TCS Daily

Taxicab Concessions

By Benedikt Koehler - June 1, 2005 12:00 AM

All politics is local, as Tip O'Neill used to say. This adage might have guided the British government's response to a report by the UK's competition watchdog, the Office of Fair Trading. The OFT recommended an overhaul of taxi trade regulations. Maybe Whitehall balked at the prospect of legislative street fighting in local authorities all over the country. In any event, the government beat a strategic retreat and left it to local authorities whether to ignore the OFT or to pick up the gauntlet. Since then the fray has broken out in local authorities across the country.

The OFT's conclusions turned on a peculiarity of taxi markets which seems out of place in an efficient market. Taxi licenses are not only an entry ticket to the trade, they are a valuable commodity in their own right. In some parts of Britain a taxi license commands a higher price than a house.

Many British licensing authorities have traditionally capped the number of taxis which ply for trade in their district. Some say this does not make sense. Barbers, bakers and candlestick makers get by without restricting entry to the trade, so why cabbies?

Some argue licenses keep out competitors and mean incumbents keep the turf to themselves. License owners maintain this view is bunkum. However, Taxi Driver Online keeps a log of license values and noticed that when de-restriction was first mooted, prices in Manchester nosedived from £50,000 to £10,000. Once the government signaled it would not impose de-restriction, prices recovered. Actions speak louder than words.

The OFT said it was time to take a hard look at quantity caps with a view to getting rid of them. There are 343 Licensing Authorities in the UK and more than two-thirds by now have abolished quantity caps. Yet there are many districts where the fray is in full swing. These cases show market forces assert themselves, once they have a chance.

In Cardiff, for example, caps were lifted and a local business went to court to overturn the decision. He lost, sued a second time, and lost again. The courts sided with the Licensing Authority and confirmed its right to de-restrict.

In Dundee, the Licensing Authority was sued, in this case because its findings of demand for taxi services was out of date. That spells trouble for regulators who think they can keep a lid on new entry. Take Calderdale, for example, where a license has an estimated worth of £70,000. Since Calderdale has only 37 licenses, you might have thought there was room for more. Not so, says the Licensing Authority, so convinced of its stance that it did not even bother to commission a demand survey. After Dundee, there might be a rethink.

The next battleground is Plymouth, where the plaintiff is suing for de-restriction. The Plymouth case might have even further implications than Cardiff, where courts acknowledged the right of a regulator to lift caps. In Plymouth, courts will establish whether de-restriction is not simply an option, but a requirement. A decision is due in July.

The issues may be local, but the implications are global. Issues contested in Cardiff, Dundee and Plymouth have their equivalents wherever access to taxi market is barred. Taxi regulators across the US, take note.



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