Passenger transport in isolated communities

Written evidence from Fare Enough (TIC 038)

Fare Enough is the campaign raising awareness of the poor working conditions of private hire drivers in the UK. The campaign was established by Samuel Fisher after his experiences of attempting to start Greenbean Cars, Leeds' first environmentally friendly private hire service, in 2010.

1. Problems associated with the provision of private hire services in isolated communities

1.1. Isolated communities in northern cities, such as those on low incomes and the elderly, often rely upon the private hire industry to make trips that are otherwise very difficult using the public transport network. This note sets out how private hire services can rely upon the exploitation of private hire drivers who often end up working in conditions of financial servitude. It also sets out why the working conditions of private hire drivers appear to vary dramatically across the country. The note specifically examines the private hire industry which is a pre-booked services as opposed to the taxi and hackney carriage which can be hailed on the street.

1.2. The private hire car industry is a major employment sector in this country, with over 231,000 drivers holding private hire licences in England & Wales. Whilst a proportion of these drivers are employed, the overwhelming majority operate as self-employed agents working under licensed operators with radio circuits. There are widespread concerns about the working conditions of private hire drivers, the amount of debt they enter into each week in order to receive work from the licensed operators and the amount of hours that they need work in order to pay off their debts and earn a basic income. None of these issues appear to come within the remit of a regulatory authority. This is in contrast to the far fewer drivers working in the bus and coach sector (131,000 across the UK), who fall clearly within a regulated vocational transport profession, who mostly work for employers and whose working hours are strictly limited and largely controlled by the use of tachographs to ensure the safety of the public.

2. Executive Summary

2.1. Private hire drivers in northern towns and cities provide an essential service to isolated communities but are heavily exploited.

2.2. Private hire drivers have to overcome typical weekly overheads of £420 (see section 6 ) . Consequently a private hire driver often earns no more than £2.00 per hour for a 50 hour week. Drivers will typically work 70 hours per week, compromising road safety and the relationships with their families.

2.3. Such exploitation persists because private hire drivers are not usually represented by trade unions. Similarly, drivers have historically been considered by the courts to be self employed and therefore unprotected by the National Minimum Wage and Race Relations Act (which renders them vulnerable to labour exploitation and race discrimination cf

2.4. The exploitation of drivers is systemic and a consequence of the radio-rental business model employed almost universally by private hire operators.

2.5. The Law Commission is currently reviewing the private hire and taxi industry on behalf of the Department for Transport with the purpose of proposing wholesale reform. They are expected to submit a draft Bill to Parliament by the end of this year. Its remit however does not include factors relating to the working conditions of private hire or taxi drivers.

3. Introduction

3.1. From my experience as a private hire operator and a private hire vehicle leasing business in Leeds it appears the poor working conditions of private hire drivers directly relate to the radio-rental business model employed universally by operators across the city (see section 5). Unfortunately, the radio-rental model is open to abuse by unscrupulous operators taking advantage of its drivers who are unable to protect themselves through employment law or trade unions. The radio-rental model puts significant downward pressure on fare prices which leads to drivers earning as little as £2 per hour for a 50 hour week. When the major operator in a city chooses to suppress fare levels it forces smaller operators to behave in a similar fashion to keep their prices in line with the market rate. Initial research indicates that this is the predominant practice of operators in many towns and cities outside of London. [1]

4. Political and legal context

4.1. The Law Commission is currently undertaking a review of taxi and private hire services. The Law Commission's taxi and private hire services impact assessment (July 2012) recognises that vulnerable groups such as those on low income and those with impaired mobility 'constitute a significant proportion of users'. As acknowledged in the Commission's consultation paper (May 2012) people in the lowest 20% of incomes are 40% more likely to use taxis and private hire vehicles than those in the highest 20%. Any reforms that protect drivers therefore need to recognise that an absence of a viable service for isolated communities would effectively restrict their opportunity for travel, be it for leisure or business. Nonetheless this service should not be guaranteed through the exploitation of its drivers.

4.2. The Employment Appeal Tribunal and the Court of Appeal have often found private hire drivers to be self employed and therefore unprotected by National Minimum Wage legislation. [2] There is concern that only the interests of the operator and consumer are taking precedence within the Commission's review since the Commission has stated that reviewing the employment status of drivers is not within the remit of their review. Since a reliable transport service for isolated communities depends upon stable working conditions of its service providers, I submit that it is imperative that the relationships between the driver and operator and between driver and consumer is given serious consideration by this Committee.

4.3. This is especially important given the ambitions of many in the public transport sector to see the taxi and private hire industry becomes more innovative and professional in order to provide demand-responsive services such as taxi-buses (as proposed by the National Association of Taxi Users). For these ambitions to be realised the working conditions of private hire drivers have to be better protected. When considering the role of taxis and private hire services in relation to transport provision for isolated communities, I recommend the Committee take a tripartite approach to industry relations that includes all three key stakeholders; operator, consumer and driver.

4.4. Needless to say the benefits to Government of improving the working conditions of private hire drivers are numerous; reduced dependency upon welfare benefits, taxable income increases, a rise in service levels and the speedier development of innovations – for example the environmentally friendly services that are popular in London.

5. How the radio-rental business model works, the benefit it brings to private hire operators and its implications for consumers and the wider public

5.1. Operators do not receive income directly from the fares of their cash customers. [3] Instead, operators receive a fixed weekly 'radio-rent' in advance from each private hire driver in their fleet. Payment of the radio-rent enables drivers to receive jobs through a radio or digital despatch device connecting them to a vehicle dispatcher at the operator's base. Drivers retain all the fares that they are paid to them from the custom received through this radio or device.

5.2. Under the radio-rental model, there is a natural incentive for operators to increase their radio-rental price or add further drivers to their fleet (in order to rent more radios) irrespective of the work load. Over time, this practice is often taken too far leading to the work load of the fleet becoming diluted and private hire drivers experiencing a drop in the number of fares received. Drivers can be added to an operators fleet without any additional cost to the operator since the driver will own the private hire vehicle and arrange vehicle insurance cover. Therefore the radio-rental model removes any expansion cost or risk from the operator.

5.3. Seeking to retain the loyalty of their customers, operators have an additional incentive to keep fares as low as possible. Of course, this is unusual for a commercial operation but it is only achieved in this instance because operators do not receive income directly from fares.

5.4. In the case of the private hire industry very low fares effectively prevents both established, conscientious operators lead by example and treat their drivers with greater dignity. Fares are currently so low that established conscientious operators (that are not the dominant actor in the local market) would not be able to raise their fares high enough to guarantee the National Minimum Wage to their drivers without losing their entire customer base. [4] A dominant actor within a radio-rental market would however be able to raise fares without being hurt commercially to the same degree as if a lessor operator did so. Because all other local operators are likely to retain low fares, and because there would be no direct short-term commercial benefit in financial terms, there is no clear incentive for a dominant operator to raise fares in this way. The only motivation for raising fares for a dominant operator would be to prevent a driver revolt, but given the power of a dominant operator over its own drivers and, critically, other local operators such a revolt from drivers is very unlikely.

5.5. Low fares have an additional benefit of establishing a higher barrier to entry for new operators to the market. Normally, new entrants to any market will compete with established companies by offering a more competitive service coupled with a reduced price – at least for the initial period of trading. Normally, a reduced cost offers an incentive for potential clients to risk departing from their established service provider in order to test the service of a new and unproven competitor. Since new competitors will not enjoy the same scale, levels of experience and range of services customers of its established rivals will enjoy, it is often very important for new entrants to be able to offer this reduced price.

5.6. In deciding whether to change to an operator that is a new entrant drivers will only be attracted to a new company if their daily income exceeds that of their previous operator. If fares at the new operator are at market rates or slightly lower then this operator will need to provide more fares per day to attract drivers. This appears to be an impossible task for any new operator within a mature radio-rental market. To provide more fares per day the new operator requires not only a significant initial customer base but the concomitant fleet of vehicles to provide the flexibility and adequate level of service required to handle that sufficiently large customer base. This is very rarely achieved. Since a new operator will have to ensure their prices remain at or below the local market rate inevitably means their drivers will be working for well below the National Minimum Wage (see section 6). Where the radio-rental model is prevalent, any improvements to the working conditions of drivers at even the most conscientious operator will therefore be marginal and potentially worse.

5.7. Not only are private hire drivers unprotected by trade unions and National Minimum Wage legislation they are also unprotected by the normal market mechanisms that would otherwise be able to assist them. If the structural complexion of the industry in certain cities was not broken to such a degree the market would allow established, conscientious operators to behave differently and raise standards. Again, if the market was not broken to such a degree, new operators acting as social entrepreneurs could also enter the market and improve the working conditions of drivers. In short, it is impossible in most UK cities for conscientious operators or social entrepreneurs to improve the working conditions of private hire drivers when they are effectively forced to pay their drivers well below the National Minimum Wage for a 50 hour week.

5.8. When the implications of the radio-rental business model have reached maturity, consumers also benefit financially from under-priced fares. In Leeds for example, a journey shared between two people is often cheaper in a private hire vehicle rather than on a bus. Consumers also enjoy an over supply of private hire vehicles which improves service response times.

5.9. Consumers and private hire operators both benefit in the short term from this business model whilst private hire drivers are placed under significant financial pressures, often leading to financial servitude (see section 6). Over the long term established operators benefit from reduced levels of competition and a gross imbalance of parity between themselves and drivers which enables operators to reap large commercial rewards. Conversely, in the long term customers start to experience a dramatic reduction in the quality of service levels as a consequence of very low pay attracting only the lowest skilled workers. More broadly, road safety standards also diminish dramatically as drivers are forced into working 10-12 hours a day, six or seven days a week.

6. Implications of the radio-rental business model for private hire drivers

6.1. There are two main implications of the radio-rental business model for private hire drivers. The first is level overheads drivers face every week, the second is the amount of time it takes to earn a living after settling these weekly overheads.

6.2. Initial research of local drivers indicates that, for a 50 hour week, average weekly overheads for a driver in Leeds can be as much as £420. The majority of this outlay is comprised of vehicle ownership/rental and insurance costs and the radio-rent which is all paid in advance to the operator every week. The most expensive option is to rent a vehicle, which combined with the radio-rent, can cost a private hire driver in Leeds £270 per week. The remaining outlay is for fuel and other costs that can total over £150 per week depending on the number of miles driven. Total weekly overheads for a private hire driver in Leeds can therefore be at least £420 per week.

6.3. Due to the high weekly overheads, low fare prices and a shortage of fares, drivers at a major private hire operator in Leeds can expect to earn as little as £2.00 an hour for a 50 hour week.

6.4. In practice private hire drivers in Leeds typically have to work four days per week (without an income) to repay these weekly costs. Once these overheads are paid, aside from fuel costs, drivers are able to retain their income and so they seek to work as many hours as possible. It is not uncommon for drivers in Leeds to work 12 hours a day for seven days a week.

6.5. During an economic downturn the two implications described above are compounded by lower consumer demand and an increase in the number of drivers entering the sector, having lost their jobs in other industries. Anecdotal evidence in Leeds suggests there are currently fewer fares available but more private hire drivers. This further exacerbates the dilution of fares between drivers and effectively forces service and safety standards even lower as more experienced, higher skilled drivers migrate into other sectors, but more commonly, work even longer hours.

6.6. The consequences of long working hours and low pay go beyond individual drivers. There is also a significant effect upon driver's families and the safety of their customers and other road users. It may be considered useful to conduct further research into the impact of extended working hours of private hire drivers upon the levels of road safety standards. [5]

7. Other models - The profit-share business model

7.1. There are other business models that are actively used by private hire operators that I believe better respect the relationship between operator, driver and consumer.

7.2. In London a profit-share model is commonly used which means operators have a direct relationship with the price of their fares. Like any other sector this places upward pressure upon prices which is balanced by consumer pressure and market competition.

7.3. Under the profit-share model the operator, in exchange for providing customers and a vehicle to the private hire driver, retains approximately 50% of the total fare income generated that week. Since income levels for the operator are the same irrespective of the number of drivers in its fleet, there is no incentive for the operator to increase the fleet size when the work load does not require it.

7.4. Under the profit-share model operators do not compete primarily on the prices of fares, as they do with the radio-rental model. Instead, because operators have an interest in keeping fares as high as possible, they compete on customer service levels and innovation in order to demonstrate a competitive offer. This appears to be a more favourable model; drivers and operators enjoy a shared commercial interest (which better protects the financial interests of drivers) and consumers benefit from a higher quality service that does not rely upon the exploitation of drivers.

8. Conclusion

8.1. Urban isolated communities rely upon private hire services for both business and leisure activities. However the industry is riddled with labour exploitation which is unacceptable even if it does mean providing a very low cost service for the wider public and isolated communities such as low income groups.

8.2. The radio-rental business model extensively employed in the private hire industry has a profound negative impact upon its drivers forcing many of them to work over 70 hours a week. Under the radio-rental model customer service standards are substantially reduced, drivers are exploited, and whilst consumers enjoy low fares, public safety standards are compromised.

8.3. Much can be done to improve the industry and better integrate it into the public transport sector. In my view improving the industry so that it can provide a quality service to isolated and non-isolated communities alike can only be achieved when considering how to improve the relationships between all three key stakeholders; operators, consumers and drivers.

8.4. For regulators, there are advantages to improving these key stakeholder relationships as mutual interests between the stakeholders improves standards thus requiring less regulatory control and enforcement action.

8.5. If regulators ignore the internal relationship between the operator and the driver then there is a much greater requirement for regulations, enforcement action and expenditure on safety and service quality matters. The ideal position for the government and regulators is to encourage internal stakeholder relationships that are largely self-regulating. This path provides a context for reducing friction within the industry and reducing the attendant regulatory costs which are otherwise required to resolve. Presently the private hire sector contains an enormous amount of conflict built into its stakeholder relationships. Even with a new regulatory framework that the Law Commission are currently developing the sector will continue to be difficult to regulate properly as key stakeholder relationships are broken, strongly opposing each other through an expression of their vastly divergent interests. To ensure a stable, safe and equitable private hire market for the general public the interests of all parties are best served through reforming the structures that allow for the necessary improvement of stakeholder relations. This is particularly important for isolated communities since private hire drivers serving these communities are themselves highly likely to be isolated and vulnerable.

August 2013

[1] One report indicates private hire drivers in Accrington are earning 75p per hour for an 80 hour week. ('Accrington Cab Drivers Take Action', Cab Direct, 16 April 2013 - )

[2] Mingeley v Pennock And Ivory t/a Amber Cars (2004), IRLR 373

[2] R elated case - Stringfellows Restaurants v Quashie (2012) EWCA Civ 1735

[3] Operators do receive some direct income generated from account clients paying a premium fare but this represents only a small proportion of their income for most operators outside London.

[4] Approximate calculations estimate a fare rise of 50-80% (for most towns and cities outside of London and the South East) would be necessary for the National Minimum Wage to be met within a 50 hour week.

[5] DfT data sets should be able to assist with comparing the rate of involvement of private hire and taxi drivers in road collisions against the varying working conditions of drivers in different parts of the country -

Prepared 23rd September 2013