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Pay-as-you-drive in Scotland

Written by | Posted on 09.12.2013
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The think-tank Reform Scotland has just produced a paper arguing that the country should consider an alteration to current motoring taxes. Its first proposal is that responsibility for Vehicle Excise Duty (VED) and fuel duty should be devolved from Westminster to the Scottish government. Its second proposal is that the government at Holyrood should then abolish them.

This suggestion is nothing if not radical. And the report’s authors, urging the government to conduct a feasibility study, concede that the finances of their proposed alternative – to make all motoring “pay-as-you-drive” (PAYD) – require further investigation. But the theoretical case they advance is one which might prove fairly attractive.

Though opinion polls suggest that road-pricing is generally unpopular, there is also some indication that it attracts more support than the current arrangements, where it is presented as an alternative, rather than an additional cost. Opposition in Scotland to the most recent attempt to introduce such a scheme – a congestion charge in Edinburgh – was unpopular, the report argues, because it was effectively an extra tax.

What’s more, it points out that similar schemes, notably the London congestion charge, have become popular after their introduction, though they met with strong opposition when first suggested. And, according to an EU report published in 2011, opinion in the UK as a whole is fairly evenly divided on the question: 42% were in favour, and 40% against, though there were more “strongly” against than strongly in favour.

Their main argument, however, is that the current taxation model attempts to meet separate, and fundamentally incompatible, objectives. Part of the rationale of the existing tax set-up is that it is designed to reduce carbon emissions, while it also serves as a major source of revenue for the Exchequer.

The report points out that while emissions in every other sector have been reduced, transport had a 7% rise between 1990 and 2008, and now makes up 22% of all emissions. Meanwhile, despite a 13% rise in vehicle licensing, the amount raised from VED and fuel duty has actually fallen as a percentage of total revenue in Scotland. Nor has congestion been reduced.

For Scotland, where much of the population is concentrated in the Central Belt, and rural communities have much higher fuel costs and can be very remote, the issue of congestion is an obvious point in favour of PAYD. It allows road pricing to be set at a level which reflects actual use, and the costs connected with congestion, policing, and emissions (all much greater with urban traffic) rather than merely the number of miles travelled.

As things stand, while roads policy is devolved to Holyrood, fuel duty and VED are collected by the Treasury, so any PAYD scheme could only be an additional cost. The report points out that the Office for Budget Responsibility already expects revenue from fuel duty to fall across the UK, as more energy-efficient vehicles take a greater share of the market. It argues, however, that this could provide an opportunity for Scotland to meet its ambitious emissions targets, and help those in rural areas pay less. As the authors point out, if motoring charges manage to meet their stated objective of improving traffic flow, reducing emissions, and encouraging other changes in driver behaviour, then revenue is supposed to fall.

At the moment, VED and fuel duty are blunt instruments which only reflect the initial efficiency of the car and the amount of fuel used, but have nothing to do with how the vehicle is used, or the costs associated with, for example, urban car journeys where public transport is readily available as an alternative. On the other hand, the start-up costs for PAYD across the UK as a whole were estimated (in 2004) at well over £60 billion, with running costs of £5.5 billion a year. It may be, however, that new telematics systems, in particular the Galileo satellite technology, could make considerable savings on those estimates.

Whether the UK government would be prepared to devolve these powers or not (or whether, of course, an independent Scotland might choose to adopt such plans, if there is a ‘Yes’ vote in next year’s referendum) may not be the biggest obstacle, though. According to Transport Scotland, 67% of all those over 16 and employed travelled to work by car or van, even though 50% of them had ready access to public transport; while 42% of Scots with a driving licence drive every single day. A nation that keen on their cars may take a bit of persuading that they would be better off paying by the mile.


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