MENU
Your location:

Uber: Is it good or bad for the UK economy?

    Sadiq Khan’s pledge to have ‘a cap on the number of private hire vehicles’, has sparked further debate on whether the introduction of uber has had a positive effect on the UK economy. Currently, there are roughly 100,000 private hire vehicles in the capital – a 10% increase from 3 years ago. Uber is an app that connects people wanting cabs to cab drivers. In cities such as London, you can normally request an UberX on your phone with one arriving in approximately 5-10 minutes. Its cheap fares and quick availability have made the app hugely popular. Many jobs have been created, uber drivers tend to be very happy with the company whenever you speak to them (they keep 80% of all price fairs, whilst Uber takes 20%), and consumers are getting cheap prices. It is therefore clear that that the app has had many positive effects on the UK economy. So what’s the problem?     

    Khan evidently would not have made such an obviously illiberal pledge if there was not some electoral gain from it. Many of the concerns logically come from black cab drivers, whose share of the taxi industry in London, has taken a hit from Uber’s drastic rise. This being said, black cabs are never likely to disappear completely, simply because tourists value them so highly. A change might be occurring where black cabs must have to start focussing more on tourists, but this is not something they should complain about, given the high prices they charge. The real issue is for local mini-cab companies. These are the companies who are close to bankruptcy and simply cannot compete with uber both in terms of customers and their workforce. Moreover, the issue of where Uber pays its taxes makes it even more difficult for these small mini cab companies to compete. In 2015, Uber paid £22,134 in UK tax despite making £866,000 profit in the UK. The question of tax evasion thus looms large over Uber. The likes of my local mini cab company, Swiss Cottage cars, charge similarly low prices like uber, but simply cannot compete with a company that can make such significant profit, whilst paying only 2.5% of this profit in tax. It is these small companies that Khan should look to protect rather than the black cabs, which perhaps were targeted with his pre-election pledge owing to their electoral importance.

    Perhaps the most damaging claim to the argument that Uber is hugely beneficial to the UK economy concerns the concept of predatory pricing. Uber’s predatory pricing strategy is best summarised as ‘a pricing strategy where their service is  set at a very low price, intending to drive competitors out of the market, or to create barriers to entry for potential new competitors’. More formally, predatory pricing refers to making short term losses in the hope of driving competitors out of the market, and then raising prices. This is obviously anti-competitive and illegal in the UK. Those who therefore hide under the banner of competition to say that Uber is brilliant for the economy are missing the point. Uber is not trying to promote competition, it is trying to create a monopoly, which is by definition anti-competitive. With an international company such as Uber, it is difficult to pinpoint whether the company is charging prices at a level that is making losses. Many, however, think the prices charged for an UberX at the moment are evidently abusive, and the likelihood that they will even fall in the future, does make it seem like Uber is using the predatory pricing strategy. This would mean that whilst consumers are facing short term benefits, in the future prices will rise, and competition in the taxi market will be drastically reduced.

    As a 20 year-old studying in London, Uber has without doubt, been something that I would not have been able to live without over the last 3 years. Nevertheless, the argument that Uber is purely beneficial for the UK economy is evidently flawed. Local mini cab companies are unable to compete with Uber’s ability to pay less tax in the UK than them, and the possibility that Uber is using predatory pricing is one that must be countered with the appropriate regulation. Putting the brakes on the growth machine that is Uber is not anti-competitive. It is stopping a monopoly forming, and this is competitive. Sometimes regulation can promote competition, and we cannot forget that at this time. Khan’s policy of a cap is highly controversial, and there is rightful scepticism about whether it will be successful. What cannot be doubted, however, is that Khan is right to follow in Boris Johnson’s footsteps and impose some regulation on Uber.         

    Centre for Policy Studies will not publish your email address or share it with anyone.

    Please note, for security reasons we read all comments before publishing.


    Comments

    John Jolliffe - About 727 days ago

    What is the evidence that Uber's conduct is abusive? If it is true that they are operating below cost in order to drive competitors from the market and that they plan to raise their prices firstly, then there are 2 points. Firstly, that is illegal, and would be a matter of enforcement by the CMA (ex OFT). Secondly, what is there to stop a competitor entering the market and undercutting them once they raise their prices? Others could create and market a similar app. What is Uber actually doing wrong now?

    Comment on This

    Centre for Policy Studies will not publish your email address or share it with anyone.

    Please note, for security reasons we read all comments before publishing.