Reports:

Paying for road use

Chapter 2: The way we pay now

There has been much debate surrounding the costs currently incurred by motorists. Contrary to perception, research undertaken by CfIT in July 2001 shows that British drivers are not the most heavily taxed in Europe. UK drivers pay similar levels of tax overall^[3] to drivers in France, Italy, Ireland, Finland and Denmark. We recognise that there has been a great deal of public and media attention on the level of road use taxation. However, we believe there should be more focus on the impact that the way we currently pay has on travel behaviour.

Source: European Comparison of Taxes on Car Ownership and Use, CfIT, 2001.

CfIT believes that for an integrated transport policy to be fully effective, road users should pay prices that reflect the marginal costs they impose. For the road user, these costs include the resources used to make their journey - such as fuel and other operating costs - but also the external costs, such as the congestion, noise and pollution that their journey causes - all of which are imposed on others. Our current system of charging for road use - motoring taxation - does not ensure that all road users currently pay these costs. Some pay too much (for example rural motorists), while others pay too little (predominantly commuters travelling on heavily congested roads).

External costs of congestion are much higher in urban than rural areas.

The main taxation costs that we pay as road users consist of a tax on operating a vehicle on public roads - Vehicle Excise Duty (VED) - and a tax on the use of the vehicle - Fuel Duty. While both are designed to raise revenue generally, VED also reimburses the Treasury for the cost of road building and road maintenance, as well as reflecting environmental impacts of the car. Fuel Duty has been increased by both past and present governments to encourage us to reduce our use of private cars and help reduce pollution. However, we do not currently pay sufficiently to cover the costs of traffic congestion we create as road users, even though these costs have been shown to be far higher than those attributed to vehicle emissions.

Source: "Surface Transport Costs and Charges: Great Britain 1998",
Institute for Transport Studies, University of Leeds.

While transport's contribution to local air pollution has been falling significantly, congestion has continued to grow strongly. It is for this reason that CfIT has proposed a new system, not one that imposes additional costs on motorists in general, but one that calculates charges in a much fairer way and which would considerably reduce levels of congestion.

Given the above analysis, CfIT believes that the current form of road taxation is a crude mechanism to minimise congestion - the major external impact of road vehicles.  While Fuel Duty is directly related to emissions of the main greenhouse gas, carbon dioxide, it is less closely related to other emissions, since these depend not just on the fuel consumed, but also on the way emissions are controlled through engine and tailpipe technology.  VED does vary to take account of annual track costs and emission levels, but tax paid does not vary proportionately with actual miles run each year by each individual vehicle.  While fuel consumption is greater in congested conditions, it does not vary directly with the congestion costs imposed on others - moreover, most drivers have a very imprecise feel for how fuel consumption varies with traffic conditions.  This is why CfIT is proposing a new method of charging that brings home much more clearly and directly to road users the congestion costs they are imposing.

We understand that road users might be wary of the concept that CfIT has developed as a new means of paying for using our roads. But in actual fact the kind of system proposed is already evident in many of the other everyday services that we use. We need only look to our telephone network that makes us pay higher charges if we want to make calls during the day when demand is high. The same is true for electricity.

Examples of Differentiated Charging Systems

		Peak Tariff	Off-Peak Tariff
Cinema	Per film show with UCI	£6.00	£5.00
Electricity	Per unit with London Electricity*	6.62 pence	2.48 pence
Telephone	4 minute national phone call with BT#	£0.32	£0.16
Air	Cheap Return from London to Hamburg with Ryanair +	£120	£50
Rail	Standard Return from London to Manchester with Virgin Trains	£164	£49.40
* Excludes 5% VAT # Includes 17.5% VAT + Includes Airport Taxes

Within the transport sector in the UK, passengers have long used the kind of differentiated system that we are proposing for roads. Those travelling on rail, air or on the ferry at peak times of the day or at peak times of the year, when demand is high, such as school holidays and Christmas, pay higher ticket prices. CfIT is simply looking at the possible impact of a similar approach applied to road use.

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3: Includes tax on vehicle purchase, on running a vehicle (fuel duty and VED), tolls etc.

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