2 December 2019

Labour’s train fare gimmick is already coming off the rails

By Morgan Schondelmeier

Labour’s plans to reduce rail fares by 33% takes from the poor to pay for the travel of the rich while inevitably providing less money for maintenance and upgrades.

As usual, with Labour’s giveaways of other people’s money, they are hoping that no one will look too closely at the detail — although given this one was not even in their dubiously costed manifesto, perhaps the Labour leadership hasn’t either.

The clearest thing to do when presented with a policy that appears to be too good to be true is to look at what problem it purports to solve, and what problems it will ultimately create.

Labour asserts that rail privatisation has “created one of the most expensive ticketing systems in the world”. It’s a claim that fails to withstand even a quick Google search, and BBC’s Reality Check has also given it a comprehensive slap-down. The UK regularly comes towards the bottom of the price table when tickets are bought in advance, and combined with railcard and season ticket discounts, fares here are cheaper than in comparable European countries.

Meanwhile, in real terms, the single ticket is cheaper than ten years ago, while the average real cost of season tickets has fallen over 12% since 1999-2000. Proponents of nationalisation often disingenuously point to the price of buying a last minute peak ticket to show the whole system is irredeemably expensive and unfair.

Sure, you pay a premium if you turn up and just get on a train – and rightly so – the point of advance fares is to let operators know how many seats to plan for, and we all get a better service when they can do this effectively. On the day fares may be expensive, but that does not mean the UK has anything like the most expensive fares in the world overall.

The huge variation in prices, which can often seem baffling to customers, is a result of an antiquated, highly regulated fares system. The Department for Transport sets about 40% of fares, largely season tickets on commuter journeys and some off-peak return tickets on long distance rail. That forces rail companies to push up last minute ticket prices to make up the shortfall. Instead of sidelining private companies and letting the state control prices, existing operators need more freedom and customers more choice.

Labour maintains that train companies are making extortionate profits off the backs of their customers, but that does not hold up to scrutiny either. As much as 98p in every £1 from fares goes back into running, maintaining, and investing in services. Across different train providers, the average level of profit is around 3-5%. Contrary to Labour’s overblown rhetoric, running a railway is not a cash cow. indeed, some lines are not profitable at all and are heavily subsidised by the taxpayer.

Even so, the principle of paying for a service you are using should not be controversial. If customers aren’t going to be asked to pay — then who will? What Labour really wants is for poorer taxpayers, who use the rail less frequently, to pay for the commutes and regular long distance travel of the rich.

Since 1995, the UK has been moving towards a more equitable provision of train tickets, whereby the people who use trains pay more than the general taxpayer — four in ten of whom have not taken a train in the last 12 months. By transferring the costs of operating and maintaining a trainline on to those who actually use the service — typically middle-class commuters living in cities — we have created a system that involves a comparatively small transfer of money from taxpayers to train users.

By reversing this trend, Labour will further exacerbate divisions, especially regionally, as many Northern taxpayers who rarely use the railways will have to subsidise city-bound commuters. Beyond this, Labour wants to create even more distortions by funding this £1.5bn pledge with a hike in Vehicle Excise Duty. Drivers, many of whom are on low incomes, will effectively subsidise rail users.

This is all part of Labour’s plan to encourage people to use rail in an effort to be greener, but there are large parts of the country without rail links. Needless to say, making one version of transport more expensive in order to subsidise another will not magically transfer rural car users onto train routes that don’t exist. Just look at what has happened in France, where hiking taxes on motor vehicles inspired the gilets jaunes movement.

Politicians are attempting to throw money at a problem which fundamentally stems from a lack of competition. The current rail monopoly franchising system does not allow for true competition on rail lines, meaning that lines have little incentive to offer competitive prices and enhanced services.

By introducing a system of Open Access in which companies compete between routes on the same lines, rail will benefit from lower fares and better service. This is already provably the case – earlier this year Adrian Quine’s paper for the Adam Smith Institute, How to Make Long-Distance Work: Fixing Britain’s railways with open access, found that fares on lines with Open Access are up to 55% cheaper per mile and have higher customer satisfaction.

There is nothing to indicate that Labour’s plans will achieve any of their stated aims and are liable to result in a worse rail service as there will be less money and less incentive to invest in improving infrastructure. Even the imperfect privatisation of rail has resulted in a doubling of passenger numbers since 1999, safety has improved, and fares have decreased in real terms.

All of this adds up to an offer that’s barely half a day old but already falling off the rails. Taking companies into public ownership, starving them of investment and leaving passengers stuck in the same paltry state we had in the 1970s — poor service, poor access, and no hope for improvement. British voters deserve better than this kind of cheap gimmickry.

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Morgan Schondelmeier is Head of Development at the Adam Smith Institute