London Lib Dems to debate private hire regulations – how they should get it right

Upon moving to London my first ‘culture-shock’ moment – so much as an Aussie can have them – was discovering that many black cabs only take cash payment. In 2015 it is hard to imagine another industry where a regulator must step in to ensure more than half of all operators provide a facility as basic as card payment.

This matters, as this weekend our London conference will debate a motion on Transport for London’s (TfL) recently released proposals to regulate the private hire car market. While many of the proposals are sound, several will sabotage successful business models and reduce competition, further breeding the kind of apathy to consumer preferences that sees many black cab drivers refuse card payment.

There are three proposals Liberal Democrats should be most concerned with. The first, a mandatory waiting period between requesting a private hire vehicle and pick-up, is hard to square with any consumer interest rationale. TfL is proposing a mandatory 5 minute wait, about 1.5 minutes more than the average time it takes for an Uber driver to arrive. Apparently this would reduce the risk of a customer getting into the wrong vehicle, a problem TfL provides no evidence to suggest actually exists. Even if it does, it appears not to have been weighed against the risk of extending the time in which people may have to wait alone on a street corner late at night. 

Taken together with another proposal to ban the in-app visualisation of hire vehicles, the impact on ride-sharing services will be severe. As Uber’s popularity among customers revolves around the app’s visualisation function, low fares and short wait-times, killing two of these off smells suspiciously like an attempt to cripple a black cab rival.

The most concerning is the proposal to lock drivers into working for just one licensed operator at a time. It seems innocuous enough, but looking forward this risks significantly decreasing the take-home income of drivers who work for ride-sharing platforms. Why? If you use Lyft or Uber in the US you will notice most drivers have a dashboard of smartphones on the go. This enables them to play-off operators like Uber, Lyft and SideCar, accepting rides from whoever is offering the highest rate.

Locking drivers into working for one operator will also risk entrenching the position of today’s largest operators. New entrants, who usually begin with a small customer base, will find it hard to entice drivers to jump platforms if rides are likely to be less frequent. Back in Australia, fears Uber might unilaterally lock drivers to their platform prompted Uber Vice-President David Plouffe to insist his company would not go down this road. That TfL is considering a proposal that risks decreasing driver pay and cementing Uber’s dominance of the London ride-sharing market is troubling.

So what principles should inform the Liberal Democrat stance on the private hire market? As the motion suggests, we should back robust regulation on customer safety, payment of due taxes and the provision of disability compatible services. However, we also need to recognise that regulations which inhibit competition do a disservice to both customers and drivers. Other cities are already seeing a more vibrant ecosystem of operators emerge by following these principles.

In New York two women concerned with the safety of both ride-sharing services and traditional cabs founded SheRides, an app-run cab service that matches female drivers exclusively to female passengers. It has proved a big hit, with like services popping up around the world.

In Denver over 600 drivers organised to form ‘Green Taxi’, co-operatively owned ride-sharing service that a union helped get off the ground. In addition to giving drivers a say over their business, it has saved them thousands in license costs, car outfitting and income lost to operator margins. It’s not the first of its kind either.

I want to see bold new ideas like SheRides and Green Taxi take-off in London, but for this to happen we need to regulate without locking in the status quo. The motion to be put to the London Regional Conference gives us the opportunity to put Londoners first with safe and convenient transport, while keeping the sector open to innovation, competition and new ideas.

* The author is politically restricted. He is an economist at a research institute.

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  • Simon McGrath 11th Nov '15 - 11:03am

    Great article Dan and it was good to see in the Evening Standard last night that Caroline Pidgeon saying that she is against the mandatory 5 minute wait and the ban on apps showing where cars are

  • Great article – I hope regional conference listens to you.

  • A good article, but you skip over the big issue behind the proposed 5-minute rule, namely what is the real difference between private hire and call hire – in today’s London, because currently they are subject to differing regulation.

  • Private hire is just one of many sectors where new technologies are upending and making a nonsense of established regulations.

    One common (possibly universal) feature of the new technology-enabled business models that are emerging is that someone uses it to insert themselves as a middleman between provider and user and then extract a “rent” for that service that is out of all proportion to the cost of providing it. The “rent” can be changed in real time to maximise the revenue to the middleman. In the case of a firm doing this for takeaway orders I was told recently that the “rent” is 15% of order value – a substantial part of a (usually) small business’ income.

    That is why Uber has a market valuation in the $10s of billions (yes – Billions). That’s money that’s come out of the pockets of mainly small businesses, individual drivers etc. and into the pockets of Goldman Sachs and its other backers. Indirectly, it’s why Uber says it doesn’t want to lock drivers into one platform which might seem against their own best interests. The real reason is that if drivers were locked in they would almost certainly become employees and that would mean minimum pay and other rules would apply and that hit Uber’s profits hard.

    Incidentally, just imagine the fuss the Tories would make if a new 10% tax were proposed even though it would go towards socially-useful things. Middleman “rents” don’t – they merely enrich a few at the expense of the many. If sufficiently generalised they will give the economy as a whole an uncompetitively high cost base.

    Where new regulations are needed I suggest that the guiding principle should be that the new middlemen should be seen in the same light as utilities since that is what they aspire to become. That means that they (a) not be allowed to establish a monopoly but must interface with other players, and (b) that “rents” should be in line with costs.

  • Stuart Winton 11th Nov '15 - 8:55pm

    Hi Gordon

    “One common (possibly universal) feature of the new technology-enabled business models that are emerging is that someone uses it to insert themselves as a middleman between provider and user and then extract a “rent” for that service that is out of all proportion to the cost of providing it.”

    So no different then from the model used for decades by existing UK taxi and private hire despatch operations. Despite the blather, Uber is essentially little different to the existing industry, albeit using the latest and most efficient despatch technology, but most UK despatch operations of any size are using apps now as well. Where Uber is different is that it’s utilising a big, global brand and has a huge budget for marketing, driver/passenger incentives etc to enable it to rapidly penetrate new markets.

    Thus despite the many claims about illegality and insurance problems etc, Uber in the UK is licensed under the existing private hire vehicle (minicab) legislation, which is essentially ready-made for Uber’s business model, and to that extent the issue with it running unlicensed vehicles in some jurisdictions just isn’t a problem here. TfL’s proposals are essentially just about curbing the augmented efficiency afforded by the app, and (indirectly) to thwart Uber’s market power. Of course, the latter may be considered unfair, but that’s the way global markets operate, and if it’s considered detrimental to individual drivers then from their perspective the UK industry has for decades been populated by numerous micro-Ubers, so no change there.

    For what it’s worth, some more detailed analysis of TfL’s five-minute rule:

  • Most of the hatred of Uber is either due to the threat to the monopoly position of black cabs, who’s knowledge has now been superseded by sat-nav, or irrational hatred of Goldman Sachs.

  • Stuart Winton – “So no different then from the model used for decades by existing UK taxi and private hire despatch operations.

    The model is the same but the advent of mobile phones and particularly apps in recent years has taken it over a tipping point from a marginal impact on the market to a dominant one and that makes a difference and requires an appropriate change to the regulations. But what should be the objective of such change?

    In general my concern is that “middlemen” (who provide a vital service for sure) are often able to achieve excess market power vs. “producers”. Very often (and this is characteristic of many tech applications) there are powerful economies of scale which mean that dominant players, once established, face little competition, at least not for many years until something changes. That in turn means that they can casualize the “producers” and hoover up al the profit that might have gone to them in a fairer world. Very often it also means that they can increase prices to end-users once they have established market dominance.

    Now this is a political point, but I don’t think that endorsing “might is right” should be public policy. I wold prefer to see policy directed towards a fairer distribution of reward for effort and the chance of a decent life for “producers” which, in general, means regulations that limit undue market power. My preference I to do this by changing the way the market works in some small but crucial way.

    In the case of private hire that could involve requiring that all bookings received by dispatchers (including both established ones and new entrants) should be available to all drivers who might then decide to respond to ABC Ltd (because they didn’t take an excessive commission) but NOT to respond to XYZ Ltd (who gouge the drivers). That would constrain the opportunity of dispatchers to act in anti-competitive ways and lead to an equitable distribution of reward for effort and crucially keep the market open to challenge and hence “free”.

  • Happy to report the motion passed on Saturday.

  • Libs should be looking at stopping the exploitation of drivers in this sector by setting minimum fares and controlling the hrs driver work,Some doing 70hrs+ a week a danger to themselves and other road users.
    Many drivers on tax credits.Tax credits should not be used to fund ph journeys.Raise fares or pay retainers for drivers to work for a ph company lifting the burden from the tax payer and stopping exploitation of drivers.Mass transportation by car should not be encouraged or subsidised by the taxpayer in any modern city.600ph drivers joining the London market every WEEK the market is saturated and ph competing on price alone while London is gridlocked with cars.

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