That creates a funding gap which the treasury is not going to fill. The number of people wanting to travel by train is affected by price but is by no means exactly inverse proportional. The railway will need to reduce costs to be able to reduce fares.
That is true.
But surely the funding gap itself has always been there in some form or other since the 1950s hasn't it ?
The level of the funding gap and how exactly it is decided is the political hot potato.
Edited to add -
Are there not two separate government decisions here, they related but not directly connected ?
First, it is the government that decides the level of fare increases each year - theoretically, they could decide on freezes and decreases. There is nothing to stop them reducing the level of fares to "Italian levels" if they thought it would be popular. In the future the government will be keeping the revenue.
Separetely, there is the level of the funding gap - also a government decision, but not 100% related to fares. You could even have a government target to reduce the funding gap alongside another to dramatically reduce fares.
That would obviously put pressure on the "railway system" itself, how to either reduce costs or increase revenue or both. It is quite messy and it is easy to see that it could go wrong quite quickly. Eventually you get even more government interference in the whole thing.
Back in British Rail days, I think the government set the defecit targets but the fare policy was left to BR itself - more or less, wasn't it ?