The Transport Act 1985 (“the 1985 Act”) deregulated bus services in the UK, moving from council-run buses to an open commercial market via a transitional period. In that transitional period, the bus services councils provided were moved over to companies owned by them, which were then largely sold off. In Scotland, only one of those companies remains in existence today - Lothian Buses Limited. Otherwise, section 66 of the 1985 Act prevents a council from providing local services themselves (though this does not apply to Islands councils).
However, section 63 of the 1985 Act places a duty on councils to secure the provision of public transport services in order to meet any public transport requirements which they don’t think would otherwise be met by the open commercial market. This includes the provision of subsidies to operators in order to secure a service.
Section 34 of the Transport (Scotland) Act 2019 (“the 2019 Act”) inserts a new section 2A into the Transport (Scotland) Act 2001 (“the 2001 Act”), enabling Local Transport Authorities (LTAs) to provide services for the carriage of passengers by road using vehicles that require a Public Service Vehicle (PSV) operator’s licence to do so. To do this, the LTA must be satisfied that the provision of such services will contribute to the implementation of their relevant general policies (as defined in the 2001 Act). Section 2A is not restrictive in the way LTAs can run their own buses, enabling them to use the power as they see fit within the wider context of their obligations. For example, the LTA may choose to provide services directly, meaning they are the owner of any associated assets (e.g. vehicles), or through an arm’s length external organisation. Under the latter scenario, the LTA can provide bus services through an independent commercial organisation with its own management board where the LTA is the main shareholder but is not involved in the day-to-day running of the buses. This would be broadly similar to the model under which Lothian Buses currently operates.
Section 34 of the 2019 Act has now been commenced and section 2A of the 2001 Act can be used by LTAs for the running of their own bus services.
Section 79 of the 2001 Act, as amended, also provides that the Scottish Ministers may issue guidance in relation to the exercise of the new functions and that LTAs must have regard to any such guidance. The guidance could set out specific matters that LTAs should take into account when considering whether it is appropriate to establish and run local bus services.
Transport Scotland consulted on this between July and October 2021. The majority of respondents to the consultation considered that no additional legislative requirements should be imposed/are required to be set for LTAs on implementing this provision. Rather, respondents said that information on existing duties should be provided that can help LTAs in considering the best path to run their own services.
What this note is and what it isn’t
This note provides information that would be helpful to LTAs in exploring and carrying out this new function. It is, of course, for each LTA to decide on the best approach for their area but this note aims to provide LTAs with information to assist with consideration of this option. As part of this, LTAs may also wish to consider the development of a business case to help inform the decision-making process as they consider the suite of options available to them (which also include Bus Service Improvement Partnerships (BSIPs) and local services franchising, and existing powers to subsidise services).
This information is not intended as a step-by-step guide to the setting up and operation of an LTA run service. There are a wide range of models under which local authorities can use and the paper below provides some past examples relating to Arm’s Length External Organisations used by local authorities.
Interpretation of relevant general policies
In the establishment of an LTA run service, the LTA should consider how this contributes to the implementation of their relevant general policies and delivers the improvements their local area needs. These policies generally relate to improvements of the transport network.
Section 48 of the 2001 Act defines “relevant general policies” as the LTA’s local transport strategy (or regional strategy in the case of SPT) alongside policies formulated by them from time to time under section 63(2)(b) of the 1985 Act (or section 9A(1) of the Transport Act 1968 in the case of SPT). Policies under the 1985 and 1968 Acts are policies for securing the provision of such public passenger transport services as the council considers appropriate to meet any public transport requirements within their area, as well as defining the descriptions of services they propose to secure under this provision.
Relevant general policies are further considered to be any policies formulated by the LTA in accordance with a local transport strategy including any provision set out for partnership working (previously under Quality Partnerships and, upon implementation, to Bus Service Improvement Partnerships) or quality contracts (to be replaced by local services franchising).
PSV licence alternatives – non-commercial
Section 19 or Section 22 permits
Organisations that provide transport on a ‘not-for-profit’ basis can apply for permits under Sections 19 and 22 of the 1985 Act. These permits allow the holder to operate transport services for hire or reward without the need for a full public service vehicle operator’s (PSV ‘O’) licence. Under specified conditions, the drivers of certain vehicles are exempt from the need to have PSV entitlement on their driving licence.
Community transport examples and benefits
Community Transport (CT) provides a critical role in meeting the transport needs of a wide range of groups where conventional transport fails to do so. This may be because there is not a commercial case (even where subsidised) for running a traditional transport service or where the needs of users are such that they cannot easily access conventional transport services.
The Community Transport Association (CTA) defines CT as: “a wide range of transport solutions usually developed to cover a specifically identified transport need, typically run by the voluntary sector for the local community on a not for profit basis”.
Organisations providing CT are varied in both scale and scope. For some, the provision of CT is their only activity, whilst for others, CT is just one part of a much wider remit. In terms of scale, CT providers range from small to large and from those that rely entirely on volunteers to those with large numbers of staff. Relevant categories of CT include:
- Group travel services and door-to-door dial-a-ride services for individuals – CT organisations which provide minibuses to local groups and/or use them to provide transport for their members/people they are aiming to help. Wheels to Work – a CT organisation that provides individuals with leased vehicles (such as mopeds or bicycles) or assists them with their transport needs by other means.
- Contracted 'assisted travel' services - including home-to-school, non-emergency patient and/or social services day care transport which is operated on a not for profit basis.
- Demand-responsive or fixed-route transport services – which operate where commercial bus routes, even when subsidised, are not viable.
Read examples of community transport across Scotland.
Section 63 of the 1985 Act places a duty on councils to secure the provision of public transport services in order to meet any public transport requirements which they don’t think would otherwise be met by the open commercial market. This includes the provision of subsidies to operators in order to secure a service. Services are tendered and let to commercial operators in return for payment from the council.
Registering for a PSV licence
You need a public service vehicle (PSV) operator’s licence to:
- operate a vehicle for hire or reward (payment or payment in kind) that can carry 9 or more passengers
- operate a smaller vehicle carrying passengers and charging separate fares for the journey
Apply for a vehicle operator licence
Apply for PSV (Public Service Vehicle) operator licences
Run a local bus service
Types of PSV licence
There are 4 types of PSV operator licences, plus special licensing rules in London.
Standard licence - national operations only
You can only operate in Great Britain if you apply for a standard licence. Most full-time commercial operators use standard licences.
Standard licence - national and international operations
This kind of licence lets you take passengers abroad as well as within Great Britain.
You can only apply for a restricted licence for small-scale operations. They allow you to use 1 or 2 vehicles, and neither can carry more than 8 passengers.
You can carry up to 16 passengers in either vehicle if you do not use it as part of a passenger transport business, or you’re operating your vehicles as a side-line and not as your main job.
Special restricted licence
Special restricted licences are used to operate a licensed taxi on a local service. You can only apply for this licence if you’re a licensed taxi operator. A local service is one where:
- stops are no more than 24.15 kilometres (15 miles) apart
- at least one stop is within the area of the district council that issued your taxi or private hire vehicle (PHV) licence
You can apply for a PSV operator’s licence online.
If you’re applying for a standard licence, you’ll be asked to nominate a transport manager as part of your application. You’ll usually get a decision within 7 weeks.
Examples of publicly owned bus companies in the UK
In addition to Lothian Buses mentioned previously, it might be useful to know that there are a range of publicly owned bus companies in the UK and it might be helpful to learn from their experience in deciding whether to establish an LTA run service. These include:
Establishing and operating a service - Relevant resources
Public Finance Manual
The Scottish Public Finance Manual (SPFM) is issued by the Scottish Ministers to provide guidance on the proper handling and reporting of public funds.
A key component of the above are the subsidy control rules (EU State aid rules). This applies to subsidies provided by any-body to which the Scottish Public Finance Manual (SPFM) is directly applicable. Subsidy control should be considered as early as possible in the policy development stage.
The Department for Business, Energy and Industrial Strategy have issued relevant guidance on public authority compliance with the duties.
The 2019 Act does not provide LTAs with protection against competition should a competitor run against them. Any proposed commercial LTA run service would need to make an entry into the market just as any commercial operator would. The Competition and Markets Authority (CMA) is the competition regulator for the UK. Relevant CMA duties include:
- investigating mergers between organisations, to make sure they don’t reduce competition
- investigating entire markets if they think there are competition or consumer problems
- taking action against businesses and individuals that take part in cartels or anti-competitive behaviour
- encouraging government and other regulators to use competition effectively on behalf of consumers
Any LTA run service operating for commercial purposes would need to make a market entry compliant with competition law and associated guidance.
These may contain some helpful information in relation to finance that can help inform the consideration of establishing a local authority run service: