The Economic Value of Bus Subsidy

Abstract

Bus networks carry 4.7 billion passenger trips a year in England, around three times the total number of trips made on national rail. But although buses are the backbone of public transport in large urban areas, they are often ignored in national policy debates, which tend to focus on higher profile infrastructure investment. In this paper we draw attention to the economic value of public funding for bus networks by applying a comprehensive cost benefit analysis framework to estimate the effect of three revenue-based bus policy measures in the context of the six English metropolitan areas: free travel for elderly and disabled people, fuel subsidy and subsidy of non-commercial bus services.We find that all three types of measure can have a Benefit Cost Ratio (BCR) in excess of 1. In the case of fuel subsidy and subsidy for non-commercial peak services this can be in excess of 3, which is higher than for many infrastructure schemes. We also find that a significant proportion of benefits accrues to other road users in the form of reduced congestion. This work addresses an important gap in the empirical evidence base and also serves to highlight to decision makers the mechanisms through which revenue funding generates social and economic benefits. We show, in particular, that bus subsidies can be a highly effective distributional tool in addition to generating considerable transport benefits. Our framework should be easily transferable and could therefore be of value to other researchers and practitioners.