Bus franchise cost error

Taking the North East’s buses under public control will cost over £100 million more than first anticipated, writes Local Democracy Reporter, Daniel Holland.

Auditors found a “discrepancy” in the financial modelling on mayor Kim McGuinness’ flagship plans to strip private companies of their power over bus fares, routes, and timetables, on which a major public consultation was launched last week.

An independent assurance report from chartered accountants Grant Thornton warned the North East mayoral authority that its bus franchising vision had contained a financial error which excluded staffing costs totalling £104.9 million over 30 years.

However, the auditors said that the additional costs did not change their conclusion that the scheme is affordable.

Transport bosses believe that reversing the deregulation of the 1980s would make bus fares 22% cheaper after 10 years and lead to 15.7 million extra journeys annually by 2059 than would be the case if private operators were left in control.

Overall, it is now estimated that investment of £113 million of public money would need to be delivered over the first decade of a bus franchising system, rising to  £437.8 million over 30 years.

That is because of “significant interventions” promised by the mayor, such as capping fare increases at inflation levels and not cutting the size of the bus network for at least 10 years.

A spokesperson for the mayoral authority told the Local Democracy Reporting Service that the franchising model, which would mirror the Bee Network introduced in Greater Manchester by Andy Burnham, is “financially viable, provides better value for money and is the best option for the future of the region’s bus network”.

They described the extra staffing costs as merely a “small fraction” of the vast sums involved in the franchising calculations.

The mayor’s office added: “The Independent Assurance Report agrees the total investment needed for franchising remains affordable and within the available funding envelope of the Integrated Settlement, alongside other potential funding options identified in the analysis. This includes all additional staffing costs required to deliver franchising, which on their own represent a small fraction of the overall cost of the whole bus service.”

Overall, the total cost of running the region’s buses is expected to top £12 billion over a 30-year period, with the network producing £11.7 billion of income in that time. 

The issue of the extra staffing costs was raised by Newcastle Lib Dem councillor Greg Stone, who has asked mayoral authority bosses for assurance that “appropriate scrutiny” had been given to the auditors’ findings.

He told the Local Democracy Reporting Service: “I have sought clarification from the monitoring officer over an apparent miscalculation of the staffing costs associated with the Mayor’s plans for the administration of the franchised bus network identified by an independent assessment of the Mayor’s plans. I have had an initial indication of the circumstances and look forward to the opportunity for this to be further discussed at a forthcoming scrutiny meeting. These plans are significant and it will be important to ensure projected ridership and financial arrangements are suitably scrutinised.”

At a meeting of the mayoral authority’s audit and standards committee on Tuesday, chair Dave Willis suggested that a workshop is held later this year at which the bus franchising plans can be scrutinised in detail.

Should the mayor’s plan proceed as planned, a first set of her Angel Network buses would start operating in September 2029 and more would follow 12 and 24 months later.

Ms McGuinness has argued that the current state of the North East’s buses is “not viable” and attacked operators for running a service “that does not deliver to the people of the region”, while taking public subsidies of more than £120 million a year.