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THE GREAT ROAD TRANSPORT SUBSIDY

A Market Place Comparison with Rail

by Norman Bradbury and Graham Nalty.  Comments by Peter Hayman.

1. Outline.

2. Introduction.

3. Payments made by road users.

4. The true cost of road transport.

5. Areas for further research.

6. Pre Privatisation rail balance sheet.

7. Conclusions and Recommendations

1 . OUTLINE

We show in this paper that the true cost of providing roads in Great Britain for motor vehicles exceeds £100 billion (adding inflation to our calculations based on 1993/1994).   The total contributions from all vehicle users at the 'point-of-use' (the cost of each journey) amounts to only £15 billion.

Road users pay a further £13 billion in fixed payments (such as Vehicle Excise Duty and insurance) to enable them to use their vehicles on the roads.  Hhowever these costs have little relevance to the choice between road and rail transport, as it is the point-of-use cost which influences travel decisions. 

We have calculated the cost for providing the road network for vehicles by taking all hidden costs into account. For both road and rail transport there are "external costs" which users impose on non-users of pollution and other environmental damage. In the case of road transport these are considerable and well documented. In the case of rail transport, these external costs are small, but there is little data available for obtaining reliable estimates. Hence to compare the RELATIVE costs of road and rail transport we have excluded the external costs from the comparison.

Table. The costs and payments of road and rail derived from our analysis;

                                    ROAD                RAIL

Payments at "point-of use"          £15 billion     £2.83 billion

Total costs excluding

environmental costs                 £71 billion     £4.1 billion

 

% of those costs paid by users

at point -of-use                                   21%                     69%

Environmental costs                             £24 billion       not known

Total payments by users

(point-of-use + fixed payments      £28 billion     £2.93 billion

 

Total subsidy including

environmental costs                            £67 billion        not known

 

Total subsidy to users

excluding environmental costs          £46 billion       £1.15 billion

The subsidies to road transport far exceed those to rail. Excluding environmental costs, road transport enjoys about 40 times the subsidy paid to rail but carries only about 15 times the quantity of passenger and freight. This imbalance distorts the market, resulting in reduced transport efficiency, higher total transport costs and traffic congestion. It also causes inappropriate investment decisions in favour of roads building instead of expanding the railway system.

The distortion to the market can only be eliminated by making the "point-of-use" charges to road users to cover the full costs of road provision. This can be achieved through raising the price of fuel to include the full charges for road use.

Based on our analysis, the total costs of providing roads for motor transport and meeting the environmental and other costs which road transport imposes on others, together with the fuel tax increases to cover each cost based on 1993/4 road traffic levels are listed in this table;

                                                                                                    Road Costs     Fuel Tax

                                       £ bn           £/litre

Government expenditure on roads                                        5.020          0.14

Annual return of the Asset Value of Roads @ 8%            32.426         0.93
True Cost of Car Parking                                                        6.700          0.19

Company car tax & NI shortfall                                             4.000          0.11

Total business mileage subsidy                                            0.300          0.01

External Road Congestion costs                                            2.625          0.07

Total costs of road accidents and breakdowns                  17.424         0.50
Total Police and Court costs                                                  3.000          0.09

Environmental Costs of Road Transport                              24.527         0.70      

Health costs not included in Environmental costs
Other costs requiring further research

Total Cost of Road Transport                                                  96,018                            2.74

The figures in the right column are a simple estimate of Road Access Charges per litre of fuel based on £14 bn currently paid in fuel taxes at an approximate rate of 40p on each litre.

Including the actual cost of the fuel, the total price which road users should pay to cover all road transport costs should be £2.94 per litre or about £15-£16 per gallon. On the assumption that a small/medium sized car averages 38 miles per gallon, a true economic charge for fuel would put the real 'point-of -use" cost of motoring at about 42p per mile compared with
the present cost of 7p. Compared with current rail fares which are typically 10p to 25p a mile, this would show the true cost of making many journeys much cheaper by rail than by car even when 2, 3 or sometimes 4 rail fares are paid.

If the cost of petrol were increased to £16 per gallon, traffic would be cut requiring the cost of fuel to be raised. However some of the costs of providing the roads would be reduced, in particular accidents, and this would tend to reduce the cost of fuel.

The resulting transfer of passengers and freight from road to rail would be far greater than any political interference in the free market could achieve.

2. INTRODUCTION

The Historical Perspective

For many years Government Ministers and transport department officials have described money spent on funding rail services as a "subsidy" whilst money spent on roads was "investment". Subsidies are considered a "bad thing", a measure of failure of railway operators to manage their business profitably whilst "investment" in roads is considered a "good thing" and is claimed to benefit everyone, even though it offers unfair advantages to road transport operators and car drivers whilst degrading the environment and creating additional disadvantages for people without access to cars.

But the true reason why railways require subsidies is not because they are managed inefficiently (although recent improvements in railway productivity show that they could have been managed much more efficiently in the past) , but because road transport costs are artificially low as a result of failure by Government to charge an economic price for road use.

This enabled the road lobby supporters, including the Department of Transport, to claim that roads make a "profit" because the money paid by road users in taxes exceeds the money spent by the Government (Department of Transport) directly on roads. Such an analysis ignores the many hidden subsidies enjoyed by road users and the costs which road users imposes on others. These subsidies are the reason why rail fares and freight charges are usually higher than by road, despite the technical superiority of rail which requires far less land than road to move passengers and freight and consumes less energy.

At present road users pay for use of the roads by a combination of payments. Some payments are fixed (e.g. road fund licence); other payments depend on whether a journey is made or on the mileage (e.g. fuel costs) and are known as point-of-use costs.

Cost plays an important part in transport decisions, whether to make a journey or to choose the means of transport. Once fixed costs have been paid, it is the point-of-use cost which influences whether we make a journey.

Examples of "point of use" user costs for rail and car journeys are:

    Rail                                                         Car

Rail Fare (except season tickets)           Fuel part of cost of fuel used

                                                                   Tax part of cost of fuel used

                                                                   Wear and tear/repairs

                                                                   resulting from the journey

Except where season tickets and railcards are involved, we pay no other costs for making a train journey; this is why putting road costs onto to the fuel tax creates a fairer situation in relation to rail transport.

Examples of fixed costs for road and rail are:

                            Rail                                                                    Car

Season tickets (se note)                                                            License disc

Passenger transport authorities                                                Driving license

Rail travelcards (limited duration                                            Insurance

normally 7 days)                                                                        Purchase of car (see note)

                                                                                                       Breakdown recovery club

                                                                                                    Tax paid by company care drivers

A rail season ticket covers only one route and journeys are limited solely to that route.

Passenger Transport Authority funding is a community decision to a pay a "fixed" cost on behalf of all users to meet the rail operator's costs.

In order to compare payments made by road users with those made by rail users, we work out the total "point-of-use costs" and total "fixed" costs for each transport mode.  We begin by calculating the payments made by road users .

Introducing the Concept of "Road track"

A useful way to understand our analysis is to imagine the roads to be privately owned by an appropriately named organisation "Road track", with the responsibility (comparable to Railtrack on railways) for managing the roads, meeting all external obligations, including accident/insurance and balancing its books by charging the users appropriate Road Access Charges.

". . .The way people pay for transport has, however, to reflect what is practical."  Transport; The Way Forward. 8.19

The simplest way of charging Road Access Charges for road use is a suitable level of tax on fuel, just as Railtrack balances its books from track access charges paid by train operators or as railway operating companies from fares or freight charges.  The advantage of charging Road Access Charges via a tax on fuel is that the charge is directly proportional to the distance travelled. This creates a fair situation in relation to rail transport.

 

In contrast, taxation on the purchase of motor vehicles or accessories should be considered as general taxation. After all, the Government does not use the tax from alcohol to build pubs and hotels. Taxation can also be used in two other ways. Replacing taxation on employment by a tax on energy (or fuel) could be considered in view of higher rates of unemployment than a few decades ago and finite earth resources. Such a tax should not pay for pollution and should apply to both road and rail transport in a way that does not discriminiate.  Taxation can also be used as a means to reduce pollution. For road transport, this would involve increasing the tax on fuel over and above the amount needed to balance the accounts of "Road track". A similar tax should apply to rail transport. As the tax per passenger-mile or ton-mile for rail would be far less than for road this could encourage a shift of traffic from road to rail.

 

We expect that the nature of the costs which this report which this report outlines may attract criticism from those whose interests lie in building roads and the promotion of road traffic. The reader must remember that it has been the road interest groups who have promoted the lie of road profitability for several decades by omitting many of the costs listed here.

3. PAYMENTS MADE BY ROAD USERS

It is emphasised that this paper is concerned only with the costs of providing the road network, including the costs of moving vehicles around the network. Start up costs such as the purchase of motor vehicles are excluded, as are the costs of running maintenance. All the "point-of-use" payments go directly to the Government whilst some of the "fixed" payments go directly to private insurance companies, whose operation cannot be excluded from the costs of road accidents.   Table 1 below shows how much road users pay to use the roads

 

TABLE 1

                                                                                                        £ millions (1)
"Point-of-use" payment made by road users.

Fuel Tax paid on Cars & Light Vans                                        11,255

Fuel Tax paid on Motor Cycles                                                        50

Fuel Tax paid on Buses & Coaches                                                340        (2)

Fees paid for Parking Vehicles                                                    1,000        (3)

Fuel Tax paid on Goods Vehicles                                                2,215

Vehicle Excise Duty paid on Buses & Coaches                            25        (4)
Vehicle Excise Duty paid on Goods Vehicles                                530        (4)
Car Parking (see Chapter 4 Section 3)                                        1,250

Total "point-of-use" payments                                                    15,665


"Fixed" payments made by road users.

Vehicle Excise Duty paid on Cars & Vans                                    3,555
Vehicle Excise Duty paid on Motorcycles                                        20
Motorists payments on car insurance                                            6,000
Motorists Road Rescue Services                                                    1,000

Company car drivers tax payments                                                2,500

Total "fixed" payments                                                                    13,075

The total DIRECT & INDIRECT payments by road users is £28.49 billion

 

References.

(1) All figures quoted except items referred to (5),(6)and (7) are from 'Transport Statistics Great Britain 1994' published by HMSO.

(2) Some fuel tax may be rebated to local operators.

(3) For full analysis of parking please see Chapter 4 Section 3.

(4)Vehicle Excise Duty on buses, coaches and lorries is considered a DIRECT payment this cost will be included in the fare or rate charged to the customer. Where own account lorries are used, this charge might be more appropriately be considered an INDIRECT payment as the own account operator is able to make an extra trip without extra cost.

(5) This figure is derived from two unquoted newspaper sources, one which described the car insurance industry as a £5 billion industry and another which quoted the average car insurance premium as £320 (= £7.2 billion for 24 million cars).

(6) It is assumed that a large proportion of the 24 million cars are covered by road rescue services of around £50 - £100 per annum.

(7) This is the extra tax paid by drivers of company cars in their annual tax bill. Please refer to Chapter 4 Section 4.

 

4. THE TRUE COST OF ROAD TRANSPORT

We now calculate the cost of road transport, under a number of headings (road construction, asset value of the road network, car parking, company car and business mileage subsidies, external costs including accidents and breakdowns, car crime, traffic offences and court costs and environmental costs including health costs).

The costs that we calculate are based on the years 1993/4. Much information has been taken from a recent study "The true costs of Road Transport" (Maddison et al 1995) which contains up to date research based on 1993 figures; we have also drawn on 'transport Statistics Great Britain 1994".

Some of the costs in this report have had to be estimated as explained in the relevant sections; this does not affect the accuracy of the TOTAL cost of road transport significantly as the cost of these items are relatively small.

1. GOVERNMENT EXPENDITURE ON ROADS .

We first consider the annual costs of road construction.

In Transport Statistics 1994 they are given as;

TABLE 2    Capital Costs of Road Construction

Capital Costs of road construction                £ million

National Roads                                                   2,316

Local Roads                                                        1,547

Total Capital cost of road construction         3,863

 

However in order to calculate the real cost of providing the road network, we also have to consider the rate of return of road construction. The above capital costs include not only construction costs (e.g. new roads) but also reconstruction costs (renewing road surfaces). Only the former will increase the overall value of the road network (e.g. a new road)

whereas the latter will only maintain its present value. Because no information is available on the proportions of expenditure which increase value and which maintain value, we assume 50% of the total for each, as statistically this will create the least error. We therefore assume that half the expenditure is paid in full to maintain the road network value and

half is borrowed over 2 years in order to increase the road network value based on an 8% return. Table 3 below gives the resulting costs, together with other expenditure on roads taken from Transport Statistics Great Britain 1994

TABLE 3

Government Expenditure on Roads 1993

Cost of Road Construction             £3,863 million.

£1,931 million at 100%                                    1,931

£1,932 million at 8% x 2 years                        313

Current Expenditure - National Roads        232

Current Expenditure - Local Roads             2,057

Vehicle Licensing                                           156

Highway Administration                               269

Inland Transport R&D                                   34

Road Safety                                                    14

Priority Routes in London                            10

Total spent by Government on roads        £5 ,016 million

 

2. ASSET VALUE OF THE ROAD NETWORK

The Government recognises that transport users should pay a charge on the asset value of transport infrastructure in that Railtrack has been expected to raise charges equivalent to an eventual 8% return on the estimated asset value of the rail network. This sets a precedent. The charge cannot logically be applied to rail transport without being equally applied to road transport.

 

Rail transport can move larger numbers of people and larger volumes of goods than road using the same amount of land. The value of land will rise fast as the UK becomes more crowded. People who choose a mode of transport which requires more land (e.g. cars & lorries) should pay more for the land they use to make their journey than those who use more space-efficient means of transport (trains & buses). Savings in space taken by transport will bring economic benefits, which can only be achieved, if the savings can be reflected in the "point-of-use" costs of different modes of transport.

Many people may argue that because the roads are nationally owned they should be free for anyone to use. But this is highly unfair as it provides very large benefits to heavy road users and negligible benefits to those who do not own a car. The heavy road users not only receive the greatest benefits but are responsible for the congestion which results in very large amounts of taxpayers money being spent on road building.

 

The unfairness of the roads being free for use is obvious When you imagine the Government owning business premises and allowing their tenant businesses to use them rent free, paying only for maintenance; Whilst those renting premises from the private sector would may much higher rents to enable the landlord to make a return on the value of the buildings as well as meeting other expenses. So Why should motorists, bus companies and road haulage companies be virtually the only section of the community to enjoy personal use of, or make money from, an extremely expensive asset without providing a return on its value?

 

Our calculation of the asset value of the road network for motor vehicles is based on a similar exercise carried out by the Tory Green Initiative in 1991, but using more recent figures from the 1994 Statistics. We have extracted the total length of road for each class of road and multiplied each by an average cost per kilometre from the construction costs of motorways and dual carriageways from new road construction statistics; the costs per kilometre for more minor roads are a reasonable guess. The total value of each class of road is then multiplied by the proportion of its value, which benefits motor vehicles, as opposed to pedestrians and cyclists. Whilst we are satisfied that the per-km costs of the more expensive roads are accurate, we accept that a margin of error might apply to the lower classifications. But even if these values were reduced by 25%, an 8% rate of return would still produce £27 billion. This total may also include land which could be used for parking such as lay-bys, and parking of vehicles on the carriageway where allowed.

 

3. CAR PARKING

Every car used on the roads needs parking space. Not only at the owner's home, but also at work, at businesses visited, at the supermarket, in the local town centre, at the railway station, at the leisure centre, football ground, cinema, theatre or concert hall.

 

It has been estimated that the minimum total area devoted to car parking is 590 square kilometres, an area of land twice the size of Birmingham. (8) Land is a valuable commodity. Every time a vehicle is parked on land not owned by the vehicle owner a cost is applicable to the use of that land, even though seldom applied. For cars parked on the roadside or in a layby, the cost of parking is essentially part of the total cost of providing the road network. Each time a car is left on someone else's property without charge results in effect a subsidy to the car use by the owner of the land if no similar value offer is made towards public transport use.

 

Even when parked at fee paying car parks, cars will still be subsidised unless the fees cover not only all the operating costs of the car parks but also the full rent and rates which would be paid by a typical business or shop using the same land.

 

We are not aware of any figures that show the scale of car parking subsidies. In a typical week one author of this paper estimated that he had parked his car about 20 times in various places. The parking fees paid totalled £1 whilst an estimate of the possible market value of all parking places used (where the car was parked at a private residence an estimate was made of the likely fee of a nearby off street car park) was about £12.

 

Translated nationally this would represent car drivers paying £1.25 billion for £15 billion worth of car parking space. If we did pay the full equivalent of current prices for car parking every time a car is parked, this could generate a surplus which would result in lowering of charges even after the costs of administering those parking charges was added.

This would seem to indicate that the full cost of car and lorry parking does not exceed £15 billion. To get a more exact estimate, we look at this question simply in terms of land use for car parking. From (8), we find that the area of land taken by car parking is 590 square kilometres compared with 2,848 square kilometres for roads. Using the value of road space calculated in Section 2 at £32,426 million, this would put a value of £6.7 billion on car parking. We can summarise the payments made and the true cost of car parking:

 

Estimate of Fees paid by Motorists        £1.25 billion

True Cost of Car Parking                            £6.7 billion

Much further work is needed to refine these estimates.

4. COMPANY CAR SUBSIDY

About half the new cars purchased in Britain are by companies for use by their employees. Whilst a large proportion of these cars are provided to enable these employees to travel to further the company's business, other cars are provided as a financial benefit Which costs the company less than by paying a higher salary. The additional benefit gained by the employee and the company represents a loss of tax to the Government which the higher salary would provide. The Government has recognised that company cars cause a loss in tax revenue and includes a tax for company car use as part

of the annual tax assessment. However its operation is extremely crude and rewards drivers for driving higher mileages for business, creating a situation where some drivers go out of their way to drive extra business miles to qualify for a lower rate of personal tax. An because the tax is a fixed payment it encourages more extensive private use by drivers. In

addition, many companies may pay for large amounts of private mileage, creating a situation where road use is totally free for personal use.

 

We now need to analyse the situation created by personal use of company owned cars. The personal income tax paid by drivers does not increase with increased personal use and needs to be represented as a fixed payment. The tax savings for the company by paying tax on a lower salary are a hidden subsidy to the company and to drivers paid for by the Government. Any expenses incurred by the company in providing cars for use by employees which can be set against the profits in the accounts and resulting in lower tax payment is a further subsidy from Government .

 

Based on a study by Greenpeace prior to the 1991 budget which showed that the Government lost £3.4 billion in tax because of companies providing cars, fuel and parking, we estimate that the total subsidy by Government due to the private use of company owned motor vehicles has risen to £4 billion for 1993. By drawing on a 1993 figure published by Transport 2000 (9) which showed an overall deficit from company cars of £1.5 billion, we have deduced that the tax now paid by company car drivers is around £2.5 billion and have used that figure in Table 1.

Total subsidy to company car drivers, excluding personal income tax payments £4,000 million

 

5. BUSINESS MILEAGE ALLOWANCE.

Many businesses and the government pay their employees a mileage allowance for using their own (the employees') cars for company business. These allowance are typically 30p to 70p a mile for cars that cost the owners about 10p to 20p a mile for each additional mile travelled. Although some motorists will have to pay a higher insurance rate to use their car on business, because of the difference between the allowance paid and the actual cost for each additional mile, they will earn an extra 10p to 60p tax free for every mile travelled. This represents a subsidy towards their car use. If the value of that subsidy had been given to those employees as higher earnings, it would be subject to income tax and national insurance.

 

When the employer is the Government, local authority or public service, the whole of the car drivers profit is a subsidy from public funds. We have no substantial information upon which to base our estimate, but consider this to be very small compared with the subsidies to drivers provided with cars by their employers. Our estimate is:

Total business mileage subsidy £300 million

 

6. CONGESTION

It has been argued by the Confederation of British Industry that road traffic congestion imposes a heavy cost on industry. One interpretation of the cost of congestion is that it is a cost borne by road users as an alternative to paying for a larger, less congested infrastructure. Or an alternative to paying higher user charges to reduce demand at busy times? Most road congestion costs are borne by the road users themselves, but the effects of a congested road network will also be felt by a proportion of non-users such as people awaiting the arrival of other people or of urgent goods delayed unreasonably by congestion.

 

'The Real Costs of Motoring' (13) quotes an annual cost of road traffic congestion at £17.5 billion based on the work of David Newbery. The congestion cost that motorised road users impose on others is unlikely to be less than 5% of the total or more than 25% so we can estimate;

Total external costs of road congestion = 15% x £17.5 b   £2,625 million

 

7. ACCIDENTS & BREAKDOWNS

In this section we have attempted to calculate the realistic costs of road accidents and breakdowns. Within these boundaries, we have included the full costs of car insurance and road rescue services because we have no information to separate the costs Which relate directly to accidents. But whilst it could be argued that a breakdown is an accident in which no one gets hurt but still creates costs, it would be logical to include the insurance costs relating to car crime in section 8 rather than this section.

 

The external costs of accidents are not easily estimated. In 'The True Costs of Road Transport' (10) , the authors have made a detailed attempt to put a value on the external costs of accidents. Readers studying this paper should note that their final figures are marginal accident costs of additional journeys (which show a lower cost per mile than the full costs

averaged out), but the figures shown here are the total costs. The figures we have derived from (10) relate to a 'willingness to pay' estimate of £2,000,000 for a fatal accident, rather than £715,000 used by the Department of Transport. This value coincides with figures that one of the authors remembers from a railway trade publication, which showed that

accident reduction policies carried out on the railway saved one life for about every £2 million spent.  Many accident costs are covered by payments from insurance companies. We have estimated £6 billion income from motor insurance policyholders and we estimate that half this income is required to pay for administration (e.g. staff salaries). £3 billion covers those costs of accidents already included in the costs taken from reference (10) and £3 billion covers the administration of insurance companies. The total costs of accidents and breakdowns is shown in Table 5:

 

TABLE 5

Accident costs to unprotected road users                    4,521 (10)

Accident costs to protected road users                        8,903 (10)

Insurance administration costs                                        3,000

Road Rescue costs                                                            1,OOO (6)

Total costs of road accidents and breakdowns        £17,424 million

8. POLICE AND COURT COSTS

All forms of business activity attract crime, but motor transport attracts more than its fair share. These include car thefts, thefts of items from cars, parking offences, traffic offences. The crime is a result of the use of motor cars. These crimes place a heavy financial burden on the police, courts and prison and probation service. Competing forms of transport (rail

and bus) do not place the same burden on the taxpayer. If car use was reduced in favour of rail or bus these costs would be reduced.

Transport 2000 has estimated that police costs directly related to road traffic at £400 million (9). However much more police time is taken up with road transport related work including vehicle crimes and traffic offences and related administration. We estimate that a quarter of the total police time is spent on road transport matters, at a total cost of one quarter of an estimated police budget of around £8 billion. A further cost arises from the courts trying motor crime and traffic offences, quoted as 'too expensive to find out' in a House of Commons reply (11). We have estimated this cost to be £1 billion. Table 6 below shows the total police and court costs arising from road transport use:

 

TABLE 6

Police costs quoted by Transport 2000                        400        (9)

Other Police road transport costs (estimate)               1,600

Court Costs of motor crimes & traffic offences (est)    1,000    (11)

Total Police and Court costs                                        £3,000 million

 

 

9. ENVIRONMENTAL COSTS

"The principle of transport users covering their full costs, including environmental costs, is vital to sound transport policies to ensure that all costs and benefits are taken into account at the level of businesses or individuals . . ."

Transport; The Way Forward. 8.19

 

a). The Greenhouse Effect.

The Greenhouse Effect (global warming) will cause melting of polar ice and rising sea levels, with increasingly extreme weather conditions. The long term result is flooding of low lying countries and areas. The main gas contributing to the greenhouse effect is carbon dioxide, produced by burning fossils fuels such as petroleum and diesel oil. Nearly one fifth

of the carbon dioxide produced in the UK each year is produced by transport with almost all (96%) coming from road transport. To combat the greenhouse effect a cut in total world carbon dioxide emissions of about 70% is needed. This works out at a cut of 85% in Western European countries such as Britain. The Greenhouse Effect cannot be tackled without a major shift from cars to public transport. A possible indicator of global warming in January 1996 is that five out of nine ice sheets have disintegrated in the last five decades.

 

Blueprint 5 (ref. 10) has given an estimate of the cost of Global warming:

Global Emission Economic Damage £112 million

 

Readers should be aware that this is a marginal cost only, so arguments can be put forward for a much higher figure.

 

b). Air Pollution

Blueprint 5 'The True Costs of Road Transport' (ref. 10, pp 76-77) provides a very thorough analysis of the costs of air pollution, classified by type of motor fuel and main classes of vehicles, shown in Table 7;

TABLE 7

Pollution from Diesel HGVs and LGVs                9,255

Pollution from Diesel Buses and Coaches          1.659

Pollution from Diesel Cars                                     840

Pollution from Petrol                                              6,375

Pollution from Unleaded Petrol                            1,569

Total costs of Pollution from Motor Vehicles        £19,725 million

 

Note that the estimated errors for these figures are given as a 'low' estimate of £10.6 billion and a 'high' estimate of £32 billion.  These pollution costs exceed previous estimates by a considerable margin. They will therefore provide considerable financial incentives to industry to reduce the harmful pollutants from diesel fuel, and should play an important part in decisions regarding the balance between diesel and electric traction on rail.  The estimated cost of pollution from diesel, 84 pence on every litre sold, is so high that its accuracy is bound to be challenged by those with an interest in promoting diesel fuel and diesel powered vehicles.  We should be not assume that the pollution costs of unleaded petrol are necessarily much lower than those for leaded petrol as unleaded petrol may release other pollutants which have yet to be identified.

c). Noise Pollution

Various researchers have attempted to calculate the cost of noise pollution from motor vehicles based on the money people are prepared to pay to move to quieter locations, or on grant payments made for double glazing. From reference (10) the costs of noise by vehicle type are shown in Table 8;

 

TABLE 8   

Noise from Cars                                                2,430

Noise from Buses                                                60

Noise from Motorcycles                                    50

Noise from HGVs                                                550

 

Total Noise from Motor Transport            £3.090 million

 

(d) Other Forms of Pollution

Other forms of pollution are also caused by road transport. Water pollution arises from salting roads, from spillage of dangerous goods and from fuel leaks. Pollution is also created in petrol production.  No figures are available for the UK. An estimate of the cost of water pollution from lorries in Germany has been made by Whitelegg (reference 12) as 6600DM million, approximately £2 billion. As traffic volumes are about 20% higher than in the UK (20% more vehicle-km in 1992) this suggests that UK costs from water pollution are about £1,6000 million.

 

In the same study dated 1989, total noise costs from cars and lorries were estimated at £15 billion. Accident costs were calculated at just over £10 billion. More detailed costings in the UK may well reveal much higher environmental costs.

 

Table 9 below summarises the environmental costs for road transport :

 

TABLE 9

Global Emission Economic Damage ( 10)                             £112 million

Pollution (exc water pollution) from Motor Vehicles (10) £19,725 million

Total Noise costs of Motor Transport                                 £3,090 million

Water Pollution                                                                         £1,600 million

Total Environmental Costs of Road Transport                £24,527 million

 

10. HEALTH COSTS

Considerable health costs are incurred through car use. These include health problems due to high blood pressure (stress of driving) , heart problems due to lack of exercise, and respiratory diseases such as asthma Which are affected by pollution. Some of these costs are included in the costs arising from pollution in section 9b.  The physical fitness of children is hindered by their being taken to school by car because of increased dangers from traffic. No satisfactory means of costing this effect has yet been proposed.

 

In Table 10 below we list all the calculated costs for road transport, together with the fuel tax increases necessary to cover those costs as Road Access Charges. We also include two further categories of cost for completeness for which further research is required. We have based the fuel tax calculations on 1993 traffic levels, starting from the current £14

billion paid in fuel being equivalent to roughly 40p per litre.

TABLE 10

                                                                                                £bn                    £/litre

Government expenditure on roads                                        5.016                0.14

Annual return of the Asset Value of Roads @ 8%            32.426             0.93

True Cost of Car Parking                                                        6.700                0.19

Company car tax & NI shortfall                                             4.000                0.11

Total business mileage subsidy                                            0.300                0.01

External costs or road congestion                                        2.625                0.07

Total costs of road accidents and breakdowns                  17.424              0.50

Total Police and Court costs                                                    3.000             0.09

Total Environmental Costs of Road Transport                    24.527            0.70

 

Health costs not included in environmental costs

Other costs needing further research

Total cost of road transport                                         96.018              2.74

 

Including the actual cost of the fuel, the total price which road users should pay to cover all Road Access Charges should be £2.94 a litre (including 2Op for the actual fuel) or £15-£16 per gallon. For a small/medium sized car averaging 38 miles per gallon, a true economic charge for fuel would put the cost of motoring at about 42p per mile compared with the present cost of around 7p per mile. Compared with typical rail fares of 10-25p per mile, this would show the true cost of making many journeys to be much cheaper by rail than by car even when two, three and sometimes four rail fares are paid. We emphasise, however, that the above calculation is based on the 1993 volume of traffic; if fuel were to cost £15-£16 per gallon the volume of traffic would drop. More people would travel by train and train fares could be cut. A new equilibrium would exist at which fuel may have to cost more for the smaller number of road users to meet their costs, though some reductions of road costs would result from lower traffic levels.

 

Total Cost of Road Transport

Section 6 shows that rail users are paying 69% of their costs (excluding environmental costs) so rail subsidies could be fully eliminated if road users paid they full costs.

 

References

( 8) Work carried by Dr John Whitelegg published in CPRE document' Parking Mad'

(9) "Transport Trends and Transport Policies - Myths and Facts" Published by Transport 2000, Walkden House, 19 Melton Street, London NW1 2EJ.

(10) The True Costs of Road Transport. Earthscan Blueprint 5 by Maddison, Pearson, Johansson and others. ISBN 1-85383-268-5.

(11) This was quoted as 'too expensive to find out' in a House of Commons reply to a question from the late Robert Adley MP .

(12) . Transport for a sustainable future - the case for Europe. J.Whitelegg 1993.

(13). The Real Costs of Motoring published August 1966 by the Environmental Transport Association, 10 Church Street, Weybridge, Surrey KT13 8RS. Price £3.50.

This paper (13) deserves to be read if only for the brilliant answer to the road lobby's arguments for state funding of road building and its analysis of the how very limited are the external benefits of road building. These are on page 9.

 

5. AREAS FOR FURTHER RESEARCH

Considerable further research into the comparative costs of road and rail transport costs is needed.

 

1. Road Maintenance

The British Road Federation has recently identified 8000 miles of trunk roads that either already require urgent repair, or would do so within 12 months . Clearly the enormous sum presently allocated to road maintenance is already proving to be inadequate and, as the road network expands, the level of expenditure on maintenance will need to be drastically increased

in line with it. The annual costs of road maintenance are hence underestimated in this paper .

 

2. Fencing.

Railways are obligated to fence off their property, principally to protect would-be trespassers. By contrast, there is no obligation on road users to provide fencing and where roadside fencing exists, (e.g. to prevent farm animals gaining access to the road) i t will be paid for by the landowner .   This is in effect an additional subsidy to road transport.

 

3. Lighting

Very significant amounts of energy is consumed for road lighting which is set to increase. By far the largest proportion of this directly benefits motorised traffic and is known to reduce accidents. Costs of road related light pollution must include an appropriate allowance for the cost of road lighting.

 

4. Level Crossings

Although the Government pays a grant towards the costs of level crossings.  the operating costs are charged to the railway and passed on to rail users.   Road users pay nothing towards the cost even though there are usually more road users on many busy crossings. In today's transport economy the best solution might be to set up companies to operate level crossings on the railway. Crossing which did not cover their costs from charges to road users could be closed whilst those which created a large surplus could be replaced with bridges. 

 

5. Car Parking

Car parking is a legitimate commercial activity, rather than a public service. It should be costed as such. This would include the space for car parking being rated by local authorities at the same value as if the space was used for any other legitimate business (factory, shop, office etc) . The idea that 24 million car drivers can take their car where they want and expect free parking to be provided as a service is not acceptable.   In fact there is a good argument that space for car parking should be

charged higher rates than other commercial activity because of the extra costs involved in providing roads for the cars to reach the car park, and the associated environmental damage.

 

6. Out-of-Town Retail Developments

Out-of-town retail developments: are usually accompanied by enormous car parks with no restrictions for parking. This is because the 'Green Field' land upon which they are built is considered to have little value. They are also normally located near main or trunk roads and may even have exclusive access roads. The retailers at these sites do not pay business rates on the area occupied by their car parks even though such car parks exist solely for the commercial benefit of the store. The result is usually devastating to the existing local shopping centres where parking restrictions and charges apply. As public transport cannot easily serve new out-of-town developments, this must be regarded as an enormous subsidy both to those car owners who patronise them and to the developer. We have estimated the hidden subsidies from car parking in section 3. However another subsidy arises from the traffic generated. Over 90% of out-of-town shoppers arrive by car, compared to under 50% of people shopping in the centres of large cities. This generates extra volumes of car traffic.  At a lecture attended by one of the authors entitled 'Seeking a sustainable Surrey' held at Guildford University in 1995, it was stated that 16 out-of-town shopping centres generated a total of 145,000 car journeys a day. If we multiply this by the amount by which the total UK population exceeds that of Surrey and estimate that each trip averages 10 miles each way, and that road users only pay 21% of their costs at the point-of-use, we reckon that out-of-town shopping centres are subsidised byaround £2 billion a year! It could be argued that since the prime retail activity will have been shifted away from town centres, the new sites should be charged the highest rates especially with the lavish parking facilities provided there. Similar arguments also apply to the provision of commercial and industrial developments in out of town areas which employees and business visitors can only reach by car.

 

7. VAT

The tax benefits of company car users have already been identified, but most businesses owning company cars will be VAT registered and reclaim some of the V AT content of fuel, repairs and spares. This is a hidden subsidy to road users .

 

8. Insurance

The sums paid by road users usually falls short of the amount paid out by insurance companies to meet costs. Figures released by the Association of British Insurers show that the average shortfall for the five years from 1988 to 1992 was £626 million per year. This is a further subsidy to road users.

 

9. Policing

Present levels of road policing are inadequate. This is evident from the high proportion of road hauliers Who regularly infringe safety regulations regarding loading, manning and speed limits. This is estimated to be in excess of 30%. Coach companies also break the law on safety and speeding.  The cost of additional policing necessary to ensure road hauliers operate to the same safety standards as rail freight, and coach operators to the same safety standards as for rail passengers, should be considered.

 

10. Listed Buildings.

The railways have over 1000 listed structures and buildings which they are required to maintain even if no longer in use (some have passed on to road use) . By contrast road users are not required to contribute to maintenance of roadside listed buildings even though the buildings may suffer damage by vibration from heavy lorries.

 

11 Damage to public services.

Traffic vibration damage to gas and water mains and drainage systems is not charged to road users but to users of these services.

 

12 Bridges.

Railtrack are responsible for maintaining some 6600 road bridges with local authorities being responsible only for the road surface. This clearly is a subsidy which is paid to road users by rail customers.

 

6. PRE PRIVATISATION RAIL BALANCE SHEET

We now examine the balance sheet for rail transport. The figures shown below are for rail transport prior to privatisation taken from transport Statistics Great Britain 1994'.

 

"Point-of-use" payments for rail transport

                                                                    £ millions                % of total

Passenger Fares                                                1577

Passenger Season Tickets                                615

Parcels                                                                78

Freight                                                                565

Total "point-of-use" payments                       2835                     69

 

"Fixed" payments for rail transport

Passenger Season Tickets                            - (note 1)

PTA Contributions                                        103 (note 2)

Total "Fixed" user payments                        103                            3

 

Total Government Subsidy                      1150      (note 3)      28

 

 

1. A rail season ticket covers only one route and free journeys are limited solely to that route. It is really a bulk purchase at 'point-of-use". Travelcards should also be included in this column, no information is available, and the total is not estimated to be large.

2. Passenger Transport Authorities funding is a community decision to a pay a "fixed" cost on behalf of all users to meet the rail operator's costs.

3. The subsidy amount of 1993 of £850 million is more representative of the true position as the figure for 1994 includes the costs of the signalmen's strike and shadow privatisation operation.

The total post-privatisation subsidies to be paid to rail Train Operating Companies will be almost twice that which has been paid to BR. It could be argued that the post-privatisation figures should be used, but railways have operated within the subsidy figure used, and it will take many years to work out the true costs of the post privatisation railway.

Rail Track Costs

Any assessment of the cost of rail transport should include a return on the asset value of the rail network. However the historic nature of the track formations and the profitable development of surplus land for non-rail uses makes calculation very complex. In addition the failure of the government to charge road users adequately means that rail charges have to be lowered to meet subsidised competition on road. It is ironic that rail operational land may have a higher value as a supermarket (heavily subsidised because the car trips it generates - see section 5.6) than as a working railway deprived of its deserving income as a result of the heavy car use subsidies which this paper describes. Valuations of the rail network in the press prior to privatisation of Railtrack indicate a value of around £10 billion.  Comparison with our calculated value of the road network of £400 billion, and the fact that road carries about 15 times the amount of passengers and freight as rail indicates that rail carries 2~ times the traffic as road per pound spent on the infrastructure. We therefore think the figure of £10 billion to be reliable enough for this report and an 8% return on this is £800 million. We believe that some of the return on the asset value of the rail network may be included in railway accounts as interest payments to the Government, but detailed study of railway accounts is beyond the remit of this report. Taking this into account also the special additional costs in note 3 above, we think the figures we have given are a reliable picture of rail transport including a return on the track asset value. The possible level of error, which a more thorough study might reveal, is far to small to affect the overall results of this report.  

It also needs to be pointed out that it is solely because road transport does not pay its full costs in user charges, affecting the commercial prices which can be charged for passenger and freight, that Railtrack was sold into the private sector at a fraction of its real value.

Rai1 Environmental Costs

All studies show that pollution, land take and other external costs are much lower per passenger-km or per tonne-km for rail than road. As there is little data available for making reliable estimates of these costs, we have not attempted to calculate them.

7. CONCLUSIONS AND RECOMMENDATIONS

The purpose of this paper has been to lay the foundations for achieving an objective and accurate assessment of the true costs of road transport. While further research is needed into some costs, we have shown that road transport subsidies far exceed those to rail transport.

We present a summary of our findings in Table 11 :

TABLE 11.

Summary of Costs for Road and Rail

 

                                                                        ROAD                    RAIL

 

EXCLUDING ENVIRONMENTAL COSTS

Total costs                                              £71 billion                  £4.1 billion

 

Payments at "point-of use"                    £15 billion                £2.83 billion

 

% of those costs paid by users

at point -of-use                                    21%                    69%

 

Total payments by users

(point-of-use + fixed payments)             £28 billion                £2.93 billion

 

% of those costs paid by users

(point-of-use + fixed payments )                40%                        72%

 

Total subsidy to users                    £46 billion                £1.15 billion

INCLUDING ENVIRONMENTAL COSTS

Environmental costs                        £24 billion                not known

Total costs                                    £96 billion                not known

Total subsidy to users                    £68 billion                  not known

Subsidies to road transport far exceed the subsidy to rail. Excluding environmental costs, road transport enjoys about 40 times the subsidy paid to rail but carries only about 15 times the quantity of passenger and freight.   This massive imbalance in the subsidies creates a serious distortion in the market, resulting in reduced transport efficiency, higher total transport

costs and traffic congestion. It also causes inappropriate investment decisions in favour of roads building instead of expanding the railway system. It is clear that the present system of raising funds for Government from road users from fixed charges is inadequate and inefficient. It encourages increased use of the road system as road users who have paid the initial outlay for the vehicle licence and motor insurance will wish to get the most value for their money. The present system is highly vulnerable to abuse from the growing number of vehicle owners who have not registered their vehicle on change of

ownership. Such vehicles are often uninsured and the authors strongly recommend that a compulsory third party insurance is included in the tax element of the price of fuel to protect other road users.  This report has identified enormous hidden benefits unfairly enjoyed by the road users at the expense of others; in some cases these benefits are even paid for by rail users. The full environmental costs of road transport may not be known for many years, but it is abundantly clear that unrestrained use of motor vehicles is not sustainable.   There is an urgent need to increase the awareness by road users of the true costs of their activities. This can only be achieved by a major shift away from the present system to one in Which road users pay their full costs through point-of-use Road Access Charges paid to a road charging agency 'Road track' which would raise funds from road users as Railtrack does from rail operators. There are many serious social consequences from the failure to charge road users the full costs of providing roads for motor vehicles including;

 

1. Loss of the competitive advantage offered by rail.

2. Loss of environmental benefits of rail due to passengers and freight transferring to road.

3. Loss of rail services.

4. Decrease in walking and cycling.

5. Increased disadvantage to people without access to a car.

6. Loss of local shops and services .

7. Loss of the competitive position of city centre and local shops.

8. Increased pollution of towns and cities .

9. Increased noise.

10. Increased NHS costs due to the treatment of road accident victims.

11. Loss of open spaces for leisure.

12. Damage to health through lack of physical exercise .

13. Increased crime.

 

Recommendations for the future:

Changes are needed and in preparing this report the authors have identified many areas where change is needed. Such recommendations, which are not necessarily the official views of the Railway Development Society, are detailed below:

 

1. The British Government urgently needs to accept the proof included in this report that motor vehicles users are very heavily subsidised. The 1996 Green Paper is very disappointing in this respect-. 

a) . The Green Paper suggests that public transport receives 'hidden subsidies' whilst ignoring the hidden subsidies to road transport. 

 

b). The Green Paper repeats, without detailed audit, the argument that road users pay their full costs. This paper shows that to be totally wrong . 

 

c) . The Green Paper considers the difference in analyses of road transport costs as being simply different sides to an argument with opposing views. We consider that the analyses put forward by environmental groups which show higher total costs for road transport are more rigorous in their approach and more reliable. However no one has yet shown all the relevant costs of road transport and all previously published road cost calculations significantly err on the low side.

 

2. Government statistics on transport should include a true balance sheet for road transport based on the costs identified in this report and updated each year based on that year's figures.

 

3. The arrangement by which motor fuel duty is increased by 5% over the rate of inflation at each Chancellor's budget is a welcome small step in the right direction. However, fuel tax should be increased steeply over a relatively short transition period (perhaps 3-5 years) so that road users pay their full costs. Alongside this, public transport should be provided to meet present needs and then expanded as demand increases.

 

4. There is an urgent need for an effective means of charging motor vehicle users Road Access Charges for road use. The Government should set up an agency to manage and finance the road network. Whilst the total scale of the network might prevent this being managed by a private company, the roads agency "Road track" should balance its books the same way that Rail track does. There will need to be a transparency in account presentation which shows that road and rail are managed on a level playing field.

 

5. The "roads programme" for expanding the road network without any relationship to market forces has more in common with a communist state planned economy than the market economy of the UK. Expansion of the road network should cease until road users cover their full costs, and expenditure on roads other than maintenance should be limited solely to cost-effective ways of reducing accidents, and hence accident costs .

 

6. Further research is needed into the costs related to providing roads for motor vehicles in the topic areas discussed in section 5.

 

7. Until road users can be shown to pay their full costs, special arrangements should be made to enable rail businesses to win passenger and freight Which they now lose through the distortions in the market caused by inadequate road charging. A price of £16 per gallon charged as a point-of-use road access charge through the pumps may seem difficult to imagine. It may seem extremely difficult to achieve politically given the whingeing of road lobby groups towards paying for using the roads. But this is the unavoidable, if unpleasant, conclusion to this survey of road costs, the most comprehensive undertaken to date. If rail users are expected to pay their full costs through fares there should be no reason why road users should be excluded from paying their true costs. 

 

Road freight transport needs a clear charging system to ensure fair competition with rail. Because freight on both road and rail shares track with more extensive passenger transport some arbitrary charging decisions will have to be taken. The concept of a roads charging agency 'Road track' , capable of making decisions consistent with those on rail has a great deal to commend it, though some Government regulation may still be required to ensure fair play. The raising of road use costs to freight may be argued as inflationary, but research has shown any real increase in the price of goods from higher movement costs in distribution to be minimal, whilst there will be real savings in reduced congestion and more efficient lorry use.

 

NORMAN BRADBURY

PETER HAYMAN

GRAHAM NALTY

September 1996

 

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