16 Oct 2010

Rail fare increases of 30 to 40 per cent

If you thought that Wednesday’s spending review was all about Whitehall and welfare waste, then think again. So sharp are the cuts planned that some of the Coalition’s core voters are in for another shock, on train fares.

About 600 million annual train journeys have fares that are regulated by a formula set by the Government in relation to the near £2 billion subsidy it gives to the train operators.

The end result will be train fares rising by near double digit percentages in each year of the Spending Review.

Overall, Government sources are expecting these train fares to be over 30 per cent higher by 2015, and industry sources pointed towards a 40 per cent hike by 2015.

The increase in regulated fares is currently set at the Retail Price Index plus 1 per cent, I understand from industry and Whitehall sources that this is set to rise substantially.

As the RPI number used in this equation is currently set at 4.8 per cent, I was told that under the current settlement, multi-year double digit rises were possible.

This would mean for annual season ticket for commuters, that prices could rise by well over a thousand pounds.

Rail commuters at Clapham Junction, Britain's busiest rail station.
Rail commuters at Clapham Junction, Britain's busiest rail station.

There are two things driving this. Firstly, this is a government that believes in the market, and as we have seen with university fees debate, it believes that the user should pay.

So this is a fundamental big bang, shifting the burden of payment from taxpayers towards passengers.

Secondly it is important to note that this rise in fares will not go to train companies. Government says it is keen to do this so that there is funding for investment in train infrastructure, but surely these extra fees will simply go into the general deficit reduction pot?

And then there’s the politics in all of this. If we end up, on some lines, with RPI plus 5 per cent, where on earth will that leave Norman Baker, the Lib Dem transport minister, who was elected on a manifesto of RPI minus 1 per cent?

And if it is the Coalition’s strategy for a so-called modal shift from private to public transport, then these sorts of fare rises will do the opposite, unless they are planning massive road taxes too.

And then don’t forget that Network Rail is sitting on some rather valuable real estate, that could prove a handy piece of family silver for George Osborne.