Taxes and Charges on Road Users (HC 1175-i) Transport Committee 5Nov 2008

Evidence given by
2.45 Royal Automobile Club Foundation for Motoring Professor Stephen Glaister CBE, Director Institute for European Environmental Policy Dr Malcolm Fergusson, Senior Fellow Institute for Fiscal Studies Andrew Leicester, Senior Research Economist
3.45 The Chartered Institute of Logistics and Transport in the UK (CILT) Jim Coates, Chairman, Road Capacity & Charging Forum Professor Alan McKinnon Professor Alan McKinnon, Heriot-Watt University, Director of Logistics Research Centre Professor Jon Shaw Professor Jon Shaw, University of Plymouth, Professor of Transport Geography

Q27 Mr. David Clelland: I have a number of questions but I want to follow up a point that Dr Fergusson made earlier about the effects of providing new roads or improving existing roads because I would find this argument rather curious that if you provide a road then people are going to use it as though, for some reason, we should build a road that people do not use - it is a bit of a nonsense. So the idea of building a road is so that it will fill up with traffic because that is what it is there for. But Dr Fergusson seems to be suggesting that if we build a new road the overall capacity increases, so people rush out and buy new cars and drive new vehicles. Is there any evidence for that? Where are the statistics that there is an overall increase in the number of vehicles?

Dr Fergusson: I do not know that you could point to a particular road scheme and associate it with that, but if you look at the general trend, I was saying, over the time it has been for growing car ownership and longer journeys, and that has been correlated with the availability of roads. If you look at the distance the average motorist drives now and you imagine the country with no motorways we would never get anywhere, we would just be driving around country lanes to nowhere. So the availability of roads is correlated with mobility because the motorway system specifically carries an enormous percentage of total traffic, especially for longer journeys and presumably that traffic could not occur without the roads.

Professor Glaister: Two things. I think the major driver of increased demand, which will continue in the future, is reductions in the cost of using cars, only in using cars in relation to income - they are much cheaper than they used to be - and greater population, particularly in certain parts of the country where the population has been moving to. The third thing is provision of the capacity. Clearly if you did not provide more roads they would get even more congested and that would choke off some of the demand. These two things have been gong on simultaneously and we cannot really separate them out. But I would say that if we allow the traffic to continue growing in the future, which is what the Department itself expects, but do not provide for it then congestion will inevitably get a lot worse and we have to make a decision as a society whether that is a good thing.

Dr Fergusson: I actually agree with that. What I was saying earlier, I think in the end it is a political decision whether you decide that you want to lay back and continue indefinitely or whether at some point you say, "Okay, that is enough roads, thank you; we will manage the roads we have sensibly through pricing and the rest we will try to provide by public transport or bringing people closer together," or whatever else we might do.

Q28 Chairman: Mr Leicester, did you want to come back on that?

Mr Leicester: I would add to what Professor Glaister has just said. It is very true that the cost of owning, particularly purchasing a vehicle has fallen quite substantially in real terms, but the cost of running that vehicle has probably gone up a little bit in real terms over the past ten or 15 years or so, but in particular the cost of doing these things have fallen relative to incomes and this has seen a big growth in the distribution of car ownership towards the bottom of the income distribution over the past 20 years or so. One of the concerns that people have about this system of taxing on motoring at the moment is whether it is unfair, whether it impacts most on the poor and that has been getting worse slightly over time because of this growth in car ownership at the bottom of the income distribution - it is now the poorest households that do face slightly higher costs to an increase, say, in fuel duty whereas maybe ten or 15 years ago that would not have been the case because so many of the poorest households would not have been car owners. Now that growth at the bottom has really meant that this problem might be getting slowly worse.

Q29 Mr. David Clelland: While we are on the subject of costs, what has been the impact of the high fuel prices over the past year? Have there been any benefits, for instance?

Professor Glaister: First of all, it is too soon to be absolutely sure, of course, because it does take time for people to adjust and the price has now come down again. We have recently published some evidence of reduced congestion at hot spots. Congestion is one of those things where as the network is close to its capacity a small increase in traffic will cause a disproportionate increase in traffic jams and vice versa, and we have seen a reduction in delay at hot spots. Traffic has fallen a bit, as exactly you would expect, but what the long-term effect would have been I do not know. I think if you asked the Department for Transport they will be able to tell you that the effect on traffic of the increased fuel prices over the last few months has been more or less exactly what they would have forecast - a small reduction in traffic; and vice versa, if fuel prices go down the traffic will grow again.

Q30 Mr Martlew: Has there been any reduction in the speed of traffic?

Professor Glaister: Yes, there has. Interestingly, overall journey times have been improved because of the reduction in congestion but free flow speeds have fallen because people recognise that you use less fuel if you go more slowly. So they are travelling in more free flow conditions at lower speeds and getting there quicker.

Dr Fergusson: There is actually quite a lot to be said for controlling traffic speeds because they are a very important way of improving fuel consumption and relatively cheap if you eliminate excessive speeds.

Professor Glaister: That has been well demonstrated by the M42 where speeds are closely controlled and you get a much smoother flow at 50 or 60 miles per hour than you would without a limit.

Dr Fergusson: Also you can get more cars on the road as well if you have a stable, slower speed. So there is quite a lot to be said for speed control.

Q31 Mr. David Clelland: Can I ask you about the government’s proposals for differentiating the vehicle excise duty rates? How effective do you think that would be in terms of reducing carbon emissions?

Dr Fergusson: We will come on to the question of whether they are going the right way about it, where I am probably going to agree with Professor Glaister quite strongly, but in principle there is an argument for doing that. Probably vehicle excise duty, if people were fully rational about these things, would not be a big factor in people’s car purchase choices because it is not a big factor in the overall cost of the car. But I do think the idea of piling it on in the first year - in effect it is purchase tax by another name - I do think there is benefit in that because you do confront people at the point of purchase with the implications of the longer-term CO2 emissions of the car and it is difficult to do that otherwise because it is only a relatively small proportion of the population who actually buy a new car, and they then influence the shape of the car stock and because they tend to be wealthier people or they may be driving a company car or something they are not too bothered with the whole lifetime cost of refuelling that car when they buy it. But if you confront them upfront then I think you have a better chance of actually influencing the car stock towards more fuel efficient cars.

Q32 Chairman: Dr Fergusson, do you think that motoring taxes can be used to influence people buying greener vehicles?

Dr Fergusson: Do I say they can?

Q33 Chairman: Can it? I am asking you.

Dr Fergusson: I think they can. The evidence on car purchases is quite strong. They did an experiment in the Netherlands a couple of years back and that was actually effective; they had quite a strong - they called it a bonus tax where they actually gave money to people buying the most economical cars and added to the price of the less economical cars, and that had quite a spectacular effect. I think in this country, as I say, we have not really differentiated vehicle excise duty far enough for it to happen a great deal but I think now also where we have the very low rates in bands A and B and we are now seeing quite a lot of new models coming on the market in those lower bands there is beginning to be some evidence that sales of those very efficient cars is beginning to take off now. So that is quite an exciting opportunity.

Q34 Chairman: I would like to bring in Mr Leicester.

Mr Leicester: One of the issues is how these taxes are framed and presented to the public and how that might differentially influence what they do. If you just increased the price and say, "We are just increasing the price of this," and do not make it very clear why you are doing it then the response that you get might be very different, whereas if you present people in the showroom with, "You have to pay this first year tax of £950 because this is a really polluting car" that might have a stronger effect. There is some evidence, I think, that framing of taxes does influence how effective they can be.

Q35 Mr. David Clelland: I was going to ask if you think it is reasonable or fair to apply new rates like this into this differential rate to car purchased as long ago as 2001.

Professor Glaister: Whether or not it is fair, it will not be effective. If you bought the car, the car is on the road and it cannot take it off the road, as it were. We at the Foundation gave evidence to that effect to the Environmental Audit Committee, and we think it was misguided on the part of the Treasury. In answer to your previous question, if I may just back to that, clearly you can use these taxes to influence behaviour but I do think the evidence is really rather poor on how big those effects are. I do not think it was adequately researched. I have a simple view about this. If your concern is carbon then you should tax the carbon, and that implies putting the tax on the fuel and not on the vehicle. If you want to take a total tax take you have two main components; there is the VED, which is tax on ownership, and the fuel duty which is a tax on use. If it is the use that is a problem that is what you should tax, and that in London I think would be far effective in giving incentive to the motoring manufacturing industry and the user to buy more efficient vehicles.

Dr Fergusson: I do not fully agree. I know I am sitting in a risky position, wedged as I am in between two eminent economists, but I think that that only works if you take the view that the consumer behaves completely economically rationally in this respect, and I am afraid I think the evidence is that they do not. There are quite a lot of appliances including energy electrical appliances. It is fairly clear that purchasers do not take into account the full lifetime cost when they buy it and, as I have already mentioned, with cars there is more reason than most to think that they do not because the person who buys a new car rarely keeps it for more than a year or two, and it is the rest of the mugs who inherit it later who pay the cost of their not buying fuel efficiency, as it were.

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Q91 Mr. David Clelland: Would that not result in a tit-for-tat charge when our hauliers go across onto the continent?

Professor McKinnon: Not necessarily. Each country has subsidiarity. When our vehicles go to other countries they have to pay a vignette. When you go to Germany you have to pay the kilometre toll. In the longer term, hopefully we will see an EU-wide, standardised system of charging trucks. The European Commission is moving in that direction certainly but it may be another three, four or five years before that happens.

This is an uncorrected transcript of evidence taken in public and reported to the House. The transcript has been placed on the internet on the authority of the Committee. Neither witnesses nor Members have had the opportunity to correct the record. The transcript is not yet an approved formal record of these proceedings.

The full transcript may be read here.