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ONS inflation data published today prompts fears that government-regulated fares could rise at fastest rate for five years. It is predicted to be about 3.5%.
Regulated fares make up almost half of all tickets and include season tickets and standard returns. Fewer than half (47%) of passengers are satisfied with the value for money of train tickets, according to the latest survey by passenger watchdog Transport Focus and successive governments have cut taxpayer funding of the railways and increased the relative contribution of passengers.
Rail unions said that, even as fares rise, rail engineering work is being delayed or cancelled, skilled jobs are being lost and staff are being cut on trains, stations and ticket offices.
They are calling for reduced fares, public ownership and protection of jobs during protests on Tuesday outside railway stations across the country, including in London, Birmingham, Cardiff, Bristol, Glasgow, Manchester and Liverpool.
The Transport Salaried Staffs Association leader, Manuel Cortes, said: “Dick Turpin had the decency to wear a mask when he robbed his passengers. Today train companies, with the government’s blessing, hide behind the retail price index as a method of legitimately fleecing more money from hard-pressed passengers at the start of each new year.”
Mick Whelan, general secretary of train drivers’ union Aslef, said: “After years of austerity, when workers have not achieved pay increases for years at or around inflation, it is unfair that the industry they subsidise creates transport poverty and hurts the communities and industries that they should be supporting.”
Examples of annual season tickets at current prices include: Brighton to London, £4,184; Liverpool to Manchester, £3,044; Worcester to Birmingham, £1,348; and Bath to Bristol, £1,580.
The chief executive of the Campaign for Better Transport, Stephen Joseph, called on the government to use the consumer price index (CPI) measure of inflation to set rail fares. CPI is generally lower than RPI and is used to calculate changes in benefits.

Rail passengers to stage station protests against fare increases
Groups are to protest for two days at stations including King’s Cross and Glasgow Central after fare increase of 2.3% comes into effect.
Joseph said: “This rise will be the highest since 2013, and will leave many commuters struggling to meet the cost of their commute next year.
The transport secretary, Chris Grayling, prompted outrage when he announced just before parliament went into summer recess that plans to electrify many rail routes had been cancelled or downgraded.
(Article adapted from ‘The Guardian’ Tuesday 15th August 2017)

(2) An Action for Rail report released earlier this week revealed the high cost of rail travel for UK commuters.
It found that commuters travelling between Luton and London St Pancras spent 14% of an average wage on a £387 monthly pass.
A monthly pass for a route of a similar length in France cost £61 (or 2.4% of the French average monthly wage), and £62 in Italy (equivalent to 3.1% of the average monthly wage).
A wider sample of rail passes for similar distances reveals a similar trend across a number of other European capitals: even in countries where monthly rail passes cost commuters more than the equivalent of £200, it still made up less than 8% of the average worker’s monthly earnings.
Workers travelling similar distances into Helsinki and Stockholm spend 6.5% of their monthly wage on commuting, while it costs Oslo’s workers 4% of their wages.
The only country in which the cost of train travel approaches that of the UK is Portugal, where low wages and high transport costs can see commuters spending more than 9% of their monthly wage on travel.
(Article adapted from ‘The Guardian’ Friday 6th January 2017)

Section A Questions
In total there are 100 marks available for this question. The marks for each section are given for each part. It is important to answer as fully as possible. Marks will also be awarded for clarity and for the use of correctly labelled diagrams where appropriate.

(1) According to the articles, how does the cost of rail travel in the UK compare with other European countries? (8 marks)

(2) Why do you think there is such a difference in the percentage of monthly income spent on rail travel in the UK compared with other European countries mentioned in the article? (8 marks)

(3) Using diagrams to help with your answer, explain how both demand and supply side factors are likely to affect the price of rail tickets in the UK. (16 marks)

(4) To what extent is the concept of elasticity of demand for rail travel a useful tool in analysing how rail companies go about setting ticket prices on various routes?
(16 marks)

(5) What does the evidence from the article suggest about the market structure operating in the rail industry? Justify your answer. (20 marks)

(6) Examine the possible measures which the government might use to reduce the cost of rail travel in the UK including the rail union’s suggestion of re-nationalisation.
(16 marks)

(7) Which of these measures do you think would be the most effective? Explain your reasoning. (16 marks)

Section B

(1) The UK's pay squeeze breaks all sorts of records for all the wrong reasons

There has been nothing like the current wage squeeze in living memory – and there is no immediate prospect of recovery. A deregulated labour market with an abundance of workers available to fill low wage vacancies has altered the UK jobs landscape.

Back in March 2008 the financial markets were in turmoil and the Labour government had been forced to nationalise the troubled bank Northern Rock. Few realised it at the time but the economy had peaked. A deep and brutal recession was about to begin. In that month, the average basic weekly wage, excluding bonuses, was £473.

The recession officially came to an end by late 2009 and after a couple of years of weak and patchy growth; the worst seemed to be over. Activity picked up, unemployment started to come down. Yet more than nine years after the slump of 2008 began wages have still not fully recovered. In fact, according to the Office for National Statistics, they have gone backwards. The average basic weekly wage, adjusted for movements in prices, now stands at £458.

This is a quite staggering performance, which breaks all sorts of records for all the wrong reasons. There has been nothing like the current squeeze on real wages in living memory. The Resolution Foundation, a think-tank that concentrates on the living standards of those on middle and low incomes, says the 2010s are on course to be the worst decade for wage growth since the one that included the Battle of Trafalgar in 1805.

There is certainly no immediate prospect of workers becoming better off. In the past 12 months, wages have grown more slowly than prices. Basic pay in the three months to April 2017 was 0.6% lower than in the same three months of 2016.

The increase in prices is pretty easy to explain. Inflation was artificially low as a result of a temporary collapse in oil prices. The price has subsequently recovered a bit, but the depreciation of the pound since the Brexit referendum has also had the effect of pushing up inflation.

The continued depressed state of wages takes a bit more explaining. For years, the Bank of England has been predicting that the fall in unemployment will make it harder for employers to attract and retain workers, forcing them to offer more generous pay deals. That has simply not happened. In the past year, employment has risen, unemployment has fallen and inflation has started to bite: in past times a combination of factors that would lead to pressure for higher wages. A year ago regular pay was rising by 2.4%; now it is rising by 1.7%.

As John Philpott, who runs the Jobs Economist consultancy, noted: “What’s remarkable is that pay growth is so weak at a time when employment is at joint record rate of 74.8% and unemployment at a 42-year low of 4.6%, driven almost entirely in the latest quarter by relatively strong growth in full-time jobs for employees on permanent contracts. Hard times and near full employment are unusual, highlighting the extent to which a deregulated labour market with an abundance of workers available to fill low wage vacancies has altered the UK jobs landscape.”

Pay curbs in the public sector are a factor but they are not the whole story. Just as in the early 19th century, private sector employers feel no need to pay higher wages. Despite the fall in the jobless total, they can tap into a large pool of unskilled, non-unionised, insecure workers.

(Article adapted from ‘The Guardian’ Wednesday 14 June 2017)

(2) UK productivity falls to pre-crisis level
The productivity of UK workers has dropped back to pre-financial crisis levels, according to official figures. Hourly output fell 0.5% in the first three months of the year, the Office for National Statistics (ONS) said. At the end of 2016, productivity returned to the level seen before the downturn, overturning years of decline which has weighed on wages but it has now slipped back again and is 0.4% below the peak recorded at the end of 2007.
Economists have warned that the UK's productivity continues to lag behind its major trading partners such as the US, France and Germany. ONS head of productivity Philip Wales said: "UK labour productivity growth has struggled since the 2008 economic downturn, and the fall in the first quarter of 2017 brings to an end a recent run of quarters of positive growth."
Today's productivity figures are bad to the point of shocking. A fall of 0.5% in the first three months of the year takes the UK economy's ability to create wealth back below the level of 2007. If an economy cannot create wealth efficiently, then the debates about government spending, public sector pay and austerity become all the harder.

The UK has seen a steady economic recovery since the financial crisis, but it has been helped by longer hours and more people working. Productivity has failed to grow consistently, raising concerns for businesses and policymakers.
Mike Cherry, president of the Federation for Small Businesses, said: "Productivity is being stifled by chronic underinvestment, exacerbated by current unprecedented uncertainty and reflected in sluggish wage growth."

The figures should also act as a "very sharp reminder" that Brexit is not the only challenge facing the UK, according to Ian Brinkley, acting chief economist at the Chartered Institute of Personnel and Development.
He said: "Unless more is done to tackle the nation's low productivity, people's wages and living standards will continue to fall and the UK will be ill-equipped to compete once we do leave the EU." However, other economists said productivity - which is output divided by hours spent producing it - has partly fallen because there are record numbers of people in work.

"We shouldn't forget that the decline in productivity is the flipside of what we could call the remarkable success of the UK labour market," Dr Thijs van Rens, professor of economics at Warwick University, told the BBC.
The ONS said its figures also indicated "striking" differences between the City of London and other parts of the UK. In 2015, output per hour worked in London's financial and insurance industries was about seven times higher than in the lowest productivity regional industries, it said.
(Adapted from BBC’s Kamal Ahmed 5th July 2017)

Section B Questions

In total there are 100 marks available for this question. The marks for each section are given for each part. It is important to answer as fully as possible. Marks will also be awarded for clarity and for the use of correctly labelled diagrams where appropriate.

(1) Explain what the first article is referring to when it talks about a deregulated labour market. (10 marks)

(2) Using appropriate diagrams to help with your answer, explain what you would normally expect to happen when the demand for labour in an economy increases and unemployment falls. (16 marks)

(3) Examine the main causes of the relative decline in real wages in the UK since the peak of 2008. (14 marks)

(4) Explain the link between economic growth, unemployment and wages.
(12 marks)

(5) Giving reasons for your answer, explain why the level of productivity in the UK is lower than the US, France and Germany. (16 marks)

(6) To what extent do you think that the government should be concerned with the level of growth of wages in the UK? Explain your reasoning. (16 marks)

(7) Examine the measures which the government might use to improve UK labour productivity. (16 marks)
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Report 4 years ago
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