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Inflation pain for rail passengers

Commuters will have to fork out an average of 8% more for their rail tickets in the new year following the announcement today of last month's inflation figures.

Transport Secretary Philip Hammond said he recognised the increase would not be popular but added that it was necessary in order to fund rail improvements.

But Labour said the "eye-watering rise" would burden families, and customer watchdog Passenger Focus said the increase was "deeply unfair".

The extent of passengers' pain was revealed when the Office for National Statistics (ONS) published the July 2011 inflation figures.

They showed that while the consumer price index (CPI) rate of inflation rose from 4.2% in June to 4.4% in July, retail price index (RPI) inflation was unchanged at 5.0%.

The July RPI figure determines the following January's increase in regulated rail fares, which include season tickets.

The Government has recently changed the annual price rise formula from RPI plus 1% to RPI plus 3%.

This means that regulated fares will rise by 8% in January but, as this is an average rise, train companies can put some regulated fares up by as much as 5% above 8%.

Mr Hammond said: "We are now embarked on one of the biggest programmes of rail investment for 100 years, delivering more than 2,700 new rail carriages, a £900 million programme to electrify more lines and the vital Crossrail and Thameslink projects in London.

"Due to the scale of the deficit, these investments would simply have not been possible without the difficult decision we have made to increase rail fares. I know this decision has not been popular, but I hope passengers will appreciate the improvements it allows us to make."

He went on: "However, it's absolutely clear that in the longer term the only solution is to bring the overall cost of the railways down. We have already begun work on this with the (Sir Roy) McNulty Review (of rail costs) and we are determined to succeed.

"Better value for money on the railway will deliver a better deal for taxpayers and farepayers alike and will allow us to put the era of above inflation rises in regulated fares behind us."

Shadow transport secretary Maria Eagle said: "The Tory-led Government is totally out of touch with the cost of living crisis facing commuters and fails to understand how these eye-watering rail fare rises will add to the burden on families.

"The cost of getting to work is for many people the biggest single item in the monthly budget - bigger than mortgage payments and bigger than rent.

"These fare rises squeezing commuters are the direct consequence of the Tory-led Government's decision to cut too far and too fast, and travellers are having to pay more to plug the gap in the transport budget.

"With train fares set to rise four times faster than wages in the next year, ministers should think again and give commuters a break."

Scottish rail travellers will be spared some of the pain of their English counterparts in the new year, as the higher annual price rise does not apply to ScotRail, which will be carrying on with the RPI plus 1% formula for regulated fares.

David Mapp, commercial director at the Association of Train Operating Companies, said: "We know that these are difficult financial times for many people. The Government has decided that many fares need to rise above inflation for the next three years to help pay for more trains, better stations and faster services.

"Increasing the money raised from fares will mean that taxpayers contribute less to the running of the railways, while ensuring that vital investment can continue. All additional money raised through the change to RPI plus 3% will go straight back to the Government.

"The industry is working with the Government to cut the cost of running the railways, building on the progress that has already been made. A more efficient railway will help to limit fare rises in the future, and offer better long-term value for money for the taxpayer."

David Sidebottom, director of rail customer watchdog Passenger Focus, said: "Having some fares regulated is clearly in passengers' interests. However, the way that train companies are allowed to set fares on individual routes is deeply unfair.

"Some passengers who may have seen no investment or improvements can get hit year after year. We will forcefully advocate change to this system in the Government's forthcoming fares review.

"The Government's commitment that the next three years should signal the end of inflation-plus-3% rises is welcome but in the meantime passengers will have to dig deep."

Gerry Doherty, general secretary of transport union TSSA, said: "In mainland Europe, there are publicly-owned, socially-inclusive railways with affordable fares for everyone.

"Here ministers seem determined to create a system which will exclude the poor, many families, the elderly and the young who will not be able to pay these ridiculous increases over the next three years.

"The taxpayer will have to fork out £4 billion a year for a system that many will simply not be able to afford."

The pressure on commuters comes at a time when all households are seeing their budgets squeezed by high inflation and muted wage growth - with utility price hikes announced by major energy suppliers including British Gas and Scottish Power.

The Bank of England expects inflation to hit 5% before the end of the year.

Clothing and footwear increased by 3.1% on an annual rate - the highest annual surge since records began in 1997, the ONS said.

Housing, water, electricity, gas and other fuels increased by 4.6% on an annual basis, the highest increase in two years.

Elsewhere, while clothing, furniture and household good prices fell on a monthly basis compared with June, the decrease was much smaller than a year ago - applying upward pressure on the overall cost of living.

Food bills were 0.3% higher month on month and 6.2% higher compared with a year ago, while alcohol and tobacco were 0.6% higher on a monthly basis and 10.3% higher than last July.

July is usually a big sales season, the ONS said, but there was evidence that retailers brought their sales forward to June to draw cash-strapped customers in.

The rise in the CPI rate of inflation will apply pressure on the Bank of England to increase interest rates to curb soaring inflation.

But the Bank is grappling with a fragile recovery in the UK, which saw its economy grow by a mediocre 0.2% between April and June.

Bank of England governor Sir Mervyn King is required to write a letter to Chancellor George Osborne when inflation has been above the Bank's 2% target for three months. Today's correspondence will be his seventh successive letter and his 12th in total.

Elsewhere, the underlying rate of retail prices index inflation, which excludes mortgage interest payments, remained unchanged at 5%.

Speaking at a press conference in Whitehall, Deputy Prime Minister Nick Clegg said he was "acutely aware" that living costs were hitting a lot of people very hard already, with inflation and commodity prices rising.

He said it was a "tough time" for many people and the news would be "deeply unwelcome" for them.

Mr Clegg added that there was a "wider context" with the "massive" investment programme in rail infrastructure and transport, with the costs needing to be shared between the taxpayer and commuter.

He said: "We are trying to do that as fairly as we can."