Rail fares will be capped at 1 per cent above inflation next year, after original plans for them to go up by 3 per cent plus inflation were scrapped by the Chancellor in the Autumn Statement.
This means that as expected, the train fare increases in the New Year will be reduced by 2 per cent.
Before today's announcement, regulated fares, which include season tickets, had been due to rise by an average of 8 per cent in January 2012 - 3 per cent above the RPI inflation figure.
Train fares: The Chancellor has axed plans for train fares to go up by RPI plus 3 per cent, to RPI plus 1 per cent
But Mr Osborne said an RPI plus 3 per cent rise, introduced by this Government, was 'too much' and that the increase would be limited to RPI plus 1 per cent.
This will mean that the average rise in January will be 6 per cent and that will also be the figure for the Tube and for London buses.
Mr Osborne said the reduction, which will be funded by the Government, would 'help the millions of people who use the trains'.
He said fares were already expensive and had been set to go up well above the inflation rate to pay for the much-needed investment in new rail projects and new trains.Michael Roberts, chief executive of the Association of Train Operating Companies (Atoc) said: 'The Chancellor's positive decision will mean lower-than-expected fare rises for many passengers in January.
'Train companies are working hard to ensure that the change can be implemented in time for the new year."
Stephen Joseph, of the Campaign for Better Transport, said: 'We're delighted that the Government has decided to ease the load on hard-pressed passengers, but rail fares are still a heavy burden, and commuters will face paying hundreds of pounds more for their season tickets in January at a time when they can ill afford it.
'The decision to limit fare hikes mustn't just be a temporary measure to soften the Chancellor's otherwise bad-news statement, but should also apply in 2013 and 2014 as the start of a policy to cut fares and make public transport truly affordable.'
Manuel Cortes, leader of the TSSA rail union, said: 'We always welcome the sinner that repents but in George Osborne's case he plans to go right back to sinning against rail passengers for the next three years from 2013 with big inflation-plus increases.
'Our gut feeling is that he is really more interested in helping Boris (Johnson) beat Ken (Livingstone) for London Mayor next May rather than helping ordinary families, hence his curbing the big increases for one year only.'
Prices were set to be calculated differently in January, with train operators allowed to increase fares by the Retail Price Index (RPI) inflation figure in July – which was 5 per cent – with 3 per cent added on top.
Previously, train firms were only allowed to put one per cent on top of the RPI inflation figure and this is what the Chancellor has decided to change it back to.
It is estimated that this move will cost the Treasury £130m.