Guidance

Establishing a new local authority bus company (LABCo)

Published 24 July 2026

Applies to England

Guidance for local authorities (LAs) on setting up a local authority bus company (LABCo).

The guidance helps LAs to understand the legislative and regulatory framework underpinning the establishment, governance and ongoing management of a new LABCo, including practical and financial considerations.

It signposts wider legislation and guidance in relation to owning and running a local authority owned company.

Introduction

The Bus Services Act 2025 (BSA 2025) received Royal Assent in October 2025. This guidance relates to section 22 of the BSA 2025.

Subsection 1 of section 22 of BSA 2025 repeals section 22 of the Bus Services Act 2017 (BSA 2017). This lifts the ban on local authorities establishing new bus companies (LABCos), which were formally known as ‘municipals’.

The ability to use these powers commenced under the BSA 2025 on 26 January 2026.

This guidance does not apply to Transport for London (TfL), which was established under the Greater London Authority Act 1999, and always had the power to establish a bus company. 

The BSA 2025 enables every local authority (LA) in England outside London to set up a new LABCo, should they wish, thereby increasing the options available to an LA in terms of owning, organising, operating and improving bus services in their areas.

There is no requirement for an LA to establish a LABCo.

Local leaders’ understanding of local challenges and opportunities within their areas mean that they are best placed to decide what the correct course of action may be to drive improvements to bus services and deliver better outcomes for the public.

The BSA 2025 provides a toolkit of options to improve bus services - establishing a LABCo is one of these, alongside franchising and strengthened enhanced partnerships with private operators.

This guidance is for any LA that is considering setting up, or has chosen to set up, a LABCo. It is designed to signpost wider legislation and guidance in relation to owning and running a local authority owned company, and to help an LA understand the legislative and regulatory framework underpinning the establishment, governance and ongoing management of a new LABCo, including practical and financial considerations.

This guidance is not legal advice, and it is not exhaustive in referencing all legislation and guidance that may be relevant. Any LA looking to set up a new LABCo must seek their own independent legal advice before proceeding. 

Strategic considerations 

The BSA 2025 does not prescribe the commercial or financial structure of new LABCos – it is up to the LA to decide how best to set up a LABCo that meets local needs and ambitions. It is also critical to ensure that all relevant legislative and regulatory requirements are met when establishing and running that business.

When looking at whether a LABCo might be suitable for its area, an LA should first determine a clear case for why and how a LABCo can help to improve bus services for passengers in the area. Important considerations as part of that process include, but are not limited to:

• what the central purpose of the LABCo will be - identifying what specific value a LABCo can offer, as opposed to maintaining the status quo or implementing other bus reform options
• whether sufficient financial resources will be available to invest in establishing and running a LABCo - ensuring that the company will be self-sustaining at a minimum
• confidence that the leadership and governance structures of the LABCo will be stable, robust and transparent
• confidence that the LA will have sufficient capacity and capability across all areas, including commercial, financial management and procurement, to run a LABCo successfully
• certainty that there is support from council members and wider political leaders to establish a LABCo

Another important consideration is to ensure that as an operator of local bus services, a LABCo can fulfil the requirements for registering local bus services.

Read detailed information on how to register services with a traffic commissioner and how the local bus service registration system works.

The BSA 2025 permits any LA in England outside London to own and operate a LABCo. This includes:

• strategic authorities
• any single unitary authorities, county councils, district councils or metropolitan districts under a strategic authority
• any single unitary authorities, county councils, district councils or metropolitan districts not under a strategic authority

This guidance refers to ‘LA’ in terms of a local authority that owns and operates a LABCo. However, 2 or more LAs may jointly own a LABCo.

An LA is permitted to either:

• purchase an existing bus company and run it as a LABCo - a power that was left unchanged by the BSA 2017 and BSA 2025
• set up an entirely new entity

In the event of an LA purchasing an existing bus company, staff employment contracts may need to be transferred to that new LABCo. In those circumstances, Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) would apply.

Read separate guidance on TUPE for more information.

An LA may also wish to engage with trade union representatives to establish what the implications for staff contracts may be, if it were to purchase an existing bus company. 

An LA has the option to establish a LABCo:

• as part of a franchising scheme
• following the establishment of a franchising scheme, under Section 123A of the Transport Act 2000 (TA 2000)
• under an enhanced partnership (EP) arrangement under Section 138A of that act

 Devolution

Government has launched a national devolution agenda - a long‑term reform programme aimed at simplifying governance and improving public services. The English Devolution White Paper sets out the government’s devolution plans across England, providing mayors with additional powers and funding, and rebuilding local government.

The English Devolution and Community Empowerment Act 2026 introduces new measures to strengthen local authorities. That act establishes the category of strategic authority (SA), a structure including combined authorities and combined county authorities, that will have responsibility for transport strategy across the entirety of the area it covers. Many areas already have SAs in place.

Where there is an existing LABCo providing bus services at the time of a SA being established, ownership of that LABCo can be retained by the original LA. This is possible because the powers required to operate the LABCo can be held concurrently by the original LA and the SA, so that the business can have operational, financial and governance continuity.    

 A SA could establish a new LABCo to provide bus services across the entire authority area or part of it. Alternatively, one local authority under a SA could own and operate a new LABCo that could run services within its own area, and across the wider SA area.

Depending on the local area, an LA under a SA may need secondary legislation in order to provide it with relevant concurrent powers to operate a LABCo.

This is because the SA would hold a number of transport powers as the strategic transport authority for the area, and secondary legislation would provide the LA with the necessary powers to operate a LABCo concurrently with the SA. In this case, the LA would need to get consent from the SA to pursue setting up a LABCo .     

Local government reorganisation

Local government reorganisation (LGR) is occurring in several places across England. It is the process of simplifying local government by replacing the two-tier system (separate county and district councils) with single-tier unitary councils. Given these wider changes, it is important to set out what LGR means for existing and future LABCos.

Where LGR is taking place, any consideration of setting up a new LABCo will need to ensure that decisions about ongoing service delivery and the medium-term financial strategy of existing councils do not compromise the future sustainability of new councils.

The Ministry of Housing, Communities and Local Government has set out guidance on authorities making financial decisions prior to LGR. This states that ‘Decisions that are necessary to ensure service delivery should not be delayed.’

Where a LABCo is part of an LA that ceases to exist and is replaced by an LA over a different geography, the arrangements for the ownership of the LABCo should be considered in the same as any other asset that transitions to the new authority.

Existing LABCos

The Transport Act 1985 (TA 1985) privatised the National Bus Company and, separately, required those LAs running bus services directly to transfer those operations to new publicly owned companies.

There were over 30 LABCos created in England under the TA 1985, with 5 of those still in operation today. These LABCos operate under experienced leadership with extensive knowledge of the bus industry and local factors, and work within robust governance structures and with stringent fiscal management.

Giving local authorities the freedom to establish new bus companies could enable more places to match the achievements of those 5 existing LABCos in England, which are:

• Blackpool Transport
• Ipswich Buses
• Nottingham City Transport
• Reading Buses
• Warrington’s Own Buses

Franchising

A LABCo can be established as an element of a part-franchised or fully franchised network. Franchising enables an LA to determine key elements of services, such as where and when bus services run, and the standards of the services. Operators provide their services under contract to a LA, and no other services can operate in the franchised area without the agreement of the franchising authority.

An LA that is interested in exploring a franchised bus network in the future may wish to consider including an assessment of setting up a LABCo as part of their franchising assessment. However, there is no statutory obligation to do so.

If an authority commenced any part of the statutory franchising process before the commencement of section 22 of the BSA 2025 and now wishes to consider establishing a LABCo as part of their franchising plan, then it should re-start the assessment process, as per section 123B of the TA 2000, with the LABCo option forming part of the business case.

Read separate guidance on the process of setting up and running a bus franchising scheme.

Enhanced partnership

A LABCo can also be managed as part of an enhanced partnership (EP), which is a statutory agreement in England between an LA and bus operators to work together to improve bus services.

An LA may wish to look at establishing a LABCo to help improve its existing enhanced partnership (EP) scheme. If an LA wishes to vary its EP scheme to include a LABCo, it must be satisfied that any variation to the EP scheme will benefit passengers by improving the quality of bus services in the scheme area. In such a case, the LA should consult with existing operators and other key stakeholders, for example passengers and local transport groups, on that scheme variation.

Read separate guidance on establishing and varying an EP scheme.

Finance and investing

An LA should carefully consider all funding and financing issues before proceeding to establish a LABCo. The decision to establish a bus company should be underpinned with a rigorous and prudential approach to financial and resourcing requirements.

There should be ongoing assessment of risks relating to the business, supported by compliance processes and legal advice processes to ensure that risks are managed as part of the LA’s overall risk management strategy, with appropriate escalation and reporting. 

An LA has various options for financing a LABCo:

• using public funds from direct grant funding or by borrowing from the owning authority, in accordance with subsidy control rules
• borrowing from the Public Works Loan Board or National Wealth Fund
• borrowing from other private lenders

The Public Works Loan Board (PWLB) offers a lending facility for LAs and is operated by the UK Debt Management Office on behalf of HM Treasury using funds from the National Loans Fund.

All metropolitan, borough, county, city and strategic authorities can take out PWLB loans, subject to the prevailing lending terms and conditions.

The National Wealth Fund (NWF) provides financing for large-scale projects, often at lower rates than PWLB. The NWF is interested in larger scale projects with clean energy focus and has a local authority arm that focusses on local transport projects. 

Local authorities borrow and invest under the prudential framework, comprising legislation, mainly part 1 of The Local Government Act 2003, as well as 4 statutory codes that authorities must have regard to.

The objective of the prudential framework is to ensure that all borrowing and investment decisions are prudent, affordable and sustainable, and consistent with the best value duty for LAs in England, issued under Section 26 of the Local Government Act 1999.

Additionally, local authorities must have regard to the:

• Chartered Institute of Public Finance and Accountancy prudential code principles when determining affordable borrowing limits
• statutory guidance on local government investments in making and managing investments, including equity and loans

Authorities will need to ensure that all borrowing and investment decisions relating to the establishment of a LABCo are consistent with the prudential framework.

Subsidy control

Subsidy control is an important element of good public money management because it ensures that public funds are used responsibly, transparently and in ways that support, rather than distort, the economy. The government subsidy control regime ensures that use of public money is targeted, proportionate and justifiable.

An LA is not prohibited from using public funds to invest in a commercial company that it owns. A LABCo can be funded through direct grant funding from central government, in which case the central government department administering the grant would be the public authority for the purpose of any subsidy control considerations.

A LABCo can also receive funding directly from the owning LA or by borrowing from that LA. In this case, the LA is the relevant public authority for subsidy control considerations.

If a LABCo receives public funds, that company and the owning LA must pay due regard to the Subsidy Control Act 2022 to both:

• determine if the funding is a subsidy
• ensure, where subsidy arises, that the subsidy complies with the legal obligations on public authorities under the act

Read separate guidance on subsidy control rules for information on the principles governing LA subsidies.

Governance 

Local authority owned companies are subject to public accountability, as well as being required to demonstrate commercial discipline. Therefore, strong governance is needed when setting up a LABCo to protect the authority, the company and its workforce and local residents.

Legislation relevant to setting up a LABCo and its governance includes the following:

• section 22(2)-(4) of the BSA 2025 - this ensures that new LABCos are subject to the same governance requirements as existing LABCos, in that LABCo executive directors cannot also be elected members of the owning LA

• the Localism Act 2011 - section 1 includes a ‘general power of competence, giving LAs the legal capacity to do anything that an individual can do that is not specifically prohibited in any other legislation, subject to the terms of that 2011 act

• section 113A of the Local Democracy, Economic Development and section Construction Act 2009 and section 49 of the Levelling-up and Regeneration Act 2023, which provide combined authorities and combined county authorities respectively with a functional power of competence, subject to the terms of those acts

• section 10A of the Transport Act 1968, which provides passenger transport executives with a functional power of competence, subject to the terms of that act

• the Companies Act 2006 - in particular, sections 170 to 180, which impose duties on the directors of companies, including duties to act in good faith, exercise independent judgement, avoid conflicts of interest and declare interests

• part V of the Local Government and Housing Act 1989, the Local Authorities (Companies) Order 1995/849 and any further orders made under part V of that act, which impose requirements on companies in which local authorities have an interest

The above list of relevant legislation is not exhaustive. LAs can find further guidance on company governance and accountability in:

• the Local Authority Company Review guidance - provides (non-statutory) guidance to LAs for avoiding and managing conflicts of interest
• the Chartered Institute of Public Finance and Accountancy Local Authority Good Practice Guide - highlights existing best practice for LA owned companies

Procurement

Effective procurement is a cornerstone of an effective, reliable and accountable transport system. Bus services rely on public contracts and so the quality of procurement directly shapes service quality, value for money and beneficial long‑term outcomes for passengers.

The Procurement Act 2023 governs the award of gross cost contracts for bus services. The Procurement Regulations 2024 is secondary legislation that supports that act.

In a gross cost contract, the authority pays the operator a fixed amount to run the service to particular specifications and fare revenue goes back to the LA. In this case the revenue risk sits with the LA.

Read separate guidance on the Procurement Act 2023.

The Public Service Obligations in Transport (PSOT) Regulations 2023 govern the award of net cost contracts for bus services.

With net cost contracts, the authority pays the operator what is likely to be a smaller, fixed subsidy (or no fee at all), with the operator retaining fare revenue. In this instance the revenue risk sits with the operator.   

Procurement arrangements for a LABCo are likely to be based on how that company is structured. The BSA 2025 is not prescriptive on LABCo structure and LAs have a range of options to consider in terms of what will best suit their commercial framework.

‘Arms-length’ approach

One option could be to establish a new LABCo as an ‘arms-length’ company - where there is a legal, financial and commercial separation between the LA issuing bus service tenders and the LABCo. An arms-length LABCo:

• should not have a commercial advantage because of their ownership by a public body
• would have to bid for any council tenders in exactly the same way that a private operator would, and their bid would be assessed accordingly

For an arms-length LABCo, steps should be taken to ensure the principle of competitive neutrality is adhered to in a competitive tendering process.

For detailed advice on fair and open participation in commercial markets, read The Competition And Markets Authority’s:

• EP advice paper
• response to the Welsh Government’s Bus Service White Paper

Many of the existing LABCos in England are successfully running as arms-length companies – for example,  Nottingham City Transport, Reading Buses and Warrington’s Own Buses.

Teckal exemption

Another option may be for the LABCo to be controlled by an LA (or multiple LAs) in such a way that the Teckal exemption applies, under either paragraph 2, Schedule 2 of the Procurement Act 2023 or regulation 13 of the PSOT Regulations 2023.

This would enable an LA to direct award service contracts to that LABCo without the requirement for a competitive procurement exercise.

Read separate guidance on exempted contracts.

It is important to note that the conditions set out in the Procurement Act 2023 and the PSOT regulations (as applicable) must be met for the Teckal exemption to apply.

See Lincolnshire County Council’s Transport Connect for an example of how the Teckal exemption can be utilised to provide bus services.

Transport Connect was set up effectively as an ‘operator of last resort’. Lincolnshire is able to directly award contracts to Transport Connect under the Teckal exemption to operate some of the LA demand-responsive bus service contracts in parts of the county where there may be reduced competitive demand for bus service contracts.

Possible future LABCos

This section gives some examples of potential different structures and uses of a LABCo that LAs could consider in the future. These examples are for illustrative purposes only and are not intended to be in any way prescriptive.

Any similarity to any real private or public bus company, past or present, is entirely coincidental.

Example 1: Public Provider

Metropolis City Buses (MCB) was established in the 1980s and is majority owned by Metropolis City Council, with a private equity firm owning a 20% stake in the business. MCB has a ‘social dividend’ principle that underpins its operations and runs services under the council’s EP. It is the most prolific bus operator in the wider Giganta region (70% market share). The company provides good terms and conditions for staff and drivers and consistently receives good passenger feedback. MCB directors are independent of the local authority, focusing on service improvement and investment.  

Structure: Arms-length 

Size: 150 to 200 buses 

Function: Public service competitor 

Framework: Enhanced partnership

Funding: Public funds and private investment

Example 2: Operator of last resort

County Bus Direct (CBD) was established in 2004 by Broomshire County Council primarily to operate statutory school services, increasing interconnectivity in rural areas with dispersed populations. The company runs as an ‘operator of last resort’ under a Teckal arrangement. It is a relatively small operator which can quickly and flexibly provide bus services in the event of unsuccessful procurement, without requiring renegotiation of contracts or franchising exercise.

CBD provides a mechanism for market moderation in areas of low competition. CBD enables the consistent provision of statutory home to school services because the council has faced challenges in recent years successfully securing service contracts for those routes.

Structure: Teckal

Size: 20 to 25 buses

Function: Operator of last resort

Framework: Enhanced partnership

Funding: Borrowing from parent LA (via Public Works Loan Board)

Example 3: Regional provider

Bluesky Buses was established by Super Combined Authority (SCA) to provide bus services across its 3 unitary authority areas. The company was set up as an arms-length business operating under an EP, following the purchase by SCA of a local family-run private operator.

Bluesky helps SCA to maintain bus services at a consistent level across the bus network – something they are keen to continue since SCA took the decision to partially franchise bus services across the region. SCA plans for Bluesky to continue operating under the EP in the non-franchised part of the network, with the option for the company to also bid for franchised routes.

Having a regional LABCo which will help ensure that SCA maintain consistency with service levels and brand identity across the region, enabling a smooth transition to franchising with minimal risk of service disruption.

Structure: Arms-length

Size: Under 500 buses

Function: Regional public service

Framework: Enhanced partnership, Franchising 

Funding: Local authority funding, National Wealth Fund

Example 4: Unitary service

Goodtown City Council, a unitary council under Zenith Mayoral Combined Authority (ZMCA), established Unibus in 2023 to provide bus services predominantly in the Goodtown authority area to help provide consistent services and interconnectivity in the local area.

Unibus is funded by revenue generated by Goodtown’s traffic enforcement fines, a revenue source which enables reinvestment into improving the local transport network. The company provides bus services in the Goodtown authority area under the ZMCA EP with a combination of commercial and non-commercial services, connecting the suburbs and rural outskirts of town with higher density areas. Unibus is predominantly used by commuters, schoolchildren, and visitors to the town centre. 

Structure: Arms-length

Size: Under 100 buses

Function: Local provider, enhanced connectivity

Framework: Enhanced partnership

Funding: Reinvestment of traffic enforcement monies