There was one mention of transport in Chancellor Rishi Sunak’s spring statement last month: the much-trailed cut in fuel duty. At five pence per litre, the reduction was larger than many expected and will cost the Treasury £5 billion. Given rising inflation something needed to be done. But for that price, the Chancellor could have followed the example set by New Zealand and dramatically cut fares on all public transport instead.
Before the pandemic, public transport users paid around £17 billion every year in fares but, with ridership levels yet to return to 2019 levels, revenue has fallen to closer to £12 billion. Inflation-linked increases, alongside hybrid working, have meant commuters are more likely to work from home more often, as it is no longer cost-effective to buy a season ticket.
Some have no choice about whether to travel or not due to the nature of their work, but many others are price sensitive. If fares were to be reduced, or heavily subsidised, both workers and day-trippers would return to public transport in greater numbers, leading to further tax takes for the Exchequer. Investing £5 billion in reducing fares and boosting ridership could have made a dramatic difference in accelerating the net zero transition, tackling congestion and stimulating the return to our cities.
There would have been wider benefits to such a move, including for other Treasury revenue streams. Cities are the drivers of the UK economy, and disproportionately reliant on public transport. Pre-pandemic, residents of the city with the most comprehensive and successful public transport system – London – contributed £4,350 per person per year in tax surplus spent outside the capital on everything from public services to levelling up projects.
The capital is bouncing back, but the fact that London Underground ridership still lags behind what it was means a significant amount of economic activity has yet to revive. Finding ways to accelerate the return of people to our big cities is the fastest way to getting the economy firing again, and boost Treasury coffers in the process.
A report published last year, drawing on analysis from Bain & Co, modelled a targeted campaign to entice people back onto public transport in and around the capital. It found that an investment of less than a third of the fuel duty cut spread over five years would only need to mitigate the negative impacts of a slow recovery by five per cent in order to break even for the Treasury. A faster recovery means a faster return to growth, and to tax receipts in the capital that can support the government’s priorities across the whole of the UK and beyond.
A dramatic reduction in public transport fares would be transformational for the recovery of UK cities, the national economy, and Treasury income – not to mention the impact it would have on air quality and carbon emissions. Car drivers would also benefit, with less congestion meaning less fuel being burnt sitting in traffic jams.
Instead, train fares have gone up by 3.8 per cent this year. And while cutting fuel duty will ease cost of living pressures for some, the richest 20 per cent of the population drive twice as much as the poorest 20 per cent and the poorest take three times as many bus journeys as the richest.
In this context, the Chancellor has chosen a regressive fuel subsidy rather than a transport investment that would have paid dividends for both the economy and the environment.
Adam Tyndall is Programme Director for Transport at London First.
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