Institute for Public Policy Research (IPPR)
Report Part Title: INVEST
Report Title: EN ROUTE TO RENEWAL
Report Subtitle: DELIVERING BETTER, GREENER BUSES
Report Author(s): Marcus Johns and Maya Singer Hobbs
Published by: Institute for Public Policy Research (IPPR) (2025)
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5.
INVEST
There are significant benefits to investing in buses, from the growth
opportunity and supporting domestic manufacturing (Gasperin and Narayanan
2025) to reducing transport emissions and ensuring everyone can access the jobs
and opportunities they need. However, the current funding model for buses across
England is complex, competitive, unstable and short-term, acting as a barrier
to many of these benefits. To grow bus use and achieve modal shift targets, bus
networks need to be reliable, affordable, and in place long enough for people to
change their habits. Funding design should be commensurate with this challenge
and the principles outlined above.
Despite a fragmented picture, the return on investment for buses and bus
infrastructure is very good; in addition to the analysis above, DfT’s own analysis
finds that major schemes have a return of £4 from every £1 invested (DfT 2016).
In 2023, the government spent over £2.3 billion in revenue on bus services (DfT
2024a), allocated through the various channels in figure 5.1. While the October 2024
budget prevented immediate decline to existing services (Johns and Gerritsen 2025),5
it effectively ensured ‘network stabilisation’ in a time of skyrocketing operating
costs, rather than enabling transport growth and innovation, with the forthcoming
spending review set to resolve several remaining funding issues.
LTAs and bus operators continue to receive funding and grants from central
government through several different funding streams. Bus operators and LTAs
receive funding from fare-box receipts, but also from a convoluted array of
different government pots of funding. Both DfT and the Ministry for Housing
Communities and Local Government (MHCLG) fund local authorities through
various schemes,6 while DfT also directly subsidises bus operators through the
Bus Service Operators Grant (BSOG). Some local authorities have also adopted
other approaches to raising revenue to fund local public transport, most notably
Nottingham, which uses a Workplace Parking Levy to subsidise bus and tram
services in the city.
5 In the October 2024 budget, the Bus Service Improvement Plan (BSIP), Bus Service Operator Grant (BSOG)
and national fare cap funding streams were all extended (albeit with the fare cap raised from £2 to £3).
6 The English National Travel Concessionary Scheme (ENTCS) covers concessionary fares, most commonly
for people over 65, disabled people and children. Bus Service Improvement Plans (BSIP) are designed to
deliver improvements to the bus network, but in practice are often used to maintain existing routes, the
ZEBRA scheme supports adoption of ZEBs, and there are a combination of local transport funds and the
local government settlement from MHCLG which can all be spent on public transport.
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FIGURE 5.1: BUS FUNDING IN ENGLAND IS COMPLEX, FRAGMENTED AND INEFFICIENT
Bus funding flows in England
BSOG funding, bus
subsidies and HMT
concessionary fares
Funding to support
DfT local government
City region sustainable MHCLG
transport settlements
(£8.8bn, March 2023) Local government settlement
October budget or integrated settlement
announcements: (non-ringfenced funding,
BSIP (£670m), Zebra but some LAs will spend on
(£129m, Sept 2023) transport. Of the settlement,
~£3.6m was spent on bus
Other forms of services in 2024/25)
Local authorities/local
revenue, for transport authorities
example S106
agreements or English national
parking fees BSOG paid to Travel
concessionary concession
operators by travel scheme
local authorities. authorities
(ENCTS)
Funding for
supported
services
Tax
BSOG paid directly from Bus operators
DfT to operators. Fare cap
(£151m) announced in
October 2024 budget
Fare box
Source: Authors’ analysis
Not only is the system complex, but it has operated on short-term horizons
for a long period of time. Short-term funding models disincentivise capacity
building and longer-term investment, both crucial to improving bus services.
Multiple funding streams also result in significant reporting requirements and
various conditions, straining local authorities that are already suffering from
constrained resources and capacity.
“[There’s] a lot of scrambling with funding pots and extensions
– and it’s not been very useful to live in the short-term cycles. “
LTA interviewee
“[It has been] difficult aligning various funding streams and managing
financial pressures on local authorities. We need longer-term funding
models, and not just ‘passing the financial buck’ down to local places
from central government, lacking in knowledge on how much it costs to
run a bus network, [when we] are very revenue poor. [We are] keen for
funding to be one pot that can be used over various time lengths and
for funded statutory services.”
LTA interviewee
IPPR North | En route to renewal Delivering better, greener buses 31
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The knock-on effects of the current funding arrangements are wide-ranging,
and our research finds they include:
• short-termism, deprioritising long-term improvements over short-term
costs, undermining strategic planning across public transport networks and
integration with policy objectives and matters like spatial planning. This is
driven by continued uncertainty among operators and LTAs due to potential
variability in both government funding and fare-box receipts.
• inefficient use of resources by LTAs, both in terms of bus routes served and
staff time
• slower decarbonisation and transition to ZEBs due to the stop-start nature
of funding cycles
• high fares for passengers, with knock-on effects on patronage.
This inefficient and constrained fiscal environment has resulted in LTAs making
decisions around trade-offs between social, economic and environmental
objectives of their bus networks.
The franchising process, alongside our proposed TTA model, offers a unique
opportunity to reform the funding settlements to LTAs in parallel. The new
funding settlement can also be aligned to a national bus strategy and the
INTS, as proposed in chapter 2, ensuring funding is allocated in a more
strategically coherent approach.
CONSOLIDATE AND DEVOLVE EXISTING FUNDING
Consolidating this funding into simplified, long-term funding for buses through
these reforms would support LTAs to make strategic decisions and deliver bus
service improvements and growth, rather than simply preventing decline of
existing networks.
Our analysis suggests that half of all operator revenue in England (outside
London) is public subsidy, and devolving the abovementioned £2.3 billion
would be a significant shift compared to previously inefficient allocation
that has not targeted resources where they are needed most.
Recommendation: Funding for buses, and public transport broadly, should
be delivered through five-year, single-pot settlements, administered through
TTAs. The settlement should increase up to 2030 to reflect expanding capacity,
and should embed the considerations outlined below.
This approach should consolidate and devolve existing funding for buses, and
be administered through upgraded TTAs. It should include the English National
Concessionary Travel Scheme (ENCTS) and BSOG funding being devolved. The five-
year funding cycle should be aligned with updates to the INTS and LTPs in future.
We recommend devolving this funding through a fair and transparent funding
formula. In initial setup, there should be a commitment that no place will be
worse off in per capita allocations than it is currently. The formula should
embed considerations of:
• Bus usage, for example passenger numbers, bus miles and ENCTS demand
• Need, including population, rurality, socially necessary local service
provision and deprivation
• Growth ambition, incorporating the latent productive potential of places,
such as a productivity potential index (see BBBC 2024)7 or the productivity
gap between the strategic authority area and the national average. It should
7 ie a measure of productivity that could be unlocked by better transport links.
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also account for public transport growth metrics in the Local Transport Plan,
suitably justified through a clear methodology and an outcomes or delivery
framework, like a modal share target for bus travel in that area or the
quantitative estimate of the carbon impact of each LTP delivered in full, as is
currently set out in LTPs.
We recommend devolving funding through a stepped approach aligned with
the Devolution Framework, set out in the devolution white paper. This approach
would reflect existing funding settlements for different strategic authorities and is
summarised in table 5.1. The emerging MCA outcomes framework models in place,
alongside our proposed alignment and strengthening of local transport duties above,
should provide sufficient confidence to DfT and HMT for a highly devolved model,
providing flexible funding for LTAs to deliver locally.
TABLE 5.1: SUMMARY FUNDING APPROACH FOR DIFFERENT TYPES OF
STRATEGIC AUTHORITIES
Foundation strategic Mayoral strategic Established mayoral
authorities authorities strategic authorities
Bus funding via a
Funding Multi-year bus Funding via integrated
multi-year local transport
approach: funding pot settlements
funding pot
Source: Authors’ analysis
EXPAND REVENUE SUPPORT FOR BUSES
The funding reforms proposed above would deploy existing funding better. But
existing funding alone will not be sufficient to reverse the long-term declines in
bus services. We therefore call for an uplift to bus funding to deliver widespread
improvement and enhancements of the network.
Funding should go beyond simply maintaining services at current standards,
and should correspond to modal shift targets. To deliver modal shift from car
to bus, funding for bus services will need to increase, alongside investments in
infrastructure such as bus priority lanes and other behaviour change interventions
(KPMG 2017).
Figure 5.2 illustrates a potential range of bus kilometres and subsidy required of
the modal shift targets discussed in the previous chapter. We calculate projected
increases in bus kilometres and corresponding revenue funding required to deliver
these outcomes, with the medium modal shift target resulting in a return to 2010
levels of bus provision by 2030, and increasing thereafter. This corresponds to
a requirement of £3.1 billion in revenue funding by 2030. There is likely to be a
requirement for a larger bus fleet as patronage increases due to modal shift.
This will have implications for the modelling in the previous chapter.
IPPR North | En route to renewal Delivering better, greener buses 33
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FIGURE 5.2: THE SCALE OF MODAL SHIFT AMBITION HAS IMPLICATIONS FOR THE SCALE OF
FUNDING REQUIRED AND THE INCREASE IN BUS KILOMETRES DRIVEN OVER TIME
Historic and modelled future funding and bus kilometres in line with the above modal shift
targets 2000-2050
5.0 7
Baseline bus km,
England, billions
4.5
6 Low modal shift,
4.0 bus km
Medium modal
3.5 5
shift, bus km
Revenue spend, £bn
High modal shift,
Bus km, billions
3.0 bus km
4
2.5 Historical gov’t
subsidy (revenue)
3
2.0 Low modal shift,
funding
1.5 2 Medium modal
shift, funding
1.0
1 High modal shift,
0.5 funding
0 0
2000 2010 2020 2030 2040 2050
Sources: Authors’ analysis of DfT (2024a), DfT (2024c), DfT (2021), DfT (2022), DfT (2024d). See Appendix
for methodology.
Recommendation: We recommend increasing the revenue envelope in
line with the modal shift ambitions set out. We estimate this would increase
revenue funding for buses from £2.4 billion to £3.1 billion by 2030, equating to
just under 18 per cent of today’s transport revenue spend, or £54 per person.
This pot of transport spending could also be increased through mechanisms
including further fiscal devolution to strategic authorities, reforms to road
taxation (such as Allen et al 2024 propose), or reallocating funding for the
fuel duty freeze to sustainable transport investment (Quilter-Pinner et al
2024) including buses.
Over the longer term, patronage growth, savings from infrastructure improvements
and reduced congestion, and the success of new governance arrangements, could
enhance bus network viability, allowing central revenue support to be reviewed
without damaging services. However, as a vital public service and good, buses
should always secure appropriate funding support, including concessions and
supporting socially necessary local services. We have previously argued for the
reallocation of funding for large new road projects to be redirected to public
transport capital spending (Singer Hobbs 2024).
This is particularly relevant in England given the weakness of our local
government (including upcoming strategic authorities) in terms of revenue
raising fiscal powers when compared to comparable nations (Johns and Hutt
2023), which permits greater subnational spending on local transport. This
leaves local transport in England more reliant on central government support
and fare-box income than international peers (see Rodrigues 2022, Moody’s
2022, for instance).
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INCENTIVISE THE TRANSITION TO FRANCHISING
Although the newly streamlined process outlined in the Buses Bill should simplify
the process and reduce some costs for local authorities, they will still incur one-
off transition costs. The transition to franchising is estimated to have cost Greater
Manchester £78.40 per capita, Liverpool City Region estimates it will cost around
£66 per person, and West Yorkshire’s calculations suggest it will be £44 per person.
The transition period from a deregulated bus sector towards re-regulation is likely
to result in additional costs for combined and local authorities.
“Specific franchising support funds could help mitigate risks associated
with transitioning to franchising.”
LTA interviewee
Central government should support local places with these costs, not least
because deregulation was imposed on local areas by central government,
and they had no choice but to privatise their local assets in the late 1980s.
Recommendation: Government should create a Franchise Transition Fund of
£580 million, supporting transport authorities to undertake the franchising
process consistent with these costs and reimbursing prior undertakings.
The Franchise Transition Fund is a capital fund, limited to a five-year period, as
part of the initial incentivisation to reform and improve local buses. Considering
example costs of the transition to franchising (as explored in Johns & Gerritsen
2025), we suggest a one-time pot of £580 million is appropriate (see appendix).
Transport authorities should also acquire depots as part of this transition, which
could require in order of an estimated £1.4 billion of upfront costs in addition.
However, these are assets then owned by LTAs and so existing funding streams,
prudential borrowing and bespoke support could enable them to be acquired,
potentially through the National Bus Company. Franchising authorities might
require government support to address barriers to this, for example through
enhanced Compulsory Purchase Order (CPO) powers.
INVEST IN LOCAL INFRASTRUCTURE TO HELP BUSES RUN WELL
Delivering thriving bus networks will rely on more than just investment in the
buses themselves. Congestion can have a significant impact on bus networks,
with decreases in operating speeds due to congestion having a knock-on effect on
operating costs (Begg 2016). Some operators respond to this through increasing
fares, which has a knock-on impact on patronage.
The capital envelope for buses should be commensurate with the strategic
principles described above and in particular bus priority infrastructure, a green
and accessible fleet, and high-quality bus stops and interchanges. This requires
investment from national government and recognition of the importance in
prioritising these measures to ensure the success of expanded bus networks,
delivering services that run on time and meet local need.
Our proposed strengthening of LTAs to TTAs and funding model would enhance
the ability to borrow prudently at the local level for capital investment, given it
would provide larger and longer-term revenues, and a wider asset base through
ownership of bus fleets and infrastructure. This would depend on HMT agreeing
debt caps with strategic authorities, accounting for such reforms through the
extension of English devolution that is ongoing.
Recommendation: DfT should make a 10-year commitment to the capital
investments required to deliver better bus networks, informed by the INTS.
This should include funding for bus priority schemes, rural transport hubs
and others.
IPPR North | En route to renewal Delivering better, greener buses 35
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Previous analysis suggests this requires total capital funding of up to £10 billion, as
derived from BSIPs (Frost et al 2023, Allen et al 2024, CBT 2022). We recognise that
given the fiscal priorities of the Government, this is a significant ask, even over a
decade. Yet planned road investment is around £27 billion (CBT 2022), and it has
been estimated that up to £10.6 billion could be saved by reprioritising spending
away from the most expensive and carbon intensive RIS2 schemes in the current
investment period (Allen et al 2024). In the absence of fiscal devolution, the need to
rebuild local bus networks and make a success of franchising will require ongoing
investment from central government.
ACCELERATE FLEET DECARBONISATION WITH INVESTMENT
“Challenges of transitioning to ZEBs include high upfront costs and
the need for better grid connectivity. [It is particularly] difficult for
smaller operators to adopt new technologies and upfront funding
for ZEBs could help.”
Industry interviewee
As established previously, supporting bus operators to electrify their fleet should
form a key component of the franchising process, but support for LTAs to accelerate
fleet decarbonisation in line with the recommendations above will be needed. The
National Bus Company, as previously recommended, could replace ZEBRA funding.
Recommendation: In our interim report (Johns and Gerritsen 2025),
we recommended £2.5 billion additional ZEBRA funding. This should
be used to fund capitalisation of the National Bus Company.
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SUMMARY OF INVESTMENT REQUIRED
Our revenue and capital recommendations are broadly in line with others’
calculations on the level of investment required to deliver a thriving bus network.
Calculations for the TUC by Transport for Quality of Life found that a 10 per cent
modal shift from car to bus (in line with our high modal shift scenario) would cost
£7.5 billion per year in operating costs (Hopkinson 2023), a figure significantly larger
than the £3.6 billion we project for our high modal shift scenario.
TABLE 5.2: OUR PROPOSED BUS FUNDING MODEL AMOUNTS TO LARGER INVESTMENT IN
BUSES OVERALL AND STRONGER CONTROL FOR LTAS OVER FUNDING
Summary of proposed funding environment
Type of funding What How much Comments
Replace BSOG, BSIP, Starting at £2.4 As ridership increases, it is
fare cap and other billion annually hoped that the balance between
Revenue (ongoing
funding streams with (2023 baseline), central government subsidy
support)
one consolidated increasing to £3.1 and fare box will shift towards
funding pot billion in 2030. reducing subsidy over time
£580 million
Management and over five years This transition fund would expire
administrative costs from central after five years
government
Franchising Existing funding streams,
transition fund prudential borrowing, and
Approximately bespoke central government
Depot acquisition
£1.4 billion support (where needed) will
and preparation
in total enable depots to be acquired
by LTAs, who then benefit from
ownership of the asset
A rolling 10-year national capital
Investment in view derived from analysis of
infrastructure £10 billion over LTPs/BSIPs and allocated via
Capital spend
like bus priority 10 years the five-year bus settlements,
measures funded by central and local
government.8
The design of the National
Redirect ZEBRA £2.5 billion by
Bus Company will mean that
funding into the 2030 in central
Decarbonisation after initial seed funding from
National Bus government
government, less overall funding
Company capitalisation
will be required
Source: Authors' analysis
8 In franchised networks, this would also include farebox receipts and additional borrowing against them.
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