Uber and TfL: A long game of carrot and stick

Written by: Anisah Khan

In the realm of taxis that circumnavigate London each day, Uber accounts for a fair share – it has 45,000 drivers in the UK capital. Since it began London operations in 2012, the ride-hailing firm have acquired 3.5 million users, and in doing so, changed day-to-day travel. No longer do you need to make a phone call, but simply press a few buttons on a mobile app and live track the taxi’s journey to collect you. Thereafter, you can live track the journey to your destination. As for payment, no need to worry about cash – store your card details within the app. A hassle-free journey for Uber customers, but the ride for Uber themselves has been rather bumpy. Uber and Transport for London (TfL) have a relationship that has been fraught with conflict, threatening  the former’s presence in the capital several times – notably in 2017. On 25th November 2019, Uber lost its licence to operate in London once more – the carrot withdrawn and slapped with the stick, again. This article will assess Uber and TfL’s ongoing dispute, potential resolutions, and what the conflict reveals about Uber’s wider struggles.  

Uber and TfLs road to conflict

It is important to distinguish that Uber do not have issue with London as a city or its inhabitants, but the regulators. London is actually one of Uber’s top five global markets. Transport for London has been a constant thorn in the side – rightly or wrongly –  since Sadiq Khan became Mayor of London in 2016. The disputes predominantly do not centre on market competition issues, but regulatory concerns. The exception is a HMRC investigation pertaining £1 billion in unpaid taxes surrounding Uber’s failure to charge VAT on its fares. VAT is excluded, according to Uber, because their drivers are self-employed – Uber are merely the ‘middle-man’. This legal issue is ongoing, brought before the courts by ‘The Good Law Project’, and led by prominent tax barrister Jolyon Maugham QC. 

Sadiq Khan is not the first London Mayor to be frustrated with Uber. Prime Minister Boris Johnson was also critical of the firm when he was London Mayor. He wanted a cap on the firm’s vehicles in November 2015 on congestion grounds, only to be blocked by ex-Prime Minister David Cameron, who he believed to be “absolutely besotted” with the Californian technology firms. In 2016, Uber lost an employment tribunal case against ten of its London drivers, who the High Court held are entitled to minimum wage and statutory paid holiday. 

The crux of Uber and London’s conflict emerged in 2017, when Uber had its London license stripped for the first time. This concerned public safety and security, notably background checks on Uber drives. TfL highlighted that checks needed to be heightened because many London-based Uber drivers are immigrants, as opposed to Black Cab drivers who are predominantly London-born citizens. This understandably did not go down well on race relations and immigration grounds. Improvements – made across Uber’s entire UK network – included in-app licensing details of each driver, ‘share your ride’ options, 24/7 call support for drivers and riders, and driver working time limits. Uber managed to gain a 15-month extension to its licence after the 2017 ban, which has since expired. The firm are now appealing the ban of November 2019 – in the meantime they can still operate. The latest ban cites new violations by Uber, including 14,000 rides that were driven by drivers who had faked their identity. Despite previous issues, Uber has regained its license once before. The question is will TfL follow their precedent or take a hard-line stance?

Any solutions?

Given that Uber and TfL’s game of carrot and stick has previously seen the license renewed, it is on balance likely it may happen again. To explain the ‘carrot and stick’ approach in this context, the carrot is Uber’s licence/right to operate in London, and the stick is TfL’s regulatory action: revocation of Uber’s license. However, what steps do Uber have to take to have their license reinstated once more? The outcome is hypothetical despite precedent, and there are no winners or losers as both TfL and Uber have their faults surrounding the matter. If Uber resolve the driver fraud issue, and win a court appeal to have the license reinstated, it will continue a beneficial precedent for the firm. They will be confident that each time the licence is revoked, as soon as improvements – whatever they may be – are made, it will be renewed. This could question TfL’s integrity and effectiveness as a regulator. It makes little commercial sense for both parties if Uber were banned in London forever after, but both do need to improve for the future. Serious questions will be asked if TfL easily backtrack once more if and when Uber have found solutions to the latest issues. Such precedent of action potentially makes a mockery of regulators. Improved commercial dialogue between the two will be needed to set a better regulatory framework, and sound a warning to other ride-hailing firms that regulatory breaches are not easily bypassed. The reality is we can only sit back and wait on how TfL decide to proceed in the long-term, and how successful Uber’s potential appeal action is in court. 

Ubers wider struggles

The London licence revocation for Uber points to hallmarks of a vulnerable firm that it is far from stable. The firm is struggling with profitability and its internal culture. 

Uber has become a major player in the ride-hailing market – accounting for a 68% market share in the USA – but is yet to make a profit. Rather, it posted quarterly losses of $5.2 billion back in August. In March 2019 it aimed to raise $100 billion through its initial public offering (IPO) – one of the largest in history –  but fell rather short at only $8 billion. IPOs are inherently risky and judged heavily based on initial results, but Uber’s seriously backfired for a firm desperate to be profitable. The failure  majorly narrows Uber’s financial contingencies, and the fallout of the TfL dispute only further impacts  investor confidence. After all, Uber has lost its London licence for the second time in 2 years. Uber’s chase for profit is further impacted by its diversification; it has also entered the food delivery and freight sphere, known as ‘Uber Eats’ and ‘Uber Freight’. It therefore has to contend with several different business strategies and markets, rather than a streamlined focus. These are exacerbated by the internal cultural issues.  

Uber’s internal cultural problem proves to be a continuing issue. Company culture is not only important for operational efficiency, but also business reputation and integrity. Founder and ex-CEO Travis Kalanick repeatedly failed to tackle a culture filled with misogyny and sexual harassment. The firm paid $1.9 million in compensation to 56 employees for sexual harassment claims in 2018, and fired at least 20 employees for inappropriate behaviour. Kalanick was succeeded by Dara Khosrowshahi in August 2017, who has tried hard to change the culture, including the 2017 in-app improvements. Outside of behavioural issues, the culture problem extends to how Uber views itself. Uber is no longer a start-up, but it continues to view itself as one – resulting in a “we’ll figure things out” over time attitude. In other words, being reactive rather than proactive. The firm would do well to adopt the latter given its IPO shortfall, and could use it as a basis for discussions with TfL. If it becomes more proactive, its relationship with regulators could improve and form a more positive view for investors – gradual steps towards profitability. 

Conclusion

Uber and TfL’s ongoing game of carrot and stick will eventually reach a conclusion at some point in 2020 once the appeal litigation reaches a verdict. It will either provide Uber with yet another lifeline to prove itself, or it will call an end to its London adventure. What is clear – and has been for some time – is that the integrity of both has been affected by the dispute. Uber has demonstrated arrogance in its treatment of London drivers and regulatory breaches, whilst TfL has demonstrated weakness in easily forgiving Uber’s breaches. An outright ban on Uber would not be beneficial for either party, so it presses the need for them to have a more constructive relationship. This game of carrot and stick cannot go on, because 2017 firmly proved it to be ineffective in this dispute. It can be hoped that Uber’s wider issues will provide motivation to find a more sustainable, long-term solution to its turbulent time in London. 

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