The rise in consumer power
Today I gave my first speech in my new capacity of Board member of the New National Consumer Council. The event was an conference organised by the Office of Fair Trading to mark the fifth anniversary of the coming into force of the Enterprise Act 2002.
I’ve reproduced below the text of the remarks I prepared (not all of which was actually delivered because of the tight scheduling).
OFT conference on market studies:
Finding and fixing problem markets
TUC Conference Centre – 4th June 2008
The UK regime – rationale and fit with competition policy: A consumer perspective
Roger Darlington
Setting the scene
These are challenging times for many UK consumers: a credit crunch, stagnating house prices, soaring oil prices, rising food prices, closing post offices and general economic instability and uncertainty.
On the other hand, these are exciting times for those of us working in consumer policy because of a major shift in British society. It used to be said that people in this country just meekly accepted mediocre service and poor quality products. Not any more.
We have far more active consumers, who are willing to throw their weight around when they need to. They are happy to work with smart businesses to help them improve and innovate They will reward the good guys through their spending as well as penalising the bad guys through their switching.
In this respect, I commend to you an excellent recent report on switching behaviour from the Scottish Consumer Council entitled “Making Markets Work For Consumers”.
Now digital connectivity has increased the speed with which businesses need to respond to consumer preferences. New technologies, global access to capital, and cross-border market integration help propel companies from nowhere to very large-scale with volcanic force. A UK example is Vodafone.
But the same is true for value destruction. It used to take years of sustained consumer resentment and dissatisfaction to finish a business. Now it can be done far more rapidly. Numerous websites and groups now allow consumers to exchange stories, offer support and advice, and act in unison to challenge vested interests. Examples include:
- the Unfairpak initiative, which quickly brought together victims of the Farepak Hampers scandal to provide mutual support and advice and campaign for a fair outcome
- the backlash from angry vegetarians on learning that the recipe for Mars Bars was to be changed to include rennet
- the thousands of angry motorists in the south east of England who suffered damage to their cars as a result of contaminated petrol from Tesco and others
- the millions of standard letters downloaded from websites ranging from moneysavingexpert.com to the “Daily Mail” which consumers are using to get banks to refund charges
This kind of assertion of consumer power is great news for the UK economy. Consumer confidence, and people’s decisions to spend or save, have a huge economic impact and consumers help to make markets work. Their sensitivity to price and quality regulates firms and promotes efficiency and improvement. This leads in static terms to lower prices and better quality, but also to dynamic benefits in terms of increased innovation and economic growth.
Yet too many businesses still think the only way to succeed is to mislead, to confuse, and to hide behind artificial protection. Far from embracing consumer power, they are determined to squash it. The top five complaints of the National Consumer Council are:
- lengthy and cumbersome switching practices
- early exit charges
- confusion marketing
- long-term deals
- technical incompatibility of equipment.
Provided we have the right regulation to set free and reinforce consumer power, these anti-competitive moves will fail – but they may cause a lot of damage on the way, to consumers and to business itself.
Connecting consumer and competition policy
The UK has made significant advances in consumer and competition policy. I particularly welcome the introduction last month of the duty ‘not to trade unfairly’ – a completely new approach to consumer policy. A raft of detailed rules have been swept away, and businesses will be required to take responsibility for behaving properly.
We in the consumer movement do have concerns about some aspects of the way the duty has been implemented and the general lack of consumer and business education about it. Nevertheless it’s very good news.
A 2006 report published by the National Consumer Council entitled “Imperfect Markets” looked at how the UK should ensure that it does not fall short of the best policy regimes in an increasingly competitive global economy. When looking at the way problem markets are being tackled, the report identified two major concerns.
First, the lack of rigour and balance in consideration of what tools work for what markets and in what circumstances. Policy tools used by regulators are not always best suited to the problems they are trying to fix. This is particularly true when the market failure is complex.
It needs to recognised that not regulating can be costly too. While regulation does involve costs, if the various regulatory options are going to be assessed objectively and accurately, it is important to know the costs and benefits of not regulating and compare the alternatives in that context.
Self regulation is another way in which regulators attempt to mitigate the risks of regulation, but it has a chequered history.
For six years, I was the first independent Chairman of the Internet Watch Foundation which combats child abuse images on the Net. The IWF is an excellent example of self-regulation working well. But there are other examples – I think of the Press Complaints Commission – which are fair less impressive.
Second, competition policy has focused too heavily on the supply-side of the market. Competition policy has always been slow to embrace behavioural economics, which seems illogical when we consider that consumer behaviour is not always utilitarian and consumers are not homogenous beings. When examining a market, and developing remedies to fix any problems, this cannot be ignored.
The OFT has started work on how this approach can be used in future market studies through its Behavioural Economics project team. This is a welcome step forward, but it needs to be an integral part of a regulator’s approach to investigating markets. It must not be seen as just another box to tick.
I have sat on the Ofcom Consumer Panel since its creation over four years ago. Initially Ofcom was excessively focused on the supply side of the market and the restructuring of BT; in the last couple of years though, it has created an effective Consumer Policy team, adopted a Consumer Interest Toolkit devised by the Panel, and even recently embraced behavioural economics.
Roles and relationships of a regulator
One of the key challenges for bodies like the OFT is to get the right relationship with business. In the case of the OFT, this is complicated by the range of responsibilities that it has:
- authority to investigate markets and recommend changes to the law
- enforcement powers with the ability to impose fines
- recipient of super complaints from designated bodies
- administration of the Consumer Codes Approval Scheme (CCAS)
CCAS is one example of where improvements could make a real difference. Since it was introduced in 2004, only seven codes have been approved. Although more are in the pipeline, and the process understandably needs to be robust, several applications have fallen by the wayside at the 11th hour.
One recent success has been the car-servicing industry’s application. This is a significant milestone for the industry and for CCAS itself, but it comes 23 years after the OFT first identified consumer detriment.
New NCC
I conclude with a few words on the changing scene of the consumer organisation world.
In January, the New National Consumer Council came into existence with the appointment of a Board on which I sit. We have an impressive group of Board members led by our Chairman Lord Whitty; we have an outstanding Chief Executive in Ed Mayo; we have a very able Start-Up Team working hard to set up the new organisation; and over the summer we will be putting together appropriate policy teams and staffing structures.
Then, on 1 October, the New National Consumer Council – we will be changing this name – takes over from three current consumer groups: the existing National Consumer Council, energywatch and Postwatch (on which I sit).
The existing bodies have achieved much over their lives, but I do think this is a real opportunity to create an even more powerful advocate for consumers, able to stand up stongly to vested interests and forceably tackle detriment right across the economy.
As a member of the Board of the new organisation, I would emphasise how committed we are to building on the work of the three predecessor bodies in identifying failing markets and working with the OFT, the Competition Commission, sectoral regulators, and indeed businesses themselves to improve things for consumers.
This is a fundamental part of the new organisation’s role, and we have a number of statutory powers to help us do it. We will I am sure be seeking early super complainant status, for example. This may in turn lead to market studies – although sometimes the need will be for firm and decisive action, not merely further detailed investigation.
We will shortly be consulting on a Forward Work Plan for our first 18 months and we look forward to working with you all in the months and years to come. Together we can and will win a better deal for consumers.