Two companies offer toll billing services to rental car firms in US

The Chicago Tribune writes about a business called Platepass which provides toll collection services primarily to rental car firms, whose customers may not know how to interact with fully electronic free flow toll roads.  It has been around since 2006 and is used by Hertz and Advantage rental cars in the USA.   A competitor called Highway Toll Administration (since 2002) is used by Avis, Alamo and Enterprise. 

The system works by offering rental car customers an option to pay for tolls electronically.  It means that no rental car vehicles become violators, but instead Platepass chases up the debt, usually paid through the credit card used for the car hire.

It charges an administration fee of US$2.95 per day for rental car customers, effectively meaning it is only worthwhile if one is using several toll roads per day.  The maximum is $14.75 per month, meaning a two month hire could cost $29.50, without actually paying a cent for a toll road.

The idea is to be convenient.  However, it appears that some customers are being signed up for the Platepass without being aware of it, and some are paying cash at conventional toll booths and finding out they are being billed twice.  Certainly the fee structure makes it more expensive than paying direct, but few users of a rental car know how to contact the toll road company and make a payment by phone.  It takes considerable time to work that out.

However, it really ought to be transparent to those renting.  Either it is clear that all tolls will be through this system when renting, or those renting can opt to pay direct and face the considerable fines involved if they do not do so (that being the real saving of the administration fee).

It is good to see businesses emerge to deal with this obvious issue, and for them to hopefully extend across lease vehicles or even maybe have consumer products for when people borrow cars off others (perhaps with a smartphone app to activate an account).   Yet it is important that people know that it exists and what they face paying.

Meanwhile, this business is undoubtedly quite a lucrative one for those in it.

Recycling congestion pricing?

A grand bargain for roads?

Ron Davis at the Huffington Post argues that there is an economic case for congestion pricing, but that the claimed equity concerns can be addressed by simply recycling the revenues.  In other words, he sees congestion pricing not as a way of replacing existing motoring taxes or raising new revenue, but that the benefits of congestion reduction (and reduced emissions) in and of themselves make it worthwhile to introduce it on a revenue neutral basis.

He said:

The total annual tolls collected should be equal to highway spending (currently $160 billion). The same sum should be granted to taxpayers, divided equally among them. Any money the government collects from tolls gets taken out of taxes.

Hold on, so if the amount collected should be equal to spending on highways, then why return it to motorists?  Doesn't this mean that existing taxes continue to be spent on roads?

Yet there is some sense in what he is arguing.  

He says there should be a tax credit to everyone equal to revenue from congestion pricing, to offset the cost, so that those who pay congestion pricing would already have the money and could choose to drive at peak time, or drive at other times (or not drive at all) and keep some of the money.

He suggests US$800 per head be given to everyone, and the congestion reduction benefit from congestion pricing would be enormous:

Congestion pricing would save between $40 billion to $50 billion per year. $40 billion could pay for 100,000 teachers, an aircraft carrier, a 5% corporate tax cut, a $10,000 check to the million poorest Americans and food for over 3 million starving kids in poor countries for a year. All at once. This savings estimate excludes the economic waste from stop and go traffic. If staggered commute times lowered the economic cost of traffic jams from $130 billion per year by just one-third, the combined savings over a decade would be over $800 billion.

In effect, what he is proposing is to recycle congestion pricing as a new tax.  However, he isn't explicitly proposing that it replace existing ones, but instead keeping existing taxes to pay for roads, whilst congestion pricing would be simply a tool to reward those who don't drive at peak times, but penalise those who do.

It would work, to reduce congestion, but it would be preferable to replace existing taxes instead.  Far better to have motorists pay no additional tax on fuel or vehicle ownership, and then only pay when driving at peak times, rather than keep paying such taxes and then get a refund from a new tax.

Still it is a useful idea.   Far too often arguments against congestion pricing are linked to it being a new tax, and to raise additional money to spend on transport projects.  This shouldn't be the only use of congestion charging, because the key benefits are in improving the utilisation of the network, reducing delays, reducing emissions, encouraging use of the network at other times and usage of other modes.

It's quite plausible and could be economically efficient to create a congestion charge that simply raises money that is then credited to everyone who drives, although it still raises the question of how efficiently one raises funds to pay for the infrastructure costs in the first place.

News briefs - Indiana, New Zealand, SANEF, Texas

Indiana

As it spends down the proceeds from the privatisation of the Indiana toll road, the state is now contemplating how to maintain funding for its highway network.  NWI Politics reports that approaches being considered include more toll road projects, using PPPs and a vehicle mileage tax (VMT) to supplement or replace the gasoline tax.  Both major candidates for Governor are promising tax reductions, which will not make it easier to increase gasoline tax to pay for roads.  One can only hope that the state can pull together a plan that it can sell to voters.  Considering a mix of tolls where viable, and a longer term transition to VMT is likely to be following the steps of many others.

Meanwhile, a report from NWI Times notes that 65% of users of the Indiana toll road are out of state, indicating how important the toll really is to ensuring that users of the road pay for it.  Motor registration taxes and gas taxes for such vehicles are more likely to be predominantly paid out of state.

New Zealand

Having recently restructured its national distance-weight based road user charging system so that it charges by maximum allowable vehicle weight, not average vehicle loading, New Zealand is finding a few feeling unfairly hit by the changes.

The change made some policy sense in that it meant that there were no longer issues of enforcing vehicles according to actual weight (when this would vary from trip to trip) and vehicle owners would no longer need to buy supplementary road user charges licences for blocks of 1000km for heavier weights.  Keeping it at the maximum allowable also incentivises more efficient vehicle usage, but it does mean some lose out - mainly those with larger vehicles which permanently carry much smaller weights.   The Timaru Herald reports on Mervyn Tyree, who owns a customised bus converted into a motor home that has a maximum permissible weight of 21 tonnes, even though it only ever weighs 14.7 tonnes.  He is facing an increase in road user charges of nearly 100%, even though he isn't actually carrying any more or creating any more damage to the roads.

I did road user charging policy in NZ when it was actual weights, and whilst it was inherently attractive to simplify the system by moving to maximum weights, it was expected to create these sorts of problems and in particular, problems for trucks that would never carry the full load for much of their trips (milk tankers).

The only way this could be avoided is by having a special vehicle category for those which are no longer capable of carrying the full load in ordinary usage.  Converting a bus to a motor home effectively does that, because Mervyn probably can't fit enough people in to reach the 21 tonne limit.

SANEF's Standard & Poors credit rating reconfirmed

SANEF's Standard & Poors credit rating dropped to BBB in July, and this rating has been reconfirmed by S & P on 10 September according to Reuters.  The outlook remains negative.

The statement included this:

Sanef operates the third-largest interconnected toll road network in France.  Although the company is exposed to variations in traffic volumes, it benefits  from a strong competitive position; favorable concession agreements, including  yearly inflation-linked tariff increases; high profitability; and positive  free cash flows. We consider the risk of acquisitions and diversification to  be low. These strengths are partly offset by Sanef's high indebtedness, and its relatively rigid dividend policy.

The rating is directly related to the rating given to its primary shareholder, Abertis, which is also BBB.

Texas

The Examiner writes a fairly critical article about the forthcoming SH130 toll road in Texas, which is to be the first foreign privately owned toll road in the state.  It's not particularly flattering, which is unfortunate, as Texas does sometimes have the image of being a state that believes in a free market approach, but this article gives the impression of an underlying xenophobia around the road being foreign owned, and a belief that fuel taxation is inherently fairer.   The article descends into little more than rhetorical polemics with this:

So there can be no doubt that the state is cozying up with big business to incentivize truckers and motorists to use Cintra’s tollway, and effectively grant Cintra a monopoly for the next 50 years through various revenue sharing schemes and other incentives, like slowing free alternatives and ensuring any expansion of I-35 will also be tolled, not free. God help Texas with such sinister agents in charge of transportation. Eventually, you won’t have a choice but to pay.

Lippincott was sure to dodge the glaring hypocrisy of Governor Rick Perry, who is so obviously starving the gas tax in order to hand Texas roads to his corporate buddies. Perry claims to be all about state sovereignty, the primary subject of his latest book, Fed-Up, while selling off Texas to the highest bidder.

Terri Hall, the writer "is the founder of the San Antonio Toll Party and Texans Uniting for Reform and Freedom. She started a taxpayer revolt upon learning of plans to convert Highway 281 into a tollway and charge taxpayers again for what they already built and paid for."

I am curious as to whether Ms Hall actually believes that when you build anything that you don't ever have to pay anything more to ensure that it retains its value.  A common mistake in economics that is used too often in arguing against tolls.

Meanwhile, the Wall Street Journal notes that the State of Texas receives $100 million for approving the 85mph speed limit for the toll road, $33 million more than had the concession been for an 80mph speed limit road.   Quite simply the concessionaire believes it will get more users at a higher speed, but safety advocates and opponents to privately owned roads believe it is "reckless".

Texas free flow tolling violations

A report in KeraNews indicates that the proportion of users of North Texas Tollway Authority toll roads that violate by not having a toll tag and not paying invoices sent in the post is 1%, and Texas is about to crack down on them.  The approach appears to be to treat it as a civil debt, and seek recovery like other debts, but also to treat violators as trespassers by allowing such vehicles to be impounded on the toll roads if stopped.  The violator with the highest debt owes $182,000.

Vancouver's new toll bridge incentivises early registration and provokes debate on road pricing

The province of British Columbia is replacing one of Vancouver's key bridges, the Port Mann Bridge, which carries the Trans-Canada Highway over the Fraser River.  The existing five lane bridge (two lanes each way with a HOV lane) is inadequate for the volumes of traffic over it, and the new bridge will have four lanes each way plus one HOV lane each way, and a cycleway.  The new bridge is to cost C$2.46 billion (US$2.52 billion).  It is being commissioned by the province and will be the world's widest long span bridge.  It is expected to save up to an hour a day in travel time for commuters, suggesting existing queues are significant.

Port Mann Bridge, Vancouver

The current bridge is untolled, but the new one will be, with toll rates capped to rise no more than 2.5% per annum or inflation.  Tolling will be entirely electronic free flow based, using a sticker based transponder (which is supplied free of charge for those who register) and automatic number plate recognition (ANPR) cameras.  Enforcement will include as a last resort, denial of vehicle insurance renewal, and US violators will be pursued through a contractor for debt collection in that country.

The Aldergrove Star reports that the British Columbia government is incentivising early opening of accounts.  The bridge opens in December 2012, and for the first three months the toll will be "half price" at C$1.50 (US$1.54) per trip (for cars), but for those registering accounts over that period they will be guaranteed that price for a whole year.  It is hard to imagine regular users not wanting such a saving, since after the first three months the price will be C$3 (US$3.12) for those who have not registered.  

Light trucks and cars with trailers will pay C$4.50 (US$4.61) for the first three months, then C$6 (US$6.14) if not registered.

Motorcycles will pay C$1 (US$1.02) in the first three months, then C$1.50 (US$1.54) if not registered.

Heavy trucks will not have this discount pay C$9 (US$9.22), but will only pay half price between 9pm and 5am.  

Furthermore, registering an account by 30 November 2012 (before the bridge opens) will mean a C$30 (US$30.72) credit in their accounts (20 free crossings).

Another interesting dimension is that HOV lanes will not be free at peak times, but will have a 25% discount for multiple occupancy vehicles.  It makes sense to not offer such vehicles free access, but unclear why there needs to be a discount at all.

The argument for the discount is that not all lanes will be open on day one, but it makes a great deal of sense to incentivise the creation of accounts, because it will significantly reduce transaction costs for the toll system.   The more users are paying more or less automatically, the less it costs to operate.  The goals is to get 80% of users registered.

Those who do not register and do not have an account can either prepay, or postpay within seven days. After that time they face a C$2.30 fee (US$2.36).

Finally, there is an option to buy an unlimited access pass for motorcycles, cars and light trucks (C$50, C$75 and C$225 respectively).

All of this is positive, and shows a degree of commercial nous in encouraging users to adopt the most cost effective (and convenient) options for them.  However, what else is interesting is that it has provoked wider discussion about tolls and road pricing in Vancouver.

The same article notes that Langley City Mayor Peter Fassbender says there needs to be a look at road pricing in Vancouver.  Surrey Mayor Dianne Watts talked of tolls not be imposed on some roads as a lost opportunity.  

Finally Canadian Taxpayers' Federation B.C. director Jordan Bateman said the Port Mann toll discounts make sense to reduce administration costs but he'd also prefer a look at tolling reform.

"We wouldn't be averse to seeing the province head towards a road pricing system," he said. 

"Provided it was fair and equitable across the region and only if it's tied to a corresponding decrease in the gas tax."

That in itself, is a big step forward for a taxpayers' lobby group to support road pricing, on condition that it was reducing fuel tax.  Surely this gives some scope for British Columbia to think a bit more boldly on road pricing?

Equity arguments against congestion pricing aren't used elsewhere

Following on from the speeches made by Scott Charlton and others than I reported previously,  Australian blogger Alan Davies, on Crikey, said that Australians should talk about road pricing.  He gets the economics largely right, that peak congestion pricing would mean mode shift, time shift and consolidation of trips, although he advocates it as a source of new government revenue, which would be controversial.

Yet the most important point he makes is in rebuttal to claims that congestion charging is an attack on the poor:

The main criticism of road pricing is the claim it’s inequitable. Yes, higher income travellers will be better placed to deal with road pricing, just as they are with all other motoring-related costs.

However that issue has to be balanced against the economic and environmental damage done by excessive car use. There’s also an incorrect and somewhat patronising assumption that lower income travellers don’t make high-value or important trips.

We need to bear in mind that everyone regardless of income currently pays for necessities like food and rent according to the amount they consume. Everyone pays for essential services like water and power irrespective of their income. Everyone who uses public transport pays and the revenue is used to make public transport better. 

Indeed, governments (in the developed world) don't deliberately discount the cost of buying cars (unless they are electric), fueling cars or maintaining them to help the poor.   The policy response to people on low incomes not being able to afford the market price for goods and services is rarely to subsidise the prices of such goods and services (as the transaction costs are high and the distributional impacts are likely to skew towards those who can afford to pay), but rather to support incomes more generally (with the exception of housing) to allow them to make intelligent trade-offs between goods and services they purchase.

He does suggest discounts to offset the impacts (an idea which is hard to police or effectively target), but there are better ways of doing it, especially if pricing can be more disaggregated by time and location, so that prices are precisely targeted.

His latest post on the topic links to an excellent summary of issues as to his thoughts as to why congestion pricing in New York did not proceed.   It includes this table below, which is well worth reflecting upon:

Alan Davies on why New York congestion pricing failed

Opposition to congestion pricing because it hurts the poor cannot be simply dismissed, but it shouldn't be allowed to dismiss the concept out of hand.   Work needs to be done to understand the real distributional impacts of such pricing, particularly if the use of revenue is taken into account and pricing is concentrated on peaks.

Maryland's toll enforcement inadequate says report

The Washington Post has reported that the state of Maryland has been inadequate in enforcing tolls against motorists who drive through free flow toll lanes without EZ Pass transponders.  The story is a damnable indictment on poor legislation and policy.  15,000 motorists owe over $500 each in unpaid tolls and nine rental car companies also owe tolls ranging from $80,000 to $209,000, with violations dating back up to eight years.  A total of nearly 650,000 vehicle owners owe the state $6.7 million in unpaid tolls and fees.   

Maryland toll roads

A table produced by the newspaper indicates violations have increased substantially in the past year, from 386,000 in 2011 to 692,000 in 2012, with a $2 million increase in the value of violations.

The Maryland Transportation Authority threatens to suspend vehicle registrations of violators, but hasn't done so for two years because it has failed to issue $50 citations which it must do in advance of suspension.

What does it do?

the authority, which operates the state’s eight toll facilities, mails vehicle owners a “notice of toll due.” After 30 days of nonpayment, the authority tacks on a $25 fee. Repeat violators are referred to the state’s central collection unit, which continues to send periodic letters requesting payment. But unlike its practice with other types of debt owed to the state, the unit never reports chronic toll violators to credit-rating agencies.

Tony Fugett, the unit’s director, said toll violators receive two letters and an occasional automated phone call requesting payment. After that, they receive a letter once a year. The state can deduct money owed from lottery winnings, contractor payments or state income tax refunds, Fugett said. If none of those is applicable, he said, “I guess there’s nothing we’d have in our arsenal other than continuing to contact people.”

So the letters are toothless.  Yet the Maryland Transportation Authority regards this level as manageable as violations only cost 0.2% of total revenues.  Manageable until now, because why would anyone continue to pay when the state doesn't actually do anything beyond negotiate for payment?

It has become more of an issue because toll rates are planned to rise in July 2013, and those that do pay are less than happy that "being good" seems a bit unfair, when those who don't pay face few consequences.  The Authority's reason for not issuing the $50 citation is that it wants to be more "customer friendly", but at what point is being customer friendly letting violations accumulate over years whilst seeking to put up prices for those who do pay?  A quarter of unpaid tolls are out of state and the state has no reciprocal enforcement agreements with other states.

A bill had been drafted to allow the Authority to suspend registrations and to allow for interstate agreements, but it went nowhere.

The article claims that the Authority sends details of vehicle owners who incur debts of over $30 to the state debt collection unit, referring 700 to it in the 2012/2011 fiscal year. 

The article is interesting in reporting violation rates of toll roads in neighbouring states:

New Jersey 1.4%

Virginia  1.7%

Delaware 3.4%

It also describes the enforcement procedures in other states:

New Jersey has arrested some of its most flagrant toll cheats on ­theft-of-services charges and recently posted a “Wall of Shame” on the Internet listing toll scofflaws by name and home town. Three states — Massachusetts, Maine and New Hampshire — recently entered the first-ever reciprocity agreement to pursue vehicle registrations of out-of-state toll violators.

In Virginia, vehicle owners with three or more unpaid violations are summoned to a court hearing, where a judge may impose a civil penalty of up to $500 for multiple violations. If an owner ignores the court-ordered fines, the state puts a hold on the vehicle’s registration renewal.

Conclusion

The primary blame for this appears to lie in two places.  First, the state legislature which has refused to change the law to make it easier to enforce tolls and to enable more efficient enforcement of out of state violations.  Secondly, the Authority seems unwilling or unable to issue citations, and wanting to appear "customer friendly" doesn't seem like a good enough reason.  If it is legal, then the laws needs changing.

Compared to free flow tolling elsewhere, this practice simply seems absurd.  Fines should recover more than the cost of enforcement and be a deterrent, and the state should be able to recover debt like any other.   Not having a robust enforcement process will undermine future revenues as more and more realise that they are unlikely to face serious consequences if they don't pay ( the state can take the tolls and fines out of lottery winnings and tax refunds, but this affects few).  It is core to any robust electronic tolling system to have serious sanctions for not paying.   Maryland oddly seems unable and the legislature unwilling to address it.

Delhi to focus on parking before congestion pricing

The Economic Times (of the Times of India) reports that the Delhi Government has decided to implement a number of measures short of congestion charging to address growing congestion in the city.

Parking fees are to be increased, and enforcement of minimum emissions and safety standards of vehicles will be toughened significantly.  The expectation is that this will remove a number of vehicles from the road, as well as having positive impacts on emissions and safety.  The only problem is that this will undoubtedly target the lowest income owners of motor vehicles (who by Delhi standards are still middle income households).  

Certainly this approach makes sense, as without the ability and willingness to effectively enforce laws against vehicle owners, it is doubtful that a Delhi congestion charge could be enforced either.   A sustained effort over six months to fine or remove vehicles that don't meet laws on safety or emissions would help stem the growth in traffic.

On parking, it is also reasonable and relatively low cost to adopt robust policies on restrictions and pricing that will help traffic to flow freely and to let parking pricing be market led.  Whilst Delhi may not yet be ready for the sort of radical parking pricing now seen on trial in San Francisco and Los Angeles, a focus on parking should be the key for the immediate future, although it will not be sufficient.

There are 6.5 million vehicles in Delhi today, a number that increases on average by about 1,000 a day (the report notes there were 562,000 vehicles in 1981).  Ownership will continue to increase, and whilst public transport can be enhanced (and walking and cycling should not be neglected) and parking addressed, the fundamental problem of traffic congestion is demand exceeding supply, without the price instrument to manage it.

If Delhi can demonstrate that it can effectively enforce laws against vehicle owners on safety, emissions and parking, it shouldn't be hesitant about more detailed consideration of congestion pricing, even if it is likely to be the last policy instrument taken to help relieve traffic in the city.

Stockholm congestion pricing has had long term effects on traffic levels

The European Commission DG Environment reports on a study that indicates that the congestion tax in Stockholm has managed to sustain and enhance benefits in congestion reduction over time.   The EC believes this has positive implications for the concept's application in other cities.

Stockholm congestion tax cordon map

The report says:

The results of this study suggest that congestion charging can work over the long-term, supporting plans to introduce such charges in other cities across Europe. The findings also demonstrate that some concerns about the charges, such as increased congestion on other routes, are not supported by the evidence, and that public acceptability may increase over time.

Non-exempt* traffic had reduced by 29% across the Stockholm cordon when the congestion charge was introduced in 2005, and that level of reduction has been sustained even though prices have not increased (so have reduced in real terms by around 2% per annum).  It appears that the charge has had a long term effect on changing driving patterns into central Stockholm.   However, researchers acknowledge that over time there will need to be real increases in prices.

Another criticism about congestion charging, that it increases traffic on roads adjacent to the charging zone, appears to have been without foundation, as there has been no significant increases in traffic or congestion on other routes, except that attributable to population increases.

Finally, public acceptability for the scheme is now 70%, up from 36% in 2006 (and a narrow majority in favour of the charge in a referendum), indicating that the benefits of permanent reductions in traffic volumes and improved mobility are now widely accepted.

In conclusion, the Stockholm scheme has not only worked, but sustained a step change in traffic patterns in the city and not distorted traffic movements outside the zone.  

It's worth noting that the Stockholm scheme is slightly more sophisticated than the London one, as it has higher charges at peaks compared to the interpeak period, and no longer has an exemption for so-called "green" vehicles, because the emphasis of the tax is to reduce congestion - and all cars contribute to that.  The other interesting dimension to the congestion tax is that most of the revenue is being used to support enhancements to roads outside the charging zone, which appears to be a key part of the charge gaining acceptance by people in Stockholm.

Finally, the official title of the charge is the "congestion tax" because under Swedish law, it is the only way the charge is enforceable.

* Exempt vehicles are only buses, emergency vehicles, motorcycles, diplomatic and foreign registered vehicles and those of holders of a disability parking permit.

Transurban advocating network wide urban road pricing

TransUrban CEO Scott Charlton, at a conference in Melbourne, called for network road pricing in Australian cities to better manage network utilisation.  He suggested that full network pricing might include discounts for trucks travelling at night, and mean a simplified charging structure with peak and off peak charges, which could also facilitate efficient use of corridors for both public transport and other vehicles (which to me sounds a lot like, well, roads).  He also suggested that toll lanes parallel to untolled lanes may work in certain contexts in Australia, although he did not suggest any specific examples.

In the Sydney Morning Herald it was reported that he said that some studies suggest that as much as 40% of afternoon peak journeys are discretionary, indicating considerable scope to change demand patterns and substantially reduce congestion.

The report said:

"Whether it's corridor charges, congestion charges, demand pricing or distance-based tolling - network pricing will have to be introduced to fund infrastructure, manage demand and promote public transport alternatives," said Mr Charlton, whose company operates the M2, M5, the Eastern Distributor, the M7 and the Lane Cove Tunnel.

"Just take a look at our major motorways and it's obvious: we need new capacity – and we have to find better ways to utilise our existing assets."

So he is advocating wider pricing not just to fund more infrastructure, but to better manage existing highways.  This shows a wider interest than that traditionally expressed by toll road concessionaires, who typically look little further than the demand/revenue of their roads against debt.   Could it be that TransUrban would be interested in having more responsibility for traffic management and highway management in cities than just the roads it manages now?

The report noted support from the New South Wales Premier, Barry Farrell, for reform of tolling in Sydney to have charges on a distance basis on existing tolled motorways, but not charging by time of day.  There is a strong intention to make the charges, at least in the first instance, revenue neutral (but of course this cannot be guaranteed over the longer term if demand increases).

Yet this approach, whilst welcome, is insufficient according to Charlton, as it deliberately avoids peak charges (which already exist on the Sydney Harbour Bridge).

He makes the point eloquently, arguing effectively that Australia cannot keep building new capacity that is only fully utilised for a few hours a day:

"If you look at just one of our Sydney motorways – the Eastern Distributor – you can see the peaks in the am and pm periods," Mr Charlton said.

"You can also clearly see the motorway has excess capacity during other parts of the day. The question is – could peak pricing change this profile? Or could discounts during the off periods produce a better transport outcome?," he said.

"One key fact in the road pricing debate is that a significant number of motorists do have an option of when they travel. Some studies suggest as much as 40 per cent of travel in the afternoon peak is discretionary.

"We are asking people to consider their travel more deliberately, and question the time of day they really need to travel or by what mode.

"Pricing restrictions on travel will be a bitter pill to swallow for a country that prides itself on high standards of living. Avoiding difficult initiatives will result in un-economical decisions on infrastructure delivery and the further build out of existing roadways that are only fully utilised for a small number of hours a day."

He's right.  One of the critical points about congestion charging is encouraging a time-shift of trips, not just a mode shift, and there need not be an alternative mode for every trip (which is not only impractical, but not economically viable).  

The chief executive of Infrastructure Partnerships Australia, Brendan Lyon, agreed with him, saying:

''Our historic approach has been to add new roads to address congestion, but there are natural limits to a supply-only approach,'' Mr Lyon said.

''Australia cannot endlessly build its way out of trouble, and that means we need to begin a national dialogue about how pricing can better manage congestion and help to fund the huge backlog of public transport and road infrastructure.''

Quite.

This view was echoed again by Infrastructure Australia chairman Sir Rod Eddington, who once led a detailed inquiry into transport policy for the last UK government (which was swiftly, and wrongly, ignored by that and the current government).  According to The Age, Eddington said there should be "Mature and dispassionate" discussion about pricing and that congestion cost the state of Victoria A$4 billion per annum (US$4.2 billion).

He believes the first step should be a a road charging system for trucks, as congestion charging for cars is far more difficult.

He's right of course.  For road pricing will only actually be accepted if motorists see value in it, which will come from effectively reducing congestion, ensuring existing networks are well maintained and some offsetting of existing non-motoring taxes.

UK Transport Minister says motoring taxes will be replaced by road pricing

Should the UK government replace road tax with road pricing?

Should fuel tax be replaced by road pricing as well?

Well one UK Minister thinks road pricing is inevitable.

Both the Mail on Sunday and the Sunday Express are reporting that Parliamentary Under-Secretary for Transport (a junior Ministerial role), Norman Baker, has said that road tax (officially called vehicle excise duty - essentially an annual tax associated with vehicle ownership) will be replaced with a distance based road pricing system, and fuel tax will also need to be significantly reduced, because existing taxes are unsustainable.

Whilst it is not policy at present, he is the first Minister of the current UK government to say that such a change is inevitable, and he cites evidence from the Office of Budget Responsibility to say revenues from existing motoring taxes will be halved by 2030.  This point was made earlier this year by a comprehensive report from the Institute of Fiscal Studies for the RAC Foundation which I wrote about.

The problem quite simply is that revenue from fuel taxes is being eroded by increased vehicle fuel efficiency and new vehicle fuel technologies, and revenue from vehicle excise duty eroded by people buying vehicles in the cleanest engine categories (which pay less), along with flat rates of vehicle ownership.  While fuel tax could be continually increased, this is becoming politically untenable and will start to have serious equity implications as it will hit those who cannot afford the newest most fuel efficient vehicles the most.

The Mail on Sunday report says:

-  Vehicle excise duty would be scrapped and fuel duty cut, with distance charging replacing them based on a "black box" inside vehicles;

-  Motorway trips would "cost more", those on short local trips would "be the winners" (but it is unclear why);

-  The cost to the average motorist would not be higher.

The Sunday Express report also says:

-  "Every government of every colour will get there, whatever parties say now";

-  "We have to recognise that for the future the car is the friend of the environmentalist. We’ve moved very successfully towards the rollout of electric vehicles and a change to what cars are."

It's worth noting that he is not the lead Minister and that he from the Liberal Democrats, the junior coalition partner in the current government (which is having its annual conference this weekend).  So this statement has to be seen in context.  It is an idea being floated that more senior Ministers can refute if need be.

The reactions so far have been from two interest groups.  The Automobile Association head of roads policy, Paul Watters, said to the Sunday Express that "our members tell us they do not trust Governments on road pricing and assurances about such systems being ‘revenue neutral’.  No one ever believes it.”

That indeed, is the problem.

The other comment was from Stephen Joseph, the chief executive of the Campaign for Better Transport (a pro-public transport lobby group), who said in the Sunday Express that it was "hugely significant" and "I think the only way it would work is if people are given a choice between paying road charges or paying fuel duty".

I suspect he is right.

Comment

Good on Baker for floating this, although I predict much of the public discourse on this will be the absolute disbelief that governments can be trusted to lower existing taxes, and concern once again about what the money collected is spent on, and worries about privacy (in part generated by years of false reporting about the technology by some newspapers).   Given the Liberal Democrats had a policy at the last election of drastically cutting spending on roads in favour of public transport and being particularly enthusiastic about policies to reduce climate change, some will see this as a trojan horse to tax motorists more.

A shift from ownership taxes (vehicle excise duty - commonly referred to as "road tax") to distance based charging would be a positive step, in reducing the costs of ownership and meaning those who drive the most would pay the most.  It would have a modest effect of making all motorists consider the costs of each trip, although if it was a flat charge it would certainly encourage them to take the shortest route by distance, although that may not be the best route.   It would take some variation of charges by type of road to avoid that, although it is peculiar for Baker to seem to suggest motorway trips would cost more - when on a per mile basis they should be the cheapest, if it is just about recovering infrastructure costs.

That being the key point.  What is the purpose of motoring taxes?  If it is about recovering what is spent on the infrastructure (or better yet the long run cost of capital), then motorways should be cheapest, on average because although they are expensive to build, the cost per vehicle mile given volumes of traffic is comparatively low.  If it is also about managing demand, then there should be a component of peak charging, which is related to roads that get congested.  If it is also about reducing negative environmental externalities, then there could be a component for that, or if fuel duty is retained it can be said to partly reflect that.

It would be disappointing if time of day was not included in any charge.

In fact a version of this proposal was floated by Brian Wadsworth, Director of the Road Ahead Group,  in a report published by the RAC Foundation.  He proposed that a "discount" system be introduced that would mean that those who do not drive on congested roads at congested times get a refund during the year, with the presence on the network determined by an On Board Unit measuring the time or distance a vehicle spends on congested roads.   I see considerable merit in the idea, but it would not be revenue neutral and is really only useful as a stepping stone towards full charging.

A simpler approach of just charging for distance, at a flat rate, which only varies by vehicle size (and perhaps emissions class) would be similar to that about to be piloted in Oregon, and identical to how diesel cars are charged in New Zealand. 

Yet while it is not technically difficult, it will be politically impossible unless it became just an option, so motorists could choose to pay the annual vehicle excise duty (and bear in mind the cleanest vehicles pay nothing) or pay by distance.  Until people can see that they wont pay vehicle excise duty when they pay for distance, it wont be trusted.  There would be more trust if the system could also partially refund fuel excise duty, at that point people would see they are paying less for fuel every time they fill up their vehicles. 

However, let's not pretend that this wont cost money.  There is a considerable cost in developing any system to replace vehicle excise duty, and moreso to replace fuel duty, but this needs to be seen in the context of the long run economic benefits of changing behaviour and in having a sustainable source of revenue from vehicles.  These are not points that will have widespread political acceptance, at least for now.  What might get acceptance is offering people the option to pay far less for fuel and nothing to own a car, in exchange for paying per mile.

There are a few tricks though.

One is going to be Treasury accepting that, for a while, this will cost more money than doing nothing.  A new system to charge vehicles for road use will cost more than fuel tax or a tax on the annual re-registration of a vehicle.

Secondly there will need to be compulsion at some point.  Two obvious options are to raise existing taxes so much that it incentivises the shift, or by requiring all newly registered vehicles to be on the new system.

Finally, the greatest gains of such a system are not in revenue protection, but in congestion reduction.  That means charging by time of day and location, to some extent.  Brave is the politician willing to push this too early, but weak is the politician unwilling to recognise that this is what will transform highways management in the country.

EU law limits what can be done, for now.

One point that he would need to get around is EU law, which given he is from the Liberal Democrats, a party that embraces the UK having a closer relationship with the EU, is a little ironic.  You see EU law sets minimum vehicle excise duty rates for vehicles over 12 tonnes, so for heavy vehicles not much more can be done, given the introduction of the vignette scheme in 2015.   In essence, the vignette would need to be replaced with distance charging (which, if it is to be done with cars would make sense with trucks). 

Also important is that EU law also sets a floor for fuel duty, which for unleaded petroleum is equal to about £0.29 per litre, so any system that refunds fuel duty can only do so down to that limit.

However, there is a lot of scope within all of that to move, with fuel excise in the UK almost £0.30 a litre higher than that limit.

Conclusion

This should be the start of a long debate about how roads are charged for in the UK and how to reform the system, but to do it will require the rebuilding of trust with motorists and to do that there will need to be some movement on linking what is paid in motoring taxes to what is spent on roads.  

There will also need to be transparency about existing taxes and the objectives of taxing motorists.  Until this can be established, and the current opaque relationship between vehicle excise duty, fuel excise duty and expenditure on highways is clarified, there will continue to be difficulties in developing a clear vision to reform a series of taxes that themselves have been disconnected to the use of the road network and expenditure on it.

For I suspect that motorists will be far more embracing of paying for road use by distance if they saw that what they paid reflected a fair share of the costs of maintaining and developing the roads, and that the roads themselves were maintained to a minimal standard.

Right now it would be very difficult to convince anyone that this is what happens.