Why we should stop using public transport for welfare
Key Takeaways
- Public transport is often used as a tool of welfare for households on low incomes through cheap fares.
- While cheap fares often provide a short-term boost to public transport patronage, they also come with several problems, including a reduction in services and investment, which can lead to a decline in patronage in the medium and longer term.
- A better approach would be to provide direct ‘mobility’ payments to low-income households to meet their transport needs efficiently without compromising investment in public transport whilst developing a fare strategy that optimises transport outcomes.
Next Steps for Transport Leaders
What can you do to push back on demands for using public transport as welfare?
Introduction
Should transport agencies prioritise transport outcomes or equity? Currently, many jurisdictions are pretending to prioritise both through lower or free fares. However, most of the time, governments are putting equity before transport. That is because every dollar, pound or euro spent on transport subsidies to support equity outcomes through lower fares for all is one less dollar available for improving transport, often with longer-term declines in service impacting the transport systems people on low incomes rely on.
However, there is a way to achieve better transport and equity outcomes: targeted financial support instead of lower fares.
The case for public transport as welfare
Public transport is often used as a form of welfare. The argument goes something like this:
- Low-income people need access to transport, so keeping fares low is a good way to support them.
- Keeping fares low reduces car dependency, reducing traffic and increasing public transport usage.
This argument sounds reasonable, so what's not to like? While this policy is effective in the short term, it has several significant problems that make it a bad choice.
The problems with public transport as welfare
Problem 1 - Low fares come at the expense of transport investment
Public transport agencies must find ways to fund low fares. Quick, frequent, and reliable public transport is most effective, attracting more users and delivering better system-wide transport outcomes. Inevitably, the lion's share of low fares funding comes from service provision and asset maintenance and replacement.
Service provision savings usually mean reduced services and/or coverage, so rather than a bus every 15 minutes, there is now a bus every 30 minutes, inevitably reducing patronage.
Meanwhile, the lack of investment in asset maintenance and replacement is often not keenly felt initially, but over time, trains and buses become older and less reliable, and signalling systems and tracks break more often, creating more delays. In other words, the service deteriorates. Again, the consequence is reduced public transport patronage, offsetting one of the original benefits of low fares.
Problem 2 - Low fares are an inefficient and inequitable way of providing welfare.
Providing low fares means everyone gets a subsidy, no matter how rich or poor they are. Consequently, large sums of taxpayers' money go to relatively well-off people.
Low-income people often live in areas with poor public transport, while high-income people live in areas with good public transport. Consequently, low-income people are frequently car-dependent and get little help from a low-fare policy, while high-income people benefit from low fares.
Problem 3 - Public transport as welfare distorts service provision.
Public transport works best when it is focused on providing the best transport outcomes. Attempting to achieve equity by creating a welfare objective inevitably comes at the expense of transport outcomes.
Problem 4 - It creates a welfare and subsidy-first mindset in transport agencies.
One of the challenges for monopoly government transport agencies is to ensure they run efficiently. Unfortunately, this is undermined when public transport is treated as a form of welfare as the default answer to problems with the transport system becomes more government subsidies, even when inefficient.
Problem 5 - Instead of getting people out of cars, it often stops people from walking or cycling.
Plenty of research into cheap or free fare schemes has shown that many people took public transport instead of walking or cycling, not necessarily instead of using the car. In other words, lower fares become a costly way of moderately reducing car use when there are better options for using the funds.
Problem 6 - Getting approval for new public transport infrastructure and services is harder.
When governments are considering new public transport infrastructure and services, they need to consider the upfront capital costs and the ongoing operating costs. If the ongoing operating subsidies required are high because fares are low, getting approval for new public transport becomes more challenging.
A Better Way
So, low-fare policies come with significant problems. However, we still need to find a way of squaring the circle of delivering the best possible transport outcomes and supporting people with low incomes. What should we do instead?
The best thing to do is to provide direct financial transfers to low-income people for mobility. This approach has several advantages:
- It is cost-effective, being targeted at those who most need it.
- It does not prescribe the best form of transport for people to use, giving them the flexibility to decide what works for them.
- If paid as part of existing welfare systems, it is administratively efficient.
In addition, a fares strategy can be developed that is optimised to deliver the best transport outcomes.
These are the policy elements addressed. However, as we all know, there is often a big gap between the best policy and what is politically salient.
The Politics
Transport as welfare has several stakeholders that find it appealing:
- Environmentalists believe it will increase public transport patronage and is better for the environment.
- People concerned with equity believe it helps people on low incomes.
- Public transport users benefit directly from lower fares.
- Drivers think that getting more people on public transport will reduce congestion.
These stakeholders can see how the first-order benefits of cheaper fares help them achieve their objectives. Unfortunately, as with many issues in transport, such as induced demand, they fail to see the second-order effects as public transport services deteriorate, new projects never get off the ground, and patronage falls, wiping out the benefits these stakeholders were trying to achieve.
How can we get better at explaining these second-order effects?
One policy with significant second-order effects that we can learn from is rent control. If there is one policy that economists can agree on, it is that rent control is a bad policy. This broad consensus means that rent control proposals rightly get slammed when proposed by politicians, increasing the political cost of proposing them. It would be good to do something equivalent with low-fare policies, including:
- Gathering evidence and data - to communicate the argument against lower fares.
- Educating influencers, such as journalists, on what the evidence shows and the problems low fares cause.
- Promoting the alternative, direct mobility payments to address equity concerns and investment in public transport to improve services and grow patronage.
- An efficiency drive to free up money to invest in services and increase patronage.
Conclusion
Cheap public transport fares are not a good way to increase patronage or equity. While they may deliver short-term improvements, they worsen public transport services in the long term, leading to lower patronage and equity.
Instead, governments should provide direct financial assistance for mobility to deliver equity outcomes and leave transport to optimise fares and services to deliver the best transport outcomes. This would allow governments to achieve mobility and equity without sacrificing either.
