You’re gonna have to face it, you’re addicted to tax

With apologies to the late, great, Robert Palmer:

The lights are on, but you're not home

Your mind is not your own

Your heart sweats, your body shakes

Another tax is what it takes

You can't sleep, you can't eat

There's no doubt, you're in deep

Your throat is tight, you can't breathe

Another tax is all you need

Whoa, you like to think that you're immune to the stuff, oh yeah

It's closer to the truth to say you can't get enough

You know you're gonna have to face it, you're addicted to tax

Of course, after that butchering of the lyrics an apology is needed. And yet it is also a very decent explanation of what’s going on here:

It attracts not only locals but also a steady stream of visitors, says Woolston, who claims that free parking is a large part of the town’s appeal.

“People come here knowing they park for a couple of hours free of charge,” says Woolston. “They can go into the local store, pop into the coffee shop, get a bunch of flowers for their wife, or whatever it may be.”

However, Woolston fears this local perk may soon become a thing of the past, as council proposals threaten to drive away shoppers and leave the town centre all but deserted.

His concerns stem from new plans put forward by St Albans council, which involves charging visitors £2.50 an hour to park in bays around Harpenden.

The plans are yet to be finalised but local authority chiefs have warned that “something has to give if a council is to stay afloat”.

The whole idea of having parking charges on a High Street - no, really, back when meters were first used - was not to raise income at all. It was to ensure turnover of parking spaces. If someone comes into town and parks for the whole day then that’s one parking space that produces one car load (which could, of course, be just the one person) of footfall in the shopping area. Free parking for an hour followed by charges makes turnover of that space much more likely. We might, in fact, gain 8 car loads of footfall over the course of the day.

Parking charges were not, not, a revenue raiser. They were a Pigou Tax upon all day parking. As such the correct rates are some free period - say an hour, say - followed by swingeing charges thereafter. £50 for the second hour. You know, maybe.

As we can see the local council is now trying to use this incentive tax as a money raiser - and thereby destroying the incentive the tax was set up to provide in the first place. We want, positively lust after, people coming to do their shopping. This is what maintains a High Street, that community and all that blather. We also want that parking to turn over. Thus free short term plus charges for long term.

This is the political problem with good taxation in the first place. We might - we often do - set up a Pigou Tax to provide the correct incentive, possibly to push people away from behaviours with negative externalities. But the revenue collectors get addicted to that tax and thereby destroy the very thing we’re trying to do in the first place.

Which brings us to fuel duty. Yes, entirely true that the expansion of electric vehicles is going to be a problem for the current system of taxing motoring through fuel duty. Thus all the talk of per mile (which is an excellent economic solution) charges and so on. But there’s a significant point being missed here.

The demand is that the tax revenue from the new system should be equal to the revenue gained from the current system. For they’re addicted to that tax revenue. Throats are tight, they can’t breathe, at the thought of not having that lovely loot to spend. But, and this is important, we are taxing petrol and diesel to cover the externalities of carbon emissions from them. In fact, we’re over-taxing those emissions. The Stern Review states that 11p a litre covers those. The fuel duty escalator has added 25p so far and the talk is of another 7p this week. No, really, the IMF says so here (page 13).

EVs should produce less revenue than the current ICEs. Because there is not that emissions externality that needs to be priced in. But who even notes this (other than us)? And, having noted it who thinks there is that celluloid rat in Hell’s chance of it actually working out that way?

Quite, they’re addicted to tax, they just can’t get enough, can they? Which is the political problem with the good economics of Pigou Taxes. Once politics gets addicted to the loot they’ll not give up the revenue stream even when the externality that justified the tax is gone.

Tim Worstall