The justification offered by BR for this year's pacesetting increases is no more than might have been expected from a virtual monopoly supplier under pressure during a recession: job losses in London have meant fewer commuters. This has led to a loss of income. BR has high fixed costs that cannot
be reduced rapidly without unacceptable cuts in services. The only solution is to raise prices.
This argument might carry more weight with those who still need to commute into work each morning had not many of them been involved in cost-cutting exercises conducted by their own employers. It is only in times of severe recession that commercial companies discover how much fat there is to cut from their operations. Those who fail to make this discovery may - for a while - justify their inflexibility by talking of high fixed costs and the unacceptability of cutting services. But, unless they economise, their businesses eventually go to the wall.
It is almost impossible to accept that BR is now managed so efficiently that further savings are impossible. The truth is that BR is more fortunate than companies which face serious competition. Whatever pricing policy BR adopts, its senior executives know that it will not collapse. People with jobs in London will still need to commute. Some will be able to switch to bus or coach services. A minority may find it possible to use their own cars. But for most of them there is no choice but to stick with BR.
In such a situation, the role of the Department of Transport is crucial. In effect (though not, as his officials were quick to point out, in law), the Secretary of State for Transport can veto unacceptable increases in fares. Most have done so in their time, often for the most disreputable of electoral reasons. But on this occasion John MacGregor approved the increases without serious questioning. What was his motivation?
The most likely answer is that Mr MacGregor was preparing the ground before the new, independent franchising authority invites commercial bids to operate services on many of the lines in question. To render unprofitable services marketable, Mr MacGregor intends to set in advance the level of subsidy the Government will offer for a particular service. He would leave bidders to compete on quality and frequency of service. This, we argued when Mr MacGregor produced his privatisation proposals three months ago, is better than the alternative - asking potential franchise holders to bid down the subsidy.
There appears to have been an attempt by the department to minimise the amount of subisidy that will be needed, by allowing BR to exploit its monopoly. This is the wrong approach. Mr MacGregor should have insisted on smaller increases and a more ruthless approach to cost cutting.Reuse content