RESTRICTING TAXI NUMBERS
Myth and reality
The facts about restricting license numbers, and the myths exposed
Taxi Driver Online
March 2004
www.taxi-driver.co.uk
CONTENTS
Chapter Page
1 Introduction 4
Background 4
Approach 4
Other chapters 5
2 Numerical effects 6
The numbers fallacy 6
Taxi/PH substitutability 8
3 Economic and other effects 11
License premiums 11
Who gains from restricting taxi numbers? 12
Taxi plates in the UK 13
Journeyman drivers 14
‘Too many taxis’/’not enough drivers’ 15
Absentee plate holders in Scotland 17
Plate transfers in Scotland 19
Taxis and private hire 20
The democratic deficit 21
4 The ‘unmet demand’ test 23
Flaws in the unmet demand test 23
Flaws in the independent surveys 24
Manipulating the unmet demand test 26
Administering quantity controls on taxis 28
Conclusion 28
5 Myths about de-restriction 30
Quality of service 30
Public safety 32
Illegality and criminality 33
Dublin 36
Conclusion on quality, safety and criminality 37
Unsocial hours coverage 38
Conclusion on unsocial hours coverage 42
Customer waiting times 42
Plate premiums 43
Misleading vehicle number statistics 46
Fare levels comparisons 47
Impact on pre-booked market 49
Evidence from other jurisdictions 50
Evidence from specific UK locations 50
Re-restriction 54
‘Managed growth’/’controlled expansion’ 54
Miscellaneous 55
T&G double standards 58
6 Conclusion 62
Annexe:
The House of Commons Transport Committee’s report ‘The Regulation of Taxis and Private Hire Vehicle Services in the UK’
Overview
General
Oral evidence session – witnesses
The substantive issues
1 INTRODUCTION
Background
In June 2003, John Vickers, Chairman of the Office of Fair Trading, described “hardcore cartels” as “tantamount to theft”.[1]
Five months later, the Office of Fair Trading (OFT) produced a report which recommended that any restrictions on the number of taxis operating should be removed.[2] Such a policy is maintained by almost half of all UK local authorities.
While the OFT’s report did not use the term ‘cartel’, these restricted numbers policies are essentially legal agreements between local authorities and local taxi license holders to restrict entry to the trade, and thus might reasonably be described as statutory cartels. Indeed, while Mr Vickers’ statement above refers to cartels operated dishonestly, a not unreasonable description of these taxi cartels might be as tantamount to institutional theft. A couple of examples from the UK taxi trade might lend some weight to this analysis:
· An individual is granted a taxi license (plate) at nominal cost in an area with restricted numbers. This plate can be rented out to working taxi drivers for perhaps £100 per week (say) for as long as the restricted numbers policy is in place and the license thus has a ‘scarcity value’. The license holder need not drive a taxi or even have worked in the trade – there are even cases of such plate holders living abroad. The working drivers may have been waiting many years for the grant of a plate;
· An individual is granted a taxi plate at nominal cost in an area with restricted numbers. This ‘free’ plate can be sold on almost immediately for £40,000 (say), thus immediately cashing in on the scarcity value. Once again, the successful recipient may have never even driven a taxi. The payment is made by someone who cannot get a ‘free’ license because of the quantity controls in operation.
We are not suggesting that such cases are the norm. Indeed, it seems probable that most UK taxi plate holders do actually drive a taxi. However, while the cases above represent extreme examples, the basic principle remains the same in every local authority with restricted taxi numbers – each license has been issued by an arm of government at nominal cost to the recipient, but the ‘excess profits’ earned by current license holders is represented by the value of the plate – in Manchester, for example, this amounted to a collective value approaching £40 million prior to the OFT’s report.
Approach
The approach adopted in this paper can perhaps be characterised from three perspectives:
· A more supply-side/labour market and critical perspective, as compared to the largely consumer-oriented and anodyne approach of the OFT. We analyse the economic effects of restricting taxi numbers, and highlight the exploitative, discriminatory and undemocratic nature of such policies. Also highlighted is how taxi licensing seems divorced from what is taken for granted in the UK economy generally, from both the labour market and economic regulation perspectives;
· The superficial numerical approach normally taken to analyse the market is examined, as is the flawed nature of limitations placed on the discretion of local authorities to control taxi numbers;
· An extensive critique of the arguments put in defence of restricted numbers is presented, particularly those used in response to the OFT’s report. We highlight the superficial, misleading and essentially self-serving nature of much of these arguments.
This paper was prepared by working drivers.
Other chapters
The other sections in this paper are:
· Numerical effects of restricting taxi numbers;
· Economic and other effects;
· Flaws in the legislative test;
· A critique of arguments in favour of restricted numbers;
· A conclusion.
An annexe provides some comment on the House of Commons Transport Committee’s report ‘The Regulation of Taxis and Private Hire Vehicle Services in the UK’.
2 NUMERICAL EFFECTS
While taxi markets are often analysed with regard to the bare number of taxis, this number can be grossly misleading, for example when the effects of de-restricting taxi numbers is being analysed or where comparisons are being made between licensing areas. Two primary numerical effects can be isolated in this regard. First, the number of drivers using each vehicle increases as journeymen drivers are prevented from operating their own vehicle. Secondly, private hire vehicle (PHV) numbers expand to fill the gap in supply caused by restricting taxi numbers.
The numbers fallacy
Since taxis operate in a 24/7/365 environment, it is theoretically possible to utilise each vehicle to the extent of four full-time drivers. In many areas the vast majority of plate holders aim to have their taxi operating for as many hours of the week as possible, thus maximising income, and this process is obviously facilitated by restricting vehicle numbers. The process can be illustrated by examining taxi numbers in Dundee for the last half dozen years or so. Dundee is particularly interesting because it provides a rare example of the number of taxis reducing. This was because a moratorium on new plates existed for around a decade, but since plates could not be transferred many were surrendered when the plate holder left the trade – in the more normal scenario where plates are transferable, the number of licenses in issue would have remained static and they would have attained a resale value. While the number of taxis decreased, the number of drivers actually increased. For example, these figures show approximate numbers in the last half dozen or so years:
Taxi numbers Taxi driver numbers
Mid-late 1990s 600 1,300
2001 510[3] 1,400
2003 507[4] 1,500[5]
Thus the effect of reducing numbers has been to pack the same number of drivers into the smaller number of taxis, to the benefit of plate holders, and this process has been further assisted by increased driver numbers.
That is not to say that there are no multi-driver cars in unrestricted areas, but numerical restrictions certainly seem to aid the process. Likewise, numerical restrictions do not necessarily lead to a taxi sector largely made up of multi-driver cars. Also worth noting is that the averages disguise a wide variety of scenarios – for example, there are many one-driver vehicles even in areas with high driver/vehicle ratios, but as a corollary extreme examples may demonstrate perhaps half a dozen drivers in one vehicle, particularly where there is a high proportion of part-time drivers. However, perhaps a not untypical scenario might be two full-time drivers and one part-time driver in one vehicle.
However, a simple three-stage hypothetical example demonstrates the often grossly misleading nature of any analysis of bare taxi numbers:
· A town has 100 taxis driven by 200 drivers, with each taxi driven by one driver during the day and one driver at night.
· The town de-restricts taxi numbers and each driver takes the opportunity to run his own vehicle. The number of taxis thus doubles to 200. Shocked by the huge increase in the number of vehicles, the town’s licensing authority decides to re-restrict taxi numbers.
· The town depends on one major employer, and this firm closes down, making thousands unemployed. Consequently, each of the town’s 200 taxi owners manages to recruit another driver.
Moving from the first to second scenario has doubled the number of taxis, but supply has not changed – each driver still has the same amount of work and the same takings at the end of the shift. Moving from the second to third scenario has not changed the number of taxis, but supply has doubled, and each driver’s job count has halved, as has his takings (assuming no decrease in demand).
Empirically, this phenomenon can be examined by comparing taxi numbers in London and New York. Most conventional analyses would compare the 20,000 or so taxis in London with the 12,000 or so in New York. However, while there are around 24,000 London drivers, numbers in New York are significantly higher at 40,000 – while each London taxi is driven by just over one driver on average, over three are packed into each New York taxi.
In the purely domestic context the effect can be further demonstrated by comparing the driver/vehicle ratio in London, where drivers can choose to operate their own vehicle, with several of the more high profile restricted areas in the UK, together with one or two other locations:
Taxi numbers Taxi driver numbers Driver/vehicle ratio
London 20,500 24,500 1.2
Manchester 788 1,500 1.9
Liverpool 1,417 2,725 1.9
Glasgow 1,428 3,000 2.1
Brighton 459 1,074 2.3
Edinburgh 1,242 3,215 2.6
Blackpool 256 786 3.1
Luton 81 320 4.0[6]
The doubling of taxi supply without increasing the bare numbers is unlikely to happen as dramatically as outlined in the third hypothetical scenario above. A more likely example of the process can be demonstrated by examining what might happen in London if taxi plates were capped at the current 20,500 – in twenty years time, even if the size of the market had expanded such that driver numbers had increased by around 50% to 37,000, these numbers could easily be accommodated in the present number of taxis. Indeed, at 1.8 drivers per vehicle this ratio would still be less than that listed above for other major UK cities such as Manchester and Glasgow.
However, de-restriction of numbers can happen quickly, but the second hypothetical scenario outlined above demonstrates that an apparently large expansion in supply can be largely illusory, with the increase in bare taxi numbers accounted for mainly by drivers exercising the opportunity to run their own vehicle. For example, if numbers in Edinburgh were de-restricted and taxis consequently became utilised only to the extent evident in London, then Edinburgh taxi numbers could more than double without actually increasing supply.
Thus the vested interest group that holds plates in restricted areas often use examples from other locations to predict apocalyptic consequences arising from de-restriction, but the truth is usually less dramatic.
For example, Annexe D of the OFT report uses case studies to examine the effects of de-restriction. It shows that de-restriction in Sheffield increased taxi numbers by 52%, but nowhere is there any mention of taxi driver numbers, making it impossible to analyse to what extent the increase is merely due to journeymen drivers choosing to run their own vehicle. While there may have been some real increase in supply due to a shift of some drivers from private hire (PH) to taxis, there is insufficient information provided to adequately examine the two effects.
Thus it seems likely that the 52% increase in taxi numbers could be partly (if not largely) explained merely by a rearranging of the taxi drivers’ deckchairs rather than any real increase in supply. This may well explain the rather limited decreases in taxi rank waiting times for consumers that are evidenced by the OFT – the Sheffield figures show the average waiting time only falling from 1.47 minutes to 1.23 minutes.
That is not to say that the OFT has been particularly culpable in this regard, since taxi studies worldwide generally concentrate on bare taxis numbers, with driver numbers afforded little more than a passing comment or even literally relegated to the status of a footnote.
Taxi/PH substitutability
The other primary numerical consequence of restricting taxi numbers is to fuel growth in the PHV sector, which cannot be numerically controlled. Although the latter cannot ply for hire on the streets in the manner of taxis, they can pick up passengers who have pre-booked (primarily by telephone). Of course, taxis can operate via both methods of securing custom, but many confine themselves to the rank and hail markets. Thus if two otherwise identical locations are considered, it might be expected that if one restricted taxi numbers then it would have more PHVs than the other.
Once again the unusual Dundee scenario of reducing taxi numbers provides some insight into this process. According to a Dundee City Council report[7] the mid-1980s saw steady PHV vehicle growth as compared to a moratorium on taxi numbers. In 1986 taxi numbers were de-restricted in Dundee and the PHV sector effectively disappeared – sources indicate that this figure may have been as little as one or even zero, but certainly negligible compared to the 800 taxis that were operating in 1992. In that year numbers were re-restricted, and since plates could not be transferred numbers declined to around 600 by the late-1990s as vehicles left the trade but were not replaced. It was only then that significant numbers of PHVs began to operate. By 2001 taxi numbers had further reduced to just over 500, and were subsequently maintained by issuing new licenses when any plates were surrendered. By 2001 PH numbers had increased to 70, and by 2003 to 115, despite the reduction in taxi numbers having halted.