A train tract – are ticket price hikes justified?

Photo credit: crashcalloway on flickr

Photo credit: crashcalloway on Flickr

Tuesday saw the announcement that rail fares will rise in January 2015 on average by 3.5%. Furthermore, train companies will be permitted a 2% leeway in prices, so long as fares on average inflate by 3.5%. This means that some fares will rise by as much as 5.5%, while the current Consumer Price Index sits at 1.6%, and the Retail Prices Index at 2.5%. Further fuelling the backlash against this news is the statistic that whilst average wages have risen by 6.9% since the beginning of David Cameron’s premiership as opposed to the 20-25% increase in rail fares.

One could be forgiven for theorising that, adjusting for inflation, rail services have improved substantially more than they would have done. This isn’t really the case. A key driver behind the increase has been the government’s ambitions to reduce their end of the spending on railway operation – and before anyone demonises Tories, it was laid down at the behest of Labour in July 2007.

There’s no doubt whatsoever that these price hikes are frustrating. They are very direct and to the regular traveller, a strain which seems gratuitous. But then, are they actually unfair? Is there any justification that taxes should not be reduced, so we can subsidise the London businessman on his daily commute? Is it not fair that those who use the trains pay the actual cost, as determined by supply and demand?

Well, it seems that economics isn’t overtly straightforward. For one thing, trains are at a fixed capacity, and to tamper with their frequency too quickly could incite its own backlash. Demand for train journeys has increased in recent years, as commuting is seen as a suitable substitute for rising house prices in the city. Many people – students, workers – cannot just reduce their train use if they feel like it. If the supply of trains is inelastic, demand is arguably more so. As a result, rail users have considerably less bargaining power.

With trains as necessary as they are, ticket prices have the potential to be pretty expensive, even if they’re currently verging towards a natural price. The issue is that in the grand scheme of things the natural price – as determined by a free market – may be unjustifiable. Perhaps if the government abandoned all power over rail regulation and railways became more business-like, all parties would be better off?

Except, there is a slight issue.

Ultimately, public transport is a public good. It is friendlier to the environment than private transport, and gets more efficient when utilised by more people. The persistent increase in rail fares above inflation is dis-incentivising, and though in the short-term many regular transport plans may not be alterable, in the medium to long-term, private transport will increase to unsustainable levels or demand for inner-city housing will rise further.

Though it will still be cheaper to book in advance or use off-peak tickets, the train companies will nevertheless ensure maximum profitability in their 2.5% price rise by targeting the least inflexible consumers. Instead, though, it could be mutually beneficial for greater incentives to be offered, that would fill up the trains and discourage rail users from seeking alternatives, especially with so much dependence and commitment to railways as a component to the nation’s infrastructure. Price rises may be justified in terms of accurate pricing, but it is perhaps of greater priority that more is done to incentivise the use of public transport.