The £28bn a year that the Treasury collects from fuel duty will disappear as electric vehicles roll out. Road pricing is coming

 
Road toll revolution: On December 23, 2017, The Times reported that Britain’s first national pay-per-mile road charging system was being considered by the Department for Transport. I noted no explosion of outrage

 

Some ideas are like volcanoes. They rumble away for years beneath the surface, and although everyone knows they are there, they can be safely ignored as no eruption is anticipated any time soon. Road pricing is one of those, but I predict it is now not that far away from bursting forth.

Of course, since the concept of road pricing first appeared in some dusty technical paper, a number of other unconnected charging schemes have been introduced. There is the London congestion charge, ostensibly there to reduce the volume of motor vehicles in the capital, though you get a free pass if you have an ultra-clean car which, however, occupies the same road space and adds to congestion in the same way as its dirtier equivalent.

More recently, we are seeing the gradual roll-out of Ultra-Low Emission Zones, or variations thereof. And in Nottingham, we have for some years now had workplace charging, an innovation that has proved very successful in reducing vehicle numbers, carbon emissions and air pollution in the city centre, while increasing the use of public transport. Other places, including Edinburgh and Birmingham, are now considering following suit.

By the way, prior to its introduction, there were dire warnings from business and some politicians in Nottingham that workplace charging would be hugely damaging to business. Since the levy came in, the number of businesses in the city has increased by a quarter, with a net increase of 23,400 jobs.

It is clear that there is an increasing willingness, enthusiasm even, to use financial levers to achieve behavioural change, and that in itself helps prepare the ground for road pricing. However this concept of road pricing is quite different from any of the schemes described above, although it is frequently confused with congestion charging in particular, which suggests that a less ambiguous term needs to be found.

So what do I mean by road pricing? I mean the idea that motorists pay per mile for the use of certain roads, specifically inter-urban roads, with a variable charge dependant on the type of vehicle they use, or the emissions it generates.

I did in fact do a good deal of work on this concept as shadow transport secretary for the Lib Dems in the run-up to 2010 and succeeded in inserting it into the party’s 2010 manifesto. Following that election, the Lib Dems found themselves in government but road pricing did not proceed. Unfortunately, what happened was that at a very early meeting of the Coalition Quad (Cameron, Osborne, Clegg and Alexander), Osborne suggested that the creation of a coalition allowed each side to junk the manifesto policies they did not want, and Danny Alexander readily agreed with George Osborne that road pricing should go, and so it fell at the first coalition fence.

It is an idea that has long had mutterings of support within the civil service, and particularly in the Treasury, and it is not difficult to discern why

Yet it is an idea that has long had mutterings of support within the civil service, and particularly in the Treasury, and it is not difficult to discern why. As we move towards net zero emissions in line with the government target, and electric vehicles gradually replace petrol and diesel ones, the Treasury is going to end up with a huge hole in its finances from the loss of fuel duty (and VAT thereon).

Already, revenue from fuel duty is substantially down. This revenue stream, which constituted 2.2% of national income in 1999/2000, is now just 1.3%. This is equivalent to a drop of £19bn a year.

Naturally it does not help the Treasury’s balance sheet that the government since 2011 has been pursuing a populist but nonsensical policy of freezing fuel duty. That alone is losing the Treasury £5.5bn a year. Moreover, the prime minister was rumoured to be pressing for a 2p cut in fuel duty in the Budget. That would cost another £1bn a year.

At present the Treasury collects in £28bn a year from fuel duty and no sensible government is simply going to let that wither on the vine, but that is what will happen unless an alternative charging system is introduced to replace that lost income.

For the Treasury to do nothing would have consequences beyond the financial ones for the government. It would dramatically reduce the cost of driving and so lead to much greater congestion, already having a major impact on the economy and of course on bus operators.

In short, there would be no incentive not to drive, indeed quite the reverse. In a situation where the cost of owning a car is in the initial outlay rather than in the day to day running, motorists are likely to want to use the car more to get their money’s worth, as they would see it.

Road pricing is therefore a means both to plug the revenue hole, and to suppress car usage, to the benefit of public transport and, I would argue, to the benefit of society as a whole. Environmentally, it should mean fewer car journeys and less air pollution. Economically, it should mean less congestion and quicker and more reliable journey times.

Now any scheme, if it is to be successful, needs to meet certain principles. It must be understandable, simple to operate, difficult to defraud, and crucially, it needs to be revenue neutral for the average motorist. The opinion polling that has been carried out, such as it is, suggests strongly that if road pricing were seen as an extra tax, it would be hugely unpopular. If however it were believed to be revenue neutral, there is a majority in favour. The exact nature of the scheme, and how it is communicated, are therefore both crucial.

Let me explain how it might work. It starts from the premise that it should be car usage that is taxed rather than car ownership, and that the tax applied should relate to the level of emissions generated by the vehicle.

It also has to take into account the fact that for many people, especially in rural areas, there is no practical alternative to the car.

This all translates into a scheme that charges for use of motorways and some important dual carriageways, by means of automatic number plate recognition, as now operates seamlessly at the Dartford Tunnel, and as with French tolled roads, identifies when a vehicles joins a priced road and when it leaves. So journeys would be charged by a calculation of distance travelled multiplied by the emission charge level set for that vehicle.

The money raised from this scheme would be used to reduce or abolish Vehicle Excise Duty, and to reduce fuel duty, and would be revenue neutral once the costs of introducing the scheme and running costs had been met. A scheme introduced for lorries in the Czech Republic in 2004 paid back its capital costs in seven months.

The beauty of this approach is that it would charge for those inter-urban journeys where there is likely to be a rail or coach alternative, as is the case with most motorways, while actually cutting costs for those in remote rural areas who have no alternative but to use their cars.

In terms of van movements, road pricing would make retailers look again at whether one big vehicle can be used for long journeys in conjunction with local satellite vans, whether vehicle sharing might be possible, whether local depots need to be established, even whether rail might work.

The concept of road pricing has been embraced by a good many transport experts such as Professor David Begg. And last month Darren Shirley, chief executive of the influential Campaign for Better Transport said: “Vehicle Excise Duty and fuel duty are outdated and becoming increasingly irrelevant with the growth in electric vehicles. A national road pricing scheme based on distance travelled, level of congestion, and how polluting the vehicle is should be developed.”

The Royal Academy of Engineering has produced a report that came out in favour, stating: “Efficient pricing offers the best value for money and strongest congestion reduction potential of any measure.”

Now the House of Commons Transport Select Committee has announced it will be holding a future inquiry into road pricing, and it is already a matter under discussion within the Treasury Select Committee.

The idea is clearly on government minds too, and not just in the Treasury.

The idea is clearly on government minds too, and not just in the Treasury. I was startled the Saturday before Christmas 2017 to see the front page of The Times revealing that the Department for Transport was working up plans for a pay-per-mile scheme on motorways (though gratified that what was floated bore an uncanny resemblance to the one I worked up in 2010). This story, which appeared from nowhere, had all the hallmarks of one deliberately given to the press to see how it landed with the public. I noted no explosion of outrage.

Road pricing is coming. So I end with one of the eternal truths of politics in this country. When the Lib Dems create or advance a radical policy, it is first ignored, then it is ridiculed, then finally it is adopted by others who claim they thought of it first. Ah well, c’est la vie.

 
About the author:
Norman Baker served as transport minister from May 2010 until October 2013. He was Lib Dem MP for Lewes between 1997 and 2015.

 
This article appears inside the latest issue of Passenger Transport.

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