Sam Bowman is an economist.
Two seemingly unrelated facts have put road pricing back onto the political agenda, and could allow the Conservatives to do something that is good for motorists, good for the environment, politically popular, and puts the country’s public finances on a surer footing for the long term. The next Budget – the first Tory budget in a generation to be delivered with a comfortable majority to see it through – is the time to move on it.
The first fact is that driving is becoming increasingly unpleasant and slow. Driving is the most common mode of commuting in the UK, and most people who commute spend an hour in traffic each day. Traffic adds an extra 47 seconds to the average road mile driven on English A-roads, which is about 10 per cent longer than in 2014 and rising.
Although the worst traffic congestion is in cities like London and Edinburgh, commuters who drive to work feel it too. In parts of the country that do not have commuter rail networks (which includes most of the seats that voted Conservative for the first time in a generation in December), long traffic jams on the way to and from work have an enormous impact on people’s quality of life – the difference, for some, between being able to see your kids before they go to school or bed and not seeing them.
Governments have long neglected motorists. As Ryan Bourne has pointed out,
“Cars account for almost two-thirds of all transport journeys in England and 78 per cent by distance, vastly exceeding rail (three per cent and 11 per cent) and buses (five per cent and four per cent). To put it more starkly, the average UK household spends £81 per week on transport, of which over three-quarters goes toward purchasing or running costs of personal vehicles. Rail, bus, and coach fares account for an average weekly sum of £5.80.”
Despite this, over the past decade governments have put off road projects with high benefit-to-cost ratios, of up to £6.80 in value for every £1 spent, in favour of rail projects such as HS2 with estimated benefits of around £1.50 for every pound spent. Bourne also points out that, other than London, the places with the worst traffic delays are the North West, West Midlands, and Yorkshire and Humber – places the Tories need to improve to keep the extra MPs they won in December.
The second fact is that the main way we tax motorists, fuel duty, will become totally inadequate as a way of raising money. At the moment, fuel duty raises £28.4 billion for the Exchequer, 3.5 per cent of total government tax receipts. But since the government is committed to phasing out petrol-driven cars over the next few decades, with all new cars sold required to be electric from 2035, that will lead to an increasingly large hole in the public finances that will need to be filled somehow.
This shift is already starting: one in ten new cars sold in the UK is a hybrid or electric, and as more charging points are rolled out across the country and as electric vehicles continue to fall in price, we should expect that share to rise even without government intervention.
Road pricing would mean moving away from taxing fuel, towards a system where we tax road users according to the congestion, air pollution and CO2 emissions, and road damage they cause. These four ‘bads’ created by driving are borne by the rest of society, and charging for these, rather than the use of fuel per se, would allow us to raise revenues while also making sure that the most destructive and polluting vehicles on the road are the ones that pay the most.
A tax on road congestion would also incentivise drivers who do not need to use the roads during peak hours to drive when it is less busy. This would help to make roads flow even during rush hour, speeding up commutes and giving motorists more time off the road to spend at home before or after work.
Although it’s flawed, the London congestion charge shows the benefits of road pricing to congestion. It reduced congestion by 30 per cent and sped up average traffic speeds by 21 per cent, although it is still likely underpriced. Average road speeds in central London are just 7.4 miles per hour. Singapore, on the other hand, operates a dynamic system where roads are priced in real-time according to demand, and enjoys average rush hour speeds of nearly 20 miles per hour.
Apart from making commuting less unpleasant, this would have knock-on benefits too. As I have argued before, the best way to revitalise towns that have not benefited from the same growth as cities is to plug the residents of those towns into the larger, faster-growing economies near them. The economic benefits that come from access to a large, diversified job market are limited by the time it takes for workers to access those job markets – making commuting faster and more predictable would expand the job options many people have.
It would also make buses a more viable option for many people, since they are so much more efficient than individual cars at driving people around and would be far more reliable in the absence of significant road congestion. This, again, would be particularly beneficial in places without an existing commuter rail network, where people do not have any choice but to drive, but would happily take the bus if it was reliable and quick. The double benefit of this would be to reduce the number of vehicles on the road for other motorists.
Who would bear the burden of this change? If done alongside a phase-out of fuel duty, the average motorist would likely be better off, with more costs shifted to delivery drivers and taxi and Uber drivers than they currently bear. Across the country, drivers of all kinds within cities would probably end up bearing more costs than commuters using A-roads and motorways to get to work.
Given how much congestion currently caused by delivery drivers, in particular, a politically opportunistic government might dub this the ‘Amazon tax’. Any large business, such as supermarkets, that relies on large out-of-town warehouses to supply their retail stores would also pay more.
Although the long-term aim should be to allow road pricing revenues to replace declining fuel duty revenues, there would be surplus revenues, since we cannot move from one system to another overnight and prices should be set to eliminate congestion, not just to target a certain revenue level. Some of those extra revenues could go towards road maintenance – a giant pothole fund, for example – to make sure that road users are getting something back if they are being forced to pay more. Other popular pro-motorist policies, like raising the speed limit on motorways, could be done at the same time to signal the government’s intent to get Britain’s roads flowing again.
The practicalities of implementing road pricing will need to be ironed out. A few of the combined authorities should be allowed to bid to host the pilot schemes to work out things like how much needs to be charged, how often the price of different roads ought to be re-evaluated, what kind of technology ought to be used to track road use (in Singapore, for example, cameras are used to track licence plates and a regular bill is sent to each car owner), and so on.
The Government announcing its intention to move towards a pricing model for funding the roads would be a clear sign that it intends to focus on improving motorists’ lives, and not just fiddle around with railways that only a fraction of the country actually uses. Shifting the burden of road taxes from the average car driver, onto the road users who cause the most congestion and pollution, would be a clear sign that this is a government on the side of motorists up and down the country, and is willing to do something truly bold to improve their lives.