Road pricing: lessons from London

This paper assesses the original London Congestion Charging Scheme (LCCS) and its impacts, and it simulates the proposed extension which will include most of Kensington and Chelsea. It also touches upon the political economy of the congestion charge and the increase of the charge from £5 to £8 per day. The possibility of transferring the experience to Paris, Rome and New York is also discussed. The LCCS has had positive impacts. This was despite the considerable political influences on the charge level and location. It is difficult to assess the impacts of the increase of the charge from £5 to £8, which took place in July 2005, because no data have yet been released by Transport for London. The proposed extension of the charging zone does not seem to be an efficient change on economic grounds, at least for the specific boundaries, method of charging and level of charging that is currently planned. Our benefit cost ratios computed under different assumptions of costs and benefits are all below unity. Overall, the experience shows that simple methods of congestion charging, though in no way resembling first-best Pigouvian taxes, can do a remarkably good job of creating benefits from the reduction of congestion. Nevertheless, the magnitude of these benefits can be highly sensitive to the details of the scheme, which therefore need to be developed with great care