The cost of living agenda - how should the railway contribute ?

[Magdalia]

So the previous posts concerning the connection between growth and spending on infrastructure is a subject that has interested me for a long time. My conclusion is that there is no direct connection, as both @NCT and @Magdalia emphasise.

My argument is as follows, it’s a bit long - sorry.

Thanks for taking the time to do this, it is an interesting read.

Some twenty years ago Paul Graham, a Silicon Valley-based venture capitalist, wrote an article about the possibility of duplicating Silicon Valley elsewhere. It can be found here https://www.paulgraham.com/siliconvalley.html Although it’s now a bit dated it is still well worth reading, especially in the context of generating growth because as sure as night follows day significant growth will not come from existing industries. Growth comes from new industries as is exemplified by the example of Cambridge - which incidentally ticks all the boxes of a nice place to live for Paul Graham’s ‘nerds’.

And thanks for this link. I did spend the first read through doing a lot of box ticking for Cambridge. Given recent political developments, I wondered whether some one with local knowledge could do the same for Manchester?

There is no implication that Northerners™ have less brain than those living elsewhere or that there is something in the water. People are equally intelligent, adaptable and inventive whereever they live. But the framework in which they live and work has to encourage a belief in a future which is better than the now.

I like Graham's emphasis on the role of Universities and nerds. While he is right that the University needs to be world class to attract the very best (and Cambridge and Oxford can do that), I do think that any decent quality research university can generate start up and scale up activity. Here England outside London is very fortunate. 24 top research universities in the UK are in the Russell Group, and 15 of them are in England outside London. Furthermore, all of them are places that are nice for nerds to live in, or have places nearby. The East of England only has Cambridge, the East Midlands only has Nottingham, but everywhere else has 2, and Yorkshire and the Humber has 3. I worry that "growth in every postcode" is not achievable, but I'm confident that "growth in every postcode near a Russell Group University" is very achievable, by trying to follow the UK's own version of the Silicon Valley model.

The corollary of this is that there is also a risk that some people will become very rich. These very rich people then become the investors in the next round of start-ups

This is the bit where the UK struggles to replicate what happens in the USA. Instead, what we have is foreign investors hovering over our fledgling start-ups, ready to pounce. But that doesn't mean that we can't tweak incentives so that the people selling out on the first round of start-ups start to invest in the next round, instead of retiring with what they have received from selling their first start-up.

OK, I know there are exceptions - Airbus, Rolls-Royce, some pharmaceutical companies, ARM, ASML, Carl Zeiss and the world-wide-web protocols).

The UK has to make the best of its existing strengths. In Cambridge, much of that is pharmaceuticals, with AstraZeneca and Wellcome already here, and GSK moving in to make sure they don't miss out. One area you don't mention is culture, media and sport, where creative people can still do things that AI can't, and the UK is very strong.

I'm going to finish with something that, for most of my adult life, I would have flatly denied that I could ever write. Increasing defence expenditure is not a threat it is an opportunity. Defence has always been at the cutting edge of innovation, because lives are at stake, and less defence expenditure has meant less innovation spinning out from it. My one major criticism of the Paul Graham article is that the part of the USA military-industrial complex doesn't get a mention. Furthermore, defence is an area where government has much more control on what happens where, and this can benefit some of the places most out of reach of the Russell Group Universities, like Plymouth and Barrow.

 

[The Ham]

A few thoughts.

Robot Taxis/Self Driving Cars are priced as taxis and are unlikely to see price falls any time soon. Arguably, if someone were to use them rather than own a car, that may actually result in more public transport use.

Making all public transport free would cost government around £1,000 per tax payer, only some of that cost is already paid and should be viewed against the total government spend of around £32,000 per tax payer.

Even if one were to pay £1,000 more in taxes (about £2.75 a day or £20 a week) many would find that their journey to work when driving would be easier as even if it created a 10% reduction in traffic that's like making term time traffic like the school holidays.

That's got the potential to cut 2 hours of journey time a week (about 12 minutes per commute based on full time working), and whilst people are bad at applying a time value to their time things like reduced child care costs, lower fuel costs (less idling in traffic, etc) would likely make up a fair chunk of that extra cost. Even before any public transport is used.

Yes, you'd need more, but to double the number of buses would be below an extra £400 a year.

However, there would be a lot of cost savings before you even needed to reduce staff. In fact staffing levels would feel a lot higher (a station with a station staff member behind a glass screen selling tickets is far less noticeable than one on the platform).

The big savings for buses would be the reduced congestion that they would face and the increase in average journey speeds as there's no need to stop to sell a ticket (even a card payment takes a few seconds).

How to fund it would be harder, but something like:
Switching 2% from employee's NI to income tax (all bands)
Increasing the personal allowance by £200 (yes would be a cost but is needed to balance the extra tax which some of those on pensions would pay)
Remove the winter fuel allowance by making it part of the state pension (again a small cost, but probably cost neutral by removing a load of admin)
Remove some of the cliff edge tax issues
Set the tax paid by landlords on the efficiency rating of the property they rent (15% tax for A rated but 50% for anything lower than F - to achieve A power generation would be for the tenants' bill not paid to the landlord and key features like car charging linked to household bill and at the same rates to be included)
Clawback tax (like child benefit) for those claiming state pension earning over £70,000 and up to £170,000 (so minimal impact at £70,500 through to not worth claiming at approaching £170,000)

 

[yorksrob]

But I notice that at no point have you disagreed with the general conclusion of the survey/analysis/study performed then that ‘the better off’ make more use of the trains than ‘the less well off’.

I also don't dispute that conclusion. However, I have three main observations in relation to it:

- That outcome will be heavily skewed by having such a big proportion of railway use on the South Eastern commuter routes. Outside of the south east the income profile of railway users is probably broader due to the nature of the areas served.

- A national railcard will proportionally target these less wealthy areas outside the South East precisely because those are the areas that don't already have one.

- It is of course self-fulfilling that a high fares railway will be more heavily used by the better off.

 

[styles]

I've always made the case for Nottingham to become a tech scene.

Years ago I used to attend MeetUp events, and let me tell you, Nottingham had such a strong tech MeetUp scene that students could forego their weekly food shop if they were content living on pizza and beer (many students are!) There was a different event every night of the week. That was hard to find in other UK cities, even larger ones like indeed Manchester. Add to this having, at the time, one of the largest university enrollments in the country at around 100,000 students across the two universities and colleges, a Russell Group university no less, and you could see how the city could, if it wanted to, become a tech powerhouse for the UK.

Centrally located, on a rail mainline, progressive local politicians, they were onto a winner.

For whatever reason, it hasn't happened, but I still maintain that it could.

 

[yorksrob]

I blame the closure of the Great Central.

 

[Magdalia]

I've always made the case for Nottingham to become a tech scene.

Years ago I used to attend MeetUp events, and let me tell you, Nottingham had such a strong tech MeetUp scene that students could forego their weekly food shop if they were content living on pizza and beer (many students are!) There was a different event every night of the week. That was hard to find in other UK cities, even larger ones like indeed Manchester. Add to this having, at the time, one of the largest university enrollments in the country at around 100,000 students across the two universities and colleges, a Russell Group university no less, and you could see how the city could, if it wanted to, become a tech powerhouse for the UK.

Centrally located, on a rail mainline, progressive local politicians, they were onto a winner.

For whatever reason, it hasn't happened, but I still maintain that it could.

When I wrote about Russell Group universities, and culture, media and sport, Nottingham was one of the places I was thinking about. It was only earlier this year that I learned that Games Workshop, the company behind Warhammer, is based in Nottingham. Like AstraZeneca with life sciences in Cambridge, Games Workshop is the flagship of a thriving game industry in Nottingham. Sometimes we don't know what is under our noses!

 

[styles]

When I wrote about Russell Group universities, and culture, media and sport, Nottingham was one of the places I was thinking about. It was only earlier this year that I learned that Games Workshop, the company behind Warhammer, is based in Nottingham. Like AstraZeneca with life sciences in Cambridge, Games Workshop is the flagship of a thriving game industry in Nottingham. Sometimes we don't know what is under our noses!

Yep, and Games Workshop has a live playing arena for people to do their craft, and a pub called Bugmans. It seems to me like they're a genuinely great company!

 

[coppercapped]

I also don't dispute that conclusion. However, I have three main observations in relation to it:

- That outcome will be heavily skewed by having such a big proportion of railway use on the South Eastern commuter routes. Outside of the south east the income profile of railway users is probably broader due to the nature of the areas served.

- A national railcard will proportionally target these less wealthy areas outside the South East precisely because those are the areas that don't already have one.

- It is of course self-fulfilling that a high fares railway will be more heavily used by the better off.

Coming back to this topic after a few days I have a couple of comments but with the proviso that we may be drifting away from the original topic, but I maintain that it is all connected even if it’s in a round about way.

As we don’t know anything about the survey/analysis/study, what questions it was meant to answer, how it was done and whether it was local (e.g., London only) or nationwide I would not come to the same conclusions or, indeed, any conclusions apart from the one I have already made. I would note however that rail fares, almost since the beginning of the development of railways, have been seen by some people as being too high, if not exorbitant, and therefore it has been claimed that they have disadvantaged various groupings of people in one way or another.

Special pleading for one perceived disadvantaged group will always create issues because other perceived disadvantaged groups also want special treatment. In effect it always comes down to a request that the government spends more in their particular area — this is not a long term solution as the government, any government, is restricted in its largesse as the maximum tax take which is acceptable to the electorate is limited. I don’t have to repeat a list of all the calls on government expenditure — except to point out that all these things have to be balanced.

<SNIP>
The UK has to make the best of its existing strengths. In Cambridge, much of that is pharmaceuticals, with AstraZeneca and Wellcome already here, and GSK moving in to make sure they don't miss out. One area you don't mention is culture, media and sport, where creative people can still do things that AI can't, and the UK is very strong.

I'm going to finish with something that, for most of my adult life, I would have flatly denied that I could ever write. Increasing defence expenditure is not a threat it is an opportunity. Defence has always been at the cutting edge of innovation, because lives are at stake, and less defence expenditure has meant less innovation spinning out from it. My one major criticism of the Paul Graham article is that the part of the USA military-industrial complex doesn't get a mention. Furthermore, defence is an area where government has much more control on what happens where, and this can benefit some of the places most out of reach of the Russell Group Universities, like Plymouth and Barrow.

I agree with you and would extend the argument further. The rapid growth in western economies after the end of the Second World War was a result of the technological improvements and developments made during the war and the social changes the war brought in its wake. For example:

• the creation of a large population of technically well informed and experienced people. All those aircraft, tanks, lorries, radio and radar sets and 'operational research'
• populations became healthier and more productive as a result of better diets, for example the availability of fresh fruit from Spain practically all year round
• in turn the enabler for this was the extension of the autoroute network and larger and more reliable lorries. (The Spanish railways and the SNCF had gone missing during this development)
• the antibiotics which came after penicillin
• the jet engine, stressed skin aeroplane construction and better understanding of aerodynamics all of which made mass tourism possible and so enabled all the ancilliary businesses and industries
• fuel injection for internal combustion engines which made them much more efficient and helped lower running costs and made effective exhaust emission reductions possible
• greater wealth and longer education increased social mobility (although it should be noted that mobility goes both ways so a social safety net is essential in a civilised society)
• Spending to restore infrastructures damaged or destroyed in the war
• High levels of military spending to counter the Russian threat during the Cold War
• and so on and so forth.

By the late 1960s/early 1970s many of the effects of the Second World War had run their course and growth rates started to decrease.
As you say I left culture out of my earlier post (and sport but this is because I know little about it as a business!) but you make an important point. ‘Kitchen Sink’ and ‘Angry Young Men’ dramas were a product of an increasingly secular society enabled by increasing disposable incomes as was the boom in pop music and rock n’roll from the mid 1950s. The theatre, cinema and music are not only cultural but also an important economic branch and should be encouraged, not by subsidies but by ensuring the framework within which they operate functions to encourage them.

I suppose that this is the core of my argument, that incentives are more effective and wider ranging in encouraging economic growth than subsidies for specific purposes which by definition are limited in their effect. But as ‘The poor you will always have with you…’ (Matthew, Chapter 26, verse 11) there will unfortunately always be a cost of living crisis for somebody.

 

[NCT]

Somewhat encouragingly, Tracey Brabin was on the radio last week talking about industry development in Leeds and mentioned industries like financial services and healthcare tech, and attracting talent into the area. As Mayor of West Yorkshire she wasn't afraid to promote Leeds centred agglomeration and knew that money was in the knowledge sector.

 

[Starmill]

London & (wider) South East is an integrated knowledge economy / labour market.

You mean in the same way as it's a fundamentally internal part of the economy of the whole of Britain?

If the argument is that railway funding is in some way benefitted by making London and the South East an independent country outside the UK then I'm personally totally happy with that outcome. As long as I get to stay in the UK that has 85% of the population the current and don't have to live in London-plus with its 15%, obviously.

I think this is fictional and would be utterly impossible, but if your argument is it's a good idea because somehow it is achievable, then it sounds fine to me.

 

[yorksrob]

It's interesting to note that for the first time, abolishing peak fares is neck and neck with a national railcard in the poll, so perhaps the Scots are on to Something.

To my mind, peak fares are pretty much pointless for the regional and long distance routes. The argument that the operators give is that "almost no one buys that £300+ ticket". Well why have it then.

The only problem is whether the mighty South East commuter network could survive without them.

 

[Manutd1999]

It's worth trying to summarise how much each of these options would cost and who would benefit:

1) Fare freeze
Not updating fares by RPI next April would cost ~£400m (£11.5bn revenue at 3.5% ish), maybe a bit less once demand elasticities are factored in. All rail users would benefit, but the headline fares wouldn't change and people tend to be less appreciative of things not going up rather than actual discounts

2) Scrap peak fares
If the ScotRail trial is representative, this would be expensive. It cost them ~10% if revenue (£40/390m), which equates to over £1bn when applied nationwide. Scotrail is more commuter heavy than a national average, so it might be a bit cheaper in reality, but it would be a significant investment. It would sell well politically (helping working people etc) but the majority of winners would tend to be fairly wealthy, London commuter belt types.

3) New Off Peak Railcard
Very hard to estimate costs, but probably not huge if limited to off peak (<£500m?). Popular and easy to justify on fairness grounds (why should this only be available in the south east?), but mainly benefitting leisure travellers.


Overall I'd go for a combination of 1) and 3). The total package would cost ~£800m, which feels deliverable.

At the same time I'd scrap all railcard discounts on first class travel, merge the 16-25, 26-30, senior and disabled railcards into a single concession card, and justify it as a wider simplification/fairness move as opposed to a pure cost of living measure.

 

[yorksrob]

I must admit, getting rid of peak fares would make a day trip Whitby easier, whereas an off-peak railcard currently wouldn't.

 

[deltic]

At the same time I'd scrap all railcard discounts on first class travel,

Why? I would suggest discounts on first class travel are more likely to lead people to trade up to first class. People are unlikely to go from discounted first class travel to paying full price, they will down trade to standard.

Going back to the OP's original question, one reason we have a cost of living crisis is because governments have spent so much subsidising a whole range of activities, leading to record debt resulting in high rates on borrowing and thereby putting up interest payments for everyone.

 

[Class83]

It's worth trying to summarise how much each of these options would cost and who would benefit:

1) Fare freeze
Not updating fares by RPI next April would cost ~£400m (£11.5bn revenue at 3.5% ish), maybe a bit less once demand elasticities are factored in. All rail users would benefit, but the headline fares wouldn't change and people tend to be less appreciative of things not going up rather than actual discounts

2) Scrap peak fares
If the ScotRail trial is representative, this would be expensive. It cost them ~10% if revenue (£40/390m), which equates to over £1bn when applied nationwide. Scotrail is more commuter heavy than a national average, so it might be a bit cheaper in reality, but it would be a significant investment. It would sell well politically (helping working people etc) but the majority of winners would tend to be fairly wealthy, London commuter belt types.

3) New Off Peak Railcard
Very hard to estimate costs, but probably not huge if limited to off peak (<£500m?). Popular and easy to justify on fairness grounds (why should this only be available in the south east?), but mainly benefitting leisure travellers.


Overall I'd go for a combination of 1) and 3). The total package would cost ~£800m, which feels deliverable.

At the same time I'd scrap all railcard discounts on first class travel, merge the 16-25, 26-30, senior and disabled railcards into a single concession card, and justify it as a wider simplification/fairness move as opposed to a pure cost of living measure.

Where do you propose the railway reduces costs by £800M to fund these? Or are you suggesting tax rises on working people to pay for them?

 

[Farigiraf]

Or are you suggesting tax rises on working people to pay for them?

If you were to make use of these schemes (if ever implemented, chance is currently around 0% unless it's a vote winner) you'd probably end up saving more overall. Of course many people don't or can't regularly use the railway so wouldn't be affected but you can use the same argument for nearly everything the government spends money on at the moment - there are also almost certainly things the government spends money on which you benefit from that most others don't, that's how a democratic government works. A long-term fares freeze or national off-peak railcard (unlikely if GBR's dynamic pricing plan goes ahead regardless of viability) would have to be assessed to see whether it's likely to contribute enough to cost of living relief, domestic tourism and modal shift to be worth the subsidy.

These things do scale up, meaning that the higher the savings / convenience, the more meaningful (towards economic activity) lifestyle shifts you'd see, so a 33% reduction in rail fares (or the lack of an increase - which is even less obvious to the consumer and therefore doesn't result in many extra journeys) for the relatively small number of regular rail commuters outside L&SE (compared to those driving) won't achieve billions of economic growth. However when you also add in the political gains from such a scheme it may have enough feasibility, could be worth a study.

Though I do believe GBR would be able to find a way to implement a national railcard or long-term fares freeze with enough caveats to not actually be too useful for passengers (but cheap to implement) while allowing for the fanfare from a widely publicised introduction. Those who will be involved in GBR are particularly good at that!

 

[Manutd1999]

Why? I would suggest discounts on first class travel are more likely to lead people to trade up to first class. People are unlikely to go from discounted first class travel to paying full price, they will down trade to standard.

Going back to the OP's original question, one reason we have a cost of living crisis is because governments have spent so much subsidising a whole range of activities, leading to record debt resulting in high rates on borrowing and thereby putting up interest payments for everyone.

Simple fairness. If discounts really do encourage enough people to upgrade to make it revenue neutral for the railway, cut fares and offer them to everyone. If (as I expect..) they don't, then we shouldn't be asking taxpayers to subsidise other peoples first class travel.

Where do you propose the railway reduces costs by £800M to fund these? Or are you suggesting tax rises on working people to pay for them?

Fair point, but £800m is loose change relative to government budgets. There are lots of potential tax rises which wouldn't be too controversial and which the government is going to have to do anyway if it wants to fund defence etc. Adding a bit more for a feel-good railway discount would be good politics.

 

[JamesT]

Fair point, but £800m is loose change relative to government budgets. There are lots of potential tax rises which wouldn't be too controversial and which the government is going to have to do anyway if it wants to fund defence etc. Adding a bit more for a feel-good railway discount would be good politics.

“A billion here, a billion there, and pretty soon you’re talking real money.”
I think there’s very little appetite to raise taxes for giving discounts to railway passengers. There’s a prediction that the energy price cap will rise by 25% in January, providing support for people to heat their homes is going to be much higher on the agenda.

 

[Bald Rick]

Overall I'd go for a combination of 1) and 3). The total package would cost ~£800m, which feels deliverable.

The railway already has a funding gap that rounds to £1bn (to the nearest billion) for this year. No idea where another near £1bn would come from.

Adding a bit more for a feel-good railway discount would be good politics.

For those who use the railway frequently, perhaps. Not for everyone else, especially when they look at their electricity and gas bill next spring.

 

[Egg Centric]

If you were to make use of these schemes (if ever implemented, chance is currently around 0% unless it's a vote winner) you'd probably end up saving more overall.

Well that depends how much tax you pay, doesn't it...

 

[deltic]

Simple fairness. If discounts really do encourage enough people to upgrade to make it revenue neutral for the railway, cut fares and offer them to everyone. If (as I expect..) they don't, then we shouldn't be asking taxpayers to subsidise other peoples first class

Difficult to see the present system not being revenue positive rather than revenue neutral.

 

[yorksrob]

On the first class issue, we have ridiculous and pointless standard anytime fares that are supposedly there to attract the once in a blue moon, lesser spotted business expense traveller. I'd rather First class was used for this purpose, and ridiculous peak standard fares gotten rid of.

If this were done, I'd be more relaxed about not having discounts available in first.