Government ‘will profit from railways as fares rise’

2 Jan 14
The government is set to make a profit from the operation of the railway by the end of the next parliament due to above-inflation increases in fares, a report has claimed today.

By Richard Johnstone | 2 January 2014

The government is set to make a profit from the operation of the railway by the end of the next parliament due to above-inflation increases in fares, a report has claimed today.

The government is set to make a profit from the operation of the railway by the end of the next parliament due to above-inflation increases in fares, a report has claimed today.

On the day annual rail fare rises were implemented across Britain, the Campaign for Better Transport said revenues from ticket sales would surpass rail operating costs in the 2018/19 financial year under current projections.

Annual fare increases for season tickets and other regulated journeys are set by government, and are based on the Retail Prices Index inflation measure each July.

For 2014, ministers limited the increase to RPI, meaning fares have gone up by an average of 2.8% today. However it is expected the formula will revert to RPI plus 1 percentage point from next year.

Continuing this formula to 2018 would mean fare revenue will account for 103% of the operating costs of the railways, up from 80% in 2009, CBT said today. As a result the premiums paid by some operators to government to run franchises would in effect be profit for the Department for Transport, its Fares and rail financing report stated.

Overall, revenue from fares is forecast to grow to 69% of total railway funding by 2018 when investment in upgrades was included alongside operating costs. The share of funding provided by government for rail will fall to 20% in the same year.

Campaign for Better Transport chief executive Stephen Joseph urged the government to change the measure used to calculate fare increases from RPI to the lower Consumer Prices Index measure. This would better link increases to wages, he said.
‘Rail fares have been rising faster than wages for a decade now, putting ever more strain on household costs. What this report shows is that by the next Parliament income from fares will not only cover the entire running costs of the railways, the government will actually begin to start profiting from passengers.

‘The government must re-examine its fares policy as a matter of urgency and commit to a fairer system in line with the consumer price index so that fares only rise in line with wages.’

Responding to the report, a spokesman for the DfT said revenues from fares formed part of the government’s £38bn rail modernisation programme.

He added: ‘The government understands concerns rail passengers have about the costs of fares and the impact they have on household budgets. That is why this year, for the first time in a decade, regulated fares will not rise on average by more than the rate of inflation, offering relief for families and the hard-working people.

‘As a result of the economic policies that this government has put in place, the most recent forecasts from the Office for Budget Responsibility are that by around 2015, fares will be rising in line with wages and salaries.’

Michael Roberts, the director general of the Rail Delivery Group that represents the industry, said operators supported the government’s decision to limit the average increase in prices to RPI this year. The 2.8% increase is the lowest in four years, he added.

‘To help the government hold down fares in future, the rail industry is working hard to get more for every pound it spends.

‘This year and in coming years, passengers across the country will continue to benefit from billions of pounds spent on improving services. As well as introducing more carriages, work will proceed on major projects like the new Birmingham New Street station and thousands of smaller, less visible schemes to improve the railway.’

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