Raise fares, and demand will…

One theme coming out of the Department for Transport recently is that Britain’s railways are more expensive then our competitors, and that the taxpayer can’t afford to keep subsidising them to the extent they are at the moment.

So Friday’s news stories that this subsidy will be reduced, leading to rising fares, should be no surprise.

This matters to HS2, because the rationale for a new high speed rail line is a massive 267% rise in demand for train travel in the next few years.  However, as any beginner economics student will tell you, rising prices lead to falling demand.

When it comes to the fares that travelers on the proposed rail link can expect, Greengauge 21 recently issued a report “High speed rail: affordable for all”.

Their reasoning can be summarised as:

High Speed 2 will be affordable because

– The high speed rail business case is based on HS train fares being similar to ‘classic’ train fares.
– People can currently afford train travel
– Therefore they will be able to afford HS2 trains.

They did not explain why train fares would be the same other, then to suggest the government could regulate the fares.

But with less subsidy, higher fares, then inevitably demand for high speed trains  will fall, and the business case for HS2 stumbles further.

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