Rail fares become political

Governments used to be able to sneak through rail fare rises with barely a mention in the media. No longer. The annual rises have become highly contentious after years of above-inflation rises, and in the coming year they could become a genuine election issue – a rarity for a transport policy.

One problem is that it seems fares are going up several times a year. In fact, there is only one rise per year, but it gets publicised several times. We get the first inkling of the level of rise in August, as the inflation figure used in the formula of RPI+1% relates to July. Then in November or December we get more precise details, and finally the fares go up in the first week of January – which is, like now, normally another quiet news week.

In reality, therefore, it is the level of the increase that is the key issue, and here things are beginning to change. In the early days of the coalition government, Philip Hammond – the then transport secretary who once asked me why cars had to stop at level crossings rather than the lightly loaded trains – attempted to raise fares by a staggering RPI+3%. That proved simply unpalatable, not least to his own constituents in the Surrey commuter belt.

In fact, the formula has remained at RPI+1% for the past decade. This year, in fact, was an exception, when very late in the day and as a sop to commuters, George Osborne announced that the formula would be simply RPI, forcing the rail companies into hurried changes to their complicated fares tables.

The Labour government replaced the previous RPI-1% formula with RPI+1 in 2004 in a deliberate attempt to put more of the cost of the railways on passengers rather than taxpayers. This seemed contradictory for a government keen on getting people out of their cars, and given that at the time the Treasury finances were relatively healthy. But railways were seen by some Labour politicians as something of a luxury used by well-heeled home counties commuters who benefited from most of the investment that was focused in the south-east.

In financial terms, the policy has been successful. Whereas previously about two-thirds of the cost of the railways – including investment – came from taxpayers, that figure is now nearly down to one-third. Booming numbers, with rail passenger growth exceeding rises in GDP and with rises even continuing during the recession, have also helped boost the fare box.

Politically, though, the policy is running into the buffers. Passengers, especially those commuting by train, often have little choice but to use rail, since car parking is both expensive and in short supply. Oddly, the fares regulation system, which was designed when the railways were privatised to protect commuters against supposedly greedy rail companies, has been used to exploit them. The contracts with the rail companies ensure that it is the government that benefits from the extra revenue from fares rises. And while ministers claim that this money is used for investment in the network, in reality it is simply used to reduce subsidy levels as the link between investment decisions and fares revenue is extremely tenuous.

We have reached a turning point. Labour has picked up on the issue and is promising that fares on every route will be capped. The party has promised to abolish the “flex” arrangement which allowed train operators to increase particular fares by up to 2% more than the formula. However, it will be under great pressure to go further. Party activists have been disappointed by Ed Balls’ refusal to support rail renationalisaton but it will be up to Ed Miliband to make a more specific commitment over fares in the run-up to the election.

Meanwhile, the coalition, too, will be under pressure to stop exploiting commuters. Last year’s late announcement by Osborne shows he is conscious that there are a lot of votes among the hundreds of thousands of commuters using the trains daily. It may well be that the RPI+ formula is, at last, dead as the two parties vie with each other to be the commuters’ friend.

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