Specific Government Policy to Correct Transport Externalities

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The London Congestion Charge & Low Emission Zone

London Congestion Charge - a flat-rate indirect tax levied on all vehicles entering a designated charging zone at certain times. 

  • Multiple ways of paying
  • Managed by huge network of cameras
  • Residents receive 90% discount 
  • Penalty charges if you don't pay 

Charge is consistent with the principle of hypothecation -  a situation where revenue froma tax is directly allocated to some other purpose. In this case the city of London. 

  • Boris Bikes
  • Bendy Buses 
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The London Congestion Charge 2

It is an example of road pricing - a direct charge for the use of a road space. 

In principle, it is a way of internalising the external costs of congestion - the polluter pays principle. However, it is not a particularly exact form of indirect taxation as it is not directly based on the scale of congestion. 

It is widely supported by Londoners and has cut congestion by around 20% 

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The London Congestion Charge 2

It is an example of road pricing - a direct charge for the use of a road space. 

In principle, it is a way of internalising the external costs of congestion - the polluter pays principle. However, it is not a particularly exact form of indirect taxation as it is not directly based on the scale of congestion. 

It is widely supported by Londoners and has cut congestion by around 20% 

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Low Emission Zone

This became operational in Feburary 2008. It seeks to improve air quality for those in London - the capital having the worst quality air in the whole of the UK. It covers a more extensive area than the congestion charge - 33 boroughs. 

It is an example of the use of regulation to correct negative externalities. 

  • Vehicles over 12 tonnes must meet certain standards on emmissions 
  • Those which do not meet these requirements face a daily charge of £200 
  • July 2008 extended to vehicles between 3.5 - 12 tonnes 
  • Increases to 'Euro 4' standards in 2012 

It seeks to tackle particulate emissions and is monitored by cameras. Transport companies must register their vehicles. 

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Vehicle Excise Duty

Vehicle excise duty is the annual tax that is paid by the vehicle's owner to use the road network - historically charged at a flat rate. 

2008/9 a new banding system was put in place - based on CO2 emissions. 
2010/11 created a 'showroom' tax for those emitting over a certain amount, imposed on the purchase.

Again an element of polluter pays, internalising the externality.  

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Public Transport Subsidies

A subsidy is a pyment made to transport operators by central or local government to reduce the market price of services provided. The consumer is not paying the full cost. 

Arguments in favour: 

  • Positive Externalities - brings external benefit for local community. Encourages expansion and improvements such as new vehicles and routes all while keeping fares down. 
  • Social Equity - by subsidising local bus services, passenger transport authorities are able to ensure that otherwise unremunerative services are retained
  • The argument is especially strong in rural areas where buses/trains may be the only means of transport for non-car users but there may be little/no profit in it. 
  • Cheaper fares enhance the work opportunities for lower paid workers 

The subsidy for rail is greater than bus transport. 

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Problems with Subsidies

The total cost of subsidising rail and bus transport is increasing - despite the case that is put foward in support of deregulation and privatisation. 

A further problem is that the nature of subsidies is that it is not possible to target them specifically to those in greater need. 

WIth rail tickets, for example, the price of travel is the same for each passenger - irrespective of the salary earned - dependent upon when the ticket was purchased. 

The effectiveness of subsidies can also be questioned as they are dependent on many factors such as: 

  • the size of the subsidy 
  • government opinion 
  • the provision of alternatives - cars may remain the preferred option  
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