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BITRE | Working paper 74

Figure 3.5 Intra-zone enforcement equipment in London

Source:

Photograph courtesy Peter Kain.

Given the high capital costs of such a scheme, the conclusion that the costs were

around twice the benefits would not be surprising if Prud’homme and Bocarejo had

included the total cost of setting up the scheme upfront. However, this is not the

case: the investment was accorded correct treatment. Prud’homme and Bocarejo

estimated an investment component of the yearly cost (allowing 5 per cent for the

opportunity cost of capital, plus 10 per cent for the depreciation), to which they

added the operation component.

If we accept the methodology of Prud’homme and Bocarejo, the conclusion is that the

London Congestion Charge scheme, despite being a political success, is an economic

failure. Different methodologies produce different results and other analysts, such

as Mackie (2005) and Raux (2007, p. 221), do not come to the same conclusion.

One analysis of the London scheme

leads us to conclude that it is an

economic failure.

We can make a few observations about

the London scheme that suggest caution

in embracing it as an unqualified

success. First, the different evaluations

are contentious, indicating that the net

value of a scheme depends highly on

the assumptions adopted. Secondly, irrespective of the calculations, we can observe

that the set-up and operational costs of the scheme are high in absolute terms and

relative to the benefits generated. Finally, the congestion charge structure itself is

essentially flat; unlike (particularly) some toll road congestion charges, the charge

is either levied (weekday daytimes) or not (evenings and weekends). That is, the

charges are very coarse—they are unresponsive to varying levels of congestion.

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