Evaluating the long term impacts of transport policy: the case of bus deregulation

Abstract

The 1985 Transport Act, by which the British local bus industry outside London was deregulated, is considered as one of the most pioneering reforms of public transport policy in the world. The deregulation package (which also included privatisation and subsidy reduction) was controversial and was subject to heated academic debates over how successful it would be (and consequently has been) in reversing the deteriorating performance of local bus services since the Second World War. This debate specifically focused on issues concerning the efficiency of service provision, quality of service, and overall welfare.

In addition, the contrasting regulatory system adopted in London (competitive tendering) has given opportunities for researchers to evaluate and compare the outcomes of these contrasting systems and draw conclusions over the impacts of such regulatory reforms on the local bus industry in Great Britain. Commentators began to evaluate regulatory experience as quickly as the end of the first year after deregulation. However, the amount of research has declined as time has passed. The key fundamental questions, which the current research is trying to answer, are: what are the longer term impacts of the deregulation policy, how successful was it in achieving its objectives and what lessons can be drawn after more than 20 years? These questions can be answered by carrying out cost-benefit analyses of deregulation policy compared to the counterfactual as well as to the alternative regime adopted in London.

A key issue when examining long term changes is that of the counterfactual – what would have happened if the changes had not occurred? Econometric models of the demand, fare and cost for local bus services in Britain (London and the rest of the country) are outlined and used along with extrapolative methods for some key input variables such as bus kms and subsidy to determine counterfactuals. A large number of dynamic demand models have been estimated, considering both fixed and random effect, and using a variety of estimation methods including the Feasible Generalised Least Squares procedure (FGLS-AR(1)) and the Panel Corrected Standard Error (PCSE-AR(1)) method. In addition to Partial Adjustment Models (PAM), several Error Correction Models (ECM) were developed. Some analyses of subsidy and of costs are also outlined. The developed fares models are used to assess the impact of changes in subsidy (in terms of revenue support and concessionary fare reimbursements). The cost models are used to determine the extent to which costs are determined by external factors (such as fuel prices) or partially external factors (such as labour costs). This then permits the examination of welfare change by estimating changes in consumer and producer surpluses as well the impacts on government, bus workers, and society as a whole.

Our finding is that there are net welfare decreases outside London, by contrast, welfare increases are found in London irrespective of whether subsidy changes impacts are included or excluded. We find that bus reforms in London have been more welfare enhancing than the reforms in Great Britain outside London, where deregulation led to substantial welfare losses in the first decade of the reforms (1985/6 to 1995/6). From the second decade onwards there are smaller losses. However, the results are sensitive to the specification of the modelling system and assumptions made concerning the counterfactual for the deregulated area in particular. This work confirms the sensitivity of the long term evaluation of transport policy to assumptions concerning the counterfactual and trends in demand, supply and prices. Any policy lessons inferred from these long term evaluations therefore need to take these sensitivities into account.

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ORCID for J.M. Preston: orcid.org/0000-0002-6866-049X

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