After decades of recognising the need to reform fares and ticketing, but with little action, everyone in the rail industry must be in despair waiting for someone with the vision, wisdom and courage to cut the Gordian knot.
That someone has to be a politician, since the Government now controls the railways, and government policy determines the overall fares structure. The creation of Great British Railways (GBR) and the restoration of overall management of the railway creates the perfect opportunity for a ticketing revolution, now that the earlier window offered by the pandemic has been lost.
We already know that with inflation in double digits, the method of calculating the annual fare increase based on the RPI figure is fatally broken. Moreover, the Office for National Statistics gave up using RPI in 2013, because it is “a very poor measure of general inflation”.
The January fare increase has invariably been accompanied by a media storm that damages the rail industry and encourages even more people to think the railways are too expensive.
So, this is a moment when demands for root-and-branch reform of fares cannot be ignored. Something has to happen - not least because up to 35% of people for whom rail travel is an option are being put off by the complexity of fares.
Another factor impelling reform is the £360 million allocated in 2021 for contactless pay-as-you-go ticketing to be rolled out across the commuter networks of the Midlands and North over the next three years.
The cost to government has been cited as the greatest obstacle to reform, under the assumption that it would reduce revenue.
Ian Legg, of the Legg Consultancy, thinks change is deterred by uncertainty over the transition to a new system: “How do you move to an ‘ideal state’ from today? How do you keep £8 billion to £10bn coming in when reforming fares, and while waiting for demand elasticities to kick in? We don’t know enough about the impact of significantly raising or lowering fares.”
The answer, says Mark Smith (The Man in Seat 61), is “to reassure the risk-averse Treasury that prices within a new structure will not be difficult to adjust if calculations to achieve revenue neutrality are out by 2% or whatever”.
Smith explains: “The Passenger Demand Forecasting Handbook can accurately predict incremental changes to fares and pricing, but not changes to prices and structure of the magnitude proposed.
“But people forget the blindingly obvious: you’re not stuck with the prices you implement on Day 1. The industry revenue supporting tool LENNON stands for Latest Earnings Networked Nationally OverNight, and the clue is in the name - you can implement an entirely new fares structure with new pricing designed to be a best-shot at being a revenue-neutral change.
“It will inevitably miss - either under-shooting or over-shooting. But you’d know within a few days which it was, and by what order of magnitude. The whole structure can then be adjusted up or down by a uniform percentage to restore revenue neutrality.
“After a few weeks, passengers will adjust to the new prices (although there would be winners and losers in pricing reforms), and a second adjustment may be necessary. In other words, the Treasury needn’t worry - we can guarantee the whole thing will be revenue-neutral more or less by definition.
“Longer term, I’d expect the simplicity itself to drive a revenue increase through easier retailing and restored consumer confidence.”
Another impediment to reform is already on the way to being removed. The regulations and agreements with train operating companies (TOCs) no longer need unscrambling, thanks to the formation of GBR and the move from franchising to National Rail Contracts (NRCs). The end of franchising should also get rid of the need for impartial information under TOCs, which was a well-meaning attempt to ensure that passengers were given all the options for fares, but which in practice meant that they were bombarded with a plethora of often pointless ‘choices’.
Even though Network Rail Chairman Sir Peter Hendy has said that train operating businesses would be “incentivised to go for growth” under NRCs, those inducements need no longer affect fare and ticketing regulations when all revenue will be going to GBR.
Andy Wakeford, fares lead at the Rail Delivery Group, argues: “The current fare structure is inefficient in driving revenue maximisation and fails to meet the needs of today’s passengers. Changing the BR-derived fare structure is not going to upset the ley lines of the universe.”
The Treasury needs convincing not only of what the railway industry could do, but also of the need to include the industry in making the case for creating a 21st century fares structure. Currently the industry seems to be excluded from discussions between the DfT, Treasury and No.10.
At the outset, it is necessary to mention terminology. Fares, prices and tickets are sometimes used erroneously as interchangeable terms. The fare is the authority and conditions attached to travel on the railway, the price is the amount of money you pay for the fare, and the ticket is the evidence that you have paid a price for your fare.
