Ken Livingstone has introduced a road-pricing scheme for central London. Like charging for plastic bags, it makes economic sense, writes Seán Barrett
On Tuesday, Ken Livingstone, Mayor of London, announced his roadpricing scheme for central London, From February 17th next it will cost £5 to drive through the city between 7 a.m. and 6.30 p.m. from Mondays to Fridays. Residents within the charging zone will receive a 90 per cent discount.
The object is to allocate scarce urban road space efficiently. As Giles Keating wrote in the Journal of Economic Affairs in 1993, "Resource allocation on Britain's road system is one of the last outposts of Soviet-style economics. Road usage in bigger cities and on many inter-city routes is limited by queuing rather than pricing."
Soviet retailing has changed from queuing to pricing and Mr Gorbachev has joined the Doheny and Nesbitt's school of economics. In road pricing, Mr Livingstone has adopted a policy which has an impeccable academic pedigree. He is internalising in a market price those social costs currently not priced and implementing the "polluter pays" principle.
He is allocating car trips, single-occupant car trips, peak-hours car trips, and central-district car trips. The range of substitutes brought into focus by road pricing include off-peak trips, car pooling to spread the £5 cost, transferring to the bus, an efficient use of scarce urban road space, and avoiding journeys through the city centre. The mayor seeks a reduction of 10-15 per cent in car traffic.
In allocating the remaining capacity by price rather than queuing he is implementing the economics of Milton Friedman. Brendan Walsh and I advocated this policy in 1983 in the John Blackwell and Frank Convery book, Promise and Performance, Irish Environmental Policies Analysed. Mr Livingstone expects that road pricing will end his prospects of re-election as Mayor, but perhaps he is too pessimistic.
The Irish plastic bag tax is not controversial but reflects the same principle as road pricing. Left to itself the market will produce too many plastic bags which litter the countryside and too few paper bags and wicker shopping baskets.
The Minister for the Environment, Mr Dempsey, is right in seeking to change from a market-based plastic bag approach to a more socially responsible paper and wicker solution, and he enjoys strong popular support for doing so.
Does road pricing not enjoy popular support? It may have more support than Mr Livingstone believes. For example, in charging for parked vehicles, Dublin has changed from a rate of non-compliance with regulations of over 80 per cent in the early 1990s to the present high level of compliance.
Motorists accept the Dublin parking prices and regulations because they are efficient and fair. The system offers a reasonable chance of getting a parking space because long-stay parkers are priced off the street.
If pricing is accepted for parked vehicles on city streets, why it is not accepted for moving vehicles on the same streets?
First, there is what we might call the "Spirit of Drumcree" view that motorists have an absolute right to travel the Queen's Highway and the President's Highway also. Besides, motorists pay three and four times as much tax as they get back in roads and should not be levied for yet another tax.
In recent times we have qualified any absolute right to highways by road closures, weight limits, and traffic calming. The taxation of average motorists more than their road costs does not preclude their being cases where the marginal social costs of some road journeys exceed the private costs by a serious margin. It might help the acceptability of road pricing if it were enacted on a revenue-neutral basis with the overall tax burden remaining unchanged.
Second, we have only recently accepted that managerial measures such as pricing are the correct solution to urban road-congestion. The engineering approach has dominated, first in the championing of urban motorways and latterly in the championing of trams and trains.
The infrastructure lobby seeks vast amounts of money and is not particularly efficient in producing extra capacity. Engineers using the predict-and-provide model will absorb vast amounts of resources on projects which enrich the engineering professions but, in the absence of pricing, result in either under-use of infrastructure or the use of it for low-utility trips.
Third, we have allowed the road pricing debate to be dominated by negative critiques. Road pricing will reduce rather than increase the cost of doing business in city centres, since it prices away gridlock. Road pricing does not harm low-income people because the bus will be the big gainer from creating a market for the first time in scarce urban road space of which it is an efficient user.
There is no case for public transport subsidisation in a road-pricing regime because road pricing itself tilts the balance in favour of the bus. The bus sector should be deregulated to allow it to avail fully of the new, more favourable market.
The Oscar Faber consultancy firm has examined a £3 car-charge and £9 truck-charge for entering Dublin centre at peak times.
No decision has been made on the proposal. The Department of Public Enterprise's combination of unlimited funds for light rail and metro and unlimited obstruction of bus competition is a wrong one. The failure to toll the Jack Lynch Tunnel and the planning of motorways way below the threshold levels required for these expensive facilities are also expensive mistakes.
Where an economy rejects pricing infrastructure and has a tradition of engineer dominance in the infrastructure industries, it runs the risk of expensive, low-utility investment. The Irish policy of public-private partnership is, on present evidence, unlikely to promote efficiency in the infrastructure sector. Direct government borrowing would be cheaper and privatisation would be more efficient.
The doubt remains whether some segments of society take road congestion as seriously as they proclaim. Jack Short, director general of the European Conference of Ministers of Transport and the most eminent Irish person in the international transport arena, has cast doubts on inflated claims of the cost of road congestion. If road congestion in Dublin is as bad as industry and trade bodies complain, why have so few firms organised night deliveries? Why did Leinster Lawn cease to be a lawn and become a car park for legislators?
Ken Livingstone has taken the urban congestion problem seriously and has sought to control it by pricing. The Tánaiste has made the same point in regard to water and Noel Dempsey has made it in pricing plastic bags. Their decisions are correct and perhaps Ken Livingstone is too pessimistic about his election prospects. We shall watch with interest.
Seán Barrett is an economist at Trinity College Dublin