Uncharted Territory

January 4, 2011

Subsidising Cambridge Commuters?

Filed under: Bus, Economics, Inequality, Rail, Tax, Transport, Tube — Tim Joslin @ 4:28 pm

Labour is choosing to attack today’s VAT rise as “the wrong tax at the wrong time”. I’m not so sure. It seems to me that stealth tax rises, such as on public transport, are far less fair.

Pre-empting arguments over the figure, Labour are cunningly pointing out that the Lib Dems claimed during the General Election that the VAT rise would cost “the average household” £7.50 a week.

Curious. £7.50 extra VAT a week at 2.5% implies £300 of spending that qualifies for the tax – that is, £300 of spending that doesn’t include mortgage or rent, food, children’s clothes, books or newspapers, lottery tickets, gas, water, electricity, public transport or Council Tax. Difficult to manage on an income of ~£30K, that is, a weekly spend of ~£600, I’d have thought.

On the other hand, multiplying £7.50 by 52 weeks and the ~20m households in the UK gives around £7.5bn, which does seem about right. I suspect VAT is in fact a progressive tax.  The wealthy spend proportionately more on the sort of things that qualify – restaurant meals, expensive booze, nibbles and confectionery, new cars, designer gear and other big-ticket items.  The poorest – getting by on Tesco bogoffs, saving up for the odd bus ticket, buying all their clothes from charity shops and so on – must have eff all VAT-qualifying expenditure.

I strongly suspect that this is a case where Mr & Mrs Average do not in fact actually exist.

Maybe Labour would gain more votes by instead pointing out what appears to have been another case of dissembling during the election campaign by those (allegedly) lying liar Liberals.

Or perhaps they could have focussed instead on the increases in public transport costs which are in many cases seriously regressive.

Take the Zone 1-4 Travelcard (and daily Oyster limit) which will affect those working in the centre of London.  It’s rising from £6.30 to £7.30, off-peak, that is, by nearly 16%, not the 11% the BBC calculates, bless. What’s more, if you happen to live near muggins here in zone 3, the peak Travelcard/Oyster limit has increased from £8.60 to £10 – that’s over 16% even if you’re the BBC – to match the unchanged rate for zone 4.

Curiously, bargain of the year for 2011 is the 7-day zone 1-3 Travelcard which remains less than that for zones 1-4 at £32.20 against £30.20 last year, a mere 6.6% increase.  This could now pay for itself in 32.20/10.00 = 3.22 days, against 30.20/8.60  = 3.51 days last time out.  Even off-peak it’s worth considering at 32.20/7.30 = 4.41 against 30.20/6.30 = 4.79 days.  More realistically a mix of peak and off-peak travel into London over 4 days (2*£10.00 + 2*£7.30 = £34.60) would justify buying the Travelcard for £32.20 whereas last year you were much more likely to need to travel on 5 days (2*£8.60 + 2*£6.30 = only £29.80, still less than a £30.20 Travelcard).  Where’s the logic in that?

Having to decide in advance whether to invest in a weekly Travelcard is an unnecessary irritation, since the system could cap weekly expenditure in the same way as daily.  I understand TfL’s IT experts will get round to doing this by around 2013.

Hours of amusement, perhaps, though maybe deadly serious if, like me, you fall into the category of zone 3 residents who travel into London on an irregular basis.  A category that is being seriously screwed by the latest fare rises.

Who will this arbitrary unfairness affect the most?  The poorest of course.  Consider those who live in zone 3 and can’t afford the higher price of property near a tube station.  In 2010 two off-peak tube fares to the centre at £2.40 each, for example, brought you within striking distance – £1.50 – of the daily limit of £6.30.  You didn’t end up spending full whack on the bus each way to the tube station – the cost was capped at another £1.50.  In 2011, though, those two tube fares will set you back £2.50 each, but the daily limit has been disproportionately raised to £7.30, so the buses will cost you £2.30.  The tube fare – which is all Mr Rich who lives near the station has to worry about – might have gone up by only 4%, but the bus fare will have risen by 80/1.50 = 53%!  The percentage is even greater if one of the tube fares happens to be at the afternoon peak rate (£2.70 in 2010, £2.90 in 2011, charged from 16:00 to 19:00) when the off-peak daily cap still applies. [In 2010, £2.40+£2.70 left £1.20 of the £6.30 daily limit for the bus; in 2011, £2.50+£2.90 leaves £1.90, so the cost of choosing the bus rather than walking has risen by more than 58%!].

I happen to fall into the category of those who live near enough to a tube station to be able to walk if I’m not feeling lazy.  I now have much more of an incentive to do so.  What TfL has done is make it much more expensive for zone 3 travellers to use a bus as well as the tube.  So more people will walk instead and TfL may not even realise the extra revenue they may expect from the daily cap increases.  Leaving everyone worse off.

Boris may want to take note that with another 8.3% increase (from £1.20 to £1.30) in the flat-rate bus fare, following the 20% increase at the start of 2010 (from £1) he’s making short hops in general more and more expensive.  The flat-rate fare makes a lot less sense in a purely fare-based system than in a subsidised one where the fares don’t recover the full cost.

Commuters who make one tube journey each day haven’t been hard hit, but it’s difficult to find categories of bus user who aren’t much worse off after these latest changes.  The daily bus limit has only increased by 2.6% – from £3.90 to £4 – this time (though it was £3.30 in 2009).  This is good news only for occasional bus commuters to the centre, who most likely have to change – and it’s a disgrace that some people are paid so little that they can’t afford to use the tube (and note that you face no penalty for changing tube routes) – since the 7 day bus pass has increased by 7.2% from £16.60 to £17.80.  [And now represents 4.45 rather than 4.26 daily maximum fares.  Where’s the logic in that?].

All this has been rather a digression as what I really wanted to do was provide an update on the cost of mainline rail travel.  ‘Cos if you want to get about the UK within a finite time you need serious money.

A couple of years ago I introduced the Cambridge Day Travelcard (with Network card discount) fare index, which is admittedly not yet perhaps quite as famous as the Economist’s Big Mac Index.  Here’s the full series, brought up to date:

2003     £11.55

2004     £12.60     9.1% increase on previous year

2005     £13.85     9.9%

2006     £14.85     7.2%

2007     £15.20     2.4% (presumably lower because of the new afternoon restrictions – the return can no longer be used on trains departing King’s Cross between 16:30 and 19:00, which is inconvenient, to say the least)

2008     £15.85     4.3% (lulling us into a false sense of security)

2009     £17.50     10.4% (out of the blue – it’s a record!!)

2010     £17.50     0% (but still a real-terms increase! – according to the RPI, prices in July 2009 were 1.4% lower than a year earlier)

2011     £18.50     5.7% (close to the July RPI of 4.8% plus 1% which I understand was allowed for the average of each operating company’s fare increases)

So the cost of a day Travelcard from Cambridge to London – for a degraded service, remember – has risen a whopping 60.2% in the mere 8 years since 2003.

What about inflation?  Really we should compare the RPI for a month from December 2010 to December 2011 (reflecting general prices when we’re actually travelling) with the same month in 2002-3, but the latest data available is for November 2010 when the RPI index was 226.8.   It was 178.2 in November 2002, so prices in general over the same 8 years have risen only roughly 27.3%.

That is, in 8 years, the day Travelcard from Cambridge to London (with Newtork card discount), for a degraded service, has risen about 25.8% in real terms.

And the formula for the next few years is RPI+3%.

But what really got my goat, and prompted this post, was reading the comments of an RAC spokesman in Saturday’s Guardian:

“The RAC Foundation, a motoring thinktank, claims that the annual £5bn subsidy of the rail network disproportionately benefits Londoners and the well-off, with 40% of households earning more than £50,000 a year using the railways at least three times a week – double the figure for those on less than £25,000 per year.

Stephen Glaister, its director, said: ‘The rail subsidy comes from the Treasury and, in that sense, it is paid for by everybody. But the benefits are weighted towards the south-east and the relatively well-off. If government policy is intended to help redistribute wealth and help the less well-off, rail subsidies are a poor way of doing it. Spending the money on helping road users would be a better way of doing it.’ “

Well, of course only the wealthy can now afford to use the railways!  There’s not much point taking a £15K a year job in London if it’s going to cost you £5K of that just to get to work, is there?

But I rather dispute that the benefits are “weighted towards the south-east”, or at least towards commuters on busy routes, such as Cambridge to London.  What I suspect happens is that commuters subsidise those travelling off-peak; busy routes subsidise those at the periphery of the network; and busier regions, especially in the south-east subsidise less-busy regions.

The Guardian could, for example, have taken a peak at the latest (2009-10) National Rail Trends (NRT) Handbook from the Office of the Rail Regulator (ORR).  On p.62 you’ll find table 6.2c which gives the 2008-9 passenger subsidies for each Train Operating Company (ToC).  I crudely show it here:

As can be seen at a glance, First Capital Connect (FCC), which operates the Cambridge-London route, is not directly subsidised, but in fact pays 3.4p per passenger kilometer for the privilege of running the trains.  Now, this is for the whole franchise, which must include peripheral routes that are less heavily used, as well as the most overcrowded trains in the country from Cambridge.  But those peripheral routes at least help to bring some passengers onto the network, so let’s take the figure of 3.4p to be realistic.  A round trip to London must be in excess of 100km, so travellers from Cambridge are on average paying in at least £3.40 every time they buy a return ticket.

But the franchise payments are not the main subsidy to the railways.  The taxpayer provides around £4bn a year in direct support to Network Rail (see Table 6.2a of the ORR’s HRT handbook – self-serving obfuscation in Network Rail’s financial statements reveals no more detail).  Table 6.2c shows a total of around 50bn passenger kilometers per year (note that some operators are outside the franchise system so the distance total in table 6.2c is not complete).  Making the heroic assumptions that Network Rail’s subsidy is evenly spread and not used to support vanity investment projects, rail passengers do indeed appear to be subsidised to the tune of around 8p per passenger km.

Combining the two subsidies suggests FCC passengers are on average subsidised by around 4.6p per km (8p – 3.4p) whereas those on, for example, Northern Rail receive around 12p/km (8p + 4p from Table 6.2c).

The Guardian notes that an annual season ticket from Cambridge to London costs around £4000.  If this is used 250 times, that works out at around £16 per day return, not bad at all compared to the £13.85 price for an off-peak day return with a Network card. It seems commuters in fact get a relatively good deal since their season ticket entitles them to unlimited travel to London at times when the day return fare would otherwise cost an absurd £34.

This isn’t quite what I expected – as always, it pays to delve into the numbers.  It seems a bit daft for an annual season ticket to represent no more than 120 daily trips (£4000/£34).  I don’t really see why anyone making fewer than that should be so severely penalised.  This discourages all kinds of business and other activity, part-time working, working from home and tourism, for example.

It remains conceivable that even commuters on the Cambridge to London route are still being subsidised, though the trains are so busy I’m confident that the Cambridge to London route in fact subsidises the rest of the FCC franchise.

The people really being fleeced are:

– those adults without a Student, Senior or other railcard – since anyone can buy a Network card for around £25, this means occasional users are penalised, which hardly helps to bring new passengers onto the railways;

– all non season-ticket holders forced to travel at peak times (which, since 2007, includes 16:30 to 19:00 from King’s Cross);

– purchasers of single or open return tickets. An Anytime (i.e. including peak-time trains) open return from Cambridge to London now costs the same as two peak singles, at £40, a ridiculous two and a half times the effective rate (£16) for a season ticket-holder occupying the same seat – or more likely standing on the same train.

The numbers suggest these categories of passenger from Cambridge to London are definitely not being subsidised.

If the strategy is for costs of rail travel to be attributed to those using the service, then it makes no sense for some categories of passenger to pay substantially more than the cost.  The open return ticket price should be reduced to that of the day return and single tickets should be half the return price.   For Cambridge to London, the non season-ticket peak fare is way out of line and should simply be reduced to say 1/150th of the season ticket price, that is, around £27 (from £34).

The TOCs effectively have monopoly pricing power.  Prices therefore reflect expediency rather than the cost of providing the service.  If there were a decent level of competition they’d soon find another operator could afford to undercut them on those fares that are out of line.

What’s more, allowing peak fares of effectively twice the off-peak rate gives no incentive to rail companies to increase passenger numbers, for example, by running more late-night and pre morning-peak trains.  Allowing an afternoon peak is insane – the rail company has a disincentive to ease over-crowding.

The whole rail franchise system is dysfunctional.  What’s effectively being sold is the right to charge monopoly prices.  This is absurd.

In an ideal world, there would be no need for peak and off-peak fares – sufficient trains would be run to meet demand at all times.  In the meantime, though, the need for demand management skews incentives for the TOCs.  It’s therefore necessary to divorce ticket-pricing from financial rewards to the TOCs.  The TOCs should be paid just for the service they provide – that is, the same rate per passenger regardless of when they travel and how much they’ve paid for their ticket.  And less per passenger on trains that are more than 70% full. The TOCs should have an incentive to increase use of the railways, not screw more money out of fewer passengers.

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