Does record RPI mean a record fare rise?

25 July 2022
Does record RPI mean a record fare rise?

Inflation is at its highest point in 40 years, with the Retail Price Index (RPI) at an eye watering 11.8 per cent, further squeezing people’s pockets as the cost-of-living crisis shows no signs of abating. For rail passengers the latest RPI figure has an added sting in its tail as it’s RPI which is used to set the annual fare rise.

Each year, the RPI figure for July is used to set the following January’s fare increase, which means if this month’s figure is as high as June’s, we could see a double-digit fare rise next year. A fare rise of this magnitude would be disastrous for the railway, which is still struggling to fully recover post-Covid, and will simply price people off the railways. We’ve written to the Chancellor, Rt Hon Nadhim Zahawi, to urge him to help rail passengers with the cost-of-living crisis and announce a fare freeze for 2023. We also urged him to fulfil the Government’s 2018 promise to drop the RPI-linked fare rise and use the Consumer Price Index instead as a much more accurate and fairer way to calculate inflation.

A record-breaking fare rise next year would do little to encourage people back to the railways, something the Government must start doing. A total of 990 million rail passenger journeys were made in Great Britain last year (1 April 2021 to 31 March 2022). This was more than double the 388 million recorded during the pandemic, but just over half (57 per cent) of the 1,739 million journeys made before Covid. Of those 990 million journeys, 167 million were made using season tickets (28.4 per cent), almost double the previous year, but still down on the pre-Covid levels.

We know that the treasury is keen to recoup some of the money spent on the railways during the pandemic and sees fares as a good way to do this. Like passenger numbers, revenue last year was roughly half what it was pre-pandemic and the Treasury sees increasing fares as the best (and only?) way to increase revenue, but a larger fare hike next year may not provide the extra income it thinks. A recent Institute of Economic Affairs report found:

“Even if rail companies hike fares, they may still receive less revenue than pre-pandemic, as a high proportion of what were compulsory commuter trips are likely to become discretionary.”

Basically, if fares are too expensive people won’t buy them, and with a previously ‘captive’ commute market now able to decide if and when they travel, they may well simply decide to carry on working from home.

But we need people travelling into our towns and cities to help stimulate the economy, and we need then to be doing so in a green and sustainable way. The railway helps reduce road congestion and air pollution, and is a key tool to reaching net zero carbon emissions.

So the question the Treasury must now ask itself is whether it wants to keep trying to get more out of fewer people, or less out of more people? A fare freeze could end up being cost neutral in terms of farebox revenue but provide savings in terms of a reduction in road congestion, air pollution and carbon emissions.

As the recent Great British Rail Sale proved, people know a bargain when they see one, and when fares are more affordable people will choose the train.