Embrace road pricing to build the infrastructure we actually need without government borrowing
It is odds on that Philip Hammond will announce in the Autumn Statement that government spending constraints will be relaxed to facilitate investment in infrastructure. We will be told that the government should borrow and invest more and that this will promote growth in the long run.
This argument might have merit if it were not for some inconvenient facts. The UK government already has among the highest borrowing levels in the OECD, and current government borrowing is effectively being used to finance consumption and not investment.
Furthermore, when government takes investment decisions, they are driven by politics and not by economic criteria. As such, we end up with HS2, Hinkley Point and, going back a few years, the white elephant of the Humber Bridge built purely to win a by-election in 1966.
A white elephant built to win a by-election (Source: Getty)
At the same time, the expansion of London’s airports – something that could take place without government subsidy – and a myriad of road schemes that would reduce congestion and save people thousands of hours in traffic queues either take years to be decided upon or are ignored altogether. Against this background, the announcement that this year’s Wolfson Prize will be given for proposing alternative ways of funding road infrastructure is most welcome.
Conservatives often argue that the private sector cannot provide infrastructure. I have never understood why they maintain this position when it is manifestly untrue. Towns from Bath to Edinburgh were privately built and financed complete with infrastructure and housing for all social classes. Britain’s railways, canals and, in the early days, roads were the best in the world because they were privately financed, planned and built.
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But even if we don’t go the whole way, there are ways of ensuring that governments take much better decisions when it comes to infrastructure.
Over 50 years ago, the Smeed Commission recommended that the government introduce pricing for road use. Despite the technological constraints of the time, its introduction would have led to huge welfare gains even then. It is probably one of the best pieces of economics writing ever to have come out of a government commission. Indeed, the report was so good that it has been suggested that Prime Minister Alec Douglas-Home said he would “take a vow that, if we are re-elected, we will never again set up a study like this one”!
Nearly all economists would agree that road-user pricing would dramatically change the transport landscape. Currently, we only have pricing on some toll roads, bridges, and in some city centre areas. And the pricing system is so incoherent it does not have the desired impact – with taxis being exempt from the congestion charge, for example, and charges not varying by the distance driven.
Taxis are exempt from the congestion charge (Source: Getty)
A proper road-user charging system to replace existing road taxes would vary prices by the amount of congestion and by time of day (often lowering them to zero on routes that were never congested). The prices would send signals to government – or private road builders – about the benefits of building new roads. Those who manage the roads (whether local councils, a government quango or the private sector) would have an incentive to reduce congestion in order to achieve more traffic throughput and more revenue.
If people were paying to use the roads, there would be a rational way of comparing a road improvement scheme in one area with a road improvement scheme in another area. And, for that matter, we could compare railway investment with road investment.
Of course, there is no guarantee that the government will take rational decisions simply because people are paying for the road infrastructure they use. After all, we pay train fares and yet our government ignores railway improvement schemes that have huge net benefits in favour of making the big, bold political statement of HS2.
However, there is a chance that, if we introduce markets and pricing for road use, economics and not politics might at last guide decision-making.