Road Pricing: A Study

Executive summary
1. Introduction and background to the report
2. What does road pricing consist of?
3. How existing services offered could be expanded to calculate and collect road charges
4. What are the opportunities for companies who align to road charging?
5. What are the disadvantages and reasons why businesses might not align to road charging?
6. How can the disadvantages and obstacles be neutralised?
7. What are the organisations the Department should be engaging with and how can their members be engaged with?
8. Summary of conclusions and recommendations
Appendix A: Road Pricing Working Group terms of reference
Appendix B: Road pricing functional descriptions
Appendix C: Consolidated analysis table

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Executive summary

It is worth saying at the outset that all the members of the Motorists' Forum Working Group on Road Pricing (the WG) are concerned that without firm action, traffic on many of the country's main arteries and urban centres may grind to a halt during the next two decades with a devastating impact on the efficiency and viability of business, the opportunities for tourism and regional development and the competitiveness of the nation.

To help alleviate these potential difficulties, the Government is considering introducing local pilot road pricing schemes where local authorities have come forward with proposals. Accordingly, it asked the WG to answer four questions concerning what would be needed by industry to engage in delivering road pricing in the UK. In answering these questions, the WG has provided the Government with recommendations that will allow the proposed pilot schemes to explore and test the various models of road pricing that could be launched with confidence within the next decade.

The first of the four questions was: How existing services already offered on the market could be used to calculate and collect road charges. The WG found that the proven technology already existed in the UK and that industry has the capability to undertake the likely scale and demands of such a system. We identified a number of examples:

• Locating vehicles using GPS and communicating with them in real time is already used by many fleet operators and the increasing use of satellite navigation devices demonstrates facilities required to effect time, distance and place (TDP) road pricing. In addition, mobile phones and PDAs are also now capable of providing some of the necessary functions.
• Some insurers are already offering, or considering offering, telematics-based insurance services. Subject to the detailed requirements of road pricing, and if these insurers opt to do so, it may be possible to expand these services to offer customers the opportunity of paying road charges via their insurer in the future.
• New cars increasingly offer more and more on board electronics to provide safety, vehicle control, navigation and entertainment features. It is estimated by 2010 between 3 and 4 million vehicles, about 10% of all vehicles, will have the necessary electronics that might form some basis for road pricing. Early adopters, such as the vehicle rental sector, are likely to be influential in stimulating the market development.
• Pre-payment systems, like the Oyster card in London, have already achieved wide public acceptance and illustrate the type of travel accounting capability that would support large-scale road pricing.

Developing from such examples of existing services, the second question asked: What are the opportunities for companies who align their services to calculate and collect the road charges? Once again the WG was positive in its findings. We drew attention to:

• The technology required for road pricing is available but the special equipment needed remains to be developed and manufactured. Clearly this provides major opportunities for both the vehicle manufacturers (to provide vehicles that are "road pricing ready") and aftermarket suppliers of telematics equipment for the huge proportion of existing vehicles that would need the necessary equipment.
• The volume of equipment installation for the roll-out to the UK's 32 million vehicles and subsequent servicing presents additional opportunities for the vehicle servicing and management sectors. Minimising the time and cost of fitting to vehicles will be the major challenge, but one that should stimulate considerable competition.
• Extended customer and financial services will be needed to handle accounts and process payments. This will require a new utility infrastructure to give customers choice and flexibility. This presents suppliers, in particular well-known utility and consumer brands, many opportunities for product innovation.
• Data, both of individual vehicles and anonymised, may have significant value in sectors such as insurance if the appropriate measures to protect peoples right to privacy can be put in place effectively.
• A European wide market opportunity exists for suppliers since an EU Directive has proposed a European Electronic Toll Service to create a common system for charging on the whole of the European road network by mid-2011. The Department is one of the leading thinkers on how to achieve this using TDP on all roads, although it is true that there is no overall European consensus on road pricing.

With the series of positive opportunities identified, we turned to the third question and considered some negatives: What are the disadvantages and reasons why businesses might not align to road charging? The WG looked at the factors in some detail and accepted there were inherently a number of significant risks which if not addressed could undermine the entire approach. The most important of these risks are:

• The low level of public acceptance of road pricing; the main reason for this, the WG believes, is lack of information and concern of an increased tax burden for motorists. There is an urgent need for the facts about road pricing to be made clear, in particular regarding policy on overall revenue neutrality and any tax offsets. Information is important to help change people's perceptions about the issue which currently seems to be based on an ill-informed caucus of objectors to any road pricing regime.
• Lack of commitment by the Government; it was clear to the WG that although there is a desire within Government to introduce demand management on the roads, the political risk of making a commitment to any timescale, even "within the next decade", is too great. Any company considering investing will ask "if there's no commitment from Government, why should we commit our shareholders' money?"
• The business risks are high due to the uncertainties; at present any company considering whether or not to invest in the potential road pricing market would consider risks inherent in the unknown timescales involved, where the legal responsibility for paying the road charge will lie, who will control the data and what rules will govern its use, the nature of the services needed and whether other countries will be taking the same route.
• Unknown requirements and specifications; the WG acknowledges that the Government is at present clearly in "think" mode. The structure of the market needed has not been decided and the requirements - and hence the technology and systems - are not confirmed. The WG took comfort from the information provided by the Department about demonstrations and local schemes that are planned over the next few years to establish the specifications. However, until these are clear it is difficult for industry to know what to invest in.

All these factors combine to severely inhibit any decision to develop a business case for investment in road pricing, except on a project by project basis. Clarification of the likely business environment is considered a prerequisite to justify the investment needed to develop robust systems and services for a sustainable competitive market.

Hence the over-riding need is for greater clarity of the responsibilities of the parties involved in road pricing and greater commitment as to when it will happen.

Our discussions highlighted the fact that since neither industry nor Government are clear on what is needed, nor when it is needed, it would seem essential that the answers are worked out together so that each is able to make decisions at the appropriate point in as fair and reasonable way as possible. This would mean that:

• Business would better understand the responsibilities, requirements and risks to justify making investments in technology or extending services and therefore be in a position to demonstrate how it can be effectively delivered.
• Government would gain a clearer understanding as to what the costs would be (total estimated costs in the Feasibility Study Report in 2003 were £10 to 50 billion) to allow policy decisions to be based on practicality ("evidence-based policy making").

Our conclusion at this point is, therefore, that a more formal structure for industry and Government to work together to gain a better joint understanding is essential.

This then leads onto the fourth and last question posed to the WG which was: What are the organisations the Department should be engaging with and how can their members be engaged with? We reviewed the range of organisations that might be involved and those who would be impacted and we suggest that there should be three forms of interaction:

• Supplier or Expert Groups: To work with Government to develop the necessary specifications and business model for road pricing. If the aim is to establish a competitive market eventually, confidentiality is a consideration here and this would limit the extent to which open meetings can be used.
• Road Pricing Advisory Group: To give open and clear opinion and advice on issues of business and public concern and to provide input into the ongoing development of requirements. It should also aim to create greater understanding of the implications of road pricing for all user groups.
• Consultative Body: To provide a forum for discussion of issues of public concern and help create greater understanding by both business and public communities. This group should be a constituent or subsidiary part of the Advisory Group.

We consider that these activities should be initiated as soon as possible, both to start the process of establishing greater understanding within the business community and also to demonstrate the sincerity and openness of the Government's response to the Road Pricing Petition of February 2007. The WG believes that the 1.8m signatories shows that much more needs to be done to convey the advantages that a road pricing system could bring and urges the Government not to be deflected from their resolve in opening up the debate on the widest possible front.

In answering all of the questions, the WG became more convinced that if the Government decided to embark on such an approach - and provided the concerns of the public were met and the business risks addressed - it had the confidence that industry could rise to the challenge and deliver a good road pricing service.

It is considered vital that the Government provides the leadership and resolve to transform political rhetoric into action. Our recommendations are intended to support a process to do just that.

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