The Budget’s effect on transport in Wales must be considered in two stages. Its application in Wales and England will concern national insurance, fuel taxes, the national minimum wage and railway infrastructure investment. These are all responsibilities reserved by the º£½ÇÊÓƵ Government. Transport items (like train fares) mentioned in the Chancellor’s statement apply to England only.
The Budget includes the Barnett formula block grant (£21bn in 2025–26) to Welsh Government, which for transport is spent, subject to Senedd approval, on bus revenue support, TfW Rail services, TrawsCymru bus network, national roads and motorways. It also supplements local government transport expenditure on road infrastructure and maintenance traffic management and bus revenue support alongside council tax income.
In considering bus, coach and haulage/logistics companies, Rachel Reeves’ budget has brought cost increases which could affect their financial viability.
My research into bus company accounts shows (2024) that labour costs are the largest cost component (54% of the total),fuel (15%), spare parts (3%) and fixed costs like buildings, equipment, on-costs, pensions (28%). On average a bus company with 200 vehicles has labour costs of £11.6m and fuel costs of £3.1m.
On the positive side there was no inflation related fuel tax increase and the 5p per litre discount was retained. However, the market mainly determines pump prices and company bulk buying of diesel brings the cost down to £1.10p per litre compared to £1.45p for we motorists.
If companies try to absorb the national insurance cost increase this could mean less generous pay increases next year to reduce the business viability risk – surely not a benefit to ‘working people’. Drivers’ hourly wages are not high at about £13.50 (annually £28,000 with First Cymru) compared with retail floor workers (£12.20 hourly) and drivers require far higher levels of responsibility and qualifications.
Trade unions will expect a wage rise next year of up to 3% to match the forecast consumer price index increase of 2.5%. This remains uncompetitive with HGV drivers’ annual wages at £40,000 – £60,000.
The rise in the national minimum wage will also influence company costs in passenger and retail transport which many firms did not expect and have not budgeted for.
Increased revenue could balance the books. Bus companies could increase fares but risk losing customers. Current demand elasticities in the bus passenger market show that when fares rise by 8% demand falls by 1% but this trend cannot continue indefinitely. Haulage companies are in a very competitive market and similarly must fall in line with market conditions.
The only other source of bus company income comes from revenue support provided by county transport authorities or TfW. However, they have currently to find significant expenditure cuts including their payments for tendered bus services and more reductions are likely in the 2025-26 financial year.
Mileage – based road pricing may deter some car users driving into congested urban centres will only have that effect if bus/rail travel costs fall in relation to car travel, and frequency and reliability improves. To achieve those market conditions requires substantial public sector capital investment.
Wales railways have required major schemes electrifying the north and south Wales main lines and re-signalling the Marcher line from Newport to Chester. This reflects the same fiscal attitude as the previous Conservative government who awarded Valley Lines electrification £125m out of a total cost of £1.2 bn. None of these were mentioned in the Budget.
By contrast for England’s railways, Rachel Reeves specified the TransPennine route (York-Leeds–Manchester) electrification (£11.5 bn) and the Oxford – Milton – Keynes re-opening scheme.
The HS2 extension from Old Oak Common to Euston Station (start expected 2026) including Euston remodelling (completion 2035 according to HM Treasury) was announced, in the Budget though with no cost figure. Previous schemes suggests a total cost of £12.6bn.
HS2’s extension again produces no Barnett consequential for Wales, and rail journey time increases between south Wales and Paddington or even Euston.
This Budget was a disappointment for Wales’ transport system. I’m afraid one cannot find the ‘special relationship’ and ‘cooperation’ between Labour in Westminster and Welsh Labour in Cardiff Bay so far as transport funding is concerned. Transport is a key factor in determining inward investment and consequently a cornerstone in the Chancellor’s public expenditure collaboration with private investment.
We await Finance Secretary Mark Drakeford’s Welsh Government budget allocation to transport in the Senedd on December 10th. Pleasant surprise or further disappointment? I live in hope.
- Professor Stuart Cole CBE is Emeritus Professor of Transport (Economics and Policy) at the University of South Wales.
