If there’s one thing guaranteed to make London’s commuters froth from the mouth, it’s news of an impending fare rise. The city’s annual fare announcement is met with gnashing of teeth and the ritual calculation of how much more that monthly travelcard will cost. “Why do they have to keep rising?” people wail.
And so, some politicians have been promising to freeze or even cut fares in their attempt to win the race to be mayor next year. Sadiq Khan, Labour’s candidate, is pledging to freeze fares for the entire four years of his first term.
But here’s the problem: anyone promising they won’t raise fares without acknowledging an effect on services is either financially illiterate or being economical with the truth. It’s a transparent attempt to grab votes. It’ll probably also be the election’s first broken promise, with the get-out clause of “oops, we didn’t realise how bad the previous administration had let things get” rearing its head come May 2016.
Crunching the numbers
So how much do fare rises actually bring in? For 2016, it’s expected to be £43m after an increase of 1%; in 2015 it was expected to be £98m after a rise of 2.5% (that’s because RPI, a measure of inflation, was higher last year).
These figures aren’t one-offs; the money that fare rises bring in accumulates each year. Let’s assume inflation stays low for the next few years, sticking with the £43m figure for simplicity, and see how that stacks up.
Here’s how much Sadiq Kahn’s fare freezing plan would cost Transport for London (TfL):
Year one loss: £43m
Year two loss: £43m + £43m = £86m
Year three loss: £43m + £86m = £129m
Year four loss: £43m + £129m = £172m
Inflation, of course, doesn’t stand still; costs increase and staff want pay rises, all while fare revenue is, in real terms, falling.
And it gets worse. The real killer is that the government has been cutting TfL’s operating grant. from over £3bn in 2009 to £659m for this financial year. And by 2020, if the word coming from the Department for Transport is to be believed, there will be no general subsidy at all (expect to hear more at the autumn statement).
These days the operating grant is about 12 per cent of TfL’s total income – it’s done a good job of absorbing the cuts – but to shut off a major source of revenues in such an environment seems pretty foolish.
Labour isn’t being drawn on how exactly it would freeze fares. Khan’s campaign says it would be funded by “efficiency savings within TfL”. But TfL has already closed ticket offices and shed 750 staff in the latest round of an efficiency drive that’s been attempting to find £5bn in savings since 2009. You can’t keep making efficiency savings forever.
Labour also points to over 400 TfL staff being paid over £100k a year. What they don’t say is what they would do with those 400 staff. Make them all take a 5 per cent pay cut? That’d save about £2m. Sack some of them? There are probably a few lawyers who are surplus to requirements, and we could spend all day arguing whether someone whose job involves “minimis[ing] the group’s tax liabilities” has any place in a public sector organisation.
But the top engineers and heads of each transport mode? Probably underpaid, frankly. And I expect TfL will hire more expensive commercial experts to maximise other revenue streams once government funding dries up, so this argument isn’t going anywhere.
The bottom line
Money isn’t magic. If fares are frozen – and a mayor could freeze, or cut them, if the political will was strong enough – the cash has to come from somewhere.
This is usually the point where someone mentions TfL’s reserves, which is what a large part of the 2012 mayoral election revolved around. Labour said the reserves could be used to reduce fares; TfL said it was all earmarked for future upgrades and new infrastructure.
TfL’s budgets are notoriously impenetrable but the general consensus these days is that yes, the reserves are needed elsewhere. There isn’t a pot of leprechaun gold that can give everyone £5 a month off their travelcard. Sorry.
So if a mayor did freeze fares, something else would have to give. Either upgrade works would be postponed or cancelled, or new projects might not happen, or staff and/or services could be cut (cue strikes). Then again, maybe the public spaces around transport infrastructure could become more commercialised – or we could even end up paying more in council tax.
Londoners aren’t stupid. Give them the options, and if they still decide they want cheaper travel at least they’ll know the consequences.
Rachel Holdsworth is a senior editor at Londonist. She tweets as @rmholdsworth.
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