Expert Blog

Pricing roads – why are we waiting?

There are not many things that all economists are agreed upon. However, to slightly corrupt a quip attributed to George Bernard Shaw, if you laid all the economists in the world end-to-end around the M25, they would all reach the conclusion that driving on it should be priced. If the use of goods or a service is not priced then there will generally be queues. That is exactly what we see around the M25 and on most of our other major roads as well as in urban and sub-urban conurbations. 

The most effective way to price roads would be to have a system whereby road use was tracked and the cost of use varied with congestion. Congestion is the key factor because, when you add an extra car to a busy road, it increases congestion and the journey times of others. Road pricing is therefore a way of rationing scarce road space, but also a way of deterring cars from using roads at the time when they impose the greatest costs on other road users. 

As it happens, the other great social costs of motoring that most people worry about – carbon emissions and pollution – also tend to increase with congestion. 

Given all this, a road pricing system should have different prices for different types of road and different prices for different times of day. Of course, any system of road pricing would need to replace and not supplement existing motoring taxes. Even the highest estimates of the social costs of motoring (in terms of pollution and carbon emissions) suggest that petrol duty should be about one-fifth of current levels. As such, the introduction of universal road pricing as a replacement for existing motoring taxes could reduce the cost of motoring for most road users. 

Although road prices might be very high on some roads at particular times, where congestion is minimal or non-existent it probably makes no sense to charge motorists at all – the costs of collection would be greater than any sensible economic charge, which would only reflect wear and tear. So, when it comes to the rural network, it might make sense to levy an annual charge to pay for maintenance and so on, but there should be no per-mile charges. 

When it comes to the congested areas, the situation is very different: space is scarce and congestion is high. Just as stores pay more to rent a retail outlet in Oxford Street than rural Lancashire, we should pay more to use the roads in congested areas too – a lot more. 

The dynamic effects of road pricing would be enormously beneficial. Just as happens with train services, those who are relatively indifferent to when they travel could change their journey times to take advantage of cheaper prices. This would reduce overall congestion and raise traffic speeds. It would also ensure that the roads were used at the most congested times by people who valued travelling at that time the most. Some people would move onto mass transit which would become relatively cheaper. Perhaps most importantly, if the road system were also privately owned (something which is an essential complementary reform), there would be incentives to invest in new roads, road improvements and traffic management schemes to increase traffic flows. The building of a new road would enable the owner to benefit from additional revenue sources in congested areas. Improvements in management and infrastructure would increase traffic flow and revenue to the road owner. 

Despite all the economic advantages of road pricing, there are at least two big questions. Would pricing be practical? And: would road pricing be an invasion of privacy? There is always the further issue, of course: there is no limit to the ability of politicians to take a good idea and botch its implementation. 

Certainly, road pricing is practical. One of the best government reports ever written and still one of the best papers on road pricing is the Smeed Report published in 1964. It concluded that, even then, road pricing was feasible. Indeed, this report was so good that it has been suggested that Prime Minister Alec Douglas Home said he would ‘take a vow that, if we are re-elected, we will never again set up a study like this one’! 

There are legitimate privacy concerns. Some people do not like private companies tracking where we are; others don’t like the state tracking where we are. My strong preference would be to privatise the road system and simply allow road owners to track road use and charge based on existing privacy legislation. 

There are huge benefits of charging for any economic resource where there is acute scarcity. Road space is no exception. One of the greatest benefits from road pricing would be the building of more road space. If bread were free, everybody would demand more and nobody would supply very much. The same applies to roads. The solution is clear. 

 

- Guest Blogger: Philip Booth. Editorial and Programme Director at the Institute of Economic Affairs, as well as Professor of Insurance and Risk Management at Cass Business School, City University, London.

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