Why 80 mph speed limits won’t help the economy

“Britain’s roads should be the arteries of a healthy economy and cars are a vital lifeline for many. Now it is time to put Britain back in the fast lane of global economies and look again at the motorway speed limit.”

That was Transport Minister Philip Hammond last week, staking the future of the economy on Britain’s driving habits. To me, it sounds like throwing the tabloids a bone ahead of the Conservative Party conference. Since so many of us spend so much time in our cars, anything that makes it easier for motorists is going to be popular – see also the Chancellor’s latest budget speech, where he announced a minuscule cut to petrol taxes. It was the last thing in the speech to make sure the journalists didn’t miss it, and he signed off with the claim that his was a budget that would “put fuel into the tank of the British economy.”

This latest announcement is that the government is reviewing the speed limit on the motorways, possibly raising the limit to 80 mph from the current 70. That’s not especially controversial, given Europe’s higher speeds, modern safety measures, and the fact that many people drive at 80 anyway. Whether it’s advisable in an age of climate change and peak oil is another matter. What I found remarkable was the reason why the government wants to raise the speed limit:

“Increasing the motorway speed limit to 80mph would generate economic benefits of hundreds of millions of pounds through shorter journey times. So we will consult later this year on raising the limit to get Britain moving.”

Benefits to economic growth doesn’t strike me as a legitimate criteria for setting a national speed limit, but let’s humour the government’s growth fetish* for a minute and take the proposal on its own terms – would an 80 mile per hour speed limit boost the economy?

According to Hammond, we’ll save millions by getting to meetings faster. Hmm. I doubt that it’s the speed limit that holds business delegations back from their meetings. Traffic is a more likely problem, and faster speed limits may encourage more people to drive and thus increase traffic. Besides, if you take the train you can work on the way, whereas driving is dead time. So arguably, British business would be better off if more people travelled by rail. I wonder if the consultation will consider that.

We already know that  an 80 mph speed limit would increase accidents, early estimates suggest by 1%, or 19 fatalities a year. No doubt the number-crunchers will be running their cost-benefit analysis on that, and putting a price on each of those lives. (There are more accidents on slower roads, but accidents on faster roads are more likely to be fatal.)

Unfortunately, that human cost comes out positive on purely economic terms. Accidents means doctors and hospital costs – but that still counts towards GDP. So do insurance claims. Cars written off and replaced are good for the car industry. So yes, the economy would be stimulated, but that just demonstrates what a stupid measure GDP is.

Another serious consideration is that engines need to burn more 20% more fuel to travel at 80 mph. Oil is expensive right now, and the UK is a net importer of oil. We tend to forget this, since we were a net exporter for 25 years from around 1980. However, consumption overtook production in 2005 and North Sea reserves continue to decline. If our fuel bill rises, our oil imports go up and our trade deficit widens. Surely that’s bad for the economy, in terms of balance of payments.

Energy imports are already a substantial percentage of our trade deficit (the graph here includes gas and electricity.) Would the benefits of getting to meetings faster offset the rise in oil imports? Since the price of oil isn’t going to come down any time soon, weaning ourselves off oil seems like a far more sensible thing to do for the economy.

In fact, Spain did exactly that earlier this year. They cut the speed limit from 120 to 110 kph, saving 15% on the national fuel bill. At the same time, they knocked 5% off the price of commuter rail tickets. “We’re going to go slower and, in exchange for that, we’re going to use less petrol and we’re going to pay less money” said Deputy Prime Minister Alfredo Pérez Rubalcaba. Sure, Spain  is more dependent on oil imports than we are, but we’d be doing the complete opposite while expecting the same economic results.

Finally, the price of oil is one of the biggest factors in inflation. Petrol is a big part of household spending. After mortgage payments, UK households spend more per week on transport than anything else. The Consumer Price Index follows the price of oil pretty closely, as this graph shows.

The more we’re spending on petrol, the bigger an impact oil prices have on that index. As long as interest rates are held at their historic low of 0.5%, inflation will continue to rumble quietly on. As it does so, ordinary people are getting marginally poorer by the day, even if their paychecks read the same.

All told, increasing our oil use is the opposite of what we should be doing, even without the environmental or road safety angles. I don’t see how the economic benefits add up, I the 80 mph speed limit looks more like crowd pleasing PR than serious policy to me. Still, the government has proposed it, and is a long way from legislating for it. I suspect that this will turn out to be another policy idea that goes into reverse when confronted with reality.

The usual caveats apply –  I’m not an economist, so if you can spot things I haven’t, I’m happy to be set straight.

—-

*Visit the Department of Transport website, and you get the following statement on the homepage: “Our vision is for a transport system that is an engine for economic growth, but one that is also greener and safer and improves quality of life in our communities.”

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9 Comments on “Why 80 mph speed limits won’t help the economy”

  1. Andy in Germany October 4, 2011 at 2:41 pm #

    Very good points. This chap comes up with a more detailed critique of the safety aspect:

    http://karlmccracken.sweat365.com/2011/10/03/philip-hammond-mp-please-help-with-my-physics-homework/

    The costs of death and injury caused by accidents that are borne by the state, such as fire services and in the UK a lot of healthcare costs, are technically a subsidy which we could reduce by reducing speed limits.

    Or maybe we should make our own fire service for the ‘big society’

    I think this one will be mentioned once or twice at the conference, several times by Jeremy Clarkson, then quietly forgotten and buried in question 37 of any consultancy document.

  2. Andrew Bird October 5, 2011 at 1:54 pm #

    Possibly not unconnected to this, it was announced this morning by the AA that the government collected £1bn less in fuel taxes this Jan-June compared to 3 years ago due to a 15% drop in consumption.

    • Jeremy October 5, 2011 at 4:34 pm #

      Interesting. The AA appears to be suggesting that people are choosing to drive slower in order to save fuel, which rather defeats the object of allowing them to drive faster…

  3. Matt October 10, 2011 at 12:29 pm #

    It’ll help me out massively. I travel to work on motorways and hate with a passion slow drivers!! If you don’t support it you must to crazy!!

    • Jeremy October 10, 2011 at 1:35 pm #

      Being in favour of faster speed limits is a sign of sanity these days?

  4. Matt October 10, 2011 at 1:52 pm #

    Too right! Think it’s a great idea, most people where I live are above the speed limit anyway. This way it will decriminalize speeding. Worked a treat in Germany, look at the autobahns.

    • Jeremy October 10, 2011 at 2:09 pm #

      And do you think it will stimulate the economy, which is what the post is about?

Trackbacks/Pingbacks

  1. The cost of Gas « People Powered - October 4, 2011

    [...] government subsidy, how exactly will increasing speed limits to 80 mph (from 70 mph at the moment, causing a 20% increase in fuel consumption) help to reduce the budget deficit in the [...]

  2. Ignore your debts, and save the economy « Make Wealth History - October 6, 2011

    [...] first was the Transport secretary’s claim that an 80 mph speed limit would boost the economy. The second is from David Cameron and his comments on debt. In the early drafts of the Prime [...]

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