Rail 678: Ministers exploit rail’s commuter monopoly

The fuss over the 8 per cent fare rises raised yet again the crazy nature of Britain’s rail fare system which is unparalled in complexity anywhere in the world. The news coverage may have feature primarily on what commuters are paying, but the truth is that the whole system is, in that ghastly industry term, ‘not fit for purpose’.

Let’s start with what is an all too obvious contradiction. Remember the purpose behind ‘fares regulation’. When the railways were privatised, the Major government was concerned about the exploitation of passengers who had little alternative but using the train. It also wanted to ensure that there was a basic set fare for longer distance trains at off peak times that was affordable. Therefore two sets of fares were controlled by the Department for Transport: season tickets and off peak – formerly known as Savers – as well as local short distance anytime tickets for journeys around major cities.

The intent was clear. People living in Woking or Gravesend  and working in central London effectively face a monopoly. They can’t drive because there is no parking and while there are a few bus services, commuting on them is normally impractical as they take so long in the traffic. So the fares were to be regulated to protect commuters from rapacious private sector train operators who would exploit their monopoly position.

Now the idea of protecting passengers has been subverted and the legislation is being used in precisely the opposite way to the original intention, except that the government, rather than the privateers, as Bob Crow calls them, is profiting from the imposition of well above inflation rises. What is more remarkable is that instead of squealing and complaining, the train operators and their association, ATOC, simply goes along with it and, worse, toes the line that the money is necessary to pay for improvements and increased services.

That is nonsense. The money is going towards redressing the balance between taxpayers and rail passengers, and the extra is simply going into government coffers. This is because the train operators contracts contain a clause which effectively means that any extra revenue through changes in the amount received as a result of these government imposed price rises goes to the Department, not the franchisee. I say ‘effectively’ because there is a negotiating process where assumptions are made about precisely how much increase in revenue will be generated, and if the civil servants get it wrong then the operators’ profits will be boosted. Moreover, as Nigel Harris pointed out in the previous issue, the operators have some leeway over where to impose the highest increases and they will make use of it to coin a few extra millions.

Quite apart from this scandalous exploitation of the regulatory system, the sharp increases expose the fundamental dysfunctional nature of the overall fares system. Everyone in the industry accepts that fares are a mess, resulting from different structures being imposed on each other which has created a system that leaves passengers, including even at times my fellow columnist and expert Barry Doe, baffled.

The problem is – what to do about it? The more that one delves into the system, the more elusive any potential rational system, such as simple pence per mile pricing, appears. That’s because the main ticket types serve different markets and it would be very difficult to blend these in together. For example, if long distance fares were simplified to a pence per mile system, giving one standard fare between say London and Birmingham, then peak trains would become overcrowded. So Virgin  would argue a premium would need to be paid. However, at the same time, passengers would complain that the cheap advance fares were no longer available, and would also complain. Virgin too, would argue that these advance fares are filling up capacity that would otherwise remain unused.

Then, of course, there is London Midland which offers a cheaper deal, albeit on a slow train, and Chiltern which has just, interestingly, announced that it will operate a simpler system on its new faster service between Marylebone and the West Midlands. However, Chiltern’s simpler system involves peak, off peak, and very off peak tickets, already quite complicated, and there will even be advanced tickets, although these will no longer be heavily promoted.  And we haven’t even mentioned the problem about return fares and ‘two singles can be cheaper’, or buying separate tickets for each part of the journey, which also can be cheaper. ATOC is, by the way, keen to put an end to that little wheeze but, again, it is proving difficult.

Similarly, season tickets perform a different function. By offering a big reduction for using trains regularly, they ensure loyalty and, as explained above, they are regulated to ensure that the private operators do not exploit their monopoly position. Outside London, urban fares tend to be much cheaper, reflecting economic realities as people earn less and, in many cases, may have more opportunity to use their cars instead as car parking and congestion are always as difficult as in London. Therefore, again, calls to simplify the system would result in new anomalies being created and cause anger among large swathes of rail passengers.

All of this explains why, despite years of complaints from passengers about complexity, nothing has been done apart from the renaming exercise a couple of years ago into ‘Anytime’, ‘Off-peak’ and ‘Advance’, which has had very little effect on the ground.

In his recent report, Sir Roy McNulty spotted that the fares structure was dysfunctional. Indeed, he would have had to suffer the impairments of all three monkeys not to do so. He found that passenger fares were 30 per cent higher in GB than on the Continent, although he was relying on previous reports and, in fact, did very little analysis of the fares system. He found that the fares structure does not send out ‘efficient price signals, particularly in meeting peak demand’ and that it is ‘extremely complex’, hardly a stunning insight.  His solution reflects the muddled thinking of the rest of his report. He advocated a fares review to be carried out by the Department but makes only a scant suggestions as to what it should be reviewing. He suggested that the system should better manage peak demand and be more efficient at matching demand with capacity, but the change should not result in an overall increase in fares. He then adds that where other transport modes are available then some reduction in regulation of off peak fares could be made – that’s probably everywhere where there are roads, Sir Roy, and in any case the operators sell off peak advance tickets at far cheaper rates than the regulated old saver fares.

The truth is that despite glib promises to the contrary, no government or railway company can possibly simplify the rail ticketing and fares system under the current structure. Sorting out this mess requires a lot more than a review and promises about ‘simplification’. There are not only all the problems outlined above but the franchising system effectively stops any radical change from being implemented. If the operators feared that they would lose revenue, they would either block the change or force the Department to pay so much compensation, it would not be worthwhile. Incumbent franchisees for the most part have the Department over a barrel when it comes to making changes.

Therefore do not expect any radical changes to emerge from the review, when it eventually takes place. McNulty suggested it should be completed some time in 2012 and I suspect that the Department may well try to forget the whole thing – as it already has with another of McNulty’s recommendations, on creating an independent ‘change team’.

The real cost of privatisation

It is extraordinary that McNulty, in his report, did not provide a historical perspective on rail privatisation. Indeed, as I have mentioned before, a chapter on the history of the railways and the break-up of British Rail was excised from the report at a late stage by Philip Hammond. It would, surely, have given a valuable insight into the real costs of privatisation.

Therefore the RMT has done something of a service by asking a consultancy firm, Just Economics, to assess the long term cost of privatisation. Predictably, the consultants have come up with a high figure, suggesting that ‘leakage and interface costs amounted to more than £883 million in 2009 alone, and more than £6.6 billion between 1997 and 2009’. Actually, I am rather sceptical of the precision of these figures especially as the version of the report available online runs to just a couple of pages. Nevertheless, it does provide a few interesting figures which appear to have been obtained from previous studies and shows that McNulty, with his far greater resources,  should have produced an analysis on the financial impact of privatisation. Instead, he was hijacked and the opportunity wasted.

  • Ricpou

    I haven’t yet seen the text of P Hammond’s outpourings to the Tory Conference, but I couln’t help noticing ‘Call me Dave’s’ speech extolled the virtue of Formula ! racing cars being assembled in the UK, but ignoring the fact that so many trains in the UK are made in Germany, Japan or the USA / Canada (locomotives).  And for too many Tories investment is roads, roads and more roads.  Since most Tory voters backsides are in their cars, is it suprising. of the
    I’m beginning to have mixed feelings about HS2, as real investment will be in urban and regional systems. Neither of the main parties understand this, Maria Eagle’s speech to the Labour Party conference ignores this too.  Sadly only Boris is talking about investing in local schemes, and his intellectual limit is ‘Crossrail, the tube and Borismaster buses. (Someone should tell him about the trades descriptions act, with any reference to Routemasters.)
    Labour must get it’s act together to boost regional rail schemes, invest in british built trains and trams, and get urban economies moving with a modern version of the 1968 Transport Act, to promote regional growth strategies,

  • Greg Tingey

    ATOC are (collectively) greedy crooks.
    The effective banning of anyone living in London from using an all-lines Rover for a holiday is a classic example.
    As for fares, why can’t we go back to a mileage rate + plus “pullman-supplement “(equivalent) for really good services
    And I DON’T mean the slow-speed St-Pancras-Ashford fiasco (slower than a class 91 to Peterbotough) either….

  • Paul Holt

    Something has gone wrong with the last section “Therefore…wasted.”

    It would help if CW’s vision for the network was articulated.

  • Christian Wolmar

    Thanks, corrected now! Vision is for another time when I don’t have several deadlines and am working all sunday!

  • Christian Schmidt

    I spend quite a bit of time researching rail fares for friends and family – mainly separate tickets as that saves so much money. Even when I manage to find a bargain they are still angry at the rail system for making it so complicated. Everyone I know believes that the government and the train companies are making it deliberately complicated to rip them off.
    My latest ridiculous example involves travel from South Wales to the Heart of Wales line. It looks that it is possible to buy period returns to any HoW line station via both Llanelli and Craven Arms, but not valid both ways even where the fare is the same. Why? Furthermore, day returns exist only via Llanelli or Craven Arms (depending on HoW line station). Why?? To crown it, day returns may exist only exist the long way, e.g. Newport to Llandrindod via Llanelli when the obvious way is via Craven Arms. Why???
    My preference for simplification would be to abandon return fares by making single fares exactly half the current return fare. I never understood the reason for charging effectively the same for single and returns. If it is to prevent people from travelling peak in the morning and off-peak in the afternoon, then it seems an awful big solution with many negative side effects that seems also quite unnecessary given the widespread use of pm peak restriction where there is a capacity problem.