Supplementary written evidence submitted by North East Combined Authority (NECA) (BHC0202)

Introduction and Background

1.        On 30th January I provided oral evidence to the Transport Select Committee about my estimate of the current level of funding provided by Government to Councils to cover costs of Concessionary Travel Reimbursement together with the costs to councils of Concessionary Travel in England.  I was asked to provide written evidence supporting my £652 million estimated Concessionary Fares funding gap for 2017/18 and this paper sets out the basis of my estimates.

2.        I was asked to provide evidence to the select committee by the LGA because of my technical analysis of this issue, based on 18 years of tracking changes in funding for concessionary travel as the Treasurer / Chief Finance Officer of Tyne and Wear Passenger Transport Authority and the North East Combined Authority.  In my role as Treasurer/ CFO I had calculated and reported my best estimate of the funding changes each year for these authorities.

3.        With lengthy experience of national Local Government formula funding going back to 1990, I have been a member of the national technical advisory groups on local government funding for many years.  I am currently a member of the national Needs and Distribution Technical Working Group providing advice and evidence to MHCLG to inform the development of a new Fair Funding approach for the future funding of Local Government.  

4.        In September 2018 I presented a detailed report on Concessionary Fare needs and Funding, drawing on my experience and knowledge of this subject.  That detailed report (NR TWG 18/17) is also attached as evidence.  In that report I provided background details and a history of the Concessionary Travel funding, which may be helpful to the Committee. I also provided a chart which illustrated my estimate of the growing concessionary travel funding gap.

5.        I was asked by the LGA to produce that analysis at an England level so that the estimate of the gap in funding for concessionary travel could be updated and based on a more detailed estimate of the changes in funding.  This led to the evidence that I am now presenting.      

Estimated Funding for Concessionary Travel       

6.        There is clear evidence of the amount of money that Parliament approved at a national level for concessionary travel each time there was a change in the Legislation from 2001 to 2008.  However, it is not possible to visibly see the amount of funding provided for each authority as the funding has been merged into different block of funding over the years.   It now forms part of the Settlement Funding Assessment block of funding for ‘Upper Tier’ Services, which includes an element of Revenue Support Grant and an element assumed to be included in the baseline for Business Rates that councils are now retaining.  While some of the funding in this block is visible and can be seen because the funding has been designated by MHCLG as a ‘visible line of funding’, concessionary travel funding has not been reported in this visible way.

7.        It is possible to provide an estimate of the level of funding for concessionary travel funding because of a significant change in funding responsibility in 2011/12, when the responsibility  for funding in Shire areas was transferred from Shire Districts to Shire Counties.   At that time a separate funding formula was established for concessionary travel and money had to be transferred out of the Environment Protection and Cultural Services block while at the same time a specific grant of £224m being provided by Department of Transport was transferred into Formula Funding to help create the new funding block. 

8.        As part of that transfer, DCLG produced a detailed background paper – a spreadsheet which gave a cash value to an adjusted 2010/11 Baseline grant figure for Concessionary Travel of £1,065.959m and the Relative Needs Formula assessment (proportions) to be used in the 2011/12 formula funding model, which in total was  0.01282939498307.  I have attached an extract from the spreadsheet produced by DCLG in 2010 as evidence at Appendix C and have included a summary of the figures in my calculations shown in Appendix A.  I believe that this was the last time that a cash figure for individual local authorities was produced, and then only as a background document.   Since then a proportion was been published for each council up until 2013/14. 

9.        The published information more widely presented in the settlement papers for 2011/12 was the Relative Needs Funding assessment proportions – which show the proportions to be used for each authority as part of the calculation of their Revenue Support Grant.   In my oral evidence I quoted as an example the RNF figure for Nottingham, which was 0.00011441586587 in 2011/12.  In 2013/14 this was reduced to 0.00008477118660.  Without being able to translate this easily into a cash figure this does not appear to be particularly meaningful or transparent.

10.   I produced my estimates of funding for the North East and now for England by using the information published in 2010 and updating it each year for changes in the funding arrangements.  This effectively follows the money through the funding system by adjusting for the percentage annual change to the block in which the funding was included.  This was the best estimate that I could provide for the funding for concessionary travel.

11.   This approach has resulted in an estimated level of national funding for   concessionary travel for 2019/20 of around £431m, which is a considerable reduction on my estimate of funding of £1,195m that should have been in the system at the time of the original 2010/11 settlement, before the transfer of funding responsibilities in 2011/12.  The basis for my estimate of the level of funding in the years to 2019/20 is set out in Appendix A.

12.   This analysis reveals that the level of national funding is estimated to have fallen by around £760m (63%) between 2010/11 (original figure before the funding change in 2011/12) and 2019/20.  The specific additional funding approved by Parliament for the extra costs of statutory concessionary travel changes introduced by Parliament from 2001 to 2008 amounted to £666m.  Although this funding would have increased a little for inflation to 2010/11, it would appear that the cut in funding since 2010/11 is greater that the amount of additional funding approved by Parliament since 2001.  This is likely to mean that the current level of funding is insufficient to fund a half fare local concessionary travel scheme. 

Estimated Expenditure on Concessionary Travel

13.   I also provided the LGA with figures for local authority expenditure on concessionary travel.  The figures for 2010/11 to 2017/18 come from the published annual Revenue Outturn statistics provided by local authorities (RO2 forms) to MHCLG.  They have been adjusted to give a complete and consistent picture over time to provide figures for all local authorities, with missing figures for a few councils in some years being replaced by the local authorities budget figures for that year.   The figure for 2018/19 is based on the published Local Authorities estimates (RA returns). I attach a summary of these figures for England, London, Metropolitan and Shire/Unitary authority areas at Appendix B.

14.   The figures show a slight increase in the level of concessionary travel expenditure at a national level over the period.   The mainly statutory nature of the expenditure means that councils have not been able to reduce their spending to match cuts in funding.  Instead some councils have reduced spending on other transport services, including operator support to Bus and Rail services, with the majority of the funding cut being an additional pressure on council’s budget funded either from one off use of reserves or from reductions in spending on other services.  

15.   A chart and table showing the change in spending on concessionary travel and the estimated funding for concessionary travel since 2010/11 is shown below.

16.   This paper provides evidence of a significant and growing gap in funding for concessionary travel, which had not previously been visible at the level that I now estimate.  While this figure is an estimate, it is informed by the best available information that I have been able to track in relation to funding changes each year.  The LGA had previously estimated the gap to be over £200m based on an estimate in 2016.  MHCLG should also be able to provide an official estimate of current funding at a national and potentially at a local authority level.

17.   The continuing reduction in funding is not particularly visible, because the headline announcements for change in local authority resources is based on ‘spending power’,  which includes additional funding for social care and increases in council tax funding for core services and additional adult social care council, tax increases. In the 2019/20 local government finance settlement recently reported to and approved by Parliament, the latest 10% cut in the non-visible lines of funding in the ‘Upper Tier’ SFA block, which includes concessionary travel funding, was not visible.

18.   In 2010 there was considerable discussion about how the change of funding responsibility from Shire Districts to Shire Counties was to be implemented, various options for transferring the funding from District Councils to County councils was considered along with a new formula. Many combinations for the adjustment were eventually considered and this issue was consulted upon in chapter 12 of the 2011/12 settlement consultation.   The Department’s summary report on the responses to their consultation highlighted that in terms of Q20 should concessionary travel have its own sub block? – 122 respondents supported this and 50 respondents opposed the proposal.  “it was generally considered a more transparent way to ensure that central government fully finances this major program and would avoid any changes to the wider block having any effect on the authority’s ability to finance concessionary travel.”

19.   It is now evident that the funding for concessionary travel has not been managed by MHCLG in a way that continues its transparency or protects the funding in any way, when opportunities were there to do this.  The cuts in concessionary travel funding have put considerable pressure on councils’ finances, often leading to cuts in transport services (including bus support) and other council services.

Future Funding

20. The Government is reviewing the future funding of Local Authorities as part of a fair funding review, with the potential for changes in funding as early as 2020/21.

21. Evidence was provided to the Needs and Distribution Technical Working Group about the need for a separate formula for Concessionary Travel.  The current funding gap was highlighted and the key drivers of concessionary travel spending pressures – with higher travel usage and costs for pensioners on low incomes (less that £20,000) and no access to a car traveling two to three times more than pensioners on higher incomes and with access to a car.  It also clearly demonstrated a higher pattern of spending in urban areas with well-developed bus routes and areas which attract concessionary travel passholder visitors such as the shopping and tourist areas in Inner London, Cumbria in the Lakes, Seaside resorts.  The uneven pattern of spending per resident population was set out in the following chart in paper ND TWG 18/17.

22.  The highest costs/head of resident population are in Inner London – particularly areas where pensioners have low car ownership and areas which would also be visited by people using their free passes, for shopping/entertainment etc – for example City of London (£77/head); Kensington and Chelsea (£61/head);  Westminster (£56/Head).  Outside London high costs/head include - Nottingham (£45/head); Brighton and Hove (£38/head); Isle of Wight (£34/head); Torbay (£33/Head).  The highest cost in Shire County areas is Cumbria (£24/head), with the Lake District being a popular tourist area.  The lowest costs/head appear to be in wealthier areas of the country with higher car ownership among pensioners, which has been proven to reduce concessionary travel rates.

23.   Local Authority representatives at the working group generally supported a separate formula for concessionary fares.  This would have presented an opportunity to provide more transparency about this funding and made it possible to restore the level of funding to a level that would cover costs.

24.   The latest consultation paper on “A review of local authorities’ relative needs and resources” does not refer to this option or the evidence provided, and simply proposes that Concessionary Transport be part of the Foundation Formula for Upper Tier services.  This formula is likely to distribute funds mainly in line with ‘resident population’, which would mean a relatively flat allocation with the potential for some allowance for higher area costs in London and providing some more funding for rural areas.  With no proposed weighting for density or deprivation this appears unlikely to be a good match to the existing distribution of concessionary travel reimbursement costs.  This is a cause for concern for authorities with above average costs as it could further widen the gap between funding and costs for individual councils.  Given the considerable evidence that has been presented in support of a separate formula, it is unclear why MHCLG favour their alternative approach or whether they have carefully considered the consequences of their proposed approach for Transport Authorities; the bus sector; and transport service to the public.

25.   The LGA do not generally take a position on issues relating to the distribution of funding between authorities, although it has recently supported the need to reflect deprivation in the foundation formula. 

26.   During my evidence I answered questions about the funding gap in my own transport authority area (NECA) and advised that I estimate the current funding gap in Durham to be almost £8m, the Funding gap in Tyne and Wear to be around £18m. The funding gap in Northumberland is almost £3m.  This was my own evidence as opposed to evidence provided on behalf of the LGA. I estimate that moving to a resident population distribution for the current level of national funding, could mean that the funding gap in Tyne and Wear could widen by a further £10m, resulting in funding of c£10m for a cost of c £36m.  This would place a huge additional pressure on discretionary costs, including support for buses.

Conclusion

27.   In my professional opinion, the Government should restore full funding of concessionary fares as a priority.  A new solution to the future funding of concessionary travel needs to be found, developed jointly with the Department of Transport, and local transport authorities. This could also include the restoration of a visible full funding of concessionary travel reimbursement costs, with more direct reimbursements of costs to Local Travel Authorities.  A transparent full funding of concessionary travel reimbursement costs could form part of a new National Bus Strategy.   

Appendix A

       Funding for Concessionary Transport

1. In considering the level of funding available for Concessionary Travel, it is necessary to track the changes in funding over time as the level of funding for concessionary travel is currently not particularly visible.   This appendix sets out the story of changes in national funding for concessionary travel from 2001/02 during the introduction of the incremental changes to statutory concessionary travel arrangements through to the proposed 2019/20 settlement.  A summary table comparing the changes in funding from 2010/11 to 2019/20 and costs from 2010/11 to 2018/19 is set out below.

2. The statutory concessionary travel scheme was fully funded by extra grant approved by Parliament for the Department for Transport (DfT) and DCLG to allocate by the most appropriate formula to the Travel Concession Authorities. The baseline funding for concessionary travel at 2000/01 was around £467m.  Since then additional grant funding of £666m was approved by Parliament each time a statutory change was made, resulting in funding of over £1.13bn by 2008/09.  £921m was included in Revenue Support Grant and £212m was distributed as a specific grant by DfT.   The additional funding reflected an estimate of additional extra costs that councils would incur as a result of the statutory changes to the Concessionary Travel scheme. It was provided in line with the ‘New Burdens’ principle – with funding being provided to meet the estimated costs of legislative changes.

3. The additional funding for Concessionary Travel within Formula Grant was added to the Environmental, Protection and Cultural services block in 2001/02, 2003/04 and 2006/07.  This was a significant issue and caused concern at the time for those transport authorities with higher levels of concessionary travel usage and reimbursement costs, as the pattern of funding did not match the pattern of costs.  This resulted in considerable underfunding for areas which had higher levels of concessionary travel usage and costs.  In some cases extra funding was provided to areas with lower levels of concessionary travel usage.  Despite considerable efforts at the time to better match the available extra funding to costs, DCLG could not achieve this and areas with higher costs, such as the Tyne and Wear ITA were faced with having to make cuts to discretionary travel and other transport costs.  These concerns led in part to the extra funding in 2008/09 being allocated by DfT as a specific grant as opposed to it being included in Formula Grant at that time.

4. In 2009/10 the Formula grant funding was increased by 2.81% after adjusting for funding transfers and new burdens.  In 2010/11 the Formula grant funding was increased by 2.57% after adjusting for funding transfers and funding for new burdens.   This would have given the following funding totals for Concessionary Travel costs in those years.

5. By 2010/11 funding was higher than the actual reported costs of concessionary travel.

6. In 2011/12 when the responsibility for Concessionary Travel was transferred from Shire Districts to Shire Counties, the baseline funding allocation for 2010/11 was adjusted to the estimate of Net Revenue Expenditure on Concessionary Travel, which was calculated by the Secretary of State to be £842.959m.  This figure was based upon the 2009/10 Concessionary Travel Net Current Expenditure for each authority, uprated to reflect 2010-11 market prices, as estimated by the Secretary of State. The estimate was generally derived from authorities’ Revenue Accounts (RO2) ending 31 March 2010, with costs being allocated to individual Metropolitan districts and London Boroughs in line with the funding arrangements (e.g. levies) in those areas. The specific grant that had been allocated by the DfT was also included at that point to enable the total funding to align with the new separate Concessionary Travel Relative Needs Formula (RNF) that had been established.

7. The 2010/11 funding adjustment and the 2011-12 Concessionary Transport Relative Needs Formula (NRF) distribution is shown below.

8. In 2011/12 Formula grant funding was reduced by 11.6% after adjusting for funding transfers and new burdens.  Concessionary Travel grant of £224m was transferred into Formula Funding from DfT.  This would have given the following funding totals for Concessionary Travel costs, with funding for 2011/12 reduced to an estimated £1,082m which was more in line with costs and slightly higher than the 2010/11 baseline calculated for the purpose of transferring funding from Shire Districts to Shire Counties.

9. In 2012/13 the funding for Concessionary Travel was again subject to a significant, cut with the RNF for Concessionary Travel being cut by 18.7% (to 0.01043291958633), which was a significantly larger reduction than the average 8.2% cut in the total Relative Needs Formula.  The transferred grant of £224m was shown as being reduced to £204m.   This 18.7% cut in NRF effectively reduced the concessionary funding total in 2012/13 to £879.7m. This was a significant concern at the time to councils and transport authorities with higher levels of concessionary travel funding and costs.

10. In 2013/14 the background paper on Funding Transfers appeared to show that the transferred grant funding had been adjusted to £208m, which was £16m less that the original transferred grant amount.  The net result of this and other changes increased the RNF by 7% to 0.01114706698935, compared with a smaller overall 1.1% increase in RNFs.   Applying the 7% increase in RNF would increase the estimated grant funding to £940m.  
11. In the 2014/15 Settlement the funding for concessionary travel was simply included in the ‘upper tier block’ of funding that was divided between RSG (60%) and Baseline Business Rate Funding (40%) and is subsequently shown as part of the Settlement Funding Assessment. The total combined allocation for Upper Tier Formula Funding was cut by -£1.69bn (-10.6%).  Applying this -10.6% reduction to Concessionary Travel funding would reduce the grant to £840m. 
12. The decision not to protect the funding that had been provided by Parliament for Concessionary Travel in 2014/15 was a concern and meant that funding for concessionary travel would be cut each year.  It could have been protected by including most or all of the funding in Baseline Business Rates, which was the approach taken for some Transport funding for London or by treating it as a visible line of funding.  Neither approach was taken, meaning that the funding was no longer visible or protected.    
13. In 2015/16 the ‘upper tier block’ of formula funding was reduced by £2.37bn              (-16.6%). Applying this -16.6% reduction to Concessionary Travel funding would reduce the grant to £701m. 
14. The change in the Upper Tier funding from 2015/16 to 2019/20 can be tracked from the information for the change in the ‘Upper Tier’ element of the Settlement Funding Assessment published as part of the provisional 2019/20 settlement. After adjusting for the visible lines of funding included in ‘upper tier’ funding, the change in the balance of Upper Tier funding (including concessionary travel) has fallen by £4.873bn (-38.5%) from 2015/16 to 2019/20. Applying this -39% reduction to Concessionary Travel would reduce the grant from an estimated £701m in 2015/16 to an estimated £431m in 2019/20, as shown below.

15. An analysis of the change in funding at a class level indicates where the cuts in funding have fallen and this is summarised in the following table, both in cash terms and in terms of £/person based upon the latest 2007 mid-year population estimates.  London and Metropolitan areas have above average funding cuts per head of population.

Appendix B  Transport Costs

Concessionary Travel Costs

1. The costs of Concessionary Travel are included in the Revenue Outturn forms for Highway and Transport services (RO2) and the budget estimates are included in the RA Budget returns each year.  Since 2012/13 the costs are reported separately for Statutory and Discretionary Travel costs.  Since 2008/09 costs have exceeded £1bn and have not fallen significantly despite funding cuts, due in the main to the mandatory nature of most of the costs.

2. In analysing the costs over the years, I have found it necessary to undertake additional quality checks on the figures as sometimes the statutory costs are understated and reported in the discretionary cost cells or there is missing data for a few authorities.  I have included a few estimates based on council’s budget figures to try to provide a consistent picture of the costs over time. 

3. The reported actual costs for Concessionary Travel since the transfer of responsibility to Upper Tier Authorities in 2011/12 is shown below.  Actual costs are shown to 2017/18 and budget estimates are provided for  2018/19. The figures include a few minor adjustments for missing data to provide a more consistent and complete picture over the period.

National Concessionary Travel Costs 2011/12 to 2018/19(Estimate)

4. The Statutory costs have tended to rise over the period.  This reflects a combination of effects.  Bus operators have to be reimbursed for income foregone and annual increases in bus fares would normally result in increasing costs.  The cost of concessionary travel has risen in London due to policy decisions including additional bus support and fallen outside of London.   in This has been partly offset by some reduction in ridership and by decisions by the Mayor of London to freeze fares for TfL operated services in London.  Some authorities have made changes to their discretionary travel arrangements in response to funding pressures and this is reflected in the small reduction in discretionary costs in recent years. 

5. The pattern of concessionary travel costs and bus support costs in and outside of London is shown in the tables below.

6. An analysis of the 2016/17 Actual Concessionary Travel costs by class of Authority is summarised below. This starts to reveal the complexity and differences that exist in the reporting of costs.  The costs that are recharged by TFL in London to London Boroughs are generally reported as Statutory costs and include costs from travel on non-bus modes of Transport. Other Discretionary cost in London and funded by directly TFL and are not included in the RO forms as concessionary travel costs. In Metropolitan Areas the costs are reported by the Combined Authorities that cover metropolitan districts at the larger geography of a Combined authority level – they are later recharged to each constituent Authority as part of a ‘Transport Levy’.   Most Combined Authorities report concessionary travel costs on non-bus services (Light Rail, Trams, Metros, ferries etc) in the ‘Discretionary’ cost box and show the costs of bus reimbursement as ‘Statutory’ Costs and this makes up the majority £53.8m of the so called ‘discretionary’ costs in Metropolitan areas.   

7. Metropolitan areas have made their own free/discounted travel arrangements for pensioners and disabled people available on trams, metros, ferries etc (although sometime for a flat annual pass fee) for their convenience as these modes of transport form part of an established urban transport network. These costs are considered to be almost equivalent to ‘statutory costs’ because if pensioners did not receive free travel on metros, trams etc, many of them could choose to travel for free on bus services instead – increasing the reported statutory costs and resulting in a net additional cost to councils. 

8. An analysis of the 2016/17 Actual costs by class of Authority is summarised in the table above. This starts to reveal the complexity and differences that exists in the reporting of costs.  The costs that are recharged by TFL in London to London Boroughs are generally reported as Statutory costs and include some costs from travel on non-bus modes of Transport, in line with the statutory arrangements in London.  In Metropolitan Areas the costs are reported by the Combined Authorities that cover metropolitan districts at the larger geography.

9. In Shire areas only a few Counties report significant ‘Discretionary’ costs, with the majority of costs being incurred in six county areas – Kent (£9.1m); Gloucestershire (£3.9m); Dorset (£2.8m); Leicestershire (£1.7m); Hertfordshire (£1.6m) and Herefordshire (£1.5m).    The discretionary Travel scheme in Kent provides free travel for young people for an annual fee.

10. A London-wide scheme has been in operation for many years.  It is operated by Transport for London.  Pensioners and qualifying disabled people in London can use the Freedom Pass to travel on all modes of transport including London Underground.  Visitors resident outside of London can use their passes to get free travel on busses.   The costs of the statutory scheme are apportioned and recharged to the London boroughs on an agreed basis each year and are included in the RO forms for the individual London Boroughs. The basis of the apportionment of the costs to London Boroughs is agreed each year, currently this takes account of information on travel usage e.g. Boardings.   Discretionary travel costs are funded separately are not reflected in the RO forms.

11. In Metropolitan areas schemes operate at Metropolitan County boundary area, operated by Passenger Transport Executives and funded initially by Metropolitan Passenger Transport Authorities.  The costs are then added to other transport costs and form part of a Transport Levy, which is then apportioned on a statutory basis between the constituent authorities (generally resident population) which takes no account of the boardings in the individual metropolitan districts. These Metropolitan Passenger Transport authorities have now been incorporated into Combined Authorities. 

February 2019

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