The problem of congestion in South East, particularly London, is a great one. Throughout the nineteenth and twentieth centuries increased car use was seen as part of growing economic progress, but now we aware of the negative externalities caused by it, congestion and pollution, something must be done to restrict road use. Congestion in London is a massive problem. It causes unsightly gridlocked roads, difficulties in travelling around, and causes businesses to use extra vehicles to be able to carry out their work efficiently, thus adding to the problem further. To tackle this problem, there are two methods of estricting car use in London. One is using direct controls/interventions, e. g. yellow lines, full pedestrianisation, traffic wardens etc.
The other is the use of the price mechanism, e. g. road pricing, taxes, public transport subsidies etc. The fundamental difference between the two methods is that whereas a direct control bans use of a good/service, the price mechanism will restrict its use by making its users pay the full social cost for it. Relating this idea to road use, this can be an advantage of using a direct control. To ban cars from parts of the South East (i. e. edestrianisation or perhaps use of double yellow or red lines) would be certain to work, whereas making people pay to use their cars would not, and its effectiveness would depend on the price elasticity of demand of car use.
Another advantage of using a direct control is that if you did not wish to ban the use of cars altogether you could at least accurately limit it by setting a quota, for example, by letting in just 500 cars into the City Centre. Disadvantages of using a direct control to reduce congestion are as follows.
Firstly, whereas it could be argued that a direct ban is certain to be ffective, and so is a good thing, it is also true that a direct ban on all car use would stop car use altogether, including those who desperately needed to. This would mean that as well as cutting down on the amount of cars driving into Central London for silly shopping trips or school runs, you would also be stopping vitally important journeys through it to get to hospitals etc. A total ban on all cars within areas of London would also have devastating effects on businesses based in that area, for example carpet of furniture shops, whose customers required a car to use them.
This may mean having to relocate hundreds of firms elsewhere in the region at a large cost. (Although it could be said that such businesses would be far better off being situated outside of Central London, and should be made to pay some of the reallocation cost due to negative externalities of the increased traffic there presence has caused. ) Another disadvantage of using a direct control would be that they might be difficult and costly to enforce.
For example, painting yellow lines to stop people parking in certain areas may well work, but the cost of employing raffic wardens and clamping vehicles (likely to be using taxpayers money) may be great. It is also worth considering that although some sort of direct control may be suitable inside of Central London, it would probably not be so appropriate in other areas of the South East, for example Cambridgeshire, where congestion is not such a problem and arguably banning the use of cars there would stop many tourists from enjoying its attractions. Because of these reasons against the use of a widespread direct control on car use, the price mechanism would be more suitable.
Using the price mechanism, or ‘imposing a price’, allows road users the freedom to choose whether or not to use the cars, but makes them pay for the privilege. In this sense, it helps to achieve allocative efficiency, as can be seen on the following diagram: This is a diagram for negative externalities. At P1 there is no price for using cars in London. When we impose a price, P2, the number of car users will fall from Q1 to Q2. This creates a new equilibrium point where MSB=MSC (so P=MSC), the car users are being made to pay for the negative externalities of driving not just the private costs.
This means we are getting true allocative efficiency. The next diagram shows the advantage of using the price mechanism. It shows that it allows users to use their cars, but cuts out waste. The i??5 price is merely an example: The area from A to B shows consumer surplus – those who are willing and able to pay the i??5 fee as they feel they are getting utility beyond this price. The shaded area below B is the amount of people who will be getting less utility than the i??5 fee, so won’t pay the fee, thus cutting out the wasted journeys. Such journeys include school runs.
This evidence suggests that the price mechanism is a better way of stopping congestion than direct controls, but there are various different types of price which can be used. One is a higher petrol price, perhaps in the form of increased tax. Although this would restrict road use, it would do so only slightly as petrol is a relatively inelastic good. Also, this would not target specifically those who used their cars in the busiest areas and at peak time, so wouldn’t target congestion.
This brings up the idea that any price imposed on road use must target congestion specifically. It must lso be a variable or marginal one so as so stop wasted journeys. For example, increased road tax would affect all road drivers the same, and would even encourage use of roads – after all, once a service has been paid for you may as well use it as much as possible. By far the most effective method of stopping congestion would be to adopt a European style electronic road pricing system whereby we are charged for using busy roads at busy times – it is highly targeted and distinguishes (unlike road tax) between those who use Central London’s roads at rush-hour and those who drive through the countryside at night.
This would create revenue that could be redirected into improving public transport. This system would also be more likely to create equity. What this means is that road users would pay for the negative externalities which they themselves create, whereas an increased petrol tax charges all drivers regardless. However, this is one disadvantage of using the price mechanism – no matter what price, or type of price is imposed, the poor are always going to be hit harder than the rich. A i??5 fee for using London’s roads will be a significant amount for those on benefits, less so for BMW driving Company Executives.