Thursday, 7 March 2013

UK highway privatisation/reform stalled... again

The Financial Times reports that the Budget is unlikely to see any announcement around highways privatisation, for fears of a political backlash.  The intention instead is to publish a "green paper" in summer outlining options, which effectively means no substantial reform will be completed before the general election in two years' time.

Whilst privatising the strategic road network in England (motorways and major A roads) is not necessarily difficult, the problem is in guaranteeing a stream of revenue for any private investors.  Options under consideration have ranged from allowing tolls to be introduced (which the Government is prepared to accept for new roads and "new capacity" (e.g. additional lanes), to reforming Vehicle Excise Duty (the tax on owning vehicles) by splitting part of it away into an optional motorway vignette, which would then be dedicated to paying for that network.

The Prime Minister has made it clear that no option should leave anyone worse off, effectively constraining tolls to new capacity only (and given the issues of diversion, this is unlikely to mean tolls are going to be feasible except for comparatively few projects).   

Understandably, some Ministers and MPs are baulking at the Vehicle Excise Duty reform option.  The appeal to officials is that is attempts to replicate what has existed in some European countries for many years, when vignettes were introduced to pay for their motorway networks.  However, by offering the option of not paying, it is likely to cause some motorists to divert short trips on motorways onto local roads, creating localised congestion issues.

Motorists are likely to be fairly open to reforms of the Highways Agency that may commercialise it or even privatise it, but when it is about paying to use the roads, it becomes different. 

The reason to introduce a vignette was seen as a way of transparently introducing a user charge for motorway use, so that money for that network could be readily identified without the need for hypothecation of a tax that is also being used for other purposes.  Of course later it could be reformed into a more usage based charge over time.

Yet it neglects the local road network, and doesn't create a cohesive structure to reform the highway sector as a whole.  Ignoring local roads, where much congestion is and where maintenance issues (and capabilities in asset management) are the most serious, is simply absurd.

I've written before about what I think of this option and what I believe should happen - which is to commercialise the Highways Agency and incentivise local authorities to do the same (including creating multi-council joint ventures), set up a regulator to "buy highway services" on behalf of motorists, funded by hypothecating Vehicle Excise Duty and part of Fuel Duty, and then allow the commercialised entities to attract private equity, and progressively be privatised (and to set up tolls that allow motorists to choose to contract out of paying existing taxes).

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