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Thoughts on London's Uber ban: Innovation vs Regulation

Uber is facing a ban in London, but the whole gig-economy business model is potentially under scrutiny.

Published onSeptember 26, 2017

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Technology has the power to fundamentally change the status-quo in an incredibly short space of time. Smartphones have reshaped mobile computing, the growth of internet streaming has thrown the music and TV industries upside-down, and Uber has done much the same with its private car hire app – shaking up the industry with a new business model and pushing down prices for users.

However these shakeups often cause fallout, and Uber has yet again clashed heads with regulators. The company is now facing the prospect of being banned from operating in London by the end of the month, pending an appeal and/or compromise. Uber claims to have some 3.5 million users in London and 40,000 drivers on its platform in the UK capital. So there are lots of customers and jobs at stake.

Transport for London (aka the TFL) decided not to renew Uber’s private hire operator license after it expires on 30 September. The decision, backed by London Mayor Sadiq Khan, found that Uber fails to meet the regulatory criteria to ensure passenger safety. More specifically, Uber is allegedly inadequate in its approach to reporting serious criminal offences, obtaining medical certificates for staff, and in how it carries out criminal record checks. In addition, the company’s use of the controversial Greyball software, which attempts to hide the company’s drivers from law enforcement officials amongst others, was also highlighted as a cause for concern. Meanwhile, Uber’s new CEO Dara Khosrowshahi has written an open letter apologising for “mistakes we’ve made”.

As a Londoner myself, I’ve had a number of perfectly pleasant trips with Uber over the years, and that’s arguably what most people care about. But the situation in the UK’s capital is a little more complex than just the quality of the service on offer and strict regulatory requirements.

Uber’s chequered past strikes back

What’s particularly interesting about the TFL’s decision not to renew Uber’s license is the use of the phrase “lack of corporate responsibility”, an expression the company is used to hearing by now. Uber has become a controversial company over the past few years, with a number of accusations made about its working conditions, a culture of sexual harassment, and even the theft of self-driving car technology from Alphabet.

No matter how you look at it, the rise of Uber has been far from squeaky clean, and has also given lawmakers plenty to ponder.

Central to much of Uber’s controversy and the latest TFL case is the company’s status, or lack thereof, as an employer. Like other gig economy ideas, the business model was built upon contracting out rides to “freelancers”, which conveniently removes many of Uber’s legal obligations to its drivers, such as pensions, health insurance, and the like. Furthermore, Uber has constantly clashed heads with lawmakers over pay, taxes, and whether or not it meets local legal requirements to run a private hire service.

The company lost a landmark case in the UK last year and has to classify its drivers as employees in the country, entitling them to paid holiday and a minimum wage. Uber will be appealing the decision. In California and Massachusetts, Uber overturned a similar ruling in exchange for a settlement. Not forgetting that Uber has been spending a notable sum of money lobbying lawmakers to look favourably on the “ride-sharing” business model. No matter how you look at it, the rise of Uber has been far from squeaky clean.

London’s a particularly complex case

Outside of Uber’s chequered history and some of the more complex issues surrounding the growth of the gig economy, the situation in London is fraught with some more classic issues of vested interests and playing politics. These risk overshadowing some of the more nuanced issues, but they’re worth highlighting, given that readers abroad may not be aware of them.

Drivers of London’s iconic Black Cabs, comparable in recognition to New York’s yellow taxis, have long campaigned against this major new competitor and have repeatedly lobbied City Hall over the past five years to take Uber off the streets. They even brought some of the capital’s streets to a stand-still in protest on numerous occasions over the threat posed to their way of business. Some Uber supporters suggest that this may have had a part to play in the TFL’s decision.

Uber's business model has resulted in counter-lobbying from private hire companies, heaping skepticism on the impartiality of regulatory investigations, particularly in London.

It’s not just existing private hire models that have to contend with Uber’s shake-up of the market, public transport can feel the pressure also. TFL, which regulates London’s public transport and taxis, is currently overseeing the costly expansion of 24-hour Underground services, and appears to be in desperate need of additional revenue to cover its expensive borrowing habits. Such is the problem that Mayor Khan ran for office on the promise of freezing travel fees, only to be accused of breaking that pledge by raising the cost of day tickets and travel cards within weeks of taking office. Low-cost taxis are clearly a competitor to expensive public transport too, and so many may be right to question TFL’s impartiality in this case.

At the same time, many consumers have been more than happy with Uber’s price pressure on cab fares, and some 40,000 drivers have undertaken employment in the industry inside London, suggesting it’s not a bad way to work. Furthermore and contrary to TFL’s claims on safety, many commuters are now concerned about the prospect of returning to the days of extortionate late-night taxi ranks, unmarked cabs prowling nightlife hot-spots, and walking back from bus stops late at night. Meanwhile, drivers will undoubtedly have to reface the challenges of collecting cash or card payments from intoxicated or other unsavoury patrons.

After all, Uber’s actual innovation in the private hire space was offering a middleman to give both customers and drivers peace of mind and a more convenient experience. The lower prices were really just a bonus.

Regulation is increasingly behind the times

London-based issues aside, what’s becoming increasingly clear, in my opinion, is that Uber isn’t a traditional private hire company, but nor is it simply providing a service for “freelance” drivers. Uber shouldn’t be able to shirk all responsibilities to its employees or legislation, but it’s clear that the company has a different relationship with its staff that means it’s not going to replicate the relationship that current private hire companies provide. In that sense, current legislation for traditional taxi companies doesn’t seem like a particularly good fit for Uber.

Looking at the gig economy more broadly, there are plenty of similar examples where companies are fulfilling the role of connecting sellers to buyers, rather than actively being involved in the product, which leads to similar legal issues. Should AirBnB hosts be beholden to the same regulatory requirements as hotels? Are services like Dolly or AnyVan really anything like your traditional man with a van? And what about the products and services sold through sites like Etsy or PeoplePerHour — is the host company responsible for their quality or is the seller?

All of these services are helping to facilitate the very basic and important free market principle of unimpeded trade between two parties. They’re benefiting customers with new products and freelancers looking to make the most of their labour. The snag is that the introduction of a corporate middleman raises a whole new set of legal, as well as ethical, questions about their responsibilities to the buyers and sellers, which doesn’t apply to more traditional business models.

The gig economy isn’t the only area of tech innovation that governments are struggling to keep up with. We’ve had numerous similar debates revolving around data collection and privacy, the tax situation of huge multinational corporations, and issues involving net neutrality.

What’s clear is that, as technology continues to enable new ideas and business models, lawmakers, employees, and even users are going to have to get used to adapting much more quickly than they currently are. Innovative ideas might just require more innovative legislation too.

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