Unless something unexpected happens, the cost of travel on London’s public transport could rise by more than 10% next year. That’s because the July inflation rate is used to set fare rises for the following year, and July 2022’s inflation has been announced as having reached 10.1 per cent.
In theory, that would see Transport for London (TfL) having to raise its fares by the same just to maintain its current costs to income ratio. In practice, the fares rate is set by the Mayor, but is subject to a number of factors some of which are not within the Mayor’s control.
Despite the surging cost of living, it’s also unlikely that the government would support a funding settlement for TfL that didn’t at the very minimum match inflation, and quite likely exceed it. The now-expired funding agreement had required fares to rise by RPI+1% — so at least 11.1%.
That’s thanks to the financial situation that TfL finds itself in with the need to run a service while passenger numbers are still below their pre-pandemic levels. There’s also an imbalance in the traffic recovery, with more offpeak and suburban travel, and less peak hours commuting into the centre. That puts TfL in the position of having a recovery led by passengers who are paying less for their travel.
And while the July inflation rate of 10.1% is used as the baseline for the 2023 fares rise, inflation is expected to rise later this year, so even if TfL lifts fares by 10% in 2023, its costs could still rise by more than that, leaving TfL in a situation where the fares rise doesn’t cover its rising costs.
The other issue is that the government has indicated that it will hold down the rate of regulated national rail fares to below the July inflation figure, but doing that has an impact on how much money TfL receives from its share of the fares paid for journeys over the national rail network.
TfL set the fares rise across all its services so that the overall budget rises by the agreed amount, which gives it some flexibility to raise fares at different rates for different journeys depending on need. However, if the national rail revenue rises by less than TfL’s overall target amount, then more of the fares rise will have to fall on TfL-exclusive services — such as buses and tube trains.
That could mean, for example, if TfL needs to raise its fares by RPI+1%, so 11.1%, and if national rail fares rise by less – then bus and tube fares could see ticket prices rise by 14% or more, just to balance the lower income from national rail users.
Over the next few months, TfL will be trying to work out the various fares options that it has, taking into account that the funding settlement is still not signed and that the government hasn’t formally confirmed its intention for national rail fare rises, other than they will be below inflation.
It usually takes until November to work out what fares will be the following year, so that’s when we can expect the formal announcement to take place.
There is also a change where the national rail fares rise won’t kick in until March 2023, so it’s likely that TfL’s fares rise would have to align with that, so whatever the fares rise for London ends up being, it might be delayed by a few months. That’s less bad for consumers but more bad for TfL’s finances.