ECON20431 Policy Brief

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Jerome Chapman
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1 The University of Manchester ECON20431 Policy Brief Address the following policy proposal - new regulations to prevent Uber from operating in the UK Chanté Matthews-Mohammed 25 th November, 2014.

2 The Right Route for Uber in the British Transportation Industry The Issue: Technology Disrupting the Traditional Taxi Market Uber is an increasingly popular transportation network company (TNC) which matches passengers to drivers of private hire vehicles through its smartphone app. However, the USfounded firm s global expansion has not been without controversy. Incumbent cab drivers and taxi operating companies, including those in the UK, claim that the firm is operating illegally and their hostility has led to public protests 1 and pressure on government bodies to shut down Uber. As with any disruptive innovation, legislation has been lagging behind. Current taxi regulations were established well before the emergence of smartphones or GPS systems, and there is a lack of empirical evidence to indicate the effects that companies such as Uber may have on the existing market over time. It is therefore imperative for the government to promptly yet cautiously fine tune its stance on the matter. The Right Route: Do not ban Uber. Unduly protecting the existing taxi market against Uber and other TNCs would be a dire mistake. Policy intervention of this nature would hinder technological advancement, competition and market efficiency, thus directly counteracting current government objectives. Maintain existing quality and safety requirements. Contrary to widespread belief, all Uber drivers in the UK are independently licensed for private-hire and must have commercial insurance 2 before joining the company s platform. They and their vehicles are therefore subject to existing quality and safety requirements as stipulated in British law. Uber and other TNCs are also subject to existing legislation pertaining to taxi operators though the direct inclusion of terms such as transportation network company and ridesharing platform would clarify this. Encourage transparency. More generally, Uber s compliance with UK tax requirements also poses a concern. There are currently mixed views among politicians and state agencies as to whether Uber is engaging in tax avoidance though the company claims to comply with all tax laws 3. As with all multinational companies, it is necessary for Her Majesty s Revenue and Customs to ensure that Uber and their drivers are transparent on taxation matters. 1 See (Aglionby & Davies, 2014). 2 See (Uber, 2014) and (National Careers Service, 2014) 3 See (Bennett, 2014).

3 Encourage further competition among transportation network companies (TNCs). Uber must not be allowed to unfairly hinder competition in the transportation network industry. The Competition and Markets Authority must ensure that aggressive tactics such as those taken in Uber US 3 do not impose excessive barriers to entry. This would completely undermine the increased market efficiency that Uber has introduced. Possibly reassess the metering regulation. Accusations of Uber illegally using smartphones as taxi meters have been recently put to rest in court but the practical reasoning behind restricting taxi meters to black cabs, or more formally, Hackney Carriages is unclear. There seems to be no economic justification for this and it may be worth reassessing the relevance of this law. Background: Uber and the UK Transportation Industry How does Uber work? Uber drivers are essentially self-employed and the company does not own any of the vehicles. It is simply a marketplace matching passengers with the nearest available private hire driver within a certain city using GPS technology. Passengers are not required to pay the driver directly as this is done electronically through the Uber app. Drivers receive 80% of each fare with the remainder going to Uber. At the end of the ride, customers give their driver a rating as do the drivers with their customers. Uber deliberately targets cities that having a booming nightlife and harsh weather. It is therefore unsurprising that the firm s current UK bases are London and Manchester. Drivers have been locally recruited and Uber differentiates its product offering based on a city s unique market. For example, the offering of UberTaxi allows for the hiring of a black cab through the Uber platform. Notably, Uber UK is subject to different local authority regulations. Current legislation allows for London cabbies can join Uber at their convenience and continue to work for other agencies as well. At present, this is not the case in Manchester, where a cab driver is essentially locked in to a particular operator. Why is Uber so successful? Consumers love Uber because it completely eliminates inefficiencies and safety issues associated with traditional taxi hailing and booking via telephone such as lengthy waiting time at off-peak times or unpopular areas. There is also the convenience of electronic payment and simply, the excitement of a new disruptive technology. Uber s aggressive marketing strategy which included free credit for rides certainly did not hurt either. 3 See (Lee, 2014).

4 Uber drivers have also seen an increase in their welfare. They no longer have to guess where the demand will be or directly compete with other cabs for a particular job. Ideally, this should be cutting their fuel costs in between jobs and increase their earnings. There is also an added element of safety because of the rating system, which acts as a selfregulating signal of reputation. Of course, Uber has attracted a great deal of attention from investors, boasting Google, Blackrock and Goldman Sachs to name a few. Uber therefore has capital to truly monopolize the market as well as the advantage of being the first established entrant. Over time, this may change with a number of competitors already emerging, and existing traditional agencies adopting new technologies in their business model. Argument for the Right Route: Let the markets work because they actually work. From a purely economic standpoint, Uber has created a dramatically efficient market with the aforementioned increases in consumer and Uber driver welfare. As the company and other TNCs grow, there will be further job creation by means of additional drivers entering the market and direct employees of the respective TNCs. A point that often goes unmentioned among incumbent taxi drivers is that since their operating firms are actively competing with Uber for their allegiance, this may also increase the welfare of these drivers. For example, they may receive an increased share of their earnings or generally receive better treatment from their agencies to encourage them to stay. Increased safety and accountability in the market. In the usual contract of driver and passenger, contact information is not shared and interaction after a taxi ride is non-existent. With Uber keeping track of both consumers and drivers information, everyone is held accountable for their actions. The rating system also encourages both parties to behave as they should anyway. Tradition and technology can coexist; there will not be death to the black cab. Quite simply though, Uber gives passengers and drivers more choice. In its novel stages, Incumbent taxi operators see this as a threat but ultimately, platforms such as Uber offer a different service. There will still be a place for traditional cab systems among those who do not use smartphones or people with regular routes near taxi ranks. Black cabs in particular have their unique selling point. The geographical test exclusively required of a black cab driver known as The Knowledge will continue to be a quality distinction despite the use of GPS technology. Black cabs will continue to be an icon of British culture and with Uber integration, these drivers can benefit from the best of both worlds.

5 Greener cities through pure efficiency. Uber s CEO claims that his ambition is to reduce the number of cars in London by a third 4. With less cars and a potential shift away from the culture of car ownership, this can ease environmental pressures and traffic congestion. There will be less of a strain on public transportation services - an unavoidable characteristic of large cities - and an overall increase in market efficiency, simply because time spent commuting can now be diverted towards being more productive. With this innovation regulated effectively, there can be room for continued transformation of the transportation industry and better integration of such technological advancement into the legal and economic landscape. The possibilities for the future are truly endless. With Uber outlawed, the UK may very well set itself back a decade or two. If Uber were to be banned in the UK, all parties would be worse off, including the incumbent drivers who are pleading for protectionism. Disgruntled consumers may very well cause a retraction in the demand for traditional taxis, leaving remaining taxi drivers worse off. The gap in supply may also encourage the formation of an underground market of illegal cabbies which will consume time and government resources to control. With other countries embracing Uber and its technology, it may be the case that their economies progress at a higher rate. This would leave the UK fondly standing by its backwardness just as Neelie Kroes nightmarishly foresees happening in all of Europe 6 if we resist technological change. Uber and other tech giants cannot be allowed to reign free. Alternatively, if the government pays absolutely no mind and Uber is allowed to do as it pleases, there may very well be a complete power transfer to technology giants, potentially jeopardizing consumer welfare. If the government does not assert its authority over corporate citizens, it will no longer have any such power. Thus, the right route must be taken. 4 See (Smith, 2014). 6 See (Kroes, 2014).

6 References Aglionby, J. & Davies, S., London faces gridlock as thousands of black taxis protest. Financial Times, 11 June. Bennett, A., Labour Could Ban Uber App Over Tax Avoidance Fears. The Huffington Post UK, 22 September. Kroes, N., My view on today's taxi protests and what it means for the sharing economy. [Online] Available at: [Accessed 27 October 2014]. Lee, D., Hailo says Uber blocked potential investors. [Online] Available at: [Accessed 27 October 2014]. National Careers Service, Job Profiles: Taxi Driver. [Online] Available at: [Accessed 27 October 2014]. Smith, O., Uber taxi app: Founder Travis Kalanick s plan to rid London of a million cars. City A.M., 6 October. Uber, Earn Money With Your Car. [Online] Available at: [Accessed 27 October 2014].

CHAIR AND MEMBERS COMMUNITY AND PROTECTIVE SERVICES COMMITTEE PUBLIC PARTICIPATION MEETING ON SEPTEMBER 11, 2018

TO: FROM: SUBJECT: CHAIR AND MEMBERS COMMUNITY AND PROTECTIVE SERVICES COMMITTEE PUBLIC PARTICIPATION MEETING ON SEPTEMBER 11, 2018 G. KOTSIFAS, P. ENG. MANAGING DIRECTOR, DEVELOPMENT & COMPLIANCE SERVICES