Memorandum by Dr David Metz (RP 23)
ROAD PRICING
This memorandum is concerned with the possibility
of moving to national road pricing in the longer term, in particular
issues of equity and acceptability.
THE LOW
INCOME MOTORIST
Many car users have relatively modest incomes.
The extra cost of road user charges could be substantial in relation
to overall household income. Some low income travellers, excluded
from using the roads by the charge, might be able to take advantage
of improved public transport, financed from the congestion charge
revenue. However, the extent to which this would be helpful would
depend on the extent to which public transport could substitute
for the car-based trips no longer affordable. This substitution
would generally be most effective on routes serving city centres
where congestion charging had been adopted, but less effective
on suburban and extra-urban routes. Thus road pricing, as usually
envisaged, may prove more acceptable in city centres than in other
locations. Beyond city centres, the option of not owning a car
may be incompatible with the spatial pattern of work and residence
into which household members may be locked.
The scale of the problem of the low income motorist
is indicated in the Figure which shows Office for National Statistics
data for average weekly household expenditure on vehicle purchase
and the operation of personal transport for 2002-03 by household
income decile. Not all households own cars, of course, and the
"adjusted" data show expenditure divided by the proportion
of households in the decile that own at least one car or van,
to give an estimate of motoring expenditure by car-owning households.
It will be seen that motoring expenditure for households with
cars falls in the range £30-£50 per week for the lower
half of the income distribution. This expenditure may be compared
with current road charges in Britain: £25 for weekly entry
into the London congestion charging zone and £30 for the
weekly use (five days) in both directions of the M6 toll road.
Arguably, most motorists in the lowest half of the income distribution
are likely to experience difficulty in affording charges of this
magnitude, even if there were to be partial relief of vehicle
excise duty. (More offsetting relief could be provided by reducing
fuel duty but this would run counter to policies aimed at reducing
carbon dioxide emissions.)
London congestion charging does not seem to
have been a problem for low income motorists because of the extensive
availability of public transport. Nor has the M6 toll road proved
problematical since the untolled M6 can be used by those unwilling
to pay. However, neither extensive public transport nor untolled
options would accompany generalised road pricing. This suggests
that problems of equity and political acceptability may hinder
the implementation of any scheme for generalised congestion charging.
DISCRIMINATORY PRICING
One possible answer to the problem of the low
income motorist is suggested by the charging system, based on
"yield management", used by budget airlines. The typical
mode of seat booking for a budget airline is that seat prices
are lowest the further ahead the reservation is made, prices always
rise with time and are not discounted at the last minute. Thus
the matching of demand for seats to their supply is managed through
a dynamic pricing structure, the operation of which is evidently
acceptable to travellers.
The pricing system for inter-urban rail travel
also typically incorporates substantial discounts related to the
early booking of precise and inflexible journeys. Both the rail
tariff structure and the budget airlines' arrangements amount
to "discriminatory pricing" whereby high income travellers
are induced to pay more than a market clearing price, while low
income travellers are permitted to pay less. Discriminatory pricing
maximises revenues to the operator (and minimises average seat
prices for a given return on investment) if the last available
seat is filled by the last passenger willing to pay the highest
quoted price. Discriminatory pricing of this kind does not require
means testing of travellers. Rather, it takes advantage of the
willingness of travellers to trade off the inconvenience of early
commitment and inflexibility for a price discount, a trade off
whose appeal decreases as disposable income increases.
Discriminatory pricing on the road system would
have attractions as a means for matching demand to capacity more
precisely than would be possible with a single price for any particular
vehicle class at a given time of day in a particular location—the
conventional approach to road pricing. This would be especially
the case if it were feasible to adopt dynamic pricing (as opposed
to a preset tariff) for those not electing to pay in advance of
the day of travel.
Moreover, discriminatory road pricing would
be a means to reconcile a charging mechanism aimed at regulating
demand with the social objective of avoiding exclusion of low
income motorists from access to employment, shops and other facilities.
Discriminatory pricing, along the lines adopted by the railways
and budget airlines, would have attractions as the basis of road
pricing since it would allow low income motorists whose car use
is unavoidable, for instance for their journey to work, to take
advantage of discounts for early reservation or "season ticket"
type prepayment. Given that less than 20% of all road trips are
for the purposes of travelling to work, it should be feasible
to arrange for low income motorists to be substantially less disadvantaged
by road pricing than would be the case be with conventional charging
arrangements.
FIGURE
UK average weekly household expenditure on vehicle
purchase and the operation of personal transport ("motoring
expenditure") by household income decile (2002-03 data from
Office for National Statistics, Family Spending—a report
on the 2002-03 Expenditure and Food Survey, (2004). "Motoring
expenditure adjusted" shows expenditure by households owning
at least one car.
Dr David Metz
formerly Chief Scientist, Department of Transport
(1992-97)
November 2004
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