British bus deregulatiion
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BRITISH BUS DEREGULATION
a review by
NATIONAL ORGANISER – TRANSPORT
Transport & General Workers Union.
(2000 - first published in pamphlet form by the International Transport Workers Federation)
A detailed picture of the British bus scene, following deregulation and almost complete privatisation provides many lessons for trades unionists in all countries. Before giving this picture, it is worth briefly sketching out how regulation arose in the first instance in Britain.
The period after the 1914-8 war saw the growth of what were called "pirates", small scale bus operators who took advantage of the phenomenal growth of urbanisation. This was a time when drivers indulged in racing and chasing each other after the manner of wartime flying aces! The resultant chaos, death and injury saw a consensus emerge that tight control over the industry was necessary. The 1929 Royal Commission on Transport recommended a system of bus licensing on the understanding that it would encourage "rationalisation as a prelude to nationalisation". The 1930 Road Traffic Act that followed was a much needed reform which brought the nineteenth century law which governed buses into line with modern motor vehicle use. It was moreover a recognition - by all parties - that private ownership was generally consistent with public good. Regulation was the next best thing to ownership, but the Act was seen as a stepping stone to municipalisation or nationalisation. The key agency of control were the Traffic Commissioners, traditionally military men, their job was to keep fares low, ensure minimal duplication of services and maximum integration. High standards of engineering and fleet maintenance and strict controls of driving hours were all key facets of their job.
Seventy years ago a Conservative government brought London Buses, which absorbed many small private operators, into public ownership. In 1949, a Labour government introduced nationalisation and in 1968 extended this to create the National Bus Company, which dominated bus operation in the provincial counties. From the beginning of the century up to the Second World War, many local authorities created bus operations or bought bus companies which they operated as integral parts of their own activities.
SUBSIDY – A DIRTY WORD
During the 1970's, a political debate about the very high levels of subsidy which the State was involved in - across all aspects of society - was initiated by far right ideologues of the Conservative Party. Rolling back the frontiers of the State was seen by them as synonymous with defeating socialism once and for all. After its election in 1979, the Conservative - or Tory - Government of Margaret Thatcher began an assault on public transport, gradually opening bus operations up to free competition. Even so, considerable regulatory powers still existed and public ownership was not at first in question. For example, the Traffic Commissioners between 1981 and 1986 could distinguish between normal healthy competition and predatory, wasteful activity, a task later given to the Office of Fair Trading, a body concerned with the entirety of industry, which rarely intervened to prevent open bus "wars". The Monopolies and Mergers Commission was to become almost obsessed with the bus industry as the Thatcherite vision for buses was seen to become unrealistic.
A strategy of a gradual whittling away at the industry was created from a transport farce in seven Acts of Parliament. The conflict between the central state and local authorities saw a greater concentration of power at the centre. Whilst the government saved forty million pounds in 1986-7, the initial reaction of the big metropolitan authorities was to spend 20% more to keep services going. Clearly, that ability to counter central government's desires had to go and so an increasing control over the spending powers of the local arm of the state developed.
The first task facing the Tory government was to create the myth that subsidy to buses was improper, subsidy became a dirty word. Even the union started to talk about revenue or capital support, rather than use the dreaded word. The Tories selected key areas like London and Sheffield, with strong and left-wing Labour Party controlled councils which allocated funds from local taxation into bus subsidies. In London the Greater London Council, the GLC, launched a pro-public transport policy of subsidised fares. What was called the Fairs Fair policy of the GLC saw passenger journeys increase by 10% and passenger mileage by 12% - at a time when patronage had been rapidly declining, by about 5% per annum.
For the first time in twenty years the vicious circle had been squared, the growth of cars entering central London was halted and turned around. All this was only possible by taking the level of subsidy to 54% of costs, something quite comparable to the standards operating in similar European cities, which enjoy subsidies of up to three quarter of their costs.
DEREGULATION, PRIVATISATION AND COMMERCIALISATION
The bare bones of what was done are contained in two final Acts of Parliament, both forced through only on the narrowest of majorities in the upper house, the House of Lords. The London Regional Transport Act 1984, which paralleled another piece of legislation that simply abolished the GLC, transferred ownership of London Buses from the council to the government. A civil service body, London Regional Transport, answerable only and directly to the Transport minister, was set up. In essence, this was to prepare London for privatisation and deregulation at the earliest opportunity. The cash nexus began to be applied as the key criteria for policy planning. For example the fare reductions which had been so successful were reversed. From the ten years after 1984 fares on London's buses increased by 30% in real terms above inflation. Mile for mile, public transport costs in London are more than five times as high as in Paris. Moreover, LBL lost its monopoly position on a gradually growing programme of open tendering for its own routes. No less than 23 LBL garages – about half - closed after 1985, some of these were very modern structures build at a cost to the public of tens of millions of pounds. But a regulated environment was kept in London.
The other piece of legislation was the Transport Act 1985, which provided powers to sell off the nationalised National Bus Company, (NBC) which operated motorway express coach services and rural and suburban routes. Local authority owned bus undertakings were also obliged to be split away from the council and set up as publicly owned companies, kept at arm's length from the elected authority. These companies, and all others, were to maintain their own commercial network, with local councils able to subside routes it deemed "socially necessary" by open tender. 84% of mileage outside of London became based on commercial routes. Whilst the entire British bus market outside of London was also deregulated, that is to say laws which controlled fares and the ability of operators to run buses were abolished. In a nutshell, the 1985 Act removed the control of the Traffic Commissioners and returned us to the chaos of the Twenties, i.e. deregulation happened outside of London.
The essence of the government's philosophy was to make the passenger pay for service in higher fares, rather than society as a whole subsidising those who travel by bus and at the same time to see private capital take responsibility for public transport rather than state capital. Costs to non bus users fell by 20%, but costs to users rose by 40% or more. Such a shift in costs may seem "fairer" to those who choose not to use buses, but this causes a rise in car use which implies increased social costs of congestion and environmental damage. Congestion costs arise from the inhibition of the free flow of traffic, which adds costs to the economy. Whilst the main stated objectives – spreading ownership and reversing the historic decline since the 1950s of bus travel were not achieved and still remain largely elusive.
THE OPERATIONAL PRACTICAL EFFECTS OF DEREGULATION
The experience in regulated but privatised London has been a much worsened service, but not as bad as outside of London. The pithy answer to the question: "Did bus deregulation work?" is that bus miles operated increased by 20%, but the number of passengers declined by 22%. The government, by sleight of hand argued that more mileage meant a healthier industry. The growth of minibuses was not been a totally negative thing, for new routes into dense housing estates were created. But they provide a less satisfactory ride. More importantly they mask the truth about total mileage. When converting minibus mileage into conventional bus mileage by dividing it into two, the overall increases in mileage claimed by the government to show the success of deregulation were seen to be very modest indeed, reaching just 1.6% in Greater Manchester and 4.8% in West Yorkshire for example. It has all added up to fewer passengers, paying higher fares, for fewer buses, running more miles. A less reliable service accompanied by a reduction in the numbers and quality of jobs available. Especially since the employers began to spread the mini-wages which went with minibuses to increasingly larger, so-called midi-buses. Some of these can now carry around 60 passengers and yet masquerade as conventional buses without the attendant higher rate of pay which should apply.
Over-bussing in urban areas often caused traffic chaos, at one point up to 350 buses an hour were running through Sheffield's city centre. In Merthyr Tydfil in Wales, a small town of 40,000 people, a bus left its tiny bus station every 30 seconds in the weekday daytime peak period, but on an evening or a Sunday were a rare sight indeed. The number of passengers boarding per local bus kilometre remained static in regulated London, but elsewhere declined by 27%. The number of trips per staff had increased by 23% in London, but declined by 5% in the rest of the country.
Most of the new, private competition appeared on the established profitable services of existing (former or currently publicly owned) companies, where there was money to be made. These tended to be the core network's busy, daytime bus routes, generally operating between 0700 hrs and 1900 hrs, Monday to Saturday. Rather than split a current 10 minute frequency, for example, held by the existing operator, to make a more attractive 5 minute service, the new entrant was much more likely to register only a minute in front of the incumbent's bus, to maximise his own loadings. A rule in the 1985 Act actually encouraged disruptive predatory behaviour by allowing buses to vary their advertised departure times by 5 minutes either way, giving the driver a virtually free hand to depart when he likes and so get in front of the other operator's bus. Paying low wages, enhanced only by a bonus for good takings, encourages bad practices - for example, unsafe overtaking, blocking other buses in, delaying tactics at busy stops to maximise loadings.
Where the few "new" routes succeeded, these were usually in fact variations on existing routes, linking parts of different routes together. This had a destructive effect on the original routes, which lost custom as a result. Competitors on their key routes missed out detours, which serve housing areas off the main route. The new "direct service" may appear innovative and attractive to some passengers, but it seriously upsets the concept of overall provision. The established operator may be forced to follow suit, if it is not to allow the other operator's buses to "get in front" (by missing out that section of route) and pick up passengers further down the route.
There is no doubt that a single, local monopoly operator providing a high quality, reliable 10 minute service is much more useful to the passenger than one which doubles the amount of buses operating destructively against each other. But, as the incumbent operator's core profits are hit by competition, the ability to cross subsidise and support less remunerative routes and evening and Sunday services is undermined. At the end of the day, the low cost operator can legitimately charge a lower fare, but only operates in the remunerative periods of the day. The larger operator, with much heavier overheads, gives the public a comprehensive service, but this is constantly challenged.
Although the principle of subsidy by public tender of socially necessary service was allowed, local authorities became hard pressed for funds and many such services have disappeared altogether. The lowest cost principle of awarding tenders means that the lowest quality and most unreliable operator is most likely to win the bidding process. In the case of evening services this can lead to ticketing incompatibility, difficulty in getting timetable information and a generally disjointed service. The most damaging effect of all has been the destruction of the network concept. Buses do not co-ordinate to provide carefully balanced frequencies over common sections of route, or connect with each other, or integrate with trams or local rail. In an area like Greater Manchester one operator became SIXTY operators and services can change 2,000 times annually.
Local authority expenditure on bus services was reduced by over 50% in real terms between 1985 and 1991. Very little capital went into infrastructure investment in this period. We saw a significant increase in the age profile of Britain's bus fleet. The number of new vehicles ordered fell considerably just before deregulation and remained depressed until about three years ago, with annual registrations of about 1,000 in most of the 1990s, compared to the 3,000 plus full size buses which were being purchased annually at the beginning of the 1980s.
In the area where it really matters, deregulation can be shown to have been an utter failure. Whilst bus mileage increased so did fares and, while operating costs were down, so were passenger levels. Fewer buses are running longer distances to chase fewer passengers. An analysis of passenger attitudes showed that in the big English cities and towns, 46% thought that services had got worse since deregulation, only 16% differed with this. Passenger numbers plummeted in the larger cities, falling by 40% in Sheffield and 30% in Manchester. By government figures alone, fares outside of London increased by one eighth in real terms from the five years after 1986 and bus usage fell by between 19% and 26%. Fares in urban areas rocketed by 39%. Yet, as the government's own research institute, (TRL) observed, there was little evidence of price competition, margins being so low that few companies could afford long-term price wars. The price of transport to the bus traveller, relative to the cost of the private car travel has not been good. Price indices of transport costs shows the bus on an index level of 82 compared to cars at 102 in 1985/6. (The 100 reference point represented motoring costs when the index was established.) That is to say, well below the cost of car travel. But the same comparison by 1998/9 showed the bus at an index level of 107, whilst the car was at exactly the same relative price level as it had been thirteen years before. The private car was at a comparative level of 102 in both 1985/6 and 1998/9, having wavered a little above and below that constant over the years. Bus travel had soared in costs over the years. The relative cost of car travel compared to other modes had not altered, whereas bus travel was now relatively far more costly both in relation to itself pre-deregulation and in relation to the car.
In the most decisive test of all, the number of local bus passenger journeys made in Great Britain over the last decade, it is clear that year on years there has been a continually decline. Since the figures include London, which operates a third of the country’s bus market, it is evident that these figures distort the decline. In London, the combined effects of severe road congestion, a state owned tube (or metro) system and a regulated bus network have all ensured slow growth in passenger numbers. The real crisis in bus provision is revealed. Only a little over 80% of the journeys taken before the Tory assault on bus transport are now being made. We have gone backwards and not forwards as `liberalisation’ advocates promised.
Figures taken from table 2 of “A Bulletin of Public Transport Statistics: Great Britain 1999
Local bus services: yearly periods 1989-1999
Millions of passenger journeys
THE EFFECTS ON BUS STAFFF
Drivers are now pushed to the limit. Often forced or encouraged to stretch the law. The worst case we came across was one company, Armchair Transport. After two former drivers complained that they had been threatened with dismissal for refusing to do extra shifts, 240 infringements were reported. But the authorities pressed none of these charges, it being said that "there may have been neglect of the law within the company but this did not amount to being criminally reckless". The timetable which ten years ago could allow leeway at the terminus for the driver to catch up en route if needed, or just to take a breather if time allowed, has simply disappeared. Schedulers aim to extract every last second of time as profitable labour. The Public Service Vehicle Drivers' Hours Regulations were established in 1968 and 1971, when we had a very different world.
As an example, the designation is not now PSV, but PCV – public carrying vehicle, the word "service" has been dropped. The Regulations allow a driver to work no less than 16 hours in one spreadover duty and five and a half hours in one fell swoop, without any relief.
Previous scheduling arrangements, negotiated by ourselves in the monopoly public sector, restricted maximum driving spells and duty lengths well below the legal maximum. Now drivers are pushed to the edge of the rules, especially on the first portion of a daily duty consisting of continuous five and a half hours driving in busy conurbations. In the early days of deregulation, this pressure was greatest due to the growth of a large number of small scale, non-unionised operators willing not just to stretch the law but actually to breach it. In 1990, Greater Manchester police found no less than 10,000 offences affecting heavy vehicles in a single six month period - vehicle defects, violations of drivers' hours regulations, non payment of vehicle excise duty - double the position over previous years. Whilst a 1971 modification of the rules, which had hardly ever been heard of before, began to appear generally; that is to say a provision which allows 8 hours continuous driving in local routes, if small breaks of five minutes or so at a terminus add up to 45 minutes in a total spell. A survey of studies made by the ITF has shown that accident risk is 2.5 times higher when a driver has worked over 13 hours than when he has worked less than 10 hours. We would wish for a duty day of no greater than 10 hours, with maximum wheel turning time of 8 hours.
Transport is a highly labour intensive industry. 80% of a bus company's costs are in labour and it is therefore inevitable that turning a bus company into a profit making venture will mean that the workforce will pay. Cost reductions can only be achieved by attacking wages and conditions. Direct and indirect cuts have taken place, with consolidation or variation of weekend premium payments being common. Holiday and sickness entitlements have often been ruthlessly squeezed. Consolidation of signing-on and signing-off times, public holiday premia, paid meal breaks and one person operation bonuses have all been up for grabs. Given that bus workers rely on perhaps a quarter of their income from
overtime payments, tinkering with the effective duration of the working week has had dramatic consequences.
Productivity can be measured in a number of ways, for example average vehicle loadings in LBL increased by 4% a year for the five years 1984-9, or put another way - real unit cost reductions of 5.3% per annum to the company's benefit. Or put another way, average operating costs per vehicle mile fell from £2.90 to £2.40 in five years - a 20 % cost reduction. In the metropolitan publicly owned companies, operating costs per bus kilometre fell by 25% from 1986-88. The result of all this was the redundancy of 20,000 bus workers in the first couple of years of deregulation. Just to gauge what this means, 134,000 staff were employed in the public sector of the bus and coach industry in 1985/6, with an additional 40,000 in the private sector. In the case of engineering workers, overall staff levels in the seven largest metropolitan firms declined between 26% and 41% in the first two years of deregulation. With more miles being travelled by a smaller workforce only one thing can be happening - intensification of the labour process. An increase of 11% in vehicle miles per employee occurred in 1986-7, a doubling of the position over the preceding two years. Effectively, bus workers began to subsidise the passengers!
Department of Transport figures show that that the pace of productivity increases in metropolitan areas has doubled, post deregulation, whilst across the whole country it has increased by 50%. This expresses itself in faster scheduled speeds and reduced standing time. Additionally, there was a massive reduction in clerical and administrative grades and the introduction of contracting for internal services of all kinds. Operating costs in pence per kilometre travelled are estimated to have fallen dramatically, by approaching half in real terms, since deregulation.
reduction in operating
costs in pence/km
reduction in public
support for buses
real value of fare
Other metropolitan areas
Rest of England
Scotland and Wales
Source: Proceedings of the Institute of Civil Engineers 1997
It is little wonder that such cost reductions have been achieved, since drivers' pay fell in real terms by 13% between April 1986 and 1991, whilst all other occupational groups have seen increments of a real and not simply inflationary character. Drivers once earned 7% above average earnings, now they find themselves well down the hierarchy of earnings.
Engineering standards declined massively until the mid 1990s. Even reputable operators cut corners. Leicester Bus with a fleet of 200 had a failure rate for transport ministry testing of 28% in 1992. West Midlands Travel, with 1,800 vehicles had to re-test its entire fleet, after 108 were considered so bad that prohibition notices were imposed. The number of buses aged over twelve years in 1989 had increased from 15% five years earlier to 24%. For big buses - over 32 seats - the figure had risen from 16% to 30%! More than 40% of big buses were over 12 years old in 1992. Purchases of new buses fell by 8% in 1991, following a disastrous drop of 31% the previous year. Total sales volume was 46% down on the 1988 position. Fourteen bus and coach body builders merged or went bust between 1989-91 alone. Around £500m a year was needed to be spent on the purchase of new buses to maintain the quality and age profile of Britain's bus fleet, only 60% of that sum was actually being spent, since the first priority of a private company in an open market situation is to maximise profit not put clean, reliable, safe, comfortable buses on the road.
Previously, the emphasis on vehicle design was on safety, after deregulation it moved to maximum capacity. For example, to get more seats, one company moved the engine to the front, but since the driver's cab is over the engine in this configuration, there have to be more steps for passengers making access less easy for the elderly or infirm. Additionally, an emergency exit at the rear is so high off the ground, as a result of squeezing in extra seats, that it needs a step to enable the elderly to use it. Emergency exits can end up being partly obscured by extra seats and this is tolerated on the grounds that passengers can slip through the gap. Woe betide the portly passenger in an emergency!
Bus crews predominantly receive the brunt of alienated passenger opinion in the form of the greatest wave of assaults, physical violence and verbal abuse. Concerns over the stresses and strains of a difficult job have become acute. Early retirements, death in service, heart disease, loss of licence through medical unfitness have become increasingly common. Pension schemes in the public sector provided for early retirement schemes where drivers left the work due to ill-health, especially conditions which rendered them unsafe for public carrying vehicle requirements - like heart conditions. Privatisation has forced most drivers out of such schemes into inferior ones which have little such provision. Only a few companies maintain healthy pensions arrangements. The government managed to undersell the National Bus Company by £300 million on privatisation, yet it scooped up a £168 million windfall from the “BEST” pension fund after it had guaranteed the future rights of existing pensioners and absorbed the fund total. By a stroke of luck, stock market shares rode high just at the time this transaction occurred, leaving the government financially and legally better off, but morally bankrupt. A subsequent 13 year legal and political campaign, in its later stages achieving a high profile, resulted in the Labour Government eventually agreeing to reimburse £168 million to the pensioners. Elsewhere, private companies engaged in pension raids to bolster their flagging fortunes. Some used pension funds to legally self-invest in capital developments. Only when one company, National Welsh, went bust was it discovered that £1m was missing, their pensioners will now only get 80% of the value of their pension as a result.
Even so, the truth is that making money out of running buses is a very hazardous business, the early profits from property sales and asset stripping gave way fairly quickly to low profit margins. The industry was showing an average rate of return on capital employed of around 2-3% in the early years, compared to 16% in the haulage industry and 8% in contract cleaning. In 1989, the industry showed a rate of return of 3.5%, the following year it had dropped to 2.6%, 2.8% in 1991.The year after that saw an all-time low of 1.5%. An authoritative analysis of the industry concluded that: "returns are insufficient to encourage entrepreneurs or venture capitalists to remain in, or enter, the industry". Up to one third of companies would have been better advised to sell up and invest the money at the then current bank base rates. A survey of companies involved in the supply, manufacture and operations of buses and coaches found that 53% were in a dangerous financial condition, 12% needed to exercise caution and only 8% were good. It was only by reducing wages and conditions, massively increasing working hours and by scooping up public subsidies that many companies survived. The Department of Transport estimated that operating costs outside of London fell by 5.8% after 1985. During that period inflation had risen by 46%. The downwards pressure on wages was the key factor here, yet even highly profitable companies which typically aim for a 15% rate of return on capital employed would not be making a profit if it were not for public subsidy.
Public spending on buses in 1998-9 was £1,020 million, whilst commercial fare receipts totalled £2,200. Yet the public support element in income is currently only around a third of what it was in 1986-7. All other elements are still broadly in line with that financial year’s figures. The billion pounds of public money is made up of four elements.
· Capital expenditure in London of £36 million.
· Local authority funded route subsidy of £269 million.
· A central government funded tax concession, called Fuel Duty Rebate, of £271 million.
· Local authority concessionary fare subsidy (mostly cheap fares for pensioners) of £441 million. Operators claim this is not a subsidy to themselves. But certain services which bring in fare paying passengers (typically mid-mornings and early afternoons) would not operate without the heavy loadings of pensioners with concessionary fare passes. Ordinary fare paying passengers also use these services, whilst the active use of vehicles is also maintained.
This vast public subsidy has been provided to, in the main private companies, ever since deregulation and privatisation with very little check on value for money worth mentioning. This single fact alone testifies loudly to the truth that attacking subsidy was a minimal objective. A peak of £789m in subsidy was reached in 1984/5 and this fell to about £450m in 1989/90. But subsidy began to grow again very quickly. In 1992, the £600m barrier was broken for the first time since 1986. These figures are unadjusted for inflation, a calculation if made which would only prove the point further.
LONDON – A SPECIAL CASE
"Central planning," said the government, "however expertly it may be conducted is not an acceptable substitute for the free play of market forces." Yet the new commercialised regime in London implied more, not less central planning. In the days of GLC ownership, LBL local district officials put forward plans for routes under their control which only rarely were even considered at central level. During the 1990s the planners of the Tendered Bus Unit, which administers subsidised bus routes, had not a jot of public accountability or control and were thoroughly remote.
Immediately the Tory Party won the General Election in April 1992, albeit with a much-reduced majority, they began preparations to bring London into line with the rest of the country. We had campaigned hard before the election to alert
people to the dangers and, afterwards, we redoubled our efforts. The TGWU alone campaigned for an enquiry into London's bus transport by Parliament and our campaign hit hard - for example, a million leaflets were distributed in a very short period of time. The House of Commons Transport Select Committee, which subsequently conducted such an investigation - even with its Conservative majority - rejected Government claims that bus deregulation would benefit London. It considered that the experience of deregulation in the provinces was "patchy at best" and thought the unique characteristics of London would make its introduction in the capital "a leap in the dark".
Few people could be found in support of the proposals to deregulate London, other than LBL's own management. Even the sixteen private operators who had won tendered routes from LBL were against the notion. The prospect of a damaging result in London's borough elections in May frightened the government, which announced in November that deregulation would not be introduced in London until after a new general election. But London still experienced more of their social engineering. 60% of London's bus market was controlled by LBL as a result of its historic monopoly. The government, using the 1984 LRT Act which gave it carte blanche to do as it wished in London contracted this out to the existing eleven subsidiaries and began the process to privatise these by the end of 1994. The remaining 40% of the network was operated by a range of private companies which had grown over the previous ten years, through the tendering system administered by the government-owned LRT. That system of tendering saw operators bidding on the basis of operating costs. A new system of net cost tendering was then introduced, whereby bids were based upon projected revenue as well as costs. This is supposedly to give operators a financial incentive to improve efficiency. The main reason we found it possible to inhibit the worst aims of the government was the dreadful experience deregulation and privatisation had been outside of London.
In preparation for privatisation, at the beginning of 1993, the LBL subsidiaries imposed wages reductions of around 12%-25%. A bribe of £3,000 – opposed by the union - was given to each employee if they would accept the cut was actually imposed upon them, even so most companies experienced a series of one day strikes which saw the bulk of the cuts restored. The full costs of tendering in London are rarely properly considered, LBL had to pay £60 million pounds in contractual severance costs to staff as a result of loosing its own routes in the tendering process. Then there are the unemployment and other social security costs to take into account. 85% of the savings in public subsidy achieved by London Transport can be attributed to staff related costs arising from deteriorated terms and conditions of employment. LT requires minimal subsidy from the state now. Most normal contracted routes (295 of them) make a profit, which is used to cross-subsidise loss making routes (205 of these) and the operating costs of LT’s bus arm. The total cost of both profitable and unprofitable routes at £518 million is more than matched by total fare revenue at £586. In consequence, London Transport’s subsidy to bus services has dropped from over £250 million in 1984/5 (at 1988/7 prices) to no less than a mere £12 million in 1998/9.
EXPERIMENTS IN EMPLOYEE OWNERSHIP.
When that privatisation process began, management buyouts were the most popular option. However two companies, Peoples' Provincial on the South Coast and Luton and District in the Midlands were bought outright by the employees. This stimulated interest in succeeding sell-offs, especially in the municipal and metropolitan companies. As employee buyouts - or Employee Share Ownership Plans (ESOPs) - developed, lessons were learned and the mechanism, of had originally begun as a tax relief mechanism, was adapted in the hope of enabling share ownership to mean real power. In some companies, however, this was more of a reality than in others and the initiative floundered in the face of growing monopolisation of the industry.
ESOPs are companies where the employees indirectly own shares, through a trust, usually called an Employee Benefit Trust (EBT). It is possible to structure a democratic ESOP with some aspects of a co-operative, such as one-person one vote. Such a company could be considered an ECOM - meaning Employee Common Ownership, rather like a co-operative. ESOPs however are firstly a tax-favoured financing instrument and are not well designed as a vehicle for ownership and control by employees. The union adopted a policy of permitting local negotiators to pursue ESOPs as short-term tactic to avoid aggressive take-overs by outsiders who might be inclined to asset strip and to de-recognise us or radically devalue our local agreements. Hence great care and considerable time and expertise was needed to ensure, in the specific condition of the company in question that maximum employee and union interface and control applied. To avoid subsequent disputed sell on after privatisation to an ESOP, shares were placed in Employee Benefit Trusts, keeping shares inside the workforce as it was constituted at any one time. Trustees need to be appointed to actually vote the shares in the EBT. If the ESOP with a bank loan buys the shares, then a battle to ensure that the trustees are appointed by the workforce, and are responsible to them, may occur. Naturally, the honesty and integrity of the trustees is critical and may be a weak spot in the whole concept. Maintaining the role of the union as distinct from management is also a great problem.
Depending upon the scheme, individual employees began to gain voting shares after a number of years, as company repayments to the bank paid off the loan. In some companies the ESOP element was not be a majority. It is only when the EBT controls the majority of the company that employees will be treated as owners. In some companies this was achieved from day one by the political will of the selling authority and the favourable financial circumstances. Some employees were given shares at no cost to themselves as a condition of the sale.
At the height of the ESOP experiment, about 24 bus companies became involved, covering about 20,000 employees. Various degrees of employee ownership were been created, with differing levels of management participation. Taybus, in Scotland was 100% employee owned, whereas Yorkshire Rider was 51% management, 49% employee owned. Strathclyde Buses in Glasgow was 80% employee, 20% management owned.
The union did not anticipate a long-term future for ESOPs and this prediction rapidly began to come true. Most companies saw employees viewing their ESOP as merely a benefit plan, invested in the company's securities. Few ESOPs began to evolve towards a more democratic model. Our view was that there are valid reasons to query ESOPs as a long-term strategy for a major assault on the power of capital, the monopolies and transnational corporations, in favour of working people. But some circumstances favoured them, as a tactical recourse, as a last resort in defence of negotiated wages and conditions, against the threats of take-over, break-up and asset-stripping.
The early management buy-outs were secured against huge loans at high interest rates - say 16-20%, compared to the usual bank rate of 10-12%. The company’s assets (buses, depots, bus stations and offices) would secure these. The real owners ultimately were those that handled or loaned the finance. Security Pacific, Standard Chartered, Lombard North Central, National Westminster, Norwich Union, Coopers and Lybrand, Hill Samuel, and merchant bankers generally acting for others, by holding investment portfolios, emerged as the real owners. Little changed for our members in terms of their relationship with their management who had more in common with bankers than bus workers.
BUS UNIONISATION – STILL A FORCE TO BE RECKONED WITH
To turn now to the main bus workers’ union and its experience in this process. The Transport and General Workers Union (TGWU) is a 850,000 strong general union with particular interests in transport. It has four semi-autonomous sectors which specialise in particular industries. (Transport, Manufacturing, Services and Food.) The Transport Sector has 214,000 members in four trade groups, or sub-sections. (Passenger Services, Road Transport – Commercial Vehicles, Civil Aviation and Dockes & Waterways.) The Passenger Services Group is 80,000 strong and brings together all bus, coach, tram, light rail and taxi workers. A white collar and an engineering section of the T&G has a combined membership of 6,000 bus workers, bringing the T&G’s total to just over 86,000. It is the main union for the sector. There are three other unions involved in the driving or maintenance side of bus operations and two involved in `white collar’ activities. (RMT, AEEU, GMB, Unison and TSSA.) The combined membership of the five is around 5,000. The industry is still therefore heavily unionised, with typically 99% or more of the driving and engineering staff organised by the T&G.
Contrary to the expectations of pundits on privatisation, the union did not see its level of organisation eroded.
The breakdown of national bargaining from 1986 to 1989 ended from fifty to seventy years of centralised bargaining. We had five sets of national negotiations. There was one for London, one for Scotland, one for local authority owned companies in small towns. In the seven big cities outside London, which had historically been part of the local authority arrangements, the metropolitan county council companies from the their creation in the early 1970s bargained locally but tended to follow each others’ settlements closely. There was a national agreement for the National Bus Company - which tended to operate the rural and suburban routes. This was also followed by the handful of medium sized private companies operating in the bus market. (The huge number of tiny coaching firms, operating tours and hire work were largely un-unionised and were not party to any bargaining arrangements. A few dozen private companies in the quality end of this market were organised by the T&G and had their own local bargaining.) All the national bargaining has gone, the last being the centralised London bargaining which finished in 1989, when LBL was broken into eleven subsidiaries. There are now up to two hundred significant localised bargaining units, making it very difficult to co-ordinate our work.
Indeed, the key word for us now is co-ordination. The role of the union nationally was no longer to negotiate the national agreements, but to link up the activities of local bargainers and provide them with services. Campaigning work, propaganda and research material, press and media activity, lobbying of entrepreneurs, financiers, ministers and politicians - all these are facets of work became priorities, which were once marginal.
MONOPOLISATION AND THE CREATION OF THE CONGLOMERATES
The industry, outside of London immediately following deregulation and privatisation, had become characterised by a large number of localised companies. Before the privatisation process there had been the National Bus Company (NBC) which ran services in the sub-urban and rural area of England and Wales, the Scottish Bus Group – a similar operator- and London Bus all in the hands of the state. Local authorities owned the operations in the six large metropolitan areas of Britain and over 50 local councils owned their own local operator. NBC was the first to be sold off from 1987.
The stated aim of privatisation was to spread ownership and create competition. On both counts the Tory government failed miserably, if indeed this was the real object and not an ideological commitment to the need to extend capital enhancing activity. In truth, a classic depiction of the modus operandi of capitalism has revealed itself before our very eyes. Private monopoly immediately began to replace public monopoly. Most of the management buy-outs were sold on subsequently to burgeoning monopolies. Four such big monopolies have emerged, FirstGroup, Stagecoach, Arriva and National Express Group. About three quarters of the bus market is controlled by these four companies, whose growth has been almost exponential since the sought listing on the stock exchange from 1993.
These conglomerates of formerly privately owned smaller denationalised firms were acquiring others literally by the month in the early 1990s. Only 17 publicly owned companies remain on the mainland of Britain in the year 2000. All but two of these are small operations, typically with only a couple of hundred buses each. (Northern Ireland, the Isle of Man and the Channel Islands being the only territories with a measure of devolution in this period escaped privatisation.) Even though the Tory government shied away from using the law to force the remaining councils to sell, many could not stand the competitive heat and voluntarily liquidated or sold to the monopolies.
Since 1987, Stagecoach has expanded from owning one other company and a total turnover of fifteen million pounds to sixteen UK subsidiaries (many of its purchases were absorbed into these). It has operations in the USA, Portugal, New Zealand and China, having sold businesses in Sweden Canada, Malawi and Kenya.
The four big conglomerates are now expanding outside of Britain and have also diversified into main line railway operations and ownership of regionally based airports. There are half a dozen similar but smaller and regionally focused conglomerates
Competing at the margins with these are scores small companies with a fleet of perhaps one or two dozen buses. Many of these are now being bought up by the big bus combines. Tiny companies with one or two buses just don't last the pace and are quickly taken over or go out of business.
AN INTERNATIONAL MODEL?
Is this experience relevant to other countries? After all the geography, demography and economy of Britain is very different from many states. However, there are other experiences. Deregulation and privatisation were actually pioneered by aggressive right-wing regimes in Argentina, Bolivia and above all in Chile. Bus operations in Chile were totally deregulated in 1979. This is the only example in the world where access to the bus market was totally unrestrained. Objective analyses of this experience draw the simple conclusion that the impact of deregulation has been almost exactly the opposite of what was expected: fares have risen and the diversity of services has been reduced. Deregulation in Chile produced an increase in fares that almost tripled in REAL terms, whilst boardings dropped by 25%. The explanation for this is that with the removal of government control, the true state of affairs is revealed - competition does not really exist in bus operations and it cannot be invented. Take away state control and a new element of control develops a cartel.
In the late 1990s, in Britain, there arose demands from the bus combines that the quality of entrants in to the market be raised significantly. In the case of Chile, cartelisation arose out of the creation of route associations of the predominant form of operator, the single person bus operator. In the case of Britain, the cartel emerged from a multi-national monopoly. Either way, we simply exchange public for private monopoly and the passenger and the workers pay the price!
Britain's experience and the Latin American experiments, which inspired right wing fanatics in our country, are the only real examples of bus privatisation and deregulation. In consequence, governments all over the world are fascinated with the results. None however have copied anything like our model. Many, however have erroneously looked at London's experience as a means of minimising the state's costs.
It is clear that these matters are rooted in a global phenomenon. All over the world privatisation has been really all about maximising inducements to private capital accumulation. Economic globalisation has been the driving force of privatisation, a process initiated and fuelled by a crisis in confidence in currencies. For the last quarter of the 20th century we lived through a world wide recession, a climate in which each currency has to find its own level. Three quarters or more of the world's economy is controlled by 500 corporations. The less developed countries found the World Bank pushing a panacea crafted for the northern hemisphere, which may not be suited to its origins, but makes utter nonsense when applied to the developing world and the so-called transition economies. The World Bank was established ostensibly to borrow the savings of rich nations and lend them to poorer ones. In fact, it has done little to recycle surpluses to deficit nations. World Bank assistance has demanded the imposition of Structural Adjustment Programmes, which are based upon the "trickle down" theory that wealth is generated at the top and when in surplus filters down to aid the poor. The truth is that the reverse occurred.
State regulation in each nation state represents an obstacle to globally integrated capitalism. Public sector activities are supposedly vulnerable to pressures which increase labour costs. Private industry resents the "waste" and the example of organisation which is given to their own labour, by public sector trade unions. Hence the resolve to eliminate the activity of the state in all areas possible. In the transport sphere, this means turning buses, coaches, trams, trains, boats and planes into markets for profit.
International privatisation experts well-versed in this mania have arguably been the only real growth industry, and it is a lucrative activity - daily advice fees of £3,000 are quite normal! There were six big international accountancy firms behind most of it (Ernst and Young, Cooper and Lybrand, Price Waterhouse, Peat Marwick.) There is a very small group of very powerful controllers of capital, Rothchilds, Credit Suiise, First Boston, Morgan Grenfall, SG Warburg, Barclays de Zoete. in this very elite activity. Nearly all of these have been themselves victims of international cartelisation in capital transfer activity.
One thing they were all good at is under-pricing companies at the point of privatisation, now a thoroughly routine approach. Around 8,000 companies world wide have been sold by governments around the world. In less developed countries this process has become an avalanche of divestment of publicly held capital. Poorer nations are forced down this road, since they cannot compete with the economies of scale which transnational capitalisation brings. But there is a price to pay. Servicing the debt becomes all, servicing the people comes a very poor second. In Chile, the state first brutalised the population before it privatised, in others inducements are offered. But the aim is the same.
The watchword of the New Right is "choice". But choice means what people can pay for, not a matter of deciding over the options. Cost cutting inhibits choice, when it becomes a matter of what people can pay for. Choice should be an enhancement of universal provision, not an alternative to it. The theory behind privatisation suggests that the free market inevitably knows best and the state reduces innovation and initiative. Whilst it is clearer that the market as a mechanism - which in any case pre-dates capitalism - does tend to impose financial disciplines which lead to savings, it is by no means a proven case that private ownership does this. The World Bank denied the evidence of the 1980s and 1990s by stipulating that "under all market and country conditions" positive gains arise from privatisation. This is patent nonsense, whether here in Britain or in any other country.