Gateshead Angel wrote:
Nothing about assessing demand is "unreformable".
Nothing about proper investigation is unfair.
But the problem is that the surveys and the related methodology aren't proper investigation, and the principle of restricting plates isn't fair.
For example, if you issue 50 new plate in Manchester, and only working HC drivers can get the plates, then how would unmet demand be met - same old drivers, different vehicles.
There's also the case of pre-booked work, which isn't measured by surveys, for example Dundee had no PH at all for a few years, so clearly all pre-booked work was done by HCs, so cleary counting punters at ranks hardly surveys demand for HCs.
And what about how quality standards influence the demand and supply sides? Again, unrestricted Dundee had no PH, but unrestricted Gateshead still has more PH than HC(?). How do surveys take account of this factor? Answer - they don't.
You might like to reread the relevant section of Myth and Reality, then tell us how you would measure all these things:
4 THE ‘UNMET DEMAND’ TEST
A local authority does not have an unfettered discretion to restrict the number of taxis in its area. It can only control numbers to the extent that there is no significant unmet demand for taxi services. While the application of this legislative test is surrounded by arcane case law and complex statistical techniques, in simple terms it means that if there are long queues and waiting times for customers at taxi ranks then the number of taxis must be increased. Thus if demand for taxis grows over time then it might be expected that ‘unmet demand’ will manifest itself and more taxi licenses will be granted to service the extra customers.
Another important point to note is that restricting taxi numbers is merely a policy option for the local authority, but if they do control numbers then they must grant more taxi licenses if unmet demand arises.
Flaws in the unmet demand test
One major flaw in the test arises from the simplistic view of taxi markets that regards the bare number of taxis as the most appropriate measure of supply. However, as was outlined earlier, two identical numbers of taxis could easily manifest fundamentally different measures of supply insofar as the number of drivers (or more accurately, driver hours worked) is a more accurate measure. Thus limiting the number of taxis can clearly lead to supply increasing without issuing more licenses if each vehicle becomes better utilised. For example, if taxi numbers in London were controlled at the current 20,500 then driver numbers could increase to over 40,000 from the current 24,500 without requiring an increase in taxi numbers – at around two drivers per vehicle this would be by no means a high ratio as compared to other UK locations. Clearly, increasing London driver numbers to 40,000 under the current regime would take many years, even assuming a reasonable growth in demand.
Thus although the unmet demand test seems to envisage the number of plates in issue increasing to meet rising demand, it is clear from this example that increasing the number of drivers performs the same task without having to issue more vehicle licenses. The salient point is that this system works to the advantage of the incumbent plate holders when controls are introduced, but to the detriment of later entrants to the trade, who either pay excessive rentals to those controlling the ‘tools of the trade’ or buy the right to operate a taxi at an entirely artificial value. Surely this was not the intention of the legislation.
By the same token, if a taxi journeyman is granted an additional plate, this does not really increase supply, assuming that he continues to work a similar number of hours – clearly this was not envisaged by the legislation. The implication underpinning the legislation seems to be that granting a new taxi plate will increase supply, but if it is granted to a currently working driver then it will not increase supply, so is it the case that the restrictions were never intended to apply to currently working drivers? Of course, the test does seem to assume that granting a taxi plate to current drivers will increase supply but clearly this line of thought lacks logic.
However, if the new license is granted to a PH driver then this will increase taxi supply, but the extent of this will depend on whether he continues to service the pre-booked market, in which case he might well only take a small proportion of his total work from the street market with his new taxi license.
One point worth mentioning is that in some areas only working taxi drivers are eligible for new taxi licenses, so even the possibility of a shift from private hire can be dismissed.
In this regard it is interesting that the T&G and others have chosen to highlight the fact that restricting taxi plate numbers compels a greater utilisation of the vehicle, which they make a virtue of insofar as it is claimed that it increases unsocial hours coverage. However, it is clear that the legislation does not take account of double-shifting either – two one-driver cars are the same in supply terms as one two-driver car, but the legislation assumes that the former is twice the latter. Thus the T&G seems to be implying that the legislation is flawed.
Flaws in the independent surveys
To assess whether unmet demand for taxi services is evident, case law indicates that a survey should be undertaken by an independent body. In general terms, these surveys undertake observations at taxi ranks and use the data to ascertain how many additional taxis are required to meet any unmet demand that is manifested.
One major flaw, identified by the OFT, is that the surveys take no account of demand in the hail market – clearly a significant source of taxi work. Another major flaw is that the surveys fail to take sufficient account of ‘latent’ demand; that is demand that is not satisfied due to the lack of taxis available. To illustrate this, it is clear that large parts of London are not served by taxis, but this is obviously due to qualitative barriers to entering the trade rather than quantity controls on taxis. However, assuming that this lack of service was due to quantity controls then if an unmet demand survey was undertaken this would clearly not include areas currently not serviced by taxis – thus if there is no supply then there will be no demand, and thus no unmet demand evidenced.
In the provinces it is clear that in cities like Manchester taxis are able to cherry-pick which areas to serve (primarily city centres) thus in suburban areas customers will secure a PHV in the pre-booked market and will not even consider getting a taxi, therefore the cherry-picking means that there is no unmet demand manifested in neglected areas.
The London example also illustrates another flaw in the application of the test, namely the lack of consideration of any quality barriers that deter entry to the taxi sector. Thus in London it is clear that if entry to the taxi sector was unregulated or lightly regulated then the current PH/minicab sector would provide a taxi service in suburban areas. But the point again is that the quality barriers stifle supply of taxis thus again there is no demand in many areas and therefore no unmet demand.
Neither is the demand for taxis in the pre-booked sector considered – in the extreme example of Dundee at one time taxis serviced substantially all of the pre-booked market undertaken by PHVs in other locations, and it seems that even now only the existence of quantity controls on taxis precludes the operation of an almost 100% taxi-only supply-side.
As a consequence of these various factors, it is arguable that the number of taxis operating in each location is largely arbitrary, and the methodology of the independent surveys mean that only a relatively small amount of ‘unmet demand’ will be manifested, and an incremental amount of new taxi licenses will be granted at most. The demand profile of the market will have adjusted such that much demand that might exist for taxi services in an uncontrolled market will simply not exist, and instead a large PHV sector will exist to serve that market, which will effectively be confined to pre-booking. Likewise, on the supply side a large proportion of the pre-booked work that would be undertaken by taxis in an uncontrolled market will be serviced by PHVs instead. Moreover, as outlined earlier, any ‘new’ supply in the form of additional taxi licenses may not in fact increase supply at all.
Thus it is perhaps instructive to compare the supply-side profiles of several medium-sized urban locations in the UK, namely three from Scotland together with three ‘M4 corridor’ locations in England.
Population Taxis PHVs % taxis
Slough 119,000 66 712 8.5
Reading 143,000 138 400 25.7
Falkirk 145,000 495 34 93.6
Dundee 145,000 507 115 81.5
Swindon 180,000 138 468 22.8
Aberdeen 212,000 873 129 87.1
While Falkirk is unrestricted, the other two Scottish cities are not, and taxi numbers are clearly of a different order as compared to the English locations. It seems probable that taxis in the Scottish cities do most of the work undertaken by PHVs in Slough, Reading and Swindon. Thus on the basis of the discussion above, and assuming that the English cities have been surveyed, then it seems highly likely that restricting taxi numbers has sufficiently distorted the markets such that surveys will only indicate a minimal amount of unmet demand and thus the status quo is perpetuated. If taxi numbers in Dundee had been controlled to more like the extent of the English cities then no doubt there would be a significant private hire sector there undertaking work currently done by taxis, and any survey would only show limited unmet demand, but since numbers in Dundee have only been restricted for a decade or so and before that point PHVs effectively disappeared, then the market profile has changed permanently.
Therefore, irrespective of whether or not surveys correctly measure unmet demand, what seems clear is that the proportion of taxis operating in an area is largely arbitrary, and depends on the past pattern of local regulation. Thus it is arguable that the unmet demand test and associated surveys merely endorse the status quo and entrench the vested interests of the taxi plate holder group.
Of course, that is not to say that taxi de-restriction would largely wipe out PHVs in urban areas, since qualitative barriers to taxi operation (such as a purpose built vehicle requirement) will perpetuate a large PH sector. On the other hand, Liverpool and Edinburgh both have taxi sectors significantly larger than the PH trade (despite both having purpose built taxi requirements and quantity controls) resulting in plate values of £25-30,000. Factors here could be past de-restrictions and a lack of business activity in the PH sector allowing a relatively greater penetration of taxis into pre-booked work than is evident in similarly-sized de-restricted cities such as Sheffield.
But it seems likely that in the three Scottish cities with proportionately large taxi fleets and small PHV sectors there will be a rank and hail market for taxis in areas that simply do not exist in quantity controlled locations. Moreover, the evidence suggests that in those locations the vast majority of taxis also service the pre-booked market, and they are thus effectively hybrids of the taxis and PHVs found in cities with tight quantity controls. Claims that de-restriction means that any PHVs becoming taxis automatically leads to neglect of pre-booked work therefore simply do not hold water – taxis can serve the rank and hail, and pre-booked markets, which is more efficient for both the trade and consumers.
The often gross distortion of the market which can result from the deficiencies inherent in the unmet demand test was recognised in a consultant’s report which was cited as evidence in the Wirral case. The report had found no unmet demand requiring the compulsory issuing of new licenses, but:
In this case, submits the defendant, the principal issue faced by the defendant was not 'unmet demand' in the Borough taken as a whole, but the distortion of the market identified in the Maunsell Report. That situation meant that only five so-called "honey pot" ranks out of 32 were fully served, with the result that there was an unduly high proportion of private hire vehicles (in the ratio of 10:1), and illegal plying for hire, as well as other problems.
It is also worth pointing out that cherry-picking by numerically controlled taxis is not confined to the UK and the deficiencies of the unmet demand test. For example, in New York:
Now that the market for for-hire vehicles is so much larger than it was when the Depression-era medallion system was put in place, yellow cabs that once picked up passengers all over the city now do so only in Manhattan south of 96th street.
Manipulating the unmet demand test
Another major flaw in the process is that it can be influenced by several factors which are not a part of the legislative test or independent surveys, but which can be manipulated to assist in a finding of no unmet demand or at least reduce the number of additional taxi licenses that have to be issued. While the basic concept of restricting the number of plates appears to serve no one else other than the plate holder group, and the limitations placed on these cartels described above seem to merely entrench the vested interests, the ability to directly manipulate the test presents a further opportunity to maintain the status quo, with little heed paid to the interests of the public or those in the trade outside the plate holder group.
At the more blatant end of the scale are techniques to skew the results of the surveys investigating any unmet demand evident at taxi ranks. These include:
· Ensuring an abnormally high number of taxis are working while the surveys are being undertaken;
· Ignoring pre-booked work and concentrating on serving the taxi ranks while they are being surveyed – as mentioned earlier, pre-booked work undertaken by taxis is not considered as regards meeting the unmet demand test;
· Using communications equipment to direct taxis to the particular ranks actually being observed by the surveyors.
More subtle are the use of regulatory variables to achieve the desired result. While this could happen by accident of regulation, the same outcome can be achieved by the deliberate manipulation of the regulatory variables. Edinburgh appears to demonstrate evidence of this taking place, again with little apparent regard to the needs of the public or others in the trade.
For example, earlier it was outlined how it was proposed to ‘dumb down’ Edinburgh’s knowledge test to solve the problem of a ‘shortage’ of drivers in the city. As well as enabling plate holders to pack even more drivers into their taxis, this would also clearly help in meeting any unmet demand and thus help prevent other drivers being able to operate their own vehicle. Obviously this would drive down the earnings of existing journeymen, but presumably the needs of plate holders were considered paramount. Again this demonstrates the fallacy of the legislative test insofar as it assumes that increasing the number of taxis increases supply, whereas in general terms the number of drivers is more important.
As a corollary, vociferous objections were made to a new college course for aspiring drivers in Edinburgh, since it was clearly thought by some that this would mean less drivers entering the trade. As mentioned earlier, one of representative group CABforce’s objections to the course was that it would stifle the supply of drivers coming into the trade, who have no choice but to pay excessive rentals to incumbent plate holders. Again the concern is clearly for plate holders and no one else.
Indeed, any measure (such as a driving test) that might stifle the supply of new drivers into the trade is generally frowned upon by plate holders, and as a corollary it is often sought to make it easier to enter the trade by watering down knowledge tests and suchlike – this ethos is by no means confined to Edinburgh. The contrast with London is stark – there drivers would generally take the opposite view because they know that more drivers can only mean less earnings for them as the new drivers will generally be driving their own vehicle, but in the provinces the aim is often to have as many shifts ‘covered’ as possible. Of course, both positions are born of self-interest, but the provincial ethos is clearly the more self-serving.
Another method that can be used to manipulate the unmet demand test is raising fares. In Edinburgh in 2002 it was proposed to raise fares:
…in order to achieve greater use of taxis and to encourage individuals to take up taxi-driving opportunities…
Again this seems to be an attempt to attract more drivers into the trade with the irony that this makes it less likely that journeymen will be granted a plate and given the chance to run their own vehicle. While this might not be detrimental to journeymens’ earnings in the way that dumbing down the knowledge test would be, in this case it is more obviously the public interest that was considered expendable to further the interests of plate holders.
An interesting point in this regard is that fares could of course be used to completely eradicate any unmet demand merely by raising them to a sufficient level. Of course, there is no obvious indication that this has occurred anywhere, but the seemingly random nature of fare levels and structures throughout the country might certainly be symptomatic of the fact that tariffs could well assist in stifling any unmet demand and consequently maintaining restricted numbers. Indeed, the plate premiums caused by restricted numbers are prima facie evidence of consumer and/or journeymen driver detriment insofar as they indicate where an often significant part of the fare is actually going. As discussed in the next chapter, the lack of difference in fares as between restricted (normally urban) and unrestricted (normally rural) areas trumpeted by the T&G indicate that the efficiencies of double-shifting and operating in an urban environment with less dead mileage are benefiting plate holders rather than consumers.
Administering quantity controls on taxis
While the mere concept of limiting taxi numbers will seem somewhat alien to anyone operating in the mainstream business world, the bureaucracy surrounding them merely adds grist to the mill.
For a start, the necessary unmet demand surveys can cost tens of thousands of pounds. This cost is normally borne by the trade, and to the individual license holder the price is one well worth paying – the additional cost is normally less than the standard administrative fee levied by the council, which in turn is negligible as compared to the monopoly profits that can be earned. However, council tax payers can also be made to foot the bill to maintain the plate holders’ cartel and excess profits.
The whole process is also chronically bureaucratic. While the number of taxis may have been static for many years preceding a survey, it can take in excess of a year after the survey until any additional vehicles deemed required are actually on the streets – more snail’s pace than responsive market. In the meantime, a seemingly endless and time consuming process of lobbying and meetings can take place, involving both the trade and local authority. Costly legal advice is often sought, and litigation can result.
Meanwhile, many authorities simply do not bother with surveys, and either use some other methodology or merely control taxi numbers as they see fit. It seems unlikely that these authorities could defend these practices if challenged in court. As with some other practices and policies of local authorities in relation to taxi licensing, some authorities clearly maintain positions that would not stand up in court if challenged, but they seem to rely on the fact that for whatever reason those disadvantaged by such policies do not challenge them. One significant factor could be the undemocratic nature of the trade in general, and of restricted numbers in particular. These issues were mentioned earlier, and are clearly not conducive to challenging the vested interests who benefit from restricted numbers.
Conclusion
Thus it is probably true to say that the number of taxis in any restricted location (and thus to an extent the number of PHVs) is largely arbitrary, and some of the numbers outlined above lend support to that view. The most important factors are probably whether or not the location has always had restricted numbers, the qualitative differences between taxi and PH entry standards and the extent to which the PH sector has managed to encroach into pre-booked work undertaken by taxis. If the relevant licensing authority does takes steps to comply with the legislation and case law then any new licenses issued are likely to make only an incremental difference to the market as a whole.
The legislation was intended to end the previous ‘unfettered discretion’ of local authorities to restrict taxi numbers, but it has arguably only had a minimal impact on this, with the discretion still largely unfettered.
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