The Ranting Kraut

19.3.2006 – 27.9.2010

On the need for Road Pricing

Posted by rantingkraut on December 3, 2006

With road pricing again in the news it is time to point out the obvious –not least because politicians and the MSM are so clearly oblivious to it. Most people would accept that road building –in urban areas in particular—has its limits as a solution to congestion. Those with a pro-market orientation will often also be sympathetic towards some form of ‘pay as you drive’ scheme so long as it is efficiently implemented as an alternative to current road and fuel taxing.

The last part of the above paragraph is crucial though: if transport is not to be prohibitively expensive, ‘pay as you drive pricing’ needs to be brought in instead of not alongside existing charges. However, as the telegraph reports, current government plans aim at the latter option.

Reasons for Road Pricing
It is often argued that the cost of motoring needs to increase to raise money for public transport. That’s a lie. The main reason for the tax funding of roads is the free rider argument: in the absence of road charging, roads are a public good, so that without taxation those who don’t pay for usage can’t be excluded from consumption. The main argument for taxing fuel would be the externality argument: according to this, the inflated price for fuel ought to make up for the impact of pollution suffered by people other than the polluter and should capture the effect of congestion which likewise is seen as an effect on other road users.

Externalities are already paid for
The assumed pollution cost is of course entirely arbitrary, not necessarily because it would need to be, but because a simple cost benefit approach to environmental protection is something the current fashion for environmental hysteria doesn’t allow for. Add government’s vested interest of imposing maximum charges where they can’t be avoided and you know why petrol costs what it does. So fuel duties as they are already penalise car drivers for driving gas guzzlers. Road tax and fuel duty more than cover the cost of road building and maintenance and therefore penalise drivers for causing congestion. The only thing they don’t achieve is a peak vs. off-peak variation of the congestion charge. In principle, existing taxes therefore raise funds that could be diverted to public transport.

The problem is that this doesn’t happen. As pointed out on this blog before, by 1998 only about 19% of road and fuel tax receipts were spent on roads and public transport (and the figure hadn’t improved by 2000/2001). The money is there, it just isn’t used –at least not for the right purpose. In a country where public transport is in such a poor state that it would be considered a national embarrassment in any middle ranking development country that is a major problem.

The state of public transport
For all his common ground with Mussolini, Tony Blair has not managed to make the trains run on time. That’s part of the story. The other part is of course that in any system delays will occur, or longer waits will be needed during off-peak hours. So it stands to reason that a place like the UK should have effective, rain proof waiting facilities for a large enough number of passengers. That is rarely the case. While additional trains or improved facilities at train stations and bus stops need additional investment, other inefficiencies may not be very costly to remove.

Many local trains in the UK, for example, have ticket checking facilities at the entrance and exit. This is automated at the London Underground, but is often done manually at other stations. Queuing while a less productive member of staff checks every ticket of everyone in front of you may be funny once. If this is what you face every morning when commuting to work you will probably soon think of a three letter answer: car. It is an odd control system too, since it attempts to maximise the probability of detection at high cost. Of course, the expected cost of fare dodging depends on the value of the fine incurred as well as on the probability of being caught, so a combination of very high fines and occasional spot checks could work just as well and might be cheaper: as detection probabilities fall, the cost of getting caught rises.

One could go on and on about this, but the bottom line is simple: until our urban public transport systems look more like the one in Zürich and less like the one in Grozny people won’t use them if they can avoid it. If the government is serious about improving transport infrastructure it should demonstrate this by using existing road and fuel tax receipts to improve transport networks rather than by imposing yet higher taxes to spend on anything else.

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