New report published by Campaign for Better Transport says extension of the real terms fares freeze would have ‘minimal’ impact on railway finances

With train operators and the Department for Transport again under fire following the annual January fares increases, new research has shown the government could make a permanent cut in fare rises without jeopardising its targets to reduce taxpayer support for the railway.

The study by consultancy Credo for the Campaign for Better Transport shows that it would cost the DfT £22m to extend the 2014 real terms fare freeze, introduced this month, until the end of 2015. Extending it throughout Control Period 5 (2014-19) would cost £246m – 1.5% of the £16.8bn the DfT has allocated to the rail industry for the five years.

Credo calculates that the fares freeze would lead to 95 million more passenger journeys in CP5, helping to reduce the additional subsidy requirement.

The research shows that a real terms fares freeze would have little adverse impact on the DfT’s aim to continue reducing taxpayer funding for the industry. DfT support for the rail industry has fallen from 38% in 2009 to 26% at present. If the current policy of reinstating RPI+1% fare rises after this year continues, the DfT would be providing 20% of railway funding by the end of CP5 and 21% if increases are limited to RPI.

The study also forecasts that farebox revenue will slightly exceed the railway’s day-to-day operating costs in 2019 under both scenarios, compared to covering 84% of operating costs today.

Transport minister Stephen Hammond said the  government had “quite rightly been criticised for fares going up by more than inflation” over the past decade.

CBT chief executive Stephen Joseph said the research showed a real terms fare freeze would have a “minimal” effect on railway finances and that there was scope to introduce a more radical new fares policy to combat the impact of rail fares in eroding standards of living following a decade of fares rising faster than wages. He called on the government to link fare increases to the Consumer Prices Index (CPI) rather than RPI, which would result in substantially lower price rises.

“Government should stop using RPI to calculate ticket prices. It over-estimates real inflation so consistently that the Office of National Statistics has dropped it as an official measure,” he said. Government has already switched to CPI for most things…and [this would] bring fares into line with things like public sector pensions.”

Switching from the RPI+1% formula to a CPI+0% formula in 2015 and for the remainder of CP5 would require £496m additional DfT subsidy over the period. However, CBT argued that the 194m additional journeys generated by lower CPI-linked rises during CP5 (according to the Credo research) would provide some compensatory economic and environmental benefit, as well as addressing fares policy’s inherent ‘unfairness’ to passengers.

“What this report shows is that by the next Parliament income from fares will cover the entire running costs of the railways,” Joseph said … “The Government must re-examine its fares policy as a matter of urgency and commit to a fairer system in line with the CPI so that fares only rise in line with wages.”

 

Impact of potential fares policy changes in CP5

Annual fare increase: RPI+1%
Farebox revenue: £53,014m
Additional subsidy: +£0m
Additional journeys: +0m

Annual fare increase: RPI+0%
Farebox revenue: £52,768m
Additional subsidy: +£246m
Additional journeys: +95m

Annual fare increase: CPI+0%
Farebox revenue: £52,519m
Additional subsidy: +£496m
Additional journeys: +194m

 

Hammond recognises issue of affordability

The impact of rail fare increases on eroding living standards was highlighted in the Credo research by comparing increases in Reading-London weekly Travelcard season ticket prices to rises in wages.  Between 2008 and 2013 the cost of the ticket increased 25% while average take home pay in London rose 9%. As a result, the cost of the ticket has increased from 18% of average take home pay to 22% of average take home pay during this period.

Transport minister Stephen Hammond acknowledged that protests on rail fare increases and their “impact on household budgets” have resulted in the issue rising up the political agenda. He said the  government had “quite rightly been criticised for fares going up by more than inflation” over the past decade. He described limiting this year’s fare rises to RPI as “a start”, but indicated that any switch to the CBT’s preferred CPI formula would have “considerable implications for the public purse”.

Credo’s research forecast that if fares were frozen to CPI+0% from 2015-2019, rises in average earnings and rail fares would be substantially the same taken over the decade from 2009-2019.

 

This article, and many others, appears in the latest issue of Passenger Transport.

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