11 August 2010

Regulated fare rises

With rumours suggesting the Department for Transport is planning a £1.5 billion reduction in spending on the rail industry, many people have started to look at where the axe might fall. We suggest regulated train tickets will be the first to increase.
  • With larger projects such as Crossrail and most of Thameslink confirmed, the obvious strain they'll have on the budget can be offset by increases in ticket prices throughout the network. The annual regulated ticket formula increase of Retail Price Index+1% will surely change. This was referred to by transport secretary Philip Hammond in the Financial Times on 28 July

  • But what will it increase by? +2%? +4%? More money for the coffers and reduce the need for additional capacity through costly rolling stock

  • For those who believe the additional revenue raised through alteration of the RPI+1% formula will pass to the train operating companies (TOCs), think again. Clauses exist in all franchises that allows the DfT to keep 100% of revenue generated by alteration to the RPI+1% formula

  • The 'big payers' will be season tickets, rather than off-peak tickets. While additional revenue will head towards Marsham Street, TOCs claim fare rises see a reduced demand for travel. Benefits here will not be 100%. Christian Wolmar wrote in RAIL on 14 July: "the accepted figure in the industry is that the elasticity is about 0.3 - which means that for every £1 rise, and extra 70p will be generated."
And, let's face it, increasing fares will not generate anything like £1.5bn of savings alone. This figure is independent of the 21% efficiency savings the DfT claims it can make within Network Rail, too. Longer franchises have been called upon by all parties over the course of the year and this could see savings made.

Net government subsidy for the railway increased by £2 billion since privatisation and offering franchises for longer will undoubtedly incentivise operators to invest more, who will in return be willing to reduce the amount they receive in real terms from the DfT. But, added to increases at the fare box, could these both really save £1.5 billion?

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