Should we pay more to use roads? (A2 Transport Economics)

Roads are an example of a quasi-public good. This means that they have many but not all of the characteristics of a public good. They are semi non-rivalrous (additional consumers will eventually cause congestion) and semi non-excludable (legally, only those holding licences can drive on roads).  The use of roads result in negative externalities (the bad spillover effects resulting from a transaction between a producer and consumer on a third party, usually society). The negative externalities that result from the use of cars on roads includes congestion, air pollution, noise pollution and car accidents.

Road pricing is an indirect tax that charges drivers for the use of roads. It is a market based policy that aims to directly reduce the demand for road use and so correct the resulting negative externalities. Ideally, the size of the tax should equal the (estimated) monetary value of the negative externalities of road use. For this to occur, the tax should be representative of where its being paid, when the road is being used and how polluting the vehicle being used is. For existing examples of road pricing in the UK this is not the case. The London Congestion Charge is a fee of £10 for the majority of vehicles operating within the Congestion Charge Zone in central London, despite the length of time in the zone, the time of day or how highly polluting the car being taxed is. 

Currently in the UK cars are required to pay Vehicle Excise Duty (VED), an annual indirect tax on car use. However as car ownership increases and roads become more congested, is this enough?

The arguments for the use of further road pricing include that it will be successful in achieving its main aim: reducing the negative externalities of road use. By internalising external costs, road pricing would cause a contraction in the demand for road use and thus reduce congestion. For those willing to pay the tax, journey times would decrease. Levels of noise and air pollution that result from congestion would also be reduced. Revenue generated from road pricing could also be used to fund investment into substitute forms of public transport such as the rail and bus networks. This will be particularly beneficial if hypothecation (a situation where revenue from a tax is directly allocated to spending within the area taxed, in this case transport) occurs.

If it was that simple road pricing would be an obvious solution to the negative externalities produced by road use, however, arguments against road pricing also exist. The first of these is that for firms that use roads as a means of transporting freight, a tax on road use will increase the cost of production of these firms and result in lower profit margins or higher prices (that could cause cost-push inflationary pressure). This will led to a reduced ability to be price competitive against rival firms who operate in areas where road use is free. The effectiveness of the tax may also be questionable due to the price inelastic nature of the demand for road use. In order to address this, vast amounts of government spending would be necessary to improve public transport, a possible substitute to car use (the initial implementation costs are also likely to be high).

Another argument against road pricing is the social exclusion that it is likely to incur. Road pricing is a regressive tax, meaning that low-income individuals will be harder hit by the tax than high-income individuals, as the tax will be the same level for both groups. This makes roads more excludable and they therefore become a more private good.

It is potential costs (particular the social costs) that generally lead to road pricing to be an unpopular option within the UK population. It is for this reason that it seems that, despite its potential benefits, any implementation of further road pricing is unlikely to be drastic or widespread. It is too politically unpopular for any government to publicly back the idea. It seems that here in the UK people would rather queue to use roads than pay for it and while owning a car continues to become increasingly fashionable, these queues are only going to get longer.