Competition Commission to probe UK bus industry

20 August 2009

The bus industry is to face an in-depth investigation by the Competition Commission (CC) after the Office of Fair Trading (OFT) found evidence that a lack of market forces was keeping fares artificially high.

The OFT’s report follows a five-month study into the £3.6bn bus industry across England, Scotland and Wales – excluding London – and recommends a CC investigation. It found problems existed with local transport authority services, as well as those run commercially.

The OFT said it had received frequent complaints from smaller companies that larger firms were behaving in a way that ‘prevents, restricts or distorts competition’.

Some incumbent operators were reluctant to introduce cross-operator ticketing on popular routes, despite the advantages for the customer, as this was of more benefit to incoming providers.

Another problem identified in the report was ‘over-bussing’, when established firms would send extra buses down popular routes, which could deter new operators.

The investigation also found that fares were higher in areas where large operators went unchallenged and transport authority contracts often received worryingly-low numbers of bids – with just one bidder for one-quarter of tenders.
John Fingleton, OFT chief executive, said the investigation unearthed a ‘range of evidence’ that suggested the market for local bus services was not working as well as it should.

‘This is a market where an estimated £1.2bn comes from public subsidy, so restricted or distorted competition can potentially have a significant impact on taxpayers,’ he said. ‘We believe that the issues we have identified clearly justify a full investigation, and we therefore propose to refer this sector to the CC.’

The Campaign for Better Transport (CBT) welcomed the recognition that bus company monopolies were bad for passengers, but warned it was wrong to assume the answer was more on-road competition. CBT public transport campaigner Cat Hobbs said: ‘The goal should be better bus services, not competition for its own sake.

‘We know that the free market often just doesn’t work for buses. The Government must support transport authorities in using Local Transport Act powers to improve services.

‘If it is serious about quality contracts, it needs to get behind them and take on the initial risk,’ she told Surveyor.
David Brown, the Passenger Transport Executive Group’s lead director general on bus issues, also warned that if the CC sought to promote more on-road competition, then ‘the cure could be worse than the disease’, pointing to the Local Transport Act as the ‘best way forward’.

Earlier this month, the CC ruled that Stagecoach UK’s acquisition of Eastbourne Buses and Cavendish Motor Services was likely to lead to a ‘substantial loss of competition’.

Dr Peter Davis, the CC’s deputy chairman said the regulator was considering what sanctions to impose to restore competition.

An investigation found that other companies were reluctant to enter the local bus market to take on the merged operation.
Les Warneford, managing director of Stagecoach UK Buses, said he was disappointed with the decision and that the acquisitions had improved services.

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