Road pricing scheme is set to revolutionise UK driving

London Briefing/ Chris Johns: Transport for London - the body responsible for managing all of London's extensive transport infrastructure…

London Briefing/ Chris Johns: Transport for London - the body responsible for managing all of London's extensive transport infrastructure - is nearing the end of a long consultation exercise concerning the western extension of the current congestion charging zone.

As expected, the congestion charge has been a resounding success and most of the critics have been silenced. Most people now seem to accept the wisdom of increasing the charging area, currently embracing much of the financial district (the City) and Westminster, to include Kensington and Chelsea.

The consultation exercise has actually listened to the more constructive criticisms and some key modifications have resulted, including some to the boundary lines. But the extension will happen.

Even Ken Livingstone's proposed increase in the charge has met with surprisingly little protest and a 60 per cent rise to £8 (€12) is now imminent.

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Most complaints have focused on the rather heavy-handed way in which the penalty system has operated. There have been too many examples of people committing minor infringements who have been hit with inappropriately heavy fines and penalties. These are merely teething problems and the fault of over-zealous bureaucrats and clunky technology - both will be sorted out in time.

Further extensions of the charging zone are probable, eventually, and other cities will adopt similar schemes. Indeed, the most recent proposal from central government to introduce sophisticated road pricing schemes can be seen as a direct result of London's charging success.

According to current proposals, soon after the next general election - so within five years - extensive trial road pricing schemes will be rolled out. If successful, the UK will, over the next decade, develop charging schemes for road use that will be revolutionary.

Of course, given that motor taxes already raise in excess of £40 billion a year for the exchequer, motorist lobby groups are in uproar over the possibility that yet more money is to be squeezed out of drivers. Already we are hearing calls for the duty on petrol to be cut.

The basic principle behind road pricing is relatively simple. Road space is a scarce commodity and can only be rationed in one of two ways: via price or queues. Because there is zero pricing at the moment (with the exception of London's congestion charges and a couple of bridges around the UK) the only way in which roads are rationed is via queues - traffic jams and congestion being the all too common result.

This might strike some people as eminently fair: rich people have all the fun so why should they get the roads? Why penalise poor people? This would be a perfectly fair question if the costs of congestion were borne only by the people responsible.

Traffic jams impose all sorts of costs on society, not least in the form of pollution. Delays and congestion affect everybody, from private businesses to essential public services; the costs are felt by everybody, whether or not they drive a car.

It makes much more sense from the perspective of the economy as a whole to ration road use via price, particularly if such a scheme actually reduces congestion.

Pricing will encourage people to switch to public transport and to use their cars at off-peak hours. These have been the effects of London's congestion charge and road pricing will be no different.

As a matter of fact, the government plans something much more sophisticated than the congestion charge - which is flat rate.

Road pricing will utilise new technology such that the roads in most demand will be the most expensive and vice versa. Roads that are expensive during traditional rush hours will be cheaper at night; similarly for motorways.

The government's proposals are progressive and critics will be dealt the same fate as opponents of London's charging scheme. The chancellor will undoubtedly see them as a new revenue raising opportunity so current suggestions of a revenue neutral scheme will be quietly dropped. From an environmental perspective that is no bad thing.

Few people would have thought that "Red Ken" was capable of introducing a policy that unites right-wing economists, environmentalists and Tony Blair's New Labour. There is hope for us all when something so obviously sensible brings together such disparate groups.

Chris Johns is an investment strategist with Collins Stewart. All opinions are personal.