For whom the Road Tolls? The M6 Toll Road Debate revisited.

By David Bailey on Jun 26, 11 06:23 PM in Economics

There's been a fascinating debate in the Birmingham Post over the last few months over the M6 Toll road, fought out in the letters pages.

As readers will know, the M6 Toll road was opened in late 2003, with the stated public aim of reducing congestion on the M6 around Birmingham which was and still is often grid-locked (as I know well from going up and down to visit my mum near Stoke). Hence the road's original name, the 'Birmingham Northern Relief Road' (BNRR).

This new toll road was designed to take up to 100,000 vehicles a day but is now running at about one-third capacity and well below forecasted traffic levels.

The owner, Macquarrie Infrastructure Group (MIG), an Australian firm, has raised toll charges repeatedly for cars from £2 in 2004 to £5.30 today (a rise of 165%) and the M6 Toll is now one of the most expensive stretches of toll-road in Europe.

Not surprisingly, higher toll charges have meant fewer drivers as a simple demand curve would suggest from A-level economics. The latest figures are the lowest in the road's history, with the average daily number of motorists using the M6 toll at just 34,000 compared to a peak of 54,700 back in 2006, and some 35,800 a day when the road first opened back in 2003-4 as the Birmingham Post recently reported (see here).

No doubt MIG reckon that £5.30 is value for money, as - let's face it - you're not likely to see many other cars on the M6 Toll road.

The road's owners (publicly at least) attribute the decline to the wider economic climate and high fuel prices. That may indeed be a partial explanation for the decline in road use over the last couple of years (i.e. during the recession and onwards), but ignores the longer term downward trend.

Raising prices so dramatically over the last few years makes perfect sense for MIG in maximising its profits (or minimising its losses), but the key point is that this isn't the same as maximising wider social benefits, including getting traffic off the M6 and easing congestion.

In fact, MIG may well want to see wider congestion so as to encourage drivers on to the M6 Toll and hence pay high prices. Indeed, back in 2005 MIG's CEO Steve Allen was reported in an Australian newspaper stating that "what we need is to slow down the M6".

An early Public Private Partnership agreement set up by the Tories and agreed by Labour saw MIG (through Midland Expressway Ltd) effectively given 50 years to set and collect tolls before the road reverts to public ownership. Critically, there is no regulatory cap on prices (unlike when the utilities were privatised in the UK and subjected to what was called 'RPI minus X' regulation). No wonder toll charges have gone up so much.

So what's to be done? One option is to do absolutely nothing and to let the M6 get more and more congested. Faced with longer delays, some drivers may then decide to switch to the M6 Toll and pay the toll charge. That would, of course, suit the monopoly provider (MIG) who would be laughing all the way to the Bank of Australia, but not the wider West Midlands economy.

Another option, favoured by the 'National Alliance Against Tolls' (NAATs) is to nationalise the road, as Derek Bennett succinctly suggested in his recent letter to the Post. NAATs reckon that £1 billion could bring the road into public ownership. That could see the M6 Toll road available to drivers for free or at much reduced toll charges.

But would MIG be willing to sell, and what would be a 'fair' price? And could a hard-pressed Treasury find a billion quid? I doubt it when that sort of money could be spent on other socially useful infrastructure projects - like revamping New Street station. The latter point was made forcefully by Gerald Kells in his letter to the Post last week.

An alternative to nationalisation might be to regulate the price, so the monopoly owner is forced to set a price that maximises throughflow of traffic on the M6 Toll road rather than its profits. That in turn might require an annual subsidy of sorts to get the price down.

Nationalisation or regulation both have costs attached. But doing nothing is not an attractive option. Assuming that a private company operates in the public interest is simply naïve, as the whole episode shows.

More broadly, we need a more joined up and intelligent approach to transport policy, including more investment in alternatives to road, starting with HS2 and further investment in our railways. That would also have the benefit of boosting the sluggish economy.

And if the coalition government objects on the grounds that there's no cash for such investment given the need to clamp down on the deficit, then perhaps we could look at Lord Skidelsky's ideas for a properly funded and empowered Green Investment Bank.

Skidelsky has made the key argument that a limited fiscal commitment by the government of around £10bn in subscribed capital, with contributions drawn down over four years, would allow such a bank to leverage that funding through issuing a new class of bonds, thereby enabling enough spending to offset much of the public spending cuts planned by 2015. That would help stabilise the economy and invest in our infrastructure.

Of course, there's one argument against such a new investment bank, as my fellow Post blogger Councillor John Clancy pointed out in a question to Ed Balls at the latter's Aston University lecture last week: why not turn one of the existing nationalised banks into an investment bank, rather than setting up a new one? A fair point, Councillor.

But coming back to the M6 Toll Road, I'd argue that nationalisation is a bit of red herring. Instead we could regulate the road owners and impose a cap on MIG's charges. And rather than spending money on nationalising the road, we could make a decent commitment to a new green investment bank that through leveraging could dramatically enhance our broader infrastructure in the West Midlands and beyond.

Professor David Bailey works at Coventry University Business School.

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David Bailey

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