CONGESTION CONFUSION….Back in February London introduced a congestion charge in an effort to cut down traffic in the city. Cameras were placed on roads coming into London and drivers were charged ?5 per day to come in.

I predicted doom and gloom and was surprised when everything seemed to go well during the first week. Today, however, I’ve discovered that the system is going through a few more teething pains than I realized.

Traffic has indeed been reduced, but it’s been reduced by a whopping 16%, not the 10% that was expected. Not only has that hurt businesses in central London, but it means less revenue is being raised than originally thought. The original projection was ?200m a year, later reduced to ?100m-?130m, and then cut again in June to ?65m.

What’s worse, at least from a PR standpoint, is that the private company contracted to operate the program, Capita, isn’t making any money. In fact, they’re losing money and recently received a bailout of ?31m. This appears to be due to a combination of fewer drivers and fewer fines: Capita runs the system and earns its keep by fining drivers who refuse to pay, but legions of drivers are apparently engaging in massive civil disobedience and refusing to pay, assuming that eventually they’ll be left alone. The cost of running down the scofflaws has proven to be higher than the revenue from the fines.

So how will this play out? If British drivers decide to start paying up after all and Capita gets its equipment working properly, then revenues should increase. But if drivers learn that it’s impossible to track down everyone who refuses to pay and the boycott becomes more widespread, it could end up like prohibition.

This whole thing originally seemed like a great application of free market principles, but one of those principles ? briefly forgotten in the late 90s ? is that revenues need to exceed costs. Will congestion charges be the next big thing, or the next dotcom bust? Stay tuned.