Everything we hear about rail fares is probably wrong...

Commuters pay a lot, but they still come…

So commuter train fares in Britain are more expensive than those elsewhere. The pro-austerity Coalition Government had made deliberate and conscious policy decisions that reduce the amount taxpayers pay towards the railways, and increase the amount that passengers pay - a policy the curretn government has continued.

The drive to cut subsidy has been concentrated on high-demand commuter services. Regional passengers get a good deal by international standards; so do long-distance passengers, provided they’ve bought their ticket in advance.

Whether that’s a good way to structure things is very much open to personal taste. There is plenty of research to suggest that greater rail usage has benefits for society at large. On the other hand, rail usage in the UK has grown by 130% since 1994-95, and rose by 2% in 2015-16, despite rising prices; most of this growth has been among commuters. In other words, as much as people grumble about lower rail subsidy and higher fares in the UK, they aren’t actually putting many people off.

 

But what about the privateers?

A final common complaint about the railways is that the train operating companies remove significant amounts of money from the system in dividends. You’ll be shocked to hear that this isn’t true either.

Train operators in England made a total profit of £233m in 2014-15. That’s just under a 2% margin on the industry’s revenue. By way of comparison, supermarkets make a revenue margin of about 6%; Apple makes 40%.

The upshot of all this is that, if we were to keep the subsidy at the same rate, eliminate operators’ profits tomorrow, and pass all the money saved straight onto commuters, it would lead to a cut in rail fares of 2%. But once only.

That’s even if you accept the case that train operators are useless parasites with the tendering process providing no benefits over recreating British Rail in-house, and if you assume that the process of restructuring would be cost-free. That’s a pretty bold set of assumptions to make for the sake of a one-off 2% cut in your ticket price.

Rail subsidies are complicated, analysing things is difficult, and some journalists are lazy: it’s no surprise that most commentary on the relative value of UK rail fares should be worthless. But, if you do the analysis properly, it turns out that when fares are higher, there’s a good reason for it: people don’t like paying tax. 

 

This is an updated version of a piece originally published in February 2015 by CityMetric.com. You can follow CityMetric on Twitter or Facebook.

 

This article can be found in: RAIL 818: January 18 - January 31 2017



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