The IoD's View

Transport pricing should reflect the fundamental influences of demand and supply, varying by time of day and season of year where appropriate, and should reflect in full any external costs and benefits generated, such as pollution, congestion and wider economic gains. Current pricing arrangements on most modes of transport do not match this ideal, and policy should therefore seek to encourage convergence on economic pricing where it is feasible to do so. Price signals could then be used to drive decisions about where investment in additional capacity is likely to deliver the best returns.

Key Points

• Where it is not feasible or economic to improve the transport system, or where demand continues heavily to outweigh supply, then users should expect to pay more for it. Unpalatable as it may be, higher transport prices offer the most efficient way of rationing demand for scarce transport resources. This demands a pricing system that is sophisticated enough to allocate demand rationally across different modes of travel. It must also take full account of externalities such as pollution and congestion.
  
  
• High rail fares are the result of strong growth in demand for rail transport, together with the need to reduce the level of rail subsidy. It is sensible to use price to allocate demand for congested services. But this should also lead to a quicker and more rational response to price signals that clearly point to the need for more rail capacity. and high rail fares do not square well with environmental objectives of reducing emissions by encouraging travellers to switch from road to rail.
  
  
• While rail and bus fares have been rising, the cost of motoring has been steadier. But there is a fundamental inconsistency in the way motorists pay for road use. They are over-charged (through fuel duties) for their environmental costs – nearly two thirds of UK pump prices are accounted for by fuel duties and vat - but they are under-paying for congestion costs. The tax system offers no incentives to motorists to drive at quiet times or to avoid congested roads.
  
  
• The use of price (including peak load or variable pricing) is in principle a sensible way of tackling congestion on the roads. But road pricing cannot be introduced in isolation, only as part of a package of transport improvements, including new road capacity as well as better public transport provision. and the full investment in public transport alternatives must be made before charging is introduced. Neither should road pricing be used as an excuse to raise the overall tax burden.

Q & a

Q. Does the IoD support road pricing? Surely it's just another tax?

a. Decisions about road pricing should be based on the merits of the case, and not concerns about the tax burden. The IoD has long championed the cause of reducing the overall tax burden, but that does not mean that there is not room for some rebalancing of taxes within the overall level of overall taxation. The IoD is not opposed to congestion charging in principle as a sensible way of allocating congested roadspace. But any scheme needs to pass a number of tests, including the provision of additional and prior investment in public transport and new road capacity.

Q. Does the IoD support the Manchester congestion charging scheme?

a. We are not opposed to congestion charging in principle, but we do not support the Manchester scheme as it currently stands. It could have serious long term implications for business in the region as economic activity is encouraged to switch to neighbouring areas. It also amounts to an increase in the burden of taxation on local residents and businesses - road pricing should not be another excuse for raising taxes, and is only acceptable if it is accompanied by lower taxes elsewhere. and to be an effective means of tackling road congestion, road pricing should ideally take the form of a sophisticated distance-based scheme that distinguishes between areas of low and high congestion. The Manchester double cordon scheme falls a long way short of fulfilling this requirement. While we welcome the proposed improvements in public transport which are a necessary element of any road pricing scheme, this does not outweigh the fundamental concerns that we have about the Manchester scheme, and we are therefore opposed to its introduction.

Q. Rail fares are far too expensive and do not encourage modal shift from roads or air to rail?

a. This is the inevitable result of strong growth in demand for rail travel coupled with the neglect of the rail network over a period of decades. In addition it is right to reduce the high levels of rail subsidy. Sensible, economic pricing – pricing that reflects the environmental costs imposed by each mode – across all modes of transport should be introduced as soon as possible, but this should be accompanied by expansion of rail capacity where it is justified.