Wednesday, August 09, 2006

Missing the Point!

At the end of an account of proposals for tracking all vehicles on the roads of Britain and taxing the owners accordingly for the miles they drive, the routes they take and the time of day or night, Tony Hallet (editor ‘Road tax rage’, makes his point:

“But what might happen? If you are someone who will benefit greatly - maybe you travel infrequently, on rural roads, at off-peak hours - there will be someone else who has no choice but to hit busy rush hour roads, many times per week. The latter group will be the ones who protest loudly.

The fudge will then be to keep a tax on fuel, maybe even annual road taxes. That will all be costly, confusing - and risk not being 'revenue neutral'.

Wasn't one of Adam Smith's tenets about taxation that it's simple? On that count, levies on a litre of fuel are the simplest solution. Problem is, we already protest about the price of fuel. And another tenet of his was that taxation is also fair.

Ah, who'd be an economist? Or a road planner.”

Tony misses the point. The roads are congested and getting more so. Everybody is charged the same prices for petrol and diesel per litre and everybody pays the annual road tax of about £150, irrespective of when you drive and what part you pay in the congestion those driving with you at the same time or the same roads.

Now I know nothing of the technicalities of these latest proposals because I am in France and missed the story, but Tony’s points are not relevant to the fairness angle I think he pursues.
Who benefits? Well if more people adjust their driving behaviours to avoid the higher charges for using certain roads at certain times, then those who cannot adjust their journey times will gain because the other drivers who would be with them will not be. The drivers of less congested roads benefit (less traffic). So do those driving at other times (they pay less).

Those contributing to congestion pay the economic cost of their usage – a perfectly fair Smithian principle right out of Book V of Wealth of Nations. Those driving at other times on other roads pay something – its not free. That is also a perfectly fair Smithian principle.

Moreover, the discriminatory prices for when and where you drive gives you an incentive to search for ways to adjust your driving to other times (car sharing, etc.?). That, believe it or not is exactly what Smithian markets are good at – incentivising people to adjust their behaviour for efficiency.Ah! who’d be an editor? Or a non-economist?


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