This week's decision to double the number of taxi licences in Dublin was viewed by the Progressive Democrats as a significant political victory over their Fianna Fail partners in Government. For over a year the PDs have been pushing for the deregulation of the taxi market in the capital.

However, a cabal of Fianna Fail TDs, largely from the north side of the city, has held sway over policy on the taxi market. The Taoiseach even lent these TDs a sympathetic ear. He delayed any decision, and even established the Dublin Taxi Forum, which included two representatives of the taxi lobby but no consumer interest.

The differences between the Government parties have not been far from the surface. When Mary Harney called for deregulation, a Fianna Fail TD, Noel Ahern, a brother of the Taoiseach, did not hesitate to openly criticise "the headline-seeking comments of the Tanaiste".

The taxi lobby in Dublin has been a particularly successful group. Through their efforts entry to the market has been restricted with the supply of taxis in the capital falling substantially short of demand. The outcome of this restricted supply has created wealth for the licence owners.

Indeed, with high but artificial values attached to taxi licences, it is little wonder the taxi lobby wants the status quo protected. And these vested interests include not just the licence owner who drives his taxi for a living but also the businessmen, accountants and bookmakers who hire out licences to the so-called "cosies".

Yet, despite the success of the taxi lobby, it has become increasingly untenable for the politicians to allow the queues, so evident on the streets of the capital every weekend, to continue. Successive reports have concluded the obvious - there are simply not enough taxis in Dublin.

And the pace at which the local authorities in the capital have been issuing licences would mean current demand would eventually be met in 2008. Hardly a realistic option.

Added to this is the reality that there is an even greater demand for taxis in Dublin than in most other European cities. This is due to the low population density in Dublin, the inadequate public transport system and the higher level of tourism.

The shortage of taxis has hurt Dublin in many ways. Minister of State at the Department of the Environment, Mr Robert Molloy, this week accepted as much when he concluded that the present inadequate supply of taxis "harmed the city's reputation in the eyes of international business people and other visitors".

Over the summer months, during the review of the Programme for Government the Fianna Fail team, led by Mr Dermot Ahern and Mr Noel Dempsey would shake their heads when the taxi issue was raised by their PD colleagues.

One PD source recalls the two Fianna Fail Ministers "having no problem with privatisation or tax policies but they went silent when we raised taxi licences". So when the document was finalised, the taxi problem was left for the Taoiseach and the Tanaiste to resolve.

The revised Programme for Government had a separate section on Dublin taxis which committed the Coalition to introducing "measures to increase progressively the number of taxi licences in Dublin as quickly as possible in order to ensure a proper balance between supply and demand".

Ms Mary Harney had convinced Mr Bertie Ahern something had to be done. Mr Molloy was told to proceed with putting together a package of measures which would reflect his party's deregulation policy while also appeasing the taxi lobby in Fianna Fail.

When he took the final package to cabinet this week the Taoiseach was the only Fianna Fail member with any knowledge of what was being proposed.

Under the new arrangements one new taxi licence will be offered to each of the individuals who currently own the 2,700 taxi licences in Dublin. An additional 500 taxi licences will be made available for existing taxi drivers, the "cosies" who do not own the licence for the car they drive.

The taxi lobby is aggrieved and may still bring the capital to a standstill to prevent the Government implementing the policy which is to take effect in the new year. Those who paid £70,000 for a taxi licence took a gamble. They bet the Government would not increase the number of licences thereby protecting the value of their investment. Now they find their investment is not so secure.

The problem for the taxi lobby is sustained public anger at the inadequate service of recent years. There is simply no justifiable public interest for a continuation of regulation of the taxi market.

The Government's plan is similar to that proposed two years ago by the TCD economist Mr John Fingleton. However, the key difference was that Mr Fingleton's scheme would have used the granting of an additional licence to existing plate owners as a precursor to the deregulation of the entire taxi market. In a deregulated market the licensing system would merely ensure that the taxi vehicles met a minimum standard of safety and comfort.

In getting the policy thus far, Mr Molloy has had to weather Fianna Fail opposition within the Coalition. Over the next month his mettle will be tested as he battles the resistance from the taxi lobby and the wealthy individuals who own taxi licences.