OFT steps in over local bus sector

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The local bus sector is to be investigated over concerns that lack of competition is leading to higher fares for passengers, the Office of Fair Trading (OFT) announced today.

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.