THE government has unveiled measures to reform the subsidy system for the bus industry.

Under existing arrangements, the Bus Service Operators Grant (BSOG) for both commercial and non-commercial bus routes is administered centrally by the Department for Transport.

The BSOG is the partial refund on fuel duty received from the government by operators of local bus services in England.

From January 2014, BSOG funding for non-commercial routes – those which could not economically operate without support – will be devolved to local authorities.

Government money currently paid to operators for these services will be paid to the local authority.

As this will result in the operator facing higher costs to operate the service, payment for which will have been agreed under the terms of the contract, there will be a need for the authority to compensate the operator through adjusted contract payments.

This funding will be ringfenced until April 2017 so that each local authority will have to spend it on bus services in their area.

The government claims that reforming the BSOG will give more freedom to local councils while making them accountable for the decisions they take.

Devolution of bus subsidy for locally tendered services follows the latest spending round when the Treasury confirmed that current levels of government support for buses would be maintained until at least 2015/16.

Several authorities will also be established as new Better Bus Areas this autumn, receiving increased funding to invest in bus improvement measures.

In designated Better Bus Areas, BSOG funding for commercial services will also be devolved.

The government said these Better Bus Areas would incentivise closer partnership between local authorities and operators and provide a test bed for how bus subsidy might be better used.

Transport Minister Norman Baker said giving councils greater control over the way money is spent on some bus services would provide better value for passengers and taxpayers.

"These important reforms will give councils more freedom to determine appropriate bus provision, handing more power to local communities to take decisions based on local knowledge and priorities.

"This will mean better buses for travelling public and shows our continued commitment to the localism agenda, freeing local authorities from central government control."

The government says the reforms will also "close a loophole which up until now allowed bus companies to claim extra subsidy to run rail replacement services and buses catering for tourists, rather than those which provide vital local services".

BSOG is designed to help bus companies keep fares down on regular local bus services, but the government says it has been claimed by some firms to run rail replacement services when engineering work is carried out on the network or for buses operating local tours for visitors.

Under the new arrangements, this will no longer be possible, which will send a clear signal to train companies that when people buy a train ticket, they want to use a train.

Full details about the new arrangements are available here.

A further review of BSOG will be started next year, examining the commercial element of the bus subsidy.