Second Reading

Part of Consumer Rights Bill – in the House of Lords at 3:20 pm on 1st July 2014.

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Photo of Viscount Younger of Leckie Viscount Younger of Leckie The Parliamentary Under-Secretary of State for Business, Innovation and Skills 3:20 pm, 1st July 2014

My Lords, let me begin this debate by setting out how important the Government’s consumer law reforms are for consumers, for businesses and for growth.

Consumer spending accounts for nearly two-thirds of the UK's economic activity. According to the British Retail Consortium, UK retail sales in 2013 were over £321 billion and the Office for National Statistics estimates that in quarter 1 of 2014 alone, household spending, when adjusted for inflation, grew by 0.8%—that is a growth of £2 billion just in that quarter.

Our aim is to foster high levels of consumer confidence so that people try new products and services and also shop around. This encourages businesses to enter the market and drives innovation, boosting competition and creating growth. However, in order for consumers to be confident, they need to know what their rights are and what they are entitled to if something goes wrong. Having clearer rights and remedies is also important for businesses because it means that they can more readily understand how they can best meet their responsibilities. Helping consumers to become more confident and businesses to become more responsive is the challenge that we face.

We have already taken action to reform the landscape of bodies which support efficient and competitive markets. Reforms announced in April 2012 have transformed the institutional landscape through, for example, the creation of the Competition and Markets Authority and the formation of the National Trading Standards Board. These reforms have made responsibilities clearer where previously they overlapped and have enabled consumer bodies and enforcers to be better co-ordinated, to identify and act on the real priorities affecting consumers.

We now have to get the legal framework right to make consumers more confident about the protection that they have and to reduce the costs to businesses of applying consumer law in practice—hence, the Consumer Rights Bill. The Bill sets out in one place key consumer rights and what consumers are entitled to if something goes wrong. It covers goods, services and, for the first time ever, digital content such as apps and film streaming.

The overall package of reform is estimated to be worth over £4 billion to the UK economy over 10 years. The Bill reduces costs for businesses and consumers by making it easier and clearer for people to understand what should happen when a problem arises. It will help to resolve complaints at an earlier stage and stop issues from unduly escalating into disputes, which are costly for all parties. It will also help create a fairer and more level playing field for businesses and enhance redress for consumers where problems emerge.

The provisions in the Bill have been carefully developed following extensive consultation, reviews and independent reports, including by the Law Commissions. The Bill was also published in draft last summer and received scrutiny by the Business, Innovation and Skills Select Committee. We are very grateful for the committee’s detailed consideration and we have accepted a good many of its recommendations. The Bill was then further improved following its introduction in the other place and I am confident that the Bill now before your Lordships’ House is stronger and better as a result.

I now turn to the main measures in the Bill. First, on goods, there are estimated to be over 350,000 retail businesses in the UK, making goods a critical Part of the UK economy, yet much of the law on goods is over 30 years old. That is why the first part of the Bill sets out a simple legal framework to regulate the sale of goods in order to replace the current complexity that is, quite frankly, bewildering for consumers and which makes compliance so onerous for business.

We are setting out in one place the standards that goods must meet—for example, specifying that consumers have 30 days in which to reject substandard goods and receive a refund, to replace the current vague law that they have a “reasonable” time in which to return such goods; and making clear that, where the consumer prefers to have a faulty item repaired or replaced, this repair or replacement must remedy the problem the first time around or the consumer can insist on some money back, as currently it is unclear how many repairs or replacements of faulty goods a trader can give before the consumer can get some back.

Secondly, on digital content, because most consumer law has been in place for a long time, since long before the advent of digital content, there is significant legal uncertainty about what rights apply here. This uncertainty harms consumers and business, first, because consumers do not know how to go about resolving problems with digital content and, secondly, in contrast, some consumers may think that they are entitled to a remedy that the business does not think it is obliged to provide under the current law. This situation is unacceptable in a market that is both of a substantial size—around £200 billion—and still developing.

We are introducing a set of quality rights tailored specifically to digital content. For example, where a trader provides an update to digital content previously supplied, this update must not lower the quality of the original digital content. If it does, the trader must provide appropriate remedies to the consumer. Note that the onus in this example is on the trader because that is the person the consumer paid for the digital content. This in turn will raise consumer confidence to try new products, because consumers will be clearer about what they are entitled to if something goes wrong. This is good for businesses, too, because it makes it easier for new firms and innovative businesses to compete successfully for a share of the market.

I turn to the services sector. There are no statutory remedies to ensure that matters are put right if there is a problem with a service contract. That is unacceptable in a sector that is worth over 75% of UK GDP. We are addressing this in the Bill by setting out new statutory rights and remedies. Our key new remedy is for consumers to have the right to request the re-performance of a service. Alternatively, re-perfomance might just be the element of it that is just not delivered in accordance with the contract, but we recognise that there are circumstances where that simply is not possible, or where it could not be done within a reasonable time and without significant inconvenience to the consumer, and in those cases the consumer is entitled to a reduction in the price of the service.

I focus now on unfair contract terms. The law on unfair terms in consumer contracts is particularly complicated. We need to tackle the complexity and ambiguity in this area of law, which has led to costly disputes that have even been taken to the Supreme Court. These court cases have still not established sufficient clarity about what a court may or may not consider for fairness in a contract. Some protection in law is necessary because consumers understandably focus on the product or service that they are purchasing rather than the contract. They often cannot, or do not wish to, investigate the detail of every contract term before they sign up to an agreement. They need protection where the small print could trip them up. However, this protection needs to be balanced against businesses’ need to be able to trade without the prospect of every single term being open to challenge. Contracts are a necessary part of providing products and services, and should enable rather than hinder consumers and businesses in that market.

Therefore, these reforms will make clear what the courts can and cannot consider for fairness. In particular, we are making a key test that price and subject matter terms in a contract need to be transparent and prominent to ensure that it cannot be challenged for fairness in court. That will give important protection for consumers against the small print and will give more certainty for businesses about what they need to do to avoid a term being assessable for fairness by a court.

On Part 3 of the Bill and consumer law enforcement powers, investigatory powers of consumer law enforcers are currently scattered across some 60 different pieces of legislation. That makes it difficult for enforcers and businesses to understand what the consumer powers are and in what circumstances they can be used, which is why we are consolidating them into one generic set in the Bill. We also want to make it very clear in the Bill that trading standards can work across local authority boundaries to tackle rogue traders efficiently and effectively, which will help to get rid of the red tape that currently stands in its way and prevents it from getting on with its important role. These important reforms will save businesses and enforcers time and money. We estimate a net benefit of approaching £50 million over 10 years.

Part 3 also contains enhanced consumer measures. If a business breaks consumer law, it is right that action is taken, and trading standards does bring criminal prosecutions. However, while that punishes the miscreants, it does little to help those who lose out as a result of the breach. We are therefore giving enforcers more flexibility to deal with such breaches so that they have additional ways to achieve better outcomes for consumers and create a level playing field for compliant businesses where consumer law is breached.

Those tools include new powers to seek redress for consumers, which will help people get some money back where they have lost out as a result of a business not abiding by consumer law. However, they also comprise powers to help prevent future breaches. That may involve, for example, a business putting in place a better complaint handling system or putting details of the breach on its website together with what action it has taken to put matters right.

However, the Bill is not prescriptive. Instead, it provides flexibility to enable the response to be tailored to specific circumstances. More than that, we want to encourage businesses to work with enforcers to propose and agree appropriate measures, although ultimately the enforcer can seek a court order. As a balance—and the Bill is all about providing an appropriate balance—we are including safeguards for businesses that any such redress or other remedy is proportionate, just and reasonable.

On lettings, the vast majority of letting agents provide a good service to tenants and landlords. However, we are determined to tackle the minority of rogue agents who offer a poor service. We will require all letting agents and property managers to belong to an approved redress scheme, which will give tenants an effective way to address complaints. However, I believe we should go further, which is why the Bill has provisions to ensure full transparency of lettings charges. That is effectively a ban on hidden fees, giving consumers the information they want and supporting good letting agents.

Lastly, the Bill reforms the regime for private actions in competition law. Anti-competitive behaviour can harm consumers by lowering output, increasing prices, and reducing choice and innovation. It is estimated that cartels can raise prices by between 20% and 35%. Despite the strong competition framework that the Government are putting in place, research by the Office of Fair Trading shows that businesses believe the current regime for private actions is too slow and too costly. As a result, businesses and consumers rarely get redress where they have been harmed by anti-competitive practice. It is particularly telling that in 10 years there has only been one collective action case, and only 0.1% of those eligible signed up to the action.

To address that, first, the Bill will make it easier for settlements to be reached without costly court proceedings, by facilitating alternative dispute resolution. Secondly, it will create a more efficient and quicker process for private actions through allowing a fast-track regime for appropriate cases aimed at SMEs. Thirdly, it will introduce a limited opt-out regime to facilitate more effective collective actions for consumers and businesses where they have been harmed by an anti-competitive practice, with safeguards, to ensure the cases are appropriate and merit this approach.

My Lords, this is the most fundamental reform of UK consumer law for more than a generation. It will streamline the law, and make it clearer and more accessible. It will enhance consumer rights and deregulate for business where appropriate. It will empower consumers and stimulate competition and growth. I beg to move.