Private hire vehicles - improving safety: Regulatory Impact Assessment

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1. Title of proposal

Considering the case for removing "the contract exemption" (i.e. section 75(1)(b) of the Local Government (Miscellaneous Provisions) Act 1976). 

2. Purpose and intended effect

Objective

To eliminate the risk to public safety which arises from the current legislation on this matter.

Background

In England and Wales (outside London) private hire vehicles (PHVs) are licensed by local authorities. In order to undertake a lawful PHV hiring, it is necessary for the operator (the person who arranges the booking - normally the radio circuit controller), the driver and the vehicle to be licensed.

Although the term "private hire vehicle" is most commonly equated with minicabs, the legislation defines a private hire vehicle in such a way as to bring a wider range of services (for example, limousine and luxury car/chauffeur hire) within the PHV regime. The common criteria is that the vehicles have fewer than nine passenger seats, are made available for hire with the services of a driver and are not hackney carriages (taxis) or public service vehicles.

Licensing authorities carry out checks on the operators and drivers of PHVs (including criminal record checks in the case of drivers) and they can test the vehicles, up to three times a year.

It should also be noted that licensed hackney carriages (i.e. taxis), driven by licensed hackney carriage drivers, may also be used for private hire work; such vehicles and drivers are also subject to thorough checks by local licensing authorities.

The issue at the centre of this RIA is the contract exemption. Section 75 of the Local Government (Miscellaneous Provisions) Act 1976 ("the 1976 Act") contains an exemption from PHV licensing for any vehicle which is used only to carry passengers for hire and reward under a contract for the hire of the vehicle for a period of not less than seven days. This means that the vehicles, and the drivers and operators of such vehicles, are not subject to the checks which the local licensing authority undertakes as part of the PHV licensing regime. The exemption only applies to vehicles outside London (a clause in the Road Safety Bill should ensure that London vehicles only hired under contracts are brought within the licensing regime which applies in London). The 1976 Act does not apply in Plymouth where a local Act is in place.

There are two types of ‘long term’ private hire contract that should be borne in mind when considering the issues. The first is a contract which involves a public sector organisation. An example would be an education authority which arranges a contract with an unlicensed operator/driver to transport children to and from school. It is possible (but, as discussed below, not reliably so) that the education authority would carry out its own criminal record check on the driver for the purposes of the contract and perhaps checks on the vehicle. But these checks would be outside the local PHV licensing regime and there is a strong case for saying that it is more appropriate for such checks to be undertaken by the local licensing authority. The second type of contract is a contract entered into by a commercial organisation, for example a contract between an unlicensed operator/driver and a nightclub for the transport of their clientele or employees home late at night. It is unlikely criminal record checks would be carried out on the drivers discharging these contracts.

Rationale for Government intervention

The Government is responsible for the overall policy and legislation governing taxi and PHV licensing in England and Wales. Local licensing authorities have some discretionary powers which enable them to formulate some suitable local policies for their own local licensing regime, but they have no powers in relation to the contract exemption; vehicles which fall within the scope of section 75(1)(b) of the 1976 Act do not have to be licensed. So, if any action is to be taken in relation to changing the law, it falls to Central Government to take the initiative. It is the Government's responsibility to promote a legislative framework which is sufficiently robust that passengers are confident about their safety.

The RIA sets out two options – (1) do nothing or (2) repeal the contract exemption. The Government is persuaded of the need to repeal the contract exemption. 

3. Consultation

Within Government

Education Minister (Lord Adonis) wrote to DfT Minister in April 2006 urging the Department to use the opportunity presented by the Road Safety Bill to remove the contract exemption. Other Government Departments were consulted in the preparatory stages and agreed that action was necessary on safety grounds.

Any change to the legislation would affect Wales as well as England. The Welsh Assembly Government has agreed that a change is warranted.

Public consultation

The RIA was prepared without public consultation

However, account has been taken of previous representations which have been put to the Department over the years, both as part of a formal consultation (in 1994) and as day to day correspondence from various interested parties.

Since the amendment was tabled in July 2006, some feedback has been received from stakeholders. The generally held view is that removing the contract exemption would enhance safety. Some concern has been expressed by stakeholders who would be directly affected by the change, most notably some limousine operators and private ambulance operators.

4. Options

Option 1: Do nothing

Pros -

  • no need for the Government to amend legislation;
  • would save on Departmental and Parliamentary time and resources;
  • would allow those who want to put a ‘long-term’ private hire contract out to tender to have a wider choice;
  • would not add to the regulatory burden for contractors;
  • would not impose costs for contractors; and
  • would enable existing businesses and contracts to continue without any disruption.

Cons -

  • allows unsuitable individuals to carry passengers (e.g. where they have been, or would be, refused a PHV or taxi driver’s licence on the grounds that they are not deemed "fit and proper");
  • no assurance that drivers' backgrounds have been checked - they might have been checked for the purposes of a local authority contract, but no assurance, and checks are more unlikely where a purely commercial organisation enters into a contract for private hire services;
  • even where checks are undertaken by local authorities, there is a risk that they will be ineffective or inconsistently carried out;
  • questionable whether local health and education authorities should actually be carrying out certain checks when the local licensing system exists to do just that;
  • avoiding licence fees gives unlicensed operators a commercial advantage in competing for contract work;
  • will create an anomaly between London and the rest of England and Wales once the Road Safety Bill clause to amend the definition of “private hire vehicle” in the Private Hire Vehicles (London) Act 1998 is enacted and, as a result, brings vehicles in London used exclusively for contract work within the London licensing regime.

Option 2: Repeal the provision which allows vehicles used only on ‘long-term’ hirings to be exempt from licensing.

Pros -

  • improves safety by establishing a situation whereby contract work would only be undertaken by those who have been subject to local licensing checks;
  • removes the burden of carrying out checks from health and education bodies;
  • creates a level playing field between all operators in competing for work;
  • establishes the sort of comprehensive system of PHV licensing that is intended in London by virtue of the Road Safety Bill clause amending the definition of "private hire vehicle" in the 1998 Act.

Cons -

  • adds to the regulatory burden;
  • imposes costs on operators, drivers and vehicle owners who are currently exempt from licensing by virtue of section 75(1)(b) of the 1976 Act;
  • may disrupt existing contractual arrangements which are working well and safely;
  • may bring into the PHV regulatory regime people who do not consider themselves to be conventional PHV operators (such as the operators of some private ambulances) and their vehicles and drivers;
  • problematic for operators of specialist vehicles - such as stretched limousines - if the local licensing authority has a policy which precludes granting licences to such vehicles (though it should be noted that only those limousines with fewer than nine passenger seats can be licensed as PHVs).

5. Costs and benefits

Sectors and groups affected

  • licensed private hire trade who compete against unlicensed operators;
  • unlicensed operators, vehicle owners and drivers who take advantage of the contract exemption;
  • licensing authorities who must enforce the law and devote resources to scrutinising contract arrangements to ensure that section 75(1)(b) of the 1976 Act applies to the contract vehicle;
  • passengers who use unlicensed contract private hire services - some will use these services on a purely commercial basis whilst others (e.g. special-needs children or vulnerable adults) will have the services arranged for them by a public authority;
  • bodies and organisations who arrange ‘long-term’ private hire contracts.

Benefits

Option 1 - do nothing

The principal benefit of doing nothing would be that no additional costs or regulatory burdens would be imposed on drivers, vehicle owners and operators who currently take advantage of the contract exemption.

The main beneficiaries would be unlicensed drivers and operators who could continue working without the need to incur the costs of licensing.

Another beneficiary would be the organisations who choose to arrange contracts with unlicensed drivers/operators.

Option 2 - repeal the contract exemption

The principal benefit of repealing the contract exemption would be that the safety risks associated with allowing unlicensed drivers, vehicles and operators to provide a long-term private hire contract would be removed.

The main beneficiaries would be the travelling public who would have the reassurance of knowing that the service they were using has been checked and authorised by the local licensing authority.

The licensed PHV trade would also benefit from a more level playing field in competing for contract work.

In certain cases local health and education authorities would benefit from no longer having to carry out checks of their own in connection with the contract they were arranging; rather they could be confident that any PHV driver would have been checked for the purposes of the PHV licensing system.

Local licensing authorities would benefit from no longer having to enforce the contract exemption provision; they would save resources currently devoted to investigating the terms of contracts to ascertain whether they properly comply with the exemption criteria.

Costs

Option 1 - do nothing

There would be a cost to the travelling public in terms of a continuing risk from drivers who had not been subject to checks.

The licensed PHV trade would continue to incur a cost in terms of unfair competition when they want to tender for contracts.

Option 2 - repeal the contract exemption

The main cost of this option would be that a new regulatory burden with associated costs would be imposed on vehicle owners, drivers and operators who are currently unlicensed on account of providing a contract service.

In order to quantify the cost of bringing those drivers, operators and vehicle proprietors currently engaged solely on contract work into the PHV licensing system, it is necessary to make three assumptions - an assumption about the number of people currently engaged in unlicensed contract work, an assumption about the number of those people who would actually acquire the relevant licences to enable them to continue working and an assumption about licence fees.

By virtue of the fact that drivers and operators taking advantage of the contract exemption are not licensed and therefore are not registered with any licensing authority, it is difficult to identify just how many people are involved. However, when the Government prepared an RIA to close the loophole in the 1998 Act which allows for unlicensed contract work in London, Transport for London estimated that some 800 drivers were providing a service without holding PHV licences. This figure is equal to some 3% of the total number of PHV drivers in London who were within the system. If this sort of estimate were to be used to gauge the position in the rest of England and Wales, it would suggest that some 2,500 drivers (and vehicles) were benefiting from the contract exemption. Adopting the same sort of estimate for operators as in London would suggest that some 400 operators would fall to be licensed if the contract exemption were to be removed.

However, if the contract exemption were repealed, it is unlikely that every one of those individuals would automatically acquire the relevant licences to enable them to continue. For example, some of the drivers would have opted for the unlicensed contract sector because they had failed to prove to a licensing authority that they were "fit and proper" to hold PHV licences. Another set of drivers will be those who only undertake a limited amount of private hire work - perhaps retired people who appreciate the fact that they can make some extra money without any regulatory burden - and who have no interest in becoming licensed PHV drivers. It is reasonable to assume that some of the existing contract work would be secured by operators who are already licensed; the point about drivers taking up unlicensed contract work on the basis that they would fail the fit and proper check applies equally to operators. Moreover, existing licensed operators would be able to tender for work on a more level playing field.  Accordingly, the RIA assumes that some 300 operators will acquire PHV operator licences and 2000 individuals will be granted driver and vehicle licences.

Licence fees for operators, drivers and vehicles are set by individual local licensing authorities. They are intended to be set according to the principle of full cost recovery, that is, the fees are intended to cover the costs incurred by the licensing authority in carrying out the licensing function. The fees, therefore, vary considerably throughout the country. A snap-shot of eight licensing authorities showed that operator licence fees varied from £100 to £1000; driver licence fees varied from £100 to £400; and vehicle licence fees varied from £120 to £360. The table below uses a figure in the middle of these ranges (the operator fee is nearer the lower end as the £1000 fee was extraordinary).

Operator licences 300 applicants x £400 fee 120000
Driver licences 2000 applicants x £250 fee 500000
Vehicle licences 2000 applicants x £200 fee 400000
    1,020,000

It is also possible that some operators, vehicle owners and drivers might suffer by virtue of local authority policies which preclude the licensing of certain specialist vehicles (e.g. a blanket ban on left-hand drive vehicles would rule out stretched limousines imported from the USA). However, it should be borne in mind that the legislation provides a right of appeal to the magistrates’ court for any person who is aggrieved by a decision of a licensing authority to refuse the grant of a PHV licence. 

6. Small firms impact test

As small-scale operators are more likely than larger private hire operators to exclusively operate vehicles which fall within the contract exemption, it is likely that any decision to repeal section 75(1)(b) of the 1976 Act would impact substantially on the smaller-scale operators. However, Government takes the view that the safety arguments for bringing such vehicles within the licensing regime justify the impact on these businesses.

7. Competition assessment

As noted above, the contract exemption gives unlicensed drivers, vehicle owners and operators a commercial advantage when tendering for ‘long term’ contract private hire work as they have not had to pay out for licence fees. Consequently, any decision to repeal the contract exemption would mean that licensed drivers, vehicle owners and operators would be able to compete on a level playing field.

8. Enforcement, sanctions and monitoring

If the contract exemption were to be repealed, responsibility for enforcement would rest with local licensing authorities; they are responsible for ensuring that people who drive, own or operate private hire vehicles within their "controlled district" hold the appropriate licences. If an operator, vehicle owner or driver contravenes the relevant PHV licensing laws, the maximum penalty is a fine not exceeding Level 3 on the Standard Scale.

 

Declaration and publication

I have read the regulatory impact assessment and I am satisfied that the benefits justify the costs

Signed ………………………….

Date

Stephen Ladyman
Minister of State, Department for Transport

Contact Point

David Farmer
Buses and Taxis Division
DfT
3/13 Great Minster House
76 Marsham Street
London
SW1P 4DR

020 7944 2283
david.farmer@dft.gsi.gov.uk

November 2006