Treasury takes the “user pays” route

In this week's spending review the DfT copped the biggest percentage cut in non-capital (resource) expenditure (-37%), but became the biggest department for capital spending (its programme doubling from £6.1bn today to £12.4bn in 2020/21). In Treasury terms, this is a model outcome – even though DfT's resource expenditure is trivial alongside the big spending areas of health and education.

What this tells us is that the idea of using scarce taxpayer funds to provide transport services is unpopular with the Government: it would rather provide the infrastructure needed to support a growing economy. Implicit in this proposition is a high degree of "user pays": if you want a transport service, you must pay its costs at the time of use.
So a key question is whether, across the transport modes, pricing and other measures are moving us closer or further from a position where users pay at the right level (at long run marginal costs, as far as economists would have it).

As I pointed out in October, leaving aside the need for capital works for capacity building, the rail network is close to achieving break-even. Indeed, for some franchises, where the operating companies pay premiums to the Government rather than gain subsidies, rail users are in effect being taxed to travel (even after allowing for Network Grant).

The motoring lobby may well feel this is all long overdue, since the tax take from car users has been historically much higher than direct spending on roads. But this would be to overlook the substantial external costs that car use throws at the health and other sectors. The best view is probably that after such factors are taken into account, car users are getting a reasonable deal from the Exchequer. And that deal has certainly got a lot better during the tenure of the last government (2010-2015), when fuel duty rises were repeatedly cancelled.

Across the country, levels of support for bus services are set to be reduced, based on plans set pre-budget. The Buses Bill, when it comes, may be applicable to a recently departed travel mode across much of rural England – and a cut back and pricier facility in metropolitan areas.

Reference: Transport Times, December 2015 Issue

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