An examination of the advantages and disadvantages of congestion charges:
Some cities, such as London have introduced a congestion charge. The aim of a congestion charge is:
- Reduce congestion. Therefore reduce time wasted and reduce costs for business
- Reduce pollution. Fewer cars will lead to less pollution.
- Make city centres more attractive for pedestrians and cyclists, which will help increase quality of life.
- Raise revenue. The money from congestion charge can be spent on other forms of public transport and increasing alternatives to driving.
- Make Drivers pay social cost of driving. Driving in city centres incurs significant external costs on the rest of society. The main external costs include congestion, pollution and accidents. Congestion is estimated to cost the UK economy over £20bn a year in terms of extra costs for business (time wasted) Driving already incurs taxes, most notably, petrol tax. However, petrol tax doesn’t discriminate for where congestion is worst. Therefore, councils could place a congestion charge on driving into a certain area at busy times
- Reduce Journey Time. This is good for business, but also helpful for emergency services in getting to serious injuries quicker.
Diagram of Congestion Tax
A congestion charge shift supply to left and makes drivers pay the SMC (social marginal cost of driving)
Arguments against a Congestion Charge
- Lost Business for firms in the city centre. It is argued that a congestion charge will encourage people to visit out of town shopping centres and lead to a decline in city centres.
- Expensive to Administer. The costs of collection a congestion charge is much higher than petrol tax. It requires sophisticated technology and chasing up drivers who don’t pay or try to avoid. For smaller cities the administration costs may be prohibitive.
- Evasion. Since the congestion charge has been introduced, there has been a growth in the number of false number plates and schemes to try to avoid paying the tax (such as setting up false mini cab firms)
- Inequality. A congestion charge is regressive as it takes a higher % of income in tax from the poor.
London Congestion Charge
The congestion charge has reduced some of London’s worst traffic problems. People don’t like paying taxes, but neither do people like sitting in a traffic jam. It annoys me how many voters expect solutions to problems without any tax.
- Evidence from TFl suggests that following the introduction of the congestion charge, traffic fell 15% leading to a 30% improvement in journey time. (pdf)
- It was feared that a congestion charge would lead to more congestion in the area surrounding the congestion zone, however, this hasn’t materialised.
- The London Ambulance Service reports a tripling in survival rates from cardiac arrests, it attributes this to better machines and also lower traffic congestion. (link)
- Other reports are more sceptical of the reduction in traffic volumes. However, London has seen a prolonged growth in traffic volumes. A congestion charge may just reduce the growth of traffic volumes.
- The impact on business is debated. However, a study published after the introduction of the charge suggested the impact was mostly neutral, with few businesses feeling it had made even big benefit or damaging loss. (guardian)
How Effective Will a Congestion Charge Be in Reducing Demand?
If the tax is quite significant, such as £7 per journey, you would expect it to have the effect of reducing demand. However, it is uncertain how much demand will fall by. If demand for driving in this area is inelastic, the higher price will only have a relatively small effect on reducing demand. However, if demand is elastic then there will be a bigger % reduction in demand.
There are various factors which will determine the elasticity of demand.
- Are there alternative modes of transport? e.g. in London, commuters can use the underground, but, in Birmingham there is no underground system. Therefore a congestion charge may be less effective in Birmingham
- How necessary is it for people to drive in that area? For example, is there good parking on the outskirt of the area? If the main shopping centre is in the zone, people may still need to drive there.
- Over Time. Overtime the congestion charge may become more effective. i.e. people have time to buy a bike. In the longer term, shops and businesses may relocate outside the congestion charge.
- Advantages of Electronic Pricing
- Congestion and market failure