Tuesday, 17 November 2020

Yes the UK should introduce road pricing, but it should learn from the mistakes of the past

Until last year I had lived in the UK for 14 years, and I had worked on congestion pricing and road pricing projects there and in other countries, and the number one lesson that comes away from ANY jurisdiction wanting to introduce direct road user charging on existing roads is that it will succeed or fail on PUBLIC ACCEPTABILITY.

I'm afraid that the media coverage in the UK in the past few days, which looks very much like the Chancellor of the Exchequer floating an idea in the press, shows that there have been few lessons learned from the last large scale attempt to introduce road pricing in the UK - which was the National Road Pricing project under the Blair Government.

That project followed on from the failure of the Lorry Road User Charging project, which had been led by Her Majesty's Revenue and Customs, and for which costs were looking like spiralling out of control.  That project in itself saw pursuit of a truly bizarre procurement process, which had been recommended by one of the Big 4 accountancy firms, and ultimately failed because the costs seemed likely to outweigh net revenues.  In order to spread the costs more widely (and unlock the potential benefits of decongestion), the project became the National Road Pricing project in 2005, but it failed due to enormous public backlash, famously getting over 1.8 million signatures of a petition to Tony Blair to stop the project.

Why?

Because neither officials nor politicians really grasped what road pricing is - road pricing makes roads a public utility, and makes road users customers, but politicians and officials treat them as besides the point.

But the public don't trust them to do anything other than take more money, and do nothing about the roads.

Road pricing enables a fundamental change in the relationship between the users of the roads and the providers of the roads, and in the UK that relationship has for far too long had next to no link between what users pay and what they receive in terms of level of service.  It becomes pure chance whether a motorist gets a well sealed road or a potholed one, an uncongested route or a road congested all day long.

Motorists pay Vehicle Excise Duty (VED) (and lorries pay the HGV Road User Levy) which are charges effectively on owning a vehicle, but only this current financial year (2020-2021) is it being hypothecated to pay for Highways England. Yet how many motorists even know this, and what does it mean for vehicle owners who rarely use motorways?  Even if they do know it, what value do they think they get for it?

Then there is fuel excise duty, famously not hypothecated because when it was, it was badly managed, in the 1930s. The UK Treasury has never let this go, because it sees it as a tax so it's general revenue, yet it's a tax mostly paid by road users at £0.5795 a litre.  The £28 billion a year raised from it is far more than is needed to spend on roads, but it represents an unofficial "return on capital" from the UK's road network (that's not just the Strategic Road Network, but local roads and the roads of the devolved Administrations).  Money spent on roads is through a hotchpotch of politically motivated "funds" which do not represent a coherent approach to funding and managing the country's largest transport infrastructure asset. 

It is a de facto user charge on road use, and it is only now that this is rapidly eroding due to the rise of electric and hybrid vehicles (and the announcement of the intention to prohibit sales of internal combustion engine powered vehicles from 2030) that there is interest in replacing it.

So politicians have to make a choice!

If Fuel Excise Duty is just a tax (as some in the Treasury think), and nothing to do with road use (!) then there is no need for road pricing, just hike up other taxes/cut spending/mix of both, to offset it. The residual environmental argument evaporates in a world when road vehicles no longer emit fumes.  

If Fuel Excise Duty is a charge on road users, then part of it should be hypothecated to pay for roads, and that part can then be replaced by road pricing.  Treat it as a fundamental reform of the road sector, not as a reason to do business as usual, because business as usual is a mismash of ad-hoc central planning, wildly varying levels of service and little accountability for poor service, especially from local authorities.  Consider Hammersmith Bridge which is closed to motorists, but the London Borough of Hammersmith and Fulham is not accountable to them, nor for failing to have an adequate asset management system in place to ensure it would be well maintained. It is a Soviet-style approach to managing economic infrastructure that if repeated in energy would result in constant blackouts and failures in service.  In roads, the failure of service is seen in chronic congestion and the wear and tear, damage and accidents caused by poor road maintenance.


The need for clear messaging and boundaries around road pricing for the government is critical, but so far that messaging has been anything but that.  So let me help them out with some ideas:
  1. PILOT FIRST! The Government should pilot road pricing for electric vehicles and any other motorists who want to trial it.  Initially with a mock billing trial, then followed up with actual billing and crediting those motorists who do try it with a 50% refund of fuel excise duty and VED cut to £50 per annum.  DON'T introduce it in a big bang, the successes of states like Oregon and Utah have been through gradualism. Show the public what you want to do first, it makes it much less frightening and builds confidence.
  2. WE'RE CUTTING FUEL DUTY AND VED: Road pricing should mean that those who pay it, will save around 70p/litre on fuel and pay much less in VED.  People should be charged mostly based on USING the roads, not OWNING a car.  Piloting will demonstrate that it isn't a "new tax", but a change in how motorists are charged for using the roads, and it is better because...
  3. ALL REVENUE WILL GO ON THE ROADS. A National Roads Fund from which all central government spending on roads will be allocated, based on need will mean true user-pays.  It will depoliticise decisions on maintenance, and all highway authorities will have to meet standards for road maintenance and operations, as well as addressing the priorities of road users. Yes in built up areas it still involves balancing the needs of different types of road users (cyclists, pedestrians and public transport), but it means road users are now customers and should expect more of highway authorities, not less.
  4. DON'T START WITH LOCATION AND TIME OF DAY SPECIFIC CHARGES: It is hard enough moving from fuel and fixed charges to distance and vehicle type, to also add location and time of day to try to manage congestion from day one. For a start, the whole governance arrangements around roads will need to be reformed to make that work effectively.  So start simply.  Charges vary by vehicle type, by mile.  Vary by location and time of day later, incrementally.  Starting simply means not everyone needs GNSS telematics in their vehicles, but it can be made mandatory for newly registered vehicles so the capability is there.  
  5. DON'T HAVE THE GOVERNMENT DELIVER THE SYSTEM: Develop an open market for road pricing accounts and technologies, avoiding the past mistake of thinking that government should buy everyone a device for their vehicles. Open market systems are working in various European countries (notably Belgium and Hungary) for heavy vehicle road user charging, and in New Zealand and Oregon more widely.  If a company wants to set up an account, supply a system that collects trip data and bills road users, it should be able to be certified to do so, AND provide a means to measure and ensure credits of fuel duty towards the road pricing account.
  6. START WITH PURE ELECTRIC VEHICLES. As they don't pay any fuel duty, it is easy enough to start them paying by distance now, and then transition to hybrid vehicles that do pay some fuel duty.  Develop a sustainable pathway to expand the system, but it is hard to argue that electric vehicle owners shouldn't pay for the roads they use, and it is much easier to start with such vehicles than try to include all in one big bang.
  7. SET PRICES BASED ON COST ALLOCATION: While prices will initially be flat, they should reflect forward looking spending on the road network, over a five year period of maintenance and new capital spending.  Link charges to cost, as in other utilities, so it isn't a political football.
  8. USE PRICES TO INCENTIVISE ENVIRONMENTAL GOALS: Yes electric vehicles may be charged first, but the price for them should be lower than hybrids and lower than pure internal combustion engine powered vehicles, yet it shouldn't be so low that their road costs are subsidised excessively by others.
  9. MAKE IT OPTIONAL EXCEPT FOR NEWLY REGISTERED VEHICLES INITIALLY: All newly registered vehicles (regardless of motive power) should be on a road pricing system, but let existing motorists pay as they do now and incentivise them to shift over several years.  Over time set dates for a transition, so all remaining electric vehicles switch over one year after introduction, then plug-in hybrids a year later followed by ordinary hybrid vehicles.  Then move heavy vehicles off of the HGV Road User levy in two or three tranches, and then finally conventional petrol and diesel light vehicles (provide some exemption system for vintage vehicles).
  10. UNDERSTAND WHAT IT MEANS FOR DIFFERENT USER GROUPS: The fears of rural communities about paying more are unfounded given the experience of other jurisdictions (people in rural areas don't necessarily drive much longer distances on average than people in cities (outside London), but the research should be carried out to identify trip patterns).  The incidence of road pricing should be identified by geography, demographic and vehicle type, so that the effects can be understood.
It can't be just about replacing what is done now, which is a proxy tax on fuel that is used to raise tax revenue for general government spending, it is a fundamental reform, and if that isn't understood it wont go anywhere.  Last time it failed because there was too much vagueness about cutting other taxes or how the money would be used, but a surprising amount of "certainty" around how much everyone would pay per mile (because someone modelled what it could be, so of course the media took the highest price modelled).  Moreover, National Road Pricing was sold as a way of relieving congestion, but few believed it would because nothing had been demonstrated to show it would do that (and the London Congestion Charge had an incremental effect on congestion that was not discernible to most motorists).

Beyond these points there are other matters that should be clearly communicated:

  1. No road user will be charged twice.  Under the National Road Pricing proposal, politicians said road pricing would partially replace current taxes, but few believed them.  Unless the public is convinced that they wont be double-charged, it wont gain support.
  2. Decisions on spending of net revenues should be taken out of politics: As tempting as it is for central and local government politicians, shifting roads to a utility means that decisions on spending on maintenance and upgrades shouldn't be about buying votes ahead of an election or triumphalism over getting funding for an inefficient road project (or stopping an efficient one).  Road should be regulated utilities, with the spending of money prioritised on maintenance (especially the huge backlog of deferred maintenance) and then large and small scale projects that generate net economic benefits, AND reflect the stated preferences of road users.  
  3. Management of roads should be placed in the hands of utility organisations:  Highways England has been an excellent first step, as far as the Strategic Road Network is concerned, but local authorities should be required to cluster their road networks into regional road companies, operating at arms length with funding based on the revenue generated from road users in their region.  An independent regulator could oversee level of service expectations, the companies would set up corridor plans to develop short to long term plans to maintain and upgrade roads, and buy land and plan for any improvements, such as new intersections, widening, tunnelling or new corridors (and sell surplus land).
  4. Over time, road pricing can replace congestion charging, tolls and low emission zones as well:   Only when most vehicles are on the system can these other charging systems be switched off, but they should be as they wont be necessary.  Congestion WILL NOT BE SOLVED QUICKLY when a whole vehicle fleet needs to be equipped with the right technology, but this isn't about congestion is it? It's about how roads are paid for.  The ability to do congestion pricing will be a bonus, but it shouldn't be the focus for now, because to do that will confuse messaging even further. 
Most of all Chancellor of the Exchequer, Rishi Sunak is a smart man, he ought to look at what has been done in Oregon and Utah, not just the European states so many officials (and consultants in the UK) think are appropriate comparisons to the UK.  He ought to look not just as US experience in piloting road user charging, but also the experience in New Zealand and more recently trialling heavy vehicle charging in Australia.  He ought to talk to those who obtained political approval to advance these programmes, such as Jim Whitty from Oregon and be wary of Treasury's motivation around "just raising more money", but also the motivation of some on the more hardline environmentalist side to use road pricing to "punish road use and raise money for public transport", because NOWHERE in the world has this ever been done for such reasons successfully on a scale remotely similar to the UK. 

He should NOT be swayed by well meaning lobbyists like the Social Market Foundation which want all vehicles equipped with GNSS based road pricing technology, when even Singapore has found this challenging for its much smaller (and very long established and sophisticated Electronic Road Pricing system).  The idea that people should get a "free allowance" of distance to travel just incentivises richer people to have more cars, and moves away from a pricing approach to a permit approach, it is based on the misnomer that the people who drive the most are the wealthiest, forgetting that it is in London where the highest incomes are observed and the lowest rate of car ownership and usage. Forget using road pricing to engage in redistributive activities, if people in the UK own a car, and are poor, they almost certainly don't own an electric one, so replacing fuel duty with a distance charge should be positive for them.

No doubt many lobbyists will complain how unfair it is to embark on the principle of user pays, but it is done in energy and telecommunications, it is time that road pricing was advanced, as part of a wider package of reform of the highways sector in the UK.

UPDATE:  Of course the narrative everyone hears is that they will pay more than they do now. Why can't the UK learn from its past failures and the experiences of others?

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