Road Pricing in England: has its time finally come

Report
Road pricing in England: has its
time finally come?
Alexander Jan
28 January 2013
London School of Economics –
MSc Urban & Regional Planning
Agenda
 Historical context
 The problem as was
 The problem looking forward
 Experience from London
 Government proposals
 Concluding thoughts
2
Historical context
 “It is impossible to spend any time on the
study of the future of traffic in towns without
at once being appalled by the magnitude of
the emergency that is coming upon us. We are
nourishing at immense cost a monster of great
potential destructiveness, and yet we love him
dearly. To refuse to accept the challenge it
presents would be an act of defeatism”
HMSO, Penguin Books, Traffic in Towns The Specially shortened edition of the
Buchanan Report, Penguin Books, London, 1964
3
Historical context
 “We think the public can justifiably demand
to be fully informed about the possibilities of
adapting towns to motor traffic before there is
any question of applying restrictive
measures.”
HMSO, Penguin Books, Traffic in Towns The Specially shortened edition of the
Buchanan Report, Penguin Books, London, 1964
4
That was then….
Traffic in towns
DfT, Transport Statistics Great Britain, London, 2012
5
A seven fold increase in vehicles since the 1950s…
Traffic in towns
DfT, Transport Statistics Great Britain, London, 2012
6
Brixton….
Brixton Town Centre – post redevelopment, seen from
thein the
motorway
Brixton
snow. “We’re still loving snowy SW9!”
© urban7, 2 /3 Feb, 2009
www.cbrd.co.uk
nd
7
rd
Finchley Road, Belsize Park….
www.cbrd.co.uk
8
The problem…
 Congestion
 Pollution
 Economic impacts
 Accidents
 Quality of life
 (Competiveness, growth, employment?)
9
The problem
“Despite the government’s efforts, the
deterioration in the network is noticeable.
Congestion already costs the UK economy up
to £8bn each year and without measures to
tackle this, the figure could rise
to £22bn a year by 2025.”
Source: CBI, Bold thinking A model to fund our future roads, London, 2012
10
Well, may be not worse, just more complicated…
11
UK context: long term traffic forecasts
260
Forecast traffic
240
Index (1980 = 100)
220
200
Historical traffic
180
160
140
120
100
80
Source: Department for Transport
12
UK context: long term congestion forecasts
Total Lost Time (million hours)
900
800
700
600
500
400
300
200
100
0
Commuters
Employer's Education and Home based
Business
Personal
Recreation
Business
and Holiday
2003
2015
Source: Department for Transport
13
2025
Non home
based
Recreation
and Holiday
2035
LGVs
HGVs
Some things have got better…
DfT, Transport Statistics Great Britain, London, 2012
14
…in environmental terms…
In: Johnson et al, Fuel for Thought , RAC Foundation, Institute for Fiscal
Studies, London, 2012
15
But with unintended consequences….?
In: Johnson et al, Fuel for Thought , RAC Foundation, Institute for Fiscal
Studies, London, 2012
16
The government has done well out of the motorist...
DfT, Transport Statistics Great Britain, London, 2012
17
But the motorist has learned….
Johnson et al, Fuel for Thought , RAC Foundation, Institute for Fiscal Studies,
London, 2012
18
…to fight back….
“Overall, one cannot help but think that the current levels of motoring taxation
have little to do with either sound revenue-raising principles or external cost
arguments. Rather, they are an accident of history by which the government
raises as much as it can get away with.”
Johnson et al, Fuel for Thought , RAC Foundation, Institute for Fiscal Studies, London, 2012
19
Looking forward, problem is changing…
 Fuel duty and Vehicle Excise Duty (VED) contribute c. £38
billion a year, some 7% of all the Exchequer’s income.
 44 % more traffic by 2035…. but revenue from motoring
taxation is set to drop by £13 billion a year by 2029 to £25
billion
 Key driver has been fuel efficiency of vehicles (Govt
climate change policy)
 Congestion set to get worse
 Less than one third of this money is spent on national and
local roads
 Major population growth and ageing assets means more
expenditure to “standstill”
20
Experience from London
 Introduced by Ken Livingstone, February 2003, if driving
within central London between 7 a.m. and 6.30 p.m. on a
weekday
 July 2005 rose to £8, increased to current level £10
 Within a year, day-time average speed increased to 16.7
km/h from 14.3 km/h (c17% improvement)
 Car traffic decreased 34%, trucks 7% and vans 5%
 Charge was not really on congestion: “greener” vehicle
discounts allowed motorists to drive for free
 Public opposition turned to public support!
 Tenth anniversary this year….
21
Success, but a one-off?
Congestion charge introduced February 2003
DfT, Transport Statistics Great Britain, London, 2012
22
But overall scheme has produced mixed
results?
 Costly… c. 50% of revenues spend on running the system (2006/07
~ £252m vs costs of £130m); 40%+ of revenues came from
enforcement charges
 Downing Street on-line petition (2007)
 Western extension removed by Boris Johnson (December 2010)
 Big “no” vote in Greater Manchester (78.8%) (April 2010)
 Whilst traffic volumes are lower, congestion has crept back up…
(2007 levels close to 2002)
 Cities have not rushed to replicate the scheme
 London mayor(s) wary about introducing London wide user
charging…
23
Further change any time soon?
“And yet no government has really solved the problem of how
to finance the infrastructure we need within the public
spending constraints we have.”
Finally, on top of the failures of vision and of financing, there's
been a simple failure of nerve.”
No government has acted with the necessary determination to
blast through the vested interests and bureaucratic hurdles in
order to provide what the long-term national interest
demands.”
To put it crudely, we've become good in Britain at sweating old
assets.”
Prime minister, David Cameron, March 2012
24
“Road tolling is one option - but we are only considering this
for new, not existing, capacity.”
Why is it that other infrastructure - for example water - is
funded by private sector…but roads in Britain call on the
public finances for funding?”
That's why I have asked the Department for Transport and the
Treasury to carry out a feasibility study of new ownership and
financing models for the national roads system and to report
progress to me in the Autumn.”
Let me be clear: this is not about mass tolling - and as I've said,
we're not tolling existing roads...it's about getting more out of
the money that motorists already pay.”
Prime minister, David Cameron, March 2012
25
UK: Investment backlog
 96 unfunded projects
identified, including for local
authorities.
 Cost estimates available for
77 of them, totalling £10.7bn
billion.
 Weighted average BCR of 3.6
where known, but some as
high as 10.
 Some clusters of projects
around regions or corridors.
Source: Arup
26
UK context: international comparison
World Economic Forum
highways ranking
Country reviewed
France
Portugal
Spain
Canada
USA
Australia
1
5
11
14
20
34
UK
26
Source: World Economic Forum
27
International experience: investment trends
Historical highways investment in countries reviewed
€ millions p.a. (2009 values)
14,000
12,000
10,000
Australia
8,000
Canada
6,000
France
4,000
Portugal
2,000
Spain
UK
0
Source: OECD
28
Government way forward?
 Giving the sector a revenue
stream - a proportion of
Vehicle Excise Duty?
 A change to the HA’s
corporate status or break
up into regions….
 So called “RAB” model to
attract investment
 Independent regulation of
the sector, with customer
service obligations (water)
29
The RAB based model….
Source: CBI, Bold thinking A model to fund our future roads, London, 2012
30
Conclusions
 Problem of congestion is persistent and likely to get worse
(return of economic growth, population increase)
 Other policy factors now in play (declining source of general
taxation for government)
 Some indication that Government is considering reform
(including a user charge) for motorways but nervousness
over public acceptability (Downing Street petition)
 Strong investor appetite – could raise significant revenues
for HMT…
 Brings into focus the question of what are our roads for?
31
“End of the free green run... now hybrid
cars will have to pay congestion charge
too”
London Evening Standard, 28 January 2013
32
Discussion and questions
Recommendations: projects
 Potential for user charging
on major schemes (e.g.
Dartford and A14).
 Innovation within PPPs
(e.g. a more constructive
public-private interface,
and allocation of traffic
risk).
 Local innovation to allow
authorities and other
bodies more flexibility in
funding priority schemes.
34
Recommendations: policy
 Acknowledge the funding
challenge.
 Longer term strategy to
address growing demand.
 Stable, long term funding to
support investment.
 Regionalisation / localism.
35
UK context: policy and budgets
 IUK providing focus at heart
of government on long term
infrastructure challenges.
 Investment in economic
infrastructure prioritised at
CSR 2010.
 But cuts to investment budgets
for HA and local transport
major projects.
 Is investment in our highways
sector being overlooked?
36
UK context: highways investment
 HA pioneered use of PPPs for
highways, since copied and
modified by the rest of the
world.
 M6 toll and river crossings are
isolated examples of tolling.
 Strategic road network highly
dependent on central
government for funding.
 Contrasts with other parts of
the infrastructure sector.
37
UK context: sector investment backlog
 96 unfunded projects
identified, including for local
authorities.
 Cost estimates available for
77 of them, totalling £10.7bn
billion.
 Weighted average BCR of 3.6
where known, but some as
high as 10.
 Some clusters of projects
around regions or corridors.
Source: Arup
38
UK context: sector investment backlog
Costs and BCRs for unfunded projects
£ millions, 2010 values
£32,000
1,200
1,000
800
600
400
200
0
0
2
Source: Arup; DfT data
4
6
BCRs
39
8
10
12
UK context: investment backlog...contd
Breakdown of project types, by
value (£ millions, 2010 values)
1,175
Widenings
New connections
1,749
Junction improvements
1,129
Managed Motorways
917
Other
3,947
Source: Department for Transport data, Arup analysis
40
UK context: some questions
How important is investment in our strategic road network,
compared with other priorities?
Why is our approach to funding highways so different from
other infrastructure sectors?
What happened to the UK Government’s enthusiasm for
highways PPPs?
Why does the M6 toll remain a one-off?
41
International experience
International experience: key differences
Investment trends and
investment planning
Roles of central and
regional / state
governments
Attitudes towards private
finance
User charging
43
International experience: investment planning
 Longer term investment
planning for highways in
comparator countries:
- Australian Nation Building
Economic Stimulus Plan
- Building Canada Fund
- Investment planning cycles
built into privatised French
networks
- Spain’s 15 year
Infrastructure Plan
44
International experience:
roles of central and regional / state government
 Central governments typically
provide funding support (e.g.
Australia, Canada, USA).
 State / regional governments
lead most procurements (most
notably Spain).
 Picture in France more
complex, but significant
devolution through
privatisation of sub-regional
networks.
45
International experience:
attitudes towards private finance
 Strong support for PPP in comparators.
 Commercial models similar to those used in the UK, but
note significance of different accounting rules.
 Relationships between public and private sector appear
more constructive (e.g. Spain and France).
 Government bodies actively promote PPPs (e.g.
European PPP Expertise Centre, PPP Canada, FHWA
Office of Innovative Programme Delivery).
46
International experience: user charging
 Longer and more extensive
history of tolling strategic
networks in European
comparators.
 Use of tolling growing in the
US and Canada.
 Some high profile financial
failures (e.g. In Australia).
 Revenue stream allows sector
to fund its own development.
47
International experience: investor appetite
 Separate markets for
brownfield and greenfield
projects.
 Lenders reluctant to take
full volume risk,
particularly for greenfield
projects. Some notable
failures...
 Governments acting to
reduce private sector risk
exposure.
 New projects less likely to
be delivered as direct tolls.
€1.72bn
2010
Technical and commercial
adviser to CVC Capital
Partners in the acquisition of
23% of the shareholdings of
Abertis, operator of 10,000
km of highways in Spain,
France and South America
48
Price
confidential
2010
Technical adviser to DIF
Infrastructure in the
acquisition of shareholdings
in two tolled bridge projects
owned by NTR in Ireland.
€47M
2010
Technical and commercial
adviser to Eiser Infrastructure in
the acquisition of 49% stakes
from Sacyr in two shadow toll
roads and two transport
interchanges in, Spain
Lessons learned
and recommendations
Lessons learned:
recap and summary of differences
Congestion is forecast to increase significantly, and there is a large
investment backlog.
Businesses rank our roads network as poorer than most developed
countries.
Governance of the strategic network is relatively centralised.
The sector does not generate and retain significant revenues.
The private sector has a limited role, and government is relatively
pessimistic about the potential of PPPs.
50
Recommendations: projects
 Potential for user charging
on major schemes (e.g.
Dartford and A14).
 Innovation within PPPs
(e.g. a more constructive
public-private interface,
and allocation of traffic
risk).
 Local innovation to allow
authorities and other
bodies more flexibility in
funding priority schemes.
51
Recommendations: strategic reform
 Giving the sector a revenue
stream (e.g. user charges or
hypothecation of VED).
 A change to the HA’s
corporate status.
 Independent regulation of
the sector, with customer
service obligations.
 A move away from central
planning.
http://www.cbi.org.uk/media-centre/press-releases/2012/10/gear-change-can-accelerate-the-uk-towards-a-21st-century-road-network/
52
Spare slides
Discussion and questions:
some suggested themes...
Should the funding gap provide an impetus to new thinking?
What role do we see for the private sector in highways
investment?
Is the UK regulated utility model the right one for roads?
Who should draw up a strategy for roads?
54
Further information
 http://www.racfoundation.org/assets/rac_foundatio
n/content/downloadables/providing_and_funding_st
rategic_roads-arup-071111.pdf
 www.arup.com
55
 Vehicle Excise Duty revenues have almost doubled
between 1987 and 2011 whereas the
 increase in the revenue from fuel duty has more
than tripled.

As well as the £26.9 billion collected in fuel duty
in 2011, there was an additional £5.4 billion
 collected in VAT on fuel duty.

Over the same period the RPI has more than
doubled.
56
Carbon
DfT, Transport Statistics Great Britain, London, 2012
57
King’s Cross as it could have been….
www.cbrd.co.uk
58
RACF/IFS 61/120
59
RACF/IFS 56/71
60
61
62
But overall scheme has produced mixed
results?

Typically 50% of revenues spend on running the system (2006/07 - £252m vs costs of £130m)

TfL's annual report for 2006–7 shows that revenues from the congestion charge were £252.4m over the financial year, representing 8.5% of TfL's annual revenues.
More than half of this was spent on the cost of running the toll system, at £130.1 million. Once other charges were deducted, the congestion charge brought in an
annual operating net income of £89.1m for TfL.[145] This income compares with TfL's total revenue from bus and tube fares of £2,269.4m, or 76.6% of revenue
before costs, or grants from central government of £2,390.3 million.

The initial operating revenues from the congestion charge did not reach the levels that were originally expected. Within six months of the start of the scheme, the
reduction in traffic had been such that TfL were predicting a £65 million revenue shortfall.[146]

By law, all surpluses raised must be reinvested into London's transport infrastructure; at the start of the scheme it was anticipated that this would be around
£200 million.[147][148] According to a report issued in February 2007, the initial costs of setting up the scheme were £161.7 million,[148] with an annual operating cost
of about £115m anticipated.[149] Total revenues over the first three and a half years had been £677.4 million, with TfL reporting a surplus over operating costs of
£189.7 million.[148] The Bow Group, compiled from TfL data estimated that by 2007 the project had only returned a modest £10 million profit. [52]

Although Parliament has limited the amount that authorities can borrow, for some time it had been speculated that the regular income obtained from the
congestion charge and other revenues could be used to securitise a bond issue that finances other transport projects across London.[150] TfL issued their first bond
for £200 million in 2005, to be repaid at 5% interest over 30 years. TfL plans to borrow £3.1 billion more to fund a 5-year transport programme across London,
63
including works on London Underground and road safety schemes.[151]
London, including works on London Underground and road safety schemes. 151
Revenues (£m) provisional
2004/5[14]
2005/6[90]
2006/7[15]
Standard daily vehicle charges
(currently £10)
98
121
125
Enforcement income
72
65
55
Fleet vehicle daily charges
(currently £7)
17
19
27
Resident vehicles (currently £4
per week)
2
2
6
Other income
Total revenues
2
190
210
213
Total operation and administration
(92)
costs
(88)
(90)
Net revenues
122
123
97
64
65
66
Page 38 (53)

in January 2011 (though charging hours now end at 6 p.m.). Exemptions from

the scheme exist for a number of vehicles including taxis, motorcycles, bicycles,

buses, disabled badge holders, emergency vehicles and some vehicles that

run on alternative fuel. Additionally, residents living in the zone receive a 90%

discount.� The charge raised £158.1 million in 2010, net of operating costs (TfL,

2011a). These revenues are hypothecated towards the improvement of public

transport in London, as is required by the Greater London Authority Act 1999.

The original zone comprised an area bounded by the Inner Ring Road,

covering approximately eight square miles. In February 2007, this was

extended to include additional parts of Westminster, Kensington and Chelsea.

This ‘Western extension’ was abolished in December 2010, returning the zone

to its original area.

The effect of the scheme on traffic levels and congestion is quite difficult to
67
RACF IFS (61/76)
68
Government proposals
And yet no government has really solved the problem of how to finance the infrastructure we need
within the public spending constraints we have.
Finally, on top of the failures of vision and of financing, there's been a simple failure of nerve.
No government has acted with the necessary determination to blast through the vested interests and
bureaucratic hurdles in order to provide what the long-term national interest demands.
To put it crudely, we've become good in Britain at sweating old assets.
But if you do that for too long, there's a price to pay.
It's not enough just to keep the existing infrastructure going.
We need to build - as other countries are building - the completely new infrastructure we need for
the future.
And on top of all this we haven't focused - as other countries focus - on ensuring that investment in
infrastructure helps business at home.
That's not about picking winners.
It's about helping British companies to be winners.
We haven't done anything like enough to help grow British expertise and jobs in building not only
the infrastructure we need here, but in booming markets overseas.
Now, after all these years of failure, compromise and lack of ambition, the reckoning is upon us.
70
Government proposals
And yet no government has really solved the problem of how to finance the infrastructure we need
within the public spending constraints we have.
Finally, on top of the failures of vision and of financing, there's been a simple failure of nerve.
No government has acted with the necessary determination to blast through the vested interests and
bureaucratic hurdles in order to provide what the long-term national interest demands.
To put it crudely, we've become good in Britain at sweating old assets.
But if you do that for too long, there's a price to pay.
It's not enough just to keep the existing infrastructure going.
We need to build - as other countries are building - the completely new infrastructure we need for
the future.
And on top of all this we haven't focused - as other countries focus - on ensuring that investment in
infrastructure helps business at home.
That's not about picking winners.
It's about helping British companies to be winners.
We haven't done anything like enough to help grow British expertise and jobs in building not only
the infrastructure we need here, but in booming markets overseas.
Now, after all these years of failure, compromise and lack of ambition, the reckoning is upon us.
71
Has it changed? - a perfect storm for policymakers

The report discusses in detail the second line of argument as to how motoring

taxes might be structured: rather than simply raising revenue, taxes should

reflect the various economic and social impacts that the use of vehicles has

on other road users and the community at large. These impacts include traffic

congestion, accidents, visual intrusion, noise and air pollution, and greenhouse

gas emissions.2

‘Revenue raising’ and ‘paying the external costs’ are quite distinct principles.

The amount of tax gathered under a revenue-raising regime might bear no

particular relation to the yield that reflects external economic, environmental

and social impacts.
72
Has it changed? - a perfect storm for policymakers

On top of the 14p for carbon you can reasonably add to fuel duty elements

corresponding to external costs such as air pollution. But then you have

a problem: by far the most costly damage inflicted by road users is traffic

congestion. This is not directly related to the amount of fuel used, and hence it

is hard to justify factoring it into fuel duty. Traffic congestion varies enormously

by time and place. Thus no single, universal rate of fuel duty can be regarded

as appropriate for all. The IFS estimates that at the current rate of duty, about

half of all vehicle miles are taxed too highly – many of them on uncongested

rural roads; one quarter are taxed about right; and the remainder are charged

too little – in some congested urban locations, far too little.
73
Has it changed? - a perfect storm for policymakers

The IFS is driven to the conclusion that if the ‘paying the external costs’

justification is to be sustained then a significant portion of current fuel duty

must be replaced by some form of ‘pay-as-you-go’ charge based on distance

driven in congested conditions. Such a charge moderates demand, and

therefore reduces congestion. There is a net overall gain, and the economic

value of the road is increased. The amount of revenue is determined by the

characteristics of the road and the level of demand for use of it. But this begs

the question: who gets the benefit of the use of the revenue?
74
Future trends….

Major shift in funding towards China, Asia, South America

Constraints on affordability, especially from state funding sources next 10+ years? Some
increasing role for the private sector. Some continued resistance to real tolls (Europe, US)

Elsewhere in the world, “long march” of highways likely to continue – less reluctance to toll
(key to demand management…) so globally more “user pays” projects

Sustained interest from longer term investors (pensions etc) - attractive asset class (matching
of liabilities…)

Impact of technology on payment mechanisms and traffic demand - more sophisticated, user
friendly, intelligent. Better use of existing assets…

Environmental issues: a continuing challenge as car ownership increases. Rate of growth
likely to outstrip technological improvements in energy efficiency, emissions etc?

Extent of change will vary dramatically by global region.
75
 It should be noted that the congestion charge does not explicitly target
 congestion. Motorists who pay it have unlimited use of roads within the
zone
 during that day. Therefore, the charge does not take into account the
distance
 driven, the location, or the time (within the specified hours) of the
journey.
 Motorists who cause a greater congestion externality through driving
greater
 distances at busier times are charged the same amount as other drivers
 causing smaller external costs.
76

But good railways are only part of the answer on transport.

We need good roads, too.

Again, the problem's clear: we don't have enough capacity in places of key demand.

There's nothing green about a traffic jam - and gridlock holds the economy back.

So here's what we should do.

Yes, move passengers and heavy goods onto rail.

But also widen pinch points, add lanes to motorways by using the hard shoulder to increase
capacity and dual overcrowded A-roads.

The massive programme announced during last year's Growth Review made a good start.

But how do we do more, when , frankly, there isn't enough money?

We need to look at innovative approaches to the funding of our national roads - to increase
77

Road tolling is one option - but we are only considering this for new, not existing, capacity.

For example, we're looking at how improvements to the A14 could be part funded through tolling.

But we now need to be more ambitious.

Why is it that other infrastructure - for example water - is funded by private sector capital through privately owned,
independently regulated, utilities but roads in Britain call on the public finances for funding?

We need to look urgently at the options for getting large-scale private investment into the national roads network - from
sovereign wealth funds, pension funds, and other investors.

That's why I have asked the Department for Transport and the Treasury to carry out a feasibility study of new ownership
and financing models for the national roads system and to report progress to me in the Autumn.

Let me be clear: this is not about mass tolling - and as I've said, we're not tolling existing roads...

...it's about getting more out of the money that motorists already pay.
78
Recommendations: policy
 Acknowledge the funding
challenge.
 Longer term strategy to
address growing demand.
 Stable, long term funding to
support investment.
 Regionalisation / localism.
79
UK context

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