Station Re-zoning

Legal challenge

A plea

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Summary

• The Labour government insisted that rail journeys in London use zonal pricing, even though LibDem FoI requests reveal they knew zonal pricing does not increase London rail use.
• Zonal pricing increased fares for some single and day returns by over 35% this year.
• The LibDems have now discovered that season tickets will go zonal, implying fare rises of £400 above inflation over the next three years on the same routes.
• The rises led the civil service to advise the Secretary of State that "the media will need careful handling" (advice revealed using FoI).
• FoI requests also show train operating companies obtained legal opinions questioning whether zonal pricing is compatible with EU competition law.
• London Lib Dem MP Edward Davey - whose constituents are hardest hit by the fare rises - has called for re-zoning of two stations hit most unfairly by the scheme.
• He has challenged the main mayoral candidates to back his campaign to re-zone Kingston and Surbiton stations from zone 6 to zone 5.

History

Until recently rail fares were proportional to the distance travelled.

Legal changes in the franchise

In September 2006 Stagecoach retained the South West Trains franchise, with the new franchise starting earlier this year. The franchise document, which we were able to obtain (albeit gutted in lots of places) under the Railways Act 1993, requires that:

1) From 1 Jan 2007 London train companies must use zonal pricing for single and day-return fares (Schedule 5.7, section 9.2, page 14)

2) From 1 Jan 2010 London train companies must use zonal pricing for season tickets (Schedule 5.7, section 9.3, page 15)

In each case the Secretary of State is allowed to suspend this section of the franchise.

Rationale

The government claims that zonal pricing will increase train usage, and reduce car usage. Documents obtained using FoI show the government knew this claim was false. The government's analysis predicts that zonal pricing will lead to fewer than 24 extra people arriving at Waterloo by train each day. Never before has so big a change been brought in for such a small effect!

The lack of evidence for the benefits of zonal pricing in London is well-known. In their 1991 report on London Underground, the Monopolies and Mergers Commission stated that "We believe that it would be desirable to study in more depth the arguments for and against the current zonal system. We therefore recommend that LRT [London regional transport] should carry out an in-depth review of the merits of the present zonal fares system and whether it would be better to replace it with a system which more closely reflects the costs of each individual journey made." The House of Commons Library "have not been able to trace any evidence to suggest that such a review was carried out by LRT" (Letter to Edward Davey, 12 July 2007, p. 8)

More generally it should not surprise us that zonal pricing is ineffective: no private sector travel company uses it.

The government also states that zonal pricing is needed for oyster pay-as-you-go to be used on the rail network. Apparently this so-called smart card is less smart than a BR paper ticket, and cannot cope with individual prices for individual journeys.

Which stations are in which zones?

The move to zonal pricing inevitably creates winners and losers: those at the inner edge of the zone will lose, those at the outer edge will gain. So long as stations are correctly assigned to zones, the effects will be limited.

Unfortunately the zones were constructed in the 1980s using essentially arbitrary criteria, with the outer limit being the old GLC boundary. The GLC area is not a circle, and so the boundary varied between 9 and 12 miles from the centre. Thus, where the boundary was closer, places that are only a "zone 5" distance from the centre were classified as zone 6. Kingston and Surbiton are in that category. They are both 12 miles from the rail terminal. The average station in zone 5 is 11.8 miles away, while the average for zone 6 stations is 14.6 miles. Clearly they should be in zone 5, not zone 6.

This did not matter until this year, because no fare was different as a result of people in zone 5 rather than zone 6. Therefore no-one thought about it, and no-one complained. It does matter now!

How big is the effect of being in zone 6 when you should be in zone 5?

Last year the full price and cheap day returns from Kingston and Surbiton were £6.80 and £4.20 respectively. This year the full price and cheap day returns from zone 5 are £7.20 and £4.70. These would have been rises of 5.9% and 11.9% respectively, still substantially higher than inflation. But because Kingston and Surbiton were allocated to zone 6, the new fares became £9.20 and £5.70 respectively, rises of over 35%. Thus fare rises were around 25% higher than they would have been had the stations been correctly zoned.

What will happen now?

If no-one does anything, the franchise requires season ticket fares to move to a zonal price structure, which means that fares from Kingston and Surbiton will rise by 35%. This would be a rise of £460 a year. There are two pieces of evidence to support this:

1) When day fares went zonal, prices increased by 35%. It is likely that they will want to keep the season ticket:day fare ratio constant.

2) Ministers were worried about the effects of moving to zonal pricing. In particular, an FoI request revealed that, on 2/10/06, Mark Smith, manager of the DfT Fares and Ticketing Team, wrote to the Secretary of State for Transport stating that train companies "will be required to set rail-only seasons on a similar zonal basis from January 2010, the extra time allowing a more staged progression towards common zonal season prices, accommodating your predecessor's concern to avoid sudden fare changes in these high-value fares". (para 4, 2006-10-02 zonal fares SofS submission.doc)

In short, ministers thought that they could get away with increasing day fares by £2, but not with increasing season tickets by £460. They were advised that three rises averaging £150 would be easier to disguise.

Is this legal?

This is not clear. FoI legislation revealed more than one opinion on this. On 18/1/2006 the issue was raised at the "London zonal fares working group", a DfT/TfL/ATOC group. AOB reads: "PT [Peter Twigg, ATOC] raised the issue of the competition act here. DfT and ATOC agreed to work together. MS [Mark Smith, DfT] was already in contact with Chris Yelland at ATOC regarding "CA" issues. PT thought there might be problems maintain the block exemption when some sharp fare rises were inherent in zonalising fares".

This concern continued. At the meeting of 1/2/2006, the minutes include "PT said the TOC's were very concerned that they might individually or collectively contravene the competition act and would not act without either an exemption of a specific legal direction from DfT"

Again, 24/5/2006 "The main discussion point covered at the meeting was the Competition Act. This centred especially on the legal advice obtained by First Group and Go Ahead from Burges Salmon and Dickinson Dees respectively regarding their interpretation of the implications for TOCs of the proposed franchise amendment designed to assist implementation of Zonal fares"

Again, 7/6/2006 "A further discussion ensued on the problems connected to the Competition Act and the differing legal advice on the status of the franchise agreement." It adds that "MS [Malcolm Smith, DfT] explained that a useful meeting was held with Annette Eggington of the ORR clarifying the position in a way that endorsed the DFT legal advice". Surely the job of the ORR is to use competition law to protect consumers, not to find sneaky ways for government to get around competition law?

Again, 7/7/2006 "The discussion at this meeting centred almost exclusively on resolving the position in respect of the conflicting legal advice received by some TOC's in connection with the proposed franchise agreement amendment [which was recommended by ORR as a way to negate what would otherwise be a clear breach of competition law] and to do this in time to meet the fares deadline to allow Zonal fares to be implemented for 2007. Possible alternative options were touched upon should there prove to be a legal impasse."

The legal status is clearly in doubt. The rail companies knew it, and the government knew it.

Our sense is that the move to zonal pricing is legal because it has been directed by the Secretary of State in the franchise. But the franchise does not direct the train operating companies to use existing zones. As such, we believe that competition law requires stations to be placed in the zone that most closely satisfies the general competition law constraint, namely "whether the price bears any reasonable relation to the economic value of the product supplied" (ORR Doc # 225984.01, p. 3). Since Kingston and Surbiton are so much nearer the zone 5 average, we believe that it is illegal for Kingston and Surbiton to be placed in zone 6.

[nb the DfT did not release all of the working group minutes to us - we suspect that the minutes of meetings on Jun 21 and Aug 2 would be particularly interesting. Nor did they release the conflicting legal advice. We have requested more info]

Is this a political story?

The civil service certainly think so. In the memo mentioned earlier, Mark Smith noted "The fact that some individual fares at the margin will increase by a significant percentage" meant that "the media will need careful handling". (para 10, conclusion, "2006-10-02 zonal fares SofS submission.doc")

2.9m Surbiton journeys and 1.3m Kingston journeys are by season ticket holders - almost all to London. Assuming 5 weeks holiday, 8 bank holidays, and 2 sick days per year would mean that there are around 13,000 season ticket holders in Surbiton and 6,000 in Kingston. There are 47 thousand non-pensioner households in Kingston and Surbiton Borough, so this directly affects 2 in 5 households in the Borough. Between them, they will be £8.6m a year worse off because of the misallocation of Kingston and Surbiton stations to zone 6. (This figure does not include harder-to-quantify losses to those buying day returns, which include many part-time workers, particularly women, who will buy significant numbers of ticket).

What can be done?

The answer is simple: SWT should request that Kingston and Surbiton be rezoned to zone 5. This is possible. Cheam and Belmont were moved from zone 6 to zone 5 in January 2005, and Stoneleigh likewise in January 2007.

Transport for London have told our local paper (Kingston Informer) what they told us informally: they will not oppose such a request. They stated that: "It is unlikely that TfL or the Secretary of State would object to a proposal that improved the terms of travel for passengers unless that proposal created new anomalies with other station in the area and the zones they are situated in". Given that moving Kingston and Surbiton would create no new anomalies, this looks like a green light to us.

If SWT will not request this voluntarily, we believe that the Secretary of State should require them to do so. The move to zonal pricing, even over three years, is likely to require that SWT raise season ticket prices by more than 6% above inflation if Kingston and Surbiton are left in zone 6. Fare rises of this magnitude are not legally possible without the Secretary of State suspending consumer protection legislation, and we believe that they should not do that.

Furthermore, the Secretary of State has the power, under the franchise, to suspend the move to zonal pricing (Franchise, schedule 5.7, para 9.3, page 15). We believe that she should, until this and other anomalies are sorted out.

Are we being unreasonable?

Emphatically not! All we want is for Kingston and Surbiton to be placed in zone 5 because they are a "zone 5" distance away from the rail terminal. Had they been moved to zone 5 at the start of the year, fares would still have gone up by more than inflation, and by more than the average London fare.

Is anyone else affected?

The following stations are in zone 6: Hadley Wood station (10.5 miles) and Enfield Lock (11.75 miles), and West Ruislip (12 miles). We don't personally know these stations, but there seems a prima facie case that they should not be in zone 6. They are, however, relatively small, at 4%, 10% and 1% of Surbiton passenger levels respectively. Kingston and Surbiton are the areas that are worst affected by problems between the zone 5 and 6 boundary, and account for over 90% of passengers from the "12 mile or less but in zone 6" group of stations.

Background papers

You can also read the background papers to this campaign.