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Wednesday, 17 November 2010

Is the Department For Transport Trying to Price us off the Railways?

I often get asked by many people why, if railways are a better way to travel, does the government allow the train operating companies to continually put up fares? Indeed, in the last few weeks, as part of the Comprehensive Spending Review (CSR), we have seen the burden of paying for the privatised railway network shift towards the passenger. For three years from 2012 the price of unregulated fares will increase per year by a factor of RPI (a measure of inflation) plus 3%. This is after many years in which the formula was set at RPI+1%.

There are a number of reasons for this fare rise that I am confident that play a role in this decision. Obviously, the first is to reduce the government’s funding of the railway. If fares go up, the Train Operating Companies will earn more money, reducing the government’s need to subsidise their profits. In addition, if more money was coming into the Train Operating Companies’ coffers, Network Rail, also funded by the government, could put up the rail access charges. Thus, they in turn would earn more money, also reducing the financial burden on the public purse. Therefore, the cockamamie way that our railway industry is structured, in that the government essentially pays the private companies to run the trains, but also funds the infrastructure, is a factor in the price rise.

The second reason for the price rises is Philip Hammond, the Secretary of State for Transport, who is universally known for being pro-car, and who I suspect simply sees rail investment as a waste of money. Indeed, while in opposition he stated that road transport was the only thing that could ‘kick-start’ economic growth regionally, and, more damningly, that the railway was soaking “up ever-larger volumes of taxpayer's money” and was a “bottomless pit for public finance.” (See my earlier post on Hammond's pre-election Pro-car, anti-rail parliamentary activities HERE.) After all, through Network Rail, the railways cost the Government a lot of money through renewing rolling stock and investments in infrastructure. Therefore, on entering his post as Secretary of State for Transport, Hammond already had a view that roads were a preferable means of travel, and that railways cost too much. As such, I feel it is unlikely that his attitude has not played a role in trying to reduce the financial burden of the railways on the Department for Transport (DfT).

Considering these factors, I believe that there is a third reason for the fair rise that cannot be divulged to the public. In short, Hammond and the Government don’t want you to use the railways. Rail usage has risen considerably over the last decade, and is still predicted to increase further over the next. However, to accommodate this more investment will be required in infrastructure and rolling stock. But, with the new economic environment, and the attitudes of the Secretary of State for Transport, they’d rather not have to do this.

Thus, I suspect that the DfT may have a secret policy of effectively pricing people off the railways which would reduce the need for further expenditure in the long-term. Indeed, many commentators have commented that the RPI+3% will actually mean fewer people will use the railways. Travellers would be forced onto the roads, where, while congestion is still a problem, modification and maintenance of the infrastructure would be far cheaper for the DfT. Indeed, it is not surprising that in the CSR road projects received much more support numerically that rail ones.

Of course, it is quite possible that within the Department for Transport this is not a stated policy. All I am intimating is that if the fare rises are seen through a prism of the future infrastructure investment that will be required, Hammond’s view of rail transport and given the structure of the industry, it is possible that the DfT is secretly trying engineer how we travel through price rises to reduce their long-term costs.


  1. The fourth possibility, is of course that the rail system is simply being used as a tax farming device. TOCs collect rail fares, and pass an increasing percentage on the the government in the form of an escalating premium payment. Its simply impossible for firms to find franchises attractive without a protected profit margin.

  2. I am pro-rail but too many people who are pro-rail seem to expect the taxpapyer to write a blank check to support a transport system that is used by a small and on average a better off proportion of society. London buses got into a state because the network was subsidised so demand when upo so more subsidised buses where put on till a service that was broadly breaking even was costing more than £500m a year. The taxpayer pays 50% of the price of each rail ticket - expanding a subsidised rail service will lead to a higher level of subsisdy which is not sustainable.

    The rail sector needs to be financed by passengers, taxpayers and employers as in France with a suggest at least 2/3 coming from passengers 1/6 from employers and 1/6 from taxpayers.


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