Privatising public roads

20th March 2012

In a speech to the Institution of Civil Engineers, he said: "We need to look at innovative approaches to the funding of our national roads – to increase investment to reduce congestion.

"Road tolling is one option – but we are only considering this for new, not existing, capacity. For example, we're looking at how improvements to the A14 could be part-funded through tolling."  The government wants to explore the option of contracting out the maintenance and running of motorways and major A-roads to sovereign wealth funds, pension funds or other investors.

The reaction has been predictable – howls of justifiable outrage ranging from motoring organisations which fear toll roads (never popular and once the scene of the popular Rebecca Riots) to countryside campaigners who fear a rash of competitive motorways cutting through England's best hunting counties to those on the traditional left who detest "selling off what is already the nation's".

Thin end of a thin wedge

The AA said drivers would see the changes as "the thin of the wedge" that would end with national road charging and further burdens on motorists. AA president Edmund King added: "The privatisation of the railway network has hardly been a spectacular success and millions of drivers will be concerned if one of our most important and used national assets, the strategic road network, is sold off."

Under the plans, smaller, rural roads would still be maintained by local authorities – while the road networks in Scotland, Wales and Northern Ireland are devolved.

What is promised is "consultation" – a period between now and September during which the ideas can be discussed – and an excellent fig leaf to drop the idea if opposition becomes too strident (as it did during the aborted forestry sell-off).

It is difficult to find clear reasoning behind the proposal – Cameron as a former PR person is good at saying "this is good for you" but surprisingly weak at explaining why. This may be why it is hard to find the independent voice of support for the plan.

It sounds like an ideological imperative looking for a solution. The roads can be privatised so lets privatise them.

Cameron has to convince two separate but interwoven groups. He must convince potential investors that buying into roads management is a good idea.  And he has to tell the electorate that they will have more roads for less money as a result.

Talking to the investors

Europe already has a considerable number of privately-run toll roads. In December 2005, the French government raised €15bn selling off motorway concessions to private companies. Firms such as French construction group Vinci added to their roads portfolio at the time in a consortium with other European companies including tolling specialists.

But a number of studies in Europe, including one by the British Highways Agency, the semi-autonomous body that runs major roads, have concluded that it all depends on the rate of return. If that is too mean, no one will invest. Too generous and there will be more protests – after all, the water companies which Cameron considers a template for the roads, pay dividends around the 4 per cent level and are regularly excoriated for the amount of water wasted through leaks.

Two sets of investors are possible utility buyers; overseas sovereign wealth funds and domestic pension and annuity funds. Both would appreciate the regular income flow. Although tolls and "shadow tolls" (where the government pays the road operator from road taxes according to how well each road is used) are variable (and more variable than water usage), it should be possible to budget for minimum traffic and pay dividends accordingly.

If the returns were sufficiently backed by the government, road utilities could take on the characteristics of gilts, providing a higher yielding substitute for government stocks in retirement products. Companies would be monitored by an independent regulator, "OffRoad" is one suggestion, which would also set levels of payment.

Investors would, however, need the assurance of infrastructure management companies. This might mean moving the Highways Agency into the private sector. It (or similar companies) would have to manage money coming in from tolls and the government while still maintaining externally set standards.

Convincing the public

This is at least as difficult as bringing investors onside. There is a general suspicion of privatisation with water seen as leaky and the railways an expensive lawyers' paradise. England's only serious pay by the mile road – the M6 toll – has not been popular.

One idea is to reduce the price of the annual road tax disc although that, as well as the idea of building new roads, would run into sustainability and environmental protests.

But the concept has so far attracted little consumer approval. If anything, the vast bulk of private motorists would prefer to see the potholes on suburban roads repaired before making it easier to get from the Midlands to Felixstowe on an improved toll charging A14.


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