Taxation of Road Goods Vehicles – An Economic Assessment

This paper reviews the current position, recent research and potential future areas of research relating to road track costs, with particular reference to Heavy Goods Vehicles. It opens with a theoretical discussion, which concludes that the appropriate basis for changing is long run marginal social cost, but casts some doubt on whether the existing cost allocation procedure achieves this. The main reason for this is the likelihood that the marginal capital cost per unit of traffic of coping with an increase in traffic volumes greatly exceeds the average capital cost per unit of traffic at the present time.

The DTp method of allocating track costs is then outlined, and the sensitivity of the results to variations in a number of the key assumptions is tested.

The results show that the DTp method may only be allocating HGVfs as little as half of their costs. Hence instead of covering their allocated costs by some 30% to allow for environmental effects, as the DTp. claim, it may be that these lorries are only meeting 65% of their allocated cost.

The sensitivity tests that yield the above results reflect the following concerns:

(1) FUEL CONSUMPTION

DTp measures lorry mileage and deduces fuel used and hence fuel tax paid. However, their fuel consumption figures look implausibly high. We have used FTA figures instead.

(2) TRAFFIC FLOW

DTp currently allocate many costs to vehicle kilometres (e.g. drainage, winter maintenance, traffic signs etc.), but accepts that the demand for a new road arises in proportion to PCUs (passenger car units), i.e. giving more weight to lorries. Our view is that once a road is opened any general costs involved in its continued use should also be allocated by PCUs.

(3) LORRY WEIGHTS

DTp use lorry weights as reported on a self completion questionnaire, which naturally omit any overloading. We have used observed values from a large study in Cheshire.

(4) CAPITAL EXPENDITURE

DTp charge only what is currently being spent. Following cutbacks in all government expenditure, this amount is now some 50% lower than in the early 1970s. Since capital expenditure was roughly 60% of total road expenditure, this implies that cost allocations have fallen by 30% on this account. Our view is that even this understates the true long run marginal cost of road traffic.

Although the precise figures are subject to much doubt, in every case there seems good reason to suppose that the proposition is broadly correct. Taken cumulatively, they would be sufficient to convert the existing overpayment by HGVs (which presumably is intended to reflect unquantified environmental costs) into a substantial underpayment. If the increase in road haulage taxation which these figures would imply is politically unacceptable, then there is a good case for corresponding action to relieve the rail and water modes of part of their infrastructure costs.