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Rail Fares on the Rise: The Challenge of Change

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Last week passengers across much of the country received a belated and unwanted Christmas present; another round of rail fare increases. Alongside a further year of falling household disposable incomes, few breadwinners will appreciate the chancellor limiting the average fare rise to just over 4%. Whilst this is less than the rise (6%) announced in August 2012, the way the formula works means some fares will go up by twice the headline rate.

For a decade, fare increases have been part of a deliberate policy of moving the cost of the railway from the state to passengers. Government support now stands at around a third of the £12billion annual cost of running and improving the system. In an ideal world, the Treasury would no doubt like to bring that number close to zero. It would help contribute to deficit reduction and free up cash for other uses, they would probably argue.

Why are fare increases so unpopular? There is no doubt, a range of factors. Coupling the rise to a return to work in the middle of winter may well be one. Hard on the heels of the holidays, January is about the worst possible month to be taking money out of people's pockets. But there are others worthy of consideration.

Unlike buying a car or new kitchen, the hard pressed commuter of today is often paying for improvements that will be enjoyed years from now. When upgrades do arrive, the benefits are often taken up in the form of catering for increased demand. Take London and the South East of England; official estimates point to a 31% increase in passenger demand by 2026. Much of the investment in trains and signals and other infrastructure is just to prevent overcrowding from getting worse.

Then there is the perception of unfairness. Rightly or wrongly, commuters in particular feel that the annual fare increase is a form of stealth tax. People feel they have no real choice as to whether they pay up. Too often there's a weak link between ticket price increases and the service delivered. The government's narrative is about moving the burden from the taxpayer to the passenger. But taxes don't fall when fares rise. All these factors make price hikes unpopular and increasingly difficult for the government to sell.

Moving power from central to local

How can these problems be addressed? In the light of the West Coast debacle, ministers should be encouraged to go further with their broader policy of devolving powers to local government. Mayors and other city leaders should be given responsibility for the lion's share of commuter services serving England's major conurbations and much of the money that goes with it. This would open the way for innovation around the financing and delivery of services and help improve accountability for fare hikes or reductions.

The evidence of reform to date is promising. In Scotland, the country's transport minister Keith Brown has pledged to limit off-peak fare increases to inflation minus one percent when the ScotRail franchise is renewed in 2015. In London, a fierce debate about Tube investment and fares gripped last year's race for mayor. Voters were offered a real choice. Interestingly Londoners went on to elect a mayor disposed to making the case for investment over fare cuts. In the north west of England, a tram renaissance in Manchester is being delivered through close-knit working by the region's authorities and their transport authority. The completion of a popular orbital rail link in London and consistently high passenger ratings for the Mayor's London Overground commuter service are further testament to the benefits of a devolved approach.

For ministers, there are also benefits. Next year, they could announce that fare increases were "a matter for local government". This may help them avoid the raft of aggravating headlines that fill the press at this time of the year. Now there's an idea that might just gain traction.

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