Matt Lovering,
Senior Managing Director, Teneo Consulting
The Secretary of State’s proposal of a potential move to pegging fares to CPI rather than RPI is to be welcomed.
While most of the country has moved to measuring the increase of prices and salaries using the consumer index, it is unsustainable for the rail industry to continue to operate off RPI while assuming it can pass these increases on to customers as “no real” changes.
Based on the trend over the past 30 years, a shift to CPI would lower the average annual fare increase by 0.7 percentage points per annum. For an annual season ticket between Chelmsford and London, this would reduce the increase by about £28 in January. However, the effect is likely to be more pronounced in making the rail industry seem fairer and more in touch with the financial challenges which customers face in 2018.
At a time when NRPS shows that only 45% of customers are satisfied with the value for money their ticket offers, a modest reduction in the rate of fare increases is hardly a panacea - especially if the government is to revert to an above inflationary “+1%” strategy for regulated fares from 2020 - whether that is applied to RPI or CPI.
This change to CPI must therefore be the first stage in a programme of rethinking the way fares are set, regulated and paid for. The arguments for more relevant season ticket products, more affordable walk-up fares, advanced fares which offer realistic levels of flexibility and direct debit payment are all well rehearsed, and none will be resolved simply through a formulaic adjustment to the rate at which fares increase.
This must be accompanied by a new approach to how the industry models price sensitivity and demand. The heated debates about fare increases over the past few years demonstrate that an increase in line with inflation is not without consequences. However, all of the rail forecasting frameworks continue to work in real terms and view inflationary increases as a pass through which does not affect demand. This myth needs to be debunked as soon as possible if the industry is to have the right mechanism to forecast fare increases, and support an intelligent debate on future fare strategy.