Phil Taylor: The Congestion Charge has all been wasted

Today is the fourth anniversary of the start of the London Mayor's Congestion Charging scheme. It seems like a good opportunity to review the performance of this scheme, especially from a financial point of view, after four full years of actual operation. Yesterday also saw Peter Roberts’ petition against a national road pricing scheme on the No 10 e-petitions site go past the 1.5 million mark so it might also be timely to ask what lessons for national road pricing you could draw from the London scheme.

Benefits of the scheme

First of all let us be clear about the benefits of the scheme. As Transport for London's Fourth Annual Monitoring Report states:

"The principal objective of congestion charging is to reduce traffic congestion in and around the charging zone, mainly by reducing the amount of traffic moving to, from and through the charging zone."

So what is the impact of the scheme on congestion? The two graphs below are reproduced from this document. Figure 3.1 shows that congestion, measured in terms of excess delay, fell 30% over pre-charging levels in 2003 but had crept back up to a 22% fall by 2005. This week the Mayor has admitted that the fall in traffic entering the zone is only 20%. This 30% fall in congestion within the zone only, which has since been significantly eroded by TfL's mania for slowing Londoners down with traffic lights and road narrowing schemes, is the only benefit of the scheme the Mayor can realistically claim. He has recently been trying to link the scheme with carbon mitigation in the light of the manifest financial failure of the scheme but this argument is unsustainable.

If you look at the donut of roads between the inner ring road which defines the outer boundary of the scheme and the North and South Circular roads you can see that in large part the Congestion Charge has moved traffic from the zone to outside the zone. Confusingly this part of London is referred to as Inner London in the report, see Figure 3.5.

The Congestion Charge has temporarily reduced central London congestion at the expense of outer London which has seen traffic increases. You might charitably judge the scheme to be carbon neutral if you ignored all the cameras, IT and streetworks that have been created to implement the scheme.

Costs of the Scheme

Whilst the Mayor is keen to promote the modest changes he has wrought to traffic patterns in London he is quite startlingly disingenuous about the financial side of the picture. Take for instance his claim in the Fourth Annual Report that "The scheme generated net revenues of £122 million in 2005/6" a claim he repeated at Mayor's Question Time on 15th November 2006: "The income from the congestion charge is I think about £120 million". The Mayor has to make three leaps to get to this figure.

Firstly, he has to ignore the scheme's capital costs. In a letter to me from Kevin Austin (the Mayor's Head of Transport, ie chief transport spinner) dated 9th February these were confirmed as £161.7 million for the initial scheme and £103 million for the Western Extension. Secondly, he has to ignore Transport for London's fixed overheads. These alone bring the surplus down from £122 million to £106 million as published in TfL's Annual Report. Government auditors insist that these fixed overheads are included in any estimation of the scheme's surplus in order to give a true picture. Thirdly, the Mayor has to ignore the fact that last year's figure was a massive improvement over previous years.

It is instructive to produce a rough cash flow of the whole scheme. The spreadsheet below shows how the scheme has taken more than £900 million off Londoners in four years and returned a net surplus of just £25 million. In the meantime the £900 million has simply been spent on set up and running costs.

My estimates for this year, Austin refused to provide this information in spite of being specifically requested to divulge it, are based on the fact that TfL will lose £10-12 million this year from customers avoiding fines and using pay next day, they assume a slight fall in revenue due to current west London CC payers joining the zone offset by the first full year of the £8 charge.

If you have any doubt about my analysis just read the Mayor's answer to Andrew Pelling's question no. 2661/2006.

Andrew Pelling:

"How many years do you predict it will take for both the original area and the western extension to pay for the set-up and subsequent administration costs? How long before the expense invested by Londoners is repaid by income?"

Ken Livingstone:

"It is important to note that the income from Congestion Charging may only be used to offset operating costs. The costs of set up have to be borne from TfL funding. However if we were to take all costs, including set up and operating costs, for the Central Congestion Charging Scheme, income exceeded expenditure by March 2005. Using the same approach, the net revenue will exceed the set-up costs for the Western Extension by the time of go-live on 19th February 2007.The net revenues, allowing for the cost of operation, must be spent on activities that support my Transport Strategy. This includes new buses, cycling, walking, road safety and other initiatives."

In case you don’t understand Livingstone’s answer, which is not written to promote clarity, let me explain. The London CC has been running since February 17th 2003. By 19th February 2007, when the Western Extension goes live, in the Mayor's own words, the scheme will have been operating for four whole years and will have spent pretty much every penny it ever raised in set up and running costs.  The last sentence above is bolted on to confuse you.  Don't fall for it.  There have been no substantial net revenues.

Wider lessons

Although it may make sense to charge for road space in theory it is clear from the London Congestion Charge that without very tight cost control the combination of state bureaucracy and IT complexity will lead to a similar financial disaster, only on a much larger scale potentially. Road pricing is only ever likely to be acceptable if charges can be used to substantially improve public transport, to substantially reduce the cost of public transport or to substantially reduce some other tax.

The London experience is that pretty much all of the income has been squandered in out of control set up and running costs. Public transport improvements in London are not being driven by Congestion Charge income, because there is none.

Whilst the Mayor kids us that £122 million per annum has been invested in public transport this is an accounting trick that ignores the financial reality. Fares are increasing well-above the rate of inflation. Even if the Mayor wanted to mitigate his massive precept, which is going up 5.3% this year, he cannot because all the cash has gone.

Anyone advocating national road pricing needs to ensure that costs can be controlled and that it would not be economically more efficient to manage congestion as we do now - if you want to spend time in a jam then fine otherwise travel off peak. They also need to explain why extending fuel duty would not work at least as well.

Comments

[Arthurian Legend]

Thank you for that informative analysis, Phil.

It amazes me that the whole sceheme has cost nearly £900 million over the past four years or so.

It would be interesting if someone could pin-point which particular costs have been unnecessarily high, and why that was.

Are there ways in which the capital and/or running costs can be reduced in future, e.g. through better management, more competitive tendering, etc?

On the national road pricing system, don't forget that that is motivated by the need to generate cash to operate the EU's Galileo dual civilian-military satellite system. The one in which China has a 20% stake....The one that the US Department of Defence has said it will have to disable or destroy if used by China against Taiwan or US forces in South-East Asia...

[Rachel Joyce]

What an excellent and interesting analysis. Should have been in the 18doughtystreet advert - needs to be properly publicised. I'm in favour of some kind of green taxes, but this clearly doesn't work, and the fare rises just put the final nail in the coffin of effectiveness.
How depressing for Londoners!

[Huntarian]

This analysis just goes to prove that if you have the time, knowledge and patience you can demolish Labour's ( and Red Ken’s) spin and prove conclusively that all these massive government IT projects are a complete waste of money and only serve to line the pockets Labour's friends in the IT industry. Just how much of this London CC budget has found its way into the pockets of Labour’s favourite transport consultant Capita? Certainly enough for their former chairman (?) to donate the odd million to Labour I would guess.

[London Salmon]

TfL has a £78 million marketing/communications budget to ram their propaganda about how wonderful the c-charge is down Londoner's throats- no wonder people think it has worked! This excellent analysis, however, paints a different and more accurate picture.

If only the London media bothered to do a tenth of the research Phil has done, then the Mayor would not be sitting so comfortably. The western extension, due on Monday, will spread the failure further, and this time I do not think London voters will be so forgiving.

But then again, did you know that 20% of Londoners get their information about the Mayor from his propaganda sheet, the Londoner? That's more than the Evening Standard! (see my post about the Annual London Survey).

[Denis Cooper]

Arthurian Legend, did you see the very interesting letter about Galileo and vehicle tracking in yesterday's Telegraph, from "Walter Blanchard, Former adviser to the EC on satellite navigation, Dorking, Surrey":

"Sir - GPS cannot ever be used to enforce anything in this country because it is an American-owned, -operated and -controlled military system.

America has repeatedly refused, rightly, to allow foreign participation, much less legally enforceable control. It advises civil users that it accepts no responsibility for its accuracy, availability or reliability, and it does not guarantee anything.

It is quite obvious that, if this does not change, it will be impossible to make British law around it. This is the main problem that led to the initiation of the European civil-controlled system Galileo. Road-pricing enforcement using a satnav system will have to wait until Galileo is in fully certified operation, which perhaps may not be until 2020 or later."

[Graeme Archer]

This is a great article. I had more or less swallowed the "it's irritating but wortwhile if it reduces congestion" line peddled by those in favour of the Charge. I should admit, too, that part of me finds it amusing to see west Londoners getting up in arms about the westward extension; I don't remember any of them marching down Shoreditch High Street to complain about the original zone. That's just the demented Marxist in me. They're quite right to complain, loudly, about this new tax on existence and Phil has shown us above that the tax is neither environmentally defensible (which just confirms what you can see with your eyes: congestion has not been reduced (the graphs in the TfL's document, reproduced above, are I bet deliberately misleading: always take care of official graphs that tell you the percentage of journeys which are delayed by longer than 30% -- a convoluted measure, you will agree, designed to mask the fact that the obvious metric to use - average traffic speed in central London - is presumably not helpful to Livingstone's argument)). Where was I. Oh yes. Phil has shown us that the tax is neither environmentally defensible nor fiscally sensible. So I hope that whoever becomes the Tory candidate will campaign in part to abolish this tax - Phil has convinced me it's not a "dead" issue.

[Arthurian Legend]

Interesting, Dennis. 2020 is still too soon for my liking, though...

[John Allen]

The Party has a clear policy to abolish ID cards - based on effectiveness, cost and liberty grounds. David Davis taking the initiative.
Exactly the same reasons apply to the congestion charging, so let's agree that the shadow Transport Secretary takes the same actions on Congestion Charging & road tolling anywhere in the UK.

Our policy should be:-
1. to scrap fixed cost taxes ( Special tax on purchaseing a car & Road tax) and increasing fuel tax to compensate.
2. facilitating 21st century transport that will compete with cars and buses by being cheaper and more envireonmentally friendly.

[Ian]

I am against congestion charging and still more against Ken's meddling.

However, your figures would seem to indicate that from 2007/8 onwards the scheme is likely to generate some £100m free cash p.a. That is over 60% return on capital investment p.a. after only 5 years operation.

I imagine many businesses would be quite happy to generate such a ROI, but maybe it's not too difficult with a monopoly and the force of law behind you.

What interests me now is what Ken will do with so much free cash to throw around.

[Phil Taylor]

Ian,

Don't worry about how Livingstone will spend his £100 million of free cash flow pa. He will never collect it. What new capital costs are in the pipeline? Don't forget all the kit is electronics. The original kit has been standing outside for 4-5 years. When do think it is going to get replaced? If you don't see new lumps of capital spending you will see increased maintenance costs.

Also don't forget that Londoners should get smarter about paying fines. Something like 30% of the income is fines. If fines income was to fall significantly the scheme would go into deficit.

[Comstock]

Couple of quick points from this Ken hating Labour supporter....

There were some figures released (rather overshadowed by the tragic Cutty Sark fire) that show a 25% drop in sales in the new West London zone.

Oxford Street will survive, because it is one of the worlds premier retail experiences- people won't go to Asda instead, they will either pay the charge, shop on the weekend or use public transport.

That simply isn't the case for more prosaic little shops in the western extension- so there might be some political mileage in abolishing that zone, or reducing its hours. The combined K&C,H&F and Battersea vote might be worth a bit.

Either way, the C charge needs to be part of a whole basket of policies.

[Comstock]

Looks like TFL have made a mess of at least one part of the extension- giving people penalty charges for using slip roads onto the Westway.

http://forum.rac.co.uk/showthread.php?t=752

This sort of incompetance could cost Ken votes, even amoung those who support CC.