Alcohol and cigarettes are heavily taxed by the UK government. Drinkers and smokers pay big-time for their tipples and their filter tips. But why aren’t the billions raised by duties on booze and ciggies spent on bigger and better pubs, and swankier tobacco emporiums?
Because taxation ring-fencing is heretical, that’s why. The dedication of the revenue of a specific tax for a specific expenditure purpose is rare. The main UK example is the TV licence fee, a ring-fencing of funds for the BBC.
While it’s patently daft to argue that booze and fag taxes should be spent on improving pubs and building bigger tobacco shops, the exact same argument is wheeled out by some motoring organisations. They argue that the taxes levied on motorists should be spent only on…motorists.
Investigative TV programmes fall into the same trap. On Thursday, ITV’s Tonight programme wondered aloud why the duties paid by motorists aren’t all spent on roads.
The Tonight reporter said he could reveal that £47bn was raised in taxes but only a fraction of this was “spent on roads”. This ‘exclusive’ was attributed to the Road Users’ Alliance, and portrayed as though the statistic was new and shocking. In fact, the RUA has been using the same basic ‘only a fraction spent on roads’ stat since the alliance was founded in 2002.
“The Government raises almost £50 billion from motorists, and returns less than one fifth of this in spending which directly benefits the road user,” is the standard ring-fencing refrain from the RUA.
What the RUA fails to stress – an error repeated by the ‘investigative’ TV programme – is that the money generated by motorists is NOT a fund to repair roads and build new ones; it’s money that goes straight into the national pot, the Treasury’s Consolidated Fund, the public purse.
Airline passengers pay taxes when they fly from British airports but nobody suggests all this money should go to building more runways. Ditto for pubs and tobacconists. The pub analogy used above isn’t new. Winston Churchill railed against ‘Road Fund’ ring-fencing in much the same way. In 1925, when Chancellor, Churchill said:
“Entertainments may be taxed; public houses may be taxed; racehorses may be taxed…and the yield devoted to the general revenue. But motorists are to be privileged for all time to have the whole yield of the tax on motors devoted to roads. Obviously this is all nonsense…Such contentions are absurd, and constitute…an outrage upon the sovereignty of Parliament and upon common sense.”
The ring-fencing had been started by Lloyd George in 1909, with ‘road tax’ and fuel duties pumped into a hypothecated Road Fund. For 17 or so years, motorists paid into a protected fund which helped pay for some road crust improvements and a handful of road realignments.
But such ring-fencing was always controversial; to the Treasury anathama. Churchill wanted to quash the Road Fund. He – and the Treasury – plotted against it. Churchill famously made ‘raids on the Road Fund’ in the mid-1920s, all but killing it off. By 1937, the Road Fund – which had been fatally wounded ten years previously – was finally abolished. Amazingly, the concept of a Road Fund, paid for by ‘road tax’ (still, wrongly, believed to be a payment for the upkeep of roads) has lingered on in the folk memory of motorists.
In a comment to a Bristol newspaper on Saturday, Hugh Bladon from the Association of British Drivers, used the phrase ‘road fund licence’, a concept 74 years dead.
Many other motorists – perhaps even the majority? – still believe that ‘road tax’ exists, and demand that the duties paid by motorists should be ploughed into fixing potholes, widening dual carriageways and adding to the UK’s motorway network. In reality, everybody pays for Britain’s roads via general taxation. Paying fuel taxes and Vehicle Excise Duty (VED) confers on motorists no right to the use of Britain’s roads. Motorists are allowed to use roads ‘under licence’, not as ‘a right’.
Motorists do not pay for use of the roads, motorists are taxed on buying and using their vehicles. VED is not a tax on roads, it’s now a tax on emissions: cars which spew the most CO2 pay the most Vehicle Excise Duty. Cars which spew less CO2, pay less VED. Cars in VED band A pay zero duty.
Motorists are not the only users of public roads. Pedestrians, cyclists, and horse-riders also use public roads. So do farm tractors but, even though they’re heavy and so damage roads, they do not pay Vehicle Excise Duty. They have to display tax discs, but these are issued free of charge. Motorists have been filmed attacking cyclists for “not paying road tax” yet there are no known cases of motorists attacking farmers for the same perceived ‘crime’. And nor do motorists attack band A cars, disabled drivers, the Royal family, or other “road tax dodgers” out there, of which there are millions.
UK motorways and trunk roads are paid for with cash supplied by the Highways Agency via the Department of Transport via the public purse via all UK tax payers; all other roads – that is, 87 percent of all the roads in the UK – are paid for by local authorities. Local authorities get some grant aid from national Government, but most of the cash for local roads is raised locally, via council tax. Non-motorists pay the same for roads as motorists.
[Come to think of it, those who pay the most council tax really ought to have more rights on roads than those in cheaper council tax bands. So, Merc drivers who live in big posh houses ought to have priority lanes on local roads and those motorists who drive cheaper cars from cheaper houses should be corralled in slow lanes.
And, of course, bankers and others on Britain's rich list pay more tax than mere mortals so should get preferential treatment in NHS hospitals. Rich people involved in road smashes, and who need emergency care, by rights, should get that care long before poor people. But why stop there? Means-testing could be expanded to expensive drugs, too. Bankers should get life-saving cancer medicine when they need it because they pay more in annual taxation. Tis only fair. ]
It’s amazing that a supposedly investigative TV programmes such as ITV’s Tonight can spend 25 minutes raging against the “unfairness” of motorists paying £47bn in annual taxation without realising ring-fencing of these funds does not take place; has not taken place since 1937. Allowing interviewees to rant about ‘road tax’ without on-screen caveats is sheer ignorance on behalf of the programme’s producers.
What Tonight also didn’t mention, and what organisations like the RUA don’t factor into their equations, is the many external costs of motoring. In effect, Britain’s motorists are subsidised to drive.
The 2009 Transport Select Committee report, Taxes and Charges on Road Users, calculated the total taxes and charges on UK road users as £48 billion per annum. The report quoted the typical annual expenditure on roads as about £8-9 billion.
In the same report, the Department for Transport estimated that the average marginal external cost of driving a car an additional kilometre is 15.5 pence allowing for the congestion (estimated at 13.1 pence per kilometre), infrastructure, accidents, local air quality, noise and greenhouse gases. This compares to 3.6 pence per kilometre paid in fuel duty and VAT.
However there are other costs to society as a result of our existing car-dependent transport patterns. In 2009 a Cabinet Office Strategy Unit report on urban transport attempted to quantify the costs of our existing urban transport patterns. Working with the Department for Transport, the Department for Communities and Local Government, the Department of Health and the Department for Environment, Food and Rural Affairs (Defra), they arrived at the costs shown here:
The figures are based on the best available evidence sources, adjusted to 2009 prices. Where there is uncertainty or disagreement, they have stated the likely range as shown in lighter shading in the bars. The conclusions changed policy makers’ understanding of the situation. Previously, congestion had been thought to represent the majority of transport’s external costs to society. Now the combined costs of
accidents crashes, air quality, physical inactivity, greenhouse gas emissions and noise at £27-38 billion per annum represent 71-78 per cent of the total.
The total cost for the English urban areas is estimated at £38-49 billion. Given that the Cabinet Office’s report states that this covers 81 per cent of the population, scaling up the appropriate impacts gives an estimate of £43-£56 billion for the whole of the UK.
It is important to note that the report makes no attempt to quantify the external costs of negative social impacts, despite referring to reduced social cohesion and interaction as a result of traffic. Yet research in Norway estimated that the cost of community severance (the ‘barrier effect’ due to transport infrastructure such as busy roads) is greater than the estimated cost of noise and almost equal to the cost of air pollution.
The Cabinet Office report also excludes the impacts of noise pollution on health, productivity and the ecosystem and does not attempt to quantify ‘quality of life’ impacts of the built environment. However it acknowledges that all these areas could represent significant additional costs, mentioning for instance an additional £4-5 billion for noise impacts on health and productivity alone.
Alternatively, estimates of the marginal costs of road transport provided in a report commissioned by the Department of the Environment, Transport and the Regions result in a higher total cost figure of £71-95 billion (in 2006 prices). This excludes the costs of physical inactivity and other as yet un-monetised costs such as severance effects and loss of tranquillity. According to the Campaign to Protect Rural England and Natural England, the monetary values for landscape and loss of countryside have not been calculated.
The Campaign for Better Transport extrapolates from the Government research on marginal external costs to reach a total cost of externalities of £70 billion–£95 billion per annum at prices for 2006.
The Sustainable Development Commission, a non-departmental public body (2000-2011) responsible for advising the UK Governments, concluded:
“So it would appear that the overall costs imposed on society by motoring outweigh the revenues obtained from motorists, probably very substantially.”
And the externalities of driving costs don’t include noise pollution (£3.1bn); air pollution (£19.7bn – not including CO2); water pollution (between £1bn and £16bn); or obesity (£2bn).
But there are other, hidden subsidies, too. Donald Shoup, Professor of Urban Planning at UCLA in the US, estimates that providing free off-street car parking in the US cost a whopping $386bn in 2002 (in the same year, the US government spent $349bn on defence). As UK town planners operate to similar rules to their US counterparts – in that any major development has to have a set number of parking places, most of them unfilled but there ‘just in case’ – UK drivers get similar parking subsidies. No doubt it’s in the magnitude of many billions of pounds.
Fair’s fair. If cyclists were ever asked to contribute cash to get a “seat at the table”, to have a say in transport infrastructure decisions, any payment they made for the provision of excellent cycle facilities ought to be offset by the cost savings made by cyclists for the benefit of the economy. Going on just some of the externalities, we could be due for a rebate of somewhere in the region of £50bn. Such a rebate isn’t far-fetched. In Norway, the Norwegian Public Roads Administration pay for employees to cycle to work instead of driving. In Copenhagen the city calculates that for every kilometre a citizen on a bicycle rides, society earns 1.22 kroner [25 US cents]. For every kilometre a citizen drives in a car, society pays out .69 kroner 89 [13 US cents].”
HYPOTHECATION & WHY THERE’S NO SUCH THING AS A TAXATION OPT-OUT
Taxes and Charges on Road Users, a 2009 report by the Transport Select Committee, said hypothecation is “the establishment of a direct link between specific taxes or charges and specific expenditure. For example, taxes levied on alcohol might be earmarked for spending on hospitals. In the UK there is no such link for taxes.”
The report said:
“the Government opposes the idea of hypothecation of tax revenues. It argues that decisions about revenue raising and spending should be kept separate for two main reasons:
• if all income were to be hypothecated, it would create severe difficulties for those services that could not readily raise revenues, such as schools, hospitals, police and defence; and
• inefficiencies would result. For example, if a large sum was raised from road users, hypothecation would dictate that it was all spent on roads (or possibly other transport modes, such as buses), even if the public priority was for more investment in, say, education.”
There are no tax opt-outs
The argument about the Government raising £47 billion but returning “less than one fifth of this in spending which directly benefits the road user” is a weak one and motoring organisations do themselves no favours by wheeling out such an argument. In fact, they have been doing so from the earliest days of motoring but it doesn’t wash with Governments. Revenue ring-fencing is something vehemently opposed by Governments down the ages, and for very good reasons.
Motoring organisations would be better off arguing about the many benefits of mass car ownership; the ‘we pay squillions, so ought to get squillions back’ case is easily swatted away, behind the scenes, by Treasury mandarins.
The money paid by motorists does not have to go back to motorists. If it did, all hell would break loose. Interest groups of all creeds and colours would start demanding “their” tax contributions should only go to fund “their” projects. Society does not work that way; cannot work that way.
There are no taxation opt-outs: married couples without kids cannot strike out the amount of tax that pays for schools; pacifists cannot strike out the amount of tax that goes on defence spending. And motorists can’t successfully demand that the money they give to the Government is given straight back to them in the shape of smoother, less congested roads.
Smoother, less congested roads would be wonderful for all road users, not just motorists, and such infrastructure – a shared national resource – is paid for by all taxpayers, not just motorists. The public highway is, by definition, for the benefit of the public, not a sub-set of the public.
iPayRoadTax.com is an ironically-named campaign supporting the road rights of cyclists. The message that cyclists have equal rights on the roads is carried on iPayRoadTax t-shirts and jerseys.