Can road pricing replace fuel duty?

With the new government now in place, there is regular conversation in the media regarding the £22bn budget deficit and the steadily declining revenues from fuel duty. For 2022/23 the fuel duty generated £25bn of revenue, or around 2.5% of total revenues collected. According to figures from the Office for National Statistics, revenues from the fuel duty have declined £2.7bn per annum, or 10% compared to pre-Covid levels, and are forecast to decline further with the sharp uptake of electric vehicles (EVs).

Michael Whelan is CEO at the M6toll Company

One solution that is getting a lot of attention, again, is the concept of road user pricing, or a pay-per-mile scheme, and it seems to be firmly back on the agenda.

Road user pricing is not a new topic for the UK, with various schemes already in place, including the M6toll, Dartford Crossing and various congestion and clean air zone schemes. Declining fuel excise revenues is not just a UK issue, but common to other countries around the globe. Some have already made changes, for example New Zealand and Iceland are among them and there are specific solutions across the EU for trucks and various trials conducted throughout the world.

Certainly, something needs to be done in the UK, but can road pricing replace the fuel duty? Using the M6toll as a use case, I believe, helps to inform this discussion.

The M6toll, Midland Expressway or Birmingham Northern Relief Road, is the UK’s major example of a road pricing scheme that is 100% funded by its customers who pay to experience a well maintained, safe and reliable road. The M6toll is privately owned by pension fund investors Aleatica (owned by IFM global infrastructure operator and investor of pension funds) and GLIL (the infrastructure arm of some UK local authorities pension funds).

Although it was commissioned 20 years ago by the Department for Transport, the M6toll does not receive any government funding, only the toll revenues received from customers that are guaranteed to go directly to maintaining, upgrading, operating and repaying the original build cost. We’ve recently spent £20M upgrading our systems, implementing automatic numberplate recognition (ANPR) technology allowing us much more flexibility to vary charges according to distance travelled, significantly reducing the cost for local customers.

Our primary objective is to provide relief to motorists travelling through the West Midlands, and with up to 55,000 customers each day, and we’ve seen significant growth in HGV traffic, we are successfully meeting this objective.

Secondly, we must ensure that the road is well maintained and reliable. Our customers experience an exemplary motoring experience, consistent journey time reductions and a pothole free travel experience which drives loyalty and retention, and ensures we remain financially sustainable to be able to reinvest in our infrastructure and generate a return on investment to our shareholders, who inevitably return that to pension fund holders to boost their retirement savings.

A few key business fundamentals are critical for achieving our objectives and I think help to inform Government with their planning for a road pricing scheme.

A direct relationship between revenues collected and maintenance of the road.

For the M6toll, customers know that the tolls they pay are going directly to the road they are using. According to the House of Commons transport select committee report into road pricing from February 2022, only around 20% of the annual fuel duty get spent on roads. The rest is spent elsewhere on non-transport related expenditure.

Customer focussed.

We want to provide an exemplary experience for our customers and understand their needs. Marketing and a customer focussed mindset and articulating the benefits of the road will attract and retain customers.

We adjust our tolls to meet our objectives and to address customer needs and opportunities.

Our recent £20M investment to upgrade our toll system allowing us much more flexibility to vary charges according to distance travelled, significantly reducing the cost for local customers.

The government certainly has a challenge with the upcoming Autumn Budget to educate motorists on the future of road user pricing and to be successful it needs to clearly set out what the road pricing objectives are. Is it to ensure no further decline in fuel duty revenue, increase revenues back to pre-COVID levels or to further increase, in order to speed up the current maintenance program and avoid more costly maintenance in the future?

Recent reports suggest that the cost to repair the existing potholes in the UK could cost an estimated £16bn alone. If we all want a pothole free road network the funds have to come from somewhere quickly.

When it comes to new infrastructure, a relevant example is the proposed £9bn Lower Thames Crossing. The government is seeking new funding sources and considering a plan to fund it via private equity, who would recover their investment through toll revenues, similar to the M6toll.

Today, the system for collecting fuel duty is relatively simple: for every litre of fuel sold, the government collects 52.95p. A pay-per-mile scheme does raise the topic of how this should be replaced.

Over the last 20 years technology has evolved at a rapid pace and technologies exist today, for example ANPR, GPS and in vehicle technologies all are capable of detecting milage travelled. Of course, there are many other possible solutions being considered, the key is to ensure that the model adopted is sustainable for the long-term and aligned with the maintenance that infrastructure requires.

The debate on road pricing is likely to continue over the coming months. If the objectives and the scheme are clear, motorists are involved and communication and education is clear, then I can’t see why road pricing couldn’t replace the fuel duty and provide a sustainable model going forward.

Over the 20 years of the M6toll, millions of drivers have chosen to pay to use our road, demonstrating the benefits that road pricing can have. So perhaps the switch to road pricing might not be as controversial as some might think, both as a replacement for fuel duty and as a means of attracting private finance to build, operate and maintain new UK infrastructure.