Podcast: Scotrail peak fares removal

Episode notes

This week, Hannah Randolph is joined by Josh Hampson to discuss the permanent removal of Peak Fares on the Scotrail network. With significant price cuts to tickets taking place today, the episode dives into what this policy might mean for public transport use and how it could align with other policies, such as a congestion charge discussed in previous episodes. Discussing last year’s pilot of this policy, Hannah and Josh discuss what might be expected this time around and unpack the benefits, as well as drawbacks, to cheaper train tickets.

Timestamps

(00:25) Price changes after removal

(01:37) Reasoning behind peak fares and removal

(03:23) Learning from the peak fares removal pilot

(06:00) What policies might shift commuters away from cars?

(08:47) Alternatives to rail travel

(10:57) Policy costs and potential for financial neutrality

Transcript

00:00:07 Hannah Randolph

Hello and welcome back to our latest Fraser of Allander podcast, I’m Hannah Randolph, an economist here at the Institute. And today I’m joined by my colleague Josh Hampson. Josh last came on the podcast to talk about the possibility of congestion pricing in Glasgow

00:00:20 Hannah Randolph

City Centre and now he’s back to discuss the end of peak fares on Scott Rail services. So unlike when we talked about congestion pricing, this is a policy that went into effect today. So if you were commuting by rail this morning, you hopefully noticed a cheaper ticket price.

00:00:35 Hannah Randolph

I was really surprised to see how big a difference it makes. So Josh, what are some of the price differences with the removal of peak fares?

00:00:42 Josh Hampson

The the peak fare price differences vary quite a bit depending on where you’re travelling. Every route is different. The most notable one will likely be the express train from Glasgow to Edinburgh, because that almost halves the fares there during the peak times. The peak fares are gone, so now every off peak ticket is

00:01:02 Josh Hampson

The price it gets charged across the network, so from Glasgow to Edinburgh at during the morning or the evening peak hour it was £32. It’s now down to £16. So it is quite substantial savings for

00:01:13 Josh Hampson

commuters. However, there will still be other things and other types of tickets that will be in to play here for people’s decisions. There’s season tickets and flexi pass tickets in addition to that, there’s also rail cards which still don’t apply before 10 AM, so you wouldn’t be able to use a rail card. That’s what most rail cards that people will have

00:01:34 Josh Hampson

Access to you won’t be able to

00:01:35 Josh Hampson

Use before 10 AM.

00:01:37 Hannah Randolph

So, Josh, what’s the reasoning behind having peak fares in the 1st place and now removing them?

00:01:43 Josh Hampson

The idea behind peak fares isn’t anything new and similar to the congestion charging one, it’s the same basic idea that when things are busy, you attach a higher price to it and that will make them less busy because it means people more responsive to when they’re travelling.

00:01:58 Josh Hampson

And so it’s effectively a dynamic pricing scheme. People will be familiar with this in the aviation industry; if you go on holiday in the summer while schools aren’t in, your tickets are more expensive because more people want tickets. If you go in the middle of January when it’s only really business people, buying tickets will be cheaper. So the idea with peak pricing is to achieve the same thing by pushing

00:02:18 Josh Hampson

Leisure travelers onto later trains outside rush hour, leaving the rush hour trains, mostly for commuters.

00:02:25 Josh Hampson

The issue with that is that commuters can’t decide when to travel, and so they’re effectively just forced to pay that fee. For most people commuting, the alternative in Scotland will be a car and if the ticket price of the rail is more expensive than

00:02:42 Josh Hampson

The cost of parking their car and the fuel costs from their commute, then affordability-wise

00:02:47 Josh Hampson

they will shift over to

00:02:49 Josh Hampson

Driving instead. The primary aim of removing peak fares is to encourage people to use their cars less in Scotland to make more stable transport decisions. Currently, about 62% of employed Scots commute by car, whereas only 3.7% commute by rail, but that statistic is a bit old.

00:03:09 Josh Hampson

That’s from the previous census, because then your travel to work stats aren’t yet available, but it gives us a rough indication that

00:03:18 Josh Hampson

car travel is the most dominant form of motorised transport.

00:03:22 Hannah Randolph

Scotland and the Scottish Government ran a pilot of removing peak fares for about a year and that ended last year, right? So what did we what did we learn from the pilot? Did it shift people from commuting by car to commuting by rail?

00:03:39 Josh Hampson

Yeah, the pilot originally ran from September 2023 till March 24 and it was then extended to September 24. So we have about a year’s worth

00:03:49

Of

00:03:51 Josh Hampson

Understanding what was going on. It was cancelled at about the nine month mark, so a lot of the evaluation is done by

00:03:57 Josh Hampson

Estimating the 12 month starts from the nine month data that was available. What we found is that overall there was a 17% reduction in fair prices across ScotRail at an average, and there’s about a 6.8% increase in rail demands using the most realistic scenario for what would have happened otherwise because

00:04:17 Josh Hampson

This is within the context of rail demand increasing recovering from the pandemic, so the evaluation has basically had to estimate this as

00:04:28 Josh Hampson

the result to the fares, versus, this is what would have happened to rail demand anyway. This

00:04:38 Josh Hampson

The pilot was in evenly distributed, so generally what we found is the high earners in the Central Belt were the ones that benefited the most from this.

00:04:51 Josh Hampson

That’s to be expected, because that’s where Scotrail’s network is the most convenient and the most readily available, so it’s why they benefit the most because they already get the most benefit out of the railway anyway.

00:05:05 Josh Hampson

And so we can definitely expect that improvements in rail affordability, which is what this amounts to: increased rail patronage.

00:05:13 Josh Hampson

From the pilot, there were a lot of new rail passengers that moved away from car usage. However, most of the new journeys were from existing rail passengers that,

00:05:27 Josh Hampson

Instead of making an additional journey outside of their commute by car, they just done the additional journey

00:05:33 Josh Hampson

On the rail instead. So what I’d expect to see is certainly in the short term, within the next year of this, is that the affordability will

00:05:44 Josh Hampson

Improve patronage, where rail was already widely used in Scotland, but it’s unlikely to draw swaths of people away from car usage onto the railway, particularly given how prevalent car uses Scotland is.

00:05:59 Hannah Randolph

And how does this connect to our previous episode on congestion charging? So if we had, say, a suite of policies that are kind of aimed at pushing people from cars into other modes of transportation, would you expect to see a bigger shift?

00:06:14 Josh Hampson

Yeah, this is something sort of been tried. So similar to this is Scotrail’s Kids for a Quid policy, to encourage families to do day trips by rail instead of by car.

00:06:26 Josh Hampson

With congestion easing again there should be more focused commuting and for ad hoc trips into and out of cities, people will only really compare the affordability of parking versus the rail ticket for more regular journeys to high frequency journeys such as commute, then the fuel cost and the parking will be considered in that decision.

00:06:46 Josh Hampson

So the introduction of a congestion charge, particularly a daily one, if it was for people driving into Glasgow City centre on their commute or even into town in Edinburgh, I think what that would do is it would make people

00:06:59 Josh Hampson

More likely to take the train because the tickets are now significantly cheaper than they were before and driving is significantly more expensive in terms of public approval. With that, people might see it as being a slightly underhanded way to get people out of cars and onto

00:07:15 Josh Hampson

The railway because the only reason the train is relatively cheaper than the car is because the car is more expensive now because of the congestion charging and so overall the option to travel is more expensive than it was previously.

00:07:30 Hannah Randolph

Yeah, I guess it depends how it’s framed, because you can see an argument for if congestion charging was introduced

00:07:38 Hannah Randolph

Than we’re making this option more expensive, but at least we’re not charging

00:07:43 Hannah Randolph

You peak fares

00:07:44 Hannah Randolph

On rail travel, but I guess they’re also coming from different places. So the the Scott rail policy is Scotland wide and the congestion charging would just be Glasgow.

00:07:46 Josh Hampson

Yeah.

00:07:54 Josh Hampson

Yeah, congestion charging would be local authority based. What we have seen is

00:08:00 Josh Hampson

From when the congestion charge was introduced in London, that the feasible usability of public transport was a key to being successful, and so the removal of peak fares would, particularly within the sort of suburban and in urban areas in and around Glasgow and Edinburgh, would make the congestion charge more

00:08:21 Josh Hampson

Effective because people have the alternative there, whereas in areas where you don’t have alternatives to drive

00:08:28 Josh Hampson

Then

00:08:29 Josh Hampson

You don’t really have a choice but to pay the congestion charge, so the two policies could complement each other. It’s just, you know, don’t say too much. Scots are frugal bunch. So the cynical reaction to that would be, oh it’s just the government wanting more money out of people at night

00:08:47 Hannah Randolph

And is there a potential that some people might be left behind by this kind of policy, particularly if they live in an area that’s not well serviced by

00:08:54 Hannah Randolph

Public transit?

00:08:56 Josh Hampson

You need to consider

00:08:56 Josh Hampson

These decisions in the context of what the alternatives are for most people on the Scottrail network. Driving and aviation are often used as

00:09:05 Josh Hampson

The competitor to rail and the aviation industry as a model for how the railways be run. That’s fine for Edinburgh to London, but it’s not really fine for commuter routes and regional routes like what ScotRail is. And unless your name is Taylor Swift or you’re a Premier League footballer, you’re not flying from East Kilbride into Glasgow.

00:09:24 Hannah Randolph

I don’t think Taylor Swift

00:09:27 Hannah Randolph

Takes the plane from East

00:09:29 Hannah Randolph

Kilbride

00:09:32 Josh Hampson

No, probably not, but you get the point is that most people drive as a alternative, and so it’s about creating new systems, and the dynamic pricing models that are currently used on railways are very restrictive. And again, they’re fine where

00:09:48 Josh Hampson

You know

00:09:50 Josh Hampson

People make their transport decisions further in advance, and so even things like advance tickets

00:09:54 Josh Hampson

Are

00:09:55 Josh Hampson

Rational things, to encourage people to make advance. But for the types of journeys that you’re wanting to encourage people to just turn up and take it and go, having complex testing systems doesn’t work, and so the removal of peak fares doesn’t

00:10:10 Josh Hampson

Fully introduce a large degree of flexibility. It absolutely helps with improving that affordability and making those individual trips for people from outwith to the inside of the

00:10:21 Josh Hampson

Cities much more affordable, and if I would expect to see an impact from rail it’s there. The issue is, affordability isn’t the only factor here. Convenience is another one. Overnight buses from Glasgow to London are the cheapest option but the the the longest option and the least comfortable. So a lot of people will just fly or take the train.

00:10:42 Josh Hampson

What needs to be reconciled here is that only changing ticket prices won’t have a massive impact on car usage in the country. There will need to be expansions and improvements with that across the Scottrail network otherwise.

00:10:57 Hannah Randolph

Yeah, that makes a lot of sense. And how does this interact with public finances or the way that ScotRail is funded?

00:11:04 Josh Hampson

So from the pilot that we saw, there was a 6.8% increase in rail demand to make this policy financially net neutral or financial benefit. There needs to be a 10% increase in rail demand and that’s why the pilot was originally

00:11:20 Josh Hampson

they

00:11:21 Josh Hampson

Cancelled the policy itself, so the operational costs range from about 2.7 to £3,000,000 and then the impact on railway revenue is estimated to be a net loss of £17 million. So effectively what this policy does is it subsidises

00:11:42 Josh Hampson

Lower rail fares

00:11:44 Josh Hampson

That’s then money that you need to reconcile against decisions to spend on improving signalling upgrades. You can run more frequent trains and you might what you might end up with is a situation where even at a higher price point, improvements in the quality of the service

00:12:00 Josh Hampson

Pull more rail patronage than just reducing the ticket prices, of course. If this policy this time around manages to achieve a 10% financial benefit, then it doesn’t really matter because it’s pulling more revenue in and would then open up that revenue to be spent elsewhere in the railway. But

00:12:20 Josh Hampson

It is

00:12:21 Josh Hampson

It is something that you need to consider carefully. Do you want to subsidise lower fares or are you better off spending the money on other

00:12:27 Josh Hampson

Parts of your network?

00:12:30 Hannah Randolph

And there’s a possibility that we could hit that 10%. So there were a few things going on at the time of the pilot that potentially meant that the effect was underestimated.

00:12:43 Josh Hampson

Yeah, the best counterfactual scenario could have the issues at that time with the railway still recovering from the pandemic and people’s commuting patterns changing in addition to some industrial action overlapping with

00:13:03 Josh Hampson

The pilot, it didn’t fully impact the pilot, but there was some overlap which mainly in Scotland resulted in reduction of peak time services because to run a full timetable, the railways rely on overtime and so the industrial action at the time was

00:13:19 Josh Hampson

Going to be any overtime. Restricted timetables had to be introduced. And so I think that’s why we might see,

00:13:26 Josh Hampson

This time, if the services are more reliable, if industrial action doesn’t occur on the railway over the next year, people might be more comfortable using the railway as a reliable mode of commuting.

00:13:39 Josh Hampson

The other thing as well is the decision to cancel the pilot was made at the nine month mark.

00:13:44 Josh Hampson

Generally, I think you’d want to wait about 12 months to observe how people’s commuting patterns change. People don’t just decide to change their commute and how they do their commute on a random Tuesday afternoon. What’s likely to happen is people will see, oh, like Christmas, then maybe going in to see a pantomine or something. They take the train for that and then when they consider the affordability of it.

00:14:06 Josh Hampson

Or maybe this is a viable commuting option because the time is roughly equivalent to what driving take.

00:14:12 Josh Hampson

And that’s where programmes like this are really effective, is that once are able to run for a full year, they effectively function as a marketing or an advertising thing by making the railway cheaper and therefore more accessible.

00:14:26 Hannah Randolph

Yeah. And there’s something to be said maybe for habit. So if you know that this is a permanent policy, then you build that into your plans.

00:14:33 Josh Hampson

Its pilot policies are often influenced by the fact that our pilot, originally the pilot, was only running for six months, and then it was extended if people were having to buy parking permits in the city centre that lasted a year, they might not have wanted to commit to taking the train, or they might not have had.

00:14:52 Josh Hampson

That permit,run out in time, and so that may have been why they never ended up switching, but I think it’s possible that rail demand will be higher than the 6.8% that we’ve seen in the pilot. That would be my sort of instinct and it’s just whether or not it’s high enough to be a financial benefit, particularly since the end of the

00:15:13 Josh Hampson

Pilot, there were new types of Flex Pass tickets introduced to try and save some of that affordability gains from the pilot. It may end up being that that increase in rail demand will be swallowed up by those tickets instead of by this changing peak fares.

00:15:29 Hannah Randolph

So we’ll be keeping an eye out over the next 12 months to see if the rail services do achieve that 10% increase. That would give it financial neutrality. So thank you for joining me today, Josh. And until the next Fraser Allander podcast, we’ll see you then.

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