Road privatisation promises 'enormous gains' for UK
by Richard Wellings
Privatisation is the right policy for Britain's congested roads – but David Cameron's plans do not go far enough and leave little scope for entrepreneurship and innovation, writes transport expert
Among the world's major economies, Britain has by far the most congested roads. It is estimated that the delays cost the economy around £20bn per year. The United Kingdom's motorway network is also much smaller than those of comparable countries. A variety of measures provide strong evidence that poor road infrastructure puts UK businesses at a significant competitive disadvantage.
Successive governments have failed to deliver an efficient network. Politics has always taken priority over economics. Vast sums have been squandered on wasteful schemes promoted by special interest groups or driven by an ideological bias in favour of public transport. It is therefore welcome that Prime Minister David Cameron sees a much larger role for the private sector in managing and improving the road network.
A truly privatised road network promises to be much more responsive to the demands of motorists. Profits would depend on toll revenues, which in turn would depend on satisfying customers. Road operators would have very strong incentives to provide safe, reliable and uncongested journeys. Investment in new capacity would reflect consumer demand rather than political ends.
But the most exciting aspect of privatisation is the scope for entrepreneurship and innovation. Enormous economic gains are possible here. The introduction of flexible pricing has the potential to rid trunk roads and motorways of peak-hours congestion while offering cheap rates for off-peak users. Massive time savings can be delivered by removing pointless traffic controls and by raising speed limits where it is safe to do so. On some routes it might be possible to increase the weight and speeds of lorries, delivering substantial cost savings in the distribution of goods.
But such benefits will only materialise if private operators have the freedom to make changes. Unfortunately the prime minister's proposals appear to offer them little flexibility. Motorways and trunk roads will be leased from the government. Ownership will not be transferred. They will also be subject to strict regulation based on the 'utility model' used in the privatisation of the water industry. Pricing will not be permitted, at least on existing infrastructure.
There will be little scope for entrepreneurship and innovation under the government's plans, and without these the main benefits of privatisation will be lost. Worse still, the participation of private firms is likely to be based on the kind of complex contractual arrangements that have raised costs both on the railways and in numerous public-private partnership schemes. If this proves to be the case there could be considerable political fallout. Motorists already pay very high rates of tax in the form of fuel duty and vehicle excise duty. Any additional expenses will be very unpopular.
The government therefore needs to think far more deeply about the fiscal framework for the transport sector. In reality, privatisation may only be politically viable if accompanied by reductions in motoring taxes. Looking further ahead, continuing high rates of fuel duty will undermine the economics of many new private roads by forcing motorists effectively to pay twice to use them. There is also a strong case for removing unfair competition by phasing out taxpayer subsidies to trains and buses. The savings could be used to fund further cuts to motoring taxes and move closer to a level playing field.
Unless the government tackles some of these fundamental issues, it will run the risk of increasing costs on the road network without delivering any significant benefits. When, in due course, the details of the policy are set out, there needs to be a clear explanation of how the proposed changes will deliver efficiency gains. In particular, the government must avoid repeating the mistakes made on the railways where over-regulation destroyed most of the gains from private involvement. This time, privatisation should actually mean privatisation. Politicians must not behave like back-seat drivers.
Dr Richard Wellings is deputy editorial director and director of the transport unit at the Institute of Economic Affairs think-tank in the United Kingdom