RAIL VALUE FOR MONEY STUDY DfT / ORR Research Project on Fares Contract No: NRP10026 Final Report: analysis, recommendations and conclusions 28th February 2011 research project on fares RAIL VALUE FOR MONEY STUDY DfT / ORR Research Project on Fares Contract No: NRP10026 Final Report: analysis, recommendations and conclusions 28th February 2011 research project on fares Prepared for: Prepared by: Rail Value for Money Study Steer Davies Gleave 5th Floor 28-32 Upper Ground 55 Victoria Street London London SE1 9PD SW1H 0EU +44 (0)20 7910 5000 www.steerdaviesgleave.com Although this report was commissioned jointly by the Department for Transport (DfT) and the Office of Rail Regulation (ORR), the findings and recommendations are those of the authors and do not necessarily represent the views of the DfT and the ORR. While the DfT and the ORR have made all reasonable efforts to ensure the information in this document is accurate, the DfT and the ORR do not guarantee the accuracy, completeness or usefulness of that information; and cannot accept liability for any loss or damages of any kind resulting from reliance on the infor- mation or guidance this document contains. Department for Transport Office of Rail Regulation Great Minster House 1 Kemble Street 76 Marsham Street London London SW1P 4DR WC2B 4AN Telephone: 0300 330 3000 Telephone: 020 7282 2000 Website: www.dft.gov.uk Website: www.rail-reg.gov.uk © Crown copyright, 2011, except where otherwise stated You may re-use this information (not including logos or third-party material) free of charge in any format or medium, under the terms of the Open Government Licence. To view this licence, visit www.nationalarchives.gov.uk/doc/open-government-licence/ or write to the Information Policy Team, The National Archives, Kew, London TW9 4DU, or e-mail: [email protected]. gov.uk. To reproduce third-party material you need to obtain permission from the copyright holders concerned. Steer Davies Gleave 28-32 Upper Ground London SE1 9PD Telephone: 020 7910 5000 Website: www.steerdaviesgleave.com Final Report: Analysis, Recommendations and Conclusions CONTENTS EXECUTIVE SUMMARY ..................................................................................... I Purpose of the study ............................................................................... i Evolution of fares policy and regulation ........................................................ i Key issues ........................................................................................... ii Relating fares to costs ........................................................................... iii Objectives for fares regulation .................................................................. iv Options for further investigation ................................................................ iv Analysis and conclusions .......................................................................... v Assessment ........................................................................................ viii Recommendations ................................................................................. xi 1 INTRODUCTION .................................................................................... 1 2 CURRENT FARES AND THEIR REGULATION ................................................... 4 Introduction ......................................................................................... 4 The structure of fares ............................................................................. 4 The historic objectives of fares regulation .................................................... 9 The current structure of fares regulation ...................................................... 9 Comparisons between countries ................................................................ 12 Comparisons between regions in Great Britain .............................................. 14 Comparisons between modes ................................................................... 15 3 EFFECTS OF THE CURRENT ARRANGEMENTS ...............................................17 Introduction ........................................................................................ 17 Stakeholder views ................................................................................. 17 Other issues ........................................................................................ 19 Stakeholder impacts .............................................................................. 25 4 POSSIBLE APPROACHES TO SETTING FARES .................................................29 Introduction ........................................................................................ 29 Value or market pricing .......................................................................... 29 “Fairness” or equity .............................................................................. 29 Cost ................................................................................................. 32 Our proposed new objectives for fares regulation .......................................... 35 5 OPTIONS ............................................................................................41 Introduction ........................................................................................ 41 Contents Final Report: Analysis, Recommendations and Conclusions Options considered ............................................................................... 43 Options not analysed ............................................................................. 47 Options analysed .................................................................................. 48 6 OPTION 1, PEAK-SPREADING ................................................................... 51 Introduction ....................................................................................... 51 Literature review ................................................................................. 52 Our analysis ........................................................................................ 53 The effects of Transport for London’s fares system ........................................ 56 Peak-spreading in parallel with existing TfL fares .......................................... 60 Peak-spreading applied to both national rail and TfL fares ............................... 65 Modelling ........................................................................................... 66 Issues and implementation ...................................................................... 67 Conclusions and recommendations ............................................................ 69 7 OPTION 2, THE PRICE TAPER ON SEASON TICKETS ........................................ 71 Introduction ....................................................................................... 71 Literature review ................................................................................. 71 Our analysis ........................................................................................ 73 Modelling ........................................................................................... 73 Issues and implementation ...................................................................... 73 Conclusions and recommendations ............................................................ 74 8 OPTION 3, THE STANDARD OFF-PEAK RETURN OR “SAVER” ............................ 76 Introduction ....................................................................................... 76 Literature review ................................................................................. 76 Our analysis ........................................................................................ 77 Modelling ........................................................................................... 78 Issues and implementation ...................................................................... 79 Conclusions and recommendations ............................................................ 79 9 OPTION 8, AN ABSOLUTE FARES CAP BY TICKET TYPE ................................... 81 Introduction ....................................................................................... 81 Modelling ........................................................................................... 81 Issues and implementation ...................................................................... 82 Conclusions and recommendations ............................................................ 83 10 OPTION 9, THE COMPOSITION OF THE FARES BASKET .................................... 85 Introduction ....................................................................................... 85 Contents Final Report: Analysis, Recommendations and Conclusions Our analysis ........................................................................................ 85 Modelling ........................................................................................... 85 Issues and implementation ...................................................................... 87 Conclusions and recommendations ............................................................. 87 11 OPTION ASSESSMENT ............................................................................89 Introduction ........................................................................................ 89 Additional revenue ..............................................................................