Congestion charging in London:
'internalising' the externality
On February 17th 2003, a congestion charge came into force in London. Motorists entering the charging zone between the hours of 7am and 6.30pm have to pay a fee of £5 per day, with an exeption to certain vehicles and owners. The congestion-charging zone has a network of 230 cameras which compare details of vehicles with a database of those who have paid the charge. Those that do not pay the charge are liable to a fine of £80. The fine is halved for prompt payment but rises to £120 if ignored, with the potential for the offender to be taken to court in extreme cases.
The charge was controversial when first introduced, to say the least, but since it was introduced 1.1 million people every day are taking the bus into the centre while trains and the tube have seen increases of around 10% in passenger numbers. The reduction in traffic has been hailed a success in terms of reducing congestion and improving the quality of life in general in the city but not everyone is convinced. Businesses, especially shops have complained that the charge has led to a reduction in the number of people coming into London to do their shopping and those who do, have changed what they buy. They are tending not to buy larger, bulkier items because they are more difficult to take home on public transport.
On another side, the cut in the number of vehicles using the zone's roads - estimated to be around a third - has meant that the money raised from those paying the charge has not been as high as expected and as such the funds available for the investment into public transport is not as high as hoped. It was estimated that the scheme would raise a surplus of £200 million but this figure is expected to be closer to £68 million.
Congestion charging is one method that seeks to correct a negative externality by 'internalising' the externality. In this case study, the decision is that of people who have chosen to use their cars as a means of transport into central London, causing congestion which has an impact on a wide range of other people. How successful do you think it has been??
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