British plan to grant citizens tradable tollroad shares in fully tolled highway network
Every citizen in Britain would get shares with an issue value of about Pd1500 (@$1.54=$2300) in a nationwide tollroad network covering all British motorways (M-roads) and major arterials (A-roads) under an interesting plan being advanced to manage highways better and reduce congestion. Tolls averaging 10p (16c)/mile (10c/km) would be introduced across the whole of the M+A route highway network but an annual flat rate vehicle excise tax, similar to US annual car registration fees, would be abolished.
The proposal from a thinktank called the Social Market Foundation (SMF) is an attempt to make variable tolls or congestion pricing of roads more palatable politically by giving the people a direct stake in for-profit companies that would manage the network with tolls.
Without radical reform costs of road congestion, already huge, will grow in Britain by up to Pd22b ($34b) a year by one government estimate. A shift to public transport (transit in US terminology) cannot make a serious dent since 92% of personal travel and an even higher proportion by value of goods transport is by road.
And expanding road capacity is seriously limited by high costs, funding shortfalls and local opposition.
Road use charging (RUC) or generalized tolls are the only way the highway network can be managed efficiently, the SMF authors Ian Mulheirn and David Furness argue.
"The lack of any pricing structure for road users means that, unlike on other forms of transport where peak- and off-peak fares help to use capacity most efficiently, road use is incredibly inefficient. Each driver quite rationally follows their own self-interest. In practical terms this means that drivers set out on a journey at the time most convenient to them and take the most direct route. However the aggregation of many individual decisions often results in a collectively irrational outcome that is contrary to the best interest of all drivers."
Unpriced roads a classic tragedy of the commons
A classic "tragedy of the commons" tale of the overuse of the unpriced free-for-all grazing of commons lands individually rational decisions about travel result in an irrational outcome for all - congestion for all, that almost everyone would be willing to pay do avoid.
The authors write: "An upfront payment (such as annual fees) followed by totally free usage offers no incentives for drivers to take measures that would reduce congestion, such as sharing cars, driving less or traveling at different times. The primary economic argument is that each driver does not face the total cost of their journey. People who drive a little pay too much, while those who drive a lot pay too little. The consequences of car journeys, such as increased congestion and higher emissions, are not borne by the driver but by society as a whole."
"Pricing road use is the answer to this collective action problem. Markets offer a solution because they give price signals to ensure that the use of scarce resources is prioritized. Hence introducing a market into road use encourages drivers to make better collective decisions for mutual benefit...
"Road pricing makes road usage more efficient by making drivers face the costs to others of their choice to drive at a given time of day - forcing them to weigh-up their need
to travel against that of others, mediated by the price mechanism."
Expert acceptance, public opposition
Road use charging is the accepted policy solution for road congestion among experts and policymakers, but the public fiercely opposes road pricing.
As motorists they believe it will be just another way for governments to extract more money from them for non-road purposes, the authors write.
Road pricing is seen then, not as a price for a service received, but as a 'tax.'
Guaranteeing the people that they - not the government - will benefit
Motorists need to be presented with a scheme which will guarantee the proceeds will be used on the roads and any surplus or profit will be theirs, not the government's. It will be returned to them under the SMF proposal as a dividend or capital gain in the toll company shares.
"In order to win the argument for charging, citizens must benefit directly and financially from any reform. Profits from charging should go to citizens rather than to the Treasury. Only by aligning the method of charging with the interests of road users and citizens can they be (gotten) to support the case."
"Voters must be presented with a policy that makes road pricing something that is in their interests because they, and not the (government) Treasury, benefit directly from the proceeds. They must also retain ownership of the roads, rather than seeing them sold off to private financiers."
Simple sell-off won't fly politically
Traditional privatization - taking bids from companies for concessions - won't fly politically, the SMF paper argues. It is seen as "selling the family silver" to fund improvident extravagances. To be acceptable it cannot simply be a government selloff.
• every citizen should be issued with a free share in the Strategic Roads Network - A-trunk roads and Motorways;
• holding companies, owned by citizens, would be responsible for operating the roads, charging for their use and reinvesting in the network;
• the annual Vehicle Excise Duty or tax of Pd425 ($655) for the first year of a car and Pd235/year ($360) thereafter would be scrapped; and
• citizen owners of the road network who retain their share would receive any profits from their operation
Tollroad operating company shares issued to each citizen would be tradable. Shareholders could expect dividends from continuing to hold an interest in the tollroad companies.
Substitution of RUCs or tolls for the annual vehicle excise would overcome the present unfairness of motorists from Europe using British roads for free while not paying the flatrate annual vehicle tax that is such a major source of roads revenue in Britain.
Rough calculation of value, revenue
Operating revenue of the toll companies at an average 10p/mile with vehicle-miles traveled of 102b would be Pd10.2b/year. The road companies would have to take over responsibility for the Pd5.2b currently generated by the annual flat rate vehicle tax so it would have a surplus of Pd5.0b/yr. At a share price/earnings ratio of 19 - typical for traded stock on the London stock exchange - the capital value of the roads would be Pd95b ($145b).
Britain has 61m citizens so one share/person would be worth Pd95b/61m or over Pd1500 ($2400).
Taking everything into account, the authors calculate that the average car owner would be better-off under tollroad use and ownership to the tune of a Pd1,500 ($2300) asset and Pd75 ($115) per year. The average two-driver household with two children, would be better by around Pd6,000 ($9500) in assets and some Pd150 ($230) per year.
Heavy users of motorways would benefit from the value of the voucher plus any profits generated by the operating company. While they would pay significantly more in tolls, heavy users would be the main beneficiaries of reduced congestion.
COMMENT: This approach could be adopted with great benefit at the state or regional level in the US.
NOTE: the authors mean 'road use fees' when they speak of fees for road use, but in a commonly made mistake in this paper they use the ambiguous term 'road useR fees' which can encompass any fee on a road user including the taxes they propose to replace. We've corrected their text and also americanized some spellings.