OFT steps in over local bus sector

Author: By Holly Williams, Press Association

The OFT said it proposed to refer the £3.6 billion industry to the Competition
Commission after finding evidence that the sector was “not working as
well as it should”.

A five month probe unearthed issues in the local bus market, with the OFT
finding that most routes were operated by only a small number of players and
that passengers were faced with higher fares in areas where competition was
low.

There are also fears of a double hit for the taxpayer from the potential lack
of competition in the local bus sector – excluding London – given that it is
subsidised by about £1.2 billion in state funding.

John Fingleton, chief executive of the OFT, said: “Our investigation has
unearthed a range of evidence that suggests the market for local bus
services is often not working as well as it should and may be resulting in
higher prices for bus users.

“In addition, this is a market where an estimated £1.2 billion comes from
public subsidy, so restricted or distorted competition can potentially have
a significant impact on taxpayers.

“We believe that the issues we have identified clearly justify a full
investigation and we therefore propose to refer this sector to the
Competition Commission.”

The OFT also said there had been complaints alleging “predatory behaviour”
by existing bus operators to see off competition from new entrants.

In a quarter of all tenders for supported service contracts, there was just
one bidder for the work, according to the OFT.

The bus sector and other interested parties now have until October 15 to give
their comments before the OFT will give its final ruling on whether to make
a reference to the Competition Commission.

The OFT found that average fares were 9 per cent higher in areas where there
is only one large national group.

In many large areas and counties – such as Aberdeenshire, Cornwall,
Lincolnshire, Isle of Wight and the West Midlands – there is only one very
large player with high market share.

Towns and cities including Aberdeen, Bristol, Brighton, Cardiff, Cambridge and
York have just a single player of any significance, the OFT added.

It looked at all regions of bus services in the UK for its inquiry, but found
no call to look at a competition referral for the London or Northern Ireland
markets.

It said the large national bus groups were of particular interest, as they
represent around two-thirds of local bus service provision.

But they do not operate in all areas of the country and there are fears of a
“live and let live” attitude where national operators respect each other’s
territories to avoid the threat of retaliation.

There are nine major bus operating groups in Britain.

Four are large national bus operating groups – First Group, Stagecoach, Arriva
and Go-Ahead.

The remaining five are classed as regional groups – National Express,
TransDev, Kinch Group, Veolia Transport and East Yorkshire Motor Services.

The OFT study also suggested that fares may be coming under pressure as a
result of the free bus scheme for the over-60s.

It said there was some evidence that fares were higher in areas with a high
number of those eligible for free fares.

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