Nudging Up the Price of Parking

When faced with a car parking charge of £1.90 and a “no change” ticket machine, how much do we actually end up paying?

A recent report on English Local Authority Parking Finances by the RAC Foundation reviews the surpluses made by local councils when comparing the revenue they generate from local parking and traffic enforcement notice charges and the costs associated with providing those services. Across all the English councils, it seems to amount to £412 million for the most recently reported on period, the financial year 2011-2012. From the reported figures, income of £1,371 million is generated with costs of £806 million and a surplus of £565 million, a gross margin of 41.2%.


The gross margin is calculated by dividing the difference between income and costs – that is, the surplus – by the total income. The gross margin is essentially the percentage of the income that we can consider to be “profit”. In this case,gross margin = (1371-806)/1371 * 100% = 41.2%

Presumably in an attempt to make a better story for unwary journalists making back of the envelope percentage calculations, the report describes how councils “collect around £1.4 billion [rounding up from £1,371 million] from parking tickets, permits and penalties, spend around £0.8 billion [rounding down, slightly, from £806 million] and make a surplus of £0.6 billion [rounding up from £565 million]”. The gross margin calculation using these numbers is 0.6/1.4 * 100% = 42.86%, which we might typically round up to 43%, compared to the proper rounding of the original amount, which would be 41%.

41% is still a great rate of return, of course! But is it fair? In written evidence to the current House of Commons Transport Select Committee on local authority parking enforcement, the RAC Foundation noted that “There is evidence that official guidance to TMA 2004 [Operational Guidance to Local Authorities: Parking Policy and Enforcement] on parking charges is not strictly adhered to, and that councils set parking charges with the likelihood of them realising a surplus. It should be clear to all local authorities that they have no legal powers to set parking charges at a higher level than that needed to achieve the objective of relieving or preventing congestion of traffic.”

Referring to the guidance itself, we see that setting the price of parking is something of a dark art that can use consumer psychology to influence behaviour in support of a particular transport policy.

4.8 When setting charges, authorities should consider the following factors:

  • parking charges can help to curb unnecessary car use where there is adequate public transport or walking or cycling are realistic alternatives, for example, in town centres;
  • charges can reflect the value of kerb-space, encouraging all but short-term parking to take place in nearby off-street car parks where available. This implies a hierarchy of charges within a local authority area, so that charges at a prime parking space in a busy town centre would normally be higher than those either at nearby off-street car parks or at designated places in more distant residential areas. Such hierarchies should be as simple as practicable and applied consistently so that charge levels are readily understandable and acceptable to both regular and occasional users;
  • charges should be set at levels that encourage compliance with parking restrictions. If charges are set too high they could encourage drivers to risk non-compliance or to park in unsuitable areas, possibly in contravention of parking restrictions. In certain cases they could encourage motorists to park in a neighbouring local authority area which may not have the capacity to handle
    the extra vehicles. In commercial districts this may have a negative impact on business in the area; and
  • if on-street charges are set too low, they could attract higher levels of traffic than are desirable. They could discourage the use of off-street car parks and cause the demand for parking spaces to exceed supply, so that drivers have to spend longer finding a vacant space.

Balancing these policy objectives against claims that the level of surplus being generated is unfair is something that each council needs to justify to its own constituents. When making such a justification, it would seem likely that representation could be made on several different levels – by considering overall revenues, costs and surpluses; by looking at the occupancy volumes or rates for different car parking spaces; or at the level of actual car parking tariffs (that is, how much it costs to park for an hour in a particular location).

Most of us feel the pain at the everyday level, of course, when it actually comes to actually finding and paying for car parking. But are we paying more than we need to, nudged into contributing to additional surpluses over and above what a quick calculation based on parking volumes and tariffs (that is, charges for parking) might suggest is the “planned” surplus? I thought I’d put my data sleuth hat on to try and find out how much extra money could be made by not providing change…

Take my local council, for example, on the Isle of Wight. The main civic car park in the charming harbour town of Yarmouth has a range of ticket prices, including a £1.90 rate for stays between one and two hours, and a £3.40 rate for durations between two and four hours. The two ticket machines are both cash based and don’t offer change. Many retailers know that pricing goods at £something.99 helps encourage sales, although how psychological pricing tricks like this actually work is still open to debate. (For more on the psychology of pricing, see the OFT commissioned report on Pricing Practices: Their Effects on Consumer Behaviour and Welfare.) In a “no change” payment setting, might we use related psychological tricks in association with the value of our coinage (1p, 2p, 5p, 10p, 20p, 50p, £1) to apparently set one price, which we must defend, whilst on average expecting the payment of a larger amount? That is, might we choose a £1.90 price point in the expectation that we might actually make £2 on many of the transactions?

Using data acquired via a Freedom of Information request, I asked the Isle of Wight council for the number of tickets issued within each price band for the Yarmouth town car park during 2012/13, along with the revenue generated by each of the two ticket machines. Using this information, we can calculate how much additional revenue is generated for each price band based on overpayments:

yarmouthOverpayments

In the grander scheme of things, this doesn’t amount to a huge sum of money (the total overpayments come to £2272.15, or 1.7% of the total revenue), though it must be remembered that this refers to just a single car park in a single local council area.

If we look at the raw data that details the actual payment made for each ticket issued by the ticket machines at the £1.90 tariff level, we can see how many people actually overpay:

Actual Payment (£)	Count
1.9			10237
1.95			19
2			7734
2.05			6
2.1			16
2.15			1
2.2			16
2.3			7
2.35			1
2.4			22
2.5			39
2.55			1
2.6			7
2.7			7
2.75			1
2.8			2
2.9			11
2.95			1
3			134
3.05			2
3.1			3
3.2			18
3.3			10
3.35			3

Of the 18,298 tickets issued at the £1.90 level for the Yarmouth town car park during financial year 2012/13, it would appear that over 40% of the tickets issued generated £2 in revenue, presumably because drivers didn’t have the exact change to hand.

Whilst it would be easy enough to exclaim “We can only guess at how much money extra money English councils raise in this way”, that’s not strictly true. We could find out exactly by making FOI requests to them all…

Investigations such as this often raise more questions than they answer. For example: what parking tariff bands does your local council use? How much overpayment are you “happy” to make for your car parking ticket? If there were increases in charges from an amount such as £1.40 to £1.60, what might that have done for actual revenues raised within that price band? If you start exploring this topic in your local area, please let me know via the comments:-)

PS see also this Telegraph article on Academic finds link between parking tickets and wardens’ overtime.

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