Every pound cut from fares is a pound lost for investment

Ken Livingstone's proposal to cut London's fares by five per cent if he wins next May's mayoral election is a populist gambit from an experienced political performer.

The economy has stalled and household incomes are falling, so the promise of lower fares will be a temptation for many.

For readers with a long memory, this is a "back to the future" moment. Red Ken, circa 1982, fought the law lords over his "fares fair" policy.

Subsequently, as Mayor, he offered a number of new concessions. Mr Livingstone has for 30 years been associated with efforts to bring down Tube and bus fares.

But there is a problem. Although the would-be Mayor's team claim to have identified an unexpected reserve of transport cash, Transport for London has seen its grants from government pruned as part of the Coalition's deficit reduction plan.

It is true that, this year, TfL's income is higher than budget while its expenditure is below the budgeted figure. But most of the "surplus" cash is needed to plug the gap left by government cuts. Moreover, even if there were a big chunk of spare cash, it could only be used once.

The five per cent fares cut next year would be followed by a freeze in 2013 and then pegged to inflation thereafter. The initial loss of revenue would be about £125million. But over five or 10 years the sum would be far larger.

As the fare loss rises, so the resources available for spending on trains, signals and buses falls. Every pound taken off fares is a pound not available for investment.

Mr Livingstone will need to fight a battle with the commuter rail companies. Oyster and travelcards set a London-wide fare schedule for virtually all operators and lines. If the Mayor cuts fares, it would be necessary to compensate private train operators for their losses.

In the longer term, it is impossible the government would allow the Mayor of London to reduce the revenues collected by the rail companies. Of course, he would almost certainly relish a tussle with the little-loved private train companies.

Ken Livingstone has created - deliberately - a clear dividing line between himself and Boris Johnson. The incumbent Mayor is committed to a seven to eight per cent fares rise next January, while his opponent would cut them by five per cent the following October. This is a crystal-clear difference for London voters.