Basket Case

What's not made known in the 'red tops' is that the former Labour government agreed a number of years ago for the 50/50 split between taxpayer/passenger governing who funds the railways to change to 25/75 by 2014, representing a better deal for the taxpayer, who will be funding less of the railway than before, though greater burden is placed directly on the passenger through fare increases - the only real way such a balance can be addressed in such a relatively short space of time.

This is one of the reasons why the latest round of train fare rises has been permitted. What precious few commuters there are left (thanks to the recession) are being forced to pay increases of up to 13% in some cases. This despite the RPI+1% formula, which rises to RPI+3% next year.

There will long be the argument from the road lobby that train passengers alone should fund any improvements to their network and so increased fares should be expected, as they are finding at the petrol pumps of late, but an argument slightly aside from this that got me thinking was aired by 'Industry Insider' in his latest anonymous column in RAIL magazine.

There is much hand wringing that while there have been greater volumes [of travelling passengers], unit costs have not declined. This displays a lack of understanding of where BR was at the time of privatisation. It had made draconian cuts to infrastructure capability, resulting in lengthy headways between trains on all but the busiest main lines, and reduced the rolling stock fleet to cater for the then level of demand.

This, then, is one argument for why the money needed to be literally poured into the industry has increased year on year but the benefits supposedly reaped in overall savings as a result have not followed suit. It's an argument I'd not really considered before and one that shows the lack of foresight the former nationalised railway industry had. Could we really still be paying for the condition in which it was privatised?

With very recent passenger growth of 34% being recorded at Northern, it is no wonder the level of money being poured in has had to be at the level is has and that the government wants to reduce this, or at least its contribution to it, by from 50% to just 25% by the end of the next three years.

Another feature of the legacy train operators were bequeathed by BR is the Fares Basket system, set up at privatisation to permit operators to correct fares anomalies and to respond competitively to local conditions. The Fares Basket has been slightly altered over the years, but effectively fares contained therein can be raised by the advertised formula - this year being RPI+1% in most cases, plus a further 5%; however these must be offset by fares increases of well below the advertised RPI+1% formula on others. The result must be an average of RPI+1% across each operators' regulated ticket types.

With July's Retail Price Index, on which this month's annual fares increase is based, being 4.8%, a further 1% plus the option of yet another 5% has seen many regulated fares shooting up by 10.8%. Southeastern's passengers face an even greater increase, as the formula here is RPI+3% (to pay off the building of HS1) so fares have risen in some cases by 12.8%. Coincidentally this is the same increase the RAC revealed petrol has risen by over the past year. There has to be much lower increases elsewhere to ensure the average ticket increase is no more than RPI+1% but you can bet your bottom dollar these will not be the busy commuter flows in and out of large cities.

Non-regulated fares can, as ever, be increased without a cap, which was too tempting for First Capital Connect recently, who admitted to a 46% fares hike on a range of tickets that would 'only' affect 0.3% of its daily passengers. Which begs the question: if so few are to be affected, what possible significant financial gain will the company possibly feel as a consequence?

Last year, the Fares Basket was held to ransom by former Transport Secretary Lord Adonis, who would not offer any further flexibility other than the RPI+1% formula, which in most cases forced operators to reduce regulated ticket prices as July 2009's RPI was below -1%. The Coalition government has not been so tight with its parameters and loosened the former Lord's grip on what the train operating companies can do, by effectively reinstating the leeway in the Fares Basket.

And then there's the fabled Page 26 of Sir Roy McNulty's Interim Report on efficiency savings within the rail industry. Local branch lines form part of regional franchises which cost the most 31.1p is currently paid by the taxpayer for every passenger mile on a train service in this category, compared with 7.3p for long-distance franchises and 4.8p in London and the South East. Could line closures really be on the cards when patronage has boomed so much (and will be guaranteed to do the same when the country's finances are back in the black)?

LEYTR Comment: We believe the government is taking a hard-line view on this: patronage growth of 34% in some cases is at such a level that draconian fares increases are both right and proper to not only invest the sums needed to provide for these additional travellers and to offset the reduction in the sum taxpayers invest to the pre-determined level of just 25% by 2014. It was a decision taken by the previous administration after all and one the current Coalition simply will not shy away from one bit. If anything, the Basket Fares system could be relaxed further, with greater discretion afforded train operators provided they still average the advertised (public) figure. We're surprised the Coalition hasn't used the argument raised by 'Industry Insider', then we realised that it was on the Tories' watch that BR was allowed to get into the mess many believe it did.