House of Commons - Rail fares and franchises

Rail fares and franchises - Transport Committee Contents

2 Fares

22. In 2008, we recommended that the Government re-visit its commitment to shift a greater proportion of the cost of the railways onto passengers and away from the tax payer. We have acknowledged that some re-balancing may be required, but tax payers and passengers alike are suffering the effects of the recession, and this is not a sensible background on which to rebalance the financial burden rapidly.

Fare rises

23. Our analysis of rail fares in 2006 led us to conclude that rail travel in the UK was poor value for money. The variation in fare rises on different routes over a decade has also meant that the cost of travelling 100 miles on two different routes with similar quality of service, can now vary greatly.[43] We argued that exorbitant rail fares had the potential to hamper regional economic growth by restricting the mobility of the workforce. We also thought it would hinder the long-term popularity of the railways.[44]The variation in the development of fares has continued, and both regulated and unregulated fares are affected.

24. In January 2009, when the Retail Price Index (RPI) stood at 0.1% and the Consumer Price Index (CPI) annual rate of inflation stood at 3.0%, regulated rail fares rose by an average of 6% and unregulated fares by 7%.[45] Regulated fares can only increase by RPI+1%. However, since the annual January fare increase is based on the RPI the previous July, which, in this case, had been 5%, a very large real terms increase in regulated rail fares was possible.[46] Due to the fares basket system[47], some individual fares increased much more than the average, with some regulated fares rising by more than 11%.[48]

25. While we recognise that the six-month gap between the benchmark RPI and the subsequent fare rises could cut both ways, our concern is that the train operating companies have taken advantage of the mechanism to raise fares at the worst possible moment and to a level which is out of all proportion to the real economy. But as we noted in the previous chapter, short-termism is built in to the franchising system as a perverse incentive. A short-term approach and insensitive attitude towards passengers will damage train operators' relationships with their customers in the long-term. The system encourages and allows train operators to take their passengers for granted.

Hidden fare rises and service cuts

26. Train operating companies are considering where they can make cuts to services that are not governed by specific franchise agreements. Some of these, announced or implemented this year, include:

a) removal of restaurant cars (but not buffets) from National Express East Coast and National Express East Anglia services;

b) removal of carriages from some Southeastern services (though reinstated after passenger protests);

c) application by South West Trains (Stagecoach) to close a number of ticket offices—some of which have been rejected by the Secretary of State, and

d) plans to reduce ticket office opening hours at First Capital Connect.[49]

27. Certain train operators have decided to charge large fares to passengers for reserving seats. We do not object to a small nominal charge, say £1, for a seat reservation, but some TOCs have gone much further, charging prices which are prohibitive for some travellers. The imposition of excessive seat reservation charges is an example of back door fare rises which the Government needs to monitor through conditions in franchising contracts. The introduction of a charge for seat reservations by National Express has been heavily criticised. Previously considered part of the ticket price, seat reservations for long distance journeys are now being charged on the East Coast route. Set at £5 for a return journey and £2.50 for a single, the biggest impact will be on families and group bookings where the price of a ticket could rise by £20 or more.[50]Passenger Focus has commented:

Charging passengers to reserve a seat beggars belief. This is another example of back door fare rises. Some of National Express' routes cover extremely long journeys, cost considerable amounts of money and passengers expect that a seat is covered in this ticket price.[51]

The RMT union has said:

That is simply mugging passengers for an extra fiver and it will hit the elderly and families the hardest. This is an outrageous imposition on millions of passengers and amounts to the fourth increase in overall prices in just five months.[52]

The complexity of rail fares

28. In our May 2006 report on rail fares, How fair are the fares? Train fares and ticketing, we criticised the complexity of rail fares. We found that passengers were faced with up to a dozen different fares for a particular journey - sometimes the products differed subtly, and identical products sometimes appeared under different names. In our view, this was an insult to passengers, and we recommended that urgent action be taken to create a unified fares structure for the network in its entirety.[53]

29. Some changes have been made since, but fares are still complex, and even passengers who understand the system often have to spend considerable amounts of time finding the best deals, often only available on the internet.[54] Although train operators were at pains to tell us that up to 15% of their seats were sold at the lowest fares, and that they were easily available,[55] we have heard serious concerns that passengers have to go to extraordinary lengths to secure the best value fares. For example, the TSSA Union explained to us how it was almost invariably cheaper to buy split tickets where passengers had to undertake complex research and buy numerous tickets in order to minimise their fares.[56] The complexity of the fares structure still remains an issue for passengers. Information on, and access to, the complete range of fares must be available and easily accessible to all passengers.

The basket system

30. The Government regulates fares where operators are likely to have a high degree of market power. Some 60% of rail travel is undertaken on regulated fares, such as Season Tickets and longer distance Off-Peak fares. The RPI+1% system has been in place since 2003. Train operating companies have some flexibility in setting prices through the 'fares basket' system. This allows some individual fares to be increased by up to 5% more than RPI +1%, provided the overall average does not exceed RPI +1%. When appearing before us in February, the then Minister of State, Lord Adonis announced that:

In a time of economic stringency I do not think it acceptable for individual commuters to face significantly above-average fare increases. The Government's intention is, therefore, that in future the cap should apply to individual regulated fares, not just to the average of each fares basket.[57]

31. Lord Adonis confirmed this position when he appeared before us in June.[58] We welcome the removal of regulated fares basket flexibility. No longer will train operators be able to continue the unacceptable practice of increasing selected regulated fares by six or seven times the inflation rate.

RPI+1

32. When the then Minister of State for Transport, Lord Adonis appeared before us in February, we were keen to know whether regulated rail fares would decrease on average in January 2010, if RPI was below -1% in July 2009. Lord Adonis said:

Let me make it absolutely clear to the Committee that we stand by the RPI+1% formula as it applies to most TOCs. If RPI+1% would lead to a fall in fares we will carry through a reduction in fares next January.[59]

When he appeared before us again in June, he confirmed that the policy on RPI+1 as well as the commitment to removing the fares basket flexibility remained unchanged:

RPI is, at the moment, at -1.1%. I see that Oxford Economics estimate that in July it could be -2%. If it is indeed -2% then most regulated fares will fall next January. I gave that commitment to the Committee when I last appeared and I repeat it today. On your second point about the basket of fares and moving the flexibility with the basket, we stand by that policy change too and that will also be carried into effect next year, so there will not be the flexibility for fares to change within the basket as has been the case up to now.[60]

33. We welcome the Secretary of State's confirmation that the RPI+1% formula will apply for 2010 fares. This means regulated fares could decrease next year. It is only right that passengers, who have borne the brunt of unacceptable increases in recent years, should gain some respite during these difficult financial times.

43 Transport Committee, Sixth report of Session 2005-06, How fair are the fares? Train fares and ticketing,HC700, paras 63 and 47 Back

44 Transport Committee, Sixth report of Session 2005-06, How fair are the fares? Train fares and ticketing,HC700, para 67 Back

45 The Consumer Prices Index (CPI) is the headline UK domestic measure of inflation. It measures the average change from month to month in the prices of consumer goods and services. It is the measure adopted by the Government for its UK inflation target. The Retail Price Index (RPI) is another measure of inflation but, unlike CPI, it does not include Council Tax and mortgage interest payments. Back

46 Q 2, Q 5, Q 13 [Mr Mapp] Back

47 Although the Government has limited most regulated fare increases to an overall RPI+1% cap, that cap is applied to a group of fares called a basket and individual fares may increase by up to 5% more than the average of the basket as long as the overall cap is not exceeded. For example, Southeastern (who had a RPI +3% cap) has increased its Gillingham-London annual season ticket by 10.2%-an increase of £280. See also: Passenger Focus press release, "2009 fare rises unacceptable and unjustified", 31 December 2008. Back

48 First Capital Connect increased its Off-peak Return fare Kings Lynn-London by 11.5% and its St-Neots-London fare by 11.1% Back

49 Q 152 [Ms Grant], Q 162, Q 176 Back

50 "Train firms slammed for 'mugging passengers'", The Daily Mirror, 13 May 2009 Back

51 Ashwin Kumar, a Director at Passenger Focus quoted in "Passengers face levy to guarantee a seat" in The Daily Telegraph, 11 May 2009

Back

52 "Train firms slammed for 'mugging passengers'", The Daily Mirror, 13 May 2009 Back

53 Transport Committee, Sixth report of Session 2005-06, How fair are the fares? Train fares and ticketing,HC700, paras 31 and 34 Back