Opinion: The OFT's recommendation on restricted plate numbers has raised the spectre of large scale losses for recent purchasers.

While the Office of Fair Trading's (OFT) recent recommendation to end the restricted numbers policies operated by many UK local authorities was hardly unexpected, this raises the vexed question of unfairness towards those who have invested significant sums in a taxi plate on the assumption that they will continue to earn 'excess profits', with the purchase often funded by a loan secured on the purchaser's home.

While there seems little merit in license quotas per se, the capital loss suffered by some plate holders on de-restriction is perhaps the most powerful argument in favour of their retention.

In countering this view the OFT adopted the usual but rather superficial view that, in view of the fact that restricting taxi license numbers is merely a non-mandatory policy option for local authorities, then : "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]."

Sadly, this is probably by no means the position in all cases, and indeed it is arguable that a significant number of plate purchasers, if not the majority, were unaware of exactly what they were buying, and to that extent the OFT's view that purchasers were effectively aware of the risks involved somewhat misrepresents the true position.

For example, many purchasers seem to genuinely think that they are buying some kind of normal business, with plate premiums often talked about in terms like 'goodwill'.  Of course, this inaccurately describes the premium, since unlike goodwill it depends wholly on the restricted market operated by local authorities, but this fact does not necessarily prevent plate holders misunderstanding the position.  Likewise, how many plate holders are fully appraised of the arcane legislation and case law surrounding restricted numbers, not to mention the impenetrable statistical analyses contained in the 'unmet demand' surveys?

Similarly, many plate holders are unaware of the prevailing political and regulatory environment.  For example, the Scottish Taxi Federation had been propagating the view that the OFT's study had no direct relevance to Scotland, but presumably even federation members are now better appraised of the relevant facts.  And how many have purchased plates wholly ignorant of the Government's proposal for national de-limitation using powers under the Regulatory Reform Act and published almost two years ago?  Indeed, as many of us are aware, some in the trade are still wholly unaware of even the existence of the OFT's report or the implications thereto.

Likewise, some of the OFT's counter-points against arguments that numerical restrictions should be maintained to protect plate premiums or that de-restriction should be phased in to offer some protection, seem rather weak:

[The premium value] is unofficial - it is unrecognised by statute...
Restricted numbers policies are explicitly permitted by statute and the implication is therefore that some sort of excess profit scenario would result.  The capital value of these excess profits are reflected in plate premiums.  Plate transfers are not illegal and in fact have been facilitated by the authorities.  Indeed, where plate transfers have been barred by statute, some authorities have gone out of their way to contrive a method whereby they can be transferred (see below).

Phasing in does not address the competition problems in the market place quickly enough.
Since restricted numbers policies have been in place in many areas for several decades, a short phasing-in period does not seem significant in that context.

There is no economic justification for quantity controls or license shortage premiums, and it is more appropriate to remove them altogether than to allow them to continue in a modified form.
This point seems to assume merely looser restrictions rather than total de-restriction, but presumably a phasing approach would merely delay the total removal of quantity controls.

It will be difficult for LAs to carry out a fair selection of new licenses when limited numbers of new licensees are issued during the phasing in period.
Many authorities have obviously issued limited numbers of plates in the past, particularly following survey recommendations, and while not all are 'fair', surely some method of fair selection could be agreed.

In any case, there is not necessarily any need for a phased approach since merely delaying implementation of de-restriction would result in a fairer outcome than immediate change - assuming that at some point all purchasers become fully cognisant of the relevant facts. 

However, this is certainly not the case at the moment.  Had, for example, potential purchasers been fully aware of the Government's Regulatory Reform Act proposal nearly two years ago and the subsequent launch of the OFT's study, then a fairer market in plates might well have developed since then, meaning a more equitable end to restrictions, and at an earlier date as well.

Moreover, we are aware of at least one local authority which has refused requests (ostensibly on legal grounds) for future transferees to sign a statement to the effect that they are aware of the OFT's report and the implications thereto.

Thus it is arguable that the market in plates is an unfair one, and this is particularly so for new entrants to the trade, who may not be fully aware of precisely what they are buying and the political and regulatory environment surrounding plate premiums.  On the other hand, more seasoned trade members are generally more aware and 'know the score', and there is at least some anecdotal evidence of some 'bailing out' of plate holding since the the Government's Regulatory Reform Act proposal and the launch of the OFT's study.  The OFT make much of the need for cab users to be well informed with regard to fare levels, and of course consumer protection is highlighted.  But aren't plate purchasers consumers as well, and are they adequately protected or well informed?

Of course, in general terms the OFT's de-restriction case is entirely sound, but our argument is that the market is an unfair one and, in particular, many transfers are undertaken in an environment where one party has superior information to the other, to that other's detriment, a problem well know in economic theory and practice, and which indeed the OFT addresses in its report in relation to users of taxi services.

In practical terms, the problem is perhaps ably demonstrated by recently booming plate values in locations like Manchester and Glasgow, apparently right up to the publication of the OFT's report, and this is perhaps demonstrative of a somewhat false market in plates - would any properly informed plate purchaser have paid more for a plate this autumn than two years ago?

However, notwithstanding the OFT's view outlined above, the report does in fact state: "When deciding whether to follow our recommendations , Government will no doubt weigh in the balance any social welfare issues for particular license holders or classes of license holder that come to light in any consultation that may be held."

As a footnote, one particular point worth mentioning is that in Scotland the legislation did not allow for plate transfers, presumably in order that exiting plate holders in restricted areas could not benefit unfairly from new entrants to the trade, and possibly to avoid the problems outlined above following any change in policy regarding numerical restrictions. However, it seems particularly unsatisfactory that many local authorities north of the border have contrived to allow license transfers, thus leading to a potential problem that was wholly avoidable - we will be looking more closely at this issue in the near future.

Finally, while it seems probable that most UK plates have been transferred and thus most have been subject to some kind of payment for the premium, some plate holders have been awarded their license at nominal cost by their local authority and will thus suffer no loss on de-limitation.  Moreover, a great many plate holders have purchase plates for value, but have held them for a significant time and seen significant paper gains, and likewise they will suffer no real loss. 

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