10, Congestion Charging

Congestion Charging

The theory of Congestion Charging has a long and distinguished history starting with the late Professor Smeed in the 1960s. The advantage of charging is illustrated by the following example.

Consider a journey to work of 5 miles.

The COBA manual, used by the Government to evaluate road schemes, sets the value of time associated with the average car at £6.73 per hour at 1994 prices. In this illustration a value of £6 will be used to simplify the arithmetic.

If, under "unpriced" conditions, the flow is 1000 vehicles per hour and the journey speed averages 10 mph then a 5-mile journey will take 30 minutes. The time cost per vehicle is then £3, providing a total time cost for all 1,000 vehicles of £3,000.

If a toll of £1 would persuade 20% of the vehicles to go at some other time and if that increased speed to 20 mph then the journey time saving would be 15 minutes. That would yield a time saving of 15 minutes, representing £1.50 for each of the remaining 800 vehicles. Subtracting the toll of £1 leaves each of them with 50 pence providing a total of £400. We then need to subtract the loss suffered by those not prepared to pay the toll. Some will have lost nothing since even a fractional charge would have diverted them. Others will have lost up to £1 for the £1 charge was only just sufficient to divert them. Hence, on average the loss to those diverted may be set to 50p providing a total of £100. So, the net benefit to the original 1000 road users is £300 made up of the £400 enjoyed by those remaining less the £100 for those diverted.

However, the toll of £1 is a benefit enjoyed by the people collecting it. Hence, overall, the total community benefit is not the £300 enjoyed by motorists but £300 plus the tolls collected, £800, a total of £1,100.

That illustrates the tremendous economic benefit to be had from a system of charging designed to eliminate congestion.

Of course the numbers may work out differently from the example but, regardless of that, what other method is there for allocating scarce road space but charging, except the Soviet one of queuing.

So, perhaps we can look forward to the day when cars will carry smart cards enabling pay as you go to replace fixed license fees and insurance. That, coupled with an in-vehicle display of the money being spent, would be a powerful incentive to take a passenger or to consider the full costs of the journey instead of, as at present, the fuel cost alone.

Certainly it is a dereliction of duty on behalf of successive governments to allow congestion to grow unfettered.

References:

Road Pricing: The Economic and Technical Possibilities” HMSO June 1964 (Otherwise known as the Smeed Report
Paying for Roads The Economics of Traffic Congestion: Gabriel Roth Penguin Special S256