It everything seems so simple. By the end of this decade, the government will ban the sale of gasoline and diesel vehicles. Cars are becoming greener and cleaner, which makes it easier to meet the goal of a net zero carbon future.
Boris Johnson will no doubt impress fellow world leaders with the speed of the British transport revolution when he hosts the Cop26 meeting in early November. Rishi Sunak could even be persuaded to announce measures to accelerate the budget transition in October, carefully coordinated with the week leading up to the international meeting in Glasgow.
There are two ways the government plan could get into trouble. First, if the transition is slower than expected because new battery electric vehicles are too expensive or if the infrastructure to recharge them is not rebuilt.
Alternatively, there is a risk that demand for green cars will be as strong – or perhaps even stronger – than projected, in which case the government will face bigger congestion and lower tax revenues.
The two are connected. One of the charms of buying a new electric car is the lower tax. As a paper produced by the Tony Blair Institute for Global Change has shown, the cost of gasoline, fuel tax and vehicle excise tax is around £ 1,100 per year for an average gasoline or diesel car, while for electric vehicles it is only £ 320.
This reduces the total cost of driving by 71% and, if the move to green vehicles is accelerated, will create a massive hole in Treasury Department tax revenues – £ 10 billion by 2030, £ 20 billion by 2035, and £ 30 billion by 2040, so the institute test report.
As the cost of driving goes down, drivers are encouraged to drive more and traffic jams get worse. The traffic jam causes high costs, regardless of whether a driver is in a gasoline, diesel, hybrid or battery-electric vehicle.
All of this begs the question of whether technological innovation needs to go hand in hand with a new way of thinking about the way motorists pay to drive. Specifically, the question arises as to whether a system of road user charges would solve the double congestion and revenue problem.
The idea of road pricing is actually nothing new and has always had its supporters. In the early 1960s, Harold Macmillan’s government was concerned about the clutter on the UK’s streets and commissioned a study to look into the problem. The Smeed report duly arrived in 1964 and suggested charging user fees to deal with traffic jams.
The cause of the ministers’ concern was easy to see. The number of cars on British roads had reached 5 million in 1960 and would double over the next decade. However, with an election looming, neither party wanted to risk a fight with motorists, and so the Smeed report was kicked in the grass.
Governments left and right tried to respond to congestion by building bigger and bigger roads, but it was an ineffective approach. There are now 35 million cars on the road and the traffic jams have grown longer.
Over the years there has been one flirtation or two with different approaches, the most significant of which was the congestion charge introduced by Ken Livingstone as Mayor of London.
The economic case for road pricing is that the cost of traveling at a snail’s pace in central London is higher than on country roads in Northumberland, and that difference should be reflected in the price motorists pay. If it makes sense to have cheaper train fares and different prices for a cinema ticket for a Monday matinee compared to a Saturday night in the off-peak times, then logically this also applies to road use. Bankers wishing to drive from their West London homes to Canary Wharf for a 9am meeting could still do so, but would have to pay a higher price than the retired couple who goes to a country pub on a Tuesday lunchtime. Modern technology in the form of Uber-style apps could vary travel costs on the same street depending on the time and traffic situation.
In practice, of course, this is not quite as easy as economists think. First, a way must be found to prevent politicians from using road pricing as a cash cow. Fees could start low, but the public would have every right to question whether they would stay low.
Another problem is what happens to people who have to drive on busy roads at rush hour but are not wealthy. Caregivers with multiple daily visits, for example, could realistically not need public transport.
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Then the question arises whether road tolls would discourage motorists from switching to cleaner vehicles, since lower costs are clearly an incentive to buy an electric car.
The list of possible problems goes on. Is an Uberized road pricing system with all its complexity technically feasible? Even if so, what about the associated privacy issues? Certainly there is already a lot of surveillance on the roads in the UK (and elsewhere), but there would inevitably be opposition to the idea that the state knows exactly where you are when you are driving.
Up to 25 million battery electric vehicles could be on the road by the mid-2030s. That means more congestion and a black hole in public finances. It also means that the standard political position – doing nothing for fear of the backlash from motorists – is not really an option.
