Taxi licences and excess supply

Taxi drivers in Reading are facing an uncertain future after the council increased the number of taxi licences from 120 to 180, despite falling demand as a result of the economic downturn. A local association representing taxi drivers the Reading Taxi Drivers’ Association says that this move is highly dangerous, with cab drivers having to wait on average over an hour for a fare, resulting in more hours being worked to take home the same pay. In effect a cut in their real wage rate.

In competitive markets where prices can easily adjust, this problem of excess supply won’t exist for long. However, taxi cab fares are generally fixed by the local council, and so prices in Reading cannot fall in order for the market to clear. Many taxi drivers are considering re-training and looking for employment elsewhere, which should reduce the supply of taxi-cabs, but with falling demand for taxi journeys anyway, the supply will have to fall further than the initial 120 if the excess supply is to be eliminated. With Britain suffering from recession, looking for alternative employment will not be easy.

The Taxi Drivers’ Association have released the following figures to back up their arguments.

In 2007, a taxi driver operating in Reading borough earned an average £430.56 in one week, worked 44 hours, earning £9.78 an hour.

In 2008, the average takings were £355.72, working 44 hours, earning £8.10 an hour.

Whereas in 2009 the figure is more like £326.12, 44 hours, an average of £7.43 an hour.

National minimum wage is £5.73 an hour and this is without the costs drivers have to shell out for fuel and other expenses.

Mr Johnson goes on to say “a normal working day” would see a taxi driver work nine hours and do 10 jobs in which they could expect to pocket – including tips – £65.60. That’s an average of £7.28 per hour.

About £12 of this would go on fuel, leaving £53 a day, £265 a week or about £13,780 a year – if the current situation continues.

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