House of COMMONS







Wednesday 5 nOVEMBER 2008




Evidence heard in Public Questions 1 - 95




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Oral Evidence

Taken before the Transport Committee

on Wednesday 5 November 2008

Members present

Mrs Louise Ellman, in the Chair

Mr David Clelland

Mr Philip Hollobone

Mr John Leech

Mr Eric Martlew

Mark Pritchard

David Simpson

Graham Stringer


Memorandum submitted by the Royal Automobile Club Foundation for Motoring


Examination of Witnesses


Witnesses: Professor Stephen Glaister CBE, Director, Royal Automobile Club Foundation for Motoring, Dr Malcolm Fergusson, Senior Fellow, Institute for European Environmental Policy and Mr Andrew Leicester, Senior Research Economist, Institute for Fiscal Studies, gave evidence.

Chairman: Good afternoon everyone and welcome to our inquiry. I would like to start by asking Members if they have any interests to declare: Mr Clelland.

Mr Clelland: A member of Unite.

Chairman: Mr Martlew?

Mr Martlew: A member of Unite and GMB Union.

Chairman: Louise Ellman, member of Unite. Any others? Mr Stringer.

Graham Stringer: Member of Unite.

Q1 Chairman: Could I ask our witnesses please to introduce themselves for our record?

Professor Glaister: Good afternoon; my name is Stephen Glaister, I am Emeritus Professor at Imperial College London but I am here in my capacity as Director of the RAC Foundation, which is an independent charitable Trust.

Dr Fergusson: I am Malcolm Fergusson; I am from the Institute for European Environmental Policy. I work mainly on transport and environment issues and in particular transport taxation and charging.

Mr Leicester: I am Andrew Leicester, Senior Research Economist at the Institute for Fiscal Studies and I work mainly on environmental and environmental tax issues.

Q2 Chairman: Which current taxes and charges should be regarded as charges for the use of roads?

Professor Glaister: We will no doubt come across this a great deal in this inquiry but it depends exactly what question you are asking, what is it you are trying to achieve by what you might call taxes and charging. If you are trying to find a more efficient and fair way of charging for a road network and for its expansion and maintenance then you will of course look at the charges that people pay for the use of the network - things like fuel duty and vehicle excise duty. If you are asking whether in some sense the total tax take balances the total expenditure on roads and the associated facilities then you may want to include other things like parking charges, taxes on vehicle insurance - a long list of other items - and perhaps VAT is another item that you would include in there, but that is for debate. It is hard to give a simple answer to your question; it goes to the fundamental issue of what you are trying to achieve.

Q3 Chairman: Should any of these items be seen as taxes on road users or should they be seen as part of general taxation? Does anybody else want to join in on that one?

Dr Fergusson: I think I agree with Stephen; that has been the subject of some confusion over the years and decades, particularly with what used to be the road fund licence. There is a persistent mythology that that actually pays for roads, which of course is not actually true. Just one thing to add is that obviously some of these things have developed an environmental component over the years, for example the fuel duty escalator and the graduation of vehicle excise duty to reflect CO2 emissions; but they are not actually environmental taxes proper, they are part of the revenue raising system in general to which some purposes of regulating road use and of controlling environmental impacts have been super-added over time.

Mr Leicester: The only thing I would add - and I agree with what has been said so far - the one issue that Stephen raised was about VAT and payments in VAT by road users and whether they should or should not be included. Perhaps with the exception of VAT, which is charged on top of the duty, I would tend to argue against including VAT paid for car purchases or servicing or things that are bought by road users as taxes on road users; specifically I would see it more as a general consumption tax rather than something which should be seen as a specific charge or tax on road users per se.

Q4 Chairman: How would you say that revenue from road users compares with national and local government expenditure on the roads network? What is the balance there, do you think?

Professor Glaister: In terms of arithmetic?

Q5 Chairman: To meet the costs of running the network?

Professor Glaister: I think, Chair, you have in the written evidence several different accounts of that. I am not suggesting that anyone has it right or wrong; it is just that, as I said earlier, it all depends on what you include. I think the simple arithmetic tends to suggest that whether or not you include VAT the total tax take from road users considerably exceeds the amount of money spent by national government and local authorities on providing and maintaining the road network. The broader question though is whether if you were to include costs imposed on other people, such as environmental costs, which way the balance would go then, and perhaps you want to pick up that point later on?

Dr Fergusson: Yes, that changes the balance quite a bit. I definitely agree; the tax take on road users clearly exceeds the direct spending on the road system and so on, that is clear. There was some research a few years back, though, which did suggest that if you add in all the externalities - noise, severance of communities and so on, in so far as you can bill for them - tends to find that car users about covered and truck users did not cover their full costs if you include the externalities.

Q6 Chairman: If we are looking at costs of the road system what sorts of things would you include in the costs?

Professor Glaister: Let us look at the fundamental issues. There is the provision of the road network, by which I mean not the historic investment but the fact that you have to maintain it and perhaps expand it to serve housing estates and to deal with increasing demand on the network. So there is the provision of that. There are things like policing, licensing, and I think the Chartered Institute have a figure of round about 4 billion a year for those kinds of items. So, as it were, those are the direct costs. There are then the costs in terms of noise pollution, environmental pollution, landscape effects, damage through air quality and, importantly, these days, what view you might want to take about carbon and global warming costs. There are external accident costs - that is the big item - the fact that if you take a trip on the road you are increasing the risk to other people of having an accident. So there are costs that you do not bear yourself, you impose on others. I commend the work that the Institute for Transport Studies at Leeds did for the Department some time ago, which tries to catalogue these costs and give the best estimates of the unit and the value of those things. We in our work have relied a great deal on those estimates - I think they are very good.

Q7 Chairman: Would you include congestion in this?

Professor Glaister: Yes, I would but it is a little bit different in that congestion is a cost one road user imposes on another road user as distinct from a cost imposed by road users on other people. You might argue that they both ought to be taken account in the charging mechanism but in the case of costs imposed on third parties it is right to charge them but also right that that revenue should be used to mitigate the damage, which it is not at the moment - it just goes into the general exchequer. In the case of road congestion I believe - and the Foundation is on record of advocating a more intelligent way of charging for congestion so that people are faced with the cost of their own decision on other road users because they will slow other people down in those circumstances where the network is congested, and that will give people a real incentive to moderate their behaviour; to use quieter roads or, more importantly, quieter times of day and get a more efficient use of the network. So there are several jobs being done here. One is to get more efficient use of the network and another is to compensate for the damages done to third parties.

Q8 Chairman: Does anyone else have a different view?

Mr Leicester: I would agree that congestion costs should be included within the broad-brush description of what are the external costs of motoring - I would certainly include congestion costs. And the traditional definition, if you like, is that an externality is a cost that you impose on others that you do not take into account when making your own private decisions and clearly the costs that you impose on other road users are examples of that, although they are internal to the system of road use as a whole. There are probably some third party costs to congestion - maybe if you are late for meetings or you are late for wherever it is that you need to be at a particular time because of congestion and that imposes costs not just on me but on other people. So I do not think it is a purely internal externality.

Professor Glaister: If I might just add, the Eddington Review, which I think was a very good one on this subject, identified not only the cost to private vehicles and freight directly but the cost to the economy as a whole of road congestion. If you believe the kinds of estimate that Eddington recorded - and indeed I think the Department itself has recorded - you will see that these are very, very substantial numbers. Congestion is far and away the biggest of the effects we have been talking about, if you take those numbers as given. I said earlier that there might be an argument for environmental charges being used to mitigate the environmental effects. I think there is also an argument that if you were to charge for congestion you should be using at least some of that revenue to mitigate the congestion: in other words, to expand the road network, because if you have very severe congestion the charges you will get from, if you like, correct charges for that congestion is a very clear economic signal that there is a pretty good case for expanding the network in that location.

Q9 Mr Leech: Is there not clear evidence though that when you build new roads you just fill them with cars?

Professor Glaister: There is clear evidence that if you build new roads in the right places there will be circumstances where more people want to use the system than could at the previous time, therefore there will be more traffic - that is the point of building the road. What you will find is that an equilibrium will be established where there will be more traffic but less congestion; the road generally speaking will not just fill up and, in any case, if it did that new traffic is getting the benefit from being able to move around. I think the notion that people have this idea that you cannot build new roads because they just fill up with traffic is a false argument. You will get a better equilibrium. That is what standard appraisals will show you; they will show you the benefits to the newly flowing traffic. Whenever you provide a new public service you will get new users and they will get the benefits from it. If you build a new hospital you will get more healthcare, that is the point. So I do not see that as an argument against the capacity - you have to show that the benefits exceed the costs.

Dr Fergusson: I would take a slightly different view of that, as you might expect. You could do that but of course another thing is that you can use the pricing mechanism as a way of using the system that you have most efficiently. If you look at the history of traffic in this country, the expansion of car ownership and the building of the motorways led to a huge explosion in road traffic. We can only actually add fairly marginally to that probably without causing a large amount of environmental damage, and it is the case that there is potential for the traffic to grow to fill up whatever space is available. So one has to take a view on whether you think that is desirable or not. Stephen is arguing it is and I would say that I am not sure that it is.

Q10 Mr Leech: Surely the idea of introducing congestion charging is not about just tackling congestion, it is actually persuading people out of their cars in the first place and giving them an alternative. So if you introduce congestion charging and build new roads as well you just give the drivers different roads to drive on rather than advising them to make other choices.

Professor Glaister: May I change the terminology to road pricing rather than congestion charging, the difference being that road pricing is charging for all the things we talked about earlier - congestion, environmental pollution and so on and so forth. Several bodies have done extensive research, including the Department for Transport and the Eddington Review, into what road pricing might lead you to. When you price all of these things correctly, whatever that might be, then you can ask the question as long as people are paying these prices is it worth expanding the road network, to which the answer is yes, in the right places. You still get a residual case for quite a lot of new capacity as long as people are paying generally all the environmental costs, the carbon costs and so on. So it is not just about congestion. I would say that I would accept the argument very much for more efficient pricing on the existing network but it absolutely is politically and economically impossible, unless you are also willing to consider some expansion of the road network and some expansion of the public transport network as part of the passage.

Q11 Graham Stringer: If I can just follow that up before I come to the questions I am going to ask because I think the point you made earlier is very interesting, Professor Glaister, about the Eddington Report and the costs imposed by congestion. When we had Professor David Begg here at the end of 2002/2003 I asked him the question what academic studies could he point us towards that showed the economic impact, in terms of the real economy, of congestion in urban areas as opposed to just using delay on the road as a proxy, and he could not. Can you?

Professor Glaister: Yes because the subject has moved on a great deal since those days. The title is agglomeration economics, where the Department for Transport have supported a lot of research recently, originally I think in connection with the economic appraisal of Crossrail, but it has become more generally recognised as an important consideration. The question was if you take the conventional congestion benefits, time savings, are you missing anything in terms of manned use and the benefits of people being easily accessible to each other? The answer is yes, you are missing quite a lot of things. In an economy like London and other big cities the reason that land values are so very high in the centre is that people are willing to pay a lot to be close to each other, to interact. The argument is that if you invest in Crossrail in the case of London or in road schemes in other cases not only do you allow the users to get time savings but you allow everybody to be closer to each other and more accessible and that generates so-called agglomeration benefits. So I think that is reasonably well researched now - certainly a lot better research than when you were asking David Begg that question before.

Q12 Graham Stringer: I would be interested - not now - if you could point us to those papers.

Professor Glaister: Yes, with pleasure.

Q13 Graham Stringer: I would be genuinely interested to see it because if I understand the way that the city and other city centres work really is that professional groups need to be able to be within walking distance of each other.

Professor Glaister: That is right.

Q14 Graham Stringer: And it is difficult to see how putting a huge, 20 billion, 30 billion rail system in would change the function of the economy.

Professor Glaister: But it means that you widen the labour market essentially. The centre of London, of course, depends on people travelling into London and that was the point about Crossrail. It allows a much broader and deeper labour market to be available to businesses in the centre of town.

Graham Stringer: I was just following up those questions but I want to start with point 16 in your written submission. You very fairly say that if road users travelling at peak times on busy roads had to pay much more it would be fairer, but only if alternative means of travel are improved so that they can avoid the charge if they can ill-afford it. I think that is a very fair statement. What measures do you use in complicated economies, in Greater Manchester or the West Midlands, for example, for access to transport because a large number of journeys are not into the centre of town? So how do you measure that access to transport, and at what point is it not fair if that availability is not there?

Q15 Chairman: Who would like to answer that one? Professor Glaister, it was in your evidence, was it not?

Professor Glaister: I am aware of the work that was done in Manchester, which, as you will know, the proposition is about keeping labour market flexible and large against a predicted increase in traffic and traffic congestion and there are various ways of trying - and it is not easy, I accept that - to estimate the size of the labour market without a scheme and how that might change with a scheme, in terms of perhaps the average travel time that people would experience getting to work without the scheme and how that might be reduced if you put in some pricing at the same time as improving the public transport. The Manchester scheme is very much about improving public transport as part of the package, is it not?

Q16 Graham Stringer: What I am asking is how do you go out and measure the availability of public transport to people who are doing non-standard journeys? How do you work out the percentage of those people doing non-standard journeys and whether or not there is transport available to them, because the whole thing becomes unfair by your premise if that public transport is not there? So you have to have some way of knowing.

Dr Fergusson: We have pretty good data, a pretty good model for the sorts of traffic flows of people around the system. You can then produce aggregate data about the relative accessibility of different places and different people to those places, as long as you have a good understanding of what sort of journeys that people do, and there is no easy way around that. You need to get that before you start.

Q17 Chairman: Are you saying, Dr Fergusson, that the information is there in general or very specific areas?

Professor Glaister: There is the journey to work question in the national census, for instance, which gives quite a bit of useful information and there are bespoke surveys which are very frequently done for all sorts of public projects, and indeed for the Manchester scheme. Clearly one can never be complete about this because it is far too expensive to get all the information; you cannot have a complete story but you can have a shot at trying to establish the principal traffic movements. One of the things about modern transport in a city like Manchester or indeed outer London is that because of the use of the car, which is predominant, the trip patterns are very complicated and diverse and disparate, which does make it very difficult to meet all of those needs by public transport. That is why the car has become so important and so difficult to replace.

Q18 Graham Stringer: Does that not therefore make the system unfair, that if the majority of people who end up paying for a road pricing or a congestion charging scheme are those people for whom public transport is not available?

Professor Glaister: I am sorry, could you say that again - too many negatives there!

Graham Stringer: It is likely to be either rich people because they can pay for the charging scheme or people for whom there is no alternative who pay the charging scheme. In the latter group of people is it not very unfair on those people because you start off with a statement about equity.

Q19 Chairman: Mr Leicester, did you want to come in there?

Mr Leicester: One thing I would say on that is that it depends on the scheme that is in place. If you are talking about a scheme which has a congestion element to it then it is those people who are living in those more rural areas where the public transport infrastructure is less developed who would pay less precisely because congestion costs are so much lower in those sorts of areas and people living in urban centres where there is presumably more transport available who would pay more because they live in the more congested areas. In the current system, where the only main tax you have is something like fuel duty, which does not vary at all by location, then there is that element of unfairness because increases in fuel duty hit all road users equally hard, irrespective of their alternatives. So depending on the system that you are using I think you can get around some of those issues.

Dr Fergusson: A further point is that the experience that we have with charging and indeed other schemes illustrates that behavioural responses are a bit more subtle and complex - a bit more than you do the journey or you do not. In the final analysis you could change jobs and go round the scheme maybe and perhaps park on the edge of town and take buses, share a lift with somebody. There are a lot of different behaviour responses and certainly the response in London showed that it was not just a question that everybody has to drive into town after all because they did not really - a lot of them did not.

Professor Glaister: Can I just point out that the quote from paragraph 16 actually was not ours; it is from the Chartered Institute of Logistics. It is in the next session.

Graham Stringer: I am sorry; you did very well indeed in your answers! It was attached to my RAC document.

Chairman: Professor Glaister is right!

Q20 Graham Stringer: I am sorry about that! We have had different figures in different inquiries about the number of people who do pay road tax. The government is claiming at the moment that the number of people who pay is very high, getting up to 98%, 99%, but the last time with the RAC Foundation, with different witnesses we were being told that it was 10% of people not paying. What do you think the compliance rate is at the moment?

Professor Glaister: Forgive me, I have no knowledge myself of what that is. It is a problem, I know that, but I am afraid I am not expert on that.

Dr Fergusson: I believe it is slightly less of a problem than it used to be, but again I am afraid I have not looked into it very recently.

Mr Leicester: I am afraid I have no information on it.

Q21 Mark Pritchard: Turning our minds to toll roads, do you think toll roads help social inclusion?

Professor Glaister: By toll roads do you mean charges on specific roads?

Q22 Mark Pritchard: Let us say the M6 toll road - it has a toll road.

Professor Glaister: If you take a specific example like that you would have to analyse the implications of that particular scheme in a lot of detail. The more general answer, if you are talking about charging specifically for bits of road infrastructure or doing it through fuel duty, is that the answer to your question depends absolutely crucially on what you do with the money. If you raise a lot more money through road charges and then put it into the general exchequer that is one thing; if you raise a lot of money and use it to reduce fuel duty, that is quite a different thing. One of the points I think in our evidence - but certainly in our other research - is that when you look at who pays fuel duty you will find a lot of country areas are paying far too much in fuel duty, and that arguably mitigates against social inclusion. For a lot of people who have to use cars there is no alternative and that will always be the case - either their own cars or taxis, whatever it may be. A better way from the point of view of social inclusion would be to have a more intelligent charging system for the roads and use the revenue to reduce fuel duty and thereby improve social inclusion in non-urban areas.

Q23 Mark Pritchard: Can I infer that people living in rural areas by definition then because of duties levied against them are socially excluded?

Professor Glaister: Not all of them, of course, but if you look at things like the official deprivation indices that the government publishes you will find wards which are very deprived in the centres of big cities, of course; but you will also find a lot of deprivation in smaller towns and rural areas, simply because access is so poor and unemployment is relatively high for that kind of reason. It is very much two ends of the scale. It is very hard to generalise about this, you have to look at the particular scheme and research it properly.

Q24 Chairman: Dr Fergusson, do you want to come in on this?

Dr Fergusson: I was going to say that already as it stands there is a lot of deprivation in the rural areas and a lot of that is to do with people who do not have cars and cannot afford to run cars already, so those people are already deprived in the current systems, and in some ways if you could make transport more accessible through shifting revenue about you might do good for those people.

Q25 Mr Martlew: I represent an urban area surrounded by a large rural area and every morning the urban area becomes crowded - the streets become congested because of the people you are referring to as being socially deprived driving into work in the city. I also find that the houses in the rural area are probably half as much expensive again as those who live in the urban area, so I do not really understand your comments, Professor. That is in my experience; but I think it is not the experience of many of my colleagues. They accept what Dr Fergusson is saying, there are people who live in the rural areas that do not have access to public transport and cannot afford cars, but I find that the poor move into the urban areas and the rich move out of the urban areas to the rural, what they consider better quality of life.

Professor Glaister: I did say that I think you will find in official figures a lot of deprivation in town centres, as well as a lot of deprivation in the deep rural areas. It is a very mixed story and I was simply making the point that because it is very mixed you cannot assume that a particular scheme will help or hinder social inclusion - you have to look at where people are living and what their incomes are like. I would just add that the poor households make far, far more use of roads and cars than they do of public transport - it is just in the statistics - because there is to any public transport. They rely on lifts with their friends; they pay their friends, they use taxes, they have to get about. Therefore fuel duty, for instance, can hurt them quite badly.

Q26 Mr Martlew: The reality is that a lot of them have been forced into the urban areas because of the problems that we have talked about, and there has been a displacement of more affluent people to the rural areas.

Dr Fergusson: What you have described is really something where the ready availability of cars and the high mobility has, in a sense, generated its own new demand because it is often a new opportunity for wealthier people to move out of towns and thereby generate more traffic and more congestion, which is the circular effect you get with motorisation, which in some ways it might be quite nice if we could reverse.

Professor Glaister: One thing you will see in our evidence is the way that the cost of owning a car has fallen so very dramatically over the decades and I would argue that that has been an enormous benefit for poorer households who now get access to a good quality but cheap vehicle. That is why we have a particular concern about the way the Treasury was thinking of changing vehicle excise duty because that can bear very heavily on a poor household with a good quality but cheap car, suddenly having to pay a lot more for their annual licence fee, and that could be very regressive.

Q27 Mr 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 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 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 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.

Q36 Mark Pritchard: You mentioned population growth, Professor Glaister. The government Immigration Minister said that he hopes that the UK population does not rise to 70 million. If the population rose to 68 million by 2030 what impact would that have on our roads and indeed on our public transport?

Professor Glaister: We have set out in a publication that I have given to your clerks and advisers our view of the official OPCS population forecasts. The ones we were using were for an increase I think to 66 million - they are a little bit older than the most recent ones. So clearly over time if the population goes up by 10% you would expect roughly speaking a 10% increase in housing demand and transport demand. But the bigger problem for the UK is not the total population, it is the location of the population. There is a very marked tendency for the population, which is forecast to continue, to move basically down to the west and southeast, where the infrastructure is already particularly stressed. So it is not just the total population that matters, it is the location of the population. Places like East Anglia and the southwest, where the population is expected to grow quite a lot in the future, already have a bad congestion problem and that has to be dealt with.

Q37 Mark Pritchard: 66 million and what time frame are you referring to? 66 million up until?

Professor Glaister: 2041.

Q38 Mark Pritchard: I accept your point about location but even total population, whether increased to 66 million, 68 in my terms, or 70 million still needs to be located somewhere.

Professor Glaister: Absolutely.

Q39 Mark Pritchard: So total means a location somewhere. So an increase to above 66 million or even at 66 million would have a significant impact on roads, road users and public transport.

Professor Glaister: And every other public service - health and education. It does depend a bit on the age distribution, clearly.

Q40 Mark Pritchard: Moving on to something slightly different. Lorry road user charging schemes - and we are going to touch on that in the second part of our session, but nevertheless it impacts on the work that you all do - one: what do you think about those schemes in principle being introduced in this country? Secondly, do you think that a pilot scheme - if there is a pilot scheme - should be introduced which includes foreign lorry drivers specifically given the pretty poor standards generally of foreign lorry haulage vehicles in this country, as we recently saw on the M6 motorway with the tragic death of that family.

Professor Glaister: There seem to be two elements to that question. One is the quality of the drivers in the vehicles, which I have nothing to say on other than to say they should be enforced like any other driver. On the charging, there clearly is an issue and has been a longstanding issue about differential rates of duty on fuel as between domestic fuel and fuel on the continent. I think maybe that has narrowed a little bit as it happens, but it is still an issue. I understand where the road lorry charging scheme originated, the one that fell a couple of years ago, and it was purely to do with meeting that differential. Unfortunately it got much more complicated - the opportunity was taken to try and make it distance and location based and it all got too difficult and that is why it fell. I think it was an example of where a simple idea became too complicated and administratively not feasible. I think myself that if you wanted to deal with this problem you could deal with it very simply by putting wheel counters on to lorries - a system they have had in New Zealand for decades. They have a meter which counts the number of wheel turns on a foreign lorry and you can have a tax done that way, which would be very simple. However, I think we are now moving to a situation of very severe congestion in the future on our roads generally and the way to go now is to think about where we want to get to with road charging and taxation more generally for all kinds of vehicles, and to then catch the point in that process rather than introduce something half-hearted just to deal with the lorry problem.

Q41 Mark Pritchard: That is why I mentioned the pilot scheme and the reason I made that link is do you think it is more likely that the quality of the vehicle possibly even the quality of the driving is going to be decreased by the introduction of let us say a pilot lorry road user charging scheme? That is, that if I am an HGV operator from a continental European country and I know I have to pay a road user charge coming into the United Kingdom, if I have the ability to pay it might be that my HGV fleet is more modern and more roadworthy, or it might mean that actually because I have an additional cost I actually do not spend as much money on my HGVs and they in fact become less roadworthy.

Dr Fergusson: Certainly the experience in Germany is where they have differentiated their lorry charges according to environmental standards. They have effectively driven all the old lorries off their roads, so they have actually achieved the quality improvement there. I do not know how it words safely; I cannot really see that. I think the point that Professor Glaister made is also important in that respect. Yes, there has always been perceived to be a great unfairness in the fuel price as between British and continental.

Q42 Chairman: Would you say that there is a big problem with lorries coming from countries with lower taxation?

Dr Fergusson: I think there is a problem in that as I mentioned earlier that they pay less of their full costs than cars do in fact.

Q43 Chairman: Is that creating a major problem?

Dr Fergusson: I think it probably does in terms of damage to roads, for example, and possibly accidents and pollution as well. It is not an overwhelming problem but I do agree with Professor Glaister that with the improvement in technology now probably looking ahead at a universal system which covers trucks and cars and can be a great deal more sophisticated in relation to time and place is probably the way to go.

Q44 Mr Martlew: Professor Glaister, you have confused me - and it may not be difficult - but in another exchange you said about the problems for people living in the rural areas paying the extra duty. Then you have just said that you should tax the carbon, which means that you would actually increase the duty on fuel.

Professor Glaister: No. The current duty on fuel is about 52 pence plus VAT - just over 60 pence.

Mr Leicester: 50.35.

Professor Glaister: Thank you. 50.35 plus VAT. The carbon content of a litre of fuel at the Stern recommended value of carbon is 14 pence - one-four pence. So if you think of the duty as if it were a carbon tax it is far, far too high, although I do recognise that the duty is counting other things as well. This goes to the nub of your inquiry, I suggest, that if you are asking what the principle should be in setting road user taxes and charges you need to unpick what the components would be, and the carbon component is a lot less than the current fuel duty. So my recipe - which we have set out in our document Road to Reality - is that if you take away current duty completely, replace it with a carbon tax at 14 pence a litre and then add on congestion charges and other charges the result would be in rural areas that they would be much better off, they would be paying a lot less for their travel than they do at the moment, and they would be paying more in urban areas.

Q45 Mr Martlew: They would be paying more in urban areas? This is due to congestion charges?

Professor Glaister: Yes, there is a balance - two opposite and balancing effects.

Q46 Mr Martlew: I am still not totally convinced of your argument but the essence is that you reduce the duty but increase the charges?

Professor Glaister: If I could just enlarge a little? I do think that the announcements - and I have no idea what they will be - of the Climate Change Committee in a few weeks' time will bear on all of this. If the Climate Change Committee adopts the Stern recommendation that throughout the economy we meet our carbon targets by finding the correct price for carbon - so if you are burning electricity, heating your house, whatever it may be, you are paying the same price for carbon - then we will have to think about how that will bear on road taxation as distinct from the price you pay for your electricity in your house or what railways pay for their electricity and everything else. It will blow open this whole issue of the basis for road taxation and for me I think unless we get that right and establish a single price for carbon across the whole economy we risk doing a great deal of unnecessary damage. I suspect at the moment in most terms road users are paying too much and other users are paying too little for their carbon, but we will have to see how that all plays out.

Q47 Mr Leech: On that point, surely though is there not an argument to say that, yes, congestion is about trying to cut carbon emissions but it is also about trying to cut congestion as well and therefore there is an argument - and you may disagree with it - for a higher carbon charge on the road if it is not just about carbon emissions?

Professor Glaister: I go back to my previous answer to you. I like to think about road pricing which is identified as a separate component of what the price might be. Carbon emissions is one component, so you price the carbon. Congestion is a separate component and you price the congestion. So you end up with a uniform carbon price which is encapsulated in the price you pay for the fuel, but variable charges for congestion depending on when and where you are. That is how that would play out.

Q48 Chairman: What are the main impediments to introducing a national road pricing scheme at the moment - technical impediments?

Dr Fergusson: We do not seem to be quite there with the technology.

Q49 Chairman: What are the specific technical problems?

Dr Fergusson: There seems to be one problem that there is a belief that a GPS-based system, for example, may not yet be accurate enough. I do not know why, if the ministry can judge things to within a metre apparently; but there are still some concerns that people will be wrongly charged on the wrong sorts of roads, for example, and a beacon-based system would be more expensive to install, I think.

Q50 Chairman: Does anyone have any other views?

Professor Glaister: I do not think the major obstacle is technical, but the technical obstacle is cost. Can we be confident on how much it would cost to install and operate? The cost would be substantial. If government was willing to specify what it wanted, what the scheme was then there is a technical solution, I have no doubt about that, but it might be too expensive and you might then want to think about whether you introduce this locally or on a national scale because of the cost. I believe that issues about confidentiality, which are important, can be dealt with.

Mr Leicester: I do not profess any great research knowledge that I have done myself but if you look at the Eddington Study, which I think was agreed was a very good study that looked in great detail at this issue, they estimated that the set-up cost of a national road pricing scheme could be anything between 10 billion and 62 billion I think was the number depending on the various assumptions that you make, and even at the lowest end that is a very big investment. Then ongoing annual costs in the order of 3 billion or 4 billion a year. So that is clearly one huge impediment that they did find that there would be substantial net welfare benefits from this kind of scheme because of the reductions in congestion and so on and so forth. So the balance of the cost and benefits I think, looking at the Eddington Study and other studies, suggests that there would be a desirability to introduce this kind of scheme, but at a great uncertainty about the initial costing, which was reflected in that very wide estimate.

Professor Glaister: It did say that it would be the most single effective measure you could take.

Q51 Chairman: Do you support it?

Professor Glaister: I do.

Q52 Chairman: Support the national scheme. Does anybody else have a view?

Dr Fergusson: Yes, I certainly think that a universal pricing scheme would make sense in the longer run.

Mr Leicester: Yes, I would also endorse a national system of road pricing but accepting that there are perhaps technological and certainly political constraints.

Q53 Chairman: Would you say that taxation policies are coordinated between the Department for Transport and the Treasury?

Professor Glaister: Chair, I hope we have made it clear in our evidence - I would like to think we were wrong about this - the balance of road taxes and expenditure has happened by accident over history; the taxes have grown a lot, the expenditure has not. We have been saying what are the principles underlying this, are the taxes right? The Treasury is changing both the level and structure of taxes substantially and do not, I believe, take adequate account of the fact that they really are influencing transport policy in a very substantial way. The main thrust of our evidence to you is that whatever the rights and wrongs of this the Treasury should follow the practice which is now recognised throughout the public sector of normal systematic consultation about what they are intending to do. We recognise that you cannot consult about particular tax rates but you can consult about structures and your intentions to find out what the implications would be to have them properly researched and to avoid unintended consequences. The Treasury uniquely does not follow any of the things you would expect a public body to do in setting major aspects of public policy.

Q54 Chairman: Dr Fergusson.

Dr Fergusson: I do agree with that actually and I can certainly think of a number of examples where I know very well that they did not consult the Department for Transport before they made certain decisions.

Q55 Chairman: Do you agree with the current assessment of the costs of congestion?

Dr Fergusson: I would not choose to comment on that particular point myself, thank you, Chair.

Q56 Chairman: Does anybody else have a view on that?

Professor Glaister: I think it is a slightly misleading concept. People say that it costs 12 billion a year or 30 billion a year - it is not very helpful, I do not think. Relative to what? What is the thing you are comparing it with? Free flowing roads? That is not a very helpful thing. What I absolutely do support is the estimates which Eddington produced and we have ourselves produced which show that if you do something like putting in some more capacity or indeed putting in road pricing the value of the reduced congestion is very high relative to the cost. We are really damaging ourselves as a nation by failing to face up to the opportunities in the benefits of reduced congestion.

Mr Leicester: It is not an issue that I have researched myself but one point that is worth making is, if you are thinking about the marginal costs of congestion that might be used to influence a congestion charging scheme and to set the pricing of that scheme, what you want is the marginal cost once the scheme has been introduced. Once the scheme has been introduced the congestion will be lower and the costs will be lower. You want to try and get the right cost of the scheme once the scheme is in operation, which is not necessarily the same as estimating what the costs of congestion are right now. If there is a congestion charge it will be lower and it is very difficult to try to get a handle on prices.

Q57 Graham Stringer: Where are we in the European pecking order for congestion both inter-urban and urban?

Dr Fergusson: It varies enormously around the country but in the south east it is pretty high compared to what it is in most continental countries. All countries have congestion in certain cities and so on but we have very high rates of car usage and quite high rates of congestion.

Professor Glaister: By international standards we have a very low provision of road surface in relation to population, but we are a much denser country.

Q58 Graham Stringer: I think the CBI say that we have the second lowest motorway density of all the countries in the old European Union.

Dr Fergusson: That is slightly misleading because the definitions differ. A lot of the roads which have green signs in the UK could be deemed to be motorways by continental standards. I think that is slightly suspect, although I do not disagree with the general proposition.

Professor Glaister: However you measure it, motorways or principal roads or roads, you find the same answer. The amount of road space in relation to population and car ownership is very low in the UK by international standards.

Q59 Graham Stringer: Can you point us towards objective statistics?

Professor Glaister: Yes. The Foundation is publishing a document on Friday which documents this and I commend that to you. I will certainly make sure you get it.

Chairman: Thank you very much. On that note, thank you very much indeed for coming and answering our questions.

Witnesses: Mr Jim Coates, Chairman, Road Capacity and Charging Forum, Chartered Institute of Logistics and Transport in the UK (CILT), Professor Alan McKinnon, Heriot-Watt University, Director of Logistics Research Centre, and Professor Jon Shaw, University of Plymouth, Professor of Transport Geography, gave evidence.

Q60 Chairman: Good afternoon. Would you like to introduce yourselves for our record, please?

Mr Coates: My name is Jim Coates. I am here representing the Chartered Institute of Logistics and Transport and within the Institute we have a number of forums interested in different topics. I currently chair the forum on road capacity and charging.

Professor McKinnon: I am Alan McKinnon. I am a professor of logistics at Heriot-Watt University where I head up the logistics research centre. We do a lot of research on freight transport and at the moment we are involved in a project called Green Logistics looking at environmental impact from various operations.

Professor Shaw: I am Jon Shaw, professor of transport geography at the University of Plymouth and I head up the centre for sustainable transport there.

Q61 Chairman: Which current taxes and charges should be regarded as charges for the use of the road?

Mr Coates: What the previous witnesses have said is broadly right. The fuel duty, for all its inadequacies, functions as a charge. So does vehicle excise duty. I am rather doubtful about VAT myself, even the VAT on the duty, because if you regard the fuel duty as a proxy for a charge you could say that the VAT on it is no different really from the VAT you pay on services that you get from any other area of the economy. I would certainly exclude the VAT on cars. I think VAT on cars is much the same as VAT on washing machines, refrigerators or any other capital goods we buy. I think the charges for on and off street parking are a charge.

Q62 Chairman: What about the penalty charge notices?

Mr Coates: They can be avoided by behaving yourself.

Q63 Chairman: Would you put them in a different category?

Mr Coates: They are a form of charge.

Q64 Chairman: Parts of the freight industry, particularly in London, say that penalty charge notices are so common now that they see that as a charge for motoring. Would you agree with that?

Professor McKinnon: Indeed. In some parts of London they clock up 1 million a year from some of these charges. Relative to total UK expenditure from freight transport, it is a drop in the ocean but it does impact certain budgets in a small number of companies within urban areas. As to whether one should include VAT in the calculation, we recently tried to work out to what extent the external costs of road vehicle transport are internalised in taxation. We did include VAT. Hauliers can pass on VAT but it does get passed down the supply chain and often it will be the consumer who will pick up the cost of VAT.

Professor Shaw: I would mention parking charges. There are existing road tolls such as the Severn Bridge and M6 toll as well.

Mr Coates: Generally speaking, VAT is a tax on purchases which is supposed to apply to the whole of the economy with some exceptions like children's clothes, food and so on. Therefore, it is supposed to be neutral. It applies to everything we buy by way of goods and service. It was invented by the French who found that their taxpayers managed to evade income tax so they invented VAT instead. I think the way in which VAT applies to transport which is not specific to road users should not be regarded as a special charge for the use of roads. It is an economic charge for the purchase of goods and services like any other goods and services.

Q65 Chairman: How do you equate charges to road users with the cost of roads, the expenditure on roads nationally and locally, all put together?

Mr Coates: I was rather surprised when I looked at the figures that the disparity between the income from tax and the amount spent on the road network is not as huge as I thought it was going to be. The RAC Foundation in their evidence say that the taxes are four times the expenditure on roads. I think they must be including the VAT on carbon and other vehicle purchasing, which I think is wrong. Even if you include VAT on the fuel duty element of fuel, which you could argue for, the income is about 32 billion a year from road user taxes. The public sector in the latest year for which I have statistics is that the expenditure on roads is of the order of 13 billion. If you include things like carbon emissions and congestion, you rapidly get up to a figure which is not all that different from the revenue coming in taxes. Collecting that congestion and fuel duty is not a good idea, but the totals are not all that out of line. Another point which I think is significant is that the public expenditure on public transport, excluding concessionary fares, was eight billion. You could say that eight billion was being paid for by the road users. Road users might say why should they pay for it. My answer to that would be that there is no reason whatsoever for subsidising public transport unless the alternative, which in this case is the private car, is inflicting damage of some kind on society by way of pollution and congestion.

Q66 Chairman: What views do people have on what should be charged to the cost of roads? Should accidents be charged? Should congestion be charged?

Professor McKinnon: I would think we would include all of these things to make it as comprehensive as possible. I am interested in the work we have done recently in the freight sector. We looked at the infrastructure costs allocable to lorries, the environmental costs and also the congestion costs. If we add these three things together, it seems at the moment that lorries underpay their tax by about a third. The taxes they pay only cover about two thirds of that suite of costs I have just mentioned.

Q67 Chairman: Professor Shaw, do you have any views on this?

Professor Shaw: I would suggest that the tax take at the moment is indeed more than is spent on roads, but we have to add all of these things in. To pick up on the public transport subsidy element, there are other reasons for subsidising public transport, not least efficiency of movement in the labour market. Professor Glaister referred to Crossrail for example opening up wider labour market potential. If we had to rely on the car for example to get people into central London, clearly there is a congestion element there. There is an efficiency argument too.

Q68 Mr Hollobone: If we were to start from a blank canvas, if we were to discover a new continent tomorrow and you could be put on the first ship there and your task was to design a transport system and road network which was transparent with regard to costs and benefits, what would be the basics of that programme that you would establish?

Mr Coates: We would not start from here. One way in which my institute differs from the RAC Foundation is that we are rather sceptical whether you could introduce an electronic pricing system over the whole of the road network, with all the costs of enforcing that on every country lane and lightly used rural road. Over most of the road network, there is not serious congestion either at all or except for a very small part of the day. The view we take is that the fuel duty is quite a reasonable way of collecting the appropriate charge for the use of the roads over perhaps 80% of the network. It may be that as the technology develops, if global positioning turns out to be sufficiently accurate, you might move to a position where you could charge per mile with on board units for the whole of the network, but at least in the medium term that seems to us to be unnecessarily complicated. Where the fuel duty is not very satisfactory is in two areas. One is heavy lorries because heavy lorries are responsible for a disproportionate amount of the wear and tear on the road network. The wear and tear is proportionate to the square of the axle length or something like that. Most of the repairs that are needed to roads are caused by heavy lorries. They also have an impact on the initial designs. Bridges have to be stronger and higher to deal with lorries. The government has in the past tried to deal with this by imposing very high vehicle excise duty on heavy lorries, much higher than in most other European countries, but that is rather a blunt instrument. It would be better for heavy lorries, in addition to this basic level of fuel duty that I am suggesting could satisfactorily collect a lot of the costs from the road network, to pay a distance based charge which differed according to their weight characteristics. The Swiss do this using a fairly simple system. The other area where the fuel duty is wholly inadequate is on congested roads because we pay the same amount per litre or kilometre whether we are on a busy road or a congested one, perhaps a bit more on a congested road because we are using a bit more fuel. It is not the man for the job. We really need to be able to differentiate much more strongly. I think fuel duty is a very unfair way of charging for congestion. Professor Glaister made the point that you want the way in which you charge to have an effect on people's behaviour. The fuel duty has a bit of an effect on the level of traffic but it does not have the sort of effect we need on very congested, urban roads. If we try to collect the costs of congestion through the fuel duty, which in a way you could say we are doing at the moment, if we are trying to include a 12 billion congestion cost in justifying the total level of fuel duty, road users are paying it but we are not reducing the congestion. That has two disadvantages. One is that we are suffering from the disbenefits of the congestion and the other is that the charge is too high. If we had road pricing for congested roads, the congestion would be less and the charge you would need to levy would be lower.

Professor McKinnon: If we are into hypotheticals, the ideal system presumably would be charges with distance in relation to the emissions from the vehicle. The problem is that technically it would be very difficult to achieve that. The previous panel were asked about the technical challenges faced in relation to road pricing. I think they are formidable.

Q69 Chairman: Could you mention what they are?

Professor McKinnon: If we look at the tolling systems currently in existence in Europe for trucks in Germany and Switzerland, it is a relatively small number of vehicles, maybe a few hundred thousand. To roll it out to the UK it would be probably 26 million vehicles. Monitoring the movements of all of those vehicles and clocking up billions of kilometres with sufficient accuracy so that people trust the bills they see at the end of the month is going to require a very tight tolerance and a high degree of accuracy. We could wait until the Dutch try it because they are proposing to do this in a few years' time. If we can hold off, we can see whether it works in the Netherlands and, if so, we might consider doing it in this country. The other big problem is the cost of implementing such a system. With the current system that is in place at the moment, about two thirds of the revenue raised tends to go into operating the system, so it does not leave you with very much revenue subsequently to spend on other things. The ideal would be to have that system but, because of the practical problems and the sheer cost of implementing it, I am not sure it is going to happen in the near future.

Professor Shaw: Mr Coates made the point that we would not start from here. One of the advantages of starting from here is that we do know quite a bit now about the full costs of transport which we might not have appreciated 15 or 20 years ago in terms of pollution and so on. We need to weigh the costs of transport but, knowing what we do know now, that puts us very much in the frame of managing demand, in my view. In terms of reducing the need to travel, we can do that in the long term possibly, but that is extremely difficult so the price signal does become extremely important. I think one of the things we have to be aware of is spurious accuracy in some of these figures. The key element, it seems to me, is changing behaviour - i.e., reducing the amount of individual modes of travel and increasing the benign modes: walking, cycling, public transport, or by reducing journeys made at all. In that case the price, coupled with all sorts of other initiatives aimed at reducing travel such as information, becomes a question of what will change behaviour. It is as much a political decision, as far as I can see, as an economic one.

Q70 Mr Leech: Professor McKinnon, you said up to 75% of the cost was to implement and administer the scheme. What do you think would be a reasonable proportion of the setup and admin cost of a charging scheme and how far away technologically do you think we are from that?

Professor McKinnon: It depends what you want to do with the money. I was a critic of the government's plans for a hugely expensive system which would far exceed the revenue that would be collected. That system would have diverted resources from other activities. If the intention is to hypothecate much of the revenue that you raise from a road pricing system and you want to put that to good use and invest in public transport, then obviously you want to maximise that and thereby minimise your collection costs. 20%? 30%? It is hard to say.

Q71 Mr Leech: You say it is hard to make a judgment but you have made a judgment that 75% is too much and I would be inclined to agree with that. Where does it go from being unacceptable to being acceptable? Would you put a figure on that?

Professor McKinnon: It is a purely subjective decision. You would have to define what the other objectives were that you wanted to achieve, what they would cost to implement and therefore how much money you would have to raise. That hypothecation would determine what the percentage should be. It is very hard to answer the question in a vacuum.

Mr Coates: If the cost of operation exceeded the benefits you were getting, then quite clearly it would not be a very sensible idea.

Q72 Graham Stringer: Can you define "sustainability"?

Professor Shaw: Not to your satisfaction, I suspect. It is a very slippery concept. I would envisage it taking account of environmental, social and economic factors.

Q73 Graham Stringer: That is rather different from the OED definition of "sustainable", is it not?

Professor Shaw: Yes, but there are practical constraints to sustainability.

Q74 Graham Stringer: I was interested because I have asked every Secretary of State for Transport and Minister for Transport who use "sustainable" liberally in their documents and none of them can define it. I just thought maybe you had a definition. Do you think that road pricing in urban areas can be used as an exemplar for road pricing on inter-urban roads?

Mr Coates: Only to a limited extent because the sorts of citizens who live in an urban area are rather different from those on the inter-urban network. You would probably spend most of the revenue in an urban area on public transport and making it easy for people to walk and cycle as an alternative to the car. On the inter-urban network I think you might be more likely to spend money on enhancement of the capacity of the road network. You would learn something about the responses of the people confronted by the charge and you would learn a bit more about the technology, but I think waiting to see what happens in urban areas before they do anything on the inter-urban network is probably a mistake.

Q75 Graham Stringer: It is probably a political decision rather than a technical decision, is it not? Can I ask you the question I rather unfairly asked Professor Glaister about item 16 of your evidence where you say, "It would be fairer if road users travelling at peak times on busy roads had to pay much more - but only if alternative means of travel are improved so that they can avoid the charge if they can ill afford it"? Does that not mean it is very unfair for those people who cannot avoid the charge?

Mr Coates: Whatever one does about alternatives, there are bound to be some people whose circumstances are such that they are going to be worse off, so it is going to be unfair for them. One thing I think we need is some further experiments in this country. Central London is not characteristic of the rest of this country. We need some more examples without putting up the charges too high so that we can test how it works. I hope Manchester will bite the bullet but only if the government stands behind them and say that, if they decide to dismantle it all if it has not worked, the government will pick up most of the cost. People tend to focus on public transport as the alternative and it is obviously very important. It was very important in central London. Most of the switch was to public transport. As others have said, the pattern of journeys outside the dense, core of cities is very scattered. Public transport cannot easily cope with a lot of those journeys. We have to think about other things like making it easier for people to make short journeys, walk or cycle or car share. Plans can be instigated by employers to make it easier for people to share a car with someone else for their journey to work. If people are living out in the countryside there is park and ride and I believe there is also something called "park and share" in which people drive in from the country, park their cars and then they all get into one car.

Q76 Graham Stringer: I am trying to get at the equity of the situation because, apart from the fact that there is congestion in cities, the difference between rural areas and urban areas is in many cases there is no public transport whatsoever in rural areas. It would seem to me not fair to pay large amounts of fuel duty in those areas. In urban areas very often there is public transport but I am dealing with those people who have no alternative. Is it not just as inequitable for those people with no alternative who have to drive, who may be on marginal incomes? Is that not really a problem with an urban charging system, that it is possibly even more unfair than for people living in rural areas?

Professor Shaw: It partly depends on where they are going. If you have a toll based coin system, a lot of journeys may not involve going into the charged areas. Also, it depends on where you spend the money. Up front investment before a charging scheme comes in should absolutely be about minimising the number of people who ----

Q77 Graham Stringer: I am thinking about the Greater Manchester scheme which is 100 square miles. It is a huge scheme. It would seem impossible for a lot of people making non-radial journeys to avoid the two barriers. I come back to the equity point.

Professor Shaw: The spending in advance of the charging system being introduced would be designed to minimise the number of people who would be ----

Q78 Graham Stringer: That would work if you could get a tram, a train or if you could get down a radial route. It will not work if you are travelling across the conurbation sideways over the barrier twice. It is those people, of whom there are many as yet unquantified.

Professor Shaw: Any research that is done on the basis of the Manchester scheme or other schemes would clearly be looking at that in terms of absolute numbers, the costs and so on. Clearly, we want to improve equity for a greater number of people.

Q79 Chairman: Should the government introduce a national road pricing scheme? Yes or no?

Mr Coates: If you mean on every road, no. If you mean a consistent scheme which presents road users with a single system and a single piece of equipment that applies on those areas where it is justified, which would be heavily congested roads, yes.

Professor McKinnon: Being risk averse, I would like to see other countries do it first.

Professor Shaw: We should certainly learn from the Dutch experience and also from trials which are announced in the newspapers today. In the meantime, it is easy for us to get lost on large scale technological solutions but an awful lot of things which are very cheap can be done in other areas such as increased parking charges. These can be progressed at the same time to see what effect they will have.

Q80 Chairman: How far would you say the current system of road user charges and taxes is fair? Who are the winners and who are the losers?

Professor McKinnon: Clearly, there is the presence of foreign trucks on our roads. It is estimated that if they were to pay their full infrastructure, congestion and environmental costs in the UK it would be worth 300 million. This partly explains why in the UK haulage market we have seen such a huge increase in foreign vehicle penetration over the past ten years or so. That is a glaring anomaly which really ought to be corrected as soon as possible.

Q81 Chairman: You think that is a big problem?

Professor McKinnon: It is certainly a big problem as far as the UK haulage industry is concerned. It means our exporters and manufacturers get access to cheaper road haulage, so it depends whose interests you are considering. I think in the longer term it is something that will have to be corrected. If you want to create a fair haulage market, I think that is an anomaly which needs to be corrected.

Professor Shaw: It is often assumed that the current system of charging for fuel price is extremely unfair on rural residents because they drive more and there is less public transport available. For example in Scotland, the most deep, rural areas spend considerably less on fuel than those who live in peri-urban rural areas. It tends to be this issue of income. People who live in their nice house in the country commuting into urban areas tend to drive a lot more and therefore spend an awful lot more on fuel. Although they are living in rural areas, it is not necessarily problematic for them in terms of their income.

Mr Coates: It is unfair in the sense that the current level of fuel tax is higher than the costs that you can fairly attribute to those rural journeys on uncongested roads. It is very difficult to work out how much fuel duty could be reduced if we had what the RAC Foundation call an "efficient pricing system" but it might be between a quarter and a third, so that rural users would be that much better off.

Q82 Chairman: What are the costs of congestion? Do we have any accurate figures?

Professor McKinnon: The previous panel discussed that. Very little reference was made to the reliability costs. The way that these costs have been calculated conventionally is to work out the seconds of delay per vehicle kilometre and multiply that by some monetary value for the time. It seems to me that insufficient time and attention have been given to working out what the reliability costs are. What is the probability of a truck arriving late at the factory and, if it does, what are the knock on effects? How does that adversely affect the productivity of the operation? We have done quite a bit of research in this area and in the light of that it seems to me that there is under-estimation of the true cost of congestion to the country.

Q83 Graham Stringer: I apologise to you for this. We do not have to do theoretical economics, do we? We can look at real, urban examples in this country in the early eighties. Liverpool effectively lost its rush hour. If the economic theories worked, you would have expected to see greater access to the product market and a rush of investment into Liverpool. It simply did not happen. Investment went into Birmingham, Leeds, Manchester and London, which is different, which are much more congested. Does that not indicate that there are at least flaws in the economic models and the costing of congestion?

Mr Coates: In the case of Liverpool, about which I have to say I know nothing, it might be a question of chicken and egg. Was it the fall in economic activity in Liverpool which led to the disappearance of the rush hour rather than the other way round?

Q84 Graham Stringer: What I am saying is once it had gone you had an almost congestion free city. If the economic models that are being used to weigh the cost of congestion and the barring of people from the employment market worked, Liverpool should have started to thrive fairly quickly at the expense of Leeds and Manchester. It did not happen.

Professor Shaw: This comes back to the answer Professor Glaister gave previously where he alluded to location. It really points to the importance of geography in all of this. There are reasons why people invest in certain areas in addition to the transport system that already exists.

Q85 Chairman: What would you say has been the impact of the recent high fuel prices? Has anything beneficial come from it?

Professor McKinnon: I suppose on the positive side it has probably encouraged road hauliers to drive their vehicles more fuel efficiently. There is always a time lag with statistics. There may be a year or so before we see what the net effect of all of this is on operating efficiency. On the negative side, almost certainly it has caused the demise of quite a few road haulage companies. It has probably increased the penetration of the haulage market because they can buy their fuel more cheaply outside the country. The main effects on road haulage relate to the efficiency with which vehicles are loaded and the fuel efficiency. If you look back to the 1990s when the fuel duty escalator was in place, over that five year period, there was a steady increase in the fuel efficiency of trucks.

Q86 Chairman: As prices hopefully go down, what impact will that have?

Professor McKinnon: One would like to hope that these best practice measures will remain in place but I suspect that, once the pressure is off, it may result in a reduction in efficiency. It is not simply the high fuel prices; there are some other things that happen which have made it difficult for hauliers to survive. One is that many of the fuel companies have reduced the credit free period, so they have required the hauliers to pay their fuel costs more quickly than in the past at the same time as many of their clients have been lengthening their paying periods. There is a credit crunch problem that many hauliers have had to deal with and the increased fuel prices have been overlaying on top of that problem.

Mr Coates: I do not know what has happened as a result of the recent increase in fuel prices. If you look back to what happened when the fuel duty escalator was in operation in the 1990s, there was a slowing down of the growth of traffic by a small amount and a much greater reduction in the consumption of fuel. That was obviously having an effect across all vehicles, including cars, and on people's behaviour on fuel consumption more than there was on the distance they travelled. It obviously does give some incentive to people to be more economic in the use of fuel.

Q87 Chairman: How effective do you think the government's proposals for differentiating vehicle excise duty rates will be in terms of reducing carbon emissions?

Mr Coates: I agree with the previous witness that it was unfair to apply it retrospectively, as it were, to vehicles that were quite old and which people could not do very much about. If you are going to use instruments of that kind, you need to give people adequate warning so that they can take decisions about what sort of vehicle to buy rather than confronting them with a sudden hike which it is more difficult for them to do anything about, apart from selling their vehicle at a considerable loss. On the choice between VED or other taxes on purchase and fuel duty, I tend to agree with Professor Glaister's purist view that if you want to reduce the emission of carbon you apply the tax to the fuel, but I think there may be a psychological impact on people's choice of vehicle if they are confronted, at the time of their purchase, with a particularly large figure. That is not necessarily VED. We used to have a car tax. When you bought a new car years ago you were confronted with, I think, a 25% tax. I am not suggesting necessarily going back to that but you could have differential taxes at the time of purchase according to the greenness of the vehicle.

Professor Shaw: The issue of fairness aside, if it was ridiculous, it would not achieve anything to make it retrospective in terms of transport. I would agree with what Mr Coates has said. It is not necessarily to do with the makeup of the charge but certainly an up front reminder to purchasers of vehicles that perhaps there are responsibilities they might like to take account of.

Q88 Chairman: Should any changes in road user taxation and charging be revenue neutral?

Mr Coates: It would be very attractive to make it revenue neutral. The report that Professor David Seatey produced a long time ago now looked at a revenue neutral scheme. Research has shown that people might be more willing to accept road user charging if there were a commensurate reduction of fuel duty or - and this is important - a higher level of expenditure on the transport system so that we had a better system at the end of the day. If anything, there is a slight preference in a lot of the market research results for spending the money on improving the public transport system and the road system rather than reducing the tax. There is a difficulty in all this because you cannot spend the same money twice. If you are going to spend the money on improving the transport system, that amount is not available to cut the fuel duty. You have the cost of running the road pricing system which has to be accommodated and something like a third of the current income that the Exchequer gets from the taxes is not spent on transport at all, either roads or public transport. It goes to other kinds of public expenditure. If you took that away, the Treasury would have to raise some other taxes to compensate for it. I think you could have a bit of a reduction in fuel duty but I do not think you could make the thing completely neutral.

Professor McKinnon: If you wanted to internalise all of the external costs of road haulage, you would have to raise the taxes by about 50%. I am not necessarily recommending that because hauliers in this country are already the most heavily taxed in Europe. It would be very difficult for the UK to act unilaterally and to further increase the taxes on hauliers. One thing you possibly could do is to redistribute the tax burden across different types of vehicle, because at the moment some vehicles cover more of your taxes than others. I would have thought any charging, given the present circumstances, would probably have to be revenue neutral.

Q89 Chairman: Do you think that foreign registered vehicles should have to pay to use our roads?

Professor McKinnon: Most certainly, yes.

Q90 Chairman: How would you do that?

Professor McKinnon: Three possible ways. One way to do it is by introducing a vignette, a daily charge on vehicles entering the country. The European Commission currently limits the amount we can charge. I think it is less than ₤9 so it does not close the gap. It is not distance related. You could resurrect the LRUC programme that the government was planning to do some years ago which would have cost lots of money and be technically very complex and would track vehicles; or you could go for a low tech system which would involve simply taking a note of the mileage that the vehicle has travelled from their tachographs and charging them per kilometre for that. A few years ago we advanced a method of doing that which could be introduced very quickly and cheaply. It is also worth pointing out that the Freight Transport Association recently employed Price Waterhouse Cooper to review all the ways in which the fuel anomaly could be corrected and a system very similar to ours was the one they reckoned would be the most cost effective for the country.

Q91 Mr 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.

Q92 Chairman: What can we learn from lorry road user charging in other countries specifically through the systems used there?

Professor McKinnon: Germany and Switzerland have demonstrated that you can apply a high tech system to trucks that works very effectively. The Germans failed the first time they tried it but the second time they did it it worked. You have to be very clear as to what the objectives of the tolling system are. In Germany particularly they use that to raise revenue to invest in the transport system. All the countries that have road tolling for trucks are in central Europe where there is a high level of transit traffic, so they have to find some way of taxing the foreign vehicles. Here in the UK the costs are peripheral. I think only about 5% of vehicle kilometres are foreign. If in the UK our objective is simply to level the playing field for foreign operators, we do not need a complex satellite tracking system as they have in Germany and Switzerland. We can go for a very simple, distance based system.

Professor Shaw: Referring back to your question about whether or not it should be revenue neutral, if we are undergoing any kind of reform of the transport taxes and charges system, it is important to let transport policy rather than Treasury policy dictate the nature of the taxes and charges. In that sense, I would have thought that a good foundation principle would be to move towards covering the full external costs of the transport system in any charging system that is introduced. That may well involve increasing the tax take - in other words, making it non-revenue neutral. This comes back to Mr Stringer's question about sustainability. The external costs of transport may well change if we move towards a more sustainable transport system which aims to square the circle of getting carbon or environmental reductions whilst promoting social inclusion and promoting economic efficiency.

Q93 Chairman: What would you include in those external costs?

Professor Shaw: Everything from accidents, the costs of climate change, economic inefficiencies, congestion charges, all these externalities which have already been mentioned.

Q94 Graham Stringer: With hospitals you can get pretty accurate costs of accidents but, as you move through the spectrum, you can get pretty accurate costs of carbon. Then, as you get into other environmental damage, does it not become just which coefficient you put in front of the different factors?

Professor Shaw: I mentioned earlier on the dangers of spurious accuracy. We are always going on best available guess. That is an inherent danger within the system.

Professor McKinnon: I would entirely agree. A survey done recently by a consultancy company looking at all the different methodologies that were used to value these external costs reckoned there is a fair consensus now of the choice of methods to use. The trouble is in applying them the scope can vary. The data sources can vary, so the actual monetary value you attach can vary, even though you are agreed on the basic methodologies. If you look at the way in which the government currently attaches monetary values to externalities in calculating sensitive lorry mile values, about a third of those externalities are worked out entirely subjectively. It is things like the fear that other drivers will have when they see trucks overtaking them on the road, or visual intrusion because people just do not like the appearance of trucks. That is done entirely arbitrarily and yet it does represent a third of the monetary value attached to the environmental benefits of getting trucks off the road network and onto the railways.

Q95 Chairman: Would you say that Treasury and transport policy are aligned? Do those departments work together?

Mr Coates: You did not ask us to declare an interest. If you go back 15 or more years, I was a civil servant in the Department for Transport, or whatever we used to call it in those days. I do not know what it is like now. In those days, there were certainly discussions between the Treasury and the Department for Transport about road user taxes, sometimes quite detailed ones in the run up to the Budget. I think it is fair to say that the Treasury's view of what ought to happen always carried the day. The transport arguments for doing one thing or another might have been brushed on one side. Even where there was a good transport reason for a tax change, the Treasury and the government I think were very bad at giving those transport reasons in public statements. When there was the great outcry about the fuel tax credits a few years ago, there was a demand from the road haulage industry to reduce the taxes. The argument given against reducing the taxes was the loss of revenue for hospitals, schools and so on. It was not the environmental argument for having tax at the level it was at. On the whole, I agree that the discussion and coordination between the Treasury and the Department for Transport are not as good as they should be.

Professor McKinnon: I think it is better than it was in the past. I think the fuel duty escalator was introduced ostensibly for Kyoto reasons to cut CO2 emissions but I think the Chancellor said it was actually to find money to fund hospitals and schools. The LRUC scheme was driven by the Treasury and there was not sufficient coordination of that and transport policy coming out of the Department for Transport.

Professor Shaw: Another good example is rail privatisation which has been investigated by this Committee in the past. It was very much Treasury driven in terms of the particular model which of course resulted in vast expense.

Chairman: Thank you very much for coming and answering our questions.