Stop arguing over accounting and call this bus fare cap what it is – a huge policy win
4 min read
The bus fare cap is a rare case of “Treasury brain” aligning with public demand.
Nestled within a litany of blunders, it’s easy to forget that the Keir Starmer government’s decision to raise England’s bus fare cap from £2 to £3 was one of their most unpopular early policies.
Introduced by the Conservatives in 2023 to ease costs, the policy was known to nearly 80 per cent of Brits, and net 40 per cent said it reflected negatively on his government, More in Common research at the time found. The public was more opposed to the policy than to the unpopular tax rise on employers, and more aware of the fare increase than of freebie-gate.
Burnham responded to public demand this week by announcing the cap would be lowered back to £2.
The public had been angry for good reason. Transport is the most expensive item for households after housing, with 5m people already pushed below the poverty line by their transport costs. The additional £1 per trip cost a daily bus commuter an extra £500 per year. That’s more than double what many retirees would have lost if winter fuel payments had been withdrawn, and a bigger increase than what drivers would face if fuel duty were allowed to rise.
Burnham has said he’ll pay for most of the scheme – projected to cost £454m by the end of 2027 – by converting certain foreign aid grants into loans. This incited arguments between the opposition, who argue these loans will increase debt, and the government, who say they are investments.
This boils down to an argument between accounting techniques, exemplifying the difference between Public Sector Net Debt (PSND) and Public Sector Net Financial Liabilities (PSNFL). PSND previously defined how we measure debt, which subtracted our liquid assets from our financial liabilities. It excluded illiquid financial assets, meaning a £10 investment that would pay £20 the following year would put the Treasury in the red. This limited public investment to an irrational degree, so when Rachel Reeves as Chancellor announced her fiscal rules, she promised to use PSNFL measurements. This is a broader measure that includes illiquid assets, as well as certain future costs. By PSNFL measurements, that £10 investment would count as an asset rather than a liability.
This was a major change and recognises the government’s role in spurring investment. “It is the conception of the Chancellor of the Exchequer as the chairman of sort of joint-stock company which has to be discarded,” Keynes said, “Once we allow ourselves to be disobedient to the test of an accountant’s profit, we have begun to change our civilization.”
Burnham’s decision typifies the importance of this kind of investment in creating a healthy economy. When introduced in 2023, the cap led to a 5 per cent increase in bus patronage, worth an additional 100m annual bus trips today. Frequent riders tended to benefit the most from the policy, but there were other gains. Communities saw employment grow, which makes sense given a quarter of the lost workforce blames poor transport for their inactivity. The cap also benefited drivers, who saw lower congestion if they stayed in their car or a cheaper fare if they boarded a bus. When tasked with providing an alternative to the cap in 2024, staff at KPMG were unable to find one capable of delivering equivalent benefits.
There is still some question as to how much in grants would need to be converted into loans to save the government enough money to pay for this policy. But the argument about whether these are debts or investments is a distraction from the bigger picture.
By PSND measurements, it’s a debt. By PSNFL measurements, it’s an investment. It does not matter, because the Treasury’s guidance is clear. Fiscally, although loans do raise short-term costs, they represent investments, and as such will not erode fiscal headroom. It’s a rare case of “Treasury brain” aligning with public demand, and Burnham will need to find more if he is to improve affordability while sticking to the fiscal rules.
Gideon Salutin is Chief Economist at the Social Market Foundation
