Are rail fares "on the increase"?

"RAIL FARES ON THE INCREASE... THE total amount train passengers pay for tickets is going up."

Daily Star, 19 April 2013

According to the newspapers, this week has been a bad one for anyone feeling the pinch.

After the Office for National Statistics (ONS) reported on Wednesday that pay was growing at the slowest rate on record (excluding bonuses), this morning's Daily Star suggested that commuters were also being hit by increasing rail fares.

The article centres around a report released yesterday by the Office of Rail Regulation (ORR) on rail industry finances. However anyone taking the time to read the report might have noticed that it appears to say precisely the opposite of what the Star claims:

"Adjusted for inflation, the average passenger fare in 2011-12 decreased by 3.6% and the average fare per passenger kilometre travelled decreased by 1.4%."

What the Star seems to be referring to is that passenger income - the amount train operating companies recieved from fare-paying customers - did increase over the course of the 2011/12 financial year. However this isn't necessarily the result of higher fares: other factors such as a greater number of passengers using the network, or using it at peak times, could also account for these increased revenues.

(The Star does actually tacitly acknowledge this when it writes that "Income per passenger journey decreased by 3.6% in 2011/12 if inflation is taken into account", but does so in the final paragraph, rather than the headline.)

What is interesting here is that the decrease in rail fares noted by the Office of Rail Regulation stands in contrast to the Government's stated policy to increase in the cost of tickets in real terms. The 2011 Autumn Statement by Chancellor George Osborne capped the rise in the average regulated fare at 1% above RPI inflation.

So how can the average passenger fare have actually reduced?

While the ORR said that this fell outside the remit of the report when we contacted them, they did suggest a number of possible reasons.

The first is that the Government's formula for increasing the average fare at RPI+1% only applies to regulated fares (there is actually a certain amount of 'flex' allowed on individual routes, so that rises can be plus or minus five percentage points, provided the weighted average doesn't exceed RPI+1%).

As the House of Commons Library explains in its briefing on the subject, regulated fares only account for approximately 45% of tickets on the rail network. These tend to be those routes where commuters have few alternative transport options to rail; all other routes are open to market competition.

So while these fares may have increased in real terms, it doesn't necessarily mean the average fare across all ticket types has done likewise. A large increase in the number of people using unregulated fares whose cost has fallen over the course of the year would be consistent with both increased revenues for train operating companies and lower average fares.

Another possible reason for the apparent discrepancy is that the while regulated fares increase in January each year, they use the annualised RPI rate of inflation from the preceding July as the baseline for the rise. However the rate of inflation can change throughout the year, meaning that the average regulated fare increase might not truly represent a real terms increase over the course of a year. In July 2010 and July 2011, RPI was actually lower than it was for much of the rest of the year.

So while pay rises are still lagging behind price rises, perhaps this week hasn't been quite so full of bad news for hard-pressed commuters as Star readers might have been led to believe.