A radical proposal for privatising the UK’s road network

For decades governments have used motorists as a cash cow. Fuel duty and road tax now raise around £35 billion a year, while less than £10 billion is spent on road maintenance and improvements. Indeed, as motoring taxes have increased, investment in new road capacity has collapsed.

Transport policy has gradually become dominated by a green agenda that seeks to reduce emissions and shift journeys to public transport. In terms of revenues, however, this policy is beginning to backfire.   

Drivers are now buying smaller and more fuel-efficient cars, meaning they pay much less tax. Electric vehicles also threaten a collapse in receipts.

The potential shortfall explains the urgency with which the government is exploring new ways of charging motorists. This week it emerged that officials are considering a two-tier system of road tax, with motorists paying a higher rate if they wish to use motorways.

Charging that better reflects different levels of usage makes sense. But motoring taxes are a very crude way of doing this. Ideally, charges should reflect infrastructure costs and congestion levels. Drivers should pay more to use an expensive urban motorway with huge peak demand than a relatively empty rural motorway, or a minor road that has barely been improved since the 1930s.

In practice an efficient road network can only be obtained through more widespread pricing. The government, however, is not well suited to the management of a tolled network. Pricing and investment decisions would be influenced by special interests and political expediency. Tolls would probably be added on top of existing taxation, or unwarranted environmental levies imposed. Under political control, many of the benefits of road pricing would be lost.

A better long-term solution is therefore to transfer ownership and control to the private sector. Pricing would then be based on consumer demand rather than political calculation. New investment would be directed to those locations where the highest returns could be achieved. Productivity-boosting innovations would also be possible, such as raising speed limits and increasing lorry weights.

But privatisation and pricing need to be combined with a very substantial reduction in motoring taxes to be both politically acceptable and economically efficient. In the IEA’s new report, Which Road Ahead: Government or Market?, we set out a way of achieving this. Flotation receipts from the privatisation of motorways and trunk roads – estimated at around £150 billion – would be used to abolish road tax and reduce fuel duty by at least 75 per cent. Public spending on transport would gradually be phased out and in the longer-term the Treasury would also enjoy a large increase in general tax revenues as efficiency gains such as lower congestion fed through into higher economic output.

The denationalisation of roads is therefore a win-win policy. For most drivers, tax cuts would mean cheaper journeys despite the introduction of tolls. And for the government, substantial short-term flotation receipts would be followed by a lower spending burden and a major boost to the wider economy.

30 October 2012, City AM

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