My right honourable friend the Secretary of State for Transport (Geoff Hoon) has made the following Ministerial Statement.

The Chancellor’s Pre-Budget Report on 24 November announced that, following consultation earlier this year, the Government will be introducing changes to the Department for Transport’s bus service operators grant (BSOG) to incentivise the use of low-carbon buses and buses with smartcard and global positioning systems and that we will be challenging the industry to improve its fuel efficiency. I am now announcing further details of these and a number of other measures and the steps that we are taking to implement them in consultation with the industry and other stakeholders. A summary of the responses to our consultation document Local Bus Service Support—Options for Reform is today being placed on the department’s website and in the House Libraries.

An important element of the measures is a change to the present arrangement under which changes in the rate of fuel duty are matched by changes in BSOG rates. Given the challenge of the Climate Change Act to reduce UK carbon emissions, automatic uprating of BSOG is no longer appropriate. It is important, however, to give bus operators time to adjust to this change and to put in place action to improve fuel efficiency.

Accordingly, I have decided that BSOG rates in England should be increased to match the 2p increase in fuel duty that was implemented on 1 December. There will then be no further increases in BSOG rates that will apply automatically to all claimants of the grant. Instead, in April 2010 BSOG rates will be uprated for those operators that have achieved an improvement in fuel efficiency equivalent to 3 per cent per annum for each of the two previous years; we will be reviewing the figure annually to consider the scope for increasing the efficiency requirements. This is an achievable target, as has been shown by studies into the improvements in fuel efficiency that can be brought about by improved driving techniques. Final arrangements on this (and on the measures below) will follow detailed discussions between officials and the bus industry.

The other measures that we will be taking forward in discussion with stakeholders will be:

introduction of incentives in the form of differential BSOG rates, or a distance-based subsidy, for use of low-carbon buses; we aim to bring these in as soon as possible, ideally in 2009, but final decisions need to take account of detailed discussions with stakeholders;

a review by 2011 with the intent of using a fuel efficiency cap or differential rates of BSOG in the future to further incentivise a switch to lower-emission vehicles delivering at least Euro V emission standards, especially as the challenge of meeting air quality targets in the future may have a carbon penalty;

introduction from April 2010 of incentives in the form of differential BSOG rates for buses equipped with smartcard readers and GPS systems; we will discuss how these requirements can best be certified or audited with stakeholders, and will want to explore the provision of resulting data to help in compiling national statistics;

replacement of BSOG for operators in the Transport for London (TfL) contracted network by payment of an equivalent sum passed direct to TfL; officials have been discussing the details of this with TfL and I intend to introduce this change as soon as practical;

as with London, BSOG funding would be devolved where a quality contract (franchising) is in place outside London;

funding of a SAFED (safe and fuel efficient driving) demonstration project to encourage fuel efficient driving in the bus and coach sector; and,

establishment of a working group with stakeholders to discuss details of the implementation of these measures and to take forward consideration, as envisaged in the consultation document, of these and longer-term options for changes to bus subsidies, including a possible change to a per passenger basis and further consideration of the scope for an emissions-based tiered approach to payments; we will be working closely with the Department of Energy and Climate Change and the Department for Environment, Food and Rural Affairs in taking these measures forward.

I have decided, given the potential impact on the industry’s cash flow, not to take forward the proposal in the consultation document that BSOG should be changed to a payment-in-arrears basis.

Further announcements on the details of changes will be made as our discussions with stakeholders and other departments progress.