Toll tales on the highway to prosperity: Giles Keating argues that private roads offer a golden hope for the UK economy

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The Independent Online
ROAD tolls are slowly edging their way on to the political agenda, and already two scenarios can be painted.

In the disaster scenario, the enormous potential benefits of electronic tolls (less congestion, less pollution, railway renaissance) are lost in a vitriolic political campaign by hauliers and other 'victims'. Imagine a re-run of the poll tax protests staged behind a French-style barricade of lorries on the M1.

In the visionary scenario, the income from tolls is handed over to private companies, which use it to finance R&D in the world growth industry of electronic tolls and road guidance systems. Road guidance systems take control of your car when you join the motorway and drive it safely for you, even in fog, until you reach the exit.

These companies would be centres of excellence that would help to stop the UK's current slide towards a low-wage economy. What is more, the estimated pounds 50bn to pounds 60bn proceeds from floating these new companies on the stock market would provide ample scope for compensating hauliers, coach operators, etc - as well as for reducing government borrowing.

Recent hints from ministers suggest that the Government is considering electronic tolls, but without this kind of vision. A pilot electronic toll system is already in operation in the UK, on the Dartford bridge and tunnel. Regular users can opt for a small magnetic disc that debits their account each time they use the crossing, allowing them to pass without stopping. A similar system will operate on the new Midlands Expressway around Birmingham, due to open in 1997. Both the transport secretary, John MacGregor, and his roads minister, Kenneth Carlisle have hinted at a much broader introduction of road tolls. But the transport ministry's study into London road pricing will take three years, and the timescale for most schemes seems to be the end of the century.

By that time Japanese companies, already active in this area, will be world leaders. The best that British workers will then be able to hope for is low-wage work in transplant factories, producing hand-me-down technology.

The politicians are delaying because they fear the political reaction against road tolls, not just from hauliers but also from private car drivers. There is a lack of vision: the idea of using the toll revenues to create dynamic high-tech companies does not seem to have registered, nor does the idea of selling those companies to compensate the users.

But the dire state of government finances may help to concentrate ministers' minds. The public deficit is spiralling out of control, with the Government's own target for next year of 7 per cent of GDP ( pounds 44bn) likely to be overshot, and the risk of further increases in later years. The financial markets will not wait on vague promises of toll revenues in the next century. Sooner or later, interest rates will come under strong upward pressure, unless the Government finds a new source of revenue.

The potential revenues from road tolls are impressive. For example, if motorway tolls were charged at 5p a mile for cars, about the same as on the French autoroutes, the yield would be around pounds 2bn a year, even allowing for the inevitable reduction in use that is, after all, one of the points of road pricing. Trunk roads would yield the same again, even if charged at half-price. Estimating the revenue from urban road pricing is much more difficult, not least because no comprehensive system exists anywhere in the world, and because there would be differential charges with, for example, very cheap rates late at night. But as a very crude first guess, it might yield a further pounds 2bn, making pounds 6bn in total every year.

This would make a good dent in the government deficit, but even if preparations started straight away, it is unlikely that revenues on this scale would be flowing until well into the second half of the decade. However, by promising these revenues to a series of new private companies, and selling those companies on the stock market, the Government could raise cash much earlier, perhaps within about two years.

The annual toll revenues would be so large that the value of the new companies would be extremely high, perhaps around pounds 50bn to pounds 60bn, even allowing for their liability for road maintenance. That is more than double the size of British Telecom. The Government could use a good fraction of the proceeds to compensate hauliers and other users, and still have cash left to cut the deficit. On top of this, transferring responsibility for road construction and maintenance to the new companies would cut the deficit by another pounds 3bn every year in future.

The flotation of Eurotunnel in 1988 demonstrates that it is possible to sell a company that has only expenses for many years to come, provided there is a prospect of income further ahead. But these new companies would face far fewer uncertainties. Their core revenues would come from tolls on roads that are already built, while the experience on the Dartford crossing demonstrates that the electronic toll technology is feasible. In addition, investors would be attracted by the profit potential from the development of world-beating road guidance technologies.

For the British economy as a whole, this access to the cutting edge of technology is the real attraction. In the new global environment, no country can hope to compete merely by cutting labour costs. There is an almost endless line-up of countries now trying to join the market economy club: Mexico, China, India, Russia, Brazil, Indonesia, Poland. In total, about two and a half billion people, half the world's population, are trying to sell their labour in the global marketplace. That is about three times the OECD's population. Labour costs in these 'new' regions are typically in the range of 50p to pounds 2 per hour. In a world of capital mobility, global corporations can install state-of-the-art equipment in these very cheap-labour countries.

In the 1980s, Britain tended to compete in the world economy by being one of the lower-cost European producers. Japanese companies, German companies, were drawn to the UK because wages were a lot lower than in Germany or France. But that low-wage economic policy is no longer viable, partly because at pounds 7 an hour (the average full-time manufacturing wage last year) Britain is hopelessly uncompetitive against the reallv cheap countries listed above, and partly because with German unification the economic 'centre of gravity' of Europe is shifting east. We risk being caught in the middle: companies will either go to the true low-cost regions in the Far East or Latin America, or they will go for the low transport costs and economies of scale that come from concentrating production in the real, Germanic, heart of Europe.

Robert Reich, mentor of the US President-elect Clinton, identifies some of these problems in an American context in his book The Work of Nations. His response is to improve the infrastructure and train the workforce, the two immobile factors of production. These ideas offer part of the response in the UK. But ultimately, the only way to justify good wages in the new, brutal world economy, is to have control over proprietary technology and products. Using road tolls as a vague source of government revenue in 10 years' time will do nothing towards that objective. Using them to create a series of world-beating technology companies offers the British economy one of its few chances to maintain living standards.

Giles Keating is chief economist at Credit Suisse First Boston

(Photograph omitted)

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