Can a new road pricing framework both bring in replacement revenue – and help achieve Net Zero?

APPLYING THE IDEA of Road Pricing has been a perennial issue in transport policy discussions for more than half a century, seen particularly by transport economists as a rational means of motorists paying appropriately for the extent of their road use, and as means for allocating scarce road capacity when congestion is prevalent. Recently the loss of Government revenue from road fuel duty as the switch to (untaxed) electric propulsion accelerates, is a further reason to introduce road pricing, as the House of Commons Transport Committee strongly argued in a report published a year ago, in February 2022. Yet the Government’s belated response, in the form of a perfunctory letter from the Chancellor of the Exchequer sent this January, simply stated that the government does not currently have plans to consider road pricing. The Transport Committee chair was not at all satisfied with this brush-off (LTT864) and has invited the Treasury to respond in greater detail to the Committee’s conclusions and recommendations, as surely it ought.

It seems unlikely that discussions of the best future form of road user taxation will go away, much as the Government would appear to wish it would for political reasons, if not economic ones. Indeed in the budget only this week the current levels of fuel duty were frozen once again, presumably leaving the Treasury a gap to fill. On top of the economic issues, now of course come climate change and decarbonisation considerations, and a recent webinar, in which I participated, focussed on the role of road pricing in achieving Net Zero. It was organised by Landor/LTT in partnership with SYSTRA.

Road pricing (or road user charging) has actually been in use for centuries at certain specific locations, in the form of toll roads/turnpikes and the charge to cross bridges and pass through tunnels, the money levied being used to reimburse the cost of their provision. Urban Road Pricing (or congestion charging) has more recently been adopted in London, Stockholm and Singapore, and some other cities, as a demand management (and revenue-raising) measure. A more recent aim has been to reduce air pollution in urban areas by imposing a charge on the more polluting vehicles if they enter a Clean Air Zone (CAZ). And the need to decarbonise the transport system now prompts the question of whether and how road pricing might help achieve this objective.

Webinar contributor, David Connolly of SYSTRA, argued that to achieve a Net Zero trajectory for transport, there would need to be a significant reduction in car use. To attain this, the cost of car use would have to rise significantly, to increase the relative attractiveness of all of the alternative modes, (including car-sharing) and encourage shorter and/or less-frequent car trips. Increased costs of car ownership, of fuel and of parking were possibilities, but distance-based road pricing would have the most direct impact on car use and could plug the revenue gap created by the loss of road fuel duty.

Trevor Ellis, an expert in the technology of road pricing schemes, outlined how these have been applied throughout the world. GPS-based tracking and tolling has already been adopted by a number of European counties for trucks, while many US states are trialling or operating per-mile fee programmes. In Asia, Singapore and Indonesia are to implement national all-vehicle distance-based schemes soon. Ellis concluded that distance-based charging by GPS provides the flexibility to vary the charge by time and place, as well as by distance and emissions, but the biggest challenges were likely to be gaining political and public acceptance.

Silviya Barrett, of the Campaign for Better Transport, reported the outcome of a survey of public attitudes to road pricing amongst the general population, finding substantial agreement that the present system of vehicle taxation is in need of reform as we switch to electric vehicles (EVs). Almost half respondents were in support of pay-as-you-drive as they reached the end of the survey after hearing some of the arguments for and against. There would be more support if public transport were cheaper with improved connectivity.

There are variety of technologies that might be used to implement road user charging. Yet rather than introduce an unfamiliar technology, there would be much to be said for building on London’s experience of the congestion charge, introduced 20 years ago now, as the basis for a national system.

My own view is that it would be difficult politically to use road pricing to increase the costs of motoring or of road freight, with the intention of reducing vehicle usage. Our society is highly dependent on road transport, so not that many politicians would be brave enough to attempt to reduce carbon emissions by a direct hike of road fuel duty or imposing an additional charge for road use. The threat of a consequential rise in the price of goods, as the cost was passed on, would be most unwelcome, as would a perceived further direct cost of living pressure on motorists themselves. The situation of low-income motorists needing their cars for travelling to work would likely be a point of particular sensitivity.

However, EVs do not pay fuel duty, so there is a putative case that they should instead pay a charge for use of the roads, both to contribute to the costs of operation and maintenance of the network, and to make a contribution to the Exchequer, as already do vehicles with internal combustion engines (ICE). This could not sensibly be implemented immediately, however, since the lower operating costs of EVs are important to compensate for the present higher capital costs, and as an incentive to drive their take up. Nevertheless, it is expected that capital costs will decline as battery technology advances, and that equivalence in capital costs of EVs and ICEs will be reached prior to the 2030 date for completion of the phasing out of sales of new hydrocarbon-fuelled ICE cars and vans.

The phasing out by 2030 is a policy that now commands wide support across the political spectrum, as well as from the car manufacturers and the public, who are purchasing EVs in impressive numbers. It would thus be desirable to link the introduction of a road user charge for EVs to this policy approach, on the grounds of fairness as between the two kinds of vehicle in respect of the operating costs incurred. The 2030 deadline should allow time to develop a suitable road pricing system for EVs. I suggest that meanwhile the existing fuel duty should remain in place for ICEs, which would avoid the anxiety that would be created, particularly amongst low-income motorists, by a major change in the charging regime. EV owners are generally better off, given the newness of the technology and the very limited second-hand market in electric cars available to less affluent buyers, and should be more able to cope with the cost increase, which should also help it be seen as ‘fair’.

There are a variety of technologies that might be used to implement road user charging, some of which are already deployed in other countries. Yet rather than introduce an unfamiliar technology, there would be much to be said for building on London’s road user charging experience, as the basis for a national system.

The London congestion charge has been in operation for twenty years. It has been both technically successful and publicly acceptable, with no concerns about privacy despite camera surveillance for enforcement purposes, whilst it generates useful net revenues that support public transport provision. London has employed the same enforcement and charging system to implement the Ultra Low Emission Zone, ULEZ, (its version of a CAZ), initially within the central congestion charging zone, expanded last year to encompass the area within the North and South Circular Roads. This has brought fairly minimal public opposition, and is intended to cover all London boroughs later this year – albeit now facing some local political resistance emerging in the outer boroughs.

London’s daily congestion charge is simply based on the presence of the vehicle within the charging zone, for however long, and irrespective of distance covered. For London’s technology to the basis for a national road user charging scheme for EVs, it would be necessary to extend this approach to embrace both actual location and distance travelled. This could be achieved by migrating the charging arrangements to a smartphone app, since a smartphone knows where it is in time and space, so recognises if it is in a charging zone at a time when the charge is levied. Smartphones are suitably linked to payment mechanisms. They would also need to be directly linked to the vehicle being used, since it is the presence of the vehicle that is chargeable, not the phone, but this should be feasible.

Adoption of the smartphone as the mechanism for payment could be incentivised by capping the daily payment at no more than the standard daily charge as paid via the existing online payment mechanism, at present £15. Once there was sufficient uptake of the app, there would be opportunity to vary the charges according to such factors as duration in the charging zone, time of day, level of congestion, location or distance travelled within the zone. This should be publicly acceptable with the daily charge cap in place, analogous to the ceiling of overall fares charged on London’s buses and trains when contactless payments are made. The standard daily charge payable online would remain for those not wishing to use the app, as would the existing camera-based enforcement system.

With the app payment mechanism tested and accepted, it should be possible to extend it beyond the existing congestion charging zone. This was done by a previous western extension of the London scheme, introduced by Ken Livingstone when he was mayor, but revoked by Boris Johnson when he succeeded him in that role. It would also be possible for other cities to adopt the technology, whether before or after national adoption for EVs. In the past both Manchester and Edinburgh developed plans to implement congestion charging, which, however, were rejected in referenda. Cambridge is considering a similar initiative. Adoption of a new concept by a single city might seem a major step by the voters, whereas taking advantage of a national charging system in prospect may lessen their reluctance.

A national scheme of charging for road use by EVs could itself be introduced incrementally, whether by road type (such as motorways) or region, and by starting the charge at a low level, increasing over time as the arrangements bed down.

A national scheme of charging for road use by EVs could itself be introduced incrementally, whether by road type (such as motorways) or region, and by starting the charge at a low level, increasing over time as the arrangements bed down.

While a national scheme for EV road user charging might employ a separate payment app from that used in London or other cities, it would make more sense to use a single standard payment mechanism, apportioning the revenues between the Exchequer and the highway authorities. This would allow the Government scope to vary the respective components of the charge to meet national and local needs. Over time, this capability to manage the distribution of revenue obtained from road use could reduce the need for local authorities to bid competitively to central government for pots of money for funding local transport initiatives, consistent with a general policy trend to increasing devolution of responsibilities from national to local government.

One particular possibility for the exercise of local decisions on the local component of the road user charge would be to allow the funding of specific improvements to public transport by increasing the charge accordingly, perhaps as part of overall transport strategies, subject to the willingness of the electorate. More and better bus and rail services would be important in providing an alternative to car use, and thus indirectly facilitating decarbonisation. However, public transport fare-paying passenger revenues are generally insufficient to support good services, both in frequency and geographical spread, so external funding is required and public subventions – whether national or local – look set to always be in short supply. So revenues from road user charging seem a most likely source of further support to improve local bus and rail services.

The phasing out of sales of new petrol and diesel powered cars ICEs by 2030 is generally agreed to be about as rapid as is feasible, but faster decarbonisation thereafter could deploy the revenues from EV road user charging to fund a scrappage scheme for the legacy carbon-fuelled ICEs. This would need to be targeted at the most highly carbon emitting vehicles, a function of engine size and distance travelled. Age would also be important since the amount payable per legacy vehicle would become relatively more acceptable as vehicles became older and less valuable. However, such a scrappage scheme could not usefully be implemented until there were good numbers of EVs available in the used car market to which users could switch.

Overall, my view is that road user charging seems unlikely to be acceptable as a means to generally increase the costs of road vehicle use with a view to reducing distance travelled and carbon emissions. But there is a case for making it a new charge on EVs once capital costs reduce, on grounds of fairness between vehicles with different types of propulsion. The good experience of the London congestion charge seems to offer an incremental route to national application, the key step being migration of vehicle identification and charge payment to a smartphone app, a familiar purchase transaction mechanism. Consequent revenues could be apportioned between central and local government consistent with further devolution, and employed to facilitate transport decarbonisation by supporting improved public transport and funding a scrappage scheme for internal combustion engine vehicles.

So it is not a big-bang implementation of road charging technology I foresee, but an incremental and logical approach to its roll out that aims to carry the public along, step by step. Once a Government plucks up the political courage to make the first move, of course.

References and Links

• The recent webinar on the role of road pricing in achieving Net Zero, organised by Landor in partnership with SYSTRA
  

• See the Transport Committee’s exchange of correspondence with the Treasury over its road user charging report
  

• Campaign for Better Transport Pay-as-you-drive: The British public’s views on vehicle taxation reform