And how subsidies,
even if to the not so poor, can make a small contribution to the public good and saving the planet.
It is tempting to assume that the pensioner bus pass, or in
London the Freedom Pass, is just another item within the host of benefits, tax
reliefs, grants and subsidies that make up the complex of arrangements that reflect
our welfare state and public spending choices. On this interpretation, it might
be viewed as a policy choice based on political priorities. According to your
political persuasion and generational perspective, it is then either just
another bung to an over-privileged age group who happen to turn out in greater
numbers to vote, or, alternatively a redistributive measure which can be a
major help to some low income households. I have to declare a personal interest
as a beneficiary; but even among pass holders many will have inclined to the
former rather cynical explanation, a view which will likely be shared by large
numbers of millennials.
The politics matter, but a little more thought and
investigation reveals some hidden dimensions for the policy that may actually
be just as important. Even if the policy is of benefit mainly to wealthier
pensioners, it may still add significantly to the public good.
The Energy and Environment Connection
First there is an inevitable connection with energy use and
hence with policies for a low carbon economy. Road transport is a major source
of CO2 emissions, so any policy that has a
significant impact on traffic volumes will also have a corresponding impact on emissions.
We also know that two of the biggest factors influencing a driver’s fuel use
for any given journey are, first, cruising speeds, and, second, traffic
congestion, particularly when it results in stop/ start movement.
Of course, CO2 emissions are not the only important
factor in terms of environment and the quality of urban life. More traffic can
mean poor air quality, especially due to diesel fuel, and longer journey times
for drivers. But in this instance, I would argue, all the effects are moving in
the same direction. Less traffic means less CO2, better air quality,
and shorter travel times.
Enter Market Failures and the Search for Second Best
Solutions
Market failures occur when the fairly strict conditions,
under which the unfettered operation of competitive markets can be shown to lead
to a “best of all possible worlds” social welfare optimum, are simply not met. They
often provide classic and compelling arguments for policy interventions. In
addition, it will very often be the case that, if the failures are bad enough,
then other generally sensible measures, like competition policy, will also
start to show serious flaws (see an earlier essay on gas for coal substitutionin Europe). The “second best”, given that the theoretical “best” is
unattainable, can be hard to find.
Failure to comply with these “welfare” conditions is
particularly rife in relation to monopolies, networks (as in the Braess
paradox), failure to “internalise” social, health, or environmental costs
caused by pollution of various kinds, and difficulties in the allocation of
fixed costs into (marginal) prices. And unfortunately transport networks and
road travel display these characteristics in spades.
·
Drivers do not face any penalty when they add to
congestion and increase the journey times of all other drivers.
·
Fuel costs may not reflect the full
environmental and health costs that their use incurs, although UK fuel taxes
probably go quite a long way in this direction.
·
Most of the costs of operating a bus or rail
service are fixed, at least in the sense that the (short run) marginal cost of
an additional passenger is usually close to zero, but fares will still need to
recover the high fixed costs.
Subsidising pensioner travel. The Bus Pass meets some
sensible public policy tests
Particularly in big cities, traffic volume is the major cause
congestion and hence of increased journey times, higher fuel consumption per
vehicle journey made, and hence higher emissions. Subsidising pensioner travel
on public transport can significantly reduce the number of vehicle journeys and
hence traffic volumes. This helps address the first two bullet points above.
But, one might ask, why not make all travellers pay higher
charges in the form of road pricing – which is what economists might recommend
as a first best solution? The answer is first, that there is a lot of political
resistance to raising travel costs for commuters travelling to work, some of
whom may not have a public transport option and already pay a high percentage
of their income on commuting to work. Second, introducing a road pricing scheme
can be a complex and costly exercise. In
the UK, for example, it is currently confined to central London.
In the absence of effective road pricing, subsidising travel
by public transport can be a useful part of a “second best” solution. Pensioners
are a group more likely to switch to public transport in response to a
financial incentive, partly because they will tend to be less constrained by
working hours. Because the marginal cost of taking an extra passenger is mostly
close to zero (the third bullet point), this discrimination between categories of
traveller does not in this instance lead to any serious distortions in the use
of resources.
And, finally, is it fair that only pensioners enjoy free travel?
The answer is probably no, but free travel for all could also bring its own
problems, influencing fundamental long term decisions on choice of where to
live in relation to work, for example. And as a practical matter of public
finances, the transport system does need to be paid for, at least in
substantial part, by travelling passengers. Given that most of the costs are
typically fixed, and that pensioners are the group most likely to revert to personal
transport if faced with higher fares, there is again a pragmatic case for offering
them lower fares or free travel. This is essentially the same motivation[1]
that leads private rail companies to sell tickets at lower prices to groups
deemed to be price sensitive, eg old people or students.
…………………….
Readers are also recommended to two much more comprehensive evaluations
of the benefits of these particular subsidised travel schemes.
Greener Journeys. The
costs and benefits of concessionary bus travel for older and disabled people in
Britain. September 2014
UK Department for Transport. Evaluation
of Concessionary Bus Travel The impacts of the free bus pass. 2016
[1] Ramsey
pricing. This is a well known economics approach to recovering fixed costs in a
monopoly situation. In technical terms it means allocating fixed costs in inverse proportion to the elasticity of demand. Sometimes unfair because it means that charges fall more heavily on "essential users".
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