January 2012

14 January 2012
A generic piece on fare increases
Patrick Crozier

Every January in Britain, the rail companies put up some of their fares.  And every January in Britain this leads to outrage.

Which is odd, because most other businesses are constantly changing their prices but we don’t get anything like the fuss when they happen to put some of those prices up.

The reason, of course, is government.  In Britain the government regulates a certain number of fares, usually on the busy London commuter routes.  Or, to put it another way, in Britain the government uses violence and the threat of violence to regulate fares.  It is in January that the government allows rail companies to increase their fares in line with inflation plus or minus a small percentage.

Not only is this practice wrong but it also distorts the market leading to overcrowding (see A generic piece on overcrowding).  It also deprives rail companies of the sort of price signals they need to run their businesses successfully.  Because they don’t know how much people are genuinely prepared to pay for a seat, against how much they are prepared to pay to stand, companies don’t know what sort of mix of seating and standing they should be providing.  Nor do they know how many trains they should run and whether increasing the number of trains would justify the cost of, for instance, new signalling. 

Worse still, while allowing rail companies to charge something nearer the market rate is a step in the right direction so long as regulation and the threat of regulation exists, companies are unable to plan for the future.

So, you would allow train companies to charge whatever they like?
Yes.

But wouldn’t they charge the earth?  And when they do wouldn’t that mean that lots of people could no longer afford to get to work and end up unemployed?
What we have here is a conflict between the short term and the long term.  The advantages of market prices will for the most part only be seen in the long-term while the disadvantages (higher prices) will be seen almost instantly. 

One of the sad things is that we don’t know how severe the short term pain is likely to be.  It might indeed lead to the doomsday scenario but equally other things might happen.  For instance, in many cases employers may find that they don’t need all their employees to show up on the dot at 9 o’clock in the morning.  So, it may be possible for many of them to travel off-peak.  Equally, many rail companies may take the view that the profit-maximizing price isn’t that much higher than it is at the moment or that a better way to gain goodwill would be to approach it at only a slow pace, say 20% a year or so.

What sort of long-term gain do you see?
It is difficult to gaze into the future.  That’s one of the weaknesses being in favour of freedom.  You can’t predict with any certainty what will happen.  For instance, it may be the case that something comes along which replaces railways for good.

I could speculate on rail companies running longer trains or double-deck trains or having different classes of carriage: guaranteed seat, standing-room only etc or introducing seats that are locked out of use at peak hours, but I really have no idea what would happen.  All I can be sure about is that it is likely to be a lot better than the situation that we have at the moment.

Notes for the next version

“Outrage”.  We need a better explanation as to why.  I think a lot of it is to do with fear: “I’ve got my job, bought my house and if the fares go up too much one of them is going to have to go.  Hey, I could even end up destitute.” Hmm, actually that’s the fear of fare freedom.  The outrage at a rise is different.

We need something on the history of this.  Before 1940 there was almost no fare regulation at all.  Things seemed to work fine.  Certainly, there was nothing like the outrage we get these days.  OK, there were some problems immediately after the First World War with delays and overcrowding.  I’ve heard the explanation that this was to do with the introduction of an eight-hour day but I would like to get to the bottom of this.

“Not only is this practice wrong...” Weak.  What I want to get across is that the government is using violence and violence is wrong.  I want to point out the inherent niceness of freedom.

Price signals.  Too technical.  I think we need to imagine a situation where price signals would have an impact and avoid using the term entirely.

Could do with a piccie as well.

Actually, I’m not even sure this is the right article.  “A generic piece of fares” might be more appropriate.