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Sunday, May 19, 2024

Train fares and the Autumn Statement

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The structure of train fares is a complicated one, so the announcement that fare increases will be capped to the rate of inflation seems welcome, but what does it really mean?

There are two types of fares – regulated and unregulated. Around half of all fares, including commuter season tickets and off-peak fares between major cities, are regulated by the Government. This year, that regulation limited the average increase in these fares to 1 per cent over July’s retail price index inflation figure.

[pullquote align=”right”]The total cost of this reduction in increase will be borne by the Government. The train operators will get slightly less income, but to balance that they will also pay slightly less to the Government[/pullquote]

When the RPI came in at 3.1 per cent, it restricted the train companies to imposing a maximum average increase of 4.1 per cent on regulated fares from January 2, 2014.  It is an average, so some individual fares would go up by more than 4.1 per cent, but others (it’s not necessarily a corresponding amount of fares. An above average increase could be balanced out across a number of fares) would go up by less to maintain that average.

The Autumn Statement has removed the extra 1 per cent, so regulated fares will now go up by an average of 3.1 per cent instead of 4.1 per cent. In addition, although that increase is still an average, no individual fare may go up by more than 2 per cent over the average.  So no regulated fare will go up by more than 5.1 per cent.

Unregulated fares, the other half of the market, are not affected by this statement.  They are controlled by market forces, for example competition from other modes of transport, but within those limits the train operator can do what it wants.

The total cost of this reduction in increase will be borne by the Government. The train operators will get slightly less income, but to balance that they will also pay slightly less to the Government (or receive slightly more in subsidy). So the effect on the train companies is neutral – it all comes out of Mr Osborne’s pocket – estimated to be £35 million in a full year. What a nice man!

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