Rail 460: National Railcard would sugar pill of commuter fare rises

The SRA could sweeten the unpalatable medicine of steep fare rises for politically influential commuters in the South East by announcing the introduction of a National Railcard, argues CHRISTIAN WOLMAR.

AN almighty brouhaha about fares is looming. The fares consultation process launched last July is due to be completed before the summer, and the Strategic Rail Authority is expected to recommend that there should be sharp rises, particularly for season ticket holders in the South East who have benefited most from the current regulation system.

The prospect of steep increases was hinted at in the consultation document which revealed, interestingly, that contrary to conventional wisdom, fares overall have risen at above the rate of inflation since privatisation. The document showed that while inflation was 18.7% between 1995 and 2002, average tickets went up by 22.5%. However, in the South East, they rose by less than the rate of inflation, just 15.7%, helped by the poor performance of many of the commuter train operators, which has restricted their ability to impose rises under the special regulatory rules applied to them by the SRA. It was the inter-city operators who took advantage of the fact that most of their fares are not regulated to increase prices by 33.8% during that time.

Therefore there is a certain inevitable logic to the fact that big rises for commuters are going to be suggested in the review due to be published this summer. The argument is that commuters travel on overcrowded trains, where capacity is in short supply, and are a captive market with, in many cases, no feasible alternative – especially now that congestion charging has added £5 daily to the cost of motoring in the capital. Moreover, they use stock that sits idle or little used for the rest of the day and clog up stations at peak times for relatively short journeys using capacity that could be transferred to increasingly overstretched inter-city services.

Therefore the laws of supply and demand should apply and fares will have to rise.

It is indeed tempting for the economists in the cash-strapped SRA to argue very strongly for such a policy and, according to inside sources, that is precisely what is being mooted. There is an interesting debate to be had over this issue. Essentially, cheap fares for South East commuters are a way of boosting house prices in a huge swathe around London. Putting up fares and therefore making it more expensive to commute will, in the medium term, lead to a fall in the value of homes. Rises would, of course, also save a large amount of taxpayers’ money by allowing the SRA to reduce subsidy.

But hold on a minute! Is this not a government which has said it wants to boost the numbers using the rail network? Putting up fares does not seem an obvious way of achieving that objective. The consultation paper recognises that there are conflicting aims in the fares policy. In particular, attracting people on to the railways by keeping commuter fares low makes it impossible to tackle the overcrowding problem. On the other hand, keeping fares low means that subsidies must rise.

In a sensible world, of course, we would have a government that encouraged massive transport infrastructure developments, paid for out of taxpayers’ money, that would boost rail capacity because there is an enormous social benefit to such investment. That has been proved time and again, but the Treasury’s dominance of government policy has traditionally meant that in Britain we have underspent on our infrastructure. So instead, we are in a position of having to price off demand to the most environmentally and socially beneficial forms of transport.

The one thing likely to make ministers hesitate over this is the likely political fall-out of any sharp rises. There is no doubt that opposition to rail privatisation contributed to the particularly large swings in London and the South East at the 1997 election. Labour’s failure to get a grip on the railways has already disappointed many of those people and they will hardly be encouraged to vote Labour by swingeing increases in their fares. And that ultimate pragmatist, Alistair Darling, and his fellow ministers will be well aware of that.

The scene is set, therefore, for some fascinating discussions in the corridors of Whitehall between Darling and Richard Bowker, the chairman of the Strategic Rail Authority, and there will be officials from the Treasury, No. 10 and the Department for Transport, with differing agendas, all putting their oar in.

Here’s a suggestion to help them. Railfuture, together with the Rail Passengers’ Council, has just launched a campaign for a National Railcard giving off-peak travellers a discount on all journeys. This has been backed by a serious and thorough piece of research by The Railway Consultancy which argues that the introduction of the card would both increase rail usage and reduce subsidy.

The traditional objection by the rail companies to the introduction of a national card has always been that it would cost the railways more in lost revenue from existing users than it would gain from new ones. The key economic concept is elasticity, the measure of how sensitive demand is to changes in price. The potential losses are partly offset, however, by the revenue from the card scheme itself.

The research, based on the National Travel Survey, has some equations which make those famous calculations in the PPP contracts for the London Tube look simple, but offers some relatively straightforward conclusions. It suggests that a National Railcard would be good both for the railways, bringing in substantial net extra revenue and encouraging rail use, as well as helping to reduce pollution from road traffic. One interesting detail is that in the South East, the net effect would be to reduce overall income from the railways but this is more than offset by extra revenue that would be generated in the rest of the country.

The research suggests that three million people would buy a £20 annual card giving a 30% discount on off-peak travel, yielding £60m on card sales as well as extra journeys representing an increase in fare revenue of around £57m. Another option, a £30 card giving a 50% discount, would attract 2.7 million users, yielding £81m, and bringing in at least £73m incremental profit. However, the cheaper card would be more attractive to poorer people, an important consideration. Of course, there are hidden environmental benefits to such a scheme as they would result in people taking trains instead of using their cars which are difficult to quantify accurately. Crucially, the main aim of a National Railcard would be to use up spare capacity on existing trains at off-peak times.

Interestingly, the introduction of a card is purely an issue for the SRA as it is required to indemnify train operators against any potential costs of regulation. Given the partial scrapping of the Network Railcard by the Association of Train Operators, which demonstrated the blinkered view of the operators, that is fortuitous.

Of course there are already railcards for young people, old people, families and those who happen to use the old Network SouthEast services. Therefore the national card is really only filling a gap for people in the 26-59 age bracket, which is the basis of one possible argument against it – that this is a group likely to be in employment and prepared to pay the full price for train travel.

But that would be short-sighted. If the SRA is canny, it will grasp this issue as an important way of sweetening the bad news that is going to come out of the fares review. Announcing a National Railcard would make the politically difficult task of selling fare rises for season ticket holders much easier. Of course economics is the dismal science and the SRA’s in-house economists may take a different view of Railfuture’s calculations. But given the difficult situation faced by the railways in the coming months, it would be worth taking what is a small risk on the accuracy of this research. After all, the industry and, indeed, its political masters, are going to need all the good PR they can muster over the forthcoming year which is going to be a tough one for the railways.

Railway madness (No. 3)

More from the frontiers of insanity. Contributions have been pouring in, and I am grateful to John Bourn of Newcastle for the news that litter bins are being removed from stations on the Tyne Valley line. This will be of great relief to local passengers who must have been worried that Stocksfield (whose businesses comprise a general store and a vet’s surgery) and Riding Mill (two shops and a pub) were prime targets for Al-Qaida.

The bins have been removed on the orders of Transec, the paranoid Whitehall committee in charge of security in relation to transport, which recently took against cycle lockers unless a space was left so that they could be verified. The unfortunate train operator, Arriva, has been surprised at the amount of flak it has received and is now having to install those unsightly hoop and binliner-type units which are the norm in the South East.

Transec members should remember that every change like this is a victory for the terrorists and a defeat for common sense. Terrorism requires a proportionate and riskbased response that minimises inconvenience to the public, not blind panic and lots of incomprehensible regulations.

I might just be prepared to go along with this nonsense if it weren’t so inconsistent. Mr Bourn points out that Newcastle station car park has just been extended, bringing the parking area right up to the edge of the main concourse. Station car parks are apparently exempt from security requirements!

It is the same type of nonsense that occurs in airports where nail clippers are removed from passengers who are promptly allowed to buy duty-free in glass bottles which are potentially much more dangerous as weapons. When I questioned this recently, I was told that it was a matter of balancing security with convenience. In other words, if litter bins at stations were revenue-earning, one suspects they would be allowed to remain.

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