The Ranting Kraut

19.3.2006 – 27.9.2010

Some Thoughts on Road Pricing and Tory Views on Transport

Posted by rantingkraut on April 16, 2008

Remember, when over one Million people signed a petition against a national road pricing scheme? Since then, road pricing plans have not enjoyed a high profile, but they have never been dropped. Traffic regulation anyway makes regular appearances in the news, so this monthly rant will look at two policy documents: a recent one from Conservative Way Forward and a more dated monograph on road pricing by the institute of economic affairs.

On the 26 February 2008, the daily telegraph reported on a Conservative Way Forward policy document titled “Stop the War against drivers” (pdf). One of the most interesting aspects of this document is not what it says about traffic as such but what it implies about politics in general. Another is how it differs from what one should expect from a Tory approach on road pricing.

Press attention in cases like this tends to focus on policy recommendations – unfortunately, some recommendations coming out of that text are rather daft: Most prominently, its author, Malcom Heymer, recommends that advanced drivers should get higher penalty point limits. The general emphasis on a less prescriptive approach to traffic regulation seems sensible though.

Regulating the roads

At first sight, traffic planning may seem to banal a political topic to merit in depth discussion. Yet, this is the one banality which in one way or another impacts on everybody’s life; it is also one problem area which is simple enough to bring out the systemic failures of top-down planning with unrivalled clarity.

In “Stop the War against drivers”, Heymer elaborates at length on how speed limits initially served as a rough guide to driving conditions and gradually became incorporated into an environment of ever more tightly set and more rigorously enforced speed controls. The effect of this and complementary prescriptive approaches has been to relieve drivers of individual responsibility. Motorists should therefore be expected to drive more absentmindedly adding a new source of risk to the one just reduced.

What is obviously true for traffic planning tends to be true more subtly for social engineering in general terms: gradual reductions in individual responsibility and initiative are destined to encourage irresponsible behaviour –not necessarily in the sense of character deterioration, but simply because most skills atrophy if they don’t get used.

If paternalistic regulation is one example, the declining efficiency of potentially useful measures is another. The reliance on speed limits is one such instance. Recent suggestions for routine alcohol controls are another: drunk driving is already contained at a low level so pushing more resources into enforcement is unlikely to make much of a difference.

A look at the wider policy context reveals that different aspects of social policy are littered with similar examples: Assuring universal access to basic education probably did a lot for social mobility, insisting on 50% university enrolment for each age cohort is unlikely to do the same. X-raying hand luggage for weapons will have improved aviation security but banning nail clippers and toothpaste from planes will probably not produce a similar improvement.

A market for roads?

Heymer’s observations on the consequences of excessive traffic planning make this text worth reading. More surprising is the casual way in which road pricing is dismissed as an option.

Heymer rejects road user charges on civil liberties grounds, because it is bound to increase the overall road tax burden and because it is likely to be ineffective at cutting congestion. Demand for road space is driven by income growth, it is not a demand response to an increased supply. This matters, since the UK is badly endowed with roads compared to other countries at similar per capita income levels.

This conclusion is not necessarily what should be expected from a conservative position. Road user charging is –after all—commonly viewed as a market oriented approach and there are arguments in favour that should apply in principle. It is not clear, for example, why a Scottish highlander should pay the same road tax as a Londoner. It also seems plausible, that higher road tax income could in principle fund more extensive road building in high density areas where there is more demand for road space.

Pricing our Roads

The case for road user charging is made in an institute of economic affairs monograph on the topic: Glaister, Stephen and Daniel Graham (2004) “Pricing our Roads: Vision and Reality“. The authors have been involved in advising the government on this topic and the monograph surveys their research results.

Glaister and Graham confirm the causal relationship between economic growth and rising demand for road space. They also point to the widening discrepancy between transport taxes and related spending. In this respect, road user charging could help if the receipts were hypothecated for transport spending as is the case with the London congestion charge. (On the downside, this study also points out that the administration costs of the London congestion charge absorb over half the revenue raised.)

So, road user charging could in principle help establish a link between road space demand and funds available for transport improvement. This leaves the question, whether the overall transport tax burden would need to increase.

According to Glaister and Graham this largely depends on the magnitude of the environmental component of the road usage charge. If this environmental charge is low, then a mainly congestion charge based system should distribute the burden of transport tax from thinly populated areas to more densely populated ones while the overall amount of transport tax receipts ought to fall. As the environmental tax component is increased, the overall transport tax burden will rise eventually.

It is also important to consider some of the limitations of this study. Glaister and Graham apply their model results to traffic data for the year 2000 and point out repeatedly that large benefits from road usage charging are confined to the most congested areas. The case for a national charging scheme is weakened by this observation.

Any model based study has to involve some simplifications and this study is no exception. Yet, one of the main problems with Glaister and Graham’s approach seems to lie in the way they approach externalities.

everything is negative

In economics, the term externality refers to an effect whose impact is not reflected in the market price. Externalities can be positive or negative in principle: pollution from cars is a negative externality since it affects anyone who breathes the polluted air and does not get compensated for the air quality deterioration. Congestion imposes a negative externality on all other road users.

A classic example for a positive externality is the case of a beekeeper whose bees pollinate surrounding orchards and thus add value to them. In the present context, an efficient transport system allows workers to travel to the place of employment where their skills are used most effectively. Part of the efficiency gain is internalised through higher wages or profits, but the general availability of a wide array of highly developed labour skills in a given geographical area can be seen as a positive externality that makes the location in question more attractive to business. Transport externalities have positive aspects (mobility) as well as negative ones (congestion and pollution). Which of the two aspects prevails is not clear a priori.

Glaister and Graham present transport externalities as purely negative. This is the right thing to do if the intention is to model those negative externalities in isolation, but this is not what the authors set out to do. They aim to estimate the private and social cost of transport and then calculate the cost increase required to bring private and social costs into line. If possible positive externalities are ignored, the desirable cost of motoring is bound to be overestimated.

Not a market driven approach

It should be clear by now, that road pricing, as considered in practice, is a far cry from emulating a competitive market. Such a market is not exhaustively defined by flexible pricing, but requires realistic entry possibilities for new and competing suppliers of transport alternatives. So long as it is not realistically possible for independent competitors to supply cheaper or better alternatives to state owned roads, there will simply be no competitive market in roads.

The closest road pricing comes to a market model, is therefore monopolistic competition –if various public transport alternatives are seen as potentially competing products. If a profit seeking monopolist engages in more sophisticated pricing, he will do so in order to extract greater revenue from consumers. In doing so, a monopolist will supply less output than providers in a competitive market would [1].

It is for this reason that hypothecation is necessary to ensure that congestion charging receipts are directed to improving transport services. If such an arrangement were to work more efficiently than in the case of the London congestion charge, it would still be a political decision, not a market outcome.

Conclusion

Congestion charging then should correctly be classed as a more sophisticated approach to planning rather than as a market driven policy. This classification itself is of course no reason for either accepting or rejecting it.

The main reasons for rejecting any congestion charging scheme are twofold:

1. The civil liberties argument is simple but powerful in this context: The government is obsessed with surveillance and control while being spectacularly inept at safeguarding data. Each of these, the government’s totalitarian ambitions and its tendency to leak data should in itself be sufficient to reject congestion charging in the absence of a complementary implementation of countervailing safeguards.

2. Road users are charged excessively as it is, with very little of the appropriated funds being directed into improving transport facilities. This state of affairs provides a moral case against yet higher charges.

There is a further reason to specifically reject a national charging scheme: the available research shows that large benefits from congestion charging are confined to the local impact on the most congested areas.

[1] It is a standard result of Microeconomic theory that monopolists supply less than suppliers in a perfectly competitive market. Of course, the predicted lower supply does not follow from the profit motive as such.

2 Responses to “Some Thoughts on Road Pricing and Tory Views on Transport”

  1. Stephen Glaister said

    This is an interesting and thoughtful piece. You may be interested to look at “Roads and Reality” at

    http://www.racfoundation.org/files/Main%20document.pdf

    This is an account of more recent research (November 2007) and considers the situation as it might look in 2045 with and without road pricing and with and without road capacity investment.

    In the case of road pricing we REPLACE fuel duties with local congestion charges, externality charges including a carbon charge. Some people would pay more but others would pay less.

    Your point about positive externalities is fair: there is current research by Dan Graham and others to attempt to quantify “agglomeration economies” which are one example.

  2. […] given the cost of operating the London congestion charge, even the treasury may be […]

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