£2 fare , Government remuneration

[Trainman40083]

A while ago, there was a fascinating exchange relative to ENCTS remuneration levels, and I am sure, for some, the low figure was a shock. Maybe it even conveyed why a bus full of ENCTS passholders, might not even be delivering profit. With regard to the £2 fare scheme that has been running since ???, is the amount of remuneration from the Government dropping every 6 months? I was aware that it was a fixed sum of money that related to a percentage of the difference between the £2 fare and the full fare. A while ago, a contact said they got "between 50% and 70%, so one might presume it is worthwhile to operator provided they have far more passengers. Surely we must be getting close to a major operator walking away from the scheme. After all, if they are making profits, why would the Government fund them. If they are making a loss, then there are problems to resolve.

 

[OptareOlympus]

The biggest difference between the two is that the £2 cap is a grant, not reimbursement, so if an operator enters the scheme and accepts the level of funding offered, then that tax payers money is in the operators bank regardless of whether they then carry anyone or not. That's the reason the groups all welcomed its introduction and support its continuation. It might be low margin but its guaranteed income without incurring additional costs in many cases. More tax payers money transferred via stealth to foreign private equity and investment banks under the guise of a helping hand for working people.

 

[Trainman40083]

The biggest difference between the two is that the £2 cap is a grant, not reimbursement, so if an operator enters the scheme and accepts the level of funding offered, then that tax payers money is in the operators bank regardless of whether they then carry anyone or not. That's the reason the groups all welcomed its introduction and support its continuation. It might be low margin but its guaranteed income without incurring additional costs in many cases. More tax payers money transferred via stealth to foreign private equity and investment banks under the guise of a helping hand for working people.

But surely that sum is reducing as time goes on? If not, where is the incentive for any operator to raise their game, to attract new business, or the return of former passengers? The way you word it, an operator could already be making a profit, and get yet more profit

 

[OptareOlympus]

Fare cap allows operators to pretty much guarantee a profit in the short term, even if its small. Its the same as the franchised train operators. Many were happy with margins of 3-5% because it was a guaranteed return on capital.

 

[stevieinselby]

But surely that sum is reducing as time goes on? If not, where is the incentive for any operator to raise their game, to attract new business, or the return of former passengers? The way you word it, an operator could already be making a profit, and get yet more profit

The expectation was that more passengers would travel by bus with the fares capped, but in almost all cases the extra revenue from more passengers would come nowhere near offsetting the lost revenue from each passenger paying less, so the grant was to make up the shortfall. I'm not sure there's any reason to think that passenger numbers will continue to increase the longer the scheme is in place, so I can't see a lot of justification for squeezing the bus companies further by reducing the grant over time – many of them are already finding that the grant doesn't really make up for the lost income.

Basically the whole thing was the same kind of back-of-a-fag-packet idea that we have come to expect from this government, it was only going to be in place for 3 months so there wasn't a whole lot of thought going in to the long-term sustainability of the scheme ... and 18 months on, here we still are.

 

[Trainman40083]

The expectation was that more passengers would travel by bus with the fares capped, but in almost all cases the extra revenue from more passengers would come nowhere near offsetting the lost revenue from each passenger paying less, so the grant was to make up the shortfall. I'm not sure there's any reason to think that passenger numbers will continue to increase the longer the scheme is in place, so I can't see a lot of justification for squeezing the bus companies further by reducing the grant over time – many of them are already finding that the grant doesn't really make up for the lost income.

Basically the whole thing was the same kind of back-of-a-fag-packet idea that we have come to expect from this government, it was only going to be in place for 3 months so there wasn't a whole lot of thought going in to the long-term sustainability of the scheme ... and 18 months on, here we still are.

In my area of the East Midlands, I see services are woefully unreliable. I would think that many, who might have considered the £2 fare, would just discount it, if they actually wanted to get anywhere.

 

[RT4038]

It might be low margin but its guaranteed income without incurring additional costs in many cases. More tax payers money transferred via stealth to foreign private equity and investment banks under the guise of a helping hand for working people.

I do not know where you get this from? It is not guaranteed income irrespective of use. Bus companies have to provide detailed figures as to tickets sold in comparison to before the scheme started. The scheme is operated in such a way that bus companies only get a small percentage of any revenue for generated passengers (i.e. more than they were carrying before) and the risk of having to provide extra capacity to convey them is with the operator. It is no 'get rich' scheme for operators. Carrying less passengers than before the scheme started will get the operator less reimbursement.

 

[OptareOlympus]

I do not know where you get this from? It is not guaranteed income irrespective of use. Bus companies have to provide detailed figures as to tickets sold in comparison to before the scheme started. The scheme is operated in such a way that bus companies only get a small percentage of any revenue for generated passengers (i.e. more than they were carrying before) and the risk of having to provide extra capacity to convey them is with the operator. It is no 'get rich' scheme for operators. Carrying less passengers than before the scheme started will get the operator less reimbursement.

It is not a reimbursement. Its a grant, agreed in advance. The DfT has just made its offers for the coming July to Dec period.

 

[RT4038]

It is not a reimbursement. Its a grant, agreed in advance. The DfT has just made its offers for the coming July to Dec period.

The money offered is not more than the bus operators would have collected if full fares had been charged (proportionate to sales pre scheme), taking into account fares rises that would have occurred due to inflation (and of course there will be some argument over that). So it is effectively a reimbursement (or if you prefer - a grant to cover the reimbursement). Naturally the bus companies want more, and the Government wants to pay less, and somewhere in between will come to an agreement.

It might be low margin but its guaranteed income without incurring additional costs in many cases. More tax payers money transferred via stealth to foreign private equity and investment banks under the guise of a helping hand for working people.

Nah - hyperbole!

But surely that sum is reducing as time goes on? If not, where is the incentive for any operator to raise their game, to attract new business, or the return of former passengers? The way you word it, an operator could already be making a profit, and get yet more profit

The grant/reimbursement to bus operators is to pay them for the fares reduction. If more passengers are conveyed as a result of the fares reduction, then the next 6 months grant/reimbursement offer will reflect that as a reduction. It is not at all similar to the rail position - the bus companies are not being paid whether passengers travel or not (I doubt there will be many instances of the £2 flat fare resulting in fewer passengers travelling). Of course it is not possible to ascertain whether any additional passengers are the result of the reduced fare or of bus companies 'raising their game', so that probably acts as a disincentive to invest in any effort in that regard at present.

 

[Trainman40083]

The money offered is not more than the bus operators would have collected if full fares had been charged (proportionate to sales pre scheme), taking into account fares rises that would have occurred due to inflation (and of course there will be some argument over that). So it is effectively a reimbursement (or if you prefer - a grant to cover the reimbursement). Naturally the bus companies want more, and the Government wants to pay less, and somewhere in between will come to an agreement.


Nah - hyperbole!


The grant/reimbursement to bus operators is to pay them for the fares reduction. If more passengers are conveyed as a result of the fares reduction, then the next 6 months grant/reimbursement offer will reflect that as a reduction. It is not at all similar to the rail position - the bus companies are not being paid whether passengers travel or not (I doubt there will be many instances of the £2 flat fare resulting in fewer passengers travelling). Of course it is not possible to ascertain whether any additional passengers are the result of the reduced fare or of bus companies 'raising their game', so that probably acts as a disincentive to invest in any effort in that regard at present.

I would have thought that in order to attract new and repeat business from passengers new to buses, operators would raise their game. But maybe they can't afford to.

 

[RT4038]

I would have thought that in order to attract new and repeat business from passengers new to buses, operators would raise their game. But maybe they can't afford to.

'Raising your game' costs money - additional resources (both equipment and people) and is always a risk as to whether the additional expenditure is going to be covered by the increased revenue from the additional and/or repeat business. At the best of times this will be a gamble, under the current grant/reimbursement conditions it is pretty much a dead cert that it won't. Add in the current uncertainties of franchising in that you may not have a business anyway, this kind of investment is probably currently on hold.

 

[Trainman40083]

'Raising your game' costs money - additional resources (both equipment and people) and is always a risk as to whether the additional expenditure is going to be covered by the increased revenue from the additional and/or repeat business. At the best of times this will be a gamble, under the current grant/reimbursement conditions it is pretty much a dead cert that it won't. Add in the current uncertainties of franchising in that you may not have a business anyway, this kind of investment is probably currently on hold.

Yes, you are of the same mind as me. So much uncertainty. Operators only invest if they see a return.

 

[Teapot42]

I could be wrong on this, but I got the impression the £2 scheme was mainly intended to stabilise existing networks.

Around here certainly the only growth seems to be coming from BSIP funds insulating operators against the risk of new and enhanced services. For areas which didn't get BSIP, and those who did but have a council who act on political lines rather than based on need, there really doesn't seem to be much hope of services improving at all.

 

[duncombec]

The £2 scheme was designed as the public transport user offset to freezing fuel duty under the Help for Households banner. There is little evidence to suggest there was any thought given to the effect on public transport usage/growth at all, and seemingly little thought given to how it would work, develop, or be extended.

There was a thread a few months ago about how the scheme might be wound down. It was closed because it deviated off topic, but well worth a read.

 

[HullRailMan]

The biggest difference between the two is that the £2 cap is a grant, not reimbursement, so if an operator enters the scheme and accepts the level of funding offered, then that tax payers money is in the operators bank regardless of whether they then carry anyone or not. That's the reason the groups all welcomed its introduction and support its continuation. It might be low margin but its guaranteed income without incurring additional costs in many cases. More tax payers money transferred via stealth to foreign private equity and investment banks under the guise of a helping hand for working people.

I really don’t see how capping fares at £2 is not helping make single bus journeys more affordable for ‘working people’, and therefore helping them. Perhaps you would rather local/national government didn’t provide funds to make fares cheaper on the off chance some financial benefit may be obtained by a parent company you don’t like?

 

[stevieinselby]

I could be wrong on this, but I got the impression the £2 scheme was mainly intended to stabilise existing networks.

The £2 fare cap was intended to help people struggling with the cost of living crisis, it was not aimed at helping the bus industry.

 

[Teapot42]

The £2 fare cap was intended to help people struggling with the cost of living crisis, it was not aimed at helping the bus industry.

Much of what I've read suggests both aims to be honest. I definitely recall talk at the time that ridership wasn't recovering so encouraging more journeys was definitely one aim.

 

[RT4038]

Much of what I've read suggests both aims to be honest. I definitely recall talk at the time that ridership wasn't recovering so encouraging more journeys was definitely one aim.

I think you are right. Aside from the aim of 'Help for households' (and particularly that the help is available to everyone but most likely to be at the lower paid end using buses) , it was also a help for the depressed demand for buses following the Government's message during Covid that buses should be avoided because they are potentially dangerous to health. The grant for reimbusement is arranged in such a way that it does not increase bus company profits unless it is particularly successful in raising ridership revenue beyond everyone's wildest dreams (without increasing the costs of carrying them!), which it hasn't been yet.

 

[DDB]

It is not a reimbursement. Its a grant, agreed in advance. The DfT has just made its offers for the coming July to Dec period.

Nottingham City Transport have just announced they are continuing the scheme until December so they must have accepted the DfT offer. Presumably other companies will be announcing soon. It will be interesting to see if any companies will leave the scheme.

 

[GusB]

Can we focus the discussion on the remuneration aspect of the scheme, as alluded to in the opening post? Otherwise we'll just have another rambling discussion about the £2 fare scheme and we've had several of those already.

 

[158756]

The grant/reimbursement to bus operators is to pay them for the fares reduction. If more passengers are conveyed as a result of the fares reduction, then the next 6 months grant/reimbursement offer will reflect that as a reduction. It is not at all similar to the rail position - the bus companies are not being paid whether passengers travel or not (I doubt there will be many instances of the £2 flat fare resulting in fewer passengers travelling). Of course it is not possible to ascertain whether any additional passengers are the result of the reduced fare or of bus companies 'raising their game', so that probably acts as a disincentive to invest in any effort in that regard at present.

So if I'm understanding this correctly, for each additional passenger a bus carries, the operator receives less money from the government at the next grant offer? Meaning the effective fare gained from each new passenger is actually less than £2. Is it actually zero (so do they lose £2 of grant for each extra £2 fare they take)?

And on the subject of companies "raising their game" - if it is the case that each additional passenger is bringing in less than £2, any major investment to bring in new passengers is surely out of the question, particularly on the longer routes where the £2 fare is said to be making a noticeable difference to passenger numbers. Any additional buses that might be put on to accommodate overcrowding or to attempt to capitalise on the low fares to attract new customers would be losing money even if they were full. (Which is definitely similar to criticisms of ENTCS over the years)

 

[RT4038]

So if I'm understanding this correctly, for each additional passenger a bus carries, the operator receives less money from the government at the next grant offer? Meaning the effective fare gained from each new passenger is actually less than £2. Is it actually zero (so do they lose £2 of grant for each extra £2 fare they take)?

Basically that is correct. Allowance is made for the marginal cost of conveying additional passengers, but if additional capacity is required then the cost of which would be negotiated at the next grant offer. (Not that in my local LTA (Local Transport Authority) area that this has arisen). It has to be on this basis - the Government are not funding the £2 fare reduction to increase the profits of bus companies per se.

And on the subject of companies "raising their game" - if it is the case that each additional passenger is bringing in less than £2, any major investment to bring in new passengers is surely out of the question, particularly on the longer routes where the £2 fare is said to be making a noticeable difference to passenger numbers. Any additional buses that might be put on to accommodate overcrowding or to attempt to capitalise on the low fares to attract new customers would be losing money even if they were full. (Which is definitely similar to criticisms of ENTCS over the years)

This is an unfortunate side effect - there are always side effects when Government intervenes in the market. Not to suggest that they shouldn't necessarily intervene, but they need to aware of these effects and counter them with more intervention (BSIP+?) which then has more side effects.......

 

[Trainman40083]

I think you are right. Aside from the aim of 'Help for households' (and particularly that the help is available to everyone but most likely to be at the lower paid end using buses) , it was also a help for the depressed demand for buses following the Government's message during Covid that buses should be avoided because they are potentially dangerous to health. The grant for reimbusement is arranged in such a way that it does not increase bus company profits unless it is particularly successful in raising ridership revenue beyond everyone's wildest dreams (without increasing the costs of carrying them!), which it hasn't been yet.

The joys of lean business would pay off there, but your comment suggests any business losing business due to unreliability has a problem.

Basically that is correct. Allowance is made for the marginal cost of conveying additional passengers, but if additional capacity is required then the cost of which would be negotiated at the next grant offer. (Not that in my local LTA (Local Transport Authority) area that this has arisen). It has to be on this basis - the Government are not funding the £2 fare reduction to increase the profits of bus companies per se.


This is an unfortunate side effect - there are always side effects when Government intervenes in the market. Not to suggest that they shouldn't necessarily intervene, but they need to aware of these effects and counter them with more intervention (BSIP+?) which then has more side effects.......

You could have the situation where you subside buses, to the detriment of trams and even provide more money to the railways (Government owned) to cover lost business to buses. Unless you address the reasons people don't or won't use public transport, you have a problem. I guess to achieve that, you actually have to engage with non users , to understand why they make their choice of mode. Like many people, I don't have to use the bus, but I may choose to. But these days, I could actually achieve a lot without even leaving home

 

[RT4038]

The joys of lean business would pay off there, but your comment suggests any business losing business due to unreliability has a problem.

I guess any business losing business for whatever reason has a problem!

You could have the situation where you subside buses, to the detriment of trams and even provide more money to the railways (Government owned) to cover lost business to buses.

But that works both ways - subsidy to the railways will be to the detriment of buses in some situations too. (And this is getting away from remuneration for £2 fare....)

 

[joieman]

You could have the situation where you subside buses, to the detriment of trams and even provide more money to the railways (Government owned) to cover lost business to buses.

The trams in Nottingham in particular have been pleading for money. I remember reading a Nottinghamshire Live article which suggested the introduction of a fare cap for trams as well. The question is, where does it end?

 

[Teapot42]

The trams in Nottingham in particular have been pleading for money. I remember reading a Nottinghamshire Live article which suggested the introduction of a fare cap for trams as well. The question is, where does it end?

When the scheme first came out the Sheffield tram did offer £2 fares. I'm unclear if they were included in the scheme itself or just felt they needed to otherwise they'd lose out to buses. At the time however it was operated by Stagecoach so possibly they were able to negotiate a grant which included the tram?

At the risk of getting well off topic, there was an article recently saying that a study had shown that a £1 fare cap would be relatively affordable to government (in the scheme of things - I believe £2.5bn to cover the period to 2030?). I would imagine this would be much harder to negotiate as you are going from a scheme where fares revenue will only be reduced by a fairly small amount, to one which will drastically cut what operator take and any top-ups will need to be much more carefully justified.

 

[Trainman40083]

The trams in Nottingham in particular have been pleading for money. I remember reading a Nottinghamshire Live article which suggested the introduction of a fare cap for trams as well. The question is, where does it end?

Maybe "let the market decide", else you are subsidising companies to compete /stay in business against others also being subsidised. Okay, I could understand it of the number of passengers doubled -although maybe some operators might not cope with that, and leave people behind.