Fares rises show lack of clear strategy on railways

 

Every January, the new year opens with bad news about the railways. The rise in fares which are imposed in time to greet people renewing their season tickets at the start of the year is usually compounded by tales of rail chaos, either induced by the weather or by management incompetence.

 Last year it was certainly the latter, when engineering work overran but this year it was mostly the result of incredible bad luck, with the West Coast Main Line being shut no fewer than four times because of, first, a plane crash and then three failures on successive days of the overhead electrification equipment with unrelated causes. The pasting given to the industry in the press was, therefore, partly unfair because the railways can hardly be blamed for errant light aircraft but the unpopularity of the above inflation fares increases has left the railways vulnerable to attack on the slightest pretext.

 The bad start for the railways is the prelude to what promises to be the most tumultuous year in their history since the privatisation of the mid 1990s, with the railways being pushed up the political agenda as the result of a series of threats and opportunities.

 On the negative side, railways always fare badly in a recession. They have high fixed costs and are particularly vulnerable to even small losses of income. Their situation has been made even more precarious by the government’s attempt to rein back on the £5bn annual subsidy as it plans to cut the taxpayers’ contribution to the railways from a half to a third within five  years.

 The recession could not have come at a worse time for the train operators and the fares rises may not help them. Several franchise contracts signed over the past two years involve rapidly increasing premium payments by the operators and a loss of revenue at this stage could quickly plunge them into the red. That is why the operators have raised fares by the maximum allowed on regulated fares – season tickets and off peak returns – 6 per cent or RPI plus one per cent, even though this is based on the July inflation rate, far higher than now. Unregulated fares soared by 7 per cent, and some, particularly those on busy routes, have risen by up to 11 per cent, causing outrage among passenger groups.

 Not only was this highly unpopular with passengers, but it may prove to be counter productive. Since motoring costs have actually fallen recently, the high ticket prices may well prove to be a deterrent to so many passengers that the train operators do not gain much revenue from these increases.

 The operators are, in fact, already warning they could soon be in trouble. Keith Ludeman, the head of Go-Ahead, the majority shareholder in the company which runs two of the big three south east commuter franchises, has already announced that he will seek to renegotiate the contracts to cut back the number and length of trains should the downturn cause a plunge in passenger numbers. The Department for Transport, however, has stressed repeatedly that the deals, which are mostly for five or seven year terms, are non-negotiable and therefore a huge public confrontation is on the cards.

 As for good news, the massive West Coast Main Line refurbishment project, costing a staggering £9bn, is, at last, complete and Virgin has been able to increase the speed and frequency of its trains from Euston to Birmingham, Manchester, Liverpool and Glasgow. The government has announced it will accelerate the acquisition of 200 of the promised 1,300 extra rail vehicles it plans to introduce by 2014 and has reiterated its commitment to Crossrail though, as reported in Public Finance last September, there are still doubts about the precise funding.

 On a strategic scale, too, things are moving. Electrification, ditched by the 2007 rail strategy White Paper, is now definitely back on the agenda, and so is the notion of a new north south high speed line which was also shelved during Alistair Darling’s long tenure at transport.

 So, oddly, just as the railways are heading for short term problems, there is a renewed enthusiasm at the Department for Transport, prompted by the energy of the new rail minister Lord Adonis, for positive long term thinking on the railways.

 But a word of caution. We have been here before. The ten year Transport Plan published in 2000 with the enthusiastic support of John Prescott, who was then in charge of transport, promised 25 new light rail schemes by 2010, 24 more than the number that will actually be delivered. The trouble with the railways is that they need long term support for sustained investment like in Spain with its remarkable plan for 10,000 kms of high speed line by 2020.

 Surprisingly the Tories are not only in support of a new high speed line, but they promoted the idea before the arrival of Lord Adonis at the Department. The crucial issue is over funding. Whereas in Spain and elsewhere on the continent, governments are prepared to guarantee the funding for such big infrastructure schemes, neither major party here has suggested this would be possible. Instead, there will be the endless and probably fruitless search for a complex deal involving the transfer of risk to a reluctant private sector.

 In any case, since work would not start for several years, there is no prospect of a new line being completed much before 2020, offering little solace for today’s commuters facing higher fares and possible cutbacks in service. This strange prospect of pain today and jam tomorrow is a product of the traditional reluctance of politicians in Britain to fully endorse the railways. If there were the kind of wholehearted support seen in Europe, then the Crossrail funding would have long been assured and a commitment to a new high speed line would have already been made. And fares would not be going up at rates well above inflation.

 

Shares