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February 2012

January 2012

Train companies comment on July RPI and rail fares

16/08/2010

In response to the announcement of July RPI at 4.8%, a spokesperson for the Association of Train Operating Companies said:

“Train companies understand that these are tough times for many. The Government is currently reviewing its position, so we will need to wait and see what happens.

“With demand for rail travel expected to double within the next 20 to 30 years, it is vital to sustain investment and the money raised from fares will make a significant contribution to improving services for passengers.”

Q&A ON FARES

What does the RPI figure mean for rail fares?

In previous years, RPI +1 has been used to calculate the changes to ‘regulated’ fares, which include season tickets and most off peak tickets on long distance fares. Regulated fares account for almost half of rail journeys.

The Government is currently reviewing its approach to rail fares and a final decision is unlikely to be made until the spending review in the autumn.

What happens to money raised by fares?

Revenue from fares raises around £6bn a year, paying for around half of the industry’s £12bn annual costs. A significant proportion of the £8bn due to be invested in improvements to the railways over the next four years comes from money raised by fares.

On average, for every £1 of revenue raised through fares, around 5p goes towards train company profits. A third of the British public believe that profit margins are 50% or more.

Were the Government to decide to increase the RPI+1 formula, additional money raised would go to the Government.

What is the cost of an average ticket?

Figures from the Office of Rail Regulation show that the cost of an average single journey is £4.80. When asked, the public estimate the price at an average of £23.67 – almost five times as high.

What has happened to fares since privatisation?

Fares have risen at a significantly slower rate since privatisation than during the last 20 years of British Rail. The average annual real terms increase since 1996 is 1.2%; this compares to a 2.7% increase during the last 20 years of British Rail.

Season tickets, as measured by pence per kilometre, are now lower in real terms than at privatisation.

The rise in the average price actually paid by passengers has not kept pace with the overall increase in the levels at which fares are set. Whilst overall fare levels have increased in real terms by 12% over the last decade, the average fare actually paid by passengers has risen much more slowly at just 5% in real terms.

This trend is being driven by a big increase in the number of people taking advantage of cheap, discounted tickets. Sales of cheap Advance tickets have risen 80% in the last four years and the number of journeys made on Railcards has risen by 70% in the last decade. Four out of five people travel on discounted tickets.

Who pays for the railways?

The funding for the railways is currently split roughly 50/50 between the taxpayer and the farepayer. Previous policy has been to move to a situation where every £1 contributed by the taxpayer is matched by £3 from the farepayer.

The Government is currently reviewing its approach to rail fares and a final decision is unlikely to be made until the spending review in the autumn.

Have fares affected demand?

Demand for rail travel has risen by 60% since privatisation and is expected to double in the next 20 to 30 years. Passenger journeys have reached levels not witnessed since the Second World War.

ENDS