Cebr’s study for FairFuel UK: forcing people to use electric vehicles would make car ownership unaffordable for the poorest

Cebr’s study for FairFuel UK: forcing people to use electric vehicles would make car ownership unaffordable for the poorest

(PRESS RELEASE) LONDON, 23-Nov-2020 — /EuropaWire/ — The Centre for Economics and Business Research (CEBR), one of the UK’s leading economics consultancies, has released its commentary on UK Gov’s green agenda which has started to emerge in a series of announcements, mainly affecting motoring.

Road pricing is again under active consideration, there is a threat of higher fuel taxes and the ban on sales of petrol and diesel vehicles, originally scheduled to commence in 2040, has been brought forward to 2030. Meanwhile, FairFuel UK has released the study by Cebr showing that raising fuel duty would hit the poorest people and the poorest regions. Cebr is strongly in favour of reducing emissions of both greenhouse and other noxious gases. But we are equally strongly in favour of basing environmental policy on evidence, not prejudice. Environmental policy is an area where passions run high, not always to the advantage of sensible policy making.

Whether bringing forward the ban on sales of petrol and diesel vehicles makes sense will depend on the practical considerations like the feasible speed and cost of rollout of chargers  and on the impact on the poor. Cebr’s study for FairFuel UK showed that under present technology, forcing people to use electric vehicles would make car ownership unaffordable for the poorest  30% of the population. 60% of households would be faced with having to increase their spending on motoring.

It seems almost inevitable that widespread road pricing will emerge eventually. It might be theoretically possible to tax electricity used for vehicles differently from that for other uses. But this looks complicated in practice. There is a privacy issue, a technology issue and a political issue. The privacy issue looks to be less relevant now that automated number plate recognition has rolled out all over the country and with mobile phones being used for track and trace. And it is likely that there will be further erosion of privacy with facial recognition. We may not like it but privacy is diminishing anyway.

The technology is not ground-breaking but would need to be rolled out. Many commercial vehicles are already there with tachometers and other tracking devices. This does not seem to be the main blockage.

The politics is another thing. Pre pandemic research indicated that support for road pricing had risen above 30% but remains below the critical mass necessary for a government to wish to introduce it on its watch. The biggest single problem seems to be that the public suspect road pricing will be used, not as a means of allocating scarce road space or expanding it, but as a further way of imposing additional charges on motorists. The government’s environmental statistics show that road users, who account for 21% of UK greenhouse gas emissions, account for 68% of environmental taxation.

A brief aside to look at the underlying economics. Some economists (for example the Institute for Fiscal Studies in its 2019 report on motoring taxation) seem to think that road congestion is an externality imposed by road users on the rest of society. While this is slightly the case, the main people who suffer from congestion are other road users. In fact, as anyone with an economics degree should know, road congestion is an example of what is called a ‘Club Effect’. The theoretically right way to handle a club effect is to tax the user at the appropriate marginal rate BUT to channel the revenues into increasing the supply of the scarce factor, in this case road space, which is the underlying cause of the congestion in the first place.

Cebr released a well received study three years ago which we presented to the Highways UK Conference where we put forward a proposed solution to the problem of introducing road pricing. So far no one has come up with a better scheme. Our proposal involves an independent authority a bit like the Monetary Policy Committee agreeing the appropriate rent that motorists should pay for the use of road space. Any taxation of motorists from road pricing in excess of that should go NOT to the Treasury’s coffers but towards modernising the road system and expanding its capacity through more smart infrastructure, schemes to address bottlenecks (such as new tunnels), and so on.

What might make road pricing unworkable would be the Treasury seeing it as yet another way of imposing charges on motorists. The key is that the taxman doesn’t get too greedy.

Media contacts:

Ian Birch ibirch@cebr.com phone:  07887 562377
Douglas McWilliams dmcwilliams@cebr.com phone: 07710 083652

SOURCE: Centre for Economics and Business Research