An Integrated Fares Policy for Transport in London *

A common but disputed justification for public transport subsidy is that lower fares will encourage transfer from private vehicles, alleviating the congestion externality. A quantitative method is developed to judge the validity of this ‘second best pricing’ argument and it is applied to the best available evidence on peak and off-peak bus, rail and private car models in Greater London. A total operating subsidy not exceeding £150m per annum may be justified despite low private traveller response to public transport fares. Substantial reallocation of public traffic between times and modes would also be desirable, but current car traffic and subsidy levels seem broadly correct.