1 © Centre for Economics and Business Research THE ECONOMIC AND SOCIAL IMPACTS OF ULEZ EXTENSION A Cebr report for FairFuelUK and the Alliance of British Drivers May 2023

2 © Centre for Economics and Business Research Contents 1. Introduction and summary 3 1.1. Introduction 3 1.2. Summary 3 2. Background 4 2.1. Introduction 4 2.2. Timeline of schemes 4 The recent and current schemes 4 The Proposed Scheme 5 3. The experience of the existing scheme 6 3.1. Introduction 6 3.2. The transport impacts 6 3.3. Revenue and economic effects 9 3.4. Administration costs 9 3.5. Direct economic effects on users 9 3.6. Indirect economic effects 10 3.7. Total economic effects 10 3.8. Air quality impact 10 3.9. Conclusions 11 4. Differences between current and Proposed ULEZ areas 12 4.1. Introduction 12 4.2. Geography 12 4.3. Size and transport patterns 12 4.4. Administration costs 14 4.5. Estimated economic impact of the extension 15 4.6. Conclusion 16

3 © Centre for Economics and Business Research 1. Introduction and summary 1.1. Introduction This is a report on the economic and social impact of the proposed extension of the London Ultra Low Emissions Zone (ULEZ) in August 2023 There are three elements to the study. First it examines the impact of the existing ULEZ scheme for cars and vans. Then it analyses the relevant differences between the area for the expanded scheme and that of the existing scheme. Finally it considers the overall economic and social impact. 1.2. Summary The key points of the study are: The existing ULEZ has an impact on the London economy – we estimate the costs to businesses and consumers are £253 million, though as part of that (£169 million) is revenue for TfL, in economics terms the economic cost (the deadweight loss to consumers and the admin costs) is £199 million. Scaling from this we estimate that the Proposed ULEZ has an additional revenue impact of £369 million. This means that the total Proposed ULEZ scheme (i.e. both the current scheme and the proposed scheme) has a revenue cost to consumers and businesses of £538 million. If in addition the economic costs to users are included the total cost rises to £807 million. Using a different measure, which discounts the revenue costs because they represent income to TfL but also includes their admin costs, the total economic cost of the scheme is £569 million. Moreover these calculations only estimate the direct effects. Since the impact of the Proposed ULEZ on vans is 4.5 times that of the existing ULEZ and hence essentially on business activity, it is likely that the Proposed ULEZ has additional indirect economic effects which we have not taken into account, and that for the extended scheme these could be quite substantial.

4 © Centre for Economics and Business Research 2. Background 2.1. Introduction The Mayor of London announced in November 2022 that TfL would expand the ULEZ scheme which had been introduced for the central area only (the same area covered by the congestion charge) and then extended in to cover the area within the North and South Circular roads in October 2021 to cover the whole of London (defined as the area covered by the GLA) from end August 2023. This report examines the economic impact of this proposed extension and some of the social impacts. It does not consider the health impacts, though it notes that the quantification of some of the alleged health benefits has been challenged1. There is a very detailed and independent study of the potential health impacts under way and it probably makes most sense to await its conclusions. The report’s methodology is to use already published reports on the actual observed results from the initial imposition of ULEZ in the central area and its expansion to the area within the North and South Circular Roads; adjust for the differences between these areas and the area covered by the new expansion; adjust for the different time periods covered; and after making these adjustments scale up for the projected impact from the latest expansion. 2.2. Timeline of schemes The recent and current schemes Low Emission Zone Transport for London (TfL) has operated a London-wide Low Emission Zone (LEZ) that applies to the most polluting heavy diesel vehicles since 2008. Since 1 March 2021 the LEZ standard was tightened to Euro VI for HGVs, buses, coaches and other specialist vehicles. Vehicles that do not meet this standard face a charge of £100 per day. The LEZ had become ULEZ. Vehicles that do not meet the previous (pre-2021) Euro IV standards are charged £300 per day. Lorries, specialist heavy vehicles or vans (over 3.5 tonnes) and buses, minibuses, and coaches (over 5 tonnes) do not need to pay the ULEZ charge. Large vans (up to 3.5 tonnes) and minibuses (up to 5 tonnes) that do not meet the LEZ Euro 3 for PM standard are charged £100 a day; these vehicles must also meet the ULEZ standards to travel within the ULEZ. From when it was first introduced in April 2019 until October 2021, the ULEZ had the same boundary as the Congestion Charge Zone (CCZ). In October 2021 it was extended to inner London to cover all areas within, but not including, the North Circular (A406) and South Circular (A205) roads. The ULEZ operates 24 hours a day, 7 days a week, every day of the year, except Christmas Day. All vehicles, unless exempt, need to meet the ULEZ standards or pay a £12.50 daily charge to drive inside the zone. To meet the ULEZ standards, 1 The most detailed independent study only covers the original Low Emissions Zone and provided ambiguous results. A very detailed cohort study is currently underway which should help provide better answers. See:

5 © Centre for Economics and Business Research the vehicle must meet the required Euro emissions standard for the vehicle and emission type. The ULEZ standards are provided in Table 1. Table 1 Dates from which newly registered vehicles must be compliant with ULEZ or pay a daily charge Vehicle type Minimum emission standards Date from which vehicles registered as new must meet the emissions standard Motorbike, moped etc (Category L) Euro 3 1 July 2007 Car and small van (Categories M1 and N1 (1) Euro 4 (petrol) Euro 6 (diesel) 1 January 2006 1 September 2015 Large van and minibus up to 3.5 tonnes (Categories N1 (2 and 3) and M2 Euro 4 (petrol) Euro 6 (diesel) 1 January 2007 1 September 2016 The Proposed Scheme The Mayor has announced that a new London wide scheme (‘the Proposed Scheme’) for ULEZ will be introduced at end August 2023. The Proposed Scheme comprises: ▪ Expansion of the ULEZ to the wider outer London area (to the boundary of the LEZ, 96 per cent of Greater London) ▪ Charge level of £12.50 per day for vehicles not compliant with ULEZ standards (a continuation of the charge level currently applied to the existing inner London ULEZ) ▪ The same operating times as the existing ULEZ – 24 hours a day (midnight to midnight), seven days a week, every day except Christmas Day 3 ▪ Identical emissions standards as the existing ULEZ ▪ Removal of the annual £10 per vehicle Auto Pay registration fee ▪ Increase the Penalty Charge from £160 to £180 for non-payment of the ULEZ charge The proposals to remove the annual £10 per vehicle Auto Pay registration fee and to increase the Penalty Charge levels also apply to the Congestion Charge scheme, with the proposal to remove the annual £10 Auto Pay per vehicle registration fee also applying to the LEZ. There are several discounts, exemptions and reimbursements for the existing inner London ULEZ scheme that will remain in place and would mitigate some of the impacts associated with the implementation of the Proposed Scheme on certain people and businesses travelling within the ULEZ expansion area. This study examines the economic and some social impacts of the Proposed Scheme.

6 © Centre for Economics and Business Research 3. The experience of the existing scheme 3.1. Introduction This section examines the results of the existing scheme currently in operation before the Proposed Scheme comes into operation. It looks especially at three items – transport impact; extent of shift to ULEZ compliant vehicles; and air quality impact. 3.2. The transport impacts TfL has released a report about the impacts of the most recent expansion of ULEZ from the Central London Congestion Charging Zone to cover the area within the North and South Circular Roads2. Obviously TfL can hardly be considered as an independent assessor but there is no reason to suppose that the transport data has been distorted, even if it might have been quoted selectively. The RAC’s assessment of the TfL report says: ‘Khan revealed that TfL figures showed that around 124,000 had driven within the extended ULEZ zone before October were not compliant with regulations, but by the end of June 2022, it had decreased to less than 67,000 vehicles. The report also stated that more compliant vehicles were travelling within the extended zone compared to October 2021 – rising from 85% to 94%. The total number of vehicles on London’s roads had also decreased by just over 2% since the changes to the ULEZ last year. One of the main targets for the ULEZ is to remove the number of diesel vehicles on the capital’s roads. The TfL report showed that there has been a 20% decrease in the number used since October and ownership has dropped by 25% year-on-year.’ The results of the TfL transport assessment are shown in the two tables below taken from the TfL report. Table 2 is Table 4 from the TfL report and shows the month by month impact on car traffic; Table 3 is Table 6 from the TfL report and shows the month by month impact on van traffic. Given that new sales of non-compliant vehicles are illegal, the number of ULEZ compliant vehicles is in any case on a gradual downward trend so to establish the ULEZ impact it is probably best to examine the impacts in the early months. 2

7 © Centre for Economics and Business Research Table 2

8 © Centre for Economics and Business Research Table 3

9 © Centre for Economics and Business Research 3.3. Revenue and economic effects The data3 shows that since the beginning of November 2021 until June 2022 – a period of eight months – an average of 1.9m journeys were made into the zone every month by vehicles not conforming to either Euro 6 diesel standards or Euro 4 petrol standards, resulting in £112.5m worth of revenue from those vehicles required to pay. By way of comparison between February and September 2021 prior to the ULEZ expansion, 329,527 journeys on average were made every month by non-compliant vehicles within the original central London boundaries, resulting in revenues of just under £19m. 3.4. Administration costs TfL have been less than transparent about the administration costs of ULEZ but various FoI requests have given some rough numbers. The expansion to the North and South Circular Roads under the existing scheme is estimated to have cost £115 million4. This probably combines some capital and running costs but is the only available number. 3.5. Direct economic effects on users Both private individuals and businesses have three choices in response to ULEZ. • They can pay the charge • They can change vehicle for a compliant vehicle Or • They can shift mode (rarely possible for businesses) or suppress the journey In evaluating the economic effects the ‘worst case’ for a private individual or a business is to pay the charge. For those who continue to use non compliant vehicles the cost to them is the charge. The negative impact for them can simply be calculated by adding up the charges they pay. For the other options the cost to the individual will vary from negligible to nearly the cost of the charge. For example, if a trip in a non compliant vehicle is of marginal value, the cost of suppressing it is negligible. But if its value is nearly the cost of the congestion charge, so too is the cost of suppressing it. Averaging over all those affected, the standard convention amongst economists is to assume that on average those taking these steps lose value of about a half of the charge5. We can use this to work out the impact on road users of the existing scheme. 3 4,to%20make%20the%20scheme%20operational. 5 See the relevant Wikipedia article on this:

10 © Centre for Economics and Business Research The annualised revenue from those users continuing to use non ULEZ compliant vehicles is £169 million. The assessed cost to those who change their behaviour in response to the charge is about half that at £84 million. This gives a total direct negative economic effect of £253 million per annum. 3.6. Indirect economic effects There are indirect effects from the private journeys that are suppressed or shifted by mode or by type of vehicle as a result of ULEZ. But we argue that the direct estimates incorporate them. For business journeys or activities that do not take place, the economics is less clear. A tradesperson who decides not to undertake a piece of work because of ULEZ is making a calculation based on his or her loss of profit; but the loss of activity includes the entire value added that is lost. But in many cases the type of business where activity is lost is small and may well be proprietor owned. It is probably not unreasonable therefore to assume that the direct cost of ULEZ to the proprietor is not very different from the total cost to the economy. 3.7. Total economic effects The total economic impact is the deadweight cost to the consumer plus the revenue cost to the consumer minus the revenue earned by TfL/GLA (in other words the revenue drops out – it is in economics terms a transfer from one party to another) plus the admin costs. This is £84 million (from 3.5) plus £115 million (from 3.4), which equals £199 million. 3.8. Air quality impact The House of Commons briefing on the proposed expansion quotes the most comprehensive independent study by Imperial College6: In a study published in the journal, Environmental Letters, in 2021, researchers from Imperial College London used publicly available air quality data to measure changes in pollution in the twelve-week period from 25 February 2019, before the ULEZ was introduced, to 20 May 2019, after it had been implemented7. They attempted to control for the effects of weather variations, and then used statistical analysis to look for and quantify changes in pollution. They concluded that the ULEZ had “caused only small improvements in air quality in the context of a longer-term downward trend in London's air pollution levels.” The authors argued that ULEZ on its own was not an effective strategy 6 House of Commons Library The Expansion of the Ultra Low Emissions Zone Debate Pack 19 December 2022 Number CDP-0240 (2022) by Marguerite Dallas, Iona Stewart, Dr Holly Edwards, Louise Smith 7 Has the ultra-low emission zone in London improved air quality? Liang Ma et al 2021 Environ. Res. Lett. 16 124001

11 © Centre for Economics and Business Research to improve air quality and that it worked “best” when combined with a broader set of policies that reduced emissions. With the reduction in traffic and the increase in less polluting vehicles recorded it is clear that emissions must have reduced and the TfL report highlights that this is so. But the Imperial College study shows little impact on air quality and the medical analysis8 shows no improvement in respiratory quality. It is probably too early to make a full assessment of the health impacts and a long term cohort study is indeed under way which should eventually provide results for this. 3.9. Conclusions ULEZ so far has cost Londoners £253 million per annum of which £167 million is additional revenue to GLA. The economic cost (deadweight plus admin) is £199 million per annum. 8

12 © Centre for Economics and Business Research 4. Differences between current and Proposed ULEZ areas 4.1. Introduction This section compares the Proposed ULEZ are with that that was analysed in the previous section. It is heavily based on the Jacobs transport analysis for the GLA. 4.2. Geography The map in Figure 1 compares the current ULEZ area with the proposed area. Figure 1 Map showing existing ULEZ with Proposed expanded area 4.3. Size and transport patterns Table 4 is the Jacobs estimates of the impact on travel patterns as a result of the Proposed ULEZ scheme for cars and is Table 4.3 from the Jacobs report. The scale of daily current car trips into and within the Proposed extension area is an equivalent order of magnitude to those in and into the current ULEZ area at 599,000 compared with 753,000.

13 © Centre for Economics and Business Research The Jacobs analysis seems to assume essentially similar behaviour patterns for vehicles in response to the proposed extension as for the current ULEZ. We have used these assumptions. We therefore assume that similar effects will take place for cars. This means that about half the vehicles will continue to make the trips and pay the charge, half will not which splits again roughly evenly into half suppressing their trips or shifting modally and half obtaining ULEZ compliant vehicles. Table 4

14 © Centre for Economics and Business Research Table 5 is the current trips by LGVs to outer London (Table 4.5 from the Jacobs report). Here there is a big difference. Whereas the current ULEZ scheme affected only (prior to launch) 128,000 daily van trips, Table 5 shows that the Proposed scheme affects ex ante 592,000 daily van trips. It is surprising that Jacobs did not consider it worth analysing the impacts of ULEZ on the transport patterns of this massive number of trips. Our own analysis assumes that the impacts are proportionately similar to those in the current ULEZ area. Table 5 4.4. Administration costs FoI requests have revealed what appears to be quite a low estimate for the total admin costs for the Proposed Scheme of £185 million9. 9

15 © Centre for Economics and Business Research 4.5. Estimated economic impact of the extension We have scaled the revenue impact of the extension from the estimated impact of the current ULEZ area. The results are summarised in Table 6 and show a revenue impact to business and consumers of £538 million, or 0.1% of total London GDP. Table 6 Revenue from current ULEZ area and Extension Current area £million Car 107 Van 62 Total 169 Proposed area Car 85 Van 284 Total 369 Total area Car 192 Van 346 Total 538 The economic costs to consumers adds the revenue costs to the cost of activity suppressed or additional costs of compliance – the additional costs. We have estimated the additional costs again scaling from the TfL data. The results are shown in Table 7. Table 7 The additional costs from ULEZ and Proposed Scheme Current area £million Car 53 Van 31 Total 84 Proposed area Car 42 Van 142 Total 185 Total area Car 96 Van 173 Total 269 This gives the total costs to the consumer which are shown in Table 8.

16 © Centre for Economics and Business Research Table 8 Total user costs from existing scheme and expansion Current area £ million Car 160 Van 93 Total 253 Proposed area Car 127 Van 427 Total 554 Total area Car 288 Van 520 Total 807 The final calculation we need to make is the economic cost. As before this is the economic costs to the users (the £185 million in Table 7) plus the admin costs (the £185 million discussed in 4.4) since the TfL revenue is a transfer from the consumer to TfL and therefore drops out of the calculation. This is given in Table 9. The indirect costs not calculated as part of this report are likely to be much more substantial for the extended ULEZ than the current scheme. This is because of the much greater relative impact on van traffic (and therefore commercial activity) the ULEZ is expected to have in Outer London. Table 9 Total economic costs Current area £million Total 199 Proposed area Total 370 Total area Total 569 4.6. Conclusion This analysis shows substantial costs for the Proposed Scheme – the revenue cost to consumers and businesses is £538 million; the total cost to consumers and businesses (including deadweight) is £807 million and the economic costs (deadweight plus admin) £569 million.

17 © Centre for Economics and Business Research , Cebr analysis