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Transport secretary lays out plans to reform funding and reduce fare rises ahead of report on curbing rail industry’s costs An overhaul of rail industry costs could end inflation-busting fare increases, with shorter off-peak trains and the transfer of rural rail lines to local authorities, according to the transport secretary. Philip Hammond said above-inflation fare rises could disappear within four years if reforms set out on Thursday in an independent report are implemented. But he ruled out fare cuts as he warned that the £5.2bn-a-year state subsidy for the “relatively small” and “better off” proportion of the population that use trains is unsustainable. Overall, farepayers currently spend £6.2bn a year. “In the long term the taxpayer will not be prepared to just continually increase the level of subsidy that they give to the relatively small number of people who ever use trains – something like only 12% of the population. And of course those who use trains tend to be better off anyway,” he said. Hammond spoke to the Guardian in advance of a report on curbing the rail industry’s escalating costs by Sir Roy McNulty, former chair of the Civil Aviation Authority. McNulty will recommend cutting £1bn a year from industry costs by the end of the decade; a review of fares policy; handing control of routes to train operators and considering the removal of conductors. Hammond said lower costs could be good news for passengers from 2014, the last of three successive years of steep fare rises. From January increases in regulated fares such as commuter season tickets and off-peak fares on long-distance routes will be capped at retail price index inflation plus 3% – a rise of at least 8% based on the latest RPI. That could see some fares rise by 13% because Hammond has reinstated a clause that allows rail companies to average out fare increases instead of applying uniform rises. “If we can make the savings that McNulty sets out, we should be able to aspire to seeing fares increasing more in line with general inflation.” But he ruled out the fare cuts that the Liberal Democrats had pledged during the general election. “I don’t think that is a realistic proposition.” The government will announce a fares review on Thursday. Tim O’Toole, former head of London Underground and boss of transport company FirstGroup, will chair a cross-industry group on implementing the reforms. Hammond also paved the way for taking carriages out of service out of rush hour, a suggestion blocked by his Labour predecessors. “What’s the point in running empty trains around the country? In some parts of the network carriages could be taken off in off-peak. Shorter trains are a possibility.” Hammond stressed that peak services will not be cut, with the network already struggling to accommodate record demand that saw 1.3 billion passenger journeys last year. McNulty will avoid echoing the Beeching report of 1963 that resulted in the closure of more than 8,000 miles of track and will not recommend cuts in heavily subsidised rural lines. But the report is expected to lay bare the cost of supporting such services. Hammond said responsibility for those lines could be devolved to local authorities. “There could be a bigger role for local authorities with budgets being devolved so the provision of local transport is made on a local basis.”He warned unions that industrial action related to the reforms would give “succour” to those calling for legislation to curb strikes, including London mayor Boris Johnson. Outdated working practices had to be eliminated from the industry, with taxpayers and farepayers benefitting from the savings rather than employees. “Every time something changes on the railway the unions try to make it a bargaining tool for more money,” he said. Bob Crow, RMT general secretary, said the main cause of inefficiency was a fragmented system that divided responsibility between government-backed Network Rail, which owns the tracks and stations, and 17 franchise owners who operate services under Department for Transport contracts. “Attacking staff, ticket offices and jacking up fares, while the train operators are handed gold-plated franchises, is just an escalation of all the worst practices of privatisation,” Crow said. The shadow transport secretary, Maria Eagle, said handing control of routes to train operators would destabilise the industry. “We do need to look at taking costs out of the industry but yet more fragmentation isn’t the answer,” she said. Rail transport Transport policy Transport Conservatives Liberal-Conservative coalition Dan Milmo guardian.co.uk