Why are UK rail fares so expensive?

When rail fares increase, the nation unites in dismay. But however much the public are unhappy with the constant price hikes, with our current model, they’re here to stay.

Today’s announcement that regulated rail fares will be increased by as much as 5.6 per cent next year is another blow for rail commuters. If you compare this figure to real wages (which have decreased by 0.2 per cent over the last three months) it’s pretty clear that our privatised rail model is broken. It's been argued however, that a publicly owned rail system could save £1.2 billion a year. This could be used to cut fares by 18 per cent across the board. It would be more efficient, cheaper, greener network that the nation could be proud of.

Since privatisation, the average price of a train journey has increased by 22 per cent and walk-on tickets on some routes have been hiked by a huge 245 per cent. With figures like these it's not hard to imagine railways becoming the preserve of the rich.

Compared with our European neighbours, the high price of rail fares in the UK seems ludicrous. A study by the TUC looked at the cost of UK rail commutes against similar European journeys. It compared the St Albans to London St Pancras season ticket with similar journeys in Germany, France and Spain and found that we’re paying three times more of our salary just to get to work and back. A recent Passenger Focus survey showed only 45 per cent of passengers believed their train service provides value for money. So it’s clear that we have a problem. But how did we get here and how can we turn things around?

Since British Rail was privatised in 1993, rail services in the UK have been provided by private companies. Rail companies then bid for the right to operate services, a costly, difficult and ultimately, unnecessary procedure. According to Christian Wolmar, transport expert: “No other country in the world runs its railways in this bizarre way and the process in Britain has led to instability and uncertainty in an industry that thrives on consistent and long-term thinking.”

To understand why things have got this bad you have to look at a couple of major flaws in the model of privatised rail. Firstly, lack of competition. Genuinely competitive markets can drive down prices but only if there is genuine choice. As most rail commuters around the UK will tell you, they have one option to get to work so there is no real competition in our rail system. If you’re let down by bad service you can’t commute with an alternative rail provider, you can’t ‘vote with your feet’.

Secondly, the funding model of privatised railways is based on a fiction. The costs of running a ‘public service railway’ are not covered by the fares alone and never will be. So to ensure that railways fulfil certain public service obligations the Government has subsidised train operating companies, but this is not a sustainable funding solution.

When it comes to subsidies, what goes in one end can often seem to come straight out of the other, from taxpayers straight into the pockets of shareholders. For example, between 1997 and 2012 on the West Coast Mainline, Virgin Trains paid out a total of £500 million in dividends, having received a direct subsidy of £2.5 billion.

But there is light at the end of the tunnel and we don’t have to look very far to find it. The inability of two train operators to continue operating the East Coast mainline meant the Government had to step in. A publicly owned operating company, Directly Operated Railways or East Coast took over the route.

Since then East Coast has received £0.46 of government funding per passenger mile, compared to £4.57 on West Coast. At the same time, East Coast returns the highest level of premium back to the Government. Since 2009, it has returned over £1 billion to the Government. This is more than Virgin on West Coast and more than National Express paid while it was running the East Coast service. It also receives far less in indirect subsidy through Network Grant than West Coast.

East Coast also shows that performance and customer service can be improved by a publicly owned railway; it has been the recipient of 35 industry awards and in a recent Passenger Focus survey East Coast has a passenger satisfaction rating of 92 per cent, higher than the 89 per cent for all long distance operators and the highest customer satisfaction rating of any operator ever holding the East Coast franchise. It has just recorded the highest level of ‘employee engagement’ in franchise history, at 71 per cent and sickness absence has been reduced by a third since 2009.

The fact that East Coast has returned over £1 billion for the taxpayer is good news for the public - and those that travel on this part of the network. The trouble is that the rest of us are often subject to substandard service and rocketing prices. The only sustainable alternative is a completely joined up, public system. It’s easy and cheap to do; as each franchise expires the route could be returned to the public.

Joe Cox is Research Co-ordinator for the Compass pressure group

Click here to view UK Tours and Holidays, with Independent Holidays.