Bus passenger journeys outside London have fallen by 32.5% since 1986, but within the capital they have risen by 99%

Millions of bus passengers who rely on services outside London have been let down by a lack of competition and the failure of deregulation, a report warns. They include the poorest fifth of all households, who cannot afford cars and yet who end up taking more taxi journeys each year than any other income group because of the unreliability and high fares of their local buses.

The report from the IPPR thinktank, Greasing the Wheels: Supporting and Improving Britain's Rail and Bus Services, calls for local transport authorities modelled on Transport for London to be introduced across the country, with powers to introduce more successful London-style bus regulation.

It is nearly 30 years since local bus services in Britain were deregulated by the Conservatives under the Transport Act 1985 to revive the flagging fortunes of an industry in decline. It was believed that by encouraging and opening up competition, services would improve, fares would fall and cross-subsidies would be removed.

But the IPPR says the policy has largely failed because outside London bus passenger journeys have fallen and fares are rising faster than inflation. One in eight people working in Britain rely on a bus to get to work, the report points out, with passengers making more than three times as many bus journeys as rail journeys – more than 5bn each year.

The poorest make more than three times as many trips a year by bus as the richest, it says. But while car ownership is nearly universal among wealthier people, only 30% of households in the poorest income decile own a vehicle. Poorer groups therefore rely on bus services or have to take taxis. The report shows that the poorest fifth of households take more taxi journeys per year than any other income group.

The report argues that liberalisation has not resulted in a competitive market: 37% of weekly services outside the capital do not face any effective head-to head-competition and just 1% of weekly services face effective competition over all or most of their routes. Bus fares outside London rose by 35% above inflation between 1995 and 2013, and by 34% in Wales and 20% in Scotland.

Over the past 30 years, bus passenger journeys have plummeted outside London but grown in the capital. Overall bus use outside London has fallen by 32.5% since 1986, but risen by 99% in London.

Will Straw, associate director of the IPPR, said: "London has the best buses in Britain and that's no accident. Transport for London has been a great success, while the deregulation of buses outside London has largely failed. Outside London, bus passenger journeys are down and fares are rising higher than inflation. Examples of successful bus markets outside London are all too rare, so local transport bodies should be given greater powers to hold uncompetitive providers to account."

The report recommends the creation of local transport bodies modelled on Transport for London at the level of city-regions and combined authorities. They should have a remit to take on the delivery of transport policy, including the regulation and contracting of bus markets where the private sector is failing to deliver an adequate service. The report argues that this would allow for better services and allow for greater integration.

Straw said that, as well as regulating bus services, routes and fares, "these new bodies should have a wider role of encouraging better integration between buses and other modes of transport including rail. This will help increase the number of passengers using public transport".