1. The congestion charge was put into place to correct a number of failures. One of the main failures without the congestion charge was that there were a number of negative externalities involved with congestion in Central London. A main external cost was that the number of cars in the area led to a very high level of pollution. This had negative effects on the whole economy in London.
People would avoid London in terms of things like shopping because of how bad the pollution was and they would stay in the shopping areas of where they live. Also, this pollution leads to respiratory illnesses such as asthma and this costs the NHS a lot of money each year at the expense of the taxpayer. It also costs the economy in terms of days lost by workers due to all of these illnesses and over a period of time, these costs can really add up.
Another negative externality is that with increased congestion come longer journey times. A study showed that the average journey time from different points in London were 45.9 minutes before the congestion charge. Because people are in congestion for longer, they will use up more petrol due to the congestion and with current petrol prices being very high, people can lose a lot of money. The external cost involved here is the cost of extra petrol used up because of congestion that would not have been used if there wasn’t any congestion. This can also add up over a while. There is also an external cost in terms of lost wages because of the amount of time lost and so this can lead to people being less well off and so spending less in the economy.
A very important external cost that comes with congestion is the inability of emergency services to get to where they are needed quickly and efficiently and so people involved in serious accidents may have less chance of survival because they do no receive the urgent medical attention that they require and also the police service may never catch criminals at the scene of the crime because it takes so long to get there.
The following diagram shows the effect of external costs. The external cost shifts the private costs curve to the left to become the social costs curve and the benefits stay the same and so the overall external cost is labelled x.
Another failure the congestion charge was intended to correct was the number of people using public transport in central London. Too few people were using it and so the congestion charge aimed to change this. It did this by increasing the cost of using a car and so using public transport would seem relatively cheaper. Increasing use of public transport would benefit the whole of London because it would generate more profit for the transport authorities and this could in turn be spent to improve the services provided by public transport and so even more people would use it. However, this may not be a very good idea because things like the London underground have very limited capacity and so if too much people start using it, it would become very crowded and so people may again move to using their cars again.
The congestion charge may have also been a way to generate revenue so that the Government can for example correct its failure to invest properly in public transport. They can also use this revenue to correct failures in other public sector areas such as health care and education.
Overall, the congestion charge has been done for many reasons including trying to get rid of negative externalities such as pollution and also for raising revenue and increasing demand for public transport.
2. Looking at all the data, the congestion charge seems to have been relatively successful. It as removed some of the externalities explained earlier. Average journey times have decreased from 45.9 minutes to 39.4 minutes due to traffic speed increasing by up to 15%. This means that less time will be spent in traffic and so there is less wasting of petrol and less loss of wages with lost time. However, you can argue that is 10 minutes worth paying ï¿½5 for, seeing as the average earnings are 0.2p per minute in London. Also, the economy must have suffered greatly. A survey showed that many businesses within the charging zone would rather locate to another city in the UK such as Birmingham or Manchester than stay in London. However, figures show confidence in the congestion charge as 68% of the members of London First felt the charge was working and only 12% felt it wasn’t.
Also, many more people are willing to use public transport because of the extra cost incurred by drivers. 6000 extra passengers are taking buses in the morning and an extra 17000 people are using the tube every day on average compared to before the congestion charge. However, this may have been due to the better than expected weather in 2003 as people do not use their cars as much in good weather. Increases like this are not very good in the long term because the tube could become very crowded and so people may actually be put off using it. This could though to be a very good way of the government increasing its revenue and they could use nearly all the congestion charge revenues to improve public transport which has a good potential of producing high profits. Also, average speeds of buses have risen by 15% since congestion charging but this may be due to an increase in the number of bus lane available.
The effect of the congestion charge on the London economy has not been very good. As explained earlier, businesses want to locate out of London because of it. Also, 79% of shops have seen takings fall this year, 42% believing the charge is completely to blame. This can all lead to a higher rate of unemployment in the economy and also, London will become very far away from the PPF curve due to lower productivity because workers will want to move jobs because of the charge and also, people may not have much job security due to sales in the area overall in a decline. However, this decrease in sales could be due to other factors. Inflation may have increased by more than real income and so people have less spending power. One other explanation could be that the hotter than usual weather means that people will spend less on winter clothing because they do not need it that much.
Overall, looking at the figures, I can say that congestion is falling and it is not being displaced outside of the zone. Journey times are decreasing slightly and many firms feel the charge is working. However, we can never say that these figures are brought about only from the congestion charge yet we know that the charge is working with other factors, but are the effects of the charge as good? Sales are down in many shops in the area and the economy will be affected more in the long term. The tube will become more crowded every day yet the standard of service will improve. There are many arguments and contradictions to this issue and it can never be easy to weigh them up against each other. However, I can see from my arguments that the congestion charge is creating more disadvantages than benefits for the London economy.