Written evidence submitted by the Institute of Economic Affairs (EVP0051)

(1) The case for introducing some form of road pricing and the economic, fiscal, environmental and social impacts of doing so:

The theoretical case for road pricing is well known, including productivity gains from reduced congestion and faster journeys, plus improved allocation of infrastructure investment and maintenance spending based on market signals.

In practice, however, any likely road pricing policy would be subject to a high degree of politicisation and capture by special interests. The economic costs would be inflated and the benefits undermined.

In the current political climate, road pricing would almost certainly be deployed to pursue the top-down environmentalist agenda in a further attempt to push lower-income motorists off the roads and onto heavily subsidised public transport. In big cities this agenda is already being ruthlessly pursued via parking charges, cuts to road space and, in London, the Congestion Charge and “low emission zones”. Further road pricing would provide numerous new opportunities for politicians and officials to extend this programme.

The resulting reductions in mobility for lower-income groups (and also small businesses) will limit employment opportunities and tend to have a negative impact on productivity. Higher public transport subsidies would also have negative effects on the wider economy due to the substantial tax bill and associated deadweight losses.

The Treasury is also concerned about the loss of fuel duty revenue as a result of the government’s own policy of imposing a shift to electric vehicles. This makes it likely that road pricing would include a strong element of redistributive taxation, even though the “negative externality” pretext for this will be even weaker as vehicles become quieter and cleaner.

Moreover, in the context of ballooning government debt, the Treasury may be tempted to sell-off prime cuts of the road network in order to raise short-term funds, which in turn would incentivise the creation of a protected and rigged market in order to maximise sale receipts at the expense of road users.

Commercial and bureaucratic special interests would have strong incentives to promote pricing systems with high installation and administration costs – and there is a high chance they would be able to influence the policymaking process at road users’ expense. Again, this would undermine potential gains in economic efficiency. There are numerous well-known examples of both government IT schemes and transport projects running massively overbudget and ending in disaster while special interests cashed in. A government-imposed road pricing scheme threatens to embrace the worst of both worlds.

It is also naïve to think that future governments wouldn’t use road pricing infrastructure to further extend the surveillance state - as has been the case with mobile phones and social media, which are widely used to monitor and persecute individuals who challenge establishment interests.

Finally, the setting of toll levels is likely to become heavily politicised, with rates determined according to political incentives rather than economic efficiency. In simple terms, in many locations prices are likely to be too high as politicians use tolls as a redistributive tax or to pursue other policy agendas. In other places, prices could be too low, resulting in long delays and congestion, because the charges are politically unpopular with key voter groups or influential lobby groups.

The only model likely to avoid these pitfalls would be road pricing based on voluntary exchange outside political control, with private owners (which could include various mutual/community ownership structures) deciding whether, where, when and how to charge users of their infrastructure. However, such a model would face strong resistance from the special interests determined to profit from a state-imposed road pricing system and/or to use it to impose their political agenda on the wider population.

(2) Which particular road pricing or pay-as-you-drive schemes would be most appropriate for the UK context and the practicalities of implementing such schemes?

The main risk is that road pricing becomes heavily politicised and turns into yet another government project disaster, with the costs outweighing the benefits. An incremental, voluntary approach could avoid this by keeping the process outside state control.

The planning system could be liberalised to allow owners to build private roads on their own land (or along agreed wayleaves) without planning permission, and also connect them safely to existing roads (according to fixed rules rather than arbitrary official discretion) and charge tolls however they see fit. In this way, new infrastructure could quickly be built to bypass bottlenecks on the existing network – for example, where local authorities have generated congestion by installing draconian traffic controls.

In August 2014 a businessman in Kelston, Somerset found an unconventional solution to a local road traffic problem: he opened a private toll road. A landslip had closed part of the main road connecting Kelston to Bristol and Bath, forcing drivers to take a long detour, and council repair works turned out be slow. So, Mike Watts, a Kelston resident and himself a commuter to Bath, opened a makeshift road across adjoining fields to bypass the closed section. Kelston Toll Road was access-controlled, with toll booths at both ends. A single trip by car cost £2, with discounts available for frequent users. The council’s response to the undertaking was tellingly ambiguous. It warned residents, in unspecific terms, against the use of the road, but refrained from actively obstructing the project. It was probably wise that Watts opened his road first, and only applied for (retrospective) planning permission later, when people were already accustomed to using the road. Kelston Toll Road passed a basic health and safety inspection, and was covered by public liability insurance, but planning permission was later withheld.

Kelston Toll Road was an anomaly, the only one of its kind in the UK, but a more liberal planning system could enable similar but larger-scale and longer-term initiatives to become widespread, thereby extending road pricing incrementally. This could even include long-distance private trunk roads, perhaps built on land corridors currently used by other transport modes and purchased by entrepreneurs for conversion. If owners were free to set speed limits and to exclude slow moving traffic - i.e. to provide a premium service for drivers - this could help deal with the issue of unfair competition from government roads.

Another voluntary, incremental way to extend road pricing, would be to facilitate the development of proprietary communities, again through liberalisation of the planning system and the restoration of private property rights (for case studies, see The Voluntary City, Independent Institute, 2002). These voluntary communities would retain ownership of their road infrastructure rather than transferring it to the local authority. One benefit would be the freedom to exclude in order to prevent crime and anti-social behaviour, following the “gated community” model commonplace outside Europe. But in some locations such communities could also profit from through roads built as part of the development, perhaps charging tolls to non-residents. The proportion of roads both outside state control and priced would gradually increase if such developments were widely permitted.

(3) The level of public support for road pricing and how the views of the public need to be considered in the development of any road pricing scheme

The general public, and drivers in particular, are well aware that any government road pricing scheme is likely to be used, like fuel duty, as a means of redistributive taxation and in pursuit of various top-down political agendas. They know the bulk of the toll revenues would not be used to improve the road network or to benefit drivers. They also understand the negative implications for privacy under a surveillance state. A top-down, government-imposed road pricing model is therefore likely to face considerable and understandable public opposition, despite any efforts to manufacture consent through the media.

This opposition strengthens the case for adopting an incremental, voluntary approach to road pricing, with its roll out left to non-state owners and outside government control. Motorists would not be forced to use such private infrastructure and the tolls would be in exchange for a service rather than to fund general public spending or to “nudge” drivers into abandoning their cars. A voluntary system thereby avoids the political controversy and the concomitant pitfalls of political meddling undermining economic efficiency.

(4) The lessons to be learned from other countries which are seeking to decarbonise road transport and/or utilise forms of road pricing

Road pricing should be kept separate from climate change policies. It is not possible to calculate a “correct” price for carbon emissions. Any such component of road charges would in practice be an arbitrary political decision and would only confirm motorists’ suspicions that pricing was being introduced to pursue a wider top-down policy agenda.

A rational first step to address climate change would be to stop government policies that subsidise emissions – for example, in agriculture, defence, foreign aid or public transport – but these win-win measures have yet to be implemented.

Beyond this, policies that address emissions equally across different sectors will tend to be less distortionary and less economically damaging than ones targeting a specific sector such as road transport. However, politicisation and special interest lobbying mean that some units of carbon are heavily subsidised, while others are heavily taxed or expensively regulated. If subject to a climate-change element, government-imposed road pricing is likely to exacerbate such discrimination, needlessly adding to the already huge costs of emissions reductions.          

It is notable that high-growth economies, for example in South-East Asia, are allowing rapid growth in road transport, which in turn tends to lower the costs of trade, improve labour mobility, capture economies of scale and deliver agglomeration benefits. Productivity and real incomes are thereby increased.      

This pro-growth strategy is in marked contrast to the post-1990s UK policy of restricting road transport, reducing road space, expanding controls and traffic calming, lowering labour mobility and so on. The key lesson from high-growth countries is that a further expansion of the “war on the motorist” - including if implemented through government-imposed road pricing - is likely to come at a heavy economic cost if it leads to a marked increase in transport costs compared with other policy options.        

February 2021