Is the Price Right?

Is road pricing the solution to the gridlock on our roads?

Introduction

The Department for Transport have recently announced that, as a means of tackling the growing congestion on Britain’s roads, they are actively investigating a form of road charging using GPS tracking of vehicles, which would partially replace fuel duty, and which would vary the rate of tax according to how congested a road was, in an attempt to use the price mechanism to match supply and demand more closely. Realistically, such a system is not going to be introduced for at least 10 years, but it is now very much on the political agenda.

It should be pointed out that this is something very different from the flat-rate city centre charging introduced in London by Ken Livingstone, and which is on the agenda for some other cities, Edinburgh being the furthest advanced with its plans. This is a crude system that might not damage London too much, but in most other places would be simply a good way of killing city centres. If drivers have to pay a flat rate charge of anything more than a nominal amount, they will simply go elsewhere if they have any choice in the matter. Towns compete for business and few are strong enough to levy such a charge without losing a lot of visitors. Possibly a handful of cities with a very strong tourist trade such as Bath and York could, but if Manchester did it, the Trafford Centre and satellite towns such as Stockport and Bolton would be laughing. And even in Bath and York it would erode their status as regional shopping and employment hubs and increasingly turn them into lifeless tourist attractions.

Let me say that I do not reject the concept of GPS-based road pricing out of hand. However, as this essay explains, its introduction would involve very serious practical difficulties and it would have a range of unintended and often undesirable consequences. I also believe that many of its advocates have as their underlying objective discouraging the use of cars rather than making life easier and fairer for motorists.

Rationing Roadspace

In the short term, the amount of road space is fixed, and in Britain we have many roads that suffer from chronic congestion. The simplest way of rationing the use of the roads is through taxation of road fuel. Although the tax on fuel is extortionately high as a proportion of the base price, it does have an intrinsic fairness, as it is levied in proportion to use of the roads, and allows people to reduce their costs by driving fewer miles, choosing vehicles with lower fuel consumption, and driving more smoothly and economically.

Despite the high percentage tax, road fuel is not expensive in historic terms. A gallon of petrol today, at constant prices, costs much the same as it did twenty years ago, while standards of living have increased. Cars have got bigger and heavier and improvements in economy have been modest. Fuel was little more expensive in money terms in 1992 than it was in 1983, and during the 1990s, the government pursued a policy of attempting to discourage car use by means of the “fuel duty escalator”, which involved increasing the level of duty each year by five or six percentage points above the rate of inflation.

However, this made little difference to traffic levels, as the demand for road travel is very inelastic, because, in the short term, people have little choice as to the journeys they make. However, it became increasingly unpopular in rural areas, as the problem with simply trying to ration road use through fuel duty is that it it really hurts some people before others notice much difference. People in rural areas on average are poorer and do more miles, so it has a double effect on them. This is what lay behind the astonishing Poujadist revolt of the fuel crisis in September 2000, sparked by the fuel price nudging above £4 a gallon in many country areas. Following this, the government have effectively abandoned the policy of rationing roadspace through fuel duty.

It should also be said that there is considerable scope for improving the fuel consumption of the vehicle fleet. Even today, the most economical vehicles in each class can be 20% more fuel-efficient than the least, for similar engine power. People can switch to smaller, more economical vehicles, and also change to diesels, which typically provide a further 25% improvement in miles per gallon. And more expensive fuel would provide a stimulus for manufacturers to develop more fuel-efficient engines, and new engine technologies. So, in the longer-term, high fuel duties may cut fuel usage, but they would not cut road usage to anything like the same extent.

The road-building programme was slashed by the Conservative government in the mid-1990s as a cost-saving measure, and while Labour has restored a handful of schemes they are mainly just small-scale bypasses and infill sections. Large-scale expansion of the road network has effectively ceased, giving us in most places a finite amount of road capacity (however, see note § below).

We are left with a policy that is effectively rationing by congestion. Up to a point, this is self-regulating, as if people find the level of congestion to be intolerable, they will change their travel patterns. But that is not always easy, as public transport alternatives are often not available, and people have to live where the jobs are. Some journeys, such as that between Manchester and London, cannot reliably be accomplished at any time on weekdays between 7 am and 7 pm, as some congestion will almost inevitably be encountered at one or more points on the route. So, on a daily basis, many people, and many goods vehicles, have to endure chronic congestion that would have been thought unacceptable twenty or thirty years ago. This is extremely wasteful in economic terms and has a severe effect on many people’s quality of life. There must be a better way of doing it.

Road pricing using GPS location attempts to remedy the drawbacks of rationing by congestion, or rationing by fuel price, by charging more where the demand exceeds the supply of roadspace. It is proposed that every vehicle should be fitted with a transponder which recorded all movements and sent the registered keeper a monthly bill based on their usage of the roads.

Practical Difficulties

Inevitably there would be a number of practical problems involved in such a scheme, These are not necessarily reasons not to do it, but they would have to be overcome before it could be implemented.

• There would be a large expense involved in fitting the necessary equipment to the vehicle fleet. For new vehicles, it could be included in the price, but who would bear the cost for existing vehicles?
• Would classic preserved vehicles that only did a few hundred miles a year be exempt?
• Would motorcycles, which do not in general cause congestion, be included? If they were included, surely they should have a differential, lower rate. But would the government want to encourage motorcycling, when it is much more dangerous than car travel?
• How would buses, and the varying different sizes of goods vehicles, be taxed?
• How could taxi fares take into account the varying levels of charge that might be encountered on any given journey? That would require an instant readout of the charge levied.
• How could car rental companies ensure that all charges were correctly passed on to hirers? A monthly bill would not suffice for that.
• The scheme would be extremely complex to administer, and require all drivers to be given a monthly bill, which would then have to be followed up it they didn’t pay. Many people who drive entirely legitimately don’t have bank accounts. Many others object on principle to direct debits. What would be the penalties for non-payment? These objections could to some extent be overcome by having a prepayment option, but that would bring problems of its own.
• Who would warrant the operation of the in-car equipment? What would happen if it failed? How much grace period would drivers be allowed before they had to have it repaired, and would they be required to pay for repairs? How could the equipment be made tamper-proof?
• If 10% of the cars on the road are currently untaxed and uninsured, as is often reckoned, how can road pricing be remotely waterproof? It would give a further incentive to keep vehicles out of sight of the government.
• There would inevitably be a clamour for exemptions from groups such as the police, fire services and medical staff.
• Foreign visitors would escape the charge, as indeed they will escape London congestion charging. In the mainland UK this is not a great problem, as the volumes are not very great, but in Northern Ireland a substantial proportion of traffic comes from the Republic. Foreign trucks used in the UK could be required to register for the charge, but this isn’t practical for tourist cars. This factor would make such a scheme unworkable if a country such as Belgium tried to implement it in isolation.

Taxation Policy

Even if the practicalities could be sorted out, the scheme also has significant implications in terms of taxation policy.

• Raising revenue through taxation is one thing, influencing behaviour in a dynamic way is something else entirely. It must be questioned how effective an official body would be in setting charges to reflect demand in specific locations. Civil servants are not noted for being market-responsive, and the mechanism for varying charges would probably be slow to react to changes in traffic patterns and development on the ground.

• While I would not envisage local authorities being given the responsibility for setting charges in their areas, it is easy to imagine them lobbying the government for reduced charges in specific areas to encourage business, which could conflict with the overall objectives of the scheme.

Effect on Behaviour

Most rush hour travel is not discretionary, so costs would have to rise dramatically to change people’s behaviour. Up to a point, people would just knuckle down and put up with it. People don’t choose to drive on congested roads, they do it because they have no option but to do so. Indeed, it’s probably the case that the more congested a road, the less discretion people have about whether they need to be in that particular place at that particular time.

Road pricing will only have a disincentive effect if it is highly visible and easily understood. As with telephone calls, people may just tend to get a bill each month and not go into it too deeply unless it’s much more than they expect. Ideally, the charging structure should be fairly simple, with a limited number of bands and an in-car display to show what you’re paying at any given time. If there were many bands, and use of a road could be charged at several different rates depending on the time of day, it would become too complex for people to understand.

It could encourage employers to allow people to work more flexible hours, so they could move their commuting outside the peak times. This would stretch out rush hours, so we might have four hours of crawling rather than two of gridlock.

In the longer term, people would take the level of road pricing into account when choosing where to live and work. But they will only choose to use public transport if it provides an effective alternative, which for most journeys it doesn’t and never will. “What’s the road charge?” will be the key question, not “Is there a bus?” And the increasingly volatile nature of employment means that people tend to choose somewhere to live where they can commute to many places reasonably easily, not to one place very easily. Choosing a house because it’s down the railway line from your work was only a sensible option in the days of jobs for life.

Unintended Consequences

No scheme can be implemented in isolation, and new laws always have wider implications, which are often not foreseen. If you push the jelly into the string bag at one point, it will pop out somewhere else, which may not be where you expected. GPS road pricing would not deter car travel per se, it would simply tend to reallocate it, which is perhaps not sufficiently appreciated by some of its advocates. It would in fact encourage driving on roads and at times where the charge is low. In practice, what it probably would do is alleviate the very worst congestion, but spread it out over more roads, and more times.

By charging less for driving on uncongested roads, road pricing would encourage development and economic activity to spread out, thus going against current planning policy which seeks to promote development on brownfield sites. It could well be cheaper for someone living on the outskirts of Manchester to drive to a retail park on the outskirts of Liverpool than to drive a quarter the distance into the centre of his own city.

By reducing fuel duty, it will reduce the incentive to buy more economical cars, thus potentially increasing emissions. The congestion charge could of course be “loaded” to penalise larger engined vehicles, but that is cruder and less efficient than simply putting it on fuel duty, and adds another layer of complexity.

The urban bias of road pricing, together with the fuel duty reduction, will in effect discriminate against the urban poor in favour of the rural rich. Owners of gas guzzling cars in rural areas would benefit most, which surely cannot be what the government intends. It is a fallacy to assume that the poor don’t have cars, because in practice most of the working poor do. Those who don’t are the unemployable and benefit-dependent. They are much more likely to have to do shift work in locations and at times where public transport is unavailable. Studies have shown that working-class people would be much more reluctant to give up their cars than the middle classes, who are far less likely to do shift work, and more likely to work in city-centre offices.

A large proportion of road mileage is done either by company car drivers, or by people driving on business. It would be very likely that companies would simply just pick up the tab for their company car drivers, removing the disincentive effect for many high-mileage drivers. Trying to unpick a detailed bill between private and business use would be more trouble than it was worth. The tax implications of this would need to be considered carefully. And drivers themselves would not have to pay for “true” business travel as opposed to commuting. The administrative burden on business could be one of the major practical stumbling blocks to implementation.

The Wider Context

It is claimed that a road pricing scheme could be introduced in a revenue-neutral way, but it is very hard to believe this. At the very least, the considerable costs of setting up and running the system would inevitably be funded from the revenue it generated. And, given the enthusiasm of governments in the past to raise money from road users in every way they can get away with, there must be a strong probability that it would be used as a mechanism to extract ever more money. If people complained, they would simply be told that it was their choice whether they paid it or not. Particularly if, in practice, road pricing did not prevent congestion, there would be a good excuse for jacking the price up.

In reality we would probably end up with a situation comparable to council tax where the charge ratchets up above the rate of inflation every year while the quality of the services provided steadily deteriorates over time. Why is it that my council tax goes up by at least 6% every year and yet the roads are littered with potholes, the streets are full of litter, the schools are falling apart, the parks are vandalised wastelands and all the public toilets have been shut down? What do they spend the money on - apart, of course, from road humps?

Some commentators have described road pricing as a free market solution to congestion on the roads. But of course it is nothing of the kind - it is merely a mechanism for rationing a resource that has been made artificially scarce. In a real free market system, an excess of demand over supply not only increases prices, but also encourages bringing more resources into operation. New roads could be profitably built to take up the suppressed demand. However, there is no suggestion that the scheme will even include any incentive for highway authorities to maintain the roads properly, let alone to increase capacity in line with demand.

There are also serious human rights implications in the government having a database recording the precise details of all vehicle movements. Even if you believe you have nothing to fear, it is a worrying step towards the Big Brother society. It would be only too easy to trawl the database for patterns of vehicle use that were suspicious or indeed simply politically incorrect. Do we really want the government to know precisely where we have been, and when? This is not just an issue of practicality, it is an issue of the kind of society we want to live in.

Conclusions

Having looked at the issues, it is hard to see GPS road pricing being a workable system, let alone delivering any worthwhile improvements.

So what is the alternative? Doing nothing? Well, up a point, yes.

In recent years, the growth in road traffic has dramatically slowed, even in 2001 when fuel prices have fallen and the railways have been in post-Hatfield crisis. This suggests that there is a natural limit to demand, and that the levels of congestion regularly suffered now are acting as a regulating factor.

In the centres of large cities, we have to accept congestion as a fact of life. They were never designed with the car in mind, and we aren’t going to build the networks of urban motorways that were envisaged in the 1960s. If local authorities wish to deter people from visiting city centres by limiting parking and imposing city-centre road charges, that’s up to them, but they run the risk of killing the goose that laid the golden eggs. However, local authorities should be prevented from deliberately creating congestion by reducing road capacity.

In some locations, properly targeted public transport schemes on busy corridors (preferably off-street LRT rather than bus based) can make a difference. But across-the-board subsidies to public transport are just pouring money down the drain. The reasons people don’t use public transport are in general ones of quality and reliability, and that it doesn’t go where and when they want to do, not that it’s too expensive.

The trunk road network should be expanded so that no regular congestion is experienced on long-distance flows. The land take for this would be surprisingly small, and virtually all of low-grade land rather than SSSI’s. The demand for trunk roads is not infinite and many (M50, M69, M180, M6/A74(M) north of Kendal) are still well below capacity and never congested.

Before too long, population growth in the UK is predicted to tail off and eventually reverse. The proportion of the population who are economically active will decline. The oft-heralded teleworking revolution will eventually happen. More and more people are working non-traditional hours rather than something approximating to 9 to 5. In recent years there has also been a noticeable fall-off in the numbers of people under 25 learning to drive - no doubt partly due to increased insurance costs - which eventually will have an impact on traffic levels. Some of these people, if they find they can manage without a car, may end up never learning to drive at all.

All of these factors will eventually combine to turn the congestion tide, and in 2050 we may well look back and wonder what all the fuss was about.

§ Note - “We Can’t Build Our Way Out of Congestion”

It’s often said that we can’t relieve congestion by building new roads, but that isn’t really true. Many new towns with road networks built in the heyday of road building in the 60s and 70s suffer little or no congestion, and where it does occur it is often as a result of tampering with the original design. However, building our way out of congestion would require not only new roads but a much more dispersed development pattern with city hubs being downgraded, and a lot of farmland built on. That may be politically unachievable, but that doesn’t mean it’s physically impossible.

And much of the congestion that occurs on interurban trunk roads (as opposed to that in big cities in the rush hour) could be eliminated by a targeted program of roadbuilding and junction improvements that would take up surprisingly little space. I can think of numerous locations where a simple filter lane could eliminate a regular five-minute queue.

The demand for road travel isn’t infinite, and now that the vast majority of adults have driving licences - over 85% in the 30-49 age group - and most households have the use of a car, the scope for further expansion must be limited. In recent years, forecasts of road traffic growth have proved exaggerated, and most of the future growth in the numbers of licence holders will come amongst female pensioners, who by definition will not be doing much travel in the rush hour.

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