Policy commentary

Congestion Pricing: Lessons from London

Nov 26, 2007 | Jonathan Leape

Welcome to the RFF Weekly Policy Commentary, which is meant to provide an easy way to learn about important policy issues related to environmental, natural resource, energy, urban, and public health problems.

This week we are very happy to introduce Jonathan Leape, of the London School of Economics, who discusses London's attempt to address traffic gridlock through a novel congestion-pricing scheme. Clearly, urban congestion poses major public policy challenges, which will only become more acute as growth in demand for travel continues to outpace our ability to build new road capacity. On the other hand, thanks to new technologies, we now have the ability to contain congestion by charging motorists for using busy roads. So how successful is the London congestion policy, and what lessons might be learned for other congested cities like New York?

Congestion is steadily increasing on city streets around the world, imposing a heavy cost on urban economies that depend on rapid, reliable movement of people and goods. In the United States alone, the Texas Transportation Institute has calculated that traffic delays cost $78 billion a year in wasted time and fuel. Taking account of the additional costs of doing business, lost productivity, and unrealized business revenue means that the overall cost of congestion is much higher, as shown in a recent study of congestion in New York City.

Theoretically, economics provides a solution: put a price on congestion paid by the people who contribute to it. There are other ways of trying to deal with congestion, such as building new roads, regulating parking, or subsidizing public transportation, each of which has its role. But only congestion pricing creates the right incentives when individuals are deciding whether to travel, when to travel and how to travel. The idea has been under discussion for decades, and the question has been whether it can actually be done in practice. Now, over the past five years, London has demonstrated that indeed it can.

But London's experience also makes clear the conditions that a city and its leadership must meet if congestion pricing is to be effective and, as in London, popular.

The first condition is a level of public and business concern about the costs of congestion that puts the problem well up the political agenda. By the end of the 1990s, average speeds in central London were below 10 mph throughout the day and commuters into London spent almost 30 percent of their time stationary during peak periods. In public opinion surveys, public transport and congestion outranked crime as the most important problems requiring action.

Congestion pricing takes strong political leadership. Ken Livingstone, a high-profile London political figure since the 1980s, ran for mayor in 2000 on a platform that emphasized congestion charging. Here in the United States, the city most likely to adopt it is New York, where Mayor Michael Bloomberg is vigorously pushing for it. 

To maintain public support, a successful program also needs competent administration and tight enforcement. After he came into office, Livingstone spent two years on careful planning and extensive public consultation. The London Congestion Charge was designed as an area license (or "day pass") scheme. The charging zone, initially an area of eight square miles traditionally defined as central London, was almost doubled in size in early 2007, when it was extended westward to include Kensington and Chelsea. The zone is defined by a ring of roads that provide alternative routes for through traffic, at no charge. For those who cross the boundary, the cost was originally set at five pounds (about $10) a day, with zone residents entitled to a 90 percent discount. In 2005, the rate was raised to eight pounds (about $16). In this light, Mayor Bloomberg's proposed fee of $8 for New York may be too low to produce the kind of significant drop in congestion, and improvement in public transportation, that will be necessary for its political survival.

The border is enforced by video cameras, which were already common in London. Concerns about civil liberties have been diminished by the cameras' effectiveness in reducing street crime. The cameras read vehicle license plates and a computer matches them against a list of those who have paid and those exempt (which, in London, includes emergency services vehicles, taxis, buses, low-emissions vehicles, and all two-wheelers). Those who haven't paid are sent a penalty notice that includes a picture of their car in the charging zone. The detection rate is around 90 percent and, since the minimum penalty for violation is six times the cost of compliance, evasion is unlikely to pay.

The impact of the scheme exceeded expectations. In the first year of the charge, traffic delays in London dropped by 30 percent, journey time reliability increased by 30 percent, and average speeds rose 17 percent, reflecting a sharp fall in traffic jams at intersections (the time spent traveling at speeds less than 6 mph decreased by one-third). The charge also changed who was using the roads: private car trips dropped by 34 percent, and trucks and vans by 5 to 7 percent, but bus, taxi, and bike trips all rose sharply. The overall impact was a noticeable improvement in traffic conditions.

The London experience has also shown that it's possible – and important – to spread the benefits of congestion pricing widely. By committing to plough all the revenues raised by the congestion charge into public transportation improvements, London has ensured that congestion pricing didn’t just improve mobility for car drivers who can pay the charge (the "Lexus lanes" problem) but also increased access to the city centre for everyone. Innovative policies, such as the popular mass bike-share program in Paris, can also help to spread the benefits.

In fact, the shift from cars to buses outstripped predictions. Inbound bus passenger numbers increased 37 percent in the first year, about half of whom had previously traveled by car. This increased the bus share of incoming passengers to almost 10 percent, with most of the remaining passengers split evenly between rail and subway. A key reason for the surge in bus passenger numbers appears to be the "virtuous circle" for bus transport that can result from congestion pricing. The higher cost of rush-hour car trips and increased bus travel speeds, due to reduced congestion, result in increasing passenger numbers and falling average costs – which, in turn, lead to improved service levels and lower fares that stimulate further shifts to public transport and additional reductions in congestion. With one million people traveling into midtown and downtown Manhattan every day by private car, the potential for a virtuous circle in New York is evident.

But London also offers a warning to Mayor Bloomberg in New York. Because congestion pricing has been more successful than Mayor Livingstone expected, it has brought in less revenue – a problem that was compounded by set up and running costs that far exceeded expectations. Tight control of costs is essential if the increased investment in mass transit and other transport alternatives necessary to make the scheme successful are to prove sustainable.

The central lesson of London's great experiment is that congestion pricing will get and keep public support only if it is part of a larger congestion management strategy that improves public transportation. And it will only work if the impact of the scheme is highly visible and the benefits are spread widely.


Views expressed are those of the author. RFF does not take institutional positions on legislative or policy questions.

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Further Readings: 

Leape, Jonathan. 2006. "The London Congestion Charge," Journal of Economic Perspectives, Vol. 20, No. 4, Fall, pp. 157-176.

Small, Kenneth A. 2005. "Road Pricing and Public Transit: Unnoticed Lessons from London." Access. Spring, no. 26.

Partnership for New York City. 2006. "Growth or Gridlock? The Economic Case for Traffic Relief and Transit Improvement for a Greater New York," December.

Santos, Georgina, editor. 2004. Road Pricing: Theory and Evidence, Elsevier.

Texas Transportation Institute. 2007. "The 2007 Urban Mobility Report." Texas A&M University.

Transport for London, Impacts Monitoring Programme: Annual Reports. London.