Road pricing; a question of when, not if?

By Matt Finch, ECIU Business and Economics Analyst

Falling fuel duty revenue has been highlighted as an - or possibly the - most important issue to do with the transition to electric vehicles (EVs). Worries about this within the Treasury  - which obviously has a lot of power within Government - could, through its policies, speed up or slow down EV uptake in this country, which then further speeds up or slows down our efforts to tackle air pollution and climate change caused by transport emissions.

HM-Treasury-entrance-sign-by-HM-Treasury

The Chancellor faces the prospect of losing billions of pounds in fuel duty. Image: HM Treasury, creative commons licence

Regardless of worries though, the direction of travel on this is clear, and EVs will come to dominate passenger transport in the UK. This directly impacts fuel duty receipts: should the Chancellor decide not to ‘fix’ the fuel duty escalator (it’s been stuck at the same level since March 2011) then receipts are estimated to be £17 billion in 2030, down from about £28 billion today. Therefore, the question is not “if” fuel duty needs replacing, it’s “when”, and “how”.

GPS Pricing

Road pricing is one obvious answer, but any new scheme would take at least 5 years - and probably longer - to implement. Following ECIU’s last blog on this topic there has been more interest in road pricing, and in one particular version of it. The Association for Consultancy and Engineering, a corporate membership body for the engineering sector, published a report specifically calling for ‘dynamic road user pricing’. It said:

“The introduction of a new road taxation model creates endless opportunities to influence how vehicles use the road network, by structuring charges based on the vehicle’s location, the time of day or congestion on the network, CO2 emissions and even the user’s financial situation (i.e. if they are a student, pensioner or unemployed)”

GPS pricing (as I will call it, and focus on in this piece) has many benefits, and a few downsides. It involves a GPS responder sending the location of every vehicle every few seconds whilst it is in motion. The roads are then ‘priced’, and the price of the road varies by type of roads, locations, and time of day. By varying the price, the volume of cars on the road should be decreased (or increased) to desired levels. GPS pricing therefore has the ability to tackle head-on congestion, air pollution, greenhouse gas emissions and road safety, whilst replacing the lost revenue from fuel duty. No other road-pricing scheme can tick all these boxes.

Congestion

According to transport data firm Inrix’s 2018 edition of its global traffic scorecard, congestion cost UK drivers an incredible £37 billion in 2017. The UK is the 10th most congested country, and London is the 7th most congested city in the world. In fact, in 2017 drivers in London spent an incredible three days stuck in peak hour congestion. It’s not just a London problem though - drivers in all of the top (bottom?) 25 congested UK cities spent more than a full day (24+ hours) stuck in peak time traffic. It’s not just a big city problem either - Kidderminster, Leamington Spa and Chesterfield all make the top 25.

Congestion is a funny thing though, because it is only caused by one car (although there are usually lots more than this). The road network of every area has a specific capacity (lets say 1000 cars). Any number of cars up to that capacity and the system works fine. Just one car over (ie the 1001st car) and the area becomes congested. Think of a set of traffic lights. If all the cars queueing can get past the lights when they are green, that is not congested. If the end of the queue cannot, that is congested.

So to combat congestion, you only need to combat the excess, or marginal cars, and GPS pricing does that using pounds and pence. Charge a specific amount to drive in a specific area at a specific time, and some drivers will not want to pay. This is adjusting price to demand. Since the supply of roads can not be changed quickly, it is the demand that shifts. The crucial point here is that there is no upper limit on how much could be charged by the system - it depends on drivers' willingness to pay.

In theory road prices could also go negative - if you’re trying to attract drivers to drive at certain times, then the best way would be to pay drivers to do so. In reality, it would mean that the UK’s cities would all have different congestion price rates. Drivers in Birmingham might pay 10p a mile, whilst Londoners might pay £10. Or vice versa. What should happen in all areas though is that congestion is eased to the extent that it ceases to be a problem.

Tackling congestion helps cure a major concern for business: the lack of predictability of travel times, which obviously especially affects logistics and delivery companies. These companies (currently) allow extra time to account for unreliable networks which may cause late delivery. However on days when delays do not happen, drivers get back to base early, but they cannot deliver more goods. This increases delivery charges to the end consumer. This obviously affects a large - and growing -proportion of the population (for example, there are some 8 million Amazon Prime subscribers in the UK now - all of which get free delivery for anything they order).

Tackling congestion is also a way to tackle air pollution. Air pollution spikes are caused by a large volume of cars constantly stopping and starting. Put simply, air pollution costs lives and money. A lot of lives and a lot of money - specifically 40,000 lives and more than £20 billion annually (although it needs to be acknowledged that not all air pollution comes from road traffic).

Fairness, and safety

Perhaps more fundamentally though, implementing GPS pricing would also mean that those who use the roads most pay more than those that don’t. The English strategic road network is vast, but also requires vast amounts of money to maintain it - some £3.1 billion in 2016/17. A lot of this spend is fixed - for instance, over 8000 miles of cuttings and embankments needs regularly pruning, regardless of the volume of traffic on the road. However, some costs are directly caused by both the volume of traffic, and the weight of that traffic. Heavier vehicles damage the road more than light vehicles. And vehicles that drive more miles damage the roads more than those that drive less. GPS pricing could neatly ensure (by adding a multiplier to the price based on weight) that heavier vehicles pay their dues. And all vehicles that are driven more, pay more.

Pothole By Henry Bloomfield

The cost of road maintenance is a growing problem. Image: Henry Bloomfield, creative commons licence

Perhaps the most important effect of GPS pricing would not concern revenue at all though. An incredible 46% of cars on motorways exceeded the speed limit in 2016 (which could suggest perhaps the speed limit is wrong?). There’s no denying that this is a useful revenue source for government (in 2015, the UK’s top 10 ‘highest earning’ cameras racked up £3.2 million in fines issued), but speeding isn’t just about revenue. In 2016 there were 1,792 road accident fatalities in Great Britain. Speeding was a contributory factor in at least 15% of those (and due to the way the stats are collected, could be much more). Implementing a GPS pricing system would be a way to directly reduce the number of annual deaths.

Despite the potential for raising speeding revenue, GPS pricing probably would not bring in much. After all, if a driver is guaranteed to be fined for speeding anywhere at any time, they probably wouldn’t. But still, the 200-odd people that would not be dead every year under a GPS scheme would be very thankful for it (and so would their families, and the many more that would not be injured, and the hospitals whose time would be freed up, and the police forces that could focus on other crimes, and….) This is undoubtedly more important than the loss in revenue from speeding fines, but it should also be remembered that there would also be a cost saving as no cameras would need to be maintained.

There are other avenues that could be explored as well. Just as the system monitors a vehicle when it is speeding, it monitors a vehicle when it is still (and remember, each journey starts from a parking space and ends at a parking space). Could the system extend into covering parking charges? Could it even become the “back-end platform” for the nation's car parks? What would happen to all the data produced? Could/should it be sold, and the revenue be used to help lower taxes? Could the system be sold abroad, bringing in export revenue? GPS pricing is already future-proofed, in that it could very easily be applied to autonomous vehicles. But could/should it also be applied to drones? Helicopters? In fact, any form of transport?

There are some drawbacks though. Any GPS system has understandable privacy issues, and one survey estimates that privacy is very important to drivers: fully one third would not trust anyone with their vehicle data (but these people can’t escape the fact that there are currently some 8300 cameras monitoring traffic in the UK). 

However, there is a halfway house solution that could be implemented.

The 2017 prize-winning report Miles Betteroutlined a distance-based charge that would replace both fuel and vehicle excise duty, but would be collected by insurers. Crucially, this report outlines two models: a no-tech option that means no data is shared except the number of miles the vehicle has been driven in a year, and ‘the telematics upgrade’ that uses GPS. This system has the massive benefit of being a lot simpler to set up than GPS pricing, but it would only have a small effect on solving congestion and air pollution.

Regardless of drawbacks, all of a sudden worries about the missing billions start fading. If GPS pricing were implemented (correctly), then the boost to the economy (and the resulting increase in tax revenues) and the cost savings from elsewhere could dwarf the £28 billion - and of course, the system may well bring in more than £28 billion anyway. Seeing as this will take a few years to actually implement, and a few years before that to discuss, then the time to start discussing is now. Electric vehicle sales are on the rise, and diesel sales are already in freefall, so this problem is not going away.