In this chapter, we explore ways to boost the effectiveness of both existing and new financial incentives.

From standalone policies to policy packages

Transport policies have evolved over the past 30 years. Prior to 1997, transport policies were underpinned by a “predict and provide” approach focused on meeting growing transport demand and increased car usage. ³⁹ But the transport strategy of Tony Blair’s government shifted the focus away from car usage to a more complex set of objectives such as reducing pollution and congestion or boosting local economies.

In this context of increased complexity, transport policy experts started to make the case for ‘policy packages’ rather than standalone policies.

Policy packages are now acknowledged as being more efficient than standalone policies. A policy package was defined by the European Commissions as: ‘‘a combination of policy measures designed to address one or more policy objectives, created in order to improve the effectiveness of the individual policy measures, and implemented while minimizing possible unintended effects, and/or facilitating interventions.” ⁴⁰

Improve effectiveness and feasibility

Prompting modal shift is challenging because it requires individuals to be both motivated and able to change their transport behaviours. This complex objective is easier to achieve when several policies are integrated together.

In the literature, three “types” of policy integration have been identified: ⁴¹

• Horizontal integration: secondary policies are introduced at the same time to make alternatives to driving more attractive and affordable.
• Vertical integration: policies are introduced at different levels of government. For example, TfL can introduce road user charging whilst local authorities introduce financial incentives to encourage sustainable travel.
• Chronological integration: measures are introduced over time.

The first type of integration involves policymakers bundling complementary interventions to a primary measure. Complementary interventions can scale up the impacts by enabling more people to change their transport behaviours. For instance, integrating a measure that reduces the availability cost of bikes with a measure increasing the cost of driving can help to support people on low incomes to switch from driving to cycling.

Vertical integration is particularly relevant where power is devolved to different levels of government such as in the UK (see Table 1). For instance, local authorities can incentivise active travel whilst TfL disincentivises driving.

Chronological integration allows time for individuals to adapt their behaviours to the requested change. Chronological integration can also allow policymakers to build public support for a measure by gradually increasing the scale or reducing the number of exemptions. ⁴² For instance, a road charge can be introduced with many exemptions, then gradually these exemptions can be removed.

The integration of measures introducing financial incentives and disincentives can allow for cross-subsidy to fund non-revenue-generating infrastructure for activities such as walking and cycling.

However, revenue generated through taxes or the charging of drivers could be unreliable if the policy is successful in achieving modal shifts. This is one of the dilemmas that the government is currently facing with VED.  The reliance on VED to maintain roads is a problem as the government will need to find other sources of income to replace the revenue lost due to fewer people owning cars.

The situation is fairly similar for those London boroughs that rely on parking revenue to fund some of their schemes. However, this is not the case for many outer London boroughs, which aren’t generating revenue through their parking fees.

Example of policy integration: increase fuel duty and lower bus fares

In our accompanying report, we explore the impact of different policy interventions on Londoners’ travel costs. This example illustrates how integrated policies are more effective than standalone ones. Using the example of a family living in Havering and travelling to Bromley once a week, we looked at how increasing fuel duty would impact their travel costs and how integrating a complementary measure could be more effective.

• Peter, Zara and their children visit Zara’s parents in Bromley every week. Driving from their home in Havering is less expensive than taking public transport.
• If the government were to double fuel duty, this family would see the price of driving increase by £1.10 per trip. But travelling by public transport will remain more expensive – this measure wouldn’t incentivise the family to change their habits and take public transport.
• Furthermore, the policy of doubling fuel duty is likely to face significant opposition from the public which would impede further development.
• If this measure were introduced alongside a reduction in the bus fare so that it costs £1 instead of £1.75, it would reduce the price difference between using public transport and driving, but driving would remain cheaper.

Whilst other dimensions such as public transport availability, convenience, time or reliability will determine the family’s decision to use public transport, an increase in fuel duty isn’t expected to lead to a modal shift for them. But introduced as part of a package, the measure is more likely to provide a financial incentive for the family to switch from private car to public transport.

Increase public acceptability

Public support is critical to successfully implementing ⁴³ a new policy, and research has found that public support is more easily obtained with the introduction of secondary measures. ⁴⁴ Financial disincentives are more disruptive ⁴⁵ than financial incentives. The latter are therefore more likely to gain public support than the former, which supports the case for introducing financial incentives alongside charges and taxes. Policymakers at all levels of government mentioned this approach to designing new charges or taxes.

“I think we’ve got a lot of examples of where that’s proven to be correct. And it’s not the only thing, and it’s got to be part of a suite of measures because it’s essentially, it’s a stick a lot of the time. And to make sticks palatable, acceptable, you need some carrots, and you need some sort of compensation or mitigation or complementary measures.” – Transport planner

The carrot and stick approach – or push and pull measures – is a useful framework for understanding financial incentives and disincentives.

“So from that perspective, that’s what the clean air neighbourhoods are trying to do on the sort of stick approach. And on the carrot approach, we have a lot of work and I think one of the best in the country for incentivising use of bicycles.” – Local authority officer

Example: Smart road user charging in London

In 2022/23, the London Assembly Transport Committee launched an investigation into the future of road user charging.

We have explored in a previous report how single smart road user charging can be fairer and more efficient for Londoners than the current system of charging road users. ⁴⁶ The ULEZ and the Congestion Charge do not address all the negative externalities of car use across the city, namely congestion across London and road accidents. A more efficient and fairer system would charge people in proportion to their contribution to these negative externalities. Currently, people driving less than 1 km are charged the same as those who drive 10 km if they happen to cross a boundary line, and those who drive for one minute inside the zone pay the same as those who drive within it for six hours.

This scheme is more likely to be accepted if other measures are introduced at the same time to make alternatives to driving affordable and attractive. Discounted rates and free mileage could be offered to ensure the new scheme doesn’t burden people who must drive a car (e.g. for medical reasons or for their jobs).

Tailoring the design of smart road user charging to the objective(s) it’s trying to achieve will be a key element of its success. When discussing the issue with the London Transport Committee, experts said that introducing smart road user charging involves striking a balance between attempting to deal with many objectives at once and focusing on fewer to make sure these (e.g. raising revenue, reducing congestion, air pollution or encouraging modal shifts) can be addressed successfully. ⁴⁷

Address unintended consequences

Using travel costs as a lever to encourage modal shifts can disproportionately affect groups who are unable to afford to change their transport behaviours. Unintended consequences could either be “known” at the design phase or “unknown” and discovered only after the introduction of the policy. ⁴⁸

An example of an unintended consequence of scrappage schemes – where people can replace their less efficient vehicles with less polluting ones – is that the cost of driving will decrease for individuals who access the scheme, which could lead to them driving more.

Unintended consequences can also include burdening people who are less able to pay. Mobilising financial incentives and considering exemptions or deductions when introducing a new policy can help to alleviate some of these consequences. An example of a measure introduced to offset fairness concerns about the ULEZ is the scrappage scheme. The idea of the scheme is based on recognition that some people aren’t able to afford to change their vehicle to make it compliant, but don’t have any alternative to driving.

Interviewees have mentioned the need to offer or facilitate the use of alternatives to private cars when introducing further disincentives to their use. This is the case behind the introduction of car clubs to ensure that people who need to use a car can still do so.

“So those things, they have to happen at the same time so that there’s a kind of an incentive curve or line […] but at the same time [isn’t] sort of debilitating for some car users who need to use them for whatever reason.- ” Local authority officer

Engaging, communicating and aligning policy objectives

Effective communication strategy

Effective communication is the key to successfully bringing about behaviour change. Introducing financial incentives without telling people about them only leads to marginal behaviour change as people aren’t aware of the incentives. Similarly, taxes and charges need to be introduced alongside communication strategies building on trust and involving people in the process. This in turn is likely to bring a higher level of public acceptability around the policy. ⁴⁹

Clear communication about new taxes, charges or subsidies will allow people to make informed decisions about the way they travel. They are more likely to dispose of their cars if they have a better understanding of how a new charge will affect them and the alternative options available. Effective communication is a two-way process consisting of getting the messages out, but also listening to people’s concerns.

People are informed and then can make the right choice based on their own personal circumstances, which I think is [a] really important part of the transparency that’s needed around how we try and take the public with us on this kind of change. – Local authority officer

The timing and who is targeted by the communication strategy are equally important. Changing transport behaviours takes time, and communicating about a new measure in advance of its introduction can increase the scale of its impacts. Tailored communication can help with prioritising and reinforcing the messaging around a measure.

“And we have tried to take a very different approach this time, which is we will be communicating with everyone who is coming to buy a permit or renew a permit to say, if you continue to drive the vehicle you are currently driving, this is what’s going to happen to your permit price over the next five years.” – Local authority officer

It’s also important to make it easier for people to find out about the cost of driving compared to other modes of transport. ⁵⁰

Clear objectives and alignment of policy objectives

Measures need to be associated with a clear objective that will determine the design of the financial incentives or disincentives to serve this objective (e.g. a parking tariff will be different depending on whether the local authority is using its parking strategy to encourage modal shifts or to raise revenue). This reflects opinions expressed by many experts on road user charging when discussing the subject with the London Assembly Transport Committee. ⁴⁷ Interviewees emphasised the need to consider financial incentives as part of a broader strategy – this requires coordination and engagement between all the different actors.

Furthermore, as discussed in previous sections, transport policy in the UK is set out at different levels of government with different interests and political colours. Even within the same organisation, teams could have conflicting interests. But transport policy needs to be thought through in a systemic way by creating a common understanding and a greater alignment of all relevant policies. Stronger coordination between different transport providers and policymakers makes it easier to prioritise the right objectives.

Challenges to designing financial incentives

In our analysis, we also found barriers and constraints to designing better policies.

Lack of time and resources

Interviewees told us they lack resources and time to introduce new policy, resulting in some elements – such as communication about financial incentives – being overlooked. Local authorities find this especially hard as they already have to engage with members of the public about many other aspects.

“It’s a constant battle to try to convince people, and it uses up a fair bit of time really, trying to do that work with comms and engagement colleagues, to try to generate the positive messages. It is something we want to do more of. But you are conflicted in time management.” – Local authority officer

Technology

Recent developments in new technology can support the shift from private cars to more sustainable and active travel. But it can be hard to implement solutions which use new technology because potential users may be suspicious of it, and the costs can be high.

There are many ways in which technology can support more people to undertake active and sustainable travel:

• It can support data collection to better evaluate policy measures and build a deeper understanding of travel patterns.
• It can be used to create fairer and more effective financial incentives and disincentives (e.g. road user charging).
• It can be used to support multi-modal travel by making it easier for people to plan routes across different modes of transport without needing to switch between apps and by integrating payment mechanisms (e.g. MaaS).

Mobility as a Service

MaaS is a digital transport service that allows people to obtain real-time information about a range of transport options including shared transport. In addition, this service provides integrated payment mechanisms across a range of transport providers. MaaS has gained a lot of attention recently due to a diversification of transport options in urban areas. Future urban mobility is predicted to be more flexible and responsive to people’s needs. MaaS platforms will offer this seamless mobility.

But there are many challenges to introducing this new technology. The integration of the payment mechanisms and real-time information requires public and private service providers to share their data, and this can be seen as risky. In the UK, the West Midlands region has worked with the Helsinki-based company Whim to introduce MaaS. Whim offers unlimited travel options with a monthly subscription (e.g. unlimited use of public transport and taxis within a certain radius of the user’s location). This advantageous pricing structure can be explained by the need for MaaS providers to extend their business base and attract transport providers. ⁵²

Coordination and political will

A broad strategy can only be set out if all the actors work closely together, but in our interviews, we found that within some local authorities not all the policy instruments are considered to be relevant in encouraging active and sustainable travel. For example, parking enforcement sits in a separate team to transport planners, and this setup can mean that parking is neglected as part of the sustainable transport strategy.

The effectiveness of transport strategy is dependent on the political appetite for influencing behaviour change at all levels of government. In our interviews, political will was cited as one of the main blocks to introducing new transport policies to encourage active and sustainable travel. Furthermore, harmful existing measures can remain as they are seen as too politically risky to remove. This is the case for the fuel duty rates that have been frozen since 2011. Meanwhile, rail fares have increased year on year. Whilst recent cost-of-living measures saw the Treasury extending a five pence per litre cut to fuel duty, ⁵³ rail fares were increased by 5.9 per cent. The rail fare increase was 6.4 percentage points less than the Retail Price Index (RPI) figure that increases are typically based on, but it still represents the highest rise in a decade. ⁵⁴ There is an opportunity for national government to align its approaches to the financial measures affecting transport in a way that could better encourage sustainable and active travel choices. But it will require more cross-departmental collaboration and ambition to change the status quo.

“It’s about political will […] Permit price changes is how far and how fast they’re prepared to go with this.” – Local authority officer

Amongst the interviewees there was a strong sense there is a need for political leaders to fully embrace and acknowledge the need for modal shifts in order for policy to be successful.

“It is all about leadership and it’s all about political leadership and which is why when I see conferences on sustainable travel and all the rest of it, I’m like, don’t, it’s not me that needs to go to this stuff. It’s not officers. It’s actually political leaders that need to go to these things to understand it, why you need to do that.” – Local authority officer

Conclusion

Financial incentives are useful policy levers to encourage active and sustainable travel. In London, there are already many in place which make driving and owning a car quite expensive. Moreover, national government, local authorities and TfL have introduced financial incentives to positively reward people using active travel and public transport, making those modes of transport attractive.

Our research found that policy packages are more effective than standalone policies. Whilst there is widespread acknowledgement amongst policymakers (and academics) that policy packages are more effective, they aren’t always easy to implement.

We formulated some recommendations to improve the effectiveness of financial incentives and we set out some practical changes to the current landscape of financial incentives.

In the second part of this report, we explore the travel costs Londoners face and evaluate the effects of financial incentives on typical Londoners.