who benefits from trams and who should pay

The word subsidy distorts the debate, and makes it far more political than it needs to be.

Successful systems arise when all the beneficiaries of the system pay its costs, and there are many beneficiaries who, in this country, do not pay. My list of beneficiaries from a tram system includes:

  • The passengers, and, in almost all public transport systems, it is they who pay the lion’s share of the costs. But there are limits, and passengers will stop using the system if the fares are too high. Of course, passengers vary in their ability and willingness to pay, so we often end up with complex tariff systems to try and get the passengers who are least price sensitive to pay the most. The main thinker on this is the economist William Vickrey, and his most relevant papers are published in his book “Public Economics”. It was he who invented the idea of buckets, and so invented the concept of the bucket shop for airline fares.
  • Property owners in the “travelshed” of the tramline. Such fixed infrastructure as a tramline enhances the market price of all properties in the travelshed, and, if you are fortunate enough to own such properties, you gain from the tramline, even if you (or your tenants) are never passengers, and even if you contribute nothing towards it. So it is reasonable that property owners pay something towards it. The increase in property values close to the Jubilee Line in London was greater than its capital cost. My belief is that a Land Value Tax is the fairest way of collecting this increase in value, and at least some of it should go towards the costs of running the trams. Railway systems that own some rights to properties close to their lines (e.g. East Japan Railways, of Tokyo, and the MTR of HK) are rarely strapped for cash, and, if their shareholders are not too rapacious, this makes for on-going investment and improvement in the line.
  • Car drivers. Of course, there will usually be fewer of them, but those that remain get less congested roads, shorter travel times, and enhancements to their well-being. So they should pay something towards the trams.
  • The public. Who gain in multiple ways. Mostly in health benefits from fewer emissions in their city. Also likely is a reduction in accidents and injuries. Probably it is the young (schoolkids) and the elderly who gain most from clean air, but this benefit mostly appears as reductions in the NHS costs. So it is reasonable that city-wide and nation-wide revenues are also tapped to pay the trams way.
  • Future generations, or, if you prefer, Gaia and the environment. So a properly low emissions and sustainable system benefits the whole world, and so they should all contribute to the good running of bath trams!

Unfortunately, it is easier to collect revenues from some of these beneficiaries than others, and the balance between them is a very political matter. But it is not a subsidy towards passengers, but a fair contribution to the well-being of their neighbourhood, city, nation, and beyond.



David Hirst

Bath Trams