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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Could more cities charge employers for parking spaces to help fund local infrastructure?

Look at all that lovely, empty space. Image: Getty.

As government budget cuts continue to bite and competition for funding increases, it’s becoming harder for UK cities to secure the money needed to build or maintain good quality infrastructure. For example, Sheffield’s Supertram network faces a £230m funding gap, and could close unless transport executives can raise the funds to renew the network.

But if central government won’t provide funding, there are other ways for city authorities such as Sheffield to generate income for much needed transport infrastructure. One idea is a workplace parking levy, which is a charge placed on all workplace car parking spaces within a specific boundary.

The premise is simple: each year, the business who owns that space must pay the local authority a set amount of money. Businesses may chose to pay this themselves, or pass the charge on to their employees through car parking fees. The money collected from the levy is used to help fund transport projects within the local area, while also encouraging commuters to shift away from cars and onto other modes of transport.

Pioneer cities

After being adopted in Australian and Canadian cities, the levy was first introduced to the UK in 2012 in the city of Nottingham. During its first year, the charge raised £7m and has continued to raise funds since. The money has allowed Nottingham to keep up its contributions to the Private Finance Initiative (PFI) that was used to pay for an expansion of the city’s tram network, along with other important transport improvements.

Currently, the cost per space stands at £402 per year, although there are some notable exceptions to the charge: businesses with fewer than 11 spaces don’t have to pay, and there’s no charge for emergency services and disabled parking.

Other cities have begun to follow Nottingham’s path. Both Oxford and Cambridge have made steps towards introducing their own versions of the levy to fund transport improvements.

Manchester considered the levy as a tool to help improve the city’s air quality, although a proposal was recently rejected by the city council on the basis that the levy would need to be applied across the whole of Greater Manchester to work. Sheffield made a small reference to the potential use of a levy in its recent draft transport vision, although it’s not clear how well developed these plans are.

Together with colleagues from the universities of Nottingham and Southampton, I’ve undertaken research which included interviewing a range of key people from Nottingham’s city council, the local tram operator, the Chamber of Commerce, as well as politicians and managing directors of several Nottingham-based businesses, to find out what made Nottingham’s workplace parking levy a success.


Recipe for success

For one thing, Nottingham is a politically stable city. Labour are the dominant party within the local council and have been since 1991, so councillors are less concerned about suffering electoral losses in response to a poorly received policy, and more confident about implementing more radical ideas.

Nottingham’s boundary is also tightly drawn, which meant that deciding where to apply the charge was more straightforward. Manchester’s experience shows that larger cities may have more difficulty in determining who is subject to the charge.

Initially, some businesses saw the charge as a “tax” on them and opposed the policy; media reports at the time warned of businesses leaving the city and moving to nearby economic centres, such as Derby. But there is no evidence to suggest that these worries have materialised in the longer term.

Identifying a piece of infrastructure, such as a tram system, that will be built using funds from the levy also appeared to be an important argument to “sell” the charge to sceptics. So although there was opposition to the workplace parking levy, there was also a lot of support for the tram expansion and the benefits this could bring.

An opportunity to invest

The workplace parking levy offers cities an opportunity to collect and invest large amounts of money in their own infrastructure; or to leverage even greater amounts of money from other sources, which might otherwise be unfeasible.

For Nottingham, a large part of its success is based on the fact that it preemptively used the money raised through the workplace parking levy to leverage significant finance from the UK government, through the PFI deal. To secure these funds to pay for the tram expansion, Nottingham agreed to commit to repaying 35 per cent of the value of the PFI (estimated at £187m). The council has used the levy on an ongoing basis to help it meet these costs.

The experience of Nottingham and other pioneer cities shows that while the workplace parking levy is based on a rather simple premise, introducing one is not a simple process. There will undoubtedly be opposition; the local authority may need to work hard to emphasise the benefits, in order to adopt the policy. And of course, every city and town is different, so there’s no single path to success.

But as local authorities continue tightening their belts in response to ever more challenging budgets, it may not be long before we see more places taking steps to introduce their own workplace parking levy.

The Conversation

Stephen Parkes, Research Associate, Sheffield Hallam University.

This article is republished from The Conversation under a Creative Commons license. Read the original article.