Road pricing - bursting the bubble

I know many of my friends/followers on Twitter are in favour of “smart” road user charging. As with most things in life I’m sceptical. I want to believe, I really do. But I don’t think it is the panacea people think it is.

I had originally planned a Twitter thread on my thoughts but there is just too much to cover for that format. These are merely notes and I’m sure they are full of logical, factual and theoretical errors, for which I apologise in advance but I hope in some small way I can move the debate onwards. Just to be clear, here I’m talking about wide area, regional or national road user charging/pricing not small-scale measures like the London scheme nor micro-schemes that have been proposed for places like Richmond Park. Those schemes have their issues, not in the least the infrastructure needed and the impact that might have on the asset being protected. I might address those issues another day. The sort of scheme I mean here is one where the user is charged per mile, probably tracked by satellite, and the cost varies according to the road conditions at the time of travel.

My concerns about such schemes are based on four inter-locking concepts - Equity, Simplicity, Acceptability, and Efficacy. These concepts can work both together and against each other. A simple scheme may be more acceptable because it’s understandable but if it doesn’t deliver the benefits it’s also less acceptable.

Efficacy - don’t believe the economic benefits, small errors in the price will not only diminish these but will also undermine the acceptance which will be precarious in any case. Let’s assume for the sake of argument there is a “true” economic price for driving at a given time to a given place by a given route, taking account of all the externalities. If this price is levied on each user, the level of traffic is economically optimal. I accept the economic theory of this. My issue is with the practice.

To those who oppose road pricing because they don’t like the idea of setting a price on travel time, we already do it - that’s how road building schemes generally get justified - the value of saving a few seconds each journey for thousands of journeys needs to outweigh the construction cost. However, although the economics of road user charging is on the same basis, drivers will not see it in that way, the narrative of “the war on drivers” is now very strongly embedded. Any error in the price actually offered before travel or levied during travel will impact on whether people get charged too much and decide not to drive at all, leaving the road too empty and the economic benefit of the scheme too low. If there is an error in the opposite direction, people pay too little, and the road is too full. Not only will the scheme benefit be lower than optimal but if people pay any price they will expect a premium service; if they don’t get it acceptability falls. Decisions made at the start of journey (eg to go ahead at a certain price) will be affected by temporary occurrences such as accidents. How will a system take these into account? Let’s say a person chooses a cheap but slow route in preference to the expensive but fast route. What happens if the latter is delayed due to an accident? Traffic may divert to the cheaper route. Does the price on that route now go up? In theory it should to maximise the scheme benefits - but is it fair? How would the driver be presented with the choice of route and price? Will drivers get price anxiety and would that affect the safety of their driving? So then the decision made at the journey origin might no longer be the best one. Could a system have some kind of risk factor built in? This is arguably better but then the offered price is wrong if nothing occurs and still not necessarily the correct one if an incident occurs. So again the scheme benefit is lower than the theory would suggest. Perhaps a probability based range estimate of the cost like Uber use would be deliverable but at that point, we’ve already moved even further away from the maximum benefit and efficacy. In order to deliver the maximum benefits, the scheme has to influence travel decisions before they are made. Some kind of slot booking system would be ideal but very difficult to deliver in practice and would be unacceptable to drivers used to driving when they like. How else could road space be charged whilst keeping the theoretical benefits? Consider Waze - an excellent app. But it doesn’t always get the route right, it can’t, things happen too quickly. Temporary issues such as accidents will complicate driving times. The best Waze can do once some drivers get hit by poor conditions is to ensure following drivers get diverted if necessary. People will not see benefits all the time and at times Waze will direct them on a route that eventually works out as longer. But Waze is a voluntary app to assist the driver. The stakes are higher with a money-levying app/device. People will expect more. So consider what would happen if the price is allowed to vary, a driver chooses to drive at a certain time because it was going to cost £5, the journey gets affected by an accident and the driver has to pay £20 because the congestion increased. Will they be content that the new price is economically optimal given the (revised) traffic conditions? I doubt it. Once acceptance has been lost (if it was ever gained) we have seen with the poll tax what happens. Moving away from incidents, how would the range of prices be set? Would local authorities be able to influence them in any way? Would there need to be an “Offroad” regulator to ensure proper pricing decisions? If the government can’t even raise fuel duty, how would they introduce or change the road price? Would a climate change component be added and therefore vehicle type also affect the price? What about other environmental costs such as pollution or heritage? Don’t forget obesity, would the price reflect some encouragement of more active travel? What about the risks of serious accidents at different times of day? Should all of these be in the calculation? Ideally, yes. But some don’t have good cost estimates. There needs to be transparency but again for maximum benefits the price needs to be economically optimal - can all this be done? Again, move away from the optimal price and the scheme benefit will fall.

There are many other issues that would need addressing. For example, in theory, an exit lane for a motorway should be charged differently to the main carriageway. But we don’t have the technology to adequately determine the vehicle position to that accuracy. Even if we did (and with better satellite coverage we will), we might see driver behaviour change - people cutting in late to save money. Again, remove the accuracy and the scheme benefits fall.

Equity. We have to accept that we are moving from the current position, however imperfect it might be. Some people will lose, some will gain. We can protect those we think are worthy (however we might come to define that) with transfers, not necessarily money, perhaps travel vouchers? Free miles, bus passes, cycle schemes? If society deems it best for those who couldn’t otherwise afford car travel then we could provide money through some route. If universal basic income existed, that could be one route. But how would we set the level of support? Would it differ for those in cities with adequate public transport versus those in other areas? How would this keep in line with costs? Transparency would be needed. Would people believe the govt and trust it to set the appropriate level? Balanced against the equity for drivers, we need to consider the impact on those who live near roads. Is reducing traffic noise and fumes outside (and inside) their homes worth reducing transport choices for other people? How will we trade-off these transfers? Cheating - any system can be cheated, the higher pay-off for success (less cost and better traffic conditons) will undoubtedly spur some attempts. It would have to be widespread to impact on benefits but any cheating will impact on acceptability. There are other equity issues that might not be fixable with transfers. Some people might be less capable of understanding a, to them, Byzantine charging structure. How much will it be for me to visit my grandchildren on Saturday? If I wait until 8pm how much do I save?

Equity and alternative transport - what alternatives will people have? Cities are much easier to provide for, new build is often impossible. If there are no real alternatives then is it fair to price some people out? Arguably yes, in the longer term so that longer term decisions on residential and job location etc are made. But that will mean a lot of short-term pain which is almost certainly politically unacceptable.

In the long term, is personal motorised transport going to be on the same scale as now? If not then how long should scheme costs and benefits be valued? We’ve seen with the current crisis how much work can be done (or not) at home. Will this change in the longer term? If so, will we need such a scheme. Conversely, if public transport is a no go for virus reasons, will the price need to be so high as unacceptable? Acceptability - to me, this is where the early 2000s DfT road pricing study went wrong, there is a massive difference between what people will accept for personal use and for taxation/charging purposes.

People might choose to use Waze and give away their location for such purposes, they won’t for charge-levying purposes. Some kind of “black box” would be needed, this is ideally also needed for road safety but then even harder to get acceptability. Perhaps if it were mandated by insurance companies it might be easier but then might it be seen a stealth taxation device? What’s the win for drivers? Will they really perceive the benefits? Road pricing wasn’t acceptable in 2005; the political environment is even less favourable now. What transparency would there be on how the money is used? In economics, the charge should just be taken by the Treasury but would some kind of hypothecation be necessary for acceptance? But at what level - goes to all transport, just to road users, just to car users, at what geography? What if the money was used to deliver better alternative travel making those modes more attractive? This could impact on the road price.

I’ve not even touched on the likelihood of a road-pricing system being delivered by the public sector - would anyone have any confidence in cost estimates for the delivery of a scheme? Finally a mantra we hear all the time: “we paid for the use of the road”. Notwithstanding the fact that most such discussion of “road tax” is misinformed (to be polite), that many motorised vehicle users don’t pay VED or pay very little, and that many non-motorised users pay VED and/or other taxes that actually pay for roads, this refrain will be even stronger in a world with road pricing. “I’m paying extra for this road space at this time, get out of my way!”. Mr Toad will not be happy. Further if space for motorised vehicles were to be reduced, and prices go up to reflect, surely the conflict between “paying” and “non-paying” users will only increase? As the various benefits of a complex scheme fall by the roadside so the balance shifts to “cruder” but simpler, arguably more acceptable alternatives. At what point does this mean a simpler system would in practice be better (taking into account deliverability)? The government has very limited measures to hand - fuel duty can’t be applied regionally and in any case, if congestion is the main issue being targetted, EV users don’t pay fuel duty. So what are the alternatives? We could make some journeys less easy by enforcing and re-enforcing existing legislation on parking, idling, speeding, phone use, etc. Little nudges may go a long way. We have to accept that some journeys are not in the best interests of everyone, including other drivers, and use non-pricing measures as much as possible. We could reduce capacity (inherently increasing the cost but for all drivers so inefficiently) either directly per road or indrectly via measures such as a workplace parking levy. Physical reductions can be done in many ways, whether reducing the physical width of roads, the numbers of roads available, the times that roads can be used, the length of time that traffic signals provide for vehicles, etc. We could make other travel methods more attractive, hence affecting the relative price between modes. Some of the measures to do that may also reduce the physical road space for motorised vehicles.

We could move to a simpler per mile charging system that has been suggested elsewhere However, this would still entail some kind of black box solution that itself might be unacceptable and, by definition, would not be able to target the congested areas so will have less benefits than a “proper” system. But it might be a useful replacement for fuel duty once enough EVs replace ICE vehicles.

All such measures will be seen as a war on drivers. But all will reduce the eventual price that drivers have to pay, either in congestion or in a full-on charging system were it to come to that.

The combined effect of all these measures might be enough to mean a full road-pricing system is no longer justified.

One less driver on the road is one less in other drivers’ way. But we need to be careful not to just shift the incentives from one set of drivers to another, so that we just have a different set of drivers on the road. That’s the beauty of the theory of road pricing - it’s totally ambivalent as to who is driving and their reasons for doing so. Of course, that’s why equity is such a big issue. Conversely, we could increase road capacity. There will be some short-term gains for some users, but the history of road capacity is that it soon fills up, and that such increases distort planning and housing provision, leading to more and more road journeys. This just creates a traffic bubble, at some point it has to be burst. But will road pricing be able to burst it?

Written on May 14, 2020