Summary

• Rail prices are set to rise by 1.6 per cent from January 2021, meaning an additional expense of around £100 to the cost of several annual season tickets.
• The increase in fare was a result of an unanticipated leap in July 2020 inflation, according to which the RPI rose up from 1.1 per cent to 1.6 per cent.
• The regulators, campaigners, and unions requested the government for bringing an end to the practice of increasing the rail fares on an annual basis.

British commuters would need to pay an extra 1.6 per cent from January 2021 if they opt to travel by railways. This rise in fare would mean an additional expense of around £100 to the cost of several annual season tickets. The increase in fare was announced as a result of an unanticipated leap in July 2020 inflation numbers declared on 19 August 2020. Generally, the rail fares rise in line with the retail prices index (RPI) which moved up from 1.1 per cent in June to 1.6 per cent in July 2020.

This increase also suggests that fares would once again move up well above the consumer price index (CPI), which is usually lower than the RPI. The CPI is considered as a more commonly used indicator of inflation. The upward movement of fares has also exceeded the rise in wages for most of the last decade. It is important to note that the fare rise was announced at a time when fuel duty for motorists had been frozen. The increased rail fare would include season tickets, anytime urban tickets as well as most off-peak long-distance return journeys. The new rail fares would be applicable to all regulated fares in England and Wales, apart from most in Scotland.

After lifting the lockdown restrictions, the UK’s economy is charting its path to recovery and many experts cited the return to normalcy leading to an increase in the annual inflation rates. In reality, the present circumstances are driven by more complex factors. It is known that the UK economy is neither gripped under inflation nor will grapple with it for some time. The data released for July 2020 was just one of its kinds and would soon skid downwards.

However, the downward movement of inflation could be little late for the rail passengers who would have to bear the raised fares announced as per the July numbers. The government’s decision to use the RPI figures for July 2020 would hurt the commuter’s confidence to travel by railways. The estimation of inflation was considered to be somewhat faulty by the ONS to calculate the rise in annual rail fares. Due to the coronavirus-induced lockdown, the ONS faced problems in calculating the CPI rate (government’s preferred measure of inflation). As majority of the businesses were completely shut, it was difficult to collect the prices and also impossible in many cases, most probably leading to a higher inflation number. Post lockdown, when the companies have started reopening, it is expected that the ONS would have more real data to work with. The businesses have been issued stringent social distancing rules to reopen. This could have been a reason to push the prices up and showed its impact on the raised inflation data.

Also read: Impact of Covid-19 on means of Commuting in the UK

Also read: UK GDP To Contract More Than Any Other G7 Nation In The Second Quarter

Call for reduction of rail fares

The passenger watchdog, along with several campaigners, and unions have together raised their request to the UK government for bringing an end to the practice of increasing the rail fares on an annual basis. Many voiced their opinion that it holds an increased significance during the coronavirus pandemic, which has already brought down the numbers of commuters traveling by rail.

Given the jump in inflation figures for July 2020, the National Union of Rail, Maritime and Transport Workers (RMT) suggested that the rail fares could be reduced by 5 per cent by diverting the money that is given to the private operators during the coronavirus crisis. During the coronavirus pandemic, the government has suspended the franchises and underwritten losses on the railway. It is to be noted that the number of passengers using railways for travel purpose is lower than a quarter of pre-pandemic levels.

Agreeing with the RMT union, Transport Focus, the passenger regulator for transport passengers and road users in the UK, also pleaded for deduction in rail fair prices in order to attract the commuters to restart using railways as a means of public transport. Requesting season tickets for part-time travelers to mirror the new working patterns and increasing the affordability of rail travel, the watchdog suggested that there should be a similar scheme like the government launched for the restaurants (eat out to help out) for boosting rail travel as well. Such scheme would be an assistance to bring the commuters back to the railways and decrease road traffic congestion, ultimately helping the economy.

Campaign for Better Transport, an advocacy group that promotes sustainable transport, including better bus and rail services, observed that the July inflation number could have been used to convince travelers to restart using trains for commuting. Instead the rise in fares would act as a deterrent in reinstating Britisher’s faith in the railways. The advocacy group stressed that the government needs to incentivise the commuters to begin reusing public transport means.

Views from the experts

Given the significant rise in inflation for July 2020 after the government allowed to open the economy post lockdown, some experts are of the opinion that the rate of inflation for August 2020 would decrease. Many of the analysts agree that the recent schemes and measures announced by the government would help to pull down the cost of living substantially.

The experts particularly highlighted the decrease in value added tax (VAT) for the hospitality sector in addition to the ‘eat out to help out’ scheme that started on 1 August 2020 and would continue till month end. In his July 2020 mini-budget, the chancellor, Rishi Sunak announced a temporary cut in VAT from 20 per cent to 5 per cent as a move to bring down the prices.

It is unlikely that the businesses would pass on the benefits of VAT to the customers and there is uncertainty on how many people would use the discounted meal scheme. Given these situations also, some experts believed that the annual inflation rate for August 2020 could see a fall.

Capital Economics, that provides economic research consultancy predicted that the inflation would reduce by 1.1 percentage points and turn negative, if at least 75 per cent of the businesses pass on the VAT cut to the consumers and a similar percentage of Britishers participate in the eat out to help out scheme. Many experts agreed that in the ongoing fight against the coronavirus pandemic, unemployment is expected to rise in near future. And, this has the potential to further weaken the price pressure.

Highlighting that the coronavirus pandemic has provided a huge deflationary shock to the country’s economy, the accountancy firm Deloitte, observed that the rate of UK inflation has already reduced approximately by almost 50 per cent in 2020 and is expected to decline more. Though the process of recovery has begun, the economy is still operating with huge amounts of spare capacity that could potentially push the present inflation into a negative zone.

Inflation numbers and reasons for its jump

The rate of inflation unpredictably soared in July 2020, regardless of the country facing recession is struggling to overcome the coronavirus-led economic crisis. As per the data from the Office for National Statistics (ONS), the consumer price inflation (CPI) in the UK climbed up from 0.6 per cent in June 2020 to 1.0 per cent in July 2020. This jump in CPI statistics was mainly due to the increase recorded in prices for petrol and clothing items.

Also read: Consumer Price Inflation Surged to 1% in July; FTSE 100 Index up 0.58%

Also read: Business Conditions in The UK Strengthens in August But So Do Apprehensions for Early Recovery

It is to be noted that the petrol prices ascended at its fastest rate in almost a decade. While petrol prices saw an upward movement of 4.9 pence per litre between June and July 2020, the price for diesel rose by 4 pence per litre for the same period. This increase in petrol and diesel prices was attributed to the rise in international oil prices from their earlier lows in 2020. Social distancing and sanitisation guidelines, apart from the need to use personal protective equipment (PPE) weighed on the prices for private dental treatment, physiotherapy, and haircuts, among others, that saw substantial price increase. Prices for clothing and footwear items also added considerably to the higher rates of inflation registered for July 2020. The prices for clothing and footwear were down by just 0.7 per cent between June and July 2020 as compared to decline of 2.9 per cent during the corresponding period in 2019. It is to be understood that the shoppers could not profit from the summer season discounts as well.

Also read: Covid-19 Impact: Job Redundancies Continue to Rise in High Street Retail

Also read: Is The UK Retail Spending Approaching Pre-Pandemic Levels?

Conclusion

During the coronavirus pandemic, people are not confident enough to travel by public transport such as railways. Though the government has eased the lockdown restrictions and businesses have started to reopen, people are fearful of catching an infection by travelling on public transport. Despite the strict guidelines issued for social distancing and sanitisation to be followed by the public transport operators, they are running either empty or with very little passenger counts. Several experts believed that financial incentives could be helpful to encourage people to restart using railways. There is an additional need for ramping up the Covid-19 testing facilities, besides track and trace system to curb the spread of the coronavirus and boost the commuter confidence. In absence of such measures, there would be increased congestion on the roads and rise in pollution levels as people prefer their own cars for any necessity of commuting. Many businesses have raised concerns regarding Covid-19 safe transport options, so that more employees could rejoin offices. Even if the coronavirus pandemic subsides, it is important for the government to implement measures for improving the public transport systems like the rails for better connectivity, making them affordable and self-sustaining in times to come. Given the coronavirus crisis, even if a raise in rail fares is the only viable option, it needs to be carefully re-evaluated based on a realistic inflation data and not something which has been impacted by the crisis itself.