The media are constantly looking for signs of policy splits within the Coalition. Across policy fields – the economy, welfare, housing, defence – the search is on for contradictions and conflicts, whether real, manufactured or imagined. While many of the stories have been given an airing here, one that passed relatively unnoticed was last week’s discussion of rail fares.
Transport Secretary Philip Hammond hinted that the current fiscal situation is so severe that it may be necessary to re-examine the formula restricting regulated rail fares to increases of no more than RPI+1%. The suggestion was that this might increase to RPI+2% or 3%.
The more lurid media reports stated that 10% increases were just around the corner. And, of course, altering regulated fares is only one way of raising revenues for the train operating companies. Strategies such as playing about with the boundaries of peak times or the regulations governing access to advanced tickets can also yield additional revenue.
The Economist, in a recent article on the prospect of rail fare increases, linked it very squarely to the need for state retrenchment. The gist of the argument is that because many people who benefit from regulated rail fares are not on low incomes this ‘subsidy’ should be placed alongside policies such as child tax credits for middle income families and other universal benefits as prime candidates for the chop.
Railways are, for many people, rather a dull topic. Some people never use them. But there are important matters of principle at stake here. It is about more than simply transport policy. This issue does in fact highlight different attitudes between the Coalition partners.
We shouldn’t lose sight of the LibDem pre-election position. The key pledge was to “cut rail fares, changing the rules in contracts with Train Operating Companies so that regulated fares fall behind inflation by 1 per cent each year, meaning a real-terms cut”. Hence, the Lib Dems would appear to be on a collision course with the direction of current policy thinking.
The Economist argument does not stand up to any real scrutiny: by definition most regulated fares relate to commuters, who tend to be working, which means that they are going to have a higher average income than those who aren’t; much commuting takes place in the South East where wages are on average higher, but so is the cost of living.
But to even think of the issues in these terms is to miss the point spectacularly.
The issue is not primarily about putative subsidies to rail travellers. It is about recognising the environmental burden of mass car ownership, in terms of congestion and pollution, land use, and the use of non-renewable resources. It is about redressing the financial treatment of the two modes of transport.
The revenue costs of motoring are typically seen as the costs of fuel, tax and insurance. Motorists do not typically factor into their decisions the maintenance costs per mile or depreciation of their vehicle, let alone the costs of infrastructure construction and maintenance or the externality their motoring imposes on others.
The railways on the other hand are typically expected to pay their way: infrastructure investment and maintenance has to be serviced from revenue (either ticket sales or government subsidy). And of course for the railways to pay their way has, since the 1990s, also included the need to show investors a return.
This disparity in how each journey is priced has distorted travel decisions in the UK for decades, leading to a progressive switch in the dominant trip mode in favour of the car. The LibDem policy was an attempt to redress this balance and move towards a more environmentally sustainably transport system.
Of course, it would also be necessary to introduce other measures such as road pricing to place the different modes of transport on a similar financial footing. But it was a step in the right direction. We shouldn’t lose sight of the bigger picture.
As Christian Wolmar makes clear in his recent book “Blood, Iron and Gold” examining the history of rail internationally, globally the industry is going through a renaissance. Rail lines are being reopened and many billions are being invested in high speed rail in countries such as China because it is seen as a key component of future economic development and success.
In Britain we are only just beginning to make headway with high-speed rail. But it is as likely to make the news because of fears about damage to domestic property prices and the inadequacies of compensation proposals as for its importance in securing a sustainable economic future.
While these are not trivial matters, it is speaks volumes about priorities.
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13 Comments
Some rail travellers are already not subsidised – the South West Trains franchise, for example, was let at a premium that the company is now recouping from passengers. About £1 per journey is tax at the moment, disguised through the franchise system.
Nevertheless, as a party it would be odd for us to complain that the coalition is not progressive enough, and then to defend a policy that subsidises people who are richer than average (from memory around 50% of passenger miles are by higher rate taxpayers)
(If you want my longer analysis of post war British railways as your library to order a copy of “Paradoxes of modernisation”, Oxford University Press 2010…)
Here’s an idea Phil, rather than in more difficult economic conditions, reconsidering train fare restrictions and allowing them to go up, instead consider how other companies have seen an impact on their profits, how working people are unlikely to be receiving pay rises, and how incentivising work is supposed to be coalition policy; the less we charge people for travelling to their jobs the more reason they have for going and the more disposable income they have for sustaining our economy. If private train companies can’t turn a profit on passenger rail then they can always get out of the market; if they can’t even avoid a loss then they should be thrown out. It’s essential infrastructure, it should be state run and provided at cost.
The Economist is more correct than incorrect, if we want to take steps to ensure people travel by more environmentally-friendly methods then we should introduce a set of greenhouse gas taxes (or bring transport emissions under the EU ETS) rather than getting involved in politician-led subsidies which generally have a track record of bad design and failure.
The other problem with the UK rail system that even the Lib Dems now don’t seem to think is a problem is the franchising system.
Thanks to the monumental folly of the Major government we now have a system where train companies effectively bid for near-monopolies or total monopolies on a set of routes. Naturally that often means that they pay the government for the franchise – a payment that broke National Express East Coast because they had overbid on the basis of optimistic projections on passenger numbers. In these cases the government is effectively charging a company a licence fee in exchange for a monopoly, a policy that should have gone out of fashion after it was abused by James I and Charles I back in the seventeenth century (!).
In addition, the monopoly power of most franchises means that the train companies have little incentive to provide good service or low fares to customers as their only competitors are coaches, cars or planes rather than other train companies. It’s instructive that the Swedish approach to deregulating railways involves the dominant state-owned company gradually being exposed to competition from (at first) public local transport companies and now private companies. There are no monopoly franchises except for a few subsidised routes to northern Sweden that are tendered by the government.
It’s probably no coincidence that the top two companies terms of passenger satisfaction on long distance routes (according to the National Passenger Survey) are open access rather than franchise operators. This means that they have been given permission to run certain routes outside the franchise system.
1st Wrexham & Shropshire 99% satisfaction (open access)
2nd Grand Central 94% (open access)
3rd Virgin Trains 90% (franchise)
Why don’t we have a system where train companies pay for time slots on the railways a bit like the way airlines pay for landing and takeoff slots at airports (except they should be auctioned – the way airport slots are allocated is rather murky)?
I submitted a comment just now but it seems to have stuck somewhere.
Now published. Thanks 🙂
Should we break manifesto commitments? No.
Should we have made this particular commitment? No.
As noted above, rail users are (generally) disproportionately higher earners. Bus users are disproportionately low earners, yet have faced real terms increases that are eye-watering (24% over inflation since the mid-90s – thanks, Labour).
There is also a flaw in the theory that subsidised rail commuting is environmentally friendly – don’t they just commute further?
Finally, what is the logic in charging less for peak-hour use (which demands high resourcing) than for off-peak use?
crewegwyn
Should we break manifesto commitments? No.
A “manifesto commitment” is surely a statement of what you would do in the event of having an absolute majority. Even then, it seems to me to be silly to regard something written in a manifesto as an unbreakable guarantee since government must obviously deal with changing circumstances, so what looked as though it would work before the election may prove impossible after.
Quite obviously, as the junior partner in a coalition, we are not in a position to implement everything that is on our manifesto. We should strive to do as much as we can towards it, yes, but how much we can get depends on circumstances.
I say this simply because it needs to be said, not because I disagree with the thrust of this article. I’m happy to agree that support for railways is not one of the first things I’d be happy to throw away in bargaining.
It is a false statement to say car use does not pay it’s way in environmental terms.
For a start, a passenger journey on high speed rail is more carbon intensive than a modern car with 2 or more passengers and car travel is severely taxed through fuel duty, VED & VAT. Train passengers who are generally the most wealthy travellers pay no tax at all on their journey yet receive an overall subsidy from the taxpayer of about £5.6billion.
It is time passengers paid the true cost of providing the transport service they enjoy and adding VAT at the standard rate to ticket prices would be a good first step.
@crewegwyn, travel is derived demand rather than direct demand so I strongly doubt that cheaper travel will encourage more travel! People gain utility from getting to their destination, not from the journey itself.
@Peter Roberts, what is the capacity of the train in your hypothetical scenario? Is it 40% full like your car? I think you’ll find that train companies have to purchase electricity or diesel from the market which is covered under EU ETS (which admittedly does not set the price high enough) which is passed onto the consumer.
I agree that passengers should pay the full costs of their transport, but there are so many market-distorting effects going on in all travel that this is actually quite complicated. It is doubtful that drivers pay the full costs of their travel. Congestion, traffic police, road maintenance, highways units, greenhouse gas emissions, rare metals usage, are these all accurately reflected in the cost of driving? Or is there transfers from general taxation or council tax towards drivers?
Chris Jenkinson,
Please take a look at the government consultation paper on HS2 page 3 fig. 1.1A. You will see that CO2 for HS2 is about the same as car travel but is higher if construction is taken into account:
http://kvisit.com/S6Mhr
“the preliminary analysis showing CO2 emissions by mode on the basis of moving equal passenger kilometres”
And as you probably know, electricity and diesel for trains is taxed at far lower rates then motor fuels for road use.
It is absurd to suggest the untaxed and subsidised public transport industry is paying the full costs associated with the environmental damage caused by trains and buses whilst suggesting that the heavily taxed car user is not paying the full costs of their travel.
Please go and calculate the realities of your assertions before making such absurd statements.
@Peter Roberts,
I didn’t suggest that, actually. I suggested that, in the absence of evidence to the contrary, I do not believe that either public transport nor private transport are paying the full costs of a journey. Car owners do pay substantial amounts of tax on petrol and excise duty but I would like to see evidence that no money from general taxation is hypothecated towards car owners which was the point I made. I am not particularly ideological about forms of transport and as long as people pay for the environmental damage they cause and I subsidise other people’s transport only in limited cases (e.g. emergency travel) then people can choose whatever combination they like which matches whatever ratio of their time and money they feel appropriate.
Chris
Thanks for the comments. They have identified the complexities of the issues involved. Also, they highlight the importance of locating decisions about rail pricing in the context of a broader and more coherent transport policy: the structure of the franchising system, bus pricing, congestion charging, the scope and parameters of the EU ETS. Absolutely agree. The initial blog post wasn’t really the place to do that.
I would also argue for the need to think carefully about how transport policy serves broader social and economic development objectives. The history of rail development in Britain, in contrast to many other countries, is an over-reliance on the private sector and an undervaluing of the broader benefits of an integrated network operated in a way that complements broader developmental goals. There has equally been a failure by government over many years to take the plunge and invest on the scale required (the history of electrification being a good example). Mechanisms such as franchising don’t help combat short-termism (hence discussions/lobbying for longer franchises). There are credible arguments that this lack of a broader vision has been to our detriment in developmental terms.
I guess my original concern was that as the government scrabbles around to find expedient ways of cutting public spending we don’t lose sight of the bigger picture. Given transport is an unprotected policy area presumably it is facing 25% cuts in the CSR. So I would have though that retaining a plausible grasp on longer term developmental requirements is going to be extremely challenging. Recent reports of Boris’s threats to resign if crossrail gets cut are indicative of the sort of things being considered. It suggests an even greater need for clarity of purpose and priority.
@Chris Jenkinson 28/08 12.33pm – I’m not sure we’re getting involved in politician-led subsidies, aren’t we already involved? The LibDem proposals on RPI-1% were presumably designed either to squeeze profits, reduce subsidy or increase efficiency (or some combination of all three) – as well as affecting demand. That isn’t to deny that a badly designed subsidy is an undesirable thing. I’m not sure I would necessarily hold the EU ETS as self-evidently preferable to subsidy. As an entirely manufactured market it has so far appeared to be only too susceptible to political interference (not to mention fraud) .