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Route-masters: the re-regulation of bus services

Bridget Phillipson, Scott Gilfillan

North East Combined Authority’s re-regulation of local bus services offers a better deal for passengers and taxpayers and could have significant implications for the future of public services.

 

On 21 October 2014 the North East Combined Authority (NECA), representing the seven local authorities in the North East, unanimously resolved to press ahead with plans to give taxpayers a better deal from their local bus services (North East Combined Authority, 2014). The commitment by the NECA to pursue plans to re-regulate the industry through the proposed introduction of a London-style Quality Contract Scheme (QCS) represented a significant success for my four-year campaign for better bus services in the North East. I want to maintain the political momentum for the campaign ahead of the next step in the process – assessment of the proposals by an independent QCS board scheduled for next spring. We finally have a chance to bring about positive change in the provision of bus services in the North East – change that could have wider and lasting implications for industry across the entire country, and I am determined to see that objective achieved.

‘The Big Bus Campaign’ started after local residents in my constituency of Houghton and Sunderland South asked me for help to protect a vital community bus route that was about to be cut. Over the last four years it has grown into a regional community-driven initiative aimed at ending almost thirty years of failed deregulation in the provision of local bus services, gaining the support of a broad coalition of North East councillors, council leaders and the general public along the way. The purpose of this article is to explain why such a campaign was necessary and how it was successfully carried out in the hope that other regions can learn from the pioneering example set by the North East. I believe that Labour activists across the country can also adapt their own campaigns to reflect the wider political issues that the campaign represented.

I will first outline the history of bus deregulation during the 1980s in order to contrast the then Conservative government’s ambitious expectations for privatised bus services with their deeply unsatisfactory state almost thirty years later. This will also show why a new policy for local bus services has become necessary to help drive regional economic growth. I will explain in detail why I believe that a QCS will provide the best basis for such a policy, how the scheme will work and the benefits it is expected to bring to the region. A detailed analysis of the campaign will follow to show how it re-energised the political landscape of the North East, revived its strong tradition of collective action and provided lessons for local Labour authorities and Members of Parliament (MPs) across the country.

 

Deregulation in the 1980s

Prior to 1980 passenger-carrying motor vehicles were regulated through the Road Traffic Act 1930, which had remained virtually unchanged for fifty years. It established a system of road vehicle licensing overseen by regional Traffic Commissioners responsible for both quality and quantity control. Publicly owned operators were granted licences to run services defined by a route, timetable and a specified fare scale, while local Passenger Transport Authorities (PTAs) had a statutory responsibility to provide a coordinated network that met local needs, which meant some unprofitable (often rural) routes were maintained through public subsidy. Despite the durability of the system, the rise of car ownership had resulted in a large decrease in the numbers of passengers using the bus network (Butcher, 2010, 1).

The Conservative government led by Margaret Thatcher during the 1980s was opposed to public ownership in industry, and her government applied the same logic to bus provision as it had to other publicly-run industries. In her memoirs, she explained the ideological underpinnings of such a policy:

Privatisation … was fundamental to improving Britain’s economic performance. But for me it was also far more than that: it was one of the central means of reversing the corrosive and corrupting effects of socialism. (Thatcher, 1993, 676)

Thatcher’s government believed that deregulation and privatisation would reinvigorate the bus industry and reduce public expenditure. The Department of Transport published a White Paper in July 1984 that blamed the monopolisation of bus services across the country on a highly restrictive licensing system that denied customers a real choice. Instead, the government proposed an optimistic alternative:

Without the dead hand of restrictive regulation fares could be reduced now on many bus routes and the operators would still make a profit. New and better services would be provided. More people would travel. This is not idle speculation. (Department of Transport, 1984, 2)

The government believed that, with competition putting the customer in charge, fares would be reduced as operators fought for each and every patron, while the subsidies paid by local authorities would also decrease as routes became profitable again. But some local authorities had already reacted to the challenge of increased car ownership. The South Yorkshire Passenger Transport Executive, for example, bucked the trend of declining passengers through the implementation of a low fare policy, which led to a year-on-year increase in passenger numbers over the decade prior to 1985.

Speaking during the second reading of the debate on the proposed Transport Bill in the House of Commons, Secretary of State Nicholas Ridley argued that, in three trial areas where road service licensing had been removed, fares had fallen, service provision had risen and the subsidy requirement had been dramatically reduced (Ridley, 1985, c. 195). Shadow Transport Secretary Gwyneth Dunwoody was dismissive of this evidence. She argued that a proper consultation had not been carried out and that the Bill was being pushed in a ‘hurried and incompetent manner’ before the Select Committee on Transport could publish more comprehensive findings. She derided the Bill for its focus on ‘two pet obsessions of the Secretary of State’: privatisation and deregulation (Dunwoody, 1985). Ridley was confident, however, that those two ‘obsessions’, as Dunwoody called them, would halt the decline that had afflicted the bus industry for the past twenty years:

The Bill is about competition. We want to see operators free to provide the services that the customers want. We want to see competition providing an incentive to be efficient and to offer passengers a better quality of service. The customers may want greater efficiency, lower fares, smaller buses going into residential estates, greater comfort or a more polite and helpful driver. Competition is the key to these improvements. It is the key to increasing patronage. (Ridley, 1984, c. 192)

The Bill became law on 30 October 1985. Road service licensing in Great Britain was abolished, as was the local authority obligation to coordinate an integrated transport network. Operators were only obliged to provide 42 days’ notice of their intent to run a service and satisfy basic safety standards in order to obtain a licence. They were free to control those services as they saw fit; there was no obligation to consult with the public on route or timetable changes or to take into account public demand when making such changes. Public subsidy was permitted for socially necessary services not provided commercially, but PTAs could not subsidise a service in competition with a private operator. They were also not allowed to introduce an integrated ticketing scheme without the consent of all private operators. The publicly owned National Bus Company was forced to reorganise into 72 separate subsidiaries, all of which were sold to the private sector or to management or employment buyouts by April 1988 (Butcher, 2014, 4-5). At a stroke, fifty years of regulation and public ownership of bus services in Great Britain had been swept away. Only London was spared, because it was not believed to be ready for deregulation after the major reorganisation of public transport in 1985 that established London Regional Transport (LRT) (Nash, 1993, 1047-8).

 

Damning legacy: the consequences of deregulation

It is now almost thirty years since the Transport Act 1985 deregulated and privatised the UK bus network, time enough to contrast the government’s lofty ambitions back then with the reality bus passengers face today. Fears voiced at the time by Labour politicians, professional economists and many members of the public that the bus industry was not well suited to the market solution proposed by Thatcher’s government were quickly proved correct. In the absence of any collective coordination of bus routes, timetables or fares, a free-for-all known as the ‘bus wars’ rapidly ensued. Intense competition between operators led to the employment of aggressive and predatory tactics such as matched schedules and excessive service provision in the fight for patronage. The resultant increase in the number of buses led to farcical scenes as buses from different operators lined up at stops in order to capture custom on the most lucrative routes. Less profitable routes were altered or discontinued at the whim of operators no longer legally required to consult with the public over changes. Operating costs were indeed cut, but only due to reduced wages and conditions, changes to services and the transfer of some responsibilities to Passenger Transport Executives (PTEs) and local authorities. Reductions in the purchase of new vehicles also resulted in cost savings – the opposite of what the government predicted would happen after deregulation (Nash, 1993, 1045-6).

The explosion of intense competition in the immediate aftermath of deregulation initially drove down fares, but outright competition was short-lived. Within a few years, competitors on many routes had withdrawn to leave a single, dominant operator with a local monopoly on services. In some cases larger operators merged with smaller ones, acquiring their routes and services in the process. In others a cosy equilibrium was established between rivals, allowing both to run certain services on the agreement that neither would challenge the other. This lack of proper competition among operators, in addition to the removal of subsidies to keep fares low, led immediately to large fare increases (there was an average real fare rise of 8.3 per cent over the years 1985/6 to 1988/9). Above inflation fare increases continue to the present day. Deregulation also failed to halt the decline in patronage (in fact, passenger numbers declined at a faster rate following its introduction). The disruption caused to timetables, fares, routes and other services led to a public loss in confidence in bus services and a perception of declining services even when not actually the case (Nash, 1993, 1046-7).

The situation in my constituency and the North East could not be further from the rosy picture predicted by Nicholas Ridley in 1985. The Transport Act was supposed to bring about competition, but in the North East it had the opposite effect. The forced sell-off of public operations run by the Tyne and Wear PTE and National Bus Company subsidiaries Northern General Transport Company and United Automobile Services led to a series of mergers and acquisitions during the 1980s and 1990s. This process swallowed up many smaller operators until three large companies emerged – Go North East, Arriva North East and Stagecoach North East. Having seen off other competitors and consolidated their control over services, these three operators now effectively control almost all bus operations in the North East. Many local people find that to be a strange form of competition, as does the Competition Commission (CC).

In 2010, the Office of Fair Trading referred local bus services in the UK to the CC after finding evidence that limited competition between competitors tended to result in higher prices and lower quality. The CC published its findings in 2011, which confirmed that there was a lack of head-to-head competition between operators in many local markets, but also a lack of potential competition. There were numerous reasons why: many areas had only one or two dominant operators; when new operators did try to compete with established operators head-to-head they were often forced out by ‘over-busing’; new competitors or those wishing to expand into new areas were also put off by retaliatory and predatory tactics employed by existing market operators; and collusion between existing operators in core territories had led to geographic market segregation (the CC mentioned the North East specifically in this case). The CC concluded that lack of competition could result in higher fares, fewer services and lower quality services. The annual detriment to consumers and taxpayers was estimated to be between £115 million to £305 million (Department for Business, Innovation and Skills [BIS], 2012, 2-3). The CC recommended that local transport authorities consider the potential for voluntary or statutory partnerships to facilitate increased competition (BIS, 2012, 5).

In Houghton and Sunderland South, where car ownership is among the lowest in the country, many people rely on local transport services to get around. Since there is no access to a rail or light-rail link, this means buses. Yet deregulation has produced a local bus service in the North East that is not fit for purpose. On every criterion set by Ridley in 1985 deregulation has failed: bus services have become less competitive, less efficient, more expensive, and less convenient. Instead of allowing operators the freedom to provide the services customers want, deregulation has given operators the freedom to do whatever they think necessary to maximise profits. Across Wearside it has enabled them to cut or needlessly change routes deemed unprofitable, or even not profitable enough, which has left whole areas without a service. Meanwhile, operators continue to receive taxpayer subsidies to support concessionary fares, fuel and commercial services. These subsidies amounted to £2.3 billion nationally in 2011-2012 (about 45 per cent of all bus operator revenues), while in Tyne and Wear alone bus operators receive around £62 million a year from the taxpayer in one form or another. Competition was also supposed to be the key to increasing patronage, and yet passenger numbers in metropolitan areas have fallen by 42 per cent nationwide since deregulation, and in Tyne and Wear by 13 per cent between 2001 and 2011 alone (Phillipson, 2014a, c. 70WH).

North East councils are also facing critical shortfalls in their budgets as a result of disproportionate funding cuts imposed by central government since 2010. The region currently receives the lowest level of government funding for transport: 2.9 per cent of overall UK spend is in the North East, compared with 24 per cent in London (Treasury, 2014, 129). Given these circumstances, it is not surprising that the Tyne and Wear Passenger Transport Executive (known as Nexus) is finding it very difficult to maintain socially necessary transport services. Nexus must underwrite the cost for the 10 per cent of the network the bus operators consider to be unprofitable, while its statutory obligation to refund operators for concessionary travel for senior citizens has also risen to £38 million a year. With less money available, Nexus has made it clear that it will soon have no choice but to discontinue a number of vital services, including community hospital buses and school transport (Topham, 2013). In short, while bus operators in the North East receive a guaranteed £62 million a year of taxpayer subsidy to supplement their record profits, local councils must consider imposing deep cuts to subsidised services in order to make up a budget shortfall caused by central government funding cuts. The current system of bus deregulation is simply unsustainable and no longer acceptable. Fortunately, the last Labour government provided an alternative: quality contracts.

 

A progressive solution: quality contracts and ‘The Big Bus Campaign’

A number of transport policy reviews carried out by the Labour government after 1997 pointed out the inadequacy of the current system. The 1998 Transport White Paper argued that bus partnerships lacking local authority control might not be sufficient to guarantee the improvements needed to bus services (Department for Transport, 1998). As a result, Labour introduced legislation through the Transport Act 2000 to give powers to local authorities to enter into quality contracts for local bus services – exclusive franchising schemes under which the authority lets contracts to bus operators, determines routes, timetables and fares, and prevents other operators from functioning in the same contract area. But in the years following the introduction of this legislation no authority applied for such a scheme. According to local authorities and PTAs (renamed Integrated Transport Authorities [ITAs] under the Local Transport Act 2008), the process was too difficult and expensive to introduce, did not grant them enough control and did not protect them from legal challenge (Butcher, 2012, 7-8 & 13). In 2006 the Transport Select Committee, chaired by the late Gwyneth Dunwoody, published a report condemning the inadequacy of bus services in the UK and recommending it be made much simpler for local authorities to implement quality contracts. It also advised that Traffic Commissioners should have increased powers to enforce the schemes, and that authorities should be given legal protection from being sued by bus operators when attempting to introduce them (Transport Committee, 2006, 38-9). The Local Transport Act 2008 introduced a new set of criteria for introducing quality contracts. These replaced the former requirement that a QCS must be the only practicable way to implement a local authority’s bus strategy. They also abolished the requirement for schemes to be approved by the Secretary of State for Transport. The new quality contract regime came into force in January 2010 and was inherited by the current Coalition government after the 2010 General Election (Butcher, 2012, 13-14).

The changes to quality contract legislation present the North East with a vital economic opportunity. The region faces major economic challenges, with one of the highest unemployment rates and lowest-paid workers in the country. Improving transport is an important means to stimulate regional growth and job creation, which is why I initially launched a grassroots campaign to improve local bus services. On 10 March 2011 ‘The Big Bus Survey’ was distributed across the constituency after many residents raised concerns about the future of bus services in their area. It asked local people to share their experiences of using local buses and make recommendations for improvements (Phillipson, 2011a). A survey was necessary to get a comprehensive idea of the problems affecting facing passengers. The response was overwhelming: over a thousand people responded, many expressing deep dissatisfaction with high fares and infrequent, inefficient services. I discussed these results in the House of Commons and also asked those who had contributed to it to submit a special supplementary report to the influential Transport Select Committee as evidence of the unsatisfactory state of bus services in the UK (Phillipson, 2011b). The campaign continued with street stalls across the constituency. I knocked on hundreds of doors to hear as many views and opinions on this issue as possible. Constituents had finally been given an opportunity to demonstrate their deep dissatisfaction with deregulation in the bus industry and desire for fundamental change. Their enthusiasm and determination helped galvanise public support across the region and build the momentum necessary to bring that change about.

As a result, a major step forward was made on 24 November 2011 when the Tyne and Wear ITA, acting upon recommendations by Nexus, resolved to consider alternative approaches to the delivery of regional bus services. The ITA directed Nexus to investigate the possibility of developing a QCS across the region, while simultaneously engaging with operators to see whether a Voluntary Partnership Agreement (VPA) would provide an effective alternative (Nexus, 2014, 1). This decision granted the bus operators the opportunity to demonstrate that they were willing to work with Nexus and implement a better deal for passengers. However, it rapidly became clear that the VPA they favoured represented little more than the continuation of the status quo and offered few new benefits to passengers or the taxpayer. Furthermore, other transport authorities that have pursued voluntary partnerships have endured huge fare rises and the abandonment of integrated ticketing. In Sheffield, for example, operators have used voluntary partnerships to protect their own interests, while the local authority has been forced to make £8.3 million of cuts by withdrawing bus routes, reducing concessionary schemes and raising prices on community transport (Phillipson, 2014b). The damning Competition Commission report published on 20 December 2011 on the failure of deregulation in the UK reinforced the necessity of restoring public confidence in the bus industry. On 24 February 2012, I launched my ‘Big Bus Campaign’ to press for the introduction of a QCS for the North East. It was obvious to me that a QCS was the only way to guarantee that bus operators put people’s needs ahead of private profits. It would also introduce a single, integrated bus network with Oyster-style smartcards across all services. Other benefits included the ability to cap and regulate fares, protection for concessionary schemes, contractually guaranteed service standards. Above all, a QCS would give the taxpayer better value for money through a more efficient use of subsidy and a reduction of excessive profiteering.

Bus companies reacted in predictable fashion to my campaign to end their cosy local monopolies. Go North East called the QCS plans a ‘power grab which would leave passengers worse off’ (Sunderland Echo, 2011). As the campaign progressed, and awareness of it spread, the attacks stepped up. Stagecoach chairman Sir Brian Souter warned that he would axe 500 services and close four bus depots rather than see a QCS introduced to the North East. He disparaged the councillors on the Tyne and Wear ITA as ‘a bunch of unreconstructed Stalinists who are completely driven by political dogma’ (Pearson, 2013). Souter’s reaction was not a surprise given that the proposals will fundamentally change the way his business, which operates around 40 per cent of services in Tyne and Wear, is run in the North East. Moreover, the shake-up of the bus industry that will come from the introduction of quality contracts has potentially lasting implications for the way bus services are run across the whole of the UK. The aggressive approach of Stagecoach and other operators with regard to quality contracts is ironic since they are all perfectly content to operate in London, where a similar policy of progressive competitive tendering has been in place since the formation of LRT (now Transport for London) in 1985. Moreover, Arriva’s parent company, German state operator Deutsche Bahn, successfully runs services in a regulated market in Germany without complaint. Such irony was lost on Stagecoach, however, and at the beginning of this year a company spokesman called me ‘out of touch’ and threatened legal action if a QCS was introduced to the North East (Pearson, 2014). The company is obviously worried that regulation will reduce the excessive profits it makes outside of the capital (a margin of 14.6 per cent on its £1 billion bus revenues in 2014), to London levels (a margin of 9.8 per cent margin this year) (Topham, 2014). Historically, their profit margin in Tyne and Wear has been higher – Stagecoach made a net profit of 18 per cent from its operations in the region in the 2013-14 tax year (Phillipson, 2014b).

This campaign is not about preventing bus companies from making a profit, but I do want to ensure that, like in London, taxpayer subsidies are used in the public interest to maintain and improve services. The government has refused to take action in this regard and remains noncommittal on quality contracts. Its March 2012 green paper on the future of the bus industry only went so far as to say that it was up to local transport authorities to decide whether a QCS was necessary, and that it would monitor the development of any schemes with interest (Department for Transport, 2012, 33). Given this intention to sit back and do nothing, it was up to my fellow regional MPs and I, the Tyne and Wear ITA, council leaders, and above all local people to challenge the bus companies and press for a better bus service for everyone. I met with members of the Tyne and Wear Transport Users Group to coordinate a joint response (Phillipson, 2014c). I also carried out a concerted media campaign using local (Phillipson, 2013a), regional (Pearson, 2012) and national outlets (Phillipson, 2013b; Phillipson, 2014b) to argue the case for quality contracts and face down the operators, who continued to attack me across various media outlets, including my own Twitter feed.

The political leadership and collective action fostered through the campaign sought to protect the decision-makers on the Tyne and Wear ITA from the bullying tactics of the operators while the two schemes were under consideration. Many constituents wanted Nexus to be left to carry out its consultation on the QCS proposals in a full and proper manner so that the ITA could make an informed and educated decision on the merits of both schemes. The North East Combined Authority, formed on 15 April 2014, took over the duties of the Tyne and Wear ITA, so a delay in the decision over a QCS was therefore right and necessary. The resolution was postponed until October 2014, by which time the campaign had gathered a formidable coalition of political support. I spoke in favour of the proposals in parliament over the summer (Phillipson, 2014d), and sponsored a debate on transport in the North East one week before the NECA was due to meet to discuss the proposals (Phillipson, 2014a). Following on from that debate, I coordinated a letter signed by all twelve Tyne and Wear MPs calling on the NECA to reject the VPA scheme and press ahead with the QCS option (Proctor, 2014). The political momentum proved irresistible: on 21 October the NECA unanimously resolved to press ahead with plans for a QCS (North East Combined Authority, 2014). That resolution signalled the successful conclusion to the first part of my four-year campaign, a campaign that is seeking demonstrate what politicians and local authorities can achieve when they work together to improve the communities they serve.

 

A blueprint for the future: how Labour can bring about change

Since the 2010 General Election the Labour Party has faced the dilemma of how to advance progressive ideas outside of government during an era of fiscal restraint. Cuts to local authority budgets have posed a significant challenge for Labour councils, forcing them to cut back on current projects and to suspend new ones. The North East has been particularly, and disproportionately, affected by central government funding cuts that total £189.16 per person (Warner, 2014). As a result, regional Labour politicians and councillors have had to consider innovative ways in which to advance the cause of social justice without making new spending commitments. This campaign provides a model for achieving such objectives by offering a positive solution to the challenge of finding better value in the use of public money. It is also about finding ways for local authorities to work with business, not for them. Activists and politicians can replicate its achievements, since the politics of the campaign were rooted in local communities and their concerns and focused on achieving incremental but tangible change to help transform peoples’ lives for the better. Moreover, it showed that the Labour Party is still a powerful force for social justice and progress at a local level, even when in opposition nationally.

‘The Big Bus Campaign’ now looks set to achieve some major improvements in social policy outcomes for the North East, and thus constitutes a significant success for Labour. With two thirds of all public transport journeys made by bus, it is clear that improvement and investment in bus transport is fundamentally important to regional economic growth. It is right that progress is being made toward the implementation of a QCS in the North East. But this is not the time for complacency. Nothing has yet been implemented, and we must demonstrate to the QCS board that quality contracts can be efficiently and effectively implemented. The wildly optimistic predictions about the benefits of deregulation made by the Conservatives during the 1980s should also provide a salutary lesson. If this QCS is to work it must be rigorously tested, integrated and implemented so as to guarantee the best service for the passenger, the best value for the taxpayer, and the best environment for business. But, if done correctly, I have every confidence that our region will blaze a trail for a re-regulated bus network, and that local transport authorities across the country will soon follow our lead. It is also time for the government to accept that deregulation has failed, not just in local bus provision, but also across the transport network and in other industries such as energy. There is now political consensus within the Labour Party in favour of re-establishing the link between the state and public service to end the scandal of public money subsidising private profit and help revitalise local economies nationwide. We must continue to demonstrate to the public that a re-regulated, accountable and transparent transport system will help bring long-term economic prosperity outside of London. For now, thanks to the ‘Big Bus Campaign’ and all those who supported it, we have a once in a generation opportunity for change. That is something for which everyone involved in the campaign and the Labour Party should be rightly proud.

 

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