Written evidence submitted by Professor Phil Goodwin (editor), with Professor Jillian Anable, Professor Glenn Lyons, Professor Greg Marsden,
and Professor Graham Parkhurst[1]

Personal Statement

We are an informal group of transport professors who have worked separately, together, and with other collaborators, on electric vehicles, carbon targets, and road user charging, on projects commissioned by the Department for Transport and other Government departments, national and international agencies or undertaken as independent research, grant-funded by the UK research councils. Our backgrounds include research at six Universities (UCL, Southampton, Oxford, Aberdeen, Leeds, and UWE), and collaboration with many commercial consultancies, local government bodies and transport firms. Our relevant research ranges from work in 1973 through to 2021, which have informed this evidence. The submission is our collective view, but does not necessarily represent the views of our employers or sponsors.

1. SUMMARY

There has been a long history of discussion of road pricing, a substantial body of evidence on failures to implement their conclusions, and now a smaller but important body of evidence on real schemes in practice. We suggest that the previous discussions have framed the objectives and design of road pricing in a way that is no longer appropriate. New principles, objectives and design are now necessary. We set out our approach to these, in this submission concentrating on road passenger transport where our research has mainly focussed.

The ‘fiscal gap’ is important but it is not the only problem.  The combined effect of a reduction in tax on motor fuel in real terms, and an increasing share of electric vehicles (EVs), will cause an increasing loss of tax revenue. As the use of fossil fuel decreases, so the tax revenue from it will decrease, with political and fairness limits on the possibility to increase tax rates to maintain revenue. Accelerating the switch from petrol and diesel to electricity is important, but the combined effect of reducing tax revenue and increasing cost of support for electric vehicles will create a doubled pressure on Treasury funds – whether that is its intention or not. This is the core of the fiscal problem, but it is not the only, or even the main, policy issue.

Electrification of vehicles on its own is not sufficient, or fast enough, to enable transport to attain zero carbon emissions. Replacement of fossil fuels by electricity or hydrogen to power vehicles is an essential part of meeting carbon targets, but even if it reached 100% very swiftly (i.e., faster than the current government target phase-out date for passenger cars: 2030 for vehicles with an internal combustion engine [ICE] and Hybrid Electric Vehicles [HEVs] and 2035 for Plug-in Hybrid Electric Vehicles [PHEVs]), it will not reduce carbon emissions from transport sufficiently, because of the increasing popularity of larger and heavier[2] ICE cars being purchased in the meantime, and the carbon used in vehicle manufacture, road construction, maintenance, and operations. Fuel substitution will also not reduce emissions fast enough, because carbon being long lasting, the greatest damage is done in the immediate future, the grid is not yet zero emission and the pace of uptake of alternative fuels is limited by the turnover of vehicles. Therefore, a reduction in the vehicle miles travelled is also necessary[3],[4],[5]. Whilst many strategies are now being advanced which contain the necessary very ambitious assumptions about mode shift and demand reduction required to get close to zero carbon, none of them appears credible if electrification allows motoring to become cheaper.

Cheaper motoring by electrical vehicles causes congestion and other problems. As well as the problem of revenue, electrification under the present tax regime would generate a greater rate of traffic growth, with more congestion and other negative impacts, notably health, safety, air quality, accessibility, economic efficiency, accessibility and equity. The extra congestion would also increase the carbon emissions from the ‘legacy’ fossil-fuelled part of the fleet. The new vehicles, and any increased road capacity intended to cope with them, would have high levels of embedded carbon[6]. A growth in autonomous vehicles (whose future is in any case doubtful) would not solve these problems and might increase them.

Road user charging is potentially the most equitable approach to restructuring the costs of travel while meeting societal objectives for all. Systems of charging road users in proportion to their mileage travelled under different conditions would address both the problem of loss of tax revenue, and of the effects of more traffic. Designed properly, they are the only method available of doing so in a way which has the potential of being equitable and having other beneficial effects.

In the absence of policy levers to manage the ongoing environmental, social and economic impacts of electric vehicle use, public investments in lower-carbon infrastructure and operations – rail, bus, and active travel - will be undermined. In the short term, wealthier car owners who can afford new electric vehicles and have off-road parking benefit from the subsidisation of electric cars via car and home charge point grants and company car tax benefits. At the same time, those driving older and more polluting cars are likely to pay more due to the introduction of clean air zone charges (e.g., Birmingham), increased parking charges, and potentially increased fossil fuel taxation in the future. This existing system of subsidies and patchwork of charges is regressive and inequitable.

Road user charging, on the other hand, can be structured in a way that eliminates some of these other charges, and reduces the need for others, by bundling them together in one ‘pay as you go’ charge. It could be implemented in ways that insulate people from unmanageable and sudden price rises such as a large jump in taxes that may occur as fossil fuels become the minority vehicles on the road. Overall, this will reduce the cost of motoring for some and increase it for others, but targeted concessions and exemptions can be used to address cases of unreasonable impacts, and is in line with broader discussions about the transition to a net zero economy[7].

2. RECONCILING CARBON TARGETS AND FISCAL OBJECTIVES WITH OTHER POLICY OBJECTIVES

We acknowledge a key earlier contribution by the Transport Committee. In 2003[8] the Committee published a report on Urban Charging Schemes, and called upon the Government to contribute to a national debate on what was then called ‘Congestion Charging’. The response of the Government of the time (in 2004[9]) followed several previous similar debates, especially in the 1960s and 1990s. The Committee’s 7th Report (2004-5[10]) took as its starting point the premise that existing congestion was intolerable. Its narrative was constructed – as had been the tradition in policy discussions since the 1960s – along the lines that rising congestion in the context of forecasts for high traffic growth was the key problem, but it also emphasised other potential costs and benefits:

“The Department for Transport anticipates a 30 per cent increase in road traffic (compared to 2000 levels) by 2015. Congestion already has a strangle-hold on many of our towns and cities at rush hour and on important parts of the strategic road network. …

We welcome the Government's acknowledgement that although some new road infrastructure may be needed, we cannot simply build our way out of the congestion problems we face. There is a broad consensus that some form of demand management will be necessary as part of a package of measures to improve conditions on the road network. Road pricing has the potential to reduce congestion and to ensure that the price of road transport correctly reflects the wider costs of road use. We welcome the fact that the Secretary of State for Transport is leading the debate. If the cost of the scheme can be brought in line with its benefits, and if the potential impacts on road safety and social inclusion can be minimised, road pricing should be introduced. However, road pricing is not an end in itself: it must contribute to social and economic objectives such as sustaining vibrant, accessible and economically active urban centres.”

All this made sense then, and continues to make sense. Congestion is not the only objective, but it does have importance, as does this earlier recognition that large scale road building to meet growing traffic volumes is not an effective way of addressing congestion. The Committee would be perfectly entitled to draw attention to its advice 16 years ago, as far-sighted and well-judged. It is now right to go further, so that charging for road use can be made relevant and acceptable for the UK today.

The various options for road charging all stem from one proposition: that all road use charges affect demand and raise money, whatever their intention. That remains true. But the traditional discussions focussed on congestion management, or raising money for investment in roads, are simply too narrow in scope for present and future needs. The issues are more urgent, complex, and wider, therefore so too must be the discussion on a new system.

3. NEW DESIGN PRINCIPLES FOR ROAD PRICING WITH MULTIPLE OBJECTIVES

The objectives should now be much broader than the traditional transport focus on reducing congestion or Treasury focus on raising revenue. There will be impacts (deliberately or not) on the primary environmental imperative of reducing life-cycle carbon emissions, and also air quality, health, efficiency, sustainable planning, accessibility and fairness. These impacts may not all necessarily align with policy objectives, but will arise from the strategy and detail of system design and level of charges, and therefore it is essential to determine what impacts would be consistent with wider policy objectives for the different potential options.

It has been apparent for many years that transition to electric vehicles would create fiscal problems if taxed petrol and diesel were replaced by largely untaxed electricity. Our work on this includes studies by Parkhurst and colleagues[11],[12] where the size of the impact was first measured, and more recently by Anable and colleagues[13] who have traced through the effects of cheaper driving by electric vehicles on offsetting the carbon benefits by increased vehicle travel. Thus, while the fiscal gap is an important consideration, it must also contribute to the wider objectives identified above.

The charges should as closely as possible reflect the wider costs imposed on other travellers, citizens, and the economy in general, for example, through the cost of delays and exposure to roadside pollution. This is a necessary condition for pricing to improve economic performance, because if journeys are made whose costs are not met by the travellers and whose benefits are less than the costs they impose on others, then the economy will be weakened, and the costs will have to be met by others who are not responsible for them. This approach is in line with Treasury interest in extending the polluter pays principle to all sectors as it is actively explores new sector-specific carbon taxes.

The charges should be clearly seen to produce benefits. Allocation of revenue between the general purposes of public spending and the specific improvements to transport services should be explicit and transparent. This means a shift in spending towards transport improvements which are themselves consistent with objectives of carbon reduction, improved air quality, reduced congestion, noise and damage, and better quality of life[14], and policy aims including ‘levelling up’ and sustainable economic prosperity. This would be a major improvement on the current hypothecation of Vehicle Excise Duty to solely fund the activities of Highways England[15].

This means that charges will need to be related to mileage driven, distinguished by energy source, size and weight, as well as location and time of day, reflecting particulate emissions, road damage, collision damage, road space requirements, congestion as well as embedded emissions. Charges need to be reinforced by, and be consistent with, the other objectives of regulations on speed, parking, and use of priority sections of road.

Fairness

Design of the charging system should explicitly be applied in a way that enables fairer opportunities for equitable access to activities, goods and services. This relates strongly to better planning and investment in multi-modal transport and universally high-quality and inclusive digital communications to support a reduced need to travel. Where car use is to be made more expensive, the alternatives need to be better and cheaper. Otherwise any new charging system will not be acceptable. The criteria used to determine fairness need to be inclusive of all social and transport-user groups, including motorists as an important voice. There is a tradition in economics that considerations of equity are ‘outside’ the actual calculation of economic costs and benefits, and where important should be handled as a political decision mainly through the taxation system to ensure (as nearly as may be achievable) an ‘ideal’ distribution of income. This is quite invalid in the current discussion for the following reasons.

Transport decisions affect not only the distribution of income for different income groups, but also the distribution of other costs and benefits such as time savings, danger to life, access to services, opportunities for employment, threats to health, etc. These are not fully measured by the economic prices actually charged or included hypothetically in cost benefit analyses.

Equity must be considered not only in relation to income effects, but also on other dimensions[16] where people’s needs and constraints vary – age, gender, area of residence, housing tenure, car access, physical fitness, education and skills, etc. These are often correlated with income or wealth, but never exactly, so the main dimensions of inequality need to be considered in their own right.

It is impossible to identify whether any specific road charging system is equitable (or not) simply by measurement of who pays the road user charge, and how much. Equity is also affected by what the charging revenue is used for. Thus, a scheme with exactly the same charging structure, but all spent on roads, will be completely different from a scheme from which the proceeds are spent on public transport, or walking and cycling, or health, housing, or tax reductions, or paying off a deficit. (Not only an equity effect, but the physical effects on carbon, air quality, overall fiscal impact and congestion etc. will be different in these cases). So equity and impact must be judged by the net effects of the pattern of charging and the pattern of benefits; both equally important[17].

Public acceptability, hypothecation and the use of trials

Public acceptability of pricing evolves and changes. In the research programmes on road charging commissioned by the DfT and others in the 1990s-2000s one recurrent finding was that charging would be more acceptable if the substantial proportion of the revenue was spent on public transport improvements, so that better alternatives would be available in conditions where motoring costs would be increased. Our work on this includes research by Lyons, Goodwin and colleagues[18],[19]. Ringfencing or hypothecation of vehicle excise duty (VED) applied to the roads budget alone is controversial, and less popular overall[20].

This is a dynamic problem not an equilibrium one. Indeed, given the zero rating of battery EVs and lower rate for PHEVs, VED too is a hypothecated revenue-in-decline, which will need to be replaced or foregone, a situation which further emphasises that much more attention should be put on the sequence and timing of implementation, in order to build support. If there is a prolonged period of reducing costs during the electrification process, and then substantial cost increases to tackle the resulting problems, there will be a greater resistance with the argument ‘you required us to transfer to electric vehicles and now you are punishing us’ (as happened on diesel vehicles’ emissions). So new charging principles need to be started early.

When there is doubt about public support, experimental or trial systems should be used to give experience before taking final decisions.

It is principles like these which would enable road user charging to be seen as a consistent part of a holistic transport and planning system, with impacts that contribute to achievement of goals on safety, carbon, efficient mobility and equity rather than undermining them.  Of course, even if the principles are accepted, it is not a trivial task to design the specifics in a way which is practical, sensible, and accepted.

Implications for wider issues of transport investment and policy appraisal

An essential feature of changes in demand analysis, and of forecasts which cannot include pressures like pandemic and Brexit, is that there is very much more uncertainty now that traffic growth is the only trajectory that is possible or desirable. This uncertainty means that the idea that traffic volumes can decline has to be included as a possible, though certainly not inevitable, future, and also that uncertainty itself has to be built into transport scheme appraisal methods[21].

In one respect in particular the Committee’s 2005 report on road pricing made a crucial point that has recently become much more salient.

“A national road pricing system would radically transform the way we pay for road use. As the possibility of a national road pricing system draws closer, the Government must make other transport policy decisions with this potential transformation strongly in mind. The road building programme and road improvement proposals should be appraised against traffic forecasts which take into account the impact of national road pricing on travel behaviour”.

We support this point. We would extend it to include policy appraisal much more broadly. It does not make sense to take decisions which will lock in undesirable patterns of travel for several generations, on the assumption that the current unstable forms of taxation and charging will never be improved. Allowing policy and project appraisal to assess what consequences would follow from a better system of charging, will improve public understanding of the consequences of the present trajectory, and the potential costs and advantages of change.

4. CONCLUSION

We recognise that there seems an essential contradiction in our approach. We are arguing that road user charging needs to have more complex objectives and design, with more dimensions and constraints than have been taken into account previously. At the same time, we are proposing that a new system needs to be implemented swiftly and sensitively. It is inevitable that the new system will not be perfect from day one. That means that the greatest thought needs to be given to an aspect which is rarely given prominence in transport planning, and sometimes not considered at all: the sequence and timing of changes. A new system must be initially as simple as possible: the complications can come later, therefore it must be flexible, and be accompanied by processes for monitoring and revision which are transparent and thought about in advance. Even at the simplest stage, it must not run counter to its objectives.

There are views that the political advantage is in leaving things as they are, or only making the minimum changes that would address the short-term problems, especially at a time of social and economic difficulty in the last year. But times of real crisis highlight the need for real change. Reforms are necessary anyway due to Brexit and the socioeconomic upheaval of COVID. Climate change has the prospect to dwarf even those impacts. Climate policy, economic efficiency and equity now make a strong case that the question should not be about if, but how, we transition to a fairer and more effective way of paying for how we travel.

February 2021

Endnotes