IMAGINE a private utility that charged customers the same regardless of the service it provided. Imagine it raises £32bn in revenue per annum from those customers, but spends less than a third of it on maintaining and upgrading its assets. Everyone depends on its service, yet it is unreliable, frequently overwhelmed by demand and in places its infrastructure is crumbling. Yet its owner still raises prices above the rate of inflation.
Imagine the company didn’t decide on its capital and maintenance programme, but needed to gain approval from politicians every year.
This utility isn’t private, nor a company. I am simply talking about the roads.
About 70 per cent of all passenger trips use roads, while 67 per cent of freight by tonne/km goes by road, including almost all urban freight.
It generates a £22bn annual surplus from motoring taxes, yet potholes and bottlenecks are chronic problems. The RAC Foundation recently released a report listing over £10bn of unfunded trunk road projects with positive economic returns. That doesn’t include roads in London, such as a much-needed new East London River Crossing. Meanwhile, vocal political activists encourage government to penalise motorists, subsidise its competition and stop road building.
Sir Rod Eddington’s report to the previous government said efficient road pricing could halve congestion and save £15bn in GDP a year by 2025. Yet road pricing is political poison because motorists are sick of increases in motoring taxes with nothing to show for it on the roads. They understandably don’t trust politicians, expecting road pricing to rip them off more, and to be another large government IT project debacle (London’s congestion charging system excepted).
So we have a system that is chronically lacking capital, with little relationship between users and managers, and both funding and pricing politically determined. Imagine if telecommunications networks were managed that way.
Other countries show more market-oriented ways of managing roads. France has 19 private and state owned companies owning and operating its motorway network (with tolls). Japan and Italy also have private companies owning, operating and tolling large networks of highways. Users of any of these networks will notice how well most of them compare to British roads.
The government has announced its interest in promoting private investment in new toll roads, but the entire system needs fundamental reform. Ending the war on motorists should be about more than closing a bus lane and freezing fuel duty, it should be about striking a new deal.
The solution could be to move towards a more commercial, innovative, market-oriented system that treats users as customers, sets prices based on supply and demand and allocates resources according to market demand rather than political whim. The RAC Foundation has proposed making the highway network a regulated network utility. I propose going a little further.
Responsibility for all trunk roads could be transferred into a series of commercial companies, with shares initially fully held by government, but with independent boards. They would focus on delivering service to road users and would compete where viable. These companies would be autonomous and could borrow, establish new toll roads in partnership with the private sector and, crucially, develop direct contractual relationships with motorists. Such a contract would enable motorists to pay directly for use of the roads in exchange for a refund in motoring taxes. They could institute innovations like express lanes, improved asset management, intelligent highways and intelligent parking systems, such as the one being trialled in downtown San Francisco that varies prices according to demand. Such companies could be privatised.
Instead of politicians deciding road funding, a transitional purchasing company could be established, to buy road services on behalf of motorists using a set amount of motoring taxation revenue. Road companies could bid to that purchasing company for funds for maintenance and new projects. Over time, the role of the purchasing company would fade, as road companies established road-pricing packages to lure motorists away from fuel duty towards paying them directly. This would allow a gradual transition towards road pricing that is user driven.
Prices would help manage congestion, with additional revenue helping to fund new capacity where it is needed most, tunnelling where viable to avoid battles with property owners.
The system as it stands is Soviet in its central command and control of resources. A new free market deal for roads would treat motorists as customers, paying for safe well maintained efficient roads. As a bonus, politicians could no longer play politics with the funding of road projects, but they would have to surrender a part of motoring taxation to make it work.
Isn’t it about time roads joined the market economy?
Scott Wilson is a management consultant with Booz & Co. He blogs at http://roadpricing.blogspot.com. The views contained in this article are personal and do not reflect the views of his employer.