Published in Ethos Journal, September 2007, pp. 34-36 (PDF)

http://www.ethosjournal.com/topics/transport/item/74-congestion-challenge

Britain’s transport infrastructure is, quite simply, not fit for purpose. Heathrow, as the nation’s most important air travel hub, can only be described as inadequate. While all other major European airports have increased their capacity, it took more than two decades just to plan the new Terminal five and a third runway is nowhere in sight.

Ground transport on Britain’s roads and rails is equally substandard. In no other European country can one find fewer roads per person. On average, for every Briton there are six metres of road. Even in the much more densely populated Netherlands, and in Japan, they have seven and nine metres per person respectively.

Britain is number one in one international league table: congestion. Statistics show that on every kilometre of Britain’s road network more than 1.6m passenger kilometres are travelled every year – more than twice the European average.

Britain’s rail network fares no better. British railway tracks are among the least electrified in Europe, and while high-speed rail networks have been in operation in countries such as Japan and Germany for decades, the UK has only just introduced such trains. And, when it comes to its public transport infrastructure, Britain is no match for its international rivals. The London Underground is notoriously unreliable and overcrowded on many of its lines. Yet, season tickets are the most expensive of any capital city.

Clearly the UK’s transport network is unable to meet the needs of a modern country. In fact, it has become one of the bottlenecks of the economy. The government-commissioned Eddington Report came to the conclusion that 13% of traffic would be subject to start-stop conditions by 2025 if the transport system was left unchecked. The Economist Intelligence Unit also warned that the UK risked slipping down the global business environment rankings if its transport infrastructure does not improve.

But there’s an obvious problem with infrastructure upgrades: they cost a lot of money. And with public budgets being stretched already, it is unlikely that such massive expenditure could be undertaken by the public sector alone.

The introduction of road pricing is one answer, and the economic advantages have been known for some time. Concerns about traffic levels and congestion are not new. In the early 1960s, the government commissioned a report on this issue, which was written by Reuben Smeed, an employee of the government’s Road Research Laboratory. His findings were published in 1964 and concluded that road pricing might be a restraint from over-using the roads and could thus be an effective way to reduce congestion. The basic argument of the Smeed Report is still valid: in order to make the best possible use of resources such as the road network, it is necessary to attach a price tag to them.

In this way, the price mechanism can signal which roads are congested and should be used less, and it could also show where there is still spare capacity. Road pricing could also redirect traffic to other routes and other times. In essence, road pricing is a means of making the most efficient use of a scarce resource: our roads.

What road pricing does is, in effect, not dissimilar to the use of pricing in other areas. Whether it is food or furniture, resources are rarely unlimited, and experience shows that market prices are a good way to deal with consumer demands. In other words, the idea behind road pricing is hardly revolutionary. Yet, four decades since Smeed wrote his report, road pricing has not been introduced in Britain. So what has stopped governments from applying these ideas? Public resistance and a perception that road pricing would be unfair if it were simply to be introduced on top of existing motoring taxes are likely answers. In one sense, this public perception is understandable.

Over the past decades, public spending on transport has been significantly below public revenue received through transport taxes. Currently, the gap between road taxes and transport spending is around £11bn per year. The most visible element of transport taxation is fuel duty. The UK has among the highest tax rates on petrol and diesel in Europe. With some justification, therefore, road users could argue that most of the existing roads were built a very long time ago and should have been paid for out of their taxes several times already. Charging for these roads would be asking the drivers to pay for them a second – or maybe even a third – time. To make matters worse, if the receipts from road pricing went straight to the Treasury, it would be seen as just another tax and as such would be resented, and quite understandably so. It is this kind of thinking that explains why campaigners found it so easy to mobilise more than 1.8m people to sign a petition against road pricing on the number 10 website.

But transferring all receipts from road pricing is in fact not the only option, and the alternatives actually promise a much greater public acceptance of charging schemes. In a recent opinion poll, only 7% supported road pricing if the money went to the Treasury, but support rose to 55% if it was used to improve public transport. It is very much a question of what kind of deal the population is being offered. The fact is that UK motorists have long been paying tolls to drive on bridges, in tunnels and along the M6 toll road. The difference between these and other roads lies in people’s perceptions; certain bridges and tunnels are sufficiently unique forms of road; and the M6 toll has a free alternative, so people will tolerate being charged. Simply adding general road-user fees to the existing tax burden will not do.

So, we need to improve our transport system; the positive economic effects of road-user charging are beyond dispute; and the public would support road pricing schemes if the money was used to deliver better infrastructure. The obvious policy recommendation is to solve our transport crisis by using the revenue generated from charging road users. Such a proposal is likely to gain wide public support.

Yet, there is one problem with this idea. Planning and delivering transport infrastructure upgrades can be an extremely lengthy process. If one were to start charging road users now in order to finance improvements in public transport, railway connections or motorways that would materialise only 20 years later, this would clearly jeopardise public support. People could still think they were being charged for something that offered them nothing in return. The prospect of disappearing traffic jams in the very distant future is not very attractive to people who are asked to pay for the privilege of being stuck in a traffic jam today.

Actually, it should be looked at the other way around: only when improvements to the transport infrastructure have been made, will the charging begin. This would make it far easier to explain to road users why they are being charged and what the benefits are to them and the wider public. The link need not be totally direct. A better public transport system, for example, would also reduce road congestion by turning car drivers into bus users.

This time sequence, of first delivering infrastructure and then starting to charge road users, raises an important issue: how to bridge the financial gap. Such bridging constructions are already operational in other areas where they are known as the Private Finance Initiative (PFI). In the past, PFI has been deployed in a large number of UK transport schemes, in both the construction of roads and public transport infrastructure. They are generally regarded as flexible tools when it comes to the transport sector, and private capital has helped to fund a variety of large and small schemes. When it comes to the massive upgrades needed for Britain’s transport infrastructure, these previous experiences could help to design a scheme linking the upgrades to a future road pricing system.

Obviously, there are numerous problems to be considered when it comes to the introduction of an integrated approach to transport infrastructure and road pricing, and in our report ‘Towards Better Transport’ (Richard Wellings and Briar Lipson, Policy Exchange, 2007) we discuss them in detail. For example, any link between the PFI and road pricing has to consider the technical and political risks, while also coming up with robust forecasts for road pricing revenue. The technology to be used for future charging schemes will also have to be carefully chosen.

Fortunately, a lot can be learned from other European countries that have already introduced nationwide charging schemes. In Switzerland, lorries have been tracked and charged since 2001. Germany and Austria have also introduced lorry-road user charges, and in the Netherlands a general road pricing scheme is starting soon.

It’s time to tackle our infrastructure crisis. Our quality of life and our economic prospects depend to a large degree on our willingness to get Britain moving again.

DR OLIVER MARC HARTWICH is chief economist for Policy Exchange (www.policyexchange.org.uk)