TRANSPORT COVER HDS:TRANSPORT COVER HDS 12/12/07 16:02 Page 1 After years of high taxation and underinvestment in transport we face gridlock on our roads and deadlock in transport policy. While the case for road pricing is clear and has been made for a long time, the public is wary of anything that could turn out to be yet another stealth tax. Towards better transport Towards The solution we propose and investigate is to improve our infrastructure now and to repay the costs using road pricing revenues collected in the future. This way, the infrastructure can be built without delay and the funding gap met using private Towards better finance. Not only would our infrastructure be improved but we would have adopted the most efficient means of managing road space for the future. transport This report explores the experience of PFI in transport. It then moves on to detail the institutional and fiscal frameworks Funding new infrastructure governing the sector. It finds that while our current systems of with future road pricing revenue governance and taxation are broadly compatible with road Hartwich and Briar Lipson, edited by Oliver Marc Wellings Richard pricing and the concomitant deployment of private finance, certain frameworks look more likely to promote efficient long- term investment in transport infrastructure than others. Until transport policy takes a different direction, Britain’s transport network will continue to deteriorate while our roads become even more congested. This report shows that there is a way to get Britain moving again. Richard Wellings and Briar Lipson edited by Oliver Marc Hartwich £10.00 ISBN: 978-1-906097-12-7 Policy Exchange Policy Exchange Clutha House 10 Storey’s Gate London SW1P 3AY www.policyexchange.org.uk TRANSPORT HDS:TRANSPORT HDS 12/12/07 13:49 Page 1 Towards better transport Funding new infrastructure with future road pricing revenue Richard Wellings and Briar Lipson edited by Oliver Marc Hartwich Policy Exchange is an independent think tank whose mission is to develop and promote new policy ideas which will foster a free society based on strong communities, personal freedom, limited government, national self-confidence and an enterprise culture. Registered charity no: 1096300. Policy Exchange is committed to an evidence-based approach to policy development. We work in partnership with aca- demics and other experts and commission major studies involving thorough empirical research of alternative policy out- comes. We believe that the policy experience of other countries offers important lessons for government in the UK. We also believe that government has much to learn from business and the voluntary sector. Trustees Charles Moore (Chairman of the Board), Theodore Agnew, Richard Briance, Camilla Cavendish, Richard Ehrman, Robin Edwards, George Robinson, Andrew Sells, Tim Steel, Alice Thomson, Rachel Whetstone. TRANSPORT HDS:TRANSPORT HDS 12/12/07 13:49 Page 2 About the authors Dr Richard Wellings Edinburgh, she worked as a Par liamentary Deputy Editorial Director, Institute of Researcher for Grant Shapps MP. Economic Affairs Dr Richard Wellings is the Deputy Dr Oliver Marc Hartwich Editorial Director at the Institute of Chief Economist, Policy Exchange Economic Affairs. He is a deputy editor of Dr Oliver Marc Hartwich is Policy Exch - the journal Economic Affairs and works on ange’s Chief Economist. He was born in the production of the IEA’s monograph 1975 and studied Business Admin istra tion series. After graduating from Oxford and Economics at Bochum University (Ger- University, he undertook a PhD on trans- many). After graduating with a Master’s port policy at the London School of Degree, he completed a PhD in Law at the Economics, which he completed in 2004. universities of Bochum and Sydney (Aus- Subsequently, he wor ked as a researcher for tralia) while working as a Researcher at the A & F Consulting Engineers, before join- In s titute of Commercial Law of Bonn Uni- ing the IEA in August 2006. He con- versity (Germany). Having published his tributed two papers to The Railways, the aw ard-winning thesis with Herbert Utz Market and the Government (IEA, 2006) Verlag (Munich) in March 2004, he moved and is co-authoring a forthcoming book to London to support Lord Matthew Oak - on road privatisation. eshott of Seagrove Bay during the process of the Pensions Bill. He is the UK Rep res en t- Briar Lipson ative for the German think tank the Institute Research Fellow, Policy Exchange for Free Enterprise. He is the co-author of Briar Lipson is a Research Fellow at Policy Unaffordable Housing: Fables and Myths, Exchange specialising in Economic Bigger Better Faster More, Better Homes, Competitiveness. After gr a d uating with an Greener Cities and The Best Laid Plans. He MA in Economics from the University of joined Policy Exchange in January 2005. © Policy Exchange 2008 Published by Policy Exchange, Clutha House, 10 Storey’s Gate, London SW1P 3AY www.policyexchange.org.uk ISBN: 978-1-906097-12-7 Printed by Heron, Dawson and Sawyer Designed by SoapBox, www.soapboxcommunications.co.uk 2 TRANSPORT HDS:TRANSPORT HDS 12/12/07 13:49 Page 3 Contents Acknowledgements 4 Executive summary 5 1 A competitive disadvantage: Britain’s transport infrastructure 8 2 The case for road pricing 14 3 Harnessing private finance 20 4 The institutional framework 32 5 Taxation and investment 46 6 Additional policy options 57 7 Conclusions and recommendations 65 www.policyexchange.org.uk • 3 TRANSPORT HDS:TRANSPORT HDS 12/12/07 13:49 Page 4 Acknowledgements Policy Exchange would like to thank Serco, Bevan Brittan and an anonymous charita- ble donor for their financial support. The authors would like to thank all those who met with them to discuss aspects of the research, as well as Nick Boles, David Worskett and two anonymous referees for their advice and comments. In addition we would like to thank Philippa Ingram for proof-reading and Oliver Marc Hartwich for his insight, expertise and ongoing edi- torial support. 4 TRANSPORT HDS:TRANSPORT HDS 12/12/07 13:49 Page 5 Executive summary Transport has become one of the key restraints on Britain’s economic growth “ As a method of allocating a scarce resource, to and quality of life. Successive governments ration roads without employing road user charges is have failed to provide the standard of infra- comparable only with the Soviet system of queuing: structure necessary to keep up with an something so discredited as to be considered increasingly mobile and dynamic econo- ridiculous in almost every sphere of life but motoring my. Traffic congestion is now endemic, ” affecting not just large cities but also the core motorway network and small towns. It currently costs our economy in the tackle congestion. Inefficiency of govern- region of £20bn per year, a figure set to rise ment transport spending is a serious prob- significantly in the coming years. This will lem. Just 6 per cent of passenger travel is harm our future economic competitiveness undertaken by train, compared with 84 per and growth. cent by car, yet the railways receive annual International comparisons suggest that subsidies totalling almost £6.5 billion – the UK is close to the bottom of the table nearly as much as the government spends when it comes to transport infrastructure. on roads. The apparent misallocation of Among the world’s leading economies, the resources reflects the fact that transport UK has the most crowded and congested infrastructure investment has become roads, and the fewest motorways. Each detached from consumer demand. The year more than 1.6 million passenger kilo- absence of price signals means it is difficult metres are travelled on each kilometre of for government planners to allocate expen- Britain’s road network: more than twice diture efficiently. the European average. The UK also per- As a method of allocating a scarce forms poorly in terms of the quality of its resource, to ration roads without employ- public transport. ing road user charges is comparable only Clearly a step change is needed in the with the Soviet system of queuing: some- quality of Britain’s infrastructure. Not only thing so discredited as to be considered would this improve our global competi- ridiculous in almost every sphere of life but tiveness – it would also improve the day to motoring. The waste and inefficiency of day lives of the travelling public. such a system is painfully obvious to anyone The deficiencies of UK transport infra- who has sat in congestion and traffic jams. structure do not reflect a shortage of tax But the greatest barrier to pricing – pub- revenues from transport. In 2006 private lic opinion – has arisen not because the road users paid around £32bn in trans- public cannot appreciate the need for it. It port-related taxes. Of this £32bn, just is instead because, having endured decades £8bn was spent on the road network. And of special taxation for the benefit of gener- of this £8bn – which is enough in theory al spending, motorists do not trust govern- to construct at least 400 miles of six-lane ments to introduce pricing from which motorway – a large proportion was spent they will benefit. on repairing damage to the roads (caused One solution, as proposed in this report, primarily by good vehicles) and another is to upgrade transport infrastructure now, significant portion on anti-traffic and safe- and then, once users have began to experi- ty measures. New roads have also tended to ence substantial benefits, introduce the be built for political reasons rather than to road user charges necessary to cover the www.policyexchange.org.uk • 5 TRANSPORT HDS:TRANSPORT HDS 12/12/07 13:49 Page 6 Towards better transport costs.