Does Congestion Have a Cost?

Many of the costs of driving are fixed (see the AA's driving table of driving costs...). However, that doesn't change the fact that they exclude some people from owning/driving a car (as does a congestion charge, i.e. it's not really any more of a social discrimation factor than other motoring costs). As regards whether they influence whether people use their cars or not, if we do want to discourage car use then more of these costs must be made variable, i.e. if one drives less one pays less. Some steps have been made towards this, e.g. pay as you drive insurance (Norwich Union being one example). If road tax were also usage-dependent (as well as on emissions and vehicle weight) this would further encourage people to carefully consider each car journey.

Does congestion itself have a cost? I would say "definitely". Before listing a few example costs, one interesting point to consider is the price people are willing to pay to avoid congestion (which hence puts a value on it). Clearly people do place a value on getting round congestion, as evidenced by people using toll roads (e.g. the M6 toll) instead of alternatives. What costs does congestion have? A few are:

• Longer journey times, which means less time at work, or with family. Either results in lower productivity and hence lower incomes. For some businesses, such as multi-drop deliveries, more congestion means more vans/drivers are needed.
• Air quality is considerably worse with large numbers of cars idling, then continually undergoing stop/start transitions (as in congested cities). Higher levels of pollution cause long term health problems (asthma, probably lung cancer...), which then cost the tax payer via the NHS.
• Journey costs are increased to the driver themselves, as congested conditions will mean less efficient fuel burn, plus extra wear and tear on the vehicle due to continual stop/start behaviour.
• Congestion has been linked to higher incidents of vehicle collisions, which both increases health costs and insurance/repair expenses.

All of these costs have significant values (hence the £12bn/year estimate I gave in the post titled "Road Pricing & Delivery Vehicles"). This is both in costs to individuals and to society as a whole. However, clearly these costs aren't ones that the average driver considers when planning a journey (e.g. every time I go to the shops I don't think about the tiny increase in the probability that I'll get lung cancer). Moreover, such costs are paid for by everyone, regardless of whether they drive. It seems fairer to charge those who are causing such costs accordingly.

Further details of the costs of congestion can be found in section 5.5 of VTPI's "Transportation Cost and Benefit Analysis".

A congestion charge could indeed be used to raise tax revenues. However, there is nothing to stop a government, in principal, committing it to be spent on transport. This has been the case in London, Bergen, and Stockholm. Such revenue hypothecation is one of the characteristics of successful congestion charging schemes (if only the UK government would learn that).

In terms of high fuel duty not affecting congestion, that is correct: it simply increases the costs of driving, regardless of when or where (apart from using more fuel in congested areas). A congestion charge (particularly time-variant) provides an economic disincentive to people from travelling in congested areas at peak times (i.e. causing congestion). Petrol prices do have an effect on how much people use their car, as was seen in the USA recently when prices were particularly high (estimate of 58 billion fewer miles travelled in first seven months of 2008). However, that just penalises everyone wherever, whenever.

Overall a government needs to be clear on whether they want to reduce congestion, which is discouraging people from travelling at certain times in certain places, or to reduce total vehicle miles, which can be achieved by increasing the proportion of the total cost (but not necessarily the total cost!) of running a vehicle that is distance-dependent. Of course, we probably need to do both, (carbon dioxide emissions now being hugely significant will require us to cut down total vehicle miles; congestion costs us all, as described above).

So: does congestion have an economic cost? Yes, definitely. But do people really take that cost into account at the moment? No.

(Cross-posted from the thread on congestion charging over at the Cambridge Network social network.)

Rebooting America: Applicable to the UK?

Thomas Friedman, author of the excellent book "The World is Flat", argues in an article in the New York Times titled "Time to Reboot America" that Americans need to subscribe more to the "tax and spend" philosophy, and less to the "borrow and spend" ideal. Good plan.

His writing concerning the USA resonates with my thoughts on the UK's economy. True, we don't have a history of such enormous government debt (currently the USA has $10 trillion), but as a population we do have this mad mentality of "we want more public services, and lower taxes". Governments therefore attempt to cut spending in areas that the public won't really notice, particularly long-term projects that have no short-term political pay-offs, and in addition try to show that public services are getting better by creating targets. (One example of an ill-conceived success measure is the number of people who have stopped smoking with NHS help: it's measured by number of people who have not smoked for 4 weeks after the treatment program. In practice it's not clear what "not smoked" really means... See Assessing smoking cessation performance in NHS Stop Smoking Services.)

What does this result in? Hospitals, schools, and local authorities all spending disproportionate amounts of time on taget-related paperwork and skewing their activities to fulfilling those targets (e.g. by moving patients out of Accident & Emergency departments quickly, then leaving them in over-crowded wards, or "teaching the test" for SATS exams). More worryingly, progress on energy policy, long-term sustainable transport, and actually making the UK a knowledge-based economy is glacial.

Ultimately, if the UK wants to remain one of the world's most powerful economies, it cannot rely on manufacturing (we've seen that go East long ago, for the most part). It can remain so if it continues to climb educationally higher, i.e. if its population continues to have greater intellectual capital than others (see Friedman's book for more on this). At present this clearly isn't happening, despite what government targets would have us believe. Students at the top universities in the UK are becoming more international, particularly at postgraduate level: in 2006-2007 2,926 students at the University of Cambridge were from the UK and EU, whilst 1,856 were from the rest of the world (see University of Cambridge Facts & Figures), implying that home grown education is by no means the best in the world. Meanwhile top universities have expressed concern over the standards of the pupils applying to them (and difficulty using A-Levels to differentiate between them), and institutions such as the Royal Society of Chemistry have shown that O-level/GCSE exam question difficulty has dropped.

So, what's to be done? The UK sits between the USA (low taxes, little state welfare) and the countries in Scandinavia (high taxes, huge amounts of state welfare). I don't believe this helps anyone, as the UK population expects Scandinavian welfare, and USA taxes. If we are seriously committed to a welfare state, we must increase our levels of education.

Why do I think this? Because until people have higher levels of education, it will not be easy for a government to convince them that certain "painful" decisions are necessary. If people understood that 20% of the UK's power is produced by nuclear stations, how most of those stations will close down in 20 years, how new stations take about a decade to design and build, and how renewables alone are not going to satisfy our energy demands (see David MacKay's book Sustainable Energy -- Without the Hot Air) they might be more pro-nuclear. I don't think it's a coincidence that Finland has one of the highest public library borrowing rates (loans/head of population) in the world (in 2002 this was 20.7 compared to the UK's 6.8 [see LibEcon Public Library Statistics, and the Finnish Ministry of Education's Public Library Statistics]), and them being the first country in Western Europe since 1991 to build a new nuclear reactor (note that Finland is a lot closer to Chernobyl than the UK). Of course there are lots of other factors. But I don't think it would have been approved by the population had they not understood the good reasons for it. Lorry charging on a per km basis is another issue that the government has wasted huge amounts of time and money on, whilst not actually achieving anything. Meanwhile, the German and Swiss governments have used the time to implement systems that work well, and moreover are now being upgraded to the next version (see my paper titled "A Survey of Technologies for the Implementation of National-Scale Road User Charging" (Transport Reviews, 27:4, Jul 2007).

In addition, paying people who actually generate long-term value is hugely important. (I'm somewhat biased having read for a PhD, but anyway.) If people with PhDs have no job security in going into research, and moreover can earn 2-3 times as much going into jobs in the financial sector, they will do the latter. That means that 20 years down the road a lot of research that could have generated new products, jobs, and hence economic value hasn't been done. Similarly, if teachers aren't paid enough to attract the very best people to the profession, we will miss out on educating the next generation of knowledge workers. Oh, and by the way, we're trying to become a knowledge economy... If those teaching children science or mathematics do not really understand what they teach, or have enthusiasm for it, why are we surprised when applicant numbers for science/maths degree courses fall (2005)? (Though that decline may now be being reversed, 2008.) Note, however, that there are many good teachers. My point is simply that, in a very general sense, you get what you pay for. Can we afford not to invest wisely now, to obtain long-term gains?

Conclusion: the economic outlook is bleak. We can try to borrow in order to prop up existing ways of doing things, or we can try to re-invent ourselves as a truly knowledge-based economy. That will take time, but is more sustainable than sticking our heads in the sand and asserting that the government should bail us all out of our economic misery so that we can keep doing what we've always done. Oh, and whilst also protesting against the increased taxes that would be necessary to fund such an endeavour.

Any thoughts?

Update: Jon Davies suggests that one reason people expect government to provide more services for the same, or less, tax revenue is that they think the government wastes this money. I suspect Jon is right, and moreover that there is wastage. However, I suspect society thinks the wastage is far more than it is. Or perhaps not...!