Uncharted Territory

September 16, 2011

Off the Buses in Ealing

I reported yesterday that TfL is planning to increase fares on average by RPI+2 each year until 2018, and Travelcard prices by RPI+3 over the same period, the supposed justification being that rail fares are to rise by RPI+3. I briefly discussed the implications of this discrepancy, but had a subsequent conversation which led me to consider a different case.

I don’t know about you, but I always feel short-changed if I buy a season pass for a transport network and then find I’d have been better off paying for each journey individually. How likely is this to happen for someone living in Ealing, but working in central London a) now and b) in 2018?

Case 1: A morning and evening peak commuter
This individual uses the tube during the morning and evening peak and sometimes catches a bus back from the station.

In the following table I’ve ignored inflation and just increased costs by 2 or 3% p.a. So in today’s prices a zone 1-3 Travelcard will cost £41.55 in 2018, compared to £34.80 in 2012.

Year   Travelcard cost       Less 10 peak tube fares      Bus fare cost         No. bus fares to break even
2012         34.80                     34.80 – 10*3.10 = 3.80         1.40                             3.80/1.40 = 2.71
2018         41.55                     41.55 – 10*3.49 = 6.64         1.58                             6.64/1.58 = 4.21

So whereas in 2012 our peak commuter would only have to catch the bus 3 times in 2012 to avoid feeling cheated on a weekly Travelcard, he’ll have to catch it 5 times in 2018. If, like me, he walks to and from the station most of the time, he’ll be in a bit of a dilemma by 2018 as to whether or not to buy a weekly Travelcard.

Case 2: A morning peak and evening peak/off-peak commuter
It gets even worse in the case I actually discussed yesterday. The evening peak is from 16:00 to 19:00, so many people working in London may not actually travel home until off-peak fares apply. If this happens 3 times in a week, then the calculation changes somewhat:

Year  Travelcard cost     Less 7 peak, 3 off-peak tube fares     Bus fare cost   No. bus fares to break even
2012        34.80               34.80 – (7*3.10 + 3*2.60) = 5.30              1.40                     5.30/1.40 = 3.79
2018        41.55               41.55 – (7*3.49 + 3*2.93) = 8.33              1.58                     8.33/1.58 = 5.28

By 2018 this commuter will need to use the Travelcard on more than one bus each work-day (or for leisure journeys) to justify the expenditure.

Personally I feel the Travelcard should be a better deal. In London, it seems, regular tube users are likely to pay as much per journey as occasional travellers. And it seems unfair for commuters to have a dilemma as to whether to by a season ticket or not – I haven’t even discussed the effect of Bank Holidays, leave, sick-days and occasional home-working. This is the opposite of the case for main-line rail commuters who get a tremendous deal compared to the occasional traveller.

From TfL’s point of view inflating the cost of Travelcards relative to pay as you go (PAYG) fares may also not make sense in the long-run. The result may be that more of us in suburban London stop buying Travelcards and instead cut out as many bus and tube journeys as possible. As I said yesterday, “maybe it hasn’t occurred to TfL that people might consume less of their product when they put the prices up”.

September 15, 2011

Off the Buses

Boris has announced the 2012 London Transport fare increases already. Do we always get an announcement at this time of year? Or is our leader trying to get the bad news out of the way as long as possible before the mayoral election in May 2012? I note that the last time I visited this topic was in January this year when the last fare rises actually came into effect. With a bit of luck there’ll be a double whammy with negative stories now and in January 2012.

Let’s get the ball rolling with a negative story, then.

The BBC provides a link to the documents issued by the mayor. I only looked at the first one (pdf), which seems to tell me everything I need to know.

It turns out that TfL has a Business Plan based on fare rises of RPI+2%. News to me, most likely totally unjustifiable, but certainly worthy of discussion.

First, are we to believe that TfL’s costs rise faster than general inflation? This seems unlikely, though we do know that many of their employees are extraordinarily privileged to the extent that they apparently deserve a bonus just for doing their job during the Olympics. A lot of people will be working then, and the vast majority will be paid their normal salary, and would expect nothing more. I don’t support the present government, but I was rather hoping they might look at strike law with a view to stopping Londoners being continually held to ransom.

Second, on the customer side, how is it possible to bear continual above inflation rises in transport costs? I’m thinking of low-paid workers travelling into central London. The cost of a weekly Travelcard (tube and bus) season in 2012 will be £34.80 to zone 3, £42.60 to zone 4, after rises of 8.1% in each case. That’s about £1 per hour of work! Surely the minimum wage for central London needs to be higher than elsewhere to compensate? Assuming your pay rises roughly in line with inflation (which is doing well these days), then, if you have to spend more on transport, you have to spend less on something else. That is unsustainable. TfL is not like national rail, which, as the Transport Secretary pointed out this week, is now a service for the wealthy. It is simply not realistic for TfL to increase its prices by more than RPI for a long period of time, unless the lowest wages are increasing by at least the same rate.

So why has TfL adopted the RPI+2% formula? Maybe the document I downloaded doesn’t tell me everything I need to know after all. There seem to be a lot of TfL Business Plans, but the 2009 one for 2009/10 to 2017/18 tells us what we need to know:

“…fares in January 2011 and in subsequent years are now assumed to rise at RPI plus two per cent.”

So it is indefinite. And the purpose is clearly to increase the proportion of operating costs covered by fares and therefore reduce what TfL term “Net operating expenditure”:

Excerpt from TfL Business Plan 2009/10 - 2017/18

Let’s just note in passing that the congestion charge is going to raise less in 2017/18 than 2009/10!

Bizarrely, TfL don’t state what the figures in the table refer to. Presumably they’re 2009 £s (i.e. adjusted for inflation). Assuming that is the case, TfL assumes a steady growth (several % p.a. varying erratically) in passenger numbers as well as a 2% annual increase in the fares. They say:

“As the economy recovers from recession, it is projected that demand will return to current levels by 2012 and then continue to grow strongly as London’s employment and population increase, with demand reaching record levels by the end of the Plan.”

This is a fairly heroic assumption, as it seems to assume a very low elasticity of demand – maybe it hasn’t occurred to TfL that people might consume less of their product when they put the prices up. I’ll return to this point in due course.

TfL’s Business Plan suggests they expect costs to also rise by several % p.a. more than inflation, and also erratically, with a bigger increase in 2012/13 presumably to reflect the need to bribe the staff not to disrupt the Olympics, and in 2017/18, perhaps because Crossrail comes onstream (though there is no concomitant increase in fare revenue).

So in answer to my earlier questions, it seems that unlike every other field of economic activity, running London Transport becomes less and less efficient with time. And low-paid London commuters are expected to pay an ever-increasing proportion of their income on transport.

It seems to make sense that the fare-payer should cover the cost of the service, but let’s make a few observations:

1. Unlike many others, the London transport market is not segmented, so that those who can pay more do (compare walk-on national rail or air fares with advance tickets). I’m not saying I’m a fan of dramatic market segmentation. It creates its own problems, such as making urgent travel punitively expensive for everyone. But in an unequal society, it does allow some access to services for the less well off. Obviously it’d be better to have greater income equality in London, but until that happy day, subsidising fares helps alleviate the problem.

2. The fare-payer is not the only beneficiary of the London transport network. Just as, in the ’80s and ’90s, out of town superstores and malls benefited from the motorway network, such as London’s M25, (and generally improved roads), so the new millennium has seen similar developments – notably London’s twin east and west Westfields (or perhaps the new one should be an Eastfield?) – piggybacking on the city’s public transport network. Maybe these businesses should chip in and subsidise fares from the taxes they and their customers pay.

3. Just as for customers, businesses benefit from the availability of employees. They don’t pay a higher minimum wage even for staff having to travel into the centre of London. Maybe they should, but in the meantime it doesn’t seem entirely unfair for businesses and higher paid employees to subsidise the fares of the low-paid through the tax system. £1 travel cost for each hour of work is a lot for those earning little more than the minimum wage of £6/hour.

4. Today’s fares shouldn’t subsidise investment. That should be paid for by future fares, i.e. the beneficiaries of the investment. And in fact, the goal in TfL’s Business Plan is not apparently to increase fares to pay for more investment. So when Boris mentions investment in the same bluster as higher fares he’s actually being misleading and trying to deflect criticism.

And on top of this, there’s an anomaly in the pricing scheme – this is what really got my goat and prompted me to delve into the mire of transport fares once again:

“Travelcard season prices increase by 8% overall because of the link with National Rail fares which, as approved by the Secretary of State for Transport, are to rise by 8% (RPI+3%).”

What tosh.

Fares other than Travelcards are going to increase by RPI+2% (7% this year), but Travelcards are going to increase by RPI+3%, because you might get the train.

Do they think we’re stupid?

The price for a mainline train within London is the same as the price for the same journey by tube. I can go to Ealing Broadway and get a train to Paddington or I could get the tube there. I’d touch in and touch out with my Oyster card the same either way.

The daily limit applies just the same whether I use tubes and buses or tubes, trains and buses.

No, increasing the weekly limit faster than other fares (and remember this won’t happen just this year, but indefinitely until the policy changes) affects certain people disproportionately. The sort of people most affected are those who use the system most, that is, those dependent on it most likely to get to work, that is, those with least choice.

I’m in zone 3. If you need to get a bus and tube to and from work – and tube stations are thin on the ground out here, so often a long walk – then you’re going to need a weekly Travelcard (£32.20 in 2011; £34.80 in 2012), given that 10 peak pay as you go (PAYG) zone 1-3 tube journeys alone cost £29 in 2011 and £31 in 2012.

Of course, the tragic thing about all this is that many Londoners get the bus all the way into the centre to save a few pounds at the expense of perhaps an hour a day. But even they’re being screwed. The cost of a 7 day bus and tram pass is rising by 7.3% from £17.80 in 2011 to £19.10 in 2012. I can understand why the individual bus fare is increasing by 7.7% – that’s to keep a round number (£1.40 in 2012 after £1.30 in 2011). But £19.00 for the weekly pass would have been a 6.7% increase. Why not stop there? Gratuitous.

As far as I can see, the main beneficiaries of the fare changes for 2012 are off-peak occasional tube travellers for whom the zone 1-2 fare rises by only 5.3% (£1.90 to £2 – OK a nice round figure) and the zone 1-4 fares by a mere 4% (£2.50 to £2.60). For the last, £2.70 would only have represented an 8% increase. It seems fairer somehow to impact what is most likely discretionary travel a little more and that for people trying to make ends meet a little less.

What else could be done to help the low-paid? Besides fair pay, that is.

Well, here’s another curious anomaly. “Peak” in regard to the daily limit means 4:30-9:30am. That is, if you travel between those hours the daily cap will be the peak rate (£10.80 in 2012, rather than the off-peak £7.80). But if you don’t reach the daily limit and just pay as you go, the peak is 6:30-9:30am and 4-7pm (16:00-19:00). Odd. Why not give people more of an incentive to travel before 6:30am, when presumably there is spare capacity? Why not make the peak daily limit apply only if you travel between 6:30 and 9:30am? Wouldn’t this be sensible demand-management? It would help at least some of those who currently spend more than the off-peak daily limit because they take a bus and tube to work (e.g. in zone 3 in 2012 a pre 6:30am tube fare, a peak return fare and two bus fares would come to £2.60 + £3.10 + 2x£1.40 = £8.50, above the off-peak cap of £7.80 but below the £10.80 peak cap).

The case I’m most interested in is my own, of course. It’s the borderline case, where I may as well walk to and from the tube station rather than catch the 297 (or infrequent E10). If the service were more frequent I might take the 297 to Ealing Broadway. As it is, I never do, because I don’t know how long I’ll have to wait, at least until I get to the stop, when there may be a few clues. When I come out of the station, though, I can sometimes see the bus waiting, or at least a queue of people. I’d take it more often if they actually bothered to display a departure time. But sometimes it comes down to a cost consideration. Basically, I’ll rarely pay the full fare. I might take the bus, though, if I reckon I’ll hit the daily limit.

I note that for 2012 the daily limits for zones 1-3 are increasing by more than the relevant tube fares. The peak daily limit is going up from £10.00 to £10.80 (8%) whereas the peak tube fare is increasing only from £2.90 to £3.10 (6.9%). And off-peak, the daily limit is going up from £7.30 to £7.80 (6.8%) whereas the tube fare is increasing only from £2.50 to £2.60 (4%).

So, in 2011, an off-peak return tube journey to the centre, and a journey within zone 1 (£1.90) came to £6.90, leaving 40p of the daily limit to be taken up by a bus fare, but the same itinerary in 2012 would come to £7.20 before the bus, which effectively costs me 60p. OK, it’s a 50% price increase but I expect I’ll still hop on a 297 at Ealing Broadway station if passengers are boarding!

Nevertheless, if TfL persists in increasing weekly Travelcard prices by more than other fares, there will be people who switch to pay as you go, and walk to tube stations rather than take the bus. Maybe this is all very healthy, but it seems a strange policy. It would make more sense to me to raise all TfL prices by exactly the same percentage and charge – now that it’s all electronic with Oyster – to the nearest penny if necessary.

October 1, 2010

Dissecting a Wolf, a Bean and a Vulcan

Filed under: Credit crisis, Economics, Inequality, Inflation, Public borrowing, Public spending — Tim Joslin @ 8:04 pm

I see John Redwood was up bright and early this morning, blogging away.  At 6:34am he posted that:

“…the [cuts] strategy has worked, bringing interest rates on government borrowing down and seeing off a possible Greek or Irish style borrowing crisis.”

Well, maybe.  But there’s an alternative explanation which would chill the former Minister’s blue blood.  I would have thought traders would pay a lot of attention to the interest rate desired by a central bank able to use QE to drive down yields to whatever level it desires.  FT Alphaville suggests that the Fed, at least, might decide to simply target long-term interest rates rather than apply a specific amount of QE.  Not a market to short just now, I would have thought.  Much safer to bully the Portuguese.

For the record, I can’t help a nasty feeling about all this QE.  The danger is letting inflation catch up with us.  A bit of inflation right now would be a jolly good way to get rid of all that negative equity.  But if inflation expectations sneak up on us the Old Lady would be compelled to sell off her QE bonds at a loss to soak up excess cash.  And it would suddenly make new government debt rather expensive.

Still, there don’t seem to be any better ideas out there.  And the clear and present danger, as pointed out by Posen, does seem to be a Japanese style “lost decade”.

But it was what the Vulcan did next that really amused me.  He was on the Today programme this morning absolutely fulminating that the Deputy Governor of the Bank of England, Charlie Bean, had suggested that if savers spent some of their money it might benefit the economy.   Redwood apparently believes that: “We are all collectively embarked on cutting the mortgage and putting some more money into savings and pensions.”  Yes, “all”.  How does that work, John?  Where does this money come from?  The same magical mystery place as bank interest apparently, since the former stalking horse also lectures us that: “Consumers might spend more if they got a better return on their savings and had more savings income” and that: “As house prices fall, people become more alarmed by the level of the mortgage.”

Um, doesn’t one person’s savings income come from another person’s mortgage interest payment?  And won’t house prices fall even further and people become even more alarmed if their monthly mortgage payments rise?

What on Earth does the Member for Wokingham think the economy is?  Maybe on Vulcan there are some different principles, but in this part of the Milky Way it’s generally considered that the more money circulates in return for goods and services, the healthier the economy is.  Yes, John, money has to circulate.  We can’t all stuff our mattresses with it.

Another getting their knickers in a twist over all this is our old friend Martin Wolf over at the FT.  If he feels the Coalition’s cuts agenda is dangerous I suggest we listen.  And this morning Wolf’s teeth were dripping the blood of the IMF, who (much to the delight of Grant “Anyone for Rugger?” Schapps on Question Time yesterday evening) have dared to endorse the new government’s spending plans.

Personally I think there’s a good chance the whole cuts debate is redundant as – just like in a household – it’s not always that easy to cut back on your spending.

But what really surprised me this week was a rare slip by Wolf.  He wrote that:

“The [policy strategy] of slashing the fiscal deficit while the private sector tries to slash its debt suffers from a fallacy of composition: it is impossible for all sectors of the economy [i.e. the public and private sectors] to spend less than income at the same time.”

This is simply incorrect. There is no “fallacy of composition”. The creditors are all private sector, so it is entirely possible for both public and private sector debts to be paid down simultaneously. It’s not the balance between the sectors that matters; it’s what happens within the private sector that’s important. Simply put, to decrease total debt, there needs to be an increase in financial equality (though not necessarily in living standards, since public spending reductions affect the rich financially and the poor non-financially).

Strangely, whilst my first contribution to the debate appeared immediately, my second comment which began by succinctly pointing out Wolf’s error failed to appear on the FT for a couple of days (then appeared twice).  I have little tolerance for this sort of thing.  It seems to me that the mainstream media who have coopted much of the blogosphere debate have a responsibility to allow debate to actually proceed and make sure their technology works reliably.  I was going to have a good whinge.  Now I suppose I’ll have to give the FT the benefit of the doubt.  Must have been a glitch.

There’s a really big issue here, though.

It’s becoming more and more apparent that the big picture is that inequality is more than just bad for us Spirit(Level)ually – it’s also bad for the economy.  Robert Reich has apparently explained this in Aftershock which I was just about to order when I realised I had his Supercapitalism on my shelf.  Unread.  Not any more though, so I’m off to see who can rush me Aftershock (2-3 weeks say Amazon, tsk).

October 29, 2009

The Great Carry Trade

Filed under: Concepts, Credit crisis, Economics, Housing market, Inflation, Regulation — Tim Joslin @ 4:08 pm

I was much taken by one of Larry Elliott’s pieces for the Guardian a couple of weeks back. Larry identified several eras: the Great Depression; the Great Compression, the period of strong growth and increasing equality after WWII; and the Great Moderation, the period of low inflation from the late 1990s to the early 2000s. We’re just ending the Great Recession (as this term was overused to describe 19th century episodes, I prefer “the Great Crunch”, which I think has a more modern flavour, but let’s go with Larry’s nomenclature today). I’d like to add to the mix the Great Inflation of the 1970s and 1980s. The question Larry asks is: What now? The Great Escape?

I’d like to argue that we’re likely to enter a period that we might call “the Great Imbalance”, reserving, on second thoughts, the title I’ve chosen – “the Great Carry Trade” – for the underlying cause. In fact, you could argue that the Great Moderation and the Great Recession are merely episodes in the history of the Great Imbalance.

Let’s first consider the causes of some of these various eras. Here’s my simplification of some complex phenomena:

  • The Great Depression is so-called because growth stagnated in large part because of a breakdown in trade.
  • After WWII trade resumed, but crucially without the Soviet Union and satellites, China and India. Larry’s Great Compression resulted from the growth in this era, together with, crucially, greater bargaining power on the part of workers, as collective bargaining reached its apogee. This combined with a squeeze on that critical resource, oil, to produce the Great Inflation.
  • In 1989 the Berlin Wall came down. China and India have since become global players. This has locked in the reduction in workers’ power that occurred when unemployment resulted from the Great Inflation, permitting rapid non-inflationary growth – the Great Moderation.

Now, Larry writes that:

“One feature of the Great Moderation was the build-up in debt that allowed consumers in the US and Britain not just to live beyond their means, but to mop up the excess output from the low-cost factories in Asia. Debt is now being paid back, and it will continue to be paid back as the monetary and fiscal authorities withdraw the emergency stimulus packages of the past 12 months.”

But I’d argue that, far from “the build-up in debt” being a “feature” of the Great Moderation, it is a result of the fundamental cause of the Great Imbalance, that is of the Great Carry Trade.  And the Great Imbalance is not over, because international debt is not, in fact, being “paid back”.  And the Great Carry Trade itself has a cause: the false idol of export-led growth.

Larry also suggests that:

“The Great Moderation … could only be temporary, since its reliance on levels of debt that were only sustainable provided asset bubbles continued to inflate meant we were buying stability today at the expense of instability tomorrow. As such, Alan Greenspan created a housing bubble out of the wreckage of the dotcom bubble, thus disguising the structural problems in the US economy.”

I disagree: the cause of the Great Moderation phase of the Great Imbalance was not the debt, but globalisation. Larry is also writing in the UK, which somehow sidestepped a recession after the dotcom crash, so perhaps sees more stability than Stateside commentators. Regardless, I suggest that the conditions are already in place for the next bubble, because the underlying imbalance has not been addressed.

Larry titled his piece “Eastern promise holds little hope for west”. But why should this be? Growth based on trade is mutual – it’s not a zero-sum game. If I buy Chinese toys for pounds, the only way to zero out the transaction is for British products to be purchased with those pounds. The cash acts as a store of value. That’s the point of it.

But what’s happened is that the pounds and dollars used to purchase goods from China and other countries following a similar strategy has not been spent on imports from UK or US. The ramifications seem no less serious now than when I wrote nearly a year ago. Since then there’ve been a few developments:

  • The worst recession for a generation.
  • A fall in the value of the dollar (and pound) against the euro.
  • A massive recovery in emerging markets in particular, fuelled by investment flows.

But no change in the value of the renminbi against the dollar.

So what’s going to happen?

Let’s consider trade first.  The eurozone was until recently in rough trade balance.  Now, though, the US trade imbalance with China (and others), which is an inevitable result of the currency pegs, will be shared by the eurozone.  Additionally, the eurozone will see a deteriorating trade position against the US (and UK).  In short, the next phase of the Great Imbalance will see the addition of Europe to the debtor countries.  This is inevitable with current policies.

But there’s another feature of what’s going on which leads me to highlight the Great Carry Trade.  Investors – ironically as a result of articles like Larry Elliott’s – see the big opportunities as in the developing countries.  What was a minor part of portfolios is becoming mainstream, egged on by the investment industry.

Why do I talk about a “carry trade”? Well, the effect of investment in higher-yielding currencies is – whether or not one organisation carries out all parts of the transaction – borrowing in the low-yielding currency (the dollar or pound, say) at low interest rates to lend (or invest) in a high-yielding currency (such as the rouble or renminbi).

A key point is that all the dollars or pounds invested come straight back. Think about it: to invest in China, you (or an intermediary) have to sell your dollars to a bank to buy the local currency. These dollars are then available to lend on the international money markets, depressing dollar interest rates. The carry trade is self-fuelling, reinforcing the trade imbalance.

With free-floating currencies, the capital flows will eventually force up the currency of the destination country, and investors will no longer see the opportunities they did. There’ll be some kind of correction, quite possibly an “emerging market crisis”.

But with pegged countries there are fewer ways out. Obviously there is a possibility of investor confidence becoming undermined and an asset (e.g. stock market) bubble bursting, but failing that, either inflation could occur or the currency peg could break. But both of these tend to help the foreign investor, by increasing the value of their assets. The pegging country is likely to find itself in a policy straight-jacket. Increasing interest rates to cool the economy simply encourages the carry-trade. Hinting at appreciation, or a limited appreciation, of the currency is likewise a red rag to a bull. They could try to directly control the capital flows, like Brazil did recently, or try to manage asset values directly. But such policies are difficult to implement. All very unsatisfactory.

I can only conclude that unless emerging market currency pegs are abandoned we will simply have a repeat of recent history, with a slightly different flavour.

Much depends on what happens in the deficit countries. Current policies suggest that governments will try to rein back on their borrowing. That leaves even more potential for bubbles in the property and the corporate capital (equity and bond) markets.

It now seems to me that in the UK, at least, property prices will resume their upward path. This will be driven not by low-income owner-occupiers, and maybe not even by the recent type of buy-to-let investor. Rather corporates will invest, which will increase construction rates (because such investors require large numbers of properties), which will help fuel the economy, sucking in more imports, of course. Foreign buyers will also continue to stoke the market, particularly in London. Interest rate increases to choke this off will have limited impact as they will tend to push up the pound, encouraging the very imports and capital flows that are fuelling the Great Imbalance.

In an even world, investment flows into UK equity and bond markets should, over time, exactly counterbalance flows out. But we live in an uneven world. Furthermore, when capital returns to the UK (or US) it has had the risk taken out of it. Companies, just as in the dotcom boom, will, even when raising equity is possible, still over-leverage.

Where the next gasket blows is anybody’s guess. Remember, excessive capital flows will once again be a global phenomenon. Governments will try to shore things up, but will simply have not enough thumbs to stick in all the dykes that could burst.

October 16, 2009

Bus Fares, the Minimum Wage, Pensioners, and the Nonsense of RPI and CPI

Filed under: Bus, Economics, Inflation, Local government, Minimum wage, Politics, Transport, Tube — Tim Joslin @ 7:40 am

BBC Radio 4 is more than usually surreal this morning. Unless my ears deceived me, they just broadcast a nursery school teacher asking her young charges: “What rhymes with ‘bucket’?”. Recipe for disaster, I’d say. Earlier they’d announced that “Google, the world’s biggest search engine” has an opinion. No, the company may have an opinion, or, better, the CEO, but, unless the internet has become self-aware overnight, search engines do not have opinions.

So I decided that, rather than slob about, I’d make a point I’ve been dwelling on overnight.

On the BBC London News, after News at 10, the reporting of the London Transport fare rises brought home to me the scale of the price rises. Bus fares are going to rise by 20p. At the moment my Oyster is charged £1, now it will be £1.20. That’s 20%. Previously I’d only skimmed a BBC report that noted that:

“Bus fares are to go up by 12.7% and Tube fares will rise by 3.9%.”

I hadn’t really taken in the rest:

“Oyster card pay-as-you-go bus journeys are to rise from £1 to £1.20. … and the price of a seven-day bus pass will also jump from £13.80 to £16.60 but London Travelcard prices will be frozen in the vast majority of cases.”

This makes me suspicious. I’ve just downloaded the PDF from the BBC’s report. Yeap. The 12.7% and the 3.9% are spin – well, they’ve been constructed somehow, but without any information as to how, they are virtually worthless.

Like RPI and CPI, these % increases mean little. They do not reflect the effect on specific individuals.

In fact, the fare rises are ludicrously unfair. Is this the start of a Tory assault on the poor?

The key point is that fare rises on buses are much greater than those on the tube. The result is that the cost of living increases fastest for the poorest. Boris may not realise this (Ken did, apparently), but he shares London with people who catch the bus because they can’t afford the tube.

Let’s consider first how the fare changes affect those struggling on the minimum wage. Let’s assume Mr Minimum catches a bus to and from work 5 days a week. That’s 10 fares now at £1.20 rather than £1 – £10/wk now but £12/wk after 2nd January – a 20% increase as already mentioned. Now, the minimum wage recently increased from £5.73 an hour to £5.80, that is by 7p an hour. If Mr Minimum works 40 hours a week, he’s better off by £2.80/wk (before tax) because of the pay rise, but worse off by £2/wk because of the bus fare rise. That’s right – the fare increase has wiped out all but 80p, or (200/280)*100 = 71% of the rise in the minimum wage.

Maybe that’s not incredibly realistic. Mr Minimum might have to take 2 buses to work and 2 back. In that case he’d reach the daily fare cap on the buses. But this has risen from £3.30 to £3.90 or by 18% (exactly where did this 12.7% come from?). More to the point Mr Minimum will have to pay 5*60p = £3 extra per week to get to work. Wiping out his entire annual pay rise plus an additional 20p.

But, of course, if he used the bus to travel to work 5 days a week, Mr Minimum will most likely have taken advantage of the weekly Bus and Tram pass. How has this increased? From £13.80 to £16.60, that is by £2.80 or just over 20%, that’s how. Unbelievable.

If Mr Minimum works a 40 hour week, the bus fare increase wipes out his entire annual pay rise.

On the other hand, fares for most tube commuters will not increase at all – some peak fares and more to the point 7 day Travelcard prices are (mostly) frozen.

Bizarrely, off-peak tube fares have risen more than peak fares. The way to use the system more efficiently is to spread the load more. I would have thought a greater differential was called for. Train fares are punitive at peak times. Maybe both could converge on a happy medium.

I was going to mention pensioners, who have just been awarded a £2.40 weekly rise. Then I realised that pensioners can travel free on the buses anyway. In fact, pensioners are now rather more than £2.40 a week better off, since they would have been entitled to no rise at all based on RPI, which is negative. In general the increase in the state pension is based on an inflation index that includes transport costs, even though they pay less for transport than the general population.

What’s actually needed are indices that reflect the cost of living rises for different segments of the population, to be used for different purposes.

But there’s a bigger issue. When are we going to start treating the low-paid fairly?

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