Taxi Driver Online

What exactly are Excess Profits?

I take it you mean from a Halcrow Fox point of view, if This is not so ignore the rest.

Halcrow fox argue that if a plate is sold for 20,000 say then this has to be generated from the taxi, and also the fact that you pay so much generates excess profits.

like SUD its bullshit (I have put that in to let Sussex have a go)

CAN i TELL YOU THAT A RETURN ON CAPITAL FOR OUR INDUSTRY IS EXPECTED TO BE 21% if you dont achieve this expect a knock from Inland revenue.

I digress so when you have paid for your plate the theory is you are making excess profit.

now sit down beffore you read the next bit,

its a note to your council to pare back your fares, which incidently they did in Halifax freeze for 2 years, fortunatly only halifax of 7 zones which all had the same fares had exess profits.

so the zone leader of the next biggest zone tabled the application (me)
the next time around as we hadnt the bar

can I appeal to you to read the penultimate paragraph carefully to avoid misslead 7 zones all same fares only 1 zone had exess profit.

is that helpfull?

I think it something to do with the restriction on numbers.

If someone has to pay £10,000 or more in a district, then that money has to be re-couped.

Whereas in an area without restrictions, they don't need to.

I think.

Alex

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In a recent (ish) survey down here, Halcrow state;

‘the existence of a license premium is evidence of “excess” profit. Put another way, passengers are having to pay extra to sustain earnings at a higher level than would accrue in an open market’

I wonder how some are going to get by without it.

But then again 130,000+ PH do exactly that at present.

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IDFIMH

i dont know how they can say the plate premiums get paid for by the 'excess profit' not when you hear of drivers borrowing from family or taking out mortgages to pay for it !!

if you borrow you pay back from excess profit and to you sussex private hire benefit too most of their fares are based on taxi fares.

I think the point is that they have to earn extra to pay for the plate, or in the instances you mention, higher mortgages.

Whereas in a de-limited area, they don't need to earn that money.

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IDFIMH

We are arguing over a pseudo science and all the language that goes with it. If we agree that it is impossible to use some findings of a survey and not others that do not suit our arguments,why are perpetuating the nonsense espoused by these charlatans.
What is for goodness sake meant by excess profit? it would only mean anything if there was a two tier tariff:one for owners and a lower one for jockies.This is patently absurd. Where in any negotitian for a pay increase can it be shown that a council has factored in the price of a plate? Forget Halcrow and their loose terminology and stop this points scoring that seems to have crept in since publication. If we pretend to in the same trade albeit with different titles should we really gloating over many good and honest men possibly losing houses/money?
Ged

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taxi driver @manchester airport

I think the 'excess profits' is an economic term.

Similar to what would happen if we restricted the number of tyre outlets, or petrol station.

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IDFIMH

I agree withe ged.

Point scoring does us no favours. But what i will say is the ph lads down where i work have had cause to complain over the way too many of us clean and squeeky taxi drivers have treated them in the past.

I have good mates who drive ph, i have driven ph. But to some they are the scum of the earth. Even the lads who have sold there plates and vgone ph stick there nose up at them.

So yes some of them are gloating at what may or may not happen. But from my cab i see why they are.

It's a well know economic concept Ged, if an ill-defined one.

What it basically means (I think!) is that if the market is distorted in some way then any profits above the normal are 'excess' - another similar term is supernormal profits.

So if a firms was granted a monopoly or a price fixing cartel was in operation then the firms would be making excess profits. But exactly how excess profits are quantified is another story normally.

If there was restricted entry to the pub market in any area, for example, then the pub would be worth more than it would with free entry, and the difference would represent the excess profits. But if a pub was sold for £200k (say) then because valuing the assets accurately would be difficult (particularly for things like goodwill) then it would be difficult to come to an exact figure for excess profits, but what is obvious is that they would exist.

But because taxi plates often have a high value and the vehicle can be reasonably accurately valued then the value of the plate can be ascertained with reasonable certainty and this represents the excess profits. It's even more obvious in places where the plate is sold on its own, like New York. Or even Dundee where the plates were rented on their own for £50 (?) per week - this is patently the weekly value of the excess profits.

By the same token, it's equally obvious that if numbers are de-limited then the plate will be valueless and everyone will just earn 'normal' profits, thus the plate value clearly represents excess profits.

An economics dictionary I've got defines excess profits thus:

"Profits which are larger than the writer regards as normal. There is no objective definition of excess profits: opinions that profits are excessive are normally based on comparisons, either with the rate of return on capital on industries with a comparable degree of risk, or with the past profits of the same company."

But this is talking about things generally - in the case of a taxi plate the comparison is easy - it would be worth nothing without the closed market.

Dusty

Well I don't think many people will be gloating Ged.

But if de-limitation does occur then it's only fair if those who've bought plates have held them for as long as possible.

So I think if any plates are sold between now and then at pre-OFT values to people 'in the dark' then people in high places should be thoroughly ashamed of themselves.

But why does there seem to be a tinge (at least) of embarrasement in the trade about plate values? As I said the other day the NW Ass paper re the OFT report seemed to sidestep premiums and effectively say that loan for VEHICLES had been secured on the house.

And one thing I'm very interested in, as mentioned in our 'opinion' the other week, is what exactly did those people who bought their plate think they were buying?

The OFT report said:

"Taxi license holders in areas where quantity restrictions apply have therefore been aware for some time that these could be lifted at any time by their [local authority]."

There might be some truth in that, but in general terms I think this is a gross oversimplification of the position.

So Ged, what do you think of that statement from the OFT? I ask because you're closer to things like that than I am, and I think it's an important issue.

But as regards the issue in general terms, please remember that it was the likes of the T&G who got these restrictions in place to start with, and encouraged the market in plates in the knowledge that the LA could pull the plug at any time.

And, of course, many of those who benefitted most and got these policies put in place have long since sold out their 'freebie' plate at considerable profit and ultimately left others to pick up the tab.

I wonder if they're the ones gloating?

Dusty

Thanks for all of the replys to this... now the way I see it.....

In my area the ph charge EXACTLY the same as the hacks... the tariff is identical.

My council works out the annual fares on the previously mentioned Fare Formula to give the workers in the trade a decent standard of living.

Any Excess Profits are worked for with Excess Hours. Halcrow completed a reported for my area recently and, of course, the same as any restricted area, mentioned Excess Profits.

I would certainly like to see somewhere in ANY survey or Official Report, that clearly states the hours that a cab driver has to work to make a decent living.... and pay off a loan for a plate.

When Excess Profits are ever mentioned it gives the impression that resticted areas are rolling in cash. This is not the case... as far as I know.

I dont know of ANY of my taxi driver collegues who work less than 40 hours a week. Some have to work in excess of 60 hours a week. I know That when I first purchased my plate some twenty years ago I had to work almost seven days a week for a few years to pay off the loan. There were no Excess Profits there. Just shear hard work with excessive hours.

Dont get me wrong...I never complained about it...I knew what I was going into. But it gets my goat when Excess Profits are ever mentioned.

Also, quite a few of my collegues have used their redundency payments to come into the trade.

I wonder how many hours a week the people from Halcrow or the OFT have to work?

I don't think excess profits refer to any standard of fair treatment - just that those earning the excess profits are earning more profit than they would be without the restriction in the market. For example, if I worked a 40 hour dayshift week in my manor I doubt if I would even make the equivalent to the minimum wage, but if the area restricted taxi numbers and I consequently made the minimum wage then this would be considered excess profits, but it doesn't necessarily mean it's a fair amount of earnings.

But your mention of fares does demonstrate the inadequacy of using increases in fares to increase earnings - does the increase go equally to jockies, plate holders or PH drivers?

I doubt it - for example, it seems reasonably obvious that in areas with restriction part of the increase in fares will be translated into higher plate rentals/values.

Why are jockies in the trade willing to pay tens of thousands for plates, for example? Because plate holding allows them to earn excess profits. But the benefits of excess profits are usually 'bought', thus meaning that someone getting a free plate at the same time as someone buys one will be a lot better off - the excess profits - but the person buying the plate will be less so.

BTW, how what wage do you consider to be a 'decent living', and does this differ for taxi plate holders, jockies or PH drivers?

Dusty

Dusty,
Excess profit would only apply if I bought a plate and then was able to charge what I liked. A plate did not entitle me to do that.
The point I was making is that just because they mention excess profit it does not mean that we are making one.
I have been trying for years to get our beloved councillors to see that the word profit should not even be used. After all most people look forward to 4/5 weeks paid holiday, sick pay, possibly a firms pension fund,etc.
We mostly live, if not from day to day,at least week to week. So if any of us really think that grinding out a living wage is "excess" profit then so be it.
Re the Oft comment on plates I said in an earlier thread that my bank manager would not lend money on something that I did not own so I knew and presumably should others.
Ged

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taxi driver @manchester airport