Short answer:

For long range outdoor use, such as taxi systems, VHF is much better. However, VHF is not very good when penetration is required, such as radios operating inside buildings. For scenarios where shorter range is required but better penetration, such as town centre Shop Watch radio systems where the majority of users are indoors, then UHF is better as it offers far better penetration.

Explanation:

Two way radios use one of 2 bands. These are known as Ultra High Frequency (UHF) radio and Very High Frequency (VHF) radio. Each band has it's own pro's and con's, which we'll try to explain in this article.

2 way radios (sometimes referred to as 'walkie talkies') communicate using radio waves. Radio waves can be sent on different frequencies and in order to get radios to talk to each other they must be using the same frequency.

Radio waves are transmitted as a series of cycles, one after the other. The exact frequency of a 2 way radio is measured in 'Hz'. Hertz is the number of cycles per second. Radio waves are normally measured in kilohertz (kHz), equal to 1000 cycles per second - or megahertz (MHz), equal to 1,000,000 cycles per second--or 1000 kHz. So: 1,000,000 Hertz = 1000 kilohertz = 1 megahertz. As an example, a radio operating on the UK & EU licence free frequency of 433mHz would operate on 43,000,000 cycles per second.

VHF and UHF 2 way radios can't talk to each other. The terms UHF and VHF refer to the "wavelength".This term originates from the early days of 2 way radio when frequencies were measured by the distance between the peaks of two consecutive cycles of a radio wave instead of the number of cycles per second. Lower frequencies produce a longer wavelength.

While wavelength measures distance between the peaks of cycles, frequency refers to how long the measured time is between the top and bottom of a wave. So frequency measures time instead of distance, but they are essentially both mean the same thing.

What is significant about wavelength for two way radios is that it affects transmission range. A longer wavelength, as a general rule of thumb, lets a radio signal travel a greater distance.

Lower frequencies or wavelengths have greater penetrating power. UHF has a much lower wavelength than VHF, so it travels a shorter distance.

Real world example: VHF vs. UHF 

So you would think from this that VHF always has a longer range than UHF. That's not necessarily true. Even though VHF waves can travel further it doesn't necessarily mean they can penetrate obstacles as well, such as walls. To explain this let's assume we are communicating from one side of a warehouse to the other. In between these two points is a metal wall with a three foot door in it (typically radio waves cannot penetrate meal, or at least not very well).

Assuming that the UHF wavelength the radio uses is about a foot and a half long and a similar VHF radio is around five feet long. (these are approximately the normal wavelengths of UHF and VHF). When the UHF transmits its signal the foot and a half long wave will pass through the door since the door is wider than the wavelength. The VHF signal will bounce back (be reflected) since it is wider than the opening to the door.

Now imagine walking through the warehouse carrying a five foot wide pole. You will encounter the same challenges a VHF signal encounters. If you think of walking through the warehouse with a pole that's only a foot and a half wide like a UHF wave. There are lots fewer doorways you couldn't get through.

The one difference is that wireless signals will penetrate through walls and other solid objects, although they will still weaken, so the more obstacles the more the signal strength will be reduced.

VHF Radio 

VHF equipment operates between the frequencies of 30 MHz and 300 MHz. FM radio and television broadcasts operate in this range.

Both UHF and VHF radios are subject to line of sight issues, but VHF much more so. VHF waves do penetrate trees and hills etc, but not as well as UHF does. That said, if a VHF wave and a UHF wave are transmitted over an area without obstructions, then the VHF wave would travel around twice as far.

Since the VHF frequency waves are bigger, then the antenna must be bigger. This is why VHF 2 way radios usually have whip antennas, whereas as handheld UHF radios have shorter, often 'stubby', antennas.

UHF Radio 

UHF equipment operates between the frequencies of 300 MHz and 3000 MHz. UHF radio frequencies are also used for GPS, Bluetooth, cordless phones, and WiFi – as well as 2 way radio.

There are more available channels with UHF so in more populated areas UHF may be less likely to have interference from other systems. If you are in an area where population is thin, VHF should work fine for you. UHF is better at squeezing through physical barriers like walls, buildings, and rugged landscape. Anything that obstructs a radio wave, will weaken a radio signal. UHF lessens that effect. Though it may not travel as far, UHF radio waves will traverse around obstacles better than VHF.

UHF Coverage estimates: At full power, line-of-sight, no obstructions the range is approximately 4+ miles. Indoor coverage at VHF is approximately 270,000 sq ft and 300,000 sq ft at UHF. Expect about 20 floors vertical coverage at VHF and up to 30 floors at UHF. Note: Range and coverage are estimates and are not guaranteed."

VHF waves are not very good at finding their way around walls, buildings and rugged landscape. Therefore range will be significantly reduced for VHF radios in these environments. That may not necessarily be a problem if the range needed is only a few hundred feet. You can also add an external antenna to an indoor VHF base station that will reduce or eliminate this problem.

One advantage of UHF 2 way radio is the short wave that is produced by the high frequency. That means the antenna on the radio can be shorter than an equivalent VHF radio.