A Backbench Business Committee debate on HS2 Compensation is scheduled for Thursday 18 January 2024, in the Commons chamber. The debate is sponsored by Theo Clarke MP (Con).
The rise in rail fares each January is based on the annual increase in Retail Price Index (RPI) measured the previous July.
The Department for Transport has confirmed that regulated fares will not increase as much as the July figure in 2023, but has not confirmed how much the new cap will rise by. The price cap is usually announced by the Government each December.
With this July’s RPI reaching 12.3%, passengers could still face paying hundreds of pounds more for their train tickets next year. This comes amidst the broader cost of living crisis in which prices are rising at their fastest rate for 30 years.
What is RPI and why is it important?
The Retail Price Index (RPI) is the longest running measure of inflation and is used for certain types of cost increases, including rail fares. However, it is no longer classified as a national statistic as the way it’s calculated does not meet international standards.
The Consumer Price Index (CPI) is the main measure of inflation. It is produced in line with international standards and is the measure used for the Bank of England’s 2% inflation target. CPI is generally around 1% lower than RPI.
The chart below shows that the price cap for rail fares has been either the RPI from the previous July minus 1%, RPI plus 1%, or simply the rate of RPI.
The highest price cap increase was 6% in 2009 and 2012. The RPI from July 2022 (12.3%) is included to illustrate that if the price cap increased by half of this, it would still be the highest increase to date.
Which fares are affected?
Around 45% of all rail fares are regulated by the price cap. Regulated fares include season tickets on most commuter journeys, some off-peak return tickets on long distance journeys, and anytime tickets around major cities.
Other fares, including first class and advance tickets, are not regulated by the price cap. ‘Unregulated’ fares are set by operators, on a commercial basis, to optimise demand and revenue.
In England, the price cap is regulated by the Secretary of State, in Wales and Scotland by the Welsh and Scottish governments. Scotland has not yet announced its plan for the upcoming year. Wales usually follows changes made in England. In Northern Ireland, fares are set by state-owned operator Translink, which does not use RPI.
How much will fares increase?
If the cap was raised by RPI, the price of a season ticket could have risen by 12.3% in 2023.
To illustrate, commuters going between Reading and London on any route would have to pay an extra £620 for the new season ticket cost of £5,664.
Annual season ticket cost if prices rise by 12.3% in 2023
|Reading to London
|Durham to Newcastle
|Liverpool to Manchester
|Bradford to Leeds
|Tamworth to Birmingham
Not all fares rise by the price cap set each year. Regulated fares must rise by the cap on average, therefore individual fares can vary as long as the weighted average is the same. Unregulated fares can increase by a larger amount. Unregulated standard class ticket fares are 4.8% higher in 2022 than 2021, compared to the 3.8% cap.
Does record RPI mean record rail fare increases?
Not necessarily – the Government can vary the annual regulated fare cap that is announced every December. With the prospect of steep fare rises, alternative formulas to calculate next year’s cap are being encouraged by campaigners, including the Campaign for Better Transport.
- The rate could be cut by 1 percentage point (RPI-1%) to 11.3%, which last happened in 2003, but this increase would still be above the previous record rise of 6% in 2009 and 2012. The Sunday Times suggests it will be under double figures.
- The Campaign for Better Transport is calling for a fare freeze for 2023.
- To give people more time to buy cheaper tickets at the existing rate, the price rises can be delayed from January to March. The Government has done this in the last two years due to the pandemic and confirmed 2023’s increase will follow suit.
- There have been calls to use the Consumer Price Index (CPI), rather than RPI, as it is a more accurate way of calculating inflation. Had CPI been used to calculate the March 2022 increase, fares would have gone up by 2.1% rather than 3.8%.
“The government is taking decisive action to reduce the impact inflation will have on rail fares during the cost of living crisis and will not be increasing fares as much as the July RPI figure.
We are also again delaying the increase to March 2023, temporarily freezing fares for passengers to travel at a lower price for the entirety of January and February as we continue to take steps to help struggling households.”
Do fares need to go up?
Since privatisation, successive governments have tried to shift the burden of funding the railway from taxpayers to farepayers, but the Coronavirus pandemic has affected this.
It led to an increase in public subsidy with £14 billion spent to keep rail services running. Moreover, the number of people using railways in the UK has fallen, causing passenger revenue to fall to £2.5 billion in 2020/21, roughly a fifth of its pre-pandemic level of £11.7 billion in 2019/20.
Fare rises could be viewed as a way to rebalance the share of rail funding from taxpayers to farepayers, cope with wider inflation costs and fund necessary improvements to the railway. However, rail companies may receive less revenue if they raise fares as people may choose not to travel by rail.
There is also concern this will be counter-productive to growing the economy and tackling climate change. With the cost-of-living crisis, the ability to work from home means cutting back on transport costs, which may be easier than reducing food or energy bills for some people. Higher fares could also encourage some people to drive into work, which adds to road congestion, carbon emissions and air pollution.
- House of Commons Library, The future of rail
- House of Commons Library, Rail fares, ticketing & prospects for reform
- House of Commons Library, Railways: fares statistics
About the author: Iona Stewart is a statistics researcher at the House of Commons Library, specialising in transport.
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