies competing for business on the national road network. It couldn't, of course, be a free-for-all, so the eventual plan invited companies to bid for the right to operate particular routes and services. It seemed simple enough, until all the lawyers got started – the government's, the regulator's, the operating companies' the infrastructure company's. And since nobody with a franchise of just a few years would make long-term investment in new rolling stock, the rolling stock leasing companies had to be invented, and naturally they brought their lawyers along too. The result was an overcomplicated system that left the public bamboozled about who to complain to when the trains were late.

Not that they were. Privatization led to greater reliability, an increase in services, a rise in passenger numbers, and even (despite two very significant crashes) improved safety statistics. But the system was still cumbersome and confusing, and the private infrastructure monopoly Railtrack turned out to be no better than the public one.

Nor, for that matter, is the new infrastructure quango Network Rail. It has spent an absurd number of billions inefficiently upgrading the West Coast Main Line. The fear must be that the government will want to recoup some of those billions by getting as much as it possibly can from the franchise bidding war. No doubt it will be recruiting game theorists for that purpose. But the last government's experience in getting the highest possible price – in telephones and then again with rail franchises – shows that getting the highest price isn't everything. What is more important is getting a franchise operator that can provide a good service to customers over a long period, without going bust because they have overbid.