Pricing roads – why are we waiting?

There are not many things that 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 probably all reach the conclusion that driving on it should be priced. If the use of a good or 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 suburban areas.

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 at which 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 much lower than 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 could 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.

Academic and Research Director, IEA

Philip Booth is Senior Academic Fellow at the Institute of Economic Affairs. He is also Director of the Vinson Centre and Professor of Economics at the University of Buckingham and Professor of Finance, Public Policy and Ethics at St. Mary’s University, Twickenham. He also holds the position of (interim) Director of Catholic Mission at St. Mary’s having previously been Director of Research and Public Engagement and Dean of the Faculty of Education, Humanities and Social Sciences. From 2002-2016, Philip was Academic and Research Director (previously, Editorial and Programme Director) at the IEA. From 2002-2015 he was Professor of Insurance and Risk Management at Cass Business School. He is a Senior Research Fellow in the Centre for Federal Studies at the University of Kent and Adjunct Professor in the School of Law, University of Notre Dame, Australia. Previously, Philip Booth worked for the Bank of England as an adviser on financial stability issues and he was also Associate Dean of Cass Business School and held various other academic positions at City University. He has written widely, including a number of books, on investment, finance, social insurance and pensions as well as on the relationship between Catholic social teaching and economics. He is Deputy Editor of Economic Affairs. Philip is a Fellow of the Royal Statistical Society, a Fellow of the Institute of Actuaries and an honorary member of the Society of Actuaries of Poland. He has previously worked in the investment department of Axa Equity and Law and was been involved in a number of projects to help develop actuarial professions and actuarial, finance and investment professional teaching programmes in Central and Eastern Europe. Philip has a BA in Economics from the University of Durham and a PhD from City University.

23 thoughts on “Pricing roads – why are we waiting?”

  1. Posted 09/01/2015 at 14:03 | Permalink

    ” Even the highest estimates of the social costs of motoring (in terms of pollution and carbon emissions) suggest that petrol duty should be much lower than current levels”

    What studies indicate this?

  2. Posted 09/01/2015 at 15:47 | Permalink


  3. Posted 09/01/2015 at 16:21 | Permalink

    The Mirrlees Review also has comparisons of environmental tax rates with estimates of the social cost of the activity, the latter also based, if I remember correctly, on the Stern Review.

  4. Posted 10/01/2015 at 13:59 | Permalink

    Are you suggesting a kind of Electronic Road Pricing (ERP) system that exists in Singapore? And have you studied whether or not it works?

  5. Posted 10/01/2015 at 16:54 | Permalink

    So you are saying increasing the cost to use roads through road pricing would relieve congestion. Well this might have the effect of pricing those least able to afford to drive off the roads but this will also curtail economic activity which comes from movement of people.

    Basically, road pricing can only work to reduce congestion by pricing people off the roads. You could accurately suggest this method of charging should be called ‘Roads for the Rich’.

    And to track every vehicle is simply not acceptable in any society. This is Big Brother on steroids and we have already had this debate a few years ago when 1.8 million people signed a petition on the Downing Street website opposing road pricing.

    Driving is not a privilege, it is a basic human right which allows people to get to work, go shopping, see friends and family and also, participate in leisure activities. Adding to the cost of driving will curtail these activities and damage economic activity.

    We already have a very successful form of road pricing, it’s called fuel taxes. It’s very cheap to collect, doesn’t need to track your vehicle, rewards the efficiency of vehicles and is based on miles travelled. Why change something which isn’t broken to a system which costs a fortune to administer, is expensive in technology to introduce and above all, infringes on your personal freedoms to go where you desire without a tracking device knowing where you are at all times.

    No; road pricing is not the answer and never will be.

  6. Posted 10/01/2015 at 17:06 | Permalink

    The data could be shared with insurance companies too so that they could more accurately assess risk for different drivers.

  7. Posted 10/01/2015 at 18:37 | Permalink

    @petr – the big brother issue does worry a lot of people but it can be resolved. Indeed, one could just use older technologies, though I am not unhappy about data being collected as long as it is not transferred between the private sector and the state or vice versa. However, I don’t dismiss that issue, it is a concern. Regarding driving being a human right – we do not have rights to do things without bearing the cost. If we have a human right to drive without road user pricing we have a right to drive without petrol tax. Petrol tax is way above the cost of road use so you may well find that, overall, it is cheaper than now to travel at congested times (though not necessarily in all places and at all times) and that the overall cost of road use for those who drive at uncongested times (e.g. older people) may be much reduced. The point is that the cost of driving at congested times will be different. Furthermore, there will be incentives to solve the congestion problem (both in relation to drivers – car sharing, for example) and road providers.

  8. Posted 10/01/2015 at 22:25 | Permalink

    Privatising the M25, for example, would be a licence to print money, making the owner an instant billionaire. The supply of M25s being somewhat inelastic, I’d have thought.

  9. Posted 12/01/2015 at 11:00 | Permalink

    @Benji – There’s potentially plenty of competition for journeys currently undertaken on the M25. For example, the North Circular is an alternative for many inter-suburban trips north of the river. And Heathrow has several public transport options, as well as various road options.

  10. Posted 12/01/2015 at 12:31 | Permalink

    and if the M25 were privatised and it would earn somebody billions, it could be sold for (at a rough estimate) 20 times its initial annual earnings. Of course, new competing roads could be built. If it were a monopoly, I would not be entirely against some regulation as long as that regulation did not restrict competition.

  11. Posted 12/01/2015 at 15:20 | Permalink

    Hi Phillip,

    Surely, if the price of driving on a congested private road was much higher than on an uncongested road (as you say it should), the incentive would be to increase congestion, not relieve it and therefore maximise profits. Road pricing is not the answer and never will be.

    As for your personal details being kept private and not being sold, this is a nice idea, but yet again privatisation and the prospect of making money tends to skew the moralities and peoples data will be sold. You only have to look a the sale of drivers details to private clamping and parking companies to see how quickly peoples personal information becomes a commodity when money is at stake.

    As far a driving being a human right; it is as long as people conform to the training, licencing and payment requirements. There should be no idea that driving is a privilege and restricted to the few. Road pricing would certainly move driving into that realm as more and more are forced off the roads when they cannot afford the monthly bills falling through their letterbox.

    The roads in the UK are the publics and owned by the people. If governments of any persuasion want to sell them to the private sector, then this must be through public consent. As this is such a huge issue affecting the whole population, then a referendum should be held to consider and garner the publics’ views and wishes. Anything less would be a scandalous abuse of public trust by any government.

  12. Posted 12/01/2015 at 17:29 | Permalink

    I am simply suggesting changing the method of financing to one where roads would probably cost less. As such, I don’t understand how concepts such as “privilege”, “human right” etc come into the issue if they dont now. The particular example of data being sold, I think is the state giving data to these companies, not the other way round (through the DVLA).

  13. Posted 12/01/2015 at 23:03 | Permalink

    “Probably” cost less isn’t good enough.

    We heard the same arguments for water, electricity, gas and public transport. In every case, prices have gone through the roof and service levels are little better if at all. Indeed, many of our national utilities which are essential to the nation, are now owned by overseas companies and profits are shipped offshore.

    It is highly likely roads would go the same way and without real competition which there cannot be with roads, the costs will go up, service levels will be barely different but the administration and technology costs associated with pricing the roads will be huge. It is simply a stupid and irresponsible idea.

    As I said earlier, put the arguments to the public and let them decide. The roads belong to the people and they are the ‘customers’ who will end up paying through the nose whilst having their every movement tracked and this data no doubt being sold to any interested party for yet more profit.

    when you look at pricing logically and sensibly, it just isn’t an option.

  14. Posted 13/01/2015 at 09:34 | Permalink

    well, the status quo is hardly brilliant. Road taxes (intended to pay for roads – certainly VED was) are now a multiple of road expenditure. Of course, the prices of gas and electricity fell hugely after privatisation until the government started interfering and limiting competition in 2008. The biggest rises in rail fares have happened since the government renationalised the network in 2000.

  15. Posted 13/01/2015 at 10:57 | Permalink

    Why are we waiting? Because not everyone chooses to ignore the lessons of history (The Rebecca Riots) and be blinded by greed. Shame on you IEA.

  16. Posted 13/01/2015 at 13:02 | Permalink

    Why are we waiting? Because few people want it or would vote for it, and it would be very expensive to implement – fuel tax is a cheap and easy form of ‘pay as you drive’ tax to collect. Currently very little of the £58 billion p.a. raised in motoring taxes is spent on roads – no real reason why road pricing would change that. Overall, road pricing would need to the ‘revenue neutral’ in order not to lose the government money, but it wouldn’t be ‘cost neutral’ due to the cost of implementing and enforcing it.

  17. Posted 13/01/2015 at 16:59 | Permalink

    These assets have been bought and paid for many times over by the motorist this is just theft by the backdoor and sure as eggs is eggs the government people involved will also grow rich

  18. Posted 13/01/2015 at 17:47 | Permalink

    There will be huge benefits for tolling companies if the government removes un-tolled roads, as they will have a near monopoly. Otherwise drivers who are massively overtaxed will avoid toll roads like the loss-making M6T in the Midlands. That is competition in action…
    We are not exactly waiting though. The Infrastructure Bill, currently being reviewed by Parliament, sets up a company to run England’s main roads like motorways. If there is absolutely no intention of tolling them, why does the bill set up powers to apply tolling on them?
    I fear the government is not exactly being honest with us. It started out by saying that existing roads would not be tolled (apart from for HGVs). Then this got compromised by trying to toll the A14 in East Anglia, but the government had to back down after fierce local protests by business.
    The promise has now mutated to not tolling roads that have not been improved. But some overdue resurfacing or pinching the hard shoulder would allow them to be tolled.

    The problem is less one of demand and more one of government overtaxing drivers, underinvesting in roads and aggravating the problem with unsustainable population growth. (Think – if the sink is flooding, the first thing you do is turn off the taps).

  19. Posted 14/01/2015 at 08:05 | Permalink

    I think this latest form of turnpike ideology should be scrapped immediately. Peter Roberts’ and Benji’s comments have hit the nail on the head.

    In short, what this ludicrous idea of road pricing will do is to force people off the road and the knock on effects from this “proposed” idiotic form of turnpike road pricing would be the following:-

    – Forcing people off the road and into unemployment. Most people have simply got no alternative as there is no public transport near where they live and the cost of public transport would simply be prohibitive.

    – Businesses becoming bankrupt.

    – Price hikes for everybody regardless of their mode of transport (eg. food prices)

    – Soaring crime rates due to soaring unemployment (as they would no longer to be able to afford to travel to work)

    – Lack of television/radio programme making (especially on outside broadcasts such as news, sports, etc.). How do you think TV/radio studios are able to get their incoming feeds ??

    – Soaring losses for public venues (eg. sports and entertainment venues)

    Also, I think philip’s comments aren’t true either. Energy costs have soared not fallen.

    I think it’s time that Philip Booth and the “IEA” should wake up and see the real world for what it is (just like everybody else) rather than dreaming of this disastrous form of profiteering from other people’s misery.

  20. Posted 14/01/2015 at 09:29 | Permalink

    From 1986 to 1997, domestic gas bills fell by an average of 2.6% a year in real terms. From 1990 to 1999, electricity charges for domestic consumers fell by 26%, with a larger fall for industrial users. Then the liberalisations were reversed, of course

  21. Posted 14/01/2015 at 13:46 | Permalink

    PHILIP said>I am simply suggesting changing the method of financing to one where roads would probably cost less. As such, I don’t understand how concepts such as “privilege”, “human right” etc come into the issue if they dont now. The particular example of data being sold, I think is the state giving data to these companies, not the other way round (through the DVLA). …………………………………………………………………………………………………………………………………………… Roads would certainly not cost less with tolling. HMG has actually ruled out privatisation, so the money would go to the Treasury, which is desperate to make more out of drivers; read the 2012 Budget and Justine Greening’s subsequent money-grabbing comments. If the roads were leased off on a long term lease, both HMG and the toll shark would want ROI. Factor in the profit margin and drivers will be worse off, particularly if the EU’s planned barmy eco-taxation applies almost to the point of pushing people out of their cars. Driving is virtually an essential so drivers will have to pay up and have less money to circulate in the economy. To paraphrase Thatcher, environmentalism is equal shares of misery all round.

  22. Posted 14/01/2015 at 17:03 | Permalink

    ” 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.”

    But motorists don’t all travel at the same time because they enjoy sitting in a jam in rush hour! They do it because they have to, because they have to be in work at a time set by their employer and that just so happens to be a similar time to all other employers (not to mention a similar time to when the schools start).
    If I could travel outside of rush hour, then I’d do it now – because sitting in a jam is already costing me in time and money.

    ” 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 could move onto mass transit which would become relatively cheaper.”

    So as mentioned previously, it’s a case of ‘Roads for the Rich’, whilst pricing those that can’t afford the privilege to use public transport!

  23. Posted 02/02/2015 at 17:59 | Permalink

    Because government couldn’t run the computer system required for road-pricing.

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