Rail companies will be permitted to raise average regulated rail fares next year by 6.2%. Not surprisingly, this has been met with dismay and anger by rail travellers, especially long-distance commuters, who could see their annual season tickets going up by several hundred pounds.
Some fares, such as advance tickets, are unregulated. Others, such as anytime, off-peak and season tickets, are regulated by the government. The formula for working out permitted price rises for regulated fares is RPI plus 3%, where RPI is the July annual inflation rate based on the retail price index.
The RPI figure was announced by the ONS on 14 August and was a surprisingly high 3.2% – up from 2.8% in June: see Table 21 in the ONS’s CPI And RPI Reference Tables, July 2012. (Click here for a PowerPoint of the chart on the left.) Hence average fares can rise by 3.2% + 3% = 6.2%.
Rail travellers are angry on three counts:
First, the RPI measure of inflation is generally around 0.5% higher than the CPI measure (which is used for working out public-sector pay increases and the uprating of pensions and benefits). The July figure for CPI inflation was 2.6%.
Second, the extra 3% added on top of RPI means that that rail fares are going up more rapidly than other prices, and incomes too. The reason given for this is to shift the burden of funding the railways from the taxpayer to the traveller.
Third, the formula applies to average fares. Rail companies can raise particular regulated fares by up to 5 percentage points more than the formula provided they raise other fares by less than the formula. Thus some fares are set to rise by 11.2% – including some of the most expensive season tickets.
The government justified the increases by arguing that the higher fares will allow more investment by the rail companies, which could result in lower costs in the future. Nevertheless, two thirds of the revenue from the above-inflation increases will go to the government and only one third to the rail companies.
Webcasts
Inflation shock as rail fares set to soar Channel 4 News, Ciaran Jenkins (14/8/12)
Protests as rail fare price rises announced The Telegraph (14/8/12)
How do our rail fares compare with the rest of Europe? BBC News (14/8/12)
Rail fare increase will make life better, says minister BBC News (14/8/12)
Passenger Focus: Train companies ‘using dark arts’ BBC News, David Sidebottom (14/8/12)
Articles
Rail fares set to increase by 6.2% Financial Times, Mark Odell (14/8/12)
Rail fares set to rise by 6.2% in January Guardian, Gwyn Topham (14/8/12)
Rail fare hike of 6.2% sparks angry reaction BBC News (14/8/12)
Soaring rail fares will do nothing for the recovery The Telegraph (14/8/12)
Commuters plead with Osborne to prevent 10 per cent rise in rail fares Independent, Oliver Wright (15/8/12)
Rail fare rises: how to keep your ticket prices as low as possible Guardian, Mark King (14/8/12)
Documents and information
Fares Review Conclusions 2003 Strategic Rail Authority (June 2003)
Fares Office of Rail Regulation
Fares on National Rail Association of Train Operating Companies
Questions
- What are the arguments for and against the general principle of using an RPI+X formula for regulating rail fares?
- What are the arguments for and against allowing train operating companies to raise regulated rail fares by an average of RPI plus 3%, with 2 of the 3 percent above RPI inflation going to the government?
- In what ways are travellers likely to respond to the higher prices?
- Why are some travellers likely to have a much lower price elasticity of demand for rail travel than others? What determines this price elasticity of demand?
- What externalities exist in rail transport? How should this impact on the government’s rail pricing strategy?
- How is infrastructure development funded for (a) rail, (b) roads and (c) airports? Does this lead to an efficient allocation of transport investment?
- How does rail pricing in the UK compare with that in other European countries? Should other European countries follow the UK’s policy of above inflation fare increases to fund rail investment?
A campaign to introduce a tax on disposable plastic bags in England has been launched by various pressure groups, including The Campaign to Protect Rural England (CPRE), Keep Britain Tidy, the Marine Conservation Society and Surfers Against Sewage. Plastic bags, they maintain, litter streets and the countryside and pollute the seas, where they cause considerable damage to marine life.
They propose a tax of 5p per bag, which would be passed on to consumers. Such a levy has already been introduced in Wales in October 2011. As a result, plastic bag use in Wales has dropped dramatically (see also the full report from the Welsh Government). The Scottish Government and the Northern Ireland Assembly are also planning introducing similar charges.
Many other governments have introduced taxes, charges or bans on plastic bags and many more are considering introducing such measures. Ireland introduced a 15 euro cent charge on single-use plastic bags as far back as 2002 and saw a 94% reduction in plastic bag use (328 per person per year to 21). The charge was raised to 22 euro cents in 2007 after bag use rose to 30 per person.
Other countries have banned plastic bags altogether: some, such as Rwanda and Somalia have banned all plastic bags; others, such as China and South Africa have banned very thin bags; others, such as Italy, have banned non-biodegradable ones.
In the USA, various states or districts have introduced levies and in the EU, where more than four billion bags are thrown away each year, the European Commission will soon publish proposals for limiting the use of plastic bags.
So what are the arguments for limiting the use of plastic bags? Why is it not enough to leave things simply to the market? And if the use of plastic bags is to be reduced, what’s the most efficient way of doing so? Are there any problems with alternatives to plastic bags? The following articles and reports consider these questions?
Articles
England urged to pick up Wales’ plastic bag levy businessGreen, Jessica Shankleman (1/8/12)
Wales’ plastic bag charge yields massive green savings businessGreen, Jessica Shankleman (5/7/12)
Supermarkets ‘should charge £1 a bag’ BBC Today Programme, Samantha Harding and Judith Holder (2/8/12)
Environmentalists team up to push for bag tax in England Plastics News, Anthony Clark (1/8/12)
Break the Bag Habit Keep Britain Tidy (1/8/12)
Plastic bag use ‘up for second year running’ Guardian, Rebecca Smithers (5/7/12)
Plastic bag use in Wales plummets due to 5p charge, figures show Guardian, Adam Vaughan (4/7/12)
Carrier bag charge ‘effective and popular’ figures reveal ITV News (4/7/12)
What should be done about plastic bags? BBC News Magazine, Chris Summers (19/3/12)
Irish bag tax hailed success BBC News, Chris Summers (20/8/02)
The Big Fix The Math Behind Sacking Disposable Bags Atlantic Cities, Nate Berg (26/9/11)
Fremantle moves to ban plastic bags ABC News, Lucy Martin (23/7/12)
Bans Plastic Bag Ban Report, Ted Duboise (updated)
Vote With Your Dollars, and Also Vote New York Times, Gernot Wagner (30/7/12)
Reports
Evaluation Of The Introduction Of The Single-Use Carrier Bag Charge In Wales: Attitude Change And Behavioural Spillover, Wouter Poortinga, Lorraine Whitmarsh and Christine Suffolk Report to Welsh Government by Cardiff University (June 2012)
Life cycle assessment of supermarket carrierbags: a review of the bags available in 2006 Environment Agency, Joanna Marchant (25/7/11)
Stakeholder consultation on options to reduce the use of plastic carrier bags … EC Environment (19/3/12)
Questions
- Draw a diagram demonstrating the externalities involved in the use of plastic bags. Show the marginal private and social costs and benefits and the socially efficient level of consumption.
- How would you set about establishing the amount of consumer surplus from the use of plastic bags at a zero price?
- Compare the relative social efficiency of a tax on plastic bags with a ban on plastic bags.
- Would education be an effective alternative to taxing plastic bags?
- Why might it be difficult to get supermarkets and other retailers to agree to a voluntary ban on giving out free plastic bags?
- Why might it be extremely difficult in practice to establish the socially efficient price for plastic bags?
The 2012 London Olympics opened on 27 July. This has been the result of years of planning and investment in infrastructure since London won the bid in 2005.
It is estimated that hosting the Games will have cost over £9bn. It is therefore interesting to consider the long-run impact on a host city years after the last medal has been won. We might expect host cities to achieve increased growth due to the benefits from the improved infrastructure and the impact of increased publicity and exposure on trade, capital and population.
This has recently been investigated in a paper published in the Economic Inquiry by Stephen Billings and James Holladay which looks at the impact hosting the Games has on GDP and trade (working paper available here). One difficulty with trying to identify the impact of hosting the Games, is that only certain cities will have a chance of being chosen as hosts and these may be cities that are more likely to experience future growth. If this is the case, it would appear that the future growth was due to hosting the Games when it would in fact have been likely to occur anyway. In order to control for this, the above paper compares the winners with losing finalists in the selection process for host cities. For example under this approach London would be compared with Singapore, Moscow, New York and Madrid. In addition, subsequent matching processes are also used to select appropriate cities for comparison.
They find that larger cities in wealthier countries are more likely to be chosen to host the Games. However, once comparisons with other appropriate cities are made, overall, they find that hosting the Games has no effect on a cities population, growth or trade. One explanation provided is that the intense competition to host the Games means the potential gains are competed away via escalated promises in order to increase a cities chances of being selected. In addition, they note that there may well still be considerable specific benefits from the investments made to host the Games.
It is also clear that there are both positive and negative externalities from hosting the Games that, whilst difficult to measure, ideally should be taken into account. On the negative side, these include the extra hassle anybody travelling to work in London during the Games will face. On the other hand, on the positive side, it is hoped that part of the long-run legacy of the Games will be increased interest and participation in sport which would result in substantial health benefits.
David Cameron claims London 2012 will bring £13bn ‘gold for Britain’ The Guardian, Hélène Mulholland (05/07/12)
Olympic legacy: how the six Olympic boroughs compare for children The Guardian, Simon Rodgers (19/07/12)
London 2012: Olympics legacy hard to define BBC News, David Bond (13/07/12)
Questions
- Explain how intense competition to host the Games might result in benefits being competed away.
- Can you think of any other externalities resulting from the Olympic Games?
- Why are the impact of externalities difficult to measure?
- What other factors should be taken into account when assessing the costs and benefits of hosting the Games?
- Do you think the decision to bid to host the Games should be purely based on a cost-benefit analysis?
Academic research is encouraged by universities. Indeed, the number and quality of research publications is the most important criterion for promotion in many universities.
Periodically university research in the UK is publicly assessed. The latest assessment is known as the Research Excellence Framework (REF) and will be completed in 2014. Most research that will be considered by the REF is published in peer-reviewed journals. Most of these journals are subscription based. Universities pay large amounts of money in subscriptions.
In recent years there has been much criticism by both academics and universities about the high cost of such subscriptions. In a movement dubbed the Academic Spring, pressure has mounted for journal articles to be made available free of charge – i.e. on open access.
The government too has been concerned that the results of publicly-funded research has been disappearing behind ‘paywalls’ and hence not available free to people outside the universities which subscribe to such journals. Indeed, no single university can afford licences for all the 25,000 peer-reviewed journals currently being published. As a result, the government set up a committee under the chair of Professor Janet Finch to examine alternative ways of making research more accessible. The committee has just published its report.
It advocates an expansion of open-access journals:
The principle that the results of research that has been publicly funded should be freely accessible in the public domain is a compelling one, and fundamentally unanswerable…
Instead of relying on subscription revenues provided by or on behalf of readers, most [open-access journals] charge a fee to authors…before an article is published. Access for readers is then free of charge, immediately on publication, and with very few restrictions on use and re-use.
Under this model, universities would essentially pay to have their academics’ articles published rather than paying to purchase the journal. Alternatively, research councils could fund the publication of articles based on research already funded by them.
Many people go further. They argue that authors ought to be able to have their published research in any journal made freely available, after an embargo period, through their university’s website.
So is the current pricing model the best for encouraging research and for disseminating its findings? Or is open access a better model – and if so, of what form? Or would it discourage publishers and lead, in the end, to less being published or to a less rigorous peer review process? The questions are ones of pricing, incentives, choices and investment – the questions that economists are qualified to consider.
Articles
Open access may require funds to be rationed Times Higher Education, Paul Jump (21/6/12)
Set science free from publishers’ paywalls New Scientist, Stephen Curry (19/6/12)
Scientists must make research an open book Independent, Martin Hickman (18/6/12)
Report calls on government to back open access science BBC News, Pallab Ghosh (19/6/12)
Open access is the future of academic publishing, says Finch report Guardian, Alok Jha (19/6/12)
Open access to science – its implications discussed in UK raport ZME Science (19/6/12)
UK move to ‘open access’ in publishing Phys.Org, Justin Norrie (20/6/12)
Report
Finch Group Report: Overview Research Information Network (June 2012)
Finch Group Report: Executive Summary Research Information Network (June 2012)
Finch Group Report: Full Report Research Information Network (June 2012)
Questions
- Explain the difference between the ‘gold’ and ‘green’ models of open-access journal article publishing?
- What externalities are involved in journal publication? What are the implications of this for socially efficient pricing?
- How could journal publication be made profitable under an open-access system?
- What are the incentive effects for (a) academics and (b) universities of ranking journals? Does the REF, whereby research articles are judged on their own merits, overcome problems of ranking journals?
- Does the existence of journal rankings allow the top journals in each discipline to maintain a position of market power? How is this likely to impact on journal or article pricing?
- How would university finances be affected by a move towards gold open access journals (a) in the short term; (b) in the long term?
- Would it be in universities’ interests to produce their own open-access journals?
World leaders have been meeting in Rio de Janeiro at a United Nations Conference on Sustainable Development. The conference, dubbed ‘Rio+20’, refers back to the first UN Conference on Environment and Development (UNCED) held in Rio 20 years ago in June 1992.
The 1992 conference adopted an Agenda 21. It was “comprehensive plan of action to be taken globally, nationally and locally by organizations of the United Nations System, Governments, and Major Groups in every area in which human impacts on the environment.”
The 2012 conference has looked at progress, or lack of it, on sustainability and what needs to be done. It has focused on two major themes: “how to build a green economy to achieve sustainable development and lift people out of poverty, including support for developing countries that will allow them to find a green path for development; and how to improve international coordination for sustainable development.” Issues examined have included decent jobs, energy, sustainable cities, food security and sustainable agriculture, water, oceans and disaster readiness.
But just what is meant by sustainable development? The conference defines sustainable development as that which meets the needs of the present without compromising the ability of future generations to meet their own needs. “Seen as the guiding principle for long-term global development, sustainable development consists of three pillars: economic development, social development and environmental protection.”
The articles below look at prospects for national and global sustainability. They also look at a new measure of national wealth, the Inclusive Wealth Index (IWI). This index has been developed under the auspices of the International Human Dimensions Programme on Global Environmental Change (IHDP) and published in its Inclusive Wealth Report 2012 (see report links below).
The IWR 2012 was developed on the notion that current economic production indicators such as gross domestic product (GDP) and the Human Development Index (HDI) are insufficient, as they fail to reflect the state of natural resources or ecological conditions, and focus exclusively on the short term, without indicating whether national policies are sustainable.
The IWR 2012 features an index that measures the wealth of nations by looking into a country’s capital assets, including manufactured, human and natural capital, and its corresponding values: the Inclusive Wealth Index (IWI). Results show changes in inclusive wealth from 1990 to 2008, and include a long-term comparison to GDP for an initial group of 20 countries worldwide, which represent 72% of the world GDP and 56% of the global population. (Click on chart for a larger version.)
So will growth in IWI per capita be a better measure of sustainable development than growth in GDP per capita? The articles also consider this issue.
Articles: summit
Rio+20 deal weakens on energy and water pledges BBC News, Richard Black (17/6/12)
Rio+20: Progress on Earth issues ‘too slow’ – UN chief BBC News, Richard Black (20/6/12)
Rio+20 Earth Summit Q&A The Telegraph, Louise Gray (16/5/12)
Rio+20 Earth Summit: campaigners decry final document Guardian, Jonathan Watts and Liz Ford (23/6/12)
A catastrophe if global warming falls off the international agenda Observer, Will Hutton (24/6/12)
Analysis: Rio +20 – Epic Fail The Bureau of Investigative Journalism Brendan Montague (22/6/12)
Articles: IWI
Accounting for natural wealth gains world traction Atlanta Business NewsKaty Daigle (17/6/12) (see alternatively)
New index shows lower growth for major economies Reuters, Nina Chestney (17/6/12)
A New Balance Sheet for Nations: UNU-IHDP and UNEP Launch Sustainability Index that Looks Beyond GDP EcoSeed (20/6/12)
World’s leading economies lag behind in natural capital Firstpost (18/6/12)
Beyond GDP: Experts preview ‘Inclusive Wealth’ index at Planet under Pressure conference EurekAlert, Terry Collins (28/3/12)
New sustainability index created that looks at more than gross domestic product bits of science (17/6/12)
For Sustainability, Go Beyond Gross Domestic Product Scientific AmericanDavid Biello (17/6/12)
Report
Inclusive Wealth Report 2012: Overview IHDP
Inclusive Wealth Report 2012: Summary for Decision-makers IHDP
Inclusive Wealth Report 2012: full report IHDP
Questions
- What progress has been made towards sustainable development over the past 20 years?
- What are the limitations of conferences such as Rio+20 in trying to achieve global action?
- With the current challenges faced by the eurozone and the global economy more generally, is this a good time to be discussing long-term issues of sustainable development?
- Explain how IWI is derived and measured?
- Looking at the chart above, explain the very different positions of countries in the three columns.
- What are the strengths and weaknesses of using growth in IWI compared with using growth in GDP as measures of (a) economic development; (b) economic wellbeing?
Rail companies will be permitted to raise average regulated rail fares next year by 6.2%. Not surprisingly, this has been met with dismay and anger by rail travellers, especially long-distance commuters, who could see their annual season tickets going up by several hundred pounds.
