25 February 2020

The recent announcement by Government to bring forward the ban on selling new petrol and diesel cars is perhaps even more significant than it might appear on first reading.

From a manufacturer perspective the life-cycle for one of their products is 5-7 years: that's the frequency with which they typically refresh or update their product.  Perhaps more importantly many of the new vehicles joining the road are 'bought' on personal contract plans.  Underpinning the business model for those plans is the assumption that they will have a residual value at the end of the initial contract. 

It doesn't take long to come to the conclusion that the business model for new petrol and diesel cars is going to undergo fundamental change from the latter half of this decade.  At the same time – all other things being equal – one can envisage that the market for personal contracts for new electric vehicles will grow significantly and at quite a pace.  The extent to which such a rapid changeover might have an impact on the business model for new (electric) vehicles is perhaps something best left to those more experienced in such matters.

Rather let's think about the consequences for our transport system – and in particular our highway and charging infrastructure.  The likelihood is that the second half of the decade will be one in which that infrastructure needs to undergo a truly transformational change – that means the period from 2025 to 2030 becomes a critical one for our country's infrastructure.  That coincidentally means that the Road Investment Strategy for Highways England (RIS3) and Major Road Network programme (for STBs) are at the heart of the transition.

Although we've yet to have the formal announcement of RIS2, work on the development of RIS3 is already in its early stages.  In other words the work of the next 12-24 months linked with the RIS3 are critical if we are to ensure that our highway and charging infrastructure is fit for purpose.

So welcome though the Government's announcement is, the implications for our profession are quite profound and, more importantly, firmly in the urgent and pressing category.

And to add further spice to the conundrum, the transition to an electric vehicle market has fundamental consequences for our current financial model for road investment: one which sees the investment in our Strategic and Major Road Networks being delivered using the monies raised through Vehicle Excise Duty.

Set against the backdrop of our commitment – as a country – to deliver legally-binding carbon reduction targets, the need to respond to the collapse of our current model of VED is perhaps the moment where we need to start thinking about a more modern model. 

Look at how the rise of new business models for entertainment is a catalyst for a more fundamental discussion about the future funding of the BBC.  All around us the digital economy is transforming business models, often in ways we might not have anticipated initially.

In such an environment are we about to see the 'pay as you go' business model reach into the transport sector?  And if so, what might the consequences of that be for our approach to identifying future investment priorities?

Martin Tugwell is Programme Director, England's Economic Heartland and President, CIHT