Friday, 27 January 2012

UK truck road user charging: Consultation document released

As was reported in February 2011, the UK government has decided to introduce a "vignette" system for heavy vehicles, largely so that foreign trucks pay something to use UK roads.   The policy driver behind this comes from extensive lobbying from the Freight Transport Association regarding what it sees as an unfair competitive environment.

The UK has one of the highest rates of diesel tax in the EU, as a result, the UK domestic haulage industry claims that many foreign lorries enter the UK with full tanks of fuel, do business within the country (which under EU law they are entitled to do, as road freight haulage is a service subject to the free trade provisions of the EU treaty) and leave without paying a penny to use the roads (unless they happen to cross one of the small handful of toll roads).

Given UK truck operators pay annual vehicle excise duty (vehicle registration/licensing fees) that vary according to vehicle size (as a very broad proxy for road damage caused by different vehicle types) and diesel tax at £0.5795 per litre (about US$0.91 per litre), this is seen as a considerable disadvantage (notwithstanding that the foreign lorries will pay local registration charges in their country of origin).

In almost all other EU Member States, there are truck tolling or road user charging systems that mean UK operators would pay to use their roads.  In Germany, Austria, the Czech Republic, Slovakia and Poland there are all distance based toll systems on motorways for heavy vehicles, with Belgium and France proceeding to introduce such systems as well.  France, Italy, Spain, Ireland and Portugal all have extensive toll road networks for many of their major motorways.   Belgium, Luxembourg, the Netherlands, Denmark, Romania, Hungary, Bulgaria and Sweden all have vignette systems.

As a result, the UK will introduce a vignette system as well.  A vignette is essentially a pass or permit to use a road network over a set period of days.  The UK Department for Transport has released full details of its plans for public consultation this week.  Below is a summary of the highlights:

Vehicle scope:  All goods vehicles with a maximum Gross Vehicle Weight of at least 12 tonnes
Network scope: All roads in the UK
Type of charge:  Time based charge (vignette) based on pre-purchasing access to UK roads for either 1 day, 1 week, 1 month or 1 year.
Variations by vehicle type:  Vehicles will pay according to seven classifications, based on existing UK Vehicle Excise Duty categories.  These represent size, axle configuration and weight.
Technology:  Automatic Number Plate Recognition.  Unlike most systems in continental Europe (but like Hungary and Romania), the purchase of a vignette will not involve a sticker or paper licence, but be a record of the vehicle's number plate.  This enables enforcement to be matched with enforcement of Vehicle Excise Duty, so that number plate images will be taken at random locations to enable enforcement to be carried out by stopping vehicles or checking them at the border (e.g. Ports and the Eurotunnel rail terminal).

The proposed rates are described below:


It is clear that the rate "per day" reduces considerably for those choosing to drive on UK roads for ever longer periods.  This is fair because it is likely that short term users will be using the network more intensely for that period of time compared to longer term users.  The Department for Transport claims that the charge levels do provide a broad proxy for road damage costs based on the various vehicle types.  Although the table above indicates UK owners can only buy an annual vignette (which is not the case for systems in other countries), they can also buy a six monthly one and the reason is logical.  As the vignette is needed to drive on all roads, a vehicle that is licensed for a year in the UK needs a vignette of that duration to operate on any roads at all.  Vehicles in the UK can also be licensed for six months.

However, it is curious that a foreign vehicle can't pre-purchase a six-monthly product.  This may be an issue with the European Commission, which is scrupulous about ensuring Member States do not act discriminately in how they charge trucks.

However, unlike many other truck charging systems in Europe, this one will have an offsetting reduction in other charges.  Vehicle Excise Duty is to be reduced by around the same amount as the price for the vignette.  It wont be a 100% matched reduction, but 94% of UK vehicles will pay no more, and 4% will pay no more than £50 a year.

Curiously, two systems of sale and administration are proposed.  For UK vehicle owners it will be through the Driver and Vehicle Licensing Agency, an arm of government that already operates the Vehicle Excise Duty scheme.  For foreign owners there will be a private company contracted to provide retail, phone and online sales outlets.

The price is estimated, on average, to represent around £0.05 per mile travelled (US$0.08).  It is estimated to raise a total of £22-£25 (US$34.5-US$39) million per annum from foreign trucks (and £0.5 million from UK ones once the offsetting reduction in vehicle excise duty is taken into account), with annual operating costs of £3-£4.8 (US$4.7-US$7.5) million.

Around 250,000 vehicles in the UK will be eligible to pay the vignette.

All of the revenue expected from the vignette will simply be treated as standard taxation, with no hypothecation for road spending (hypothecation is an anathema to the UK Treasury which likes to treat all government revenue as flexible for any purpose).

The Freight Transport Association supports the move with only a few concerns around detail.

Further details are available in the consultation document here (PDF)
The impact assessment is here, including slightly more details about revenues, costs and economic impacts.

Curiously, but not surprisingly, a distance based charge has been ruled out, but the consultation includes asking whether distance charges would be preferred.  The basis for ruling out the distance charge appears to be cost (and the fact it would raise a lot more revenue from domestic users making offsetting cuts in Vehicle Excise Duty insufficient to fully compensate), but I will have a more detailed look at that before deciding whether to make a submission.

Conclusion

A reasonable approach appears to have been taken, although I am wary of the different treatment that appears to be given to UK and foreign lorries, albeit it is being described as being equivalent.  The scheme will clearly raise some revenue, although that wont vary according to usage for obvious reasons, it is more likely to mean that increasing in volumes of foreign vehicles will increase revenues.
It is a shame that none of the revenue will be hypothecated, as it could have been a useful source of funds for maintenance - directly, but it requires Ministers with steely determination to take on Treasury mandarins in their ideological opposition to user pays also being spender accountable.

I am curious as to what the Irish response will be, given it is the UK's only land border and has no border control at all.   My first thought is that the Irish government ought to start investigating how it might do the same thing.

Sunday, 8 January 2012

Year in Review: 2011

There are many different ways to judge the past year in road pricing and tolling; by geography, by type of road pricing system, by technology or by public discourse.  There have been no single dramatic steps in any direction in the sector, so I prefer to look at it as a series of trends which vary according to the economic conditions of particular regions and countries.

1.  Tolling new highway capacity is becoming more widespread:  Whether it be in countries enduring economic malaise (in Europe or North America) or those booming (in Asia), the traditional model of tolling new road capacity is becoming more popular among policy makers.  The key drivers in developed countries are obvious, as it is a way of raising revenue that avoids putting pressure on taxpayers and on sovereign debt levels.  In developing countries, it is a way of managing demand and putting roads on a commercial basis to encourage private investment (and the commensurate incentives on project delivery and innovation) into highway investment.   In the UK, the government has revitalised interest in getting new highway projects at least partly toll financed.  In the US, many states are advancing tolls as a way of financing new projects, including replacement of existing infrastructure.   In Indonesia, China and India, major corridors are being built with toll funding.  Certainly, new continental European toll roads are scarcer, in part because of extensive construction in many countries in recent years, but in eastern Europe and Russia toll roads are still being developed.

Nevertheless, in South Africa the limits of tolling existing capacity to fund improvements appear to have been reached.  Whilst the Gauteng Freeway Improvement Project will proceed with tolls, it is a difficult sell to only toll some existing roads for funding improvements on them and some new roads.  Yet this trend is still set to continue, as conventional sources of revenue prove inadequate to support some large capital investments.

2.  Fully electronic free flow toll conversions are spreading in the US and Europe:  Whilst manual tolls (and automatic coin machines) have been the bread and butter of tolling systems across the world, increased labour costs and the delays and pollution caused by stop-start traffic at toll plazas means that conversions to free flow tolling are becoming increasingly common after some years of slow progress.  The benefits are clear in terms of reducing congestion and improving service, but cost savings are only seen if labour costs are high and the systems and business rules in place to allow for efficient billing and enforcement.   This trend is appearing in the US in several states, particularly in urban locations where the delays of manual tolls are obvious, but also locations such as Puerto Rico and the UK.  Similar shifts have already happened in Australia and there is further interest in moving electronic in some European countries.  Electronic free flow in the developing world is hindered by neglect of systems necessarily to enforce fines by post.

3. Slow progress in congestion charging beyond varying tolls on existing roads in developed countries:  No new cities introduced congestion charging, indeed London's congestion charging area halved in size as the Western Extension was abolished with little net effect.  In Europe, Gothenburg continues to develop its scheme which will open in 2013.  Whereas the new government in Denmark is keen on introducing congestion charging for Copenhagen.  Elsewhere in Europe, interest is more muted with Budapest showing continued interest, and Zagreb largely driven by the need for revenue.  In the US, debate in New York is also revenue focused, but building up some healthy momentum.   Elsewhere in the US, San Francisco is the other city which has made the greatest progress in implementing congestion charging on existing roads.  However, its greatest progress has been introduction of the variable parking pricing trial, also now trialled in downtown LA.  Another trend has been the ongoing spread of HOT lanes and interest in HOT lane/toll lane solutions as a way of implementing a form of congestion pricing, as well as introducing congestion/peak toll rates on existing toll roads.   Outside the US, Israel interestingly appears to be the main example of HOT lane application.  The key pressure in developed cities is the economic climate which is suppressing demand and congestion,  making cities less keen to impose new charges on motorists.  Revenue pressures in most cases do not override the interest in encouraging economic activity.  There is almost no interest in using congestion charging to replace existing taxes.   However, the Dutch trials called Spitscoren and Spitsvrij show a different way of managing congestion - by rewarding regular users when they don't drive.

4. Growth in interest in congestion charging in megacities in developing countries: Notable are both Jakarta and Beijing showing interest in congestion charging because of the chronic gridlock (and in Beijing's case severe air pollution) due to growth in road traffic.  The Indonesian government's interest in passing a law to allow five cities to introduce congestion pricing is significant and Jakarta is making substantive steps in adopting the Singapore approach to road pricing.  Beijing has not gone so far, but there is interest in several Chinese cities in the concept, although the means to actually implement it may be more difficult.  Tehran continues to be the great developing world success story.

5. Heavy vehicle network tolls continue to expand in Europe and interest revived in Australia:  Poland is the latest country to introduce distance based tolls across the national highway network, the next ones will be France, Belgium and possibly Denmark.  Interest has grown purely for fiscal reasons, with the possibility that Spain, Finland and even Ireland may look into it in coming years.  Australia is engaging on whether to shift from fuel tax and ownership taxes to distance charging for trucks, but is likely to continue investigating options in the shorter term.

6.  Replacement of fuel tax with road pricing has growing interest in the US, but faces considerable issues of transition and public acceptability:  The politics of increasing fuel tax in the US seem insurmountable, so various states are moving forward to develop options to introduce distance based charging (mileage based user fees in the parlance of some) to replace fuel taxation.  Oregon is at the forefront of this, although is doing so to set up a system to cover vehicles that do not pay fuel tax.   However, the revenue sustainability advantages of road pricing are becoming clear, along with options to better target pricing and address congestion issues in the long term.   The biggest issue is how to implement such an enormous transition in how to pay for road use.  Australia is acknowledging the issue as well, and will likely introduce it on heavy vehicles as the first step.   This is likely to see the greatest development in coming years as it involves a revolutionary change in a combination of vehicle technology, taxation, public policy and highways governance, and potentially offers enormous benefits (but faces enormous risks). 

7. Technology is quietly making smartphones as sophisticated as any bespoke on board units:  The great leap forward in recent years has been 3G (and soon 4G) technologies that mean smartphones can now effectively run the applications necessary to do sophisticated time, distance and location based road pricing, if they can be correlated to a vehicle, maintain security and be adequately calibrated.   There is interest in the toll industry in doing this, but it is partly constrained by the proliferation of government agencies involved in running toll and other charging systems.   There continues to be a shocking mismatch between consumer electronics and highways ITS and tolling systems.  What will it take to challenge this?

8. PPP toll roads in economies in recession have faltered and face sale and restructuring:  Spain, Portugal, Greece and Ireland have faced serious challenges as toll roads in all those countries see demand collapse well below forecasts projected by concessionaires.  A similar trend can be expected for some such roads in the US and elsewhere in Europe, the main culprit being grossly overoptimistic demand forecasts from demand modellers.   This consolidation has only just begun in the sector, expect it to grow considerably.

In summary, road pricing continues to grow in interest.  It is growing faster as a way of funding new roads, but it is the change in paying for existing roads that is more telling.  The challenges remain political, not technological, but the key push has to be to get interest in ensuring motorists believe they can get a better deal from road pricing rather than fuel tax and annual licence fees.   The only way that can happen, in my view, is by changing not only how vehicles are charged, but how the revenue collected is spent.

Sunday, 1 January 2012

Happy New Year and apologies

Hi readers
Happy New Year to you all, and apologies for having done very little blogging in the past month.  It has been characterised by high volumes of work and then three weeks of leave when I positively enjoyed not writing or spending much time online at all.   Given this blog is a solo effort, it has been difficult to keep things up to date.

Nevertheless the past year has been interesting in the field of road pricing, not least because there has been continued expansion of tolling in developed and developing countries, but also the increased interest in using road pricing as a different way of raising revenue and charging for networks of road use, rather than individual roads or managing congestion in cities.  The USA has been at the forefront of examining how to do this, with Australia also showing growing interest.  

I hope to write extensively about this in the coming year, with support from esteemed professionals who I invite to contribute.

I wish all of you involved in the road pricing field, whether as operators, government officials, politicians, engineers, users, employees, academics or even consultants, have a Happy New Year, and all of the best for your families and loved ones.