CABforce's response to the Office of Fair Trading's report 'The regulation of licensed taxi and PHV services in the UK'

'The conflict between practical experience and economic theory'

This long awaited OFT report has finally been published.  However, while it draws on a wide range of references and comprehensive statistics, it resolutely fails to justify the subjective conclusions it reaches.  

We know the report’s research generated  a wide range of dissenting opinion, but all of it was rejected out of hand by the authors.

It’s also immediately apparent that the  background to why the report was undertaken is not given.  Those who prompted it remain anonymous, their interest protected.

The report centres around quantity regulation, quality and safety regulation and fare regulation and uses two case studies of Sheffield and Cambridge to “support” its arguments.

Quantity regulation

The OFT proposes quantity de-restriction of taxis based on its premise of unmet “latent demand”, which they define as “ … the situation where consumers in areas with quantity controls are discouraged from using taxis by long waiting times and so do (not?) even bother to queue for a taxi.  This type of demand is hidden because it does not present itself in the form of long queues but it is nonetheless an important source of unmet demand” (So, how do those who choose not to queue manage to get home in the wee small hours?  - ed).

Isn’t this just nonsense?  By their own definition “latent demand” is unquantifiable.  Isn’t this therefore subjective rather than objective, and isn’t it patently unprofessional to base this report on such a spurious unsubstantiated premise.  This report is fundamentally flawed.

Nonetheless, even if this “latent demand” did exist, the economic theorists who compiled the report have only sought to resolve the problem through the supply and not the demand side.  There is no demand analysis in the report, nor could there be because demand is inherently a local phenomenon, a fact long recognised by LAs when determining their individual taxi policies.  So, isn’t this another glaring fault of this report?

For example, here in Edinburgh we have peak periods on weekend nights.  They centre around 1 am when all the pubs close and 3 am when all the clubs close.  Any demand problem was increased further when the Chief Constable was instrumental in closing food take-away shops at 3am, with the detrimental affect of truncating demand for taxis into a much shorter time frame than previously.  It wouldn’t matter if there were three times more taxis, it would still not be possible for everyone to get a taxi within 5 minutes, a prime aim of this flawed report.

Yet, rather than only addressing the problem of supply, demand could be managed better to the benefit of consumers, without the need for extra unnecessary taxis which no one, apart from the OFT and the “interests” it is responding to, want.

Their approach is to add so many taxis that this “demand” is bound to be met  - an unscientific sledgehammer to smash a non-existent nut.  The report claims that removing quantity restrictions could increase the number of taxis in affected areas by 30 per cent. 

In their case studies they quote Sheffield and Cambridge where de-restriction increased taxi numbers.  Yet, in Figure 1 (below) we see that, here in Edinburgh, we already have a lower population to taxis ratio before de-restriction(?) than the two case studies have after it (A point CABforce has already consistently been making to our council).  After de-restriction the position would worsen considerably and increase further the excess of supply over demand.

The report also contends that removing quantity restrictions and increasing the number of licensed taxis will remove the need for illegal taxis.  Really?

The prime case of a de-restricted LA is London which has over 20,000 licensed taxis.  Yet, more people use illegal mini-cabs there than anywhere else. Last year 200 women were sexually assaulted in illegal mini-cabs (Source: - Public Carriage Office web site).  Here in Edinburgh, with quantity controls, such occasions are extremely rare.   Yet, the OFT tells us we should change to an obviously more dangerous situation. Aren’t Councils, charged with ensuring public safety, duty bound to resist this nonsense?

The report claims de-restricting will reduce waiting times.  But the report doesn’t say when, what time and where?  And there’s no proof that their “one size fits all” policy will resolve this in every individually unique local demand situation for which no demand analysis is contained in the report.  So, why change on this flawed basis?

The report says removing quantity restrictions could put an extra 15,000 taxis on the road and increase peoples’ choice of transport modes when deciding how to reach their destination.  Yet, it’s not even certain that we could attract sufficient qualified drivers, given the state of our job market (particularly here in Edinburgh) and the nature of the job.  Not everyone has the desire or inclination to be a taxi driver.  The report recording up to 50% more taxis after de-restriction could represent a requirement here for more than 400 extra drivers when we already have a shortage.

 Quality and Safety

The report claims to promote best practice in LA’s application of quality and safety controls to meet consumer’s needs.

But, these matters are not mutually inclusive with quantity controls.  Irrespective of whichever regulation is in force, if quantities are increased to the point where earning a living is difficult, the tension between servicing income requirements and maintaining vehicles will assuredly result in attendance to the former at the expense of the latter. 

OK, this may cause some vehicles to fail safety regulations, but they’re only likely to be caught at vehicle testing time, usually only annually.  Given the choice between repairing squealing, pulling brakes demanding repair in the interests of public safety, or putting food on the table for the family, vehicle safety will take second place.  Regrettably, this will not be apparent between vehicle tests unless through spot checks or an accident takes place.  Too late.  Isn’t this just another fundamental and potentially dangerous flaw in the argument for de-restricting quantities which no amount of regulation will prevent?

Clearly, if quality standards are to be afforded, there will need to be substantial tariff hikes to fund them.  Figure 2 shows the affect that de-restricting taxi quantities could have.

Here in quantity controlled Edinburgh, our tariff is considerably lower than that of London and Sheffield.  Only Cambridge is ranked marginally lower, but their tariff level is somewhat false, having been set as far back as Apr-01 and likely to be subject shortly to an overdue hike. 

We contend that it would be necessary to substantially raise tariffs if quality is to be afforded.  This will simply have the effect of reducing local demand even further.  The experience of our last 15% tariff hike, which dramatically reduced demand,  bears this out.

 Fare Regulation

The report claims to protect people in vulnerable situations from overcharging, while encouraging the benefits of fare competition.

This betrays how little the authors truly understand the nature of the business they are reporting on.  Perhaps they should have undertaken a busy weekend night shift while researching this study.

Let’s be quite clear.  Substantially the vulnerable people are the drivers who, single-handed, often have to deal with an alcohol fuelled public.  The report’s authors obviously have no experience of being accosted, or worse, by members of the public.  Nor can they appreciate what it’s like having to defend yourself in a court of law because of false allegations by members of the public.

Yet, they suggest that fare tariffs should be set to a legal maximum and consumers encouraged to negotiate the fare down.  This is dangerous rubbish.

Isn’t it the rigidity of the controlled fare structure which injects discipline into the transaction, from both driver’s and consumer’s safety perspective?  Experience indicates that, without it, the whole process would descend into chaos, particularly where there were OFT generated income tensions caused by an over supply of taxis.

When a drunk gets into a taxi, he knows he will be charged at the same rate as everyone else.  This is fair.  Where journeys are pre-booked or in the event of a journey ending up out of town then, even where strict tariffs are set, there is an opportunity to negotiate.  That is also fair.  But, within the city boundary, every one works to the same tariff  - a level playing field.

Should consumers start wandering up and down ranks in the dead of night then, on safety grounds, they could be left behind.  Experience shows that disgruntled passengers are more likely to cause difficulty at the drop off, or before.  Variable fares will only encourage this and, given the poor response times from a hard pressed police force, will lead to further potential danger for drivers having to deal with these situations alone.

The report compares fare competition with other modes of transport.  We should remember that buses, trains and planes etc all charge less for fares booked early,  because supply can then be planned to match demand.   Where passengers require to travel at the last minute, they do so according to availability, and higher fares reflect the immediacy of their need.  This is normal and accepted commercial practice.

Taxi journeys commenced from ranks fit into this scenario.  No one expects to turn up for any other form of transport at the last minute and negotiate a discount.  So isn’t it a fundamental flaw of this report to propose this nonsense for taxis?

The report claims to protect consumers in vulnerable situations from overcharging, yet there is no evidence of any real problem in this respect.  So, isn’t this just another extravagant claim, included to add weight to a flawed report?


 Not every business or industry can necessarily operate unrestricted in a free market.     For example, since urban buses were de-regulated we now have twice as many buses, mostly travelling empty, all chasing the same customers, adding to congestion and pollution.  However, isn’t it truly galling that this “free market” urban bus service model, which the OFT proposes for the taxi trade, only prevails because it’s propped up by massive route and fuel subsidies, none of which will be available to a de-restricted taxi service.   Is this what the consumer really wants? 

It’s simply not true that de-restricting the quantity of taxis will improve either service or safety to consumers.  Indeed, the report confirms that the opposite is true.  200 assaults on women in London, where taxis are already de-restricted, confirms this.

Increasing the quantity, but maintaining quality and safety regulations will not ensure standards.  Personal needs will always prevail where there is a financial tension between the two, which is difficult to police.

Tariffs would need to rise for quality standards to be afforded.  This at a time when the report admits that there has already been a dip in trade over the last two years.

Fare regulation where fares are set at a maximum, with consumers encouraged to negotiate, will assuredly lead to tensions between drivers and passengers.  In Edinburgh last year we had 113 complaints from a probable 20,000,000 taxi journeys.  Why should we adopt the proposals in this report and jeopardise this good record?

The OFT has been selective in its case studies.  They could have quoted the Bristol experience where the trade was de-restricted in 1997.  Its success can be measured by the fact that quantity restrictions were re-imposed in 2002  - a lot of damage having been done in the interim.  Or, they could have quoted the Dublin de-regulation experience, where taxis increased from 2700 to 8600.  Pre-de-restriction 85% of taxis were double-shifted, now 99% are single-shifted with 25% of drivers now only working part-time. Only 11% of taxis are now wheelchair accessible.  Earnings have dropped, drivers are working longer hours in older vehicles and the tariff has increased 16%.  An unmitigated vandalism of Dublin’s taxi trade.  Doesn’t this clearly demonstrate that this is not an objective report, simply one specifically designed to “sell” a particular flawed economic theory?

It is reprehensible that this report shows such scant regard for those who have invested and worked in the taxi trade over many years.  This report nakedly sacrifices their financial well-being on the altar of theoretical economic dogma from an organisation ignoring practical experience of the day to day tensions within the trade.

The government has 120 days to respond to this flawed report.  We urge them to bin it, as it clearly deserves.

We urge our Scottish Parliament to substantially maintain the status quo, allowing local councils to continue to set the taxi policy which their experience and local consultation shows matches their own particular local demands, and which enables them to meet their statutory requirements to ensure public safety.

We urge the Westminster Parliament to consider the poor quality of this fundamentally flawed report and take a long hard look at the Office of Fair Trading, and its leadership, in a full enquiry.

Perhaps the OFT’s flawed theories should be applied by setting up OFT2 to bring competition to their activities?

Finally, if this is the standard of report affecting government policy making, it doesn’t augur well for the quality of legislation  based on such flawed thinking.  Shouldn’t such legislation be reviewed as a matter of urgency?

The CAB trade IS its work force


Figure 1. Taxi Quantity Analysis

Pre-de-restriction Post-de-restriction


Taxis Population
per taxi
Taxis Population
per taxi
London 7,172,000 20,756 345
Edinburgh 450,000 1,260 357 e - 1,890 238
Sheffield 513,000 300 1,710 457 1,123
Cambridge 109,000 147 741 215 507

e - estimate


Figure 2. Taxi Fares Analysis

Tariff 1

Tariff 2

City/town Ranking Flag 1 mile 2 mile Flag 1 mile 2 mile
3 £2.00 £3.40 £5.00 £2.00 £4.40 £7.20
68 £1.90 £3.10 £4.30 £2.30 £3.50 £4.79
134 £1.40 £2.72 £4.04 £2.07 £3.45 £4.83
140 £1.20 £2.80 £4.00 £2.20 £3.60 £5.00

Source: Private Hire and Taxi Monthly  - August 2003

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