A tale of two tolls. Why Severn Crossing charges could go on and on and on. #Wales @davidtcdavies

Two tolled river crossings are in the news this week. On Tuesday the Department for Transport launched a consultation on an additional crossing of the Thames at or close to the existing bridge and tunnel at Dartford.

One of the big question marks, over and beyond the exact location of the new infrastructure, is how it will be funded. The presumption is that it will be through direct charges to users. After all that is what was used to pay for the QEII Bridge built in 1991 to augment the tunnel. The big grumble as regards that project has been, despite what drivers were led to believe, the government’s failure to remove tolls even after though the bridge has long since been built and paid for.

Which leads us on to the Severn Crossings. At first glance the situation is markedly different here.

The first road link between Wales and England was opened in 1966, but as traffic volume increased it became necessary to build a second bridge and that opened in 1996.

Today crossing operations are run by the Severn River Crossing PLC. As it stands this company has the concession to collect charges until it hits a certain amount of revenue, currently in the order of £1 billion, a figure likely to be reached (traffic volume, corporation tax etc. allowing) in around 2018. At the point the bridge reverts to public ownership with an expectation that the regulated tolls (price £6.20 for a car) will be removed.

Except they won’t, certainly not for a couple of years afterwards. Why? Because even though the Severn River Crossing company runs the bridges the government has somehow managed to incur costs of £88m in relation to the links and this money also needs to be recouped through tolls before they are scrapped.

In a letter to David Davies MP, chair of the Welsh Affairs Committee in Parliament, the transport minister Stephen Hammond MP explained how the costs had arisen:

“The concession agreement and Act was structured so that certain risks were borne by Government rather than SRC, for example, costs relating to latent defects on the first Severn Crossing. By bearing these risks the government was able to finance the construction of the second crossing and maintenance of the crossings at a much lower cost. If these risks had been included in the concession arrangement the end date of the concession would have needed to be extended to allow the concessionaire to recover its costs or the tolls would have needed to be set at a higher level. It is also likely that a private company would have required a substantial risk premium in order to take on these risks.”

Of course, there will be the strong suspicion that, against the wishes of road users and public bodies such as the Welsh Affairs Committee, the toll will never be removed, even after the extra £88m has been found, and instead will go up further still. After all, that is what happened at Dartford.

 

 

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Why #M6 toll owner has no reason to drop fees even if it is a ghost road @richardwestcott

So much for privatising the road network or encouraging private sector investment in it, now there are those who are calling for those small parts of the network not in public hands to be nationalised.

Today’s FT (page 2) reports a plea for the M6 Toll road to be returned to us and run on our behalf by the government or its agents, presumably the Highways Agency.

According to the paper, Geoff Inskip, chief executive of CENTRO, the West Midlands transport authority, is rightly warning that even with the utilisation of the hard shoulder, the existing M6 route through Birmingham will be even more heavily congested in the future as traffic is forecast to rise by a quarter in the next decade and a half.

He says this rise should be seen against a steady decline in the numbers of vehicles using the toll route, down from a peak of 55,000 a day in 2006 to around 30,000 now.

The operator of the M6 Toll, Macquarie, apportions much of the fall to the downturn in the economy and the associated general decrease in traffic. But this is not the whole story. Much is down to pricing.

To understand why, you only need look at this table from the M6T Research Study Modelling Report by AECOM which is dated 2009 but for some reason was published on the DfT website – along with several other related documents – today:

The figures seem to say it all. Even as you increase prices and traffic violume falls the revenue continues to go up, all the way to a toll of somewhere between £4.50 and £5.00. In the absence of a reason not to, why would an operator have any incentive in doing anything other than maximising revnue especially when – so one would suspect – your costs actually fall: fewer cars = lower running costs in terms of wear and tear, and staffing levels?

Things would be different in a regulated industry where there are limitations on price rises and an arbitrator (regulator) balances the needs of the consumers with the requirement of the companies to make a return. As and when we have more private sector investment in the road network ministers would do well to remember the importance of this role.

As for the M6 toll, don’t expect anything to change soon. While Macquarie apparently discusses with its lenders how to restructure its debt, the DfT says it has no plans to change the ownership status of the route; at least not until 2054 when the current concession ends.

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The 3p rise in #fuelduty that never was? #Budget2013 Good for drivers but not as good as we might think

This morning the media has – rightly – hailed the good news that the rise in fuel duty planned for 1 September has been abandoned.

But what exactly was the size of the rise due to have been?

Much of the media has gone for a 3p rise, and indeed were doing so well ahead of yesterday’s statement. Yet in the Budget 2013 document released yesterday by the Treasury, the Chancellor said the rise foregone was in fact 1.89p (P53) to which VAT would have been added:

“Budget 2013 announces that the 1.89 pence per litre fuel duty increase that was planned for 1 September 2013 will be cancelled. This means that fuel duty will have been frozen for nearly three and half years, the longest duty freeze for over 20 years.”

In the grand scheme of things there isn’t much – in absolute rather than percentage terms – between the two, but where might the confusion have come about?

The previous increase was due on 1January 2013 and this was abandoned completely. The amount of this increase was set to be 3.02p – 3p to you and me.

The next cost of living increase was due for 1 April this year but had already been delayed to 1 September. It was this planned increase that the Chancellor shelved completely yesterday. Prior to yesterday no figure had been set for the level of the hike. All that had been said was that the amount would be confirmed in Budget 2013. And it was, but only so it could then be announced that it was never going to be implemented.

According to the Fair Fuel Stabiliser that the Chancellor introduced in Budget 2012 future annual rises in the level of fuel duty would be in line with inflation so long as the price of a barrel of crude oil was above £45 a barrel – it is currently much higher than that. If the price of oil should fall below £45 over a sustained period then the rise in the rate of fuel duty would be inflation plus 1p per litre.

So where does the 1.89p quoted yesterday derive from? Earlier this month we heard that the cost of living as measured by RPI (and this was the benchmark figure outlined in the original FFS formula) was about 3.3%. If you take 3.3% of the current rate of duty of 57.95p per litre you end up with 1.85p; markedly close to the figure of 1.89p mentioned in the Budget yesterday.

Of course this is all academic now because the rise did not go ahead, but while yesterday was undeniably a good day for drivers, it was not quite as good as many of us might have thought.

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No longer a taxing matter – Company Car Tax rate for ultra-low-emission vehicles introduced #Budget2013 #EVs

Following concerns expressed by the automotive industry, the Chancellor has reintroduced tax incentives for ultra-low-emission company cars by creating two tax bands for vehicles with tailpipe CO₂ emissions of 0-50 g/km and 51-75 g/km. Even better, this means that they will not be directed at a particular technology (electric vehicles) as they were previously, but be technology-neutral.

Furthermore, he has announced that Company Car Tax rates will be announced three years in advance. This is great news for fleet operators since the average length of ownership of company cars is 3 to 4 years; under the new regime, operators will therefore have longer-term certainty when making vehicle purchasing decisions.

This is the relevant section in Budget 2013:

2.152 Company Car Tax (CCT): ultra low emission vehicles (ULEVs) – From April 2015, two new CCT bands will be introduced at 0-50 grams/kilometre of carbon dioxide (g/km CO2) and 51-75 g/km CO2. (Finance Bill 2013)

2.153 The appropriate percentage of the list price subject to tax for the 0-50 g/km CO2 band will be 5 per cent in 2015-16, and 7 per cent in 2016-17. The appropriate percentage of the list price subject to tax for the 51-75 g/km CO2 band will be 9 per cent in 2015-16 and 11 per cent in 2016-17. In 2017-18 there will be a 3 percentage point differential between the 0-50 and 51-75 g/km CO2 bands, and between the 51-75 and 76-94 g/km CO2 band. In 2018-19 and 2019-20 there will be a 2 percentage point differential between the 0-50 and 51-75 g/km CO2 bands and between the 51-75 and 76-94 g/km CO2 bands. (Finance Bill 2013 and future finance bills) (57)

2.154 In future years CCT rates will be announced three years in advance. The Government will review these incentives for ULEVs in light of market developments at Budget 2016, to inform decisions on CCT from 2020-21 onwards.

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A reminder to the Chancellor. Why George Osborne is likely to freeze #fuelduty in #Budget2013 tomorrow.

If the Chancellor was looking for reasons to freeze or cut fuel duty he need only look at two sets of data:

1) The work on motoring poverty recently carried out by the RAC Foundation.

2) The current pump prices which are nearing record highs despite a supermarket price war.

The latest fuel prices are as follows:

	Current price (18th March 2013)	Record high
Unleaded	137.6p	142.17p (16th April 2012)
Diesel	144.8p	148.04p (16th April 2012)
Oil (Brent crude per barrel)	$109	$148 (11th July 2008)

The current rate of duty is 57.95p per litre of petrol and diesel. It has been at this level since March 2011.

As a proportion of the price of unleaded fuel, tax (fuel duty + VAT) makes up 59% of the total.

A proposed 3.02p per litre increase in the level of fuel duty was scheduled to take place on 1^st January 2013. In the Autumn Statement 2012 the Chancellor cancelled this increase.

The next fuel duty increase was scheduled for 1^st April 2013 but that was postponed (also in the Autumn Statement 2012) to 1^st September 2013. It has not been formally announced what the level of this increase will be.

Two weeks ago the RAC Foundation published analysis on the impact of high motoring costs on the poorest ten percent of car-owning households, showing just how deeply they are mired in motoring poverty.

Our work showed that roughly 800,000 car-owning households are spending at least 27% of their disposable income on buying and running a car.

Of a total maximum weekly expenditure of £167, these households saw £44 go on vehicle related purchasing and operating costs, including:

£16 on petrol and diesel.

£8.30 on insurance.

The complete breakdown of these figures, plus figures for other income groups is available here.

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Get the chequebook out. If ministers can’t agree new funding schemes, spend more motoring tax building the roads we need

By Professor Stephen Glaister, director of the RAC Foundation.

If the Financial Times is to be believed (Wednesday 6^th March, p3) the government just lost its resolve on a reform of vital importance to the economic recovery: road infrastructure. Whilst it decides which way to go it should immediately end the delay with getting on with using conventional funding for some crucial schemes such as the improvement of the A14 and A303. And if it looking for other infrastructure improvements that will repay their investment costs many times over there is a long list of other languishing road schemes.

The government has a fixation about achieving economic growth. So would any government at the moment, for the simple reason that the arithmetic dictates that without growth the deficit cannot be eliminated. Vince Cable hinted at such a thing on this morning’s Today programme on Radio 4 just after 8am.

This government has also acknowledged that historic under-spend on capacity and maintenance, growing population and the need to serve economic growth all point towards a need for more resources for infrastructure. The big question is who is going to pay for it?

In March 2012 the Prime Minister outlined this infrastructure problem and specifically mentioned the need for more strategic roads. He pointed out that pension funds and sovereign wealth funds have lots of capital available to invest in long-lived infrastructure like this.  He mentioned the analogy with the water industry, which has achieved a massive investment in order to deliver more and better quality water with no burden on the taxpayer. Why not do the same for strategic roads?

There was a snag: the Prime Minister explicitly said he was not considering introducing charging for using existing roads, only new capacity. But there are few opportunities to build self-funding, distinct new roads in Britain. What is needed is better maintenance and capacity enhancement of the existing network: so where was the money going to come from to repay the investors? Water users pay for all the water they use and it is that which funds the industry’s infrastructure.

This fundamental flaw in the argument was quickly spotted and the Prime Minister commissioned the Treasury and the Department for Transport to carry out a “Feasibility Study” into options for correcting it.  This duly reported by the end of November.

But it seems that nothing offered found favour: the hoped-for announcement was missing from the 2012 Autumn Statement. There was only a promise that something would be announced before the 2013 Budget (20^th March). It is rumoured that there was a section in the Coalition Government’s “half term review” document but that was dropped at the last minute.

Now, apparently, nothing will appear until the summer of 2013 at the earliest.

It is all very difficult. If there is going to be significant private investment there has to be a significant new cash flow to service the debt. There has been speculation in the press that this could come from some form of new charge for access to parts of the system, perhaps similar to a scheme proposed in a think piece by Brian Wadsworth and published by the RAC Foundation. Yet the government knows that with 35 million motorists amongst the electorate it cannot risk creating a perception that a significant proportion will be losers. To avoid this it would probably be necessary to sweeten the pill with an offsetting reduction in one or both of the main road taxes: fuel duty and the tax disc (VED).

In a world where “there is no government money” that is going to be difficult to achieve. But maybe the growth imperative will persuade government to do this.

For motorists that could turn out to be an attractive deal: better, less congested roads and less of the money they pay now being siphoned off the pay for other areas of general government expenditure. But judgement on that must await the detail of a firm proposal.

Whilst this hand-wringing is going on nothing much is happening. Although there have been worthwhile investments in solving “pinch-points” some really urgent, growth-critical schemes continue to languish.

The most important of these is the improvement of the inadequate A14. This road serves the east coast ports (Felixtowe and Harwich) and travels west past Cambridge and Huntingdon towards the industrial heart of the country. It is recognised as being of European significance, part of the Trans European Network. A good scheme for rebuilding it was developed over a decade with much effort and expense. There is considerable support amongst local communities, commerce and industry.

Yet, at the last minute, the Coalition Government cancelled the scheme and gave up planning consents in the 2010 Spending Review on the grounds that it was “unaffordable”. Since then the government has been feeling its way towards re-instating a scheme. First there was a consultation, the “A14 Challenge”. Then, before the response to the consultation was fully complete the government announced a new plan involving three-way funding: central government, local communities and tolls.

The new proposal is on much the same line of route as the abandoned one but is physically more complex and seems likely to cost no less. Raising the required funding from a number of local sources, all financially hard-pressed, is going to take a long time to negotiate. The tolling proposal is controversial with the locals.

The RAC Foundation is not opposed to charging road users, if that is part of a coherent, national-scale package including adjustment to road taxes. But the free-standing proposal for the A14, whilst interesting, in practice looks like a recipe for endless further delay—and it conflicts with both the wider national road funding policy and the new lorry charging scheme which is currently in Parliament.

A piecemeal approach also risks the creation of a postcode lottery. Why should users of this economically strategic piece of road pay extra to drive along it when city bankers in their trophy cars can zoom down to the coast along the A3 and through the new Hindhead Tunnel without extra financial hindrance?

It is now two and a half years since the government cancelled this crucial scheme and began wondering what to put in its place. The hybrid funding scheme it is trying to broker will likely cause more delay. Pending a resolution to its confusion about whether and how to reform national road funding as a whole, it should simply stop prevaricating on the A14 and get going using the conventional exchequer funding method.

There is a broader point.  As Vince Cable points out, so long as investments are made in schemes with a good rate of return they will eventually cost less than nothing. Unless the government is confident that it can agree and implement innovative funding mechanisms for roads soon it should stop wasting time and get on with the broader, economically justifiable national roads programme using conventionally funding methods.

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Where does the money go? Analysing just what gets spent on local transport…

By Professor Stephen Glaister, director of the RAC Foundation.

The ways in which English Local Authorities receive their money – Local Government Finance – is horribly complicated. Almost nobody understands it in detail and few people care. And the current policy of devolution is going to make the muddle a whole lot worse.

We should give the subject more attention: it directly affects the levels of local services we all worry about: from library provision, through street cleaning and refuse collection, schools and housing to the number of potholes we have to endure and the amount there is to spend on adult and child social care.

The Public Accounts Committee is a powerful (and once much-feared) cross party committee of backbench MPs. Their role is to scrutinise the way government spends national taxpayers’ money, acting on behalf of Parliament and us all.  It applies “value-for-money criteria which are based on economy, effectiveness and efficiency.” On Tuesday 5th February it published an informative little report that illustrates the fundamental inconsistencies in current policy on devolution. It is an overview of funding for local transport.

The days when local people decided on the level of service they would like and then voted to pay their local authority the necessary money directly are long gone.  Much of the money now comes from grants from central government via departments such as the Department of Communities and local Government and the Department for Transport.  And government capping of local domestic taxes limits the freedom councils have over the income they are supposed to be able to raise from the people who use their services.

This degree of centralised control over local community income and spending is quite unlike anything to be found elsewhere in the developed world. It is Coalition Government policy to further devolve things from central government to the people. The trouble is that, in practice, the temptation is always to devolve the responsibilities and statutory duties without devolving control over the cash that must go with them. This can create misalignment of incentives, lack of transparency and poor accountability for national taxpayers’ money.
Tuesday’s report makes some worrying observations. For instance the Department for Transport gives grants according to a formula for the purposes of roads maintenance and other transport projects. But there is no attempt to prevent local authorities choosing to spend the money in any way they choose. Worse, they seem to have no way of keeping a record of how the money is actually spent. Nor are minimum quality standards set down. In practice it seems inevitable that the pincers of reduced total income and ballooning statutory obligations (environmental and social services particularly) will force many councils to spend less and less on roads maintenance, whatever local people would prefer.

So what national objectives is this ‘transport grant’ supposed to be meeting?

We have long-established, legally constituted and democratically accountable local authorities.  Now, through a somewhat mysterious process the government has encouraged the creation of Local Enterprise Partnerships. These vary in geographical scope and typically cover several local authorities; some overlap and some areas are not covered at all.  It is unclear how professional or administrative support is to be provided. It seems that the nitty-gritty of financial audit, accountability for funds and democratic accountability will reside with existing local authorities, but how will these channel though to the Local Enterprise Partnerships? Then, on top of all this it is intended that there should be thirty-nine new non-statutory ‘transport bodies’ to execute transport policy at the local level. The Public Accounts Committee also had a view on this.

When launching the report the committee Chair remarked:

“We are not convinced that government has thought through the risks of devolving more control over the funding of major transport projects to a local level. For example, the Department is confident that local bodies will naturally cooperate to fund and implement projects. We believe this confidence may well be misplaced.

“The risk is that local transport bodies, under severe financial pressure, will not take sufficiently strategic and joined-up decisions, threatening national or regional transport funding objectives.”

This is surely a realistic assessment. Shortages of money and special parochial interests will cause endless strife in and amongst disparate bodies that may have different party political loyalties, and little dedicated professional support and no democratic mechanisms for resolving disputes.

The Committee also raised an issue that has not been satisfactorily addressed since the Coalition Government closed the Regional Development Agencies: “We asked how large infrastructure projects which span the boundaries of several transport bodies would go ahead and who would consider these wider regional or subnational needs. The Department considered that common sense would prevail and maintained that there were examples where local bodies had come together to pool funding across boundaries.” This is a serious worry. Central government is responsible for the strategic road and rail infrastructure. Local authorities look after the infrastructure in their own back yards. But there are major items of Regional importance which now risk falling between the two and which will cover too big a geographical span to be dealt with by the new transport bodies.

During the evidence sessions another enormously muddled subject was raised: the extent to which it is right, or even legal, for local authorities to seek to make good their failing general budgets by increasing car parking charges. They can make charges for their on-street street parking as part of a policy to manage traffic and, generally, any net revenue must be spent on transport purposes. But they cannot increase on-street parking charges with the primary objective of raising revenues: that would be a tax without a mandate on one particular activity.

But Local authority charges for off-street carparking is not restricted in the same way: it is just like any other provision of off-street parking (by the public or private sector). It was revealed in the Committee’s evidence session how much pressure has been applied by central government on local government to raise additional funds by increasing parking charges in order to make good reducing central grant: another example of the chaos and obscurity that surrounds the funding of local government.

The overall conclusion is clear. Devolution is fine, but the money must go with the duties and powers. If government continues to try to pass on one without the other democratic and fiscal accountabilities become broken And over many decades and all over the world we have learned through bitter experience that bodies responsible for cash and executive decisions must have a proper legal constitution and be subject to effective, independent audit. Otherwise things inevitably end in tears.

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So now we know who is really to blame for high fuel prices: the Chancellor. #OFT pinpoints tax as price driver

So there we have it. The UK fuel market is a healthy beast, at least according to the OFT report just published following last year’s call for evidence.

To be fair researchers were unlikely ever to have reached any other conclusion.

The big problem is not what is happening in the fuel market, but what is perceived to be going on. It is a sign of the opaque nature of the whole market that the OFT had to delve into it in the first place. Its murky nature has long meant that drivers have been distrustful of it. But today the OFT has identified the real causes of motorists’ misery at the pumps: the chancellor and oil prices, not the machinations of the wholesale market for refined products.

While all the attention has been on the profits being made after petrol and diesel leave the refinery gates, this report reminds us that the biggest price drivers are taxation and the cost of oil. As it stands George Osborne is currently taking 60% of the pump price in fuel duty and VAT, and a barrel of Brent crude retails at the stubbornly high level of $114.

The Foundation would urge garages to provide a breakdown on their till receipts which reveals to drivers exactly how much the Treasury is taking.

The OFT report found “very little evidence” to support the idea of so-called rocket and feather pricing where pump prices rise quickly in line with wholesale price increases but significantly lag any decline in wholesale prices.

The watchdog does however make reference to the high prices charged at motorway service stations. While accepting that these prices might be associated with the higher costs involved in these sorts of operations it wants drivers to be forewarned of the prices before they actually pull off the motorway, possibly by new signs erected by the DfT.

The OFT has also found no evidence that the increasing dominance of supermarket forecourts has been detrimental to drivers. While there have been closures of independent retailers this has not had a negative impact on motorists, in fact the UK has – pre-tax – some of the cheapest road fuel prices in Europe. Research submitted to the OFT by the RAC Foundation showed that 97 per cent of car-owning households were within ten miles of a supermarket forecourt.

None of this will necessarily come as much relief to hard-pressed drivers who are still paying near-record prices for petrol and diesel, but at least it shines a light on where the ‘blame’ for high prices really lies: not, as many of us might have suspected, at the door of the retailers and wholesalers.

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Drivers saved from January fuel duty rise – next one due in September

This is what the Autumn Statement document statement says about changes in fuel duty:

“The Government will provide further support to businesses and motorists by cancelling the
3.02 pence per litre fuel duty increase that was planned for 1 January 2013. The
2013-14 increase will be deferred to 1 September 2013. This will mean that fuel duty
will have been frozen for nearly two and a half years. For the remainder of the Parliament,
subsequent increases will take effect on 1 September each year, instead of 1 April.”

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Is it right London drivers face tolls on proposed Silvertown Tunnel AND Blackwall Tunnel?

So drivers face tolls on the Blackwall Tunnel. Or are likely to if the proposed Silvertown Tunnel – between Silvertown and the Greenwich Peninsula in East London – is given the go ahead by TfL after the consultation exercise currently being undertaken.

One of the funding mechanisms put out for debate by TfL would see the new link paid for by charges to drivers. The neighbouring, existing, link will also attract charges because if it didn’t, TfL says, there would be a large diversionary effect as drivers would opt for the free option.

The knee-jerk reaction is to groan and say not another unfair tax on motorists and there is an understandable concern that a piecemeal approach to providing new infrastructure makes for a postcode lottery. If you have no choice but to use the Dartford Crossing or Severn Crossing or potentially the Blackwall and Silvertown tunnels then you pay a charge over and above your existing motoring tax.

There are two points to be made about this.

First, what would happen if this new infrastructure was not paid for by the people who use it? The grim reality is that probably nothing would happen. There would be no new tunnel and the congestion we see at Blackwall would worsen.

Already the southern approach is ranked as the second most congested spot on the entire British road network and with big increases projected for traffic, driven primarily by population rises and, in the capital, hundreds of thousands of jobs being created, that situation is not going to improve of its own accord.

Second, the money raised could and should be used to fund further enhancements to the road network specifically and the wider London transport system more generally.

The key is that any toll is transparent in its purpose, its setting and its duration. Something which users of the Dartford tunnel and bridge might have views on.

TfL is honest enough to admit that charges would also spread demand. As they put it:

“As well as helping to fund the new infrastructure, we believe that tolling would be necessary to manage traffic demand. A toll would encourage drivers to consider whether they could use an alternative route or travel at a different time.”

While it is reasonable to ask whether drivers could make their journeys at non-peak times (and hopefully benefit from lower charges) suggesting there might be an alternative route seems rather optimistic.

However, the bottom line is that drivers face a tough choice: continue to have a free route that becomes increasingly impassable (a slight exaggeration perhaps, but not an absurdity) or to have new capacity they must pay for.

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