London Congestion Charging

Cambridge 2000 memos

March 2002

The mayor of London, Ken Livingstone, has proposed charging for motor vehicles to enter central London starting on 17 February 2003 during the hours of 7 AM to 6.30 PM from Monday to Friday.

The purpose of the charge, 5 pounds per day, is to reduce congestion. Unfortunately the mayor's own business model shows that this particular tax is extremely inefficient to collect. Around 48% of the revenue from this tax is lost in the cost of collecting it (details at bottom). The mayor and the bureaucrats in Transport for London do not care, it's not their money being wasted (tens of millions of pounds per year).

Central government currently charges around three times the real cost of petrol (gasoline) in tax. The big advantage of the petrol tax is that it is cheap to collect and is directly proportional to usage. London's proposed congestion tax is expensive to collect and is not proportional to usage (once you pay the tax on a given day you can drive through the area as much as you want).

The London government is pretending that this 5 pounds is only a "charge", not a "tax". The difference between a charge and a tax is that the former is to help pay for a service you are using, the latter to pay for someone else's service. This "charge" is clearly a tax (the money collected is being spent on public transport, not on roads).

The proposed scheme is novel in that it is blaming the victim of congestion for congestion. The NHS is well known to have a problem with capacity. Imagine the outcry if patients were charged money to be given care so that there would be less demand ("congestion") in the health service, or if the government started blaming patients for being on waiting lists.

Transport planners always claim that since poor people do not own cars, attacks on car ownership (including usage) are really attacks on the rich. This is completely wrong. It is only the extremely poor who cannot afford cars today. If you believe in car ownership for all you try to lower the barrier to ownership, if you believe in car ownership only for the rich you try to raise the barrier to ownership. Congestion taxes will raise the cost of ownership and so it will be the relatively poor, not the relatively rich, who will suffer.

Indeed under the proposed scheme taxis are exempt from the charge. Needless to say taxis are transport for the rich, pure and simple. Bankers, lawyers and management consultants everywhere salute Ken Livingstone.

If congestion, as the mayor suggests, is the real enemy then not only taxis but also buses should be subject to the charge, since they create congestion. Indeed, taking this idea to its logical conclusion, pedestrians and cyclists should also pay a congestion charge since they impede the flow of traffic.

Almost worst of all, this proposal is yet another insidious way for government to keep track of the movements of people. Welcome to Control Freak Britain.

Will the Labour government do anything to stop this? Unlikely. If the proposal is deemed to have "succeeded" (and bureaucrats never admit to anything else) then Labour can claim part credit in that they put the laws in place which allowed the congestion charging in the first place. If the proposal is such a disaster that it has to be withdrawn in a year or two (unlikely, the British put up with anything) then Labour can blame it all on their enemy Ken Livingstone.

Note: for more information see the following government of London documents (links correct at time memo was written):

The numbers inevitably change over time but when this memo was written the revenue and cost by year was stated to be:

NPV 2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13
m m m m m m m m m m m m m m
Costs 718.1 5.2 60.0 106.7 124.6 86.9 82.4 81.7 81.7 78.9 78.9 78.9 78.9 65.5
Revenues 1499.2 0.0 0.0 26.2 227.3 227.3 227.3 227.3 227.3 227.3 227.3 227.3 227.3 201.1

The NPV column assumes a discount factor of 6%. The costs include annual running, start-up and contingency costs. The revenues exclude penalty charges. 718.1/1499.2 = 48%. Even at the end of the period considered the ratio is around 33% per year.

Cambridge 2000 memos