RAIL passengers face fare increases of more than 15 per cent above inflation by the end of the decade as the Government tries to cut the soaring subsidy bill for running the railways.

The Strategic Rail Authority (SRA) is quietly sounding out train companies about the consequences of substantial fare increases. The shortlisted bidders for the giant “Integrated Kent” franchise have been ordered to consider “a fares regime that allows tickets to be priced at RPI [inflation] plus 3 per cent for the first five years of the franchise”.

The bidders for the lucrative East Coast franchise, one of the few to pay a premium to the SRA rather than receive a subsidy, have been told that they will need to pay up to £100 million a year to secure the contract.

The franchise paid a premium of only £25 million last year and fares are likely to rise sharply to help to make up the extra £75 million.

The Rail Passengers Council (RPC) has previously argued strongly that fares should not rise above inflation until there are big improvements in punctuality. Almost one in five trains ran late last year. But even the RPC has begun to acknowledge that rail fares will have to rise to reduce the burden on the taxpayer.

The taxpayer will contribute £5 billion to the railways this year, or more than £200 for every household. Subsidy has more than tripled in real terms since British Rail was privatised ten years ago.

Ministers are demanding that the industry reduces its costs but they also want passengers to pay more towards the true cost of their journeys.

Last year, passengers paid only 45 per cent of the cost of railways, with the taxpayer covering the remainder.

Before the Hatfield crash of October 2000, passengers paid 75 per cent and the taxpayer 25 per cent. But costs have climbed since the crash and, even under the most optimistic forecasts, the annual subsidy bill will remain well over £3 billion by 2010.

In London and the South East, fares have barely kept pace with inflation in the past decade. Season tickets became progressively cheaper in real terms until 2003 and since then have been increasing by only 1 per cent above inflation.

Inter-city train companies have taken advantage of their greater freedom on fares to push prices up by 20 per cent in real terms since 1995.

Anthony Smith, the RPC’s director, said: “To quote Richard Bowker [the former chairman of the SRA], there are only two sources of income for the rail industry: fares and taxation.

“If the increase is purchasing a more reliable service and new trains, then I think passengers will be prepared to pay a bit more.”

Mr Smith said that big increases were unlikely to be announced until after the general election. But he added: “I expect price will be used as a tool to prevent severe overcrowding on a network which is failing to grow to accommodate rising demand.”

More than a billion train journeys were made last year, the highest number since 1959. The network was almost twice as large in the 1950s and many of the surviving lines are now more intensively used than at any time in railway history.

The Railway Forum, an industry lobby group, accused the Government of trying to conceal its intentions by getting train companies to calculate the impact of fare increases.

Adrian Lyons, the forum’s director-general, said: “They are trying to put the onus on the industry and make us appear greedy when the department’s own economists could have worked out the effect of putting up fares.”

Mr Lyons said that even increases of 15 per cent would reduce the industry’s subsidy bill by only a few hundred million pounds a year: “If the Government wants to claw back an extra billion or more from passengers, then we would have to see far bigger increases. Instead, they could change the system of regulating fares to give train companies greater freedom to attract more passengers at times when trains are less busy.”

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