Who’s really hiking your rail fares?

Thomas Walker

March 15, 2019

Every year, we hear that rail fares have risen ahead of inflation once again. This year the figure was 3.1 per cent. Why, people understandably ask, are we facing these endless increases when passengers struggle with daily delays, disruption, and overcrowding?

The finger is often pointed at train operating companies (TOCs) themselves. The problem with privatisation, many say, is that money goes into private profits rather than improvements to passenger service. However, a little digging reveals the exact opposite to be the case.

The 3.1 per cent figure applies to what’s known as “regulated rail fares”. These are set by the government and cover certain types of tickets, including season tickets and anytime or off-peak tickets in busy areas.

Two per cent of the revenue from these tickets goes to the train operator as profit. The rest is driven back into the industry, paying for things like routine maintenance, new rolling stock, infrastructure upgrades, and staff costs.

The franchises that are handed to operators are designed to minimise the amount of public subsidy needed. Many franchises or direct service awards have been designed so that the operator pays a premium back to the government. This is famously what drove the Virgin East Coast franchise into the ground.

So, where does all this revenue go? Let’s look at a few of the highest profile projects being undertaken at the moment on Britain’s railways.

HS2, the new high-speed route from London to the north, is expected to cost £56bn. London’s Crossrail scheme cost £15.4bn. The over-budget and very late Great Western main line upgrade was budgeted for £5bn, although the electrification cost has reportedly come in at £2.8 billion against an £874 million budget, so we can expect a higher sum for the whole project.

These are the high-profile construction schemes, but state-run Network Rail also spends untold billions on “upgrades” to existing lines and stations, mostly on safety and security grounds. These include endless miles of intrusive palisade fencing, hugely over-engineered bridge structures to replace crossings or older bridges, and security staff at virtually empty stations. None of these measures improve the experience for passengers.

New rolling stock is also a massive and often needless financial drain. Several recent franchise agreements have involved the complete replacement of entire fleets, leaving relatively young and perfectly serviceable trains redundant while billions go on new-build trains.

This is based on the bizarre idea that the average age of a fleet of trains reflects its quality, even though these new trains are often far less comfortable than the ones they’re replacing, and a refurbished old train can be just as reliable as a brand new one. This is money that an operator focused on its passengers could invest in services and improvements to customer experience instead.

The fares that the government doesn’t control are where things really get interesting. Operators are free to set their own tickets in certain cases, like advance and super off-peak fares, and they keep far more of the profits from these. Here we see some of the lowest fares anywhere in Europe, opening up travel options for low-income passengers. On state-controlled Irish railways, the walk-up fare is all you get. Here an advance fare will sometimes knock 90 per cent off the regulated price.

The underlying problem here is that rail investment is being driven by a government agenda. Fares are being hiked to pay for things passengers haven’t asked for, like complete fleet replacements, over-engineered infrastructure and some truly monumental vanity projects like HS2 and the Great Western upgrade.

Private companies don’t care about government priorities unless they have to in order to win franchises. Chiltern Railways introduced its spectacularly successful main line service from London to Birmingham by taking on and refurbishing 30-year-old carriages. The result was a passenger experience that far exceeds that on competing lines with much newer trains. No new high-speed line was needed to win passengers over and free up capacity on the west coast route, just some modest infrastructure upgrades that the operator themselves initiated.

The benefits of passenger-focused operations are best seen in Britain’s few “open-access” companies. They set up new services on routes not covered by the government franchises and get to keep most of the revenues. The most notable is Grand Central, which, after cornering new markets on services to Sunderland and Bradford, is now launching a Euston to Blackpool service with second-hand trains from the late 1980s. The result will likely be a journey experience that far outstrips the franchise services running alongside them.

Sadly, these services are few and far between. They must pass a “revenue abstraction test” and prove that they won’t take money away from franchised services. So, passengers on some routes, like London to Southampton, have lost out on a real customer-focused service just to preserve the government’s income stream.

Ultimately, a private provider wants its passengers to use its services. They want to create a pleasant travelling experience and they want to provide a better offer than their competitors, whether that’s other rail operators, coaches, planes, or cars. It’s a difference that goes right from the biggest spending priorities down to the very ambience being offered.

Compare London Northwestern Railway’s humorous “no smoking, vaping, or candlestick making” posters with the incessant and paranoia-inducing “see it, say it, sorted” government-backed campaign. One gives you a chuckle, the other makes you feel like you live in a security state. Is that really what you want your money to go towards?

So, the next time you hear about how expensive railways are, or how poor the service may be, keep in mind who’s actually in control. We don’t have a privatised system in this country. Instead, we have one where the government’s transport department controls every aspect of how a franchise is set up, where revenue is spent on what the government thinks is best, and where operators face an uphill battle to provide something a little different.

It’s the government that hikes rail fares, the government that makes train travel increasingly unpleasant, and the government that bears final responsibility for the quality of service that passengers experience. If we want cheaper fares and better services, we need to give control to the operators and let them focus investment on what their passengers tell them they want.


Written by Thomas Walker

Thomas Walker is a writer and planning consultant with a speciality in local government and transport.


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