The impact of congestion charging on specified economic sectors and workers
Executive Summary
1: Background
2: Economic Context
3: Economic Sector Research
3.1: Taxis and private hire
3.2: Couriers and express delivery
3.3: Food outlets and convenience stores
3.4: Multiple retailers
3.5: Logistics companies
4: Low Income Workers
5: Market Traders Analysis
6: Conclusions and Recommendations
Appendix A: Interview Discussion Guides
Appendix B: Mini Focus Group Topic Guides
- The impact of congestion charging on specified economic sectors and workers (Adobe Acrobat - 1,312kb)
Executive Summary
Introduction
The London congestion charge scheme is the first major UK initiative of its type and covers an area that is broadly bounded by the 'Inner Ring Road'. Congestion charging was introduced on 17 February 2003. All drivers of vehicles are required to pay a £5.00 charge if they drive within the zone between the hours of 7.00 a.m. and 6.30 p.m. Monday to Friday. There are exemptions for certain types of vehicle and some drivers are entitled to discounts.
Research Objectives
One of the fundamentals underpinning the introduction of the congestion charge is the fact that congestion is a cost to business and that in reducing congestion, business efficiency will be increased. This research has been commissioned to assess the consequential impact of the congestion charge on business efficiency in specific commercial sectors and workgroups.
The research covers a number of pre-determined industries:
- Taxis and Private Hire drivers and operators;
- Couriers & express delivery companies;
- Small food outlets and convenience stores;
- Large retailers and their logistics partners; and
- Low paid workers in a range of service industries.
To provide appropriate context, the research also covered:
- A literature review of the economic background; and
- An estimation of the number of market traders in Central London.
In commissioning this work, the Commission for Integrated Transport has gone to some lengths to ensure it complements the far larger scale research currently being undertaken by TfL. The Commission has also ensured that TfL were aware of the scope and content of this work, and were given the opportunity to contribute and comment on the discussion guides prior to fieldwork being undertaken. In comparison with TfL's work, this research, undertaken in April and May 2003, represents a 'snapshot' of perceptions of the impact of the charge two to three months after the introduction of congestion charging.
Research Methodology
The main research methodology was a combination of face-to-face and telephone depth interviews with managers of the organisations in the sectors being reviewed. In the case of the Taxi & Private Hire trades, interviews were with trade organisations, fleet operators, and drivers themselves. Additional research methodologies included focus groups and 'desk research', as appropriate.
The research was, therefore, qualitative in nature, with small sample sizes in each of the sectors and with primarily open-ended questioning. In consequence, the results provide qualitative inferences of the effect the congestion charge has had on business efficiency, but cannot be interpreted as statistically representative, nor the results subjected to rigorous quantitative analysis.
Whilst qualitative in nature, strenuous efforts were taken to secure 'hard' numerically based data to support comments and conjecture by each of those interviewed. However, whilst a number of figures are quoted in the report, very little data of this type was forthcoming.
Detailed reasons for the release of 'hard' data vary by individual company, and are discussed in the text, but the main reasons relate to the limitations of the information management systems used by many of the companies interviewed, managements not structuring reporting systems to capture the relevant data, and commercial sensitivities.
In reporting the findings we start with the Main Findings, and the underlying conditions that have been found to have an effect on those findings. We then move on to describe the key findings for each of the Industry Sectors that we have covered in the research.
Main Findings
Of the 103 businesses and stakeholders participating in the research, almost a quarter of those that expressed an opinion broadly supported the charge. Just over a half held mixed views or were neutral, and the final quarter were negative towards the scheme.
Levels of support varied widely by industry sector with the greatest support coming from couriers and very little from the convenience stores.
The congestion charge is widely seen to have reduced congestion. This has led to both reduced and more predictable journey times.
However, the ability of businesses to capitalise upon the opportunities has been limited by two broad sets of factors:
- The economic slow down affecting large sections of the London economy; and
- Business perceptions and management systems.
The Economic Slow Down
The 'economic context' literature review illustrates that the congestion charge was introduced in the midst of longer-term structural and economic change overlaid by short-term political and economic turbulence.
Economic trends
A number of key sectors of the London economy had been slowing down through late 2002 / early 2003.
- The tourist / visitor economy that had been growing through 2002 with 'overseas visitors to the UK' growth rates peaking at almost 30% p.a. in November 2002 (four months before the congestion charge). Since that date the industry has been experiencing a sharp decline;
- Retail sales growth in London had been in decline through 2002 with growth rates falling from a peak of just over 7% in 2001 to 3% in April / May 2003;
- House price confidence in London and South East had been eroding through late 2002 and into early 2003; and
- Up until the end of March 2003, the stock market was continuing its three year decline, although there has been a slight recovery since this period.
Short term 'events'
Early 2003 was marked by a number of 'events'. The lead up to and prosecution of the war with Iraq, fears relating to the SARS outbreak, the terrorist threat (Bali) are three of the major international ones. These all contributed to the general uncertainty, a downturn in international tourism, and a subdued economic climate.
In addition to the international 'events', more local events included the Central Line closure, that continued throughout the early weeks following the introduction of the congestion charge, and particularly bad weather in early February (before the congestion charge).
Separating the impacts of economic trends and congestion charge
The research finds that macro-economic factors were adversely affecting many of the business sectors prior to the introduction of the congestion charge, with a number of organisations reporting business levels ten percent or more down on the corresponding period a year before. However, the research has found only limited evidence that the congestion charge has been a significant contributory factor to the economic slowdown of business in London.
Business Perceptions and Management Systems
The research has revealed that many businesses, particularly smaller ones, have found it difficult to measure effectively the economic impact of the congestion charge. This is due to three related sets of factors:
- A number of managers, particularly those in smaller organisations, instinctively perceive the congestion charge as a cost, and therefore by implication, a burden. In consequence, the research has identified the widespread introduction of surcharges that appear to have been justified on the basis of the additional costs of the charge, rather than the overall economic impact on the business providing a service;
- Congestion in London is longstanding, and in consequence it has been 'factored' into the cost of operating. The cost has therefore, to a large extent, been 'hidden'. The introduction of the congestion charge has changed the transport conditions, but many companies are either not able, or slow, to measure and take advantage of consequent efficiency gains; and
- The 'sub contract' culture of a number of the industries consulted (Private Hire, couriers, Taxis, and some aspects of logistics), affects the financial impact of the charge on businesses. These companies operate business models that are designed to push 'risk' down to the lowest possible level - in most cases to the self employed driver. Whilst efficiency benefits will eventually flow through to the companies, the relationship is not always direct.
Industry Sectors: Key Findings
The research has found that there are marked differences in both attitudes and reactions to the congestion scheme. The key variable appears to be the ability to capitalise on the indirect benefits that the charge offers:
- Most managers of larger businesses report that the potential benefits flowing from improved transport speeds and reliability should reduce the cost of operating in Central London; and
- Smaller businesses appear less able to take advantage of the reduced congestion. This is exacerbated by the widespread practice of suppliers imposing surcharges for services provided inside the congestion charging zone. These appear to be based on the cost increase aspect of the charge rather than the overall financial impact.
Inside and outside the zone
The survey has sought, wherever possible, to identify differences between business experience inside and outside the congestion charging area. This aspect of the study was only possible with the larger businesses and two key findings have emerged:
- With some important exceptions, which are discussed in the main body of the report, the charge is not seen to have reduced levels of business. However the research was undertaken during a downturn in the economy and most businesses felt unable to disaggregate the range of factors impacting the London economy; and
- For larger businesses, the cost of operating inside the zone is not seen to have increased to any significant degree. However this is reported to be being monitored by the retailers who participated in the research.
The following sub-sections summarise the findings for the separate business sectors that we have researched.
Taxis and private hire (minicabs)
Whilst total support for the scheme is relatively low, so is outright opposition, particularly amongst the Private Hire trade. However the research indicates that there are marked differences in attitudes between the Taxi and Private Hire trades. Of the sample that were interviewed, less than one in ten of Private Hire participants were negative compared to between a quarter and a third of Taxi drivers and stakeholders.
The different responses to the scheme can be attributed to a number of factors including the very different customer bases, regulatory regimes, and business models. The combination of these factors have resulted in:
- Taxis being relatively adversely affected by a combination of factors, including the congestion charge, whilst;
- Private Hire vehicles are experiencing a relatively positive trading environment due to the nature of their customer base, changed regulation, and the congestion charge.
Both Taxi and Private Hire operators report shorter journey times. The different business models of the different trades has led to differential effects:
- Taxi's fare revenue has declined as journey times have reduced, and this has occurred at the time as passenger patronage has fallen. The precise amount is difficult to disaggregate from other factors and the estimates vary. One of the four Major Operators claimed that 'Fares have dropped by about 30%' whilst some of the drivers reported a total drop in income of around 20%. However, it would appear that these figures are 'general revenue' and include the decline in passengers (Section 3.1.9); and
- To date the Private Hire trade does not appear to have changed its pricing structure in response to reduced journey times; consequently, for a trip within the congestion charge zone, the operator has the potential to make additional profit.
The research indicates that the long term demand for Taxis in Central London has changed for a number of reasons. Evidence of widespread 'under employment' was found, and a number of licence holders are reported to have taken other employment.
In the short-term, Private Hire businesses are benefiting from the scheme and from structural changes. In the medium term, however, market forces may reduce prices, and therefore profitability.
In the medium term, Taxis may well organise to lobby regulators and use marketing tools to promote their trade in the face of the Private Hire competition. In this regard, regulations must be used to create a 'level-playing field', creating a competitive environment to ensure that customers receive their share of the efficiency gains.
Couriers and express delivery
Overall levels of support for the congestion charge are divided amongst the couriers interviewed in the research. Approximately a quarter of those participating in the research are in favour, with the same proportion against. Half of those expressing a view found both positives and negatives to the scheme.
The research has found that courier and express delivery services are provided both by dedicated courier companies, using two-wheeled vehicles, and Private Hire vehicles, using four wheeled vehicles. Most companies agreed that congestion was an issue in Central London and that something needed to be done. However, in the main, the dedicated courier side of the industry (two wheel based) could avoid the worst of the congestion.
The main benefits therefore mostly relate to:
- The relatively small number of vans and cars operated by the courier companies; and
- Private Hire vehicles operating as couriers.
Reduced congestion has however had overall benefits to couriers and there is widespread recognition that:
- Journeys are now quicker (for both four-wheeled and to a lesser extent, two-wheeled vehicles); and
- Journeys are more predictable, thus allowing companies to commit to tighter deadlines.
However, whilst journeys are quicker, the downturn in the London economy has not led to couriers being able to utilise any increased capacity productively. In consequence, many businesses are imposing surcharges where the congestion charge is incurred.
The subcontract nature of this industry, combined with relatively unsophisticated management systems, and poor trading conditions appears to have led to businesses passing on the direct costs of the charge to their clients. Whilst it is recognised that trading conditions in the first half of 2003 have been difficult, we have concerns that as efficiency dividends do come through they may not be passed on to client businesses. In an unregulated market, clients are dependent upon the market forces exerted by competition to normalise prices, and this is expected to occur following a brief increase in prices whilst businesses cover themselves against potential increased costs.
In the short term, the courier sector is using the surcharge to cover poor trading conditions and consequent over supply. In the medium term, if trading conditions do not recover, the courier sector may downsize and customers will then reap the benefits of more competitive pricing.
Convenience and food stores
The research found no convenience store managers with positive views of the scheme. However, approximately 40% of the participants in the research held mixed or neutral views whilst 60% were negative.
The trading environment for many convenience and food stores has been difficult in the first half of 2003 as a result of the general economic downturn affecting London.
Owners and managers of a wide variety of stores operating inside the congestion charge area have indicated two separate consequences of the charge:
- Potential customer transport patterns have changed and businesses have been affected, some positively, some negatively. Chains of stores report that whilst some stores inside the zone have seen volumes decline, others are benefiting from the change. The picture therefore appears to be relatively balanced inside the zone; and
- A number of businesses report suppliers reducing service levels (for example three deliveries a week in place of daily deliveries) and / or imposing surcharges for deliveries. Smaller businesses appear to be finding it difficult to challenge these costs.
In the short-term, the convenience stores are at the mercy of suppliers who seek to make a quick profit by imposing surcharges, generally taking no account of increased efficiency as a result of reduced journey time or journey reliability. The rationalisation of deliveries will also provide efficiencies.
In the medium term, it would be expected that the competitive market would overcome the short-term profit maximisation of suppliers. In particular, chains of convenience stores are in a position to exert pressure on suppliers. However, the smaller traders, with less bargaining power, are trapped in a difficult market with costs dictated by the suppliers, and it seems inevitable that there will be some casualties whilst the supply/demand balance stabilises.
Major retailers
For both commercial confidentiality and operational reasons, the two major retailers interviewed in this study were unable to comment on the effect of the congestion charge on turnover and customer flows.
Both retailers interviewed reported that:
- The additional costs of the congestion charge were not considered a significant cost to their businesses; whilst
- They believed that significant social and economic benefits would flow from reduced congestion.
Logistics companies
Levels of support for the congestion charge are relatively high amongst the logistics companies interviewed. There are, however some organisations with negative perceptions, these appear to be the smaller companies.
Logistics providers primary concerns relate to implementation issues and restrictions on deliveries.
- The congestion charge implementation systems are not seen to be as customer focused as they could be. A number of those interviewed made clear their view that TfL should review the systems to ensure that as far as possible they are aligned with fleet structures and minimise the administrative burden; and
- Retail deliveries in London are highly regulated. It has been suggested that restrictions be reviewed in light of the changed circumstances in Central London.
Employee Research: Low Paid Workers
Most low paid workers in Central London contacted by this research are not significantly affected by the congestion charge. This is due to the interrelated factors of a high preponderance of workers living in close proximity to their work and the low incidence of car ownership.
Levels of support for the congestion charge are mainly mixed / negative. This group had relatively few positive things to say about the congestion charge.
Most of those participating in the research have migrated to using Public Transport, and there are a number of concerns, particularly relating to service frequency, reliability and, to a lesser extent, personal security.
Conclusions: The Congestion 'Dividend'
The research has found considerable evidence that many, if not most, businesses recognise the potential for both social and economic benefits from a reduction of congestion in central London.
In the short term, some service providers appear to be retaining profits at the expense of customers by charging surcharges and not passing on efficiency gains. This is providing some degree of protection from adverse trading conditions.
In the medium term it is recognised that there will be some restructuring of businesses and services, such that those businesses most suited to a central London environment will flourish. There will be some 'down-sizing' in other sectors, as couriers and Taxis, for example, come to terms with the increased efficiency of operations and the decline in demand.
It is expected that there will also be some reduction in the number of convenience stores as suppliers also seek to rationalise their offer. Small traders are particularly vulnerable in this respect.
The effect of the charge on the groups of low paid workers covered by this research appears to be relatively small, simply because they have low car ownership and work relatively close to home. However, we have detected some degree of dissatisfaction with Public Transport provision. In a number of instances these perceptions appear to be misperceptions, nevertheless they should be addressed to reduce the impact of the scheme on social exclusion.
Recommendations
In considering the findings from this research, recommendations fall into two broad categories:
- Perceptions and attitudes towards the congestion charge; and
- Implementation issues.
Perceptions and attitudes
The research indicates that, for many businesses, congestion had become part of the fabric of operating in a major urban area. And whilst the research indicates that congestion was something that was complained about, for many it had become a 'given' and therefore 'unchangeable'.
The introduction of the congestion charge has challenged this proposition. However, many businesses, particularly smaller businesses, see the charge as another 'imposition' rather than an innovation that could liberate business from congestion.
The challenge that faces TfL will be to change the still relatively widespread negative perceptions of the congestion charge from a negative 'tax' to a positive 'increase in efficiency' (negative to positive).
Implementation issues
The research identifies a number of operational issues and the most significant ones are listed below. However, as TfL reviews how the charge is 'positioned', consideration should also be given to how the charge is 'operated', particularly with regard to businesses.
Specific recommendations include:
Taxis and minicabs
Economic factors, regulation changes, and the congestion charge have combined to alter the relationship between the Taxi and Minicab trades. Consideration should be given to reviewing the regulations and to examine the degree to which they now provide a 'level-playing field'.
Couriers and express delivery
Couriers, express delivery, and other delivery organisations have introduced surcharges, and in some cases reduced service levels. Consideration should be given regarding whether further work should be undertaken to evaluate the justification for these charges.
Convenience stores
Convenience stores, and other small businesses in Central London, are reliant on distribution businesses, some of whom have imposed surcharges reflecting the charge without taking account of increased efficiency. The smaller stores find it difficult to challenge cost increases, and will suffer in the short term. Consideration should be given to finding ways of assisting smaller businesses challenge these cost increases by demonstrating overall business efficiency improvements.
Major retailers and logistics companies
Retail deliveries are highly regulated, particularly at night. Consideration should be given to find ways for TfL to work with the boroughs to review the curfew regulations if local circumstances deem it appropriate.
Low paid workers
The research indicates that some low paid workers have relatively negative attitudes and perceptions of Public Transport. Given that at least some of these perceptions are not founded, consideration should be given to better communicating the quality of Public Transport services using marketing and communications tools. At the same time, since this group's dependence on Public Transport has been increased by the charge, care must be taken to reduce the overall impact on social exclusion.