As David Cameron raises the prospect of the privatisation of the roads network, Channel 4 News looks at the government’s options for improving Britain’s infrastructure.
The prime minister’s problem is simple: Britain’s roads are congested, but the country has debts to pay and the government is reluctant to fund improvement with taxpayers’ money. That is why Mr Cameron is considering radical proposals that could see the private sector step in.
He said in a speech on Monday: “We need to look urgently at the options for getting large-scale private investment into the national roads network – from sovereign wealth funds, pension funds, and other investors.
“That’s why I have asked the Department for Transport and the Treasury to carry out a feasibility study of new ownership and financing models for the national roads system and to report progress to me in the autumn.”
The prime minister is keen to keep his options open, but said tolls on existing roads were not one of them.
The Sunday Times revealed in August 2009 that the investment bank NM Rothschild had advised the political parties that selling off the motorway network would raise £100bn for the government.
One option suggested was companies levying road user charges on motorists at toll booths and through electronic card readers.
At the time, Labour was in power. Vince Cable, who was the Liberal Democrats’ deputy leader and is now business secretary in the coalition government, was enthusiastic, saying: “This is an attractive, positive idea which could release considerable resources to the public finances and may have real environmental merits. The scale of it is vast – it makes rail privatisation look like small beer.”
A politician who was not as keen as Dr Cable was the Conservatives’ Theresa Villiers, the then shadow transport secretary and now a transport minister.
She said: “Rothschilds, like many other banks and consultancies, have approached me and my team on a range of ideas for our transport network, including their ideas for our road infrastructure, but we are not working on any proposals for privatisation of the strategic road network and have no plans to do so.”
British pension funds are expected to invest £2bn in infrastructure, including roads, rail and power stations.The National Association of Pension Funds (NAPF) and the Pension Protection Fund (PPF) are currently working on the plan, with the money coming from 10-12 pension funds.
Chancellor George Osborne is seeking £20bn from funds and insurers, but the NAPF says this is a long-term aspiration. The new fund, which will be opened to schemes in the private and public sectors, will be launched in January 2013 and will invest in shares and bonds.
Alan Rubenstein, chief executive of the PPF, told an investment conference in March: “Pension funds have told us they want long-term, lower risk, steady returns, and we believe the nature of this investment will work.”
The privatisation of the railway network has hardly been a spectacular success. Edmund King, AA
The AA is not in favour of what Mr Cameron is proposing. Its president Edmund King said: “The privatisation of the railway network has hardly been a spectacular success and millions of drivers will be concerned if one of our most important and used national assets, the strategic road network, is sold off.”
But a spokesman for the RAC Foundation told Channel 4 News that roads needed investment and at a time of austerity the private sector had a big part to play.
He said: “The government does not seem to have the will or the money to do anything itself to face up to the long-term problems on the roads network. If you can solve the problem by bringing in private sector firms without unduly burdening the motorist with extra taxation, that has got to be a way forward.
“We are not against privatisation in principle if there are a range of measures, including a regulator and a consumer body for motorists.”
In November 2011, the RAC Foundation published a report looking at how road pricing could replace the current system of charges for motorists.
The report said that 90 per cent of passenger travel and most freight transport were by road, and that “tax receipts from motoring actually exceed investment in roads by a ratio of four to one”.
It recommended a system known as PAYG, pay-as-you go, and looked at several models. With drivers paying an average of 9.2p a mile in fuel duty and vehicle excise duty (VED), it calculated that a new 10p a mile charge for motorways would allow a 20 per cent cut in fuel duty, but no reduction in VED.
The charge would generate £1.1bn a year in revenue, reduce traffic and lead to a 0.6 per cent fall in carbon emissions. A more radical scheme, with motorists paying 9.5p a mile on all roads except minor ones, would lead to a 50 per cent cut in fuel duty, the abolition of VED, additional revenue of £120m, a decrease in traffic and a 4 per cent fall in carbon emissions.
In April 2010, the Social Market Foundation think tank published a report on traffic congestion which also recommended road pricing.
It said: “Roadbuilding is costly, slow and unpopular, making unlikely that we will build our way out of the problem, even if it were agreed that we should.”
Citing research showing that congestion was likely to cost drivers and businesses an extra £22bn by 2015, the report said carbon emissions in congested traffic were twice as high as on free-flowing roads.
It ruled out privatisation, saying that the public should “retain ownership of the roads, rather than seeing them sold off to private financiers”.
It suggested that rather than following the 1980s model of privatisation, a so-called “voucher mutualisation” would be a better path to tread.
Everyone would receive a free tradeable share in the roads network, worth £1,500, which they could retain or sell for a profit. Road charging of 10p a mile would be introduced and VED scrapped, with most drivers financially benefiting, but heavy road users penalised.
The report said: “Based on transport survey data, our analysis demonstrates that the average driver would be significantly better off under this scheme, paying around £75 per year less in tolls than they currently do in road tax.
“Heavy road users would pay more, but would save on the huge time and fuel costs of congestion, the burden of which currently falls most heavily on them.”