Mark Wadsworth

This is a spare 'blog in case my main 'blog at isn't working

For whom the bridge tolls

There was a nice example of how different categories of rent-seeking overlap in yesterday’s Daily Mail:

It is the Monaco of the West Midlands – a private toll bridge which is spared paying income tax on its profits. Motorists spend up to £2,000 per week crossing the 18th century bridge at Whitney-on-Wye, between Hereford and Hay-on-Wye. And following the death of its owner, the Herefordshire tax haven has now been placed on the market for a starting price of £450,000…

It also acts as an inheritance tax shelter, so it can be passed on to heirs without falling prey to a levy. The 1779-built bridge, which currently costs 80p to cross, was initially funded privately. In return, an act of parliament granted it tax exemption. Prospective owners will also forfeit having to pay stamp duty, business rates and capital gains tax. But they will have to pay for its maintenance and the toll keeper’s wages…

How would you classify that £100,000 a year annual income:

1. Are car drivers paying a fee, fair and square for the value of a service rendered by a competing private provider in a free market? Well no, because…

2. Is the bridge owner a monopolist? There appear to be no other bridges for miles up or down stream, so clearly he has a local monopoly and can hence charge more than otherwise – his income is a function of how much time people can save by using the bridge, so if the nearest free bridge were only a hundred yards away, his income would be nothing, but as long as the nearest free bridge is more than ten minutes drive away, people are happy to pay the 80 pence.

3. Is the bridge owner collecting taxes? Without the Act of Parliament, the bridge would not have been built (let’s assume), and had the local council decided to build the bridge out of its own resources, we can assume that they would also have charged a toll, which, being payable to the council to fill the local coffers, we would look at as a tax. But whether a payment is publicly or privately collected does not change the nature of a payment, either it’s a tax or it’s not.

4. Is the bridge owner just collecting rent? The bridge doesn’t look all too expensive to build, so surely it’s the location of the bridge that matters far more than its physical properties. And the bridge depends on traffic between Hereford and Hay-on Wye, so the more people live or do business in either town, the more people will need to travel between them; and the bridge owner skims off a small part of that extra bit of the economy.

5. Is the bridge owner any different to a highway man? A proper highway man would jump out and attack every one-hundredth traveller and take everything, the more civilised bridge owner demands a small modest payment from every single traveller as ‘insurance’ for safe passage.

5. Then we add to that the fact that the profits from the bridge appears to be entirely free of publicly collected taxes (VAT is not mentioned, the toll keeper himself is liable to PAYE). The price of the bridge is the capitalised value of future income, so part of the purchase price is of course the capitalised value of the taxes which the bridge owner doesn’t have to pay (even though the bridge would still have been built had these tax exemptions been due to expire within thirty years or so).

To sum up, AFAIAC, there is no clear dividing line between state-protected monopoly profits, tolls, taxes, rents, theft and insurance premiums, they are all just different names for the same underlying unearned transfers of wealth.

Of course, any subsequent purchaser/owner of the bridge will hotly deny this analysis, he will claim that he paid market value and therefore that he is merely earning a reasonable return on his investment, and not living off the proceeds of crime or government largesse. This is sort of half correct, but still overlooks the fact that he hasn’t invested a penny in the bridge; that’s been there for over two centuries whether it gets sold or not (the only money he invests is in the upkeep of the bridge, the up front purchase price is just like a ransom payment).


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