Why a proper transport strategy is needed to address the annual outcry about rail fare hikes

IPPR North director Ed Cox explains why a proper transport strategy is needed to address the annual outcry about rail fare hikes.

Ed Cox is the director of IPPR North

The annual outcry about the hikes in rail fares risks masking a debate about investment in the quality of rail services which could be argued is of much greater concern for improving our rail network – not least in the north of England – and about the UK’s woeful investment in transport infrastructure in general.

Jump on almost any service running between Manchester and Leeds and you will be crammed into old-fashioned carriages trundling at a snail’s pace across the Pennines.

At least on the Tube such experiences are short-lived and at peak times only – half the population of Huddersfield would appear to spend day and night travelling to and from their neighbouring cities like sardines in a tin.

A standard day return costs £26.80 to travel the 45 miles compared with anything between £35-45 for a similar ticket between Brighton or Reading and London. So is this simply a case of ‘we get what we pay for’?

In some respects it is. But over the past decade northern rail passenger growth has increased by more than a fifth – 38 per cent on the trains operated by the Northern franchise. And evidence from the LSE shows commuter travel between Leeds and Manchester is 40 per cent less than expected.

So – as with all things rail – this is far more complex than a simple calculation of supply and demand. It is franchising that is key to unlocking the fares problem.

Within all franchises there is a ‘cap and collar’ system which means government insures rail operators if revenues fall below a ‘collar’ but takes any revenues that exceed a set ‘cap’. Under current franchises the government is taking around 80% of the risk and 80% of the reward.

This does little to incentivise investment by rail operators anywhere but not least for two northern franchises which receive subsidies of around £175 million combined. With fares in the north set at lower levels as a result of average wages being lower, fare increases make a marginal difference to revenues and tend only to drive down demand.

Meanwhile, government refuses to invest proportionately in northern infrastructure or rolling stock on account of northern franchises being overly dependent upon fare subsidy. Result: a catch-22 for northern rail passengers.

See Table 1:

Following the West Coast Mainline franchising fiasco, the temptation will be for government to be even more focused on managing risk and reward in franchise negotiations when in fact – as IPPR North has argued elsewhere – the solution lies in the devolution of regional franchising.

But franchising itself needs to be seen in context of rail spending overall.

Subsidies to Northern rail franchises are more than balanced out by the revenues generated by other operators and small beer in comparison to the £4 billion spent by government on rail infrastructure in 2010/11 – the lion’s share being spent down south.

Devolution of responsibilities for franchising to a Transport for the North body – along with a fair share of infrastructure funding too – is much more likely to find a long-term solution to the investment-fares dilemma in the north than continuing to allow the Department for Transport to be pulled this way and that by lobbying groups.

And let us be mindful of the bigger picture still. In 2010/11, government spending on transport amounted to £22.9 billion – just 1.5% of GDP. This puts the UK just ahead of Greece, Cyprus and Malta but behind every other European nation in terms of transport spending.

With a proper Spending Review now booted into the long grass of the next parliament, the opportunity is there for all political parties to take a more thorough look at the role of transport in relation to other big ticket items of public expenditure and move beyond the constant wrangling over particular schemes, franchises and fares.

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