TAPAS.network | 5 June 2024 | Commentary | Richard Sallnow

Road pricing is coming – but what form will it take?

John Siraut

The Treasury anticipates a shortfall of around £28bn in revenues from fuel duty in the shift to electric vehicles. Transport leaders should look at not only how road pricing can address this deficit, but how to maximise the opportunities it creates: sustained infrastructure condition, a smoother experience for road users, and improved journey time reliability, writes Richard Sallnow

THE FUNDING and decarbonisation of road transport in the UK continues to be a hot topic. The Treasury anticipates a shortfall of around £28bn in the annual tax take owing to lower fuel duty as the fleet electrifies.

There has been increased public discussion on road pricing over the last two years, with more than 10 reports noting its inevitability, from organisations such as Campaign for Better Transport, Centre for Policy Studies, Resolution Foundation, Climate Change Committee, and the Transport Select Committee.

Broadly, there is alignment on the need to fill the £28bn hole, and that some form of national road pricing scheme is the most appropriate way of doing this, whilst also offering opportunity to deliver other policy goals and objectives. This enables the ongoing principle that road taxes contribute to road maintenance, as fuel duty does today.

There are several approaches that could be used to deliver a road pricing scheme, with differing merits, disadvantages, complexity of introduction, and reliance on technology. However, it is accepted that:

  • The greater use of technology increases cost and risk

  • More sophisticated road charging approaches will increase confusion/uncertainty

  • Operating complexity increases the risk of non-delivery (impractical to land).

It is therefore likely that road pricing in the UK will be introduced in its simplest form first, with the opportunity to evolve and mature in later phases.

We believe there will be broadly three phases:

1. Raise revenue: This will establish a foundation ‘platform’ in which road pricing is introduced (simple, cost effective, easy to implement), which offers potential to evolve technologically and politically. Most recently, Iceland has introduced exactly such a scheme, where road users are required to log their monthly EV distance travelled to calculate their tax payment owed.

2. Improve customer-centricity: Greater digital provision will allow other road user payments/schemes (for example Clean Air Zones and congestion charges) to be completed simply in an integrated way.

3. Better manage demand/capacity: A more technically advanced scheme that influences road users away from congested routes will better manage demand and capacity on the network. This is currently being considered in Auckland, New Zealand.

Below, we explore for each phase the benefits and challenges, all supported by the following principles/assumptions:

  • Internal Combustion Engines (ICE) vehicles already pay fuel tax, therefore ICE vehicles/hybrid are not included

  • The per mile cost for Zero Emission Vehicles (ZEVs) is less than the equivalent per mile cost for ICE vehicles under fuel duty (to continue to influence the shift to Electric Vehicles (EVs))

  • The principles of the per mile charge are akin to fuel duty (exemptions/subsidies align to those applied to fuel duty, for example rural fuel duty relief).

Phase one – create a basic payment scheme

This should involve a distance-based charge for all ZEVs only, where the driver uses an app to update mileage travelled, validated in an annual odometer reading.

This scheme is not a new tax, but the extension of the current tax framework to account for new vehicle types. The revenue raised will support the on-going maintenance of roads and supporting infrastructure. Like household energy bills, historic meter readings should be used to forecast annual usage until the end of the annual billing period.

Road users could manually update their miles travelled each month to improve the accuracy of the records and opt for monthly billing. There would be a mandatory annual odometer check (which could be completed during MOT), verified by certified organisations.

Phase two – integrate location data and other payment schemes

GPS technology will automatically update customers’ mileage and distinguish where their miles have been travelled (allowing a distinction between UK versus international travel).

This will avoid customers paying for mileage travelled abroad and provide a level of automation that improves the customer experience. This could be trialled in Northern Ireland in phase one.

Phase two will also expand the phase one platform to integrate payments of other road user payment schemes (for example, congestion charges).

Phase three – expand distance-based and dynamic charging

This phase would build on phases one and two, with a distance-based charge for ZEVs, largely using digital tools (GPS) to track the vehicle, and mileage validated by an annual odometer check. However, in addition to congestion-based charges being paid automatically, phase three will also enable roads authorities to apply a dynamic charge to the road network, increasing the charge at ‘hot-spot’ congested areas to influence improved use of the network.

Road pricing is an evolution, not revolution

The introduction of national road pricing is not new – we already pay a per mile charge via fuel duty. Each of the three phases addresses nuanced challenges that we face across the road network today.

Phase one tackles the issue of reduced budgets (that has previously left unanswered questions how we maintain/operate our roads). Phase two promotes and increases the adoption of digital tools for an improved customer experience. This enables the design and roll-out of Phase three, which responds to the challenge that fewer new roads will be built over the coming years. In view of this, we must maximise the use of the existing network capacity.

Road pricing is not a question of if, but rather when and how. Transport leaders should be looking at not just how road pricing can fill a budgetary problem, but how it can maximise the opportunities it creates – sustained infrastructure condition, smoother experience for road users, and improved journey time reliability.

Richard Sallnow is a Partner at PA Consulting

This article was first published in LTT magazine, LTT893, 5 June 2024.

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Read more articles by Richard Sallnow
Road pricing is coming – but what form will it take?
The Treasury anticipates a shortfall of around £28bn in revenues from fuel duty in the shift to electric vehicles. Transport leaders should look at not only how road pricing can address this deficit, but how to maximise the opportunities it creates: sustained infrastructure condition, a smoother experience for road users, and improved journey time reliability, writes Richard Sallnow
Road pricing is coming – but what form will it take?
The Treasury anticipates a shortfall of around £28bn in revenues from fuel duty in the shift to electric vehicles. Transport leaders should look at not only how road pricing can address this deficit, but how to maximise the opportunities it creates: sustained infrastructure condition, a smoother experience for road users, and improved journey time reliability, writes Richard Sallnow
Road pricing is coming – but what form will it take?
The Treasury anticipates a shortfall of around £28bn in revenues from fuel duty in the shift to electric vehicles. Transport leaders should look at not only how road pricing can address this deficit, but how to maximise the opportunities it creates: sustained infrastructure condition, a smoother experience for road users, and improved journey time reliability, writes Richard Sallnow
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