Plan Insurance Blog

TfL’s “Potty Proposals” for Operator Licensing Fees

At the end of April this year, TfL released their proposals for a restructuring of the current licensing fees private hire operators are charged. These fees cover the cost of issuing the licence as well as ongoing compliance and enforcement activity.

Why are TfL proposing to change the Operator Fee Structure?

General Manager of Taxi and Private Hire at TfL, Helen Chapman described the current operator fee system as being “no longer fit for purpose”. The desire is to make sure that the fees charged fairly reflect the cost of enforcement. For that reason the proposed new system aims to charge companies more accurately on the number of vehicles they operate.
Doing so Chapman says it will “enable us to fund additional compliance officers to help crackdown on illegal and dangerous activity.”
A TfL spokesman explained that with many more thousands drivers requiring licensing fuelled by the emergence of larger operators in recent years, some operating over many thousands of vehicles, the current structure no longer reflects the actual costs of compliance.  The regulator doesn’t think it is fair that these large companies should be subsidised by smaller players in the market. Smaller operators with ten or less vehicles make up approximately half of all TfL licensed operators. Only 5% of companies operate fleets in excess of 100 vehicles.

What are the most significant differences?

The system will move from a two tier system to a 5 tier system. The current fee for a small operator up to 2 vehicles is £1488 for 5 years. Large operators of up to 3 vehicles or more are required to pay £2,826 for 5 years.
Going forward, TfL wish to charge the below rates:

Number of VehiclesCost £
0- 10£1,988
1,001+£166,518 + £68/vehicle

Looking at operators with 2 vehicles or less, their regulatory costs will rise almost £100/year over the course of the 5 year licence period. This is a sizable 34% jump which for any small business would be unwelcome. When they consider the fact that operators with 3-10 vehicles will see a decrease equivalent to £167/ year, it will no doubt prove even less agreeable.
However when the proposals are fully considered the discrepancies in costs for operators with 11 + vehicles appear the most poorly judged.

Cost Spikes in TfL’s Proposals

We’ve produced the below price per vehicle graph for operators licensing up to 100 vehicles. It illustrates the spike in cost per vehicle that private hire businesses will face as soon as they need to license over 10 vehicles.
They encounter another spike when their fleet exceeds 20 vehicles. It stands to reason that any shrewd business person would look to split their operation in two in order to reduce their licensing fee price per vehicle from nearly £1,300 back down to around £330. In doing so, they could potentially save themselves almost £20,000 over 5 years.
Graph of fleet operator licencing fees

Key Stats

The number of TfL licensed private hire drivers has gone up from 65,000 in 2013/2014 to 117,000 in 2017.

The number of TfL licensed private hire vehicles has risen from 50,000 in 2013/2014 to 87,000 in 2017.

Additional 250 compliance officers employed by TfL in last 12 months

The estimated cost of enforcement over next 5 years will be £30 million, up from £4 million.

The total projected cost of licensing, compliance and enforcement of the taxi and private hire trades over the next 5 years is £209 million.

£499,435 is the cost of compliance activity for the largest private hire fleet operator that TfL claim is currently being subsidised by smaller operators.

How are Current Operator Licence Renewal Applications Affected?

Helen Chapman’s notification of the consultation being released stated that:

“We are considering on a case by case basis whether private hire licences of a shorter duration should be issued until the outcome of the consultation process is known and any changes implemented.”

This possibly explains why Uber’s recent renewal was done on a short term basis.
Uber are one of only two operators with over 1,000 vehicles that will be affected if the changes come into force. In fact, they are estimated to have approximately 25,000 registered drivers.
Presuming they are all active, the “tech company” would be looking at a bill of £1,866,518 for its private hire licence (or £15/year per vehicle). This fee probably won’t make too big a dent in their multi-billion dollar growth fund. By way of comparison, an operator with a 1,002 vehicle fleet would be required to pay £33 per year for each vehicle’s licence.
The American firm provided Private Hire Courier Magazine with the below statement regarding the proposed amendments:

“We have previously supported the principle of larger operators paying higher fees and we are now looking at the details in the new consultation of how this will be implemented.”

Uber spokesman

Speaking on behalf of the only other 1001 + vehicle operator, Addison Lee, Dr Michael Galvin said, “We have previously supported the principle of relating fees to company size, we also feel that the TfL proposals need some reworking to ensure that it is equitable and reasonable”.
A comment piece in the Licensed Private Hire Car Association’s magazine Private Hire News described the plans as “potty proposals.” The organisation coincidentally held a meeting 3 days after the consultation was released in which they had a vote,

“And not one single attendee thought that the proposed changes to private hire operator licence fees were needed or justified.”

TfL claim that:

“Overall, there has been a “substantial increase in the cost of ensuring that private hire operators fulfil their licensing obligations and in tackling illegal activity to keep passengers safe.”

At Plan, we cannot disagree with the principle that companies should pay costs that represent their fair share of the regulatory burden.  However, from analysing TfL’s proposed model, there appear to be significant flaws in the system being used to calculate the amounts that will be required. The inexplicable spikes will almost inevitably lead to operators attempting to find a way of working around the structure.
The projected running costs TfL have released appear to have jumped dramatically with little to no notice period. It must be considered borderline gross negligence on the regulator’s part if overheads have suddenly increased from £4 million to £26 million. Can we really believe a rise of 650% has been incurred with no apparent warning signs? Uber have been operating in London for 5 years and Addison Lee much longer than that. Surely the bills have been mounting up before now?
We also feel that the higher costs will in a large part be due to TfL inefficiencies and a reluctance to invest in technology. For over 18 months we have been lobbying for TfL to develop a “Taxi Insurance Checker” system that would remove the need for compliance officers to hunt for uninsured drivers. Instead, they would receive an email notification as soon as their vehicle was removed from cover. Our calls have fallen on deaf ears. Instead an extra 250 compliance officers have been employed at the industry’s expense.
The fear amongst many in the industry is that smallest operators are being hit by disproportionately large increases. These additional costs will need to be found from somewhere and almost inevitably that means drivers will be faced with higher charges.
If you’d like to respond to the consultation, you have until June 16th and should visit