Australia's National Heavy Vehicle Charging Pilot : Small-scale on-road trial of heavy vehicle charging is launched

Last Thursday (25 July 2019), Australia's Deputy Prime Minister and Minister for Transport, Infrastructure and Regional Development, The Hon. Michael McCormack along with The Hon Scott Buchholz MP, Assistant Minister for Road Safety and Freight Transport formally launched Australia's first nationwide on-road trial of heavy vehicle road user charging.

The press release is here, with more details on the Department of Infrastructure, Transport, Cities and Regional Development ("the Department") website here.

In short, it involves:

• Up to eleven heavy vehicle operators (truck and bus) using on-board telematics systems that they were already using in their vehicles (commercial telematic systems used for fleet management purposes);
• Up to 111 vehicles will be included (so an average of a maximum of ten vehicles per fleet);
• A trial of six months duration;
• Operators to use existing systems to report vehicle configuration;
• Each operator will receive mock invoices generated by measurement of road use using the telematics systems on each participating vehicle, which will enable comparison of hypothetical charges with current charges

The trial will assess the experience of heavy vehicle users in receiving mock invoices to compare what they might pay under distance/mass/configuration based charging compared to the current mix of annual registration fees and fuel tax.  The idea being that charging by distance could replace such charges.  The diagram below from the Department indicates its plan to follow the small-scale trial with a large-scale trial next year on a much bigger scale and complexity. 

Australia's heavy vehicle charging trial programme

The small scale trial will use only one technology - existing telematics systems (which by necessity are all GNSS based On-Board Units (OBUs). The large scale trial could also include manual options to report distance, and an option to report actual mass.  However, further details of the large scale trial will be developed in the coming months, and is likely to be informed by the progress and evaluation of the small scale trial, and engagement with stakeholders (including heavy vehicle user representative organisations).

The operators participating in the small-scale trial are:

• Bridgestone Australia Ltd  
• Buslines Group Pty Ltd 
• Conroy Removals Pty Ltd 
• Coolibah Quarries 
• De Bruyn's Transport 
• John West Logistics Pty Ltd 
• J R Bulk Liquid Transport (Blu Logistics) 
• Nuline Charter Pty Ltd
• Simon National Carriers 
• D & S Smith Haulage Pty Ltd
• Toll Group 

This is quite a range including local and national operators, with operators based in several states.  Telematics providers supporting the trial (providing the systems used by those operators) are:

• EROAD (well known for providing heavy vehicle RUC services in New Zealand and Oregon)
• Volvo Buses (telematics)
• Volvo Trucks (telematics)

The trials are part of a wider programme of reform of the provision of roads for heavy vehicles in Australia called Heavy Vehicle Road Reform.  The first phase of this is set out here, and involves improving transparency about spending, asset management and the levels of service provided to heavy vehicle road users. 

Other reforms as part of this include consideration of independent price regulation of the setting of heavy vehicle charges (including existing registration fees and the fuel-based charge), and measures to more closely link revenue collected from heavy vehicles to road managers for investment in their networks.

It is clear that it is early days and no decision has been made by the Australian Government to change how heavy vehicles are charged in Australia, and any decision to do so is likely to be some years away. 

It will be interesting to watch the small scale trial with interest, particularly what the responses of participants are and the lessons that the Department will learn from the trial to develop the larger scale trial and inform wider reforms. 

Disclosure:  D'Artagnan has been providing technical advice to the Department of Infrastructure, Transport, Cities and Regional Development on heavy vehicle charging trials.

Australia's National Heavy Vehicle Charging Pilot: The National Pilot Program Stage Two

The Stage One report of the National Pilot should essentially be a set of three groups of work:

1. Strategic, technical design and implementation advice on progressing with on-road pilots of heavy vehicle road charging.
2. Results of desktop simulation modelling, which should indicate the financial impacts on different groups of heavy vehicle users, based on a series of charging structure scenarios.  This will provide an indication of the distributional effects (excluding behaviour change) of existing heavy vehicle road users changing how they pay for roads, and so help to inform possible transitional and longer term pricing scenarios for pilots and implementation of heavy vehicle charging.
3. Input from the heavy vehicle road user sector, but also road managers and other relevant government and private sector stakeholders of their views and understanding of heavy vehicle charging.

Stage Two will be the delivery of an on-road heavy vehicle road charging pilot, with actual road users "paying" a simulated road user charge with their own accounts, and invoicing, as a demonstration of what heavy vehicle road charging could mean for the day-to-day operations of heavy vehicle users, state/territory and local road managers, federal, state/territory treasuries and the providers of road charging services.   It should not primarily be about technology, but about how services are delivered, with the possibility of testing a range of solutions for identifying, measuring and reporting distance travelled (GNSS based ones, application of existing telematics systems both built into vehicles and commercial sservices, and the use of odometers and hubodometers), and options for different elements of charging to be included in both pricing and charging products available to users.   In practice, all participants in the pilot will continue to pay registration and fuel excise through the current PAYGO system (as well as tolls where relevant), but it will show what it would mean to have road charging operating in real life.

Part of the Stage Two pilot will be about testing policy and operational options for proceeding further, with issues such as the treatment of mass and location, the complexity of vehicle configurations (for charging purposes) and exploring the identification of fraud and evasion issues.  One of the biggest benefits of this pilot will be feedback from road users about their user experiences including what information is of use to them.  It changes road user charging from being theory (and occasional discussion of what happens overseas) to being what it might look like in practice.  Furthermore, it also presents an opportunity for the often ignored issue of what charging means from a government perspective to be explored.

It ought to mean establishment of notional hypothecated road fund accounts (although the question of how many there any, whether by geography or jurisdiction is a moot point), and the management of the data that is collected to enable sufficient assurance to be carried out about individual vehicles having valid accounts that are paid.  

The Stage Two pilot should be designed to test the critical elements that would allow for road charging to be able to replace the PAYGO system. Careshould be taken as to how much complexity will be mandated for the Stage Two pilot, bearing in mind that it wont be actually collecting revenue, and the key dimension iy must test is sufficient assurance to enable the Stage Three pilot to proceed (which actually does collect revenue, and offset this with refunds or supplementary payments to offset road charges).

Most of the pilots that have operated in the United States to date have been simulated charging pilots, so there should not be difficulty in developing a pilot for heavy vehicles, across Australia, that replicates the best elements of those, but also tests policy and governance elements that are relevant to Heavy Vehicle Road Reform.

Assuming Stage Two can be successful, then the programme can move onto Stage Three - a real money pilot, where heavy vehicle users can opt into paying by road charging instead of the PAYGO system.  That is when the real leap forward will happen.

Australia's National Heavy Vehicle Charging Pilot: Part Two - The National Pilot Program Stage One

The announcement of a National Heavy Vehicle Charging Pilot by the Australian Minister of Urban Infrastructure and Cities in December 2017 was designed to break what has been some years of inertia in progressing heavy vehicle road user charging in Australia.

As I have written before, there is no shortage of reports or studies about the merits  and possible approaches to transitioning from fuel tax and registration fees to direct road user charging for heavy vehicles in Australia, but there have been a series of key issues that have hindered progress, which in part reflect the constitutional and governance arrangements for roads and charging of road use in Australia.

The previous project, (which lasted seven years) called the Heavy Vehicle Charging and Investment project, floundered for a host of reasons.  It was too focused on charging, and not the funding or supply of roads.  Although many reports were prepared on a host of elements of charging policy, insufficient attention was paid to issues around transition.  How to get from the current charging system to feasible and user acceptable steps to direct user charges wasn't adequately addressed.  As such, the proposals focused on the costs of implementing heavy vehicle charging, in the context of a single or limited competition for supplying such systems, which raised questions as to the costs and economic viability of charging. It did not sufficiently engage with Treasuries at Commonwealth and state/territory levels, furthermore its complexity was such that it was difficult to get political traction and with that stakeholder support for the project.  It wasn't helped by a complex project governance structure that saw it lose momentum.

Given it is clearly possible to reform the supply side of roads, without reforming charging, and that reforming the supply side can help address key issues that arise in charging (especially how to set charge rates and convincing road users that revenue collected is spent wisely and in their interests), it made sense to adopt the Heavy Vehicle Road Reform approach. 

What makes road charging complicated in Australia?

1.  Registration fees are charged at the state/territory level (and motor vehicle registers are state managed, except for one for interstate heavy vehicles), but fuel tax is charged at the federal level as it is an excise duty.  This adds a complication in terms of co-ordination, but also institutional responsibility for refunds.  A state/territory level road user charge could not refund fuel duty, without a specific arrangement with the Commonwealth.  If a state/territory applied road user charging on its own roads, without fuel duty refunds, then it is only likely that its own heavy vehicles would pay road user charges, as out of state heavy vehicles would still be paying registration and fuel duty (so could not be expected to pay a state level road user charge on top). 

2. All road managers are at the state/territory or local level of government, but a significant proportion (23%) of spending on roads come from the federal (Commonwealth) level of government.  However, two thirds of revenue raised from heavy vehicles come from fuel tax (levied at the federal level).  The Commonwealth government doesn't manage any roads, but it does manage the primary means of charging for road use.

3. With a couple of exceptions, none of the revenue collected from heavy vehicles is hypothecated into funds for road capital or maintenance spending purposes.  All funding is allocated through politically led processes at Commonwealth, state/territory and ultimately local levels, on an annual basis.

4. Heavy vehicle configurations in Australia are complex, and some of the largest heavy vehicles allowed on public roads anywhere in the world. 

In essence, because the Commonwealth is not a road manager, is not the primary funder of roads and doesn't register or maintain registers of motor vehicles (with one exception), there was always some sense in encouraging states and territories to take the initiative on road user charging.  It seemed appropriate for the Commonwealth to have oversight and guidance, to ensure interoperability between road charging systems and to address interstate/cross border issues of charging, as well as being the regulator for price setting to deter the setting of "monopoly" charge levels and discriminatory behaviour with charging.  Ultimately, the ideal of land transport market reform that turns the provision of roads for heavy vehicles into an economic service, would see the providers of that service (road managers) leading the setting of road charging rates, and managing the provision of road charging services for their customers (albeit that such services may be operated at the state/territory level rather than the local).

However, it has appeared that there are two main risks with leaving it all to states and territories. Firstly, states and territories that seek "first mover advantage" could risk adopting practices in rate setting, governance and scheme design that are sub-optimal for other states and territories.  They might suit the policy objectives at the state/territory level, but not at the wider Commonwealth level. One example could be adopting a rate setting approach that lowers costs for heavy vehicles on the roads in that state, which may be appropriate for recovering the costs of those roads, but which implies that lower costs would apply on similar roads in other states.

Secondly, there is a risk that states and territories adopt approaches that do not work, and so undermine the chances of success elsewhere.  At worst, if a state or territory introducing heavy vehicle charging in a way that proves unpopular with road users, it could create opposition elsewhere in Australia, putting at risk wider deployment of heavy vehicle charging, potentially for some years.  

Finally, states and territories may simply do nothing without leadership from the Commonwealth. Without access to money from fuel duty, it may simply be seen as too difficult for states and territories to progress road user charging.   Although they can refund registration fees for vehicles in their state, they can't refund fuel duty.  This adds a complication for out of state heavy vehicles, which would all be paying under the current system, but either would have to be exempt from a state level road user charge, or effectively pay twice.  For heavy vehicles paying the road user charge in their own state or territory, when they enter another state or territory they would not pay the road user charge.

Stages of the National Heavy Vehicle Charging Pilot

Stage 1 of the Pilot is intended to start mid June 2018 and will effectively conclude in November 2018 (although some elements may run till  June 2019).  It has three major strands of work:

• Development of design, and planning on the implementation and evaluation of on-road heavy vehicle trials for future stages of the National Pilot.
• Modelling of the spatial and distributional impacts of direct user charging scenarios  that could replace current charges under reform  
• Market research and surveys to obtain baseline information on the views of industry, supply chains, road managers and the wider community on direct user charging for heavy vehicles.

The first workstream will focus on the preparation for Stages 2-4 of the National Pilot, including project planning, design of concepts of operation and development of an appropriate evaluation framework for all three stages.

The second workstream is effectively the first pilot, as it will seek to model the impacts of charging scenarios on different groups of heavy vehicle users.  Datasets on different types of heavy vehicle users (by geography, type of haulage, fleet size, vehicle size, routes and trip patterns, freight and passenger services) will be used to model how much such users would pay under four different road user charging rate scenarios. All these scenarios presume revenue neutrality (although it is unclear if that means neutrality after taking into account the costs of collecting revenue).

Those scenarios are:

1. A flat national mass-distance charge, applicable to all routes. This could be seen as akin to both the Oregon and New Zealand heavy vehicle charging schemes (albeit with mass as a static measure of average loading.

2. Mass-distance charge that varies by state/territory: Similar to Scenario 1, but with charges that vary by state/territory, presumably to reflect average spending (or forward looking costs) attributable to heavy vehicles by each state/territory.  Interstate trips would change in price at the state/territory borders. This would appear to be a relatively simple variation on Scenario 1, although it would expose cross-subsidies between states and territories.

3. Mass-distance charge that varies by road type, based on marginal cost: Prices would vary by road type, nationally, based on the marginal costs heavy vehicles impose, by mass. This assumes a road type classification that reflects differential costs. However, it does raise a question as to how fixed costs are recovered (still with registration fees, or charged at a flat rate by distance).<

4. Mass-distance charge that varies by road type, based on level of service: As in 3, with national charges by road type, but varying on a defined "level of service". This could range from multi-lane grade separated roads, to unsealed tracks.  This is contrary to Scenario 3, as it implies paying more for a higher level of service, but this typically means lower marginal costs. 

The third workstream appears to be strategic engagement with road users, road managers and other interested stakeholders about their views on road charging, and will presumably be the foundation for further engagement with such stakeholders through Stages 2 to 4.

The final report of Stage 1 will be submitted to the Transport and Infrastructure Council (TIC) (Transport Ministers under the Council of Australian Governments, covering both the Commonwealth and State/Territory Ministers) in November 2018.  The expectation and hope is that the TIC will approve moving to Stage 2, an on-road pilot of heavy vehicles "paying" a simulated road user charge.

Australia's Heavy Vehicle Road Reform programme: An integrated, sound approach to road charging and funding

Although much attention is often given to toll roads in Australia, almost all road distance in Australia does not involve toll roads. As an economy dominated by extraction industries primarily around mining, but with agriculture also important, heavy vehicle use of a large and in many cases, sparsely used road network, is critical to the country's economic progress.  Australia is, after all, a continent, the sixth largest country by area (Russia, Canada, China, USA and Brazil are only bigger), but for its size it is the third least densely populated country (only Namibia and Mongolia have fewer people per square km).  That sparse population explains little when you note that over two thirds of the population live in the eight state and territory capitals, and another 22% live in the remaining urban areas, most of which are located along the coast in the eastern states.  Australia also has some of the largest trucks ever seen in regular use on public roads, with vehicles up to 60 metres long allowed on some routes, and total vehicle mass configurations of well over 100 tonnes. 

So Australia has taken heavy vehicle use of the road network seriously, because the productivity of both heavy vehicle use and the provision of the roads they use, has a direct impact on the economy.

Today, Australia charges heavy vehicles (excluding toll roads) through two means:

- Registration fees collected at the state and territory level (excluding some registered for interstate only traffic);

- Fuel excise duty known as the Road User Charge (which is fuel excise duty minus a refund to reduce it the "Road User Charge" rate), collected by the Commonwealth.  Currently at A$0.258 per litre (US$0.74/US gallon) of diesel.

The National Transport Commission annually reviews the levels of these, based on its cost allocation model, which uses data on recent spending on roads, allocates a proportion of those costs to heavy vehicles, which informs the

A Cost Allocation Model is used, based on historic spending on roads, to inform the setting of both registration fees (which escalate based on the mass/configuration of the vehicles) and the amount of the refund on fuel duty to set the road user charge rate.

For some years it has been acknowledged that this system is far from optimal.  Multiple reports have proposed a shift away from registration and fuel taxes towards direct user charging.

There is a relatively poor relationship between what is paid and the costs that heavy vehicles impose on the roads that they use. Most of the revenue collected through this system is treated as general revenue at the Commonwealth, state/territory levels, so is not dedicated for spending on roads. Numerous studies have noted the scope for reform, and a major reform programme was embarked upon, called the Heavy Vehicle Charging and Investment (HVCI) project, that sought to introduce heavy vehicle road charging. It was abandoned for several reasons, not least the complexity of the proposed programme, and the sequence of reforms, which effectively sought to reform charging before reforming the funding and governance structures for roads.  It also struggled to gain sufficient heavy vehicle user support.

Heavy Vehicle Road Reform

The current Commonwealth Government, under Minister for Urban Infrastructure and Cities, Paul Fletcher, has embarked on a new reform programme that is more holistic and integrated than HVCI.  It is notable in that it seeks to reform funding and management of roads, and how existing charges are set and used first, before replacing the current charging system with direct user charges.

Heavy Vehicle Road Reform seeks to not only reform how heavy vehicles pay for road use, but also to reform the funding and management of roads.

The current system is very much a political command and control model, and is depicted in the image below. Funding for roads is traded off with public spending for other activities, and decisions on priorities for road spending although informed by benefit/cost appraisal, is fundamentally a political call. Road managers primarily operate as engineering bodies, building and maintaining roads, with limited relationship with road users. The money that is spent on the roads is used to inform the charges that heavy vehicles pay, as the National Transport Commission uses data on previous spending (and forecasts of heavy vehicle demand) to inform rate setting of registration and the fuel excise "road user charge". 

The image below from the Department of Infrastructure, Regional Development and Cities is a fair summary of the current situation.

Australia's current system of charging and supplying roads for heavy vehicles

It shows a very limited relationship between road managers and road users, and in the use of revenue collected from road charges and money spent on roads.

The reform steps

The reform agenda comprises four key stages as seen below:

Heavy Vehicle Road Reform stages

 

UK government freezes fuel duty again, establishes Roads Fund and fiddles with Vehicle Excise Duty

Since 1936, when the previous Road Fund was wound up, the UK Treasury has been vehemently opposed to any form of tax hypothecation (dedication of revenue for one purpose).  The primary argument against it is that it reduces the flexibility of government in the use of its revenue, and can result in the hypothecated fund having too much money, and so spending on that purpose ends up being wasted.  

It would appear that all of that has been pushed to one side with yesterday's budget by Chancellor of the Exchequer, George Osborne, who announced three measures relevant to the charging and management of roads:

- Reform of Vehicle Excise Duty for cars (the tax on owning cars);

- Establishment of a hypothecated Roads Fund in England with the revenue generated in England from VED;

- Another year of freezing fuel duty.

No, it doesn't mean that there is any move to road pricing soon.  However, the setting up of a Roads Fund in particular will establish a closer relationship between what is paid by motorists (for owning a vehicle if not using it) and what is spent on roads.

Vehicle ownership tax mooted for California

Like many US states, California too has issues around raising sufficient funding to pay for highway maintenance and construction.  UT San Diego reports that Toni Atkins, Speaker of the California State Assembly has proposed, in essence, a motor vehicle ownership tax at US$52 per annum.  She suggests it could be higher for trucks (based on weight) and electric vehicles (because they don't pay fuel taxes), but would be hypothecated to transport funding. 

Arguably this is an efficient way of recovering at least part of the fixed costs of the highway network, which by some measures accounts for an average of half of all network maintenance costs.  This is the network degradation due to the effects of radiation from the sun, rain and changes in temperature. 

Charging all vehicles a "network access charge" isn't a bad idea in that context, and it parallels similar taxes in other jurisdictions.  In the UK it is called Vehicle Excise Duty, and is related to vehicle weight and CO2 emissions, although none of the money raised is dedicated to spending on transport, it can cost a vehicle owner anything from nothing (for low emission vehicles) to US$1676 for the highest emission vehicles (full schedule here).

In Australia, vehicle registration fees are set by states, with heavy vehicle rates set them to offset the undercharging inherent in charging diesel tax (as the heaviest vehicles do not pay enough diesel tax to reflect the damage they cause).  For example, in the state of Western Australia an average car will cost US$167 to register.  By contrast, the heaviest truck combination will cost US$7551 a year to register.  That incentives high utilisation and also incentivises vehicle fleet owners to buy vehicles that are suited for what they want to do, and not to purchase those that are too big.  

However, such charges have some fundamental weaknesses, most notably that they reward those who use the network the most, and in the absence of charges for congestion or by location, it is a blunt mechanism.  It also can incentivise evasion, as some will choose to supply false details for registration or register in neighbouring jurisdictions to avoid higher charges.  

A better option for fixed charging operates in some European countries in the form of "vignettes", whereby an access charge is set for using just motorways and major highways.  It means that the stereotypical "little old lady" who only drives around town doesn't get hit, but heavy commercial users and most others do.  For countries and states where driving off of major highways is a huge inconvenience, it works.  It's worth noting that it is primarily applied in Europe as a way of also capturing foreigners using national highway networks.  The access charge itself is time based, so that you can buy a vignette for as long as a year, or as short as four days.

However, revenue only grows as vehicle fleet numbers grow, not traffic.  So it can never replace other means of charging, only supplement them, and even then for it to fully recover fixed costs it would have to be at levels that would incentivise too much evasion to be desirable.

In my view, whilst there are sound reasons why such charges could be turned to in the past, today it is more questionable as to whether they should be introduced now beyond simply recovering the administrative cost of operating the vehicle registration database.   However, it is still a closer link to road use than any talk of a sales tax on everything everyone buys, to subsidise roads.

Far better will be to charge for the use of the roads, by distance and eventually location, weight and time of day.  That's both economically efficient and equitable, the question is how to get there.

Australian infrastructure lobbying group and motoring clubs call for radical reform

I reported on 27 March that Infrastructure Partnerships Australia had published a discussion paper called "Road Pricing and Transport Infrastructure Funding" which has essentially recommended a move from ownership and fuel taxes to distance based charges for road use, including mass, location and time of day components.

I have since had a chance to read the report, so that I can now give a more detailed review of the paper.  It's worth reading in its own right, at least because the way it is presented and structures the key issues is both accessible and logical.

It's notable for being a report commissioned not only by contracting sector lobby groups (who would traditionally be expected to endorse more construction), but also motoring clubs (who would traditionally be expected to endorse more construction and resist user charging).  This report is not pushing construction, and openly admits that big cities are unable to "build themselves out" of congestion, although there will be an ongoing need for new road capital investment.  It does support road pricing, and it also supports using some road pricing revenue to enhance public transport.  That is fairly revolutionary in thinking from these sorts of entities, and is to be applauded.  

It is important to note that not all Australian motoring clubs are parties to this report, but many key ones are.  It indicates a level of analytical rigour and honesty to admit that the future will be improved by measures that, on the face of it, many if not most motorists will be sceptical about.  There are plenty of motoring clubs worldwide that simply oppose user charges and call for more road construction to fix major problems, hopefully this report will catalyse some to apply some more economic rigour.

 

The report has a number of key things going for it:

- The key limitations of existing forms of motoring taxation are outlined.  Taxing ownership and fuel has major issues of equity, sustainability and lack of flexibility, which are not compensated for by simplicity.

- The benefits of user charging are made clear around network efficiency and addressing congestion.

- A range of options are looked at, and assessed at a strategic level according to some clear objectives

- A pathway of small steps to go forward with is presented.

- It has the endorsement of a number of several (although not all) motoring clubs in Australia.  Getting support from this lobby is crucial and important, given how influential it is.

It is worth reading in its own right, but I thought it would worthwhile providing a brief synopsis of the main points.   I have also included some graphics from the report, which is blatant plagiarism, but help to explain some key points.

Finland's path to road pricing raises some big questions

I wrote on 27 March that the a Finnish Government Working Group had recommended that the country move away from fixed taxation of motor vehicles towards a distance based approach.  I've now had a chance to read the full report (in English) of the Working Group and to digest its analysis and approach, and it demonstrates the one rule of thumb I've often seen in road pricing studies across the world - every country has considerably different contexts, but many common issues.

To read the report yourself, it is available here as a pdf.   

For those who don't want to dive into the detail, I'll summarise my key thoughts and views first, and then put down some more detailed reflections afterwards.  It's particularly pertinent given the upcoming ITS Europe Congress in June, being held in Helsinki.

Finland, most of the population is along the southern coast

On 3 February 2012 a working group was established to explore how Finland could move towards "fairer and smarter transport systems and study long term strategies to introduce road pricing systems, with a specific mandate to assess the feasibility of GPS road pricing".   The focus was on looking at global experience, what objectives road pricing could serve, what technical solutions could be viable, what impacts would arise and how and over what timescale it could be introduced.  The working group was also to look at privacy and whether any other services could be provided using the GPS platform.

This follows previous investigations into congestion pricing for Helsinki alone, which came to the conclusion that the best approach would be some form of distance based charging that varies by time and place.

Summary

The key points from the study are as follows:

- Existing fixed taxes for cars should be replaced with a distance based tax.  Those taxes include car tax (paid on first registration of vehicles in Finland) and annual vehicle tax and vehicle motive force tax.

- The tax considered for the purposes of the study would be €0.033/km (US$0.074/mile) on all cars with another €0.02/km (US$0.045/mile) for non-petrol cars to offset the lower diesel tax.   Some variants on this were tested based on a regional differentiation.

- The distance tax would not replace fuel tax.  Finland's fuel tax rates are €0.6729/l (US$3.52/gallon) for petrol and €0.4966/l (US$2.60/gallon) for diesel, compared to the EU legal minimum rates of €0.359/l for petrol (about US$1.89/gallon) and €0.33 (US$1.72/gallon) for diesel.  (note these are US Gallons for the sake of comparison, not imperial).

- Motoring taxes in Finland already recover more than five times the state spending on road maintenance, with none of the money hypothecated for roads, so the argument for distance tax was not based on revenue generation or protection,  but rather dynamic improvements in economic and environmental outcomes.  By law, such a charge can currently only be a tax in Finland.

- Shifting from fixed taxes to fuel taxes was considered, but ruled out because it would not offer the potential to target congestion and environmental impacts by location and time of day.

-  The distance tax would not apply to buses and coaches because no fixed taxes apply to them.

-  The distance tax would also not apply to HGVs because the fixed taxes that apply to them could not be reduced sufficiently to make the tax work, as the rates are not far above EU minimum rates.

- The net impact of a shift to distance tax by 2025 is estimated as being a 30 million reduction in annual car trips, with a 4% drop in CO2 emissions from cars and around the same proportionate drop in serious car accidents.

Change in passenger km estimated in 2025 from introducing distance charging in Finland

- Most car users would pay less, with commuters in cities and high usage rural users paying more.  The net effect is to reduce barriers to car ownership, but encourage car usage when and where alternatives are not available.

- The estimated capital costs for such a system, for 3.5 million cars, were €89m-133m (US$123m-US$183m) (which I believe to be far too low), but operating costs were estimated at between €116m-133m (US$161m-US$183m) per annum.  The report indicated more scrutiny is needed over these costs.

- However, these higher costs compared to the current tax system would be recovered by the reduced costs to the economy of fewer accidents and emissions.  The savings from reduced congestion were not calculated, but given evidence from previous studies ought to deliver substantially higher economic gains, even if charges did not vary by time of day or location.

- It was considered that the primary benefit from the change would be to allow for charging by specific road and time of day, so congestion charging could be introduced equitably, targeting congestion and locations where there are reasonable public transport alternatives.

- It was strongly recommended that any distance tax have strong privacy protection, so that all data on specific trips be kept with the on board unit and in the possession of the vehicle owner, with only charging data released.  Other data could only be accessed if the owner wished to query the tax calculation or if there is suspicion of systematic fraud.

- There could be industry development potential in allowing such a system, as it would encourage local business to develop complementary systems and potential applications to use alongside the distance tax.

So, Finland is considering a car only based distance tax to replace taxes on owning cars.  That's interesting and revolutionary, but I also think it is missing some key points, which I come to below.  These are:

- Fuel tax ought to be included down to EU minimum rates;

- By including fuel tax, all other vehicles should be taxed by distance and mass;

- The rates of distance tax should reflect, at a minimum, infrastructure costs;

- By shifting to distance tax Finland cannot evade a strong case for partial hypothecation of revenues, in which case it may be wise to consider part of the charge not being a tax, legally speaking;

- The capital and operating costs need far closer scrutiny;

-  The benefits of shifting to distance based charging may be overstated around accidents, due to technology around automation, but understated by excluding the deadweight costs of existing taxes.

News briefs - Brazil, UK, USA (California and Texas)

Brazil to let major private highway concession on existing road

Infranews reports that the ANTT (Agência Nacional de Transportes Terrestre - National Transportation Agency) has announced it will be auctioning a 30 year concession for a US$3.4 billion toll road. The route is a 817km section of federal highway BR-040 between Brasília and Juiz de Fora, Minas Gerais.

What the auction effectively means is that prospective concessionaires have to bid to finance, build, operate and toll the road, and the offer that will do so, with the lowest tolls, is more likely to win.  Studies on the project indicate it can more than generate enough toll revenue to pay for the upgrade of the highway.  The proposed maximum toll rate is BRL 0.0973 (US$ 0.041) per km, or BRL 9.73 (US$ 4.12) for 100km. The successful concessionaire will have to demonstrate it can operate, maintain and upgrade the road to the required standard at tolls with a discount on those rates.  Recent concessions have been awarded to groups that offered to do other routes with discounts of over 40% on the proposed rates.

This is quite some road, being roughly the distance from London to the top of Great Britain as the crow flies, and being most of the main highway from Brasilia to Rio.  Interesting of course, that it is to be tolled to fund the upgrade.  The section from Rio to Juiz de Fora is already tolled and subject to a concession held by the company Concer, since 1996.

BR-040 in red

Interesting that leasing out large stretches of highway to private companies to upgrade, using tolls, is being implemented by a leftwing government in Brazil.  A similar concept in the United States or the UK would provoke howls of outrage from some quarters.

UK- Vehicle Excise Duty to be made fully electronic

The BBC reports that as of October 2014, the annual (or 6 monthly) "tax disc" that is proof of payment of Vehicle Excise Duty (a tax on vehicle ownership), is to be scrapped.  Proof of payment will now be linked to number plates and Police checks of payment will be enforced by ANPR cameras.

Vehicle Excise Duty is rated on vehicle size (to charge trucks more to reflect wear and tear they impose on the network) and CO2 emissions.  It raises about £6 billion a year in revenue.  None of it is hypothecated for road spending.  The UK Government spends £9 billion a year on roads in England, funding for roads in Wales, Scotland and Northern Ireland is contained within the budgetary contribution to those devolved governments.   Of course, revenue from fuel tax exceeds £27 billion a year as well.

UK - Further comment on scrapping of toll plan for the A14

Guy Bentley at City AM argues for network road pricing to manage congestion and encourage more efficient investment in roads.

AutoExpress reports that the Labour Opposition blames the Government for a cost increase in the project due to delay, and called tolls "half-baked".

USA - California - Orange County debates free lanes over toll lanes

According to the LA Times, there is general agreement that there needs to be additional lanes on the San Diego Freeway (I-405) between Long Beach and Costa Mesa.   The debate is whether they should be HOT or untolled lanes.  Caltrans (the state entity responsible for managing the state highway network) wants toll lanes, on the basis that new capacity should be paid by those directly benefiting from it.  However, six of the boroughs that the freeway passes through want the lanes to be untolled.  

I-405 upgrade corridor

The report said, of a latter signed by the Mayors of the six cities:

"Constructing toll lanes is a breach of trust with Orange County residents," the letter stated, adding that residents agreed to a half-cent sales tax increase that would fund one additional general-purpose lane on the 405 Freeway.

One option is to add a free lane and a HOT lane, but that would seem ridiculous.   The HOT lane would have so little demand to make it not worthwhile.  Either there is money to widen the road or there isn't.

Now I consider sales taxes being used to pay for highways to be economic insanity.  Why should people shopping have to pay for an additional lane on a road many of them do not use regularly and most wont benefit from?  However, if it is there, in part, to pay for it, then it is difficult to argue against, unless of course, the sales tax is cut when the toll lanes open.

The report also says:

City leaders expressed worry that the project would push traffic onto their streets, or that motorists traveling in the toll lanes would find it too difficult to pull off the highway and patronize local businesses.

The first point makes no sense, as the lanes are additional capacity.  They will improve traffic conditions for those who pay, and a little for those who don't.  I also doubt whether those wishing to pay to use the toll lanes (who are more likely to be those on a time constrained trip) have any special interest in pulling off the highway.

If the lanes can be substantially funded by being tolled, they should be, and let sales taxes for transport be cut.

Orange County Transportation Authority website on the project.

USA - Texas - El Paso getting its first toll lanes 

I noted this proposal two years ago.

El Paso is getting its first toll lanes opening soon.  A 9 mile stretch of the I-10 will see one new lane each way from the interchange with US-54 to Zaragoza Road with a toll of US$0.10 per mile. The Camino Real Regional Mobility Authority encouraging "sticker tag" installation of users.  These lanes will be pure toll lanes, with no option for high occupancy vehicles to get a free trip.

Austin

An 11-mile stretch of Austin’s MoPac Boulevard will expand to eight lanes from six to accommodate a growing population.  Neither the Texas Department of Transportation nor any of the local entities involved in the $200 million project are predicting it will transform MoPac into a free-flowing thoroughfare.  The project is the responsibiilty of the Central Texas Regional Mobility Authority.  It is to accommodate population growth.  The key is the extra lanes are pure toll lanes, not HOT lanes.   Carpooling will not give you a free trip, the reason apparently being that the lanes are intended to maintain a minimum level of service.   By not allowing carpooling, it saves on enforcement and means that the lanes are purely managed by price.  

According to the Texas Tribune, the Capital Metropolitan Transportation Authority board is hoping it will boost bus patronage as buses will use the new lanes toll free.  Bus routes are to be revised to see how much they can usefully take advantage of the new lanes.  "Registered van pools" and emergency vehicles are also exempt.

The price will be set dynamically with the lowest price being US$0.25, and an average expected to be less than US$4 with trip lengths being a minimum of 5 miles.  However, unlike many toll systems elsewhere, there is no price ceiling.  The price will be as high as is necessary to maintain good free flow conditions.  Of course, those not liking that can use the parallel untolled lanes.

The payment system is a simple DSRC 915MHz system compatible with TxTag, TollTag or EZ-Tag.   Users without tags will be billed to their home address traced by ANPR cameras and accessing of motor vehicle registration databases.

Allied to the project are improved bicycle and pedestrian facilities ( US$5 million, including 3 miles of new path and 4 miles of footpaths).

The MoPac website says...

The project is being financed through a unique partnership with the Capital Area Metropolitan Planning Organization (CAMPO) and the Texas Department of Transportation (TxDOT). CAMPO and TxDOT have approved grants totaling $199.5 million to fund the project. As part of the partnership arrangement, the Mobility Authority has agreed to set up a Regional Infrastructure Fund, and over the next 25 years, will deposit $230 million into the fund. CAMPO can then allocate money from the fund to other transportation projects in the region.

So the lanes are taxpayer funded, but will they raise enough money to recoup that expenditure?

UK Budget - easier to tax owning a car than using it?

Yesterday, the UK Chancellor of the Exchequer (Minister of Finance/Treasurer), George Osborne, released the 2013 budget.  The entire content is here, but I only want to focus on the road pricing/charging elements which are of passing interest.

They are:

- Another inflation based increase in fuel tax cancelled;

- An inflation based increase in vehicle excise duty (annual tax on ownership) proceeds;

- No reform of vehicle excise duty to proceed;

- Expected net revenue of lorry road user charging scheme (vignettes) announced.

Fuel tax increased cancelled - again

For some years, UK governments have increased fuel tax every year, increasing it by inflation and an increment of between 1 and 5%.

None of this revenue is hypothecated at all onto road spending; it is treated as general taxation.  As an aside £9 billion is the total central government spending in the UK on roads, whereas fuel duty raises £26.6 billion this year (and taxation on owning a vehicle adds another £5.9 billion).  This issue is widely known, many motorists being aware that they pay far more to use the roads than government spends on them.  It's particularly an issue when there is a significant backlog of deferred maintenance on local authority roads, and a long list of unfunded major capacity relief projects.  There is a widespread perception of poor value for money.

So the Chancellor announced a planned 1.89p/l increase in fuel duty for September 2013 has been cancelled.  This follows cancellation of a January 2013 increase last December.  The rate is £0.5795 per litre (US$3.33 per gallon).  Compare that to the highest combined state and federal fuel tax in the USA of US$0.69 per gallon (New York State), and you can see this is a different order of magnitude.  

Fuel tax in the UK conceptually funds roads, railways (which get about £7 billion in subsidies) and helps pay for welfare, health, education, housing, defence etc.  Clearly fuel tax increases were tolerated in the UK (although a massive campaign in 2000 ended the inflation + 5% automatic escalator) during times of prosperity, but not any more.

The Chancellor claims that fuel prices are now 13p/l lower than they would have been otherwise, saving £7 per average tank fill.

What this raises is an obvious question, which I have mentioned before.  Are fuel tax rises in the UK now too politically toxic, in the way they are in the United States?  There has been a vocal campaign called "Fair Fuel UK" calling for cuts in fuel tax, with the support of some MPs.  It argued high fuel tax was "corrosive" to business and affected the competitiveness of UK businesses, based largely on the UK having one of the highest fuel taxes in the world.

Bear in mind that in the US the fuel taxes are a fraction of the level in the UK, and they are typically hypothecated to highway trust funds, so most if not all of the revenue goes on roads.  Increases in fuel tax in the US would mean more money for roads (whether it is spent wisely is another debate).  Increases in fuel tax in the UK have never been argued as being about spending money on roads, but just as a general tax.   However, with tax comprising over half the price of a litre of fuel (when you factor 20% VAT on top of the retail price and the fuel duty), the case for fuel duty being the tax that has gone too far becomes clearer.

This might change when there is an economic recovery, and if wholesale petroleum prices drop.  However, if market prices remain high, I suspect it will be too hard for politicians to do for some time yet.   It might be easier if part of the revenue was hypothecated towards road spending (a point vehemently opposed by Treasury which does not want fuel tax treated as a road user charge), and increases were linked to that.  Yet, if all road spending came from fuel tax revenue, it would only need 20p/l (7p/l if you took the revenue from vehicle excise duty).  

However, for the rest of the term of this Parliament the issue will be whether planned increases in 2014 and 2015 (the year of the next general election) proceed, I am betting they wont.  The cut in revenue will be swallowed by general efficiencies across the board (the Department of Transport, along with most others, faces a 1% reduction in spending this year).  So the debate on the future of fuel tax wont be loud this side of the election, but it is a debate that should happen.

Vehicle excise duty raised - again

Almost no coverage has been given to the inflation based increase in vehicle excise duty, which is a tax on owning a vehicle paid either annually or six-monthly.  The rates range from zero for electric and other ultra low emission vehicles to £460 a year (US$699), varying based entirely on CO2 emission ratings.   VED applies to all vehicles, but there will be no increase in rates for HGVs, in part because of the introduction of the Lorry Road User Charge, which for UK registered lorries means an offsetting reduction in VED for those liable.

There have been minor changes to exemptions for this tax for disabled drivers, but also an extension of the exemption for old vehicles (those manufactured before 1974).   However, my conclusion on this is that it is obviously easier to tax owning a car than it is to tax operating it, although clearly even an inflation based increase to £460 a year would be much less than an inflation based increase in £0.58/l in fuel tax.

No reform of vehicle excise duty

I wrote extensively about a proposal to introduce a "two-tier" vehicle excise duty, essentially lowering the basic VED on one hand, but introduce a voluntary "motorway access charge" (essentially similar to a vignette) for using the motorways and other major highways.  The purpose was to enable some dedicated revenue to be available for those roads as part of plans to privatise the motorways.  

It appears the idea has been shelved, and announcements on structural reform of the highway sector to allow more private investment are now expected in June.   None of this is a great surprise, as it appears that MPs fear any reform wont be popular with the public.

Lorry road user charge revenue

One line in the Budget mentions expected revenues from the lorry road user charge (a vignette on HGVs 12 tonnes and over), net of the reductions in VED for UK lorries subject to the charge.  This essentially represents the new revenue from foreign lorries and is £25m a year (US$38m), and is not estimated to increase in the next three years (indicating that there is not much confidence in the figure and a belief that it may suppress growth in foreign lorry traffic).   What is significant about this is how insignificant foreign lorry traffic is to the UK, but then this was more about a political promise to put foreign lorries on an even footing with UK ones.

Conclusion

The word "toll" isn't mentioned once in the Budget, and what it all appears to show is a lack of ambition and a very conservative attitude to taxing motorists.  Fuel tax looks impossible to increase, yet vehicle excise duty because it is a one off annual payment, seems easier.  Given VED costs less than insurance for most vehicles,  it isn't a surprise that this is tolerated.  I am pleased the VED reform has been scrapped, because it doesn't really meet specific criteria for a good pricing instrument.  It wouldn't reflect usage, it wouldn't reflect expenditure on infrastructure, would have limited effect on demand, would probably be negative for externalities (encouraging diversion onto unsuitable roads) and bears little resemblance to any sort of market based pricing.   Finally, it shows that the UK government is almost frightened of mentioning tolls and their use at all for funding new infrastructure, which is a pity.   The UK has high poorly targeted motoring taxes, it could have better roads, better quality road spending, less congestion and more efficient outcomes if a package could be put together that could be sold convincingly to motorists that delivered better pricing and spending.   However, for now motorists are just pleased to not be paying more fuel tax, and government looks like it will make some governance reforms in managing highways that we will see in coming months, with next to no role for tolls.

News briefs - Australia, Denmark, Indonesia, Italy, USA

Australia - Heavy vehicle charges review starts

Transport and Logistics News Australia reports on how the National Transport Commission is consulting on proposed changes to the heavy vehicle charges system (most of which are about how the charges are calculated).

The article is perhaps more interesting for its summary of how Australia charges trucks to use its roads. It is not road pricing or tolls, but a reasonable means of trying to be as efficient as possible in using fuel tax and ownership taxes.

Rather than the widely used non-system of political/bureaucratic guesses as to what might be charged, it involves calculating costs attributable to heavy vehicles, costs attributable to all vehicles and then setting charges to recover from heavy vehicles their share of infrastructure costs. 60% are recovered from fuel tax and 40% from vehicle ownership taxes.  Fuel tax is collected at the Federal level, but ownership taxes at the state level.

The principles applied are as below:

• Full recovery of allocated infrastructure costs while minimising both the over and under recovery from any class of vehicle;
• Cost-effectiveness of pricing instruments;
• Transparency;
• The need to balance administrative simplicity, efficiency and equity (e.g. impact on regional and remote communities/access);
• The need to have regard to other pricing applications such as light vehicle charges, tolling and congestion;
• Ongoing cost recovery in aggregate;
• The removal of cross-subsidies between vehicle classes.

Now without distance and weight based charging, the system is going to be very much second best, but this system for setting charges is more advanced than that used to set charges in much of North America and Europe.   It is, at least, based on setting clear objectives with the need for transparent economic analysis to be used to base charges, and it does provide a framework which could be easily adapted to weight/distance based road user charging.

Denmark - Environmental Economic Council calls for road pricing to replace ownership and purchase taxes

The Copenhagen Post reports that the head of Det Miljøøkonomiske Råd, the environmental economic council, Hans Jørgen Whitta-Jacobsen, has suggested replacing the extortionate vehicle ownership taxes with a distance based road pricing system.  Vehicle purchase taxes cost 105% of the purchase value of a car up to 79,000 DKK (US$13,778) and 180% for every Kroner of value above that.  This imposes an enormous tax on the purchase of a new car.   Ownership taxes start at DKK120 (US$21) for the most fuel efficient diesel cars up to DKK15090 (US$2632) for the least efficient.  All of this makes car ownership expensive, and so doesn't target driving on the most congested roads (so penalises rural areas and those who without jobs accessible by public transit, walking or cycling).   His biggest concern is that such taxes discourage motorists from buying newer, more fuel efficient low emission vehicles.

Indonesia - PT Jasa Marga expecting increased revenue from growing network

The Jakarta Post reports that PT Jasa Marga, Indonesia's largest state owned toll road company, is expecting a 16.1% revenue increase this year, worth a total of US$671 million.   It has a network of 545km of toll roads with four new toll roads to open this calendar year (Nusa Dua-Ngurah Rai-Benoa road in Bali, Kebon Jeruk-Ciledug road in Jakarta, Gempol-Pandaan road in East Java and the Ungaran-Bawen road in Central Java). 

Jasa Marga is looking to facilitate up to 1.2 billion vehicle trips nationwide in 2013, 9.1 percent higher from the 1.1 billion vehicles last year.  80% of trips are on toll roads in greater Jakarta, indicating the sheer density of usage in that city.  Notable in the report is the roll out of the new e-Toll pass, which involves the use of a DSRC on-board unit, and a contactless smart card with prepaid credit that can be topped up.  Only 11% of transactions are at present using this technology, the intention is to lift this to 30% within two years.    Now the toll booths with this technology are not free flow, the tag activates the barrier arm, but the intention is to expand the number of toll booths that are electronically equipped to 111 by the end of 2013.   I would have thought that given the chronic congestion in Indonesia, lifting up take of electronic tolling to 50% of trips within two years should be a realistic goal.

Italy - Atlantia diversifies into airports

According to Reuters, Atlantia, Italy's largest toll road operator, is to buy Gemina, the airport operator best known for owning Aeroporti di Roma (which owns Rome's Fiumicino and Ciampino Airports).  The report said:

The deal will allow Atlantia, which also operates about 1,800 km of motorways in Brazil and Chile, to branch out into airport concessions in Latin America. It will not, however, generate meaningful cost synergies, a Milan-based analyst said.

USA - California- Santa Clarita (LA) looking at tolls to help fund new lanes

The website of radio station KHTS reports that Santa Clarita city (part of the LA metro area) is investigating whether to accelerate the widening of the I-5 freeway (the main northern freeway out of LA) between Highway 14 and Castaic by tolling the additional lanes.   The project would cost $310 million and the city has 75% of the funds needed to progress it (when divided over 30 years), and is hoping tolling the additional lanes may provide the remainder.  The proposal is to make the project into a PPP, with a private concessionaire recovering the cost over 35 years, using tolls on the new lanes only. The intention is for pricing to be dynamic maintaining a minimum speed of 45mph.  Curiously, the proposal maintains the HOT lane concept, by keeping the lanes free for vehicles with three or more occupants, which seems crazy if the key desire is to raise revenue.  The only purpose to keep HOT lanes is consistency, but beyond buses there is little good reason for new lanes to be free for any cars.   There is sense in applying the HOT principle if the lanes are underutilised HOV lanes, but why should well occupied cars occupying the same road space get access for free?  What evidence is there that this actually changes behaviour on any meaningful scale?  (besides a car with three people in it can split a toll three-ways surely)?

USA - Texas - Cintra wins concession for North Tarrant Express expansion

International Construction reports that Ferrovial subsidiary Cintra has won the concession to build the North Tarrant Express expansion in Texas.  Cintra is to be responsible for developing a 6.5 mile extension, with the state responsible for another 3.6 miles, but Cintra responsible for the tolling, operation and maintenance of the lot, with the total cost of both segments being US$1.38 billion.   The contract involves building two new managed lanes which will be tolled, but also the maintenance and operation of the untolled lanes.

The report says that "the Cintra-led consortium, NTE Mobility Partners Segments 3 LLC, also involves Meridiam Infrastructure and Dallas Police and Fire Pension System"

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).

Previous articles:

- UK highway reforms split on road charging

- Reforming Britain's highways, my views and CBI's views

- Radical privatisation of UK highways proposed by thinktank

- Higher road tax for UK motorways?

- UK government announces feasibility study into highway privatisation options

Vehicle taxation reform with little measurable benefit

Once again, news media in the UK have been reporting on the ongoing discussions within government to reform motoring taxes in the context of wider reforms of the highways sector. Yet, once again they are reporting on proposals that will deliver virtually nothing in terms of the two key objectives of road user charging - that being more revenue, and better management of traffic demand (one can also argue that it is about better resource allocation as well).

The Daily Mail reports on what it calls a £150 a year "motorway charge", being the idea for a vignette for light vehicles for access to the motorway network only.  The idea actually being considered is to cut vehicle excise duty (commonly called road tax) by about the same amount, although the report doesn't make that as clear as it could, as virtually all comments on the website are the predictable "damned if I am paying more.. how dare they" outrage, which anyone reading the article in a cursory way would understandably feel.

Once again, communication of anything to do with motoring taxes is damnably difficult, a factor the government should bear in mind before doing anything that creates more heat than actual gains in policy.

Yet it isn't about raising more money, because it couldn't do so, or at least not by sufficient amounts to get policy makers excited.  A bit of rejigging of vehicle excise duty might see some low emission vehicles paying the vignette (given the vehicle excise duty they pay now is less than that amount).  It may be easier to sustain inflation adjustment of a vignette than the current vehicle excise duty, but that's about it.

Another article, from an insurance company claims that charges would vary by weight and emissions ratings, which is exactly what vehicle excise duty does now, in part because it tries to reflect the greater wear and tear that heavier trucks impose upon the road network. 

The impression may be that the story is a deliberate "leak" to test public opinion.  If so, it is hardly likely to be given a positive response, in part because nobody could believe that the reason for doing such a reform is legitimate.

What is the UK government wanting to do?

The key outcome sought is to generate more investment in improving roads, most particularly the English strategic road network (Scotland, Wales and Northern Ireland are outside the scope of this, and there has been little said of local roads, although they are in a far more needy state than the motorway network).

The interest is in getting private companies to invest in capital improvements, but given that they wont be allowed to toll these roads (except for a handful of cases where new capacity is provided and it is technically feasible to toll), there needs to be another source of revenue.

What options are there?

Given that tolling existing capacity has effectively been ruled out, there are two ways to ensure a revenue stream for private investors.

The first one is for any new private equity investor to be offered a concession which involves contractual payments, similar to the Private Finance Initiative (PFI) schemes that already exist in the UK highways sector (e.g. for the M25 and M40).   However, as this typically is used for case by case projects, it is not seen as being flexible enough to cover companies literally taking over parts of the network for extended periods.

The second one is to take part of existing motoring taxes and effectively change its status so that it becomes a dedicated stream of revenue from motorists.  That in itself could be achieved in two ways.  The simplest way would be legal hypothecation, so that a set amount of the tax collected or proportion is placed into a legally defined roads fund, that would be allocated for the privately managed roads.  International best practice in doing this would mean a separate funding board be set up, which would manage the fund and be legally required to spend the proceeds on bids for funding.  

However, the UK public service has long been suspicious of hypothecation, for fear that it changes the status of taxes into user fees, and means that it would be a precedent for new hypothecated taxes, even though  evidence from developed countries with hypothecation does not seem to support this though (I come from New Zealand which has successfully managed a transition to a fully hypothecated land transport fund, which the World Bank has long considered to be international best practice).

So the alternative is to split an existing tax, making part of it a fee that can be accessed by the new private investors in the roads.  The Vehicle Excise Duty would remain, at a lower rate, but the new "access fee" would be voluntary (in that it was only paid for using the motorways), and could be regionalised. 

Will this raise any more money?

No.  Unless the private investors are given the right to set the charges of the fee, and presumably would have control over a road or set of roads to justify it (and enforce payment of the fee for those roads).  This seems unlikely, unless the government reforms charges so some pay more.  

Will splitting Vehicle Excise Duty deliver behavioural change that will improve outcomes?

No.  It is a tax on ownership, not road usage, and whether it is redefined as an access charge for motorways or not, the most that might happen is that a little traffic may redistribute from the motorways to local roads, by those who choose not to pay the "access charge".  It wont be charging for congestion (although it would be possible to introduce Brian Wadsworth's proposal regardless of such a change), and it wont result in motorists thinking twice about the costs of a trip.

So why do it?

Well it appears to be a compromise between the traditional antipathy to hypothecation and actually undertaking serious reform.  Vehicle excise duty is at best a tax that recovers some of the fixed costs of the road network, and provides modest incentives to own low emission vehicles, but little else.  There is little good reason to impose a vignette for cars without the presence of large numbers of visiting non-national cars (which there are not).   Meanwhile, the proverbial elephant in the room is fuel duty.  Treasury and some politicians see this as a tax, and want to blank out any linkage of it to usage of the roads.  This is disingenuous, as the revenue generated would simply not exist if the roads were not being used.  Beyond part of it potentially being justified as an environmental tax (albeit to be used as general revenue), it is difficult to not see it as a tax on using the roads (especially given the varying exemptions and different categories of fuel and taxation levels available for different uses of fuel).

Calling it an "access charge" implies that it could transform into a usage based charge into the future, which is true, but it is not as if this makes it that much easier.

What should be done?

If this is just about providing a secure source of revenue for private investors, in the absence of tolls, it would be simpler to avoid changing anything for motorists and just hypothecate Vehicle Excise Duty (and the forthcoming HGV vignette) in its entirety and use it to set up an independent roads fund that would "buy" road "services" on long term contracts to public and private providers of roads.  That would also include bids from the devolved transport bureaucracies in Wales, Scotland and Northern Ireland, and local authorities.  Now the total revenue from Vehicle Excise Duty and the HGV vignette is less than what is spent on roads by central government through various outputs, but it would be enough to guarantee funding for private investment in the strategic road network.  I'd also argue that a small portion of fuel duty should also be hypothecated, because it is a form of user charge, and it provides at least some of the revenue for a roads fund based on usage (which would grow in the event of growth in traffic).

Then any investors in roads could be allowed to contract out of the fund, by charging motorists directly and then offering them full refunds in the fuel duty component and a partial refund in vehicle excise duty.

Until fuel duty is confronted, this whole area cannot be reformed in a way that is satisfactory to motorists, because you cannot hide from the point that motorists know fuel tax is high and so they link that to paying to use the roads.  Meanwhile, unless you are going to reform road charging to increase revenue or improve the efficiency of the system through behaviour change, I do not know why you would bother.