The impact of London congestion charge,an economic view - Literature review Example

?Introduction London had a growing problem with traffic and the increase in car population year upon year, especially in the central London. Traffic congestion clogs up roads and its air quality is the worst of any city in the UK and among the worst in Europe. It resulted in damages London’s status as a thriving world city. In order to solve these major problems, the revolution in London's transport system began on 17 February 2003; the former mayor of London Ken Livingstone introduced the congestion charge. Transport for London has estimated the impacts arising from the congestion charge from a number of sources. This paper seeks to focus in an economic evaluation of the effects of charging. It will be investigated of Business performance, Retail sector performance and profitability in the original central London charging zone, also looking at revenue raised by congestion charge which is expected to facilitate the public transport and social benefit which including road repair. Government has promised that they will invest all net revenue raised from Congestion Charging in improving transport in London. Secondary, the paper also attempt to provides how the congestion charge assist in improving environment. The introduction of charging encouraged travellers to think about the trips they make and discouraged the use of the car (as driver) during charging hours. The surveys aimed to understand what travel behaviour choices drivers made; why they made these choices; and what impact this has had on environment. Thirdly, the Observed traffic impacts compared to TfL’s prior expectation. Finally, the impact on unemployment changes facilitated by charging. The evaluation of charging has been undertaken in two steps Road capacity can also be affected by street works in support of traffic and highway measures and in connection with water, gas, electricity and telecommunications utilities; this appears to be an important factor in the latter part of 2006 when the intensity of congestion increased significantly. Economic Effects One of the main aspects of transportation in London that was intended to be improved by the congestion charge was the economics. There is evidence that there has been a positive economic effect seen by introducing the charge, with an estimated 90% of pre-charge congestion costs being eliminated by profits (Prud’homme & Bocarejo, 2005). However, despite this, the actual implementation and running costs of the congestion charge have been suggestibly much higher than the benefit (Evans, 2007). Figures from TfL suggest that the revenue:cost ratio is extremely high (Leape, 2006). For example, upkeep of the monitoring systems requires technical experts which cost a lot to employ. The video cameras used as part of the system are also extremely costly and require maintenance and protection from vandalism (Leape, 206). Secondly, there is a lot of bureaucracy involved in chasing up congestion charge dodgers and others who falsely abuse the exemption system. Finally, there are other effects that can be judged by approaching the congestion charge economically, such as the effect on jobs and economic activity within the 22km2 zone (Leape, 2006). It is interesting to look at the effects that the congestion charge has had on retail within the zone. One paper (Quddus, Camel & Bell, 2007) looked at a John Lewis department store within the zone, on Oxford Street. The data looked at four years between 2001 and 2004, which included three years of pre-congestion data and one year post-congestion data. It was decided to stop collecting sales data after this point as the opening hours changed, which is a good way of avoiding bias in this type of economic study. However, there may still be bias present from only evaluating one year of congestion charge sales data, as three years of pre-congestion charge data was examined giving a broader picture of the economic scope of the store. Despite this, the study produced some interesting results. After controlling for Gross Value Added (GVA) specific to London and the inclusion of UK GDP data, findings were that 2003 sales (that is, with congestion charge) were consistently lower on a weekly basis than prior to this date. It must be noted that GDP and London GVA data is collated on a quarterly basis and therefore must be used with caution when evaluating weekly data, like in this study. Since the above study was undertaken, the base charge for the London congestion zone has risen from ?5 to ?8 per day (Leape, 2006). Additionally, a resident’s discount was introduced. These changes have, according to TfL, not affected normal travelling behaviours into and through the zone, but have actually correlated with an increase in shopping and leisure behaviours, largely because of the resident discount (Transport for London, 2008). Additionally, reports suggest that the economy of central London overall had shown an improvement in 2007 despite the increase in price for the congestion charge (Transport for London, 2008), meaning that there may be other effects at play which need to be taken into account when performing an economic analysis of the congestion charge. Additionally, retail footfall traffic has continued to see a decrease in recent years, although TfL suggest that this predates the introduction of the congestion charge scheme (Transport for London, 2008). Additionally, there seem to be some economic benefits of the congestion charge which are associated with an increased use and reliability in public transport, particularly buses (Transport for London, 2008). This has given a benefit in time savings as well as bringing in revenue for public transport companies which would not necessarily have been as positive without the congestion charge. The controversy here is whether this positive benefit for some areas may be outweighed by negative effects on companies such as John Lewis as evaluated by Quddus et al (2007). Another obvious controversy is whether this has had an effect on congestion outside of the zone, and whether this is now facing similar problems with economic costs of congestion which the charge was meant to override (Santos & Shaffer, 2004). However, it is also important to note some other interesting aspects of the congestion charge. Some research proposes that the cost of the actual congestion in London has a far larger impact on sales and retail within the congestion charge zone than the charge itself (CC Changes Consultation Impact Assessment, 2012). This contrasts with the figures of (Prud’homme & Bocarejo, 2005), which suggest that only 0.1% of the area GDP is negatively impacted by congestion in the pre-charge era. This is an area of controversy which may need to be evaluated in the medium-term, as it is hard to draw conclusions from the short-term data provided by a project that has been in place only a short time (Mackie, 2005). Quddus et al (2007) also suggest that there may be a directly observable impact on retail, in that customers may have been shopping in other John Lewis stores outside of the congestion charge zone. If this has been measured correctly, then this means that retail within the zone is certainly suffering but retail within the greater London area is not, which is something to bear in mind when composing an economic evaluation of the congestion charge within London. Employment Effects Particularly in the current economic climate, employment and under-employment are a worry for many of those wondering about the effects of the congestion charge as part of a recipe for growth in London. There have been arguments that a congestion charge may halt the growth of employment, which in turn would have a negative effect on spending habits and thus GPD in the London area (Hymel, 2008). However, figures from TfL suggest that employment growth within the zone has been higher since the introduction of the congestion charge in 2003 than in years prior to this (Transport for London, 2008), although it does not clarify if this is weighted to reflect national and regional employment growth in other areas, or economic growth in general. This makes it hard to ascertain whether there has been a net positive effect on employment within the zone as there is no information about the context of the economic information. TfL also report that there was strong macroeconomic success across London which was still seen in the charging zone (Transport for London, 2008), although again it is not clear if this information was taken in context of the greater economic climate. Environmental Effects It must also be noted that the congestion charge in London cannot be purely evaluated on economic effects. In fact, there are a huge amount of environmental effects which may in turn have positive effects on the economy, tourism and retail sales within the area (Leape, 2006). In terms of the environment, there were significant reductions in traffic flows within the congestion zone area between 2003 and 2006, which suggests that less people are using private transport for access (Leape, 2006). Evidently, this will have a net positive effect on carbon emissions, which may have economic benefits for the area which are beyond the scope of this research paper but have been previously linked to environmental effect (Transport for London, 2008). Leape (2006) also estimates a 38% increase in the amount of public transport users, which is good for the economics of the transport companies, but is also linked to a positive environmental effect. Additionally, Tonne et al (2007) modelled annual average NO2 and PM10 using an emission-dispersion model to assess the levels of air pollution before and after the congestion charge to see direct environmental impacts. Overall, there was a small reduction in the levels of these gases within the zone. To measure this in absolute terms, it was estimated that this would give an additional 183 years of life per 100,000 in the capital. Evidently, this will have an effect economically, as these people will cost less to the healthcare services and be able to contribute more economically, boosting overall economic activity and revenue. Conclusions In conclusion, there are many different approaches to the congestion charge and how it has had an effect on London from an economic standpoint. These have all given various different results within the literature, although these are partly dependent on the methodologies used and the time periods examined. One of the main issues that can come from assessing a project like the congestion charge is that it will be evaluated in the short-term, and there may be additional costs or benefits to be seen within the medium- or long-term which cannot be assessed by current results. Overall, the congestion charge has definitely had an impact on retail, with less people choosing to shop in the zone, although London overall has not suffered as people are still using the same retail outlets, but choosing those outside the charge zone. Additionally, there are arguments that the costs of the project far outweigh the revenue, and that the original economic cost of congestion is much lower than previously outlined by TfL. This is an argument that needs to be examined in the long-term using a consistent economic model that highlights this problem to allow further evaluation. There does not seem to be a strong effect on employment growth in the congestion charge zone, and there are definite environmental and traffic-related benefits to be seen, which may in turn effect the economics of the city in the longer term. References Evans, R., 2007. Central London congestion charging scheme-ex-post evaluation of the quantified impacts of the original scheme. Hymel, K., 2009. Does traffic congestion reduce employment growth? Journal of Urban Economics 65, 127–135. Leape, J., 2006. The London congestion charge. The Journal of Economic Perspectives 20, 157–176. London, T. for, n.d. Publications [WWW Document]. URL http://www.tfl.gov.uk/roadusers/congestioncharging/6722.aspx (accessed 3.5.13). Mackie, P., 2005. The London congestion charge: A tentative economic appraisal. A comment on the paper by Prud’homme and Bocajero. Transport Policy 12. Prud’homme, R., Bocarejo, J.P., 2005. The London congestion charge: a tentative economic appraisal. Transport Policy 12, 279–287. Quddus, M.A., Bell, M.G., Schmocker, J.-D., Fonzone, A., 2007a. The impact of the congestion charge on the retail business in London: An econometric analysis. Transport Policy 14, 433–444. Quddus, M.A., Carmel, A., Bell, M.G., 2007b. The impact of the congestion charge on retail: the London experience. Journal of Transport Economics and Policy (JTEP) 41, 113–133. Santos, G., Shaffer, B., 2004. Preliminary results of the London congestion charging scheme. Public Works Management & Policy 9, 164–181. Tonne, C., Beevers, S., Armstrong, B., Kelly, F., Wilkinson, P., 2008. Air pollution and mortality benefits of the London Congestion Charge: spatial and socioeconomic inequalities. Occup Environ Med 65, 620–627. Read More