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Unit 3 Micro: Regulated and Unregulated Train Fares

Tuesday, August 21, 2012
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For millions of regular rail users, the fare system in operation in the UK is almost impossible to understand! Annual changes in a complex system of rail fares bring about anger and hostility and there are regular claims that the increasing cost of travelling by rail is a disincentive to use the train instead of the car.

The current system of rail fare regulations is as follows:

Around 45 per cent of fares are subject to regulation – these are season tickets for most commuter journeys and off-peak fares on most intercity journeys. The rest are set by the train operating companies themselves

Since January 2004, annual rises in regulated fares have been limited to RPI+1 per cent. The RPI rate for July in each year is taken as the benchmark for the next set of fare changes

The price capping regime for rail is now RPI = 3% - for three years from January 2012

Thus, from January 2013 fares are anticipated to rise by 6.2 per cent, based on a July 2012 RPI of 3.2 per cent and an increase in the regulated fares cap to RPI+3

The main justification for the change in the pricing regime was that “the Government can deliver priority capacity improvements on the rail network to relieve overcrowding and improve passenger comfort.” The government is also keen to cut the general subsidy paid to rail companies.

Mark Reckless MP: Rail fare rises ‘counterproductive’

Unregulated fares are determined by the train operating companies – i.e. the businesses that have a franchise to operate a particular service using the infrastructure maintained by Network Rail. Operating costs for running services are high, profit margins for the operators have remained stable and relatively low since the privatisation of the railways – the average return is between 3 and 4%

How do our rail fares compare with the rest of Europe?

The chart below shows how the index of passenger rail fares has outstripped the consumer price index – partly because of the built-in fare rises caused by the price regulation system. There has been a long term rise in passenger numbers on the UK rail network - there was a dip in 2009 because of the recession - but will the latest round of steep fare increases tempt commuters back into their cars? 

RMT: government to blame for rail fare increases

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Passenger Focus: Train companies ‘using dark arts’

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