In August 2023, the HGV levy made a comeback with a notable change in its pricing structure, shifting from a weight and size-based charges system to a model that’s also emission-aligned. The primary purpose of the levy remains the same – to acquire funds for the upkeep of the UK road network.
Previously, heavier lorries were charged more to account for the additional wear and tear they cause to the roads, making the levy proportional to its purpose.
With new emission-based pricing, the levy now also serves the purpose of promoting sustainability within the transport industry to help the Government achieve its ambitious carbon reduction targets through the 2020s and beyond. By incentivising the use of low-emission vehicles, the Government aims to reduce the environmental impact of the freight sector.
This change reflects a shift towards environmentally conscious policies and aligns with the Government's vision to move freight from road to rail.
Has the levy's purpose shifted to promote sustainability? If so, can smart pricing be employed alongside other freight modes to encourage a shift from road to rail, aligning with the Government's transport decarbonisation plan?
Through smart pricing and incentives, there’s an opportunity to encourage freight transportation to utilise rail infrastructure, reducing road congestion, emissions, and road damage.
The updated HGV levy can play a role in this vision, fostering a more sustainable and efficient freight transportation network for the future. But how should transport leaders in government do this? The answer lays in identifying regions where the rail infrastructure has the capacity and connectivity within a freight corridor and utilising smart pricing to incentivise logistics organisations to use the rail network.
Smart pricing
The Future of Freight: a long-term plan advocates, as a priority, for the creation of a joined up multi-modal national freight network for end-to-end journeys. And pricing can play a vital role in achieving this goal. Regions with excellent rail freight access could increase the levy for road use while offering more affordable rail access. Conversely, areas with limited rail connectivity, like the South West of England peninsula, could maintain a lower road levy due to infrastructure constraints.
Adopting collaborative pricing strategies encourages greater cooperation between highways and rail, treating freight as an end-to-end supply chain rather than focusing on one mode of transport. This approach fosters integrated transportation solutions, optimising the movement of goods efficiently, and sustainably across the country.
By utilising pricing as a tool to incentivise rail use where viable, the Government’s Future of Freight vision seeks to enhance the overall efficiency and sustainability of the UK's freight transportation network.
An example can be found in Switzerland which, in an attempt to divert freight from road to rail, raised the cost for transiting goods via HGV transiting through Switzerland (from Germany and Italy) whilst at the same time reduced the charges for transiting via rail using the same route. Likewise, Germany has recently announced plans to charge polluting HGVs tolls to encourage a shift of freight traffic to rail from 2024, with the revenue from this being used to enhance the rail infrastructure.
Using technology to get the pricing right
The concept of implementing pricing per region that also depends on mode of transportation presents as a complex challenge for governments. Nevertheless, the fusion of GPS tracking and data analytics presents a potent solution to streamline this difficultly.
By harnessing readily available technological advancements, governments can simplify the process for freight companies to plan journeys and ensure precision in their pricing strategies.
This approach allows for the calibration of pricing structures which consider the unique attributes of each region. Environmental considerations, such as emissions and ecological sensitivity, can be accurately assessed to encourage eco-friendly practices. Additionally, the accessibility of various infrastructure elements can be measured, enabling fair and balanced pricing for freight hauliers.
By leveraging technology, Governments can enhance transparency, optimise infrastructure use, and promote sustainability in logistics pricing. This not only benefits the Government but also fosters a more efficient and environmentally conscious freight industry.
Taking a broader perspective to Net Zero
Taking a holistic economic and environmental approach is crucial in helping the government achieve their freight and transport policy objectives. Encouraging more rail freight should not be seen as taking revenue away from highways.
While highways might experience reduced levy uptake, they stand to benefit from decreased operational costs due to lower maintenance, congestion, and improved safety. By adopting a broader perspective by considering rail and road as a single freight system, the aim is to make the UK’s freight and transport industry more sustainable in the drive to Net Zero in line with government policy.
With the return of the HGV Levy, we’ve seen a significant change in pricing with the aim to promote sustainability in the transport industry. The updated levy presents an opportunity to support the government's freight vision of moving freight from road to rail and promoting collaboration between highways and rail for a more sustainable end-to-end supply chain.
Available technology can make this happen by adopting smarter rail-road pricing to incentivise freight onto rail where access to the network is available to customers.
Thomas Harrison is a transport and infrastructure expert at PA Consulting
