Everything you know about British train fares is wrong

The good old days. Image: Getty.

Editor’s note: This article dates from 2015. We repromote it every year because that’s how we roll.

Railways are complicated. Their mechanical complexity required the invention of the modern engineering profession to stop them from killing people (mostly). Just as importantly, their business complexity required the invention of the modern accounting profession to stop them from going bust (mostly).

A century and a half on, and many mergers, nationalisations, privatisations and re-nationalisations later, railway finance remains hard to follow. So when fares go up, you generally get to read misleading, knocked-together copy about how fares today are unreasonable and outrageous, how everything is better in other countries, and how everything used to be much nicer in the old days.

The blame for the sky having fallen varies with the publication’s bias. The Guardian blames privatisation and profiteers; the Telegraph blames regulation and bureaucrats. Both are almost entirely wrong.

Charging by use, not by set price

The very worst reporting on the cost of rail involves a cherry-picked comparison of particular journeys, where a foreign ticket is compared to the most expensive available walk-up UK ticket for a long-distance journey. This allows the Telegraph to pretend a ticket from London to Bristol costs £96.50, compared to £29 for the similar distance from Marseille to Nice.

In fact, a morning peak ticket from London to Bristol booked a day in advance costs £42.50, and an off-peak ticket booked a couple of weeks in advance costs £18. Newspapers run the same trick when they compare walk-up rail fares to advance-booked plane fares, which should amuse anyone who’s ever tried to buy a walk-up plane fare.

Look more closely, and you’ll find that UK long-distance and regional train fares are on a par with other high-income countries; the only exceptions are expensive peak-time walk-up tickets. In other words, the UK is better at yield management, selling cheap tickets on empty trains and expensive ones on full trains.

Who pays the piper?

The data required for a proper comparison is available, but is also confusing. To keep things simple, we’ll use data for England here (funding regimes in Northern Ireland, Wales and Scotland are different, reporting isn’t always consistent, and England makes up over 90 per cent of total spending).

In 2013-14, trains in England were subsidised to the tune of £2.3bn. That number is the subsidy that the government pays directly to publicly-owned track operator Network Rail (£2.9bn), minus the premium that train operators pay the government for the right to operate (£616m).

Passengers in England paid £7.1bn in fares in 2012-13. The 2013-14 data is not yet available, but if we assume there was no increase in fares paid, that would mean that total rail funding was at least £9.4bn.

So 24 per cent of the cost of running the rail network in England in 2014 was paid by taxpayers, and the remaining 76 per cent was paid for by train fares. This compares to 2010-11, when 36 per cent of the cost was paid by taxpayers and 64 per cent out of train fares.

In other words, the amount by which the state is subsidising the rail network is falling. The subsidy is also far less than is paid elsewhere. In New York City, taxpayers pay 44 per cent of the rail system’s operating cost. In Montreal, Canada, it’s 43 per cent, while in Sydney, Australia it’s 80 per cent.

In 2012, German rail consultants Civity carried out a study for the UK’s Office of Rail Regulation. That confirmed that the level of subsidy for Great Britain (including Wales and Scotland but not Northern Ireland) was low compared to other western European countries, particularly for commuters:

Percentage of train operating company revenues from taxpayer grants

Commuters pay a lot, but they still come

So commuter train fares in England are more expensive than those elsewhere. The pro-austerity coalition government has made deliberate and conscious policy decisions that reduce the amount that taxpayers pay towards the railways, and increase the amount that passengers pay.

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, so long as 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 70 per cent since 1995 and by 9 per cent from 2010 to 2012 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 £250m in 2012-13. That’s about a 3 per cent margin on the industry’s revenue. By way of comparison, supermarkets make a revenue margin or about 6 per cent; Apple makes 40 per cent.

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 4 per cent. Once.

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 4 per cent cut in your ticket.

Rail subsidies are complicated, analysing things is difficult, and hacks 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.

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Businesses need less office and retail space than ever. So what does this mean for cities?

Boarded up shops in Quebec City. Image: Getty.

As policymakers develop scenarios for Brexit, researchers speculate about its impact on knowledge-intensive business services. There is some suggestion that higher performing cities and regions will face significant structural changes.

Financial services in particular are expected to face up to £38bn in losses, putting over 65,000 jobs at risk. London is likely to see the back of large finance firms – or at least, sizable components of them – as they seek alternatives for their office functions. Indeed, Goldman Sachs has informed its employees of impending relocation, JP Morgan has purchased office space in Dublin’s docklands, and banks are considering geographical dispersion rather concentration at a specific location.

Depending on the type of business, some high-order service firms will behave differently. After all, depreciation of sterling against the euro can be an opportunity for firms seeking to take advantage of London’s relative affordability and its highly qualified labour. Still, it is difficult to predict how knowledge-intensive sectors will behave in aggregate.

Strategies other than relocation are feasible. Faced with economic uncertainty, knowledge-intensive businesses in the UK may accelerate the current trend of reducing office space, of encouraging employees to work from a variety of locations, and of employing them on short-term contracts or project-based work. Although this type of work arrangement has been steadily rising, it is only now beginning to affect the core workforce.

In Canada – also facing uncertainty as NAFTA is up-ended – companies are digitising work processes and virtualising workspace. The benefits are threefold: shifting to flexible workspaces can reduce real-estate costs; be attractive to millennial workers who balk at sitting in an office all day; and reduces tension between contractual and permanent staff, since the distinction cannot be read off their location in an office. While in Canada these shifts are usually portrayed as positive, a mark of keeping up with the times, the same changes can also reflect a grimmer reality.  

These changes have been made possible by the rise in mobile communication technologies. Whereas physical presence in an office has historically been key to communication, coordination and team monitoring, these ends can now be achieved without real-estate. Of course, offices – now places to meet rather than places to perform the substance of consulting, writing and analysing – remain necessary. But they can be down-sized, with workers performing many tasks at home, in cafés, in co-working spaces or on the move. This shifts the cost of workspace from employer to employee, without affecting the capacity to oversee, access information, communicate and coordinate.

What does this mean for UK cities? The extent to which such structural shifts could be beneficial or detrimental is dependent upon the ability of local governments to manage the situation.


This entails understanding the changes companies are making and thinking through their consequences: it is still assumed, by planners and in many urban bylaws and regulations, that buildings have specific uses, that economic activity occurs in specific neighbourhoods and clusters, and that this can be understood and regulated. But as increasing numbers of workers perform their economic activities across the city and along its transport networks, new concepts are needed to understand how the economy permeates cities, how ubiquitous economic activity can be coordinated with other city functions, such as housing, public space, transport, entertainment, and culture; and, crucially, how it can translate into revenue for local governments, who by-and-large rely on property taxes.

It’s worth noting that changes in the role of real-estate are also endemic in the retail sector, as shopping shifts on-line, and as many physical stores downsize or close. While top flight office and retail space may remain attractive as a symbolic façade, the ensuing surplus of Class B (older, less well located) facilities may kill off town-centres.

On the other hand, it could provide new settings within which artists and creators, evicted from their decaying nineteenth century industrial spaces (now transformed into expensive lofts), can engage in their imaginative and innovative pursuits. Other types of creative and knowledge work can also be encouraged to use this space collectively to counter isolation and precarity as they move from project to project.

Planners and policymakers should take stock of these changes – not merely reacting to them as they arise, but rethinking the assumptions that govern how they believe economic activity interacts with, and shapes, cities. Brexit and other fomenters of economic uncertainty exacerbate these trends, which reduce fixed costs for employers, but which also shift costs and uncertainty on to employees and cities.

But those who manage and study cities need to think through what these changes will mean for urban spaces. As the display, coordination and supervision functions enabled by real-estate – and, by extension, by city neighbourhoods – Increasingly transfer on-line, it’s worth asking: what roles do fixed locations now play in the knowledge economy?

Filipa Pajević is a PhD student at the School of Urban Planning, McGill University, researching the spatial underpinnings of mobile knowledge. She tweets as @filipouris. Richard Shearmur is currently director of the School, and has published extensively on the geography of innovation and on location in the urban economy.