My Lords, I thank the Minister for giving up his dinner to be here to answer what is clearly not the top question on everyone’s lips. That is a shame because consumers matter and are being short-changed, both in the Brexit talks—their interests do not even get a mention in the 12 principles in the White Paper—and, as I will argue, in the work of the CMA. Yet, as the Question before us sets out, the CMA’s role in promoting competition is not as a good in itself but for the benefit of consumers, so we should judge the CMA’s work on whether it has indeed benefited consumers.
I first queried the obsession with competition in itself, regardless of consumer detriment, with the CMA’s predecessor, the OFT, when working on estate agents. It quite solemnly told me that what was needed was “more providers”—that is, more estate agents—and perhaps some relaxation of the rules on the accurate advertising of homes. I have to say that that is not how house buyers or indeed house sellers saw it.
Sadly, my dealings with the CMA have left me wondering whether it has yet put itself in the shoes of consumers and to act as their champion in the marketplace. Certainly, a number of us across the House had our run-in with the CMA over secondary ticketing—ticket touts—as my noble friend Lord Stevenson will set out in due course. If we look more broadly, we see the CMA reluctant to take action, relying time and again on consumers to make markets work better, even in markets where the tiny individual consumer is up against the “big six”, whether in energy or banking. Indeed, so obsessed is the CMA with expecting consumers to regulate markets by “switching” that, in an unfortunate speech, the CMA chair said that the “major problem” in banking and energy,
“is a large number of inert consumers”, who have,
“to make just one effort to get off the sofa”.
That is no way to speak of consumers, and it is not what will make large, unaccountable industries treat their customers fairly. The whole point of the CMA is to take action in global markets where the individual user can have little effect.
If banking, for example, were consumer-centred, everyone would have access to a comprehensive package of appropriate and affordable services and products. That is not the industry we see today. Rather, banking is highly concentrated—and highly uncompetitive. It is complex, opaque, hard to negotiate and expensive. Indeed, today’s Metro suggests that some bank overdrafts are more expensive than loan sharks. The CMA’s reliance on switching will not drive change when all the banks are essentially the same and offer the same poor service. It is the tiddler versus the giant. Reliance—even onus—on individuals to drive competition is inappropriate in these markets. Asymmetry of information, long-term outcomes, lack of transparency about fees and charges, lack of plain English terms and conditions—we all know the problems that prevent meaningful shopping around, which is of course the precursor to switching.
The CMA was accused of complacency regarding banking reform by MPs on the Treasury Select Committee, which questioned why it,
“had not done more to break the stranglehold of the current account market”.
Even the FCA thought that the CMA had not done enough on overdraft fees and decided to look at the issue itself, while Which? said that the CMA’s Retail Banking Investigation Order,
“simply allows banks to continue to set their own level of exorbitant fees”, and called on the FCA to take action as the CMA proposals seemed,
“unlikely to transform the market”.
Regrettably, the CMA rejected the calls by Which? for customer challenge groups, leading Which? to question the CMA’s heavy reliance on switching, which puts the onus on the consumer.
Turning to energy, the CMA’s failure to intervene effectively even appears to be recognised by the Prime Minister who, over the weekend, threatened to intervene over npower’s “shocking” price rise, which will push up the energy bills of 1.4 million households by over £100 a year. I welcome the Prime Minister’s intervention, but where was the CMA when it was needed?
There is also the example of Volkswagen. American customers have been compensated some £7,000 each for buying supposedly “low-emission” cars when, in fact, Volkswagen was cheating. No compensation has been secured by the CMA for the 200,000 car owners affected. Instead, the CMA wastes time warning local authorities not to charge higher prices for high-strength alcohol, which they of course do to reduce harm. Where was the interest in public health, parents or the public in that extraordinary guidance?
Returning to where I started, what is the CMA doing about the newest story about estate agents? We read on Saturday that some estate agents are issuing home buyers with demands for hefty payments. Not only does this give rise to a glaring conflict of interest if an estate agent is working for both the buyer and the seller; it takes advantage of desperate house buyers at a vulnerable point in the purchase process.
Going forward, consumers risk being squeezed out and their interests forgotten, as the country prepares for Brexit. The CMA is meant to be their champion. Indeed, since the Government—very sadly—abolished the National Consumer Council, there is no one else to speak for consumers across all markets. I wrote to ask the CMA what it was doing in preparing for our exit, but I was referred only to a voluntary initiative, the John Vickers group, rather than getting the advice I would expect the CMA to be preparing. Since then, indeed on Friday, the CMA’s acting chief executive finally spoke on the subject—albeit in Miami rather than in answer to my letter, despite her description of its role as assisting and advising Ministers and other public bodies, which I assume includes Parliament. In her speech, she failed to indicate whether the CMA wanted to remain, even as an associate, in the European Competition Network, which is a vital source of co-operation as it comprises the European Commission and national competition authorities; or to remain in the European consumer enforcement network, known as Consumer Protection Cooperation.
When the CMA was created, I and my noble friends Lord Stevenson and Lord Whitty pushed for a consumer panel such as that of the Financial Conduct Authority and Legal Services Board, and we were right to do so. Had there been such a panel, the issues that I have raised tonight would have been raised time and again at the CMA board. It would have heard these views at a time when it could have taken them into account in its work programme.
Will the Government review whether such a consumer panel is needed—or, at the very least, dialogue, which does not require legislation—noting the view of Which? that the CMA’s inquiries appear to come from a predominantly economic background and approach, which rather excludes the consumer point of view? Indeed, in the pack helpfully prepared by the Library for today’s debate, there was virtually no commentary on the CMA’s record—testimony to the absence of proper scrutiny and accountability, particularly regarding consumers. Will the Government ensure that consumers are at the table for Brexit discussions, since there is some doubt that the CMA can represent them adequately, if at all? Will the Government publish their or the CMA’s thinking on Brexit, including on continued participation in those vital European networks, the ECN and CPC? Lastly, will the Government publish any impact assessment that they have undertaken of how to replicate current EU-wide competition activity, for the benefit of consumers?
My Lords, I thank my noble friend Lady Hayter for her very fine introduction to this debate. It is of wide interest and it is a pity that we do not have either a longer list of speakers or a larger audience to whom we could appeal—but those who are here are, I am sure, actively writing down everything that has been said, to study it for later consumption.
I do not wish to go over the ground that my noble friend covered so well, but it is interesting that she made several points that I also want to make. I will therefore cover some of the ground, but not quite from the same direction. The first question is how the existing structure perceives its responsibilities in relation to consumers, given we are told that the primary purpose of the CMA is to make sure that consumers are dealt with fairly and appropriately in the market. The truth, as my noble friend said, is that, without satisfactory representation and active dialogue with consumers, it is very difficult to see how they would be able to be in that position.
I think, however, that it goes deeper than that. She touched on something that I want to stress. The change in the way Government itself have dealt with the consumer interest in the past 15 years is extraordinary. In 2010 there was a fully active department within BIS, as it then was, dealing with consumers’ interests and making sure that consumers were represented in all decisions taken by that business-facing department. Now there is virtually no involvement in the interests of consumers. It is entirely a producer-led department with only producer interests at heart.
It is not surprising, therefore, that the public interest, on which my noble friend spoke, is not being treated well. As she said, consumers are not constantly searching for ways in which they can maximise their situation in the market; they are living their life and getting on with it. They do not expect to have to make all these complicated trade-offs and decisions. Certainly, if they did try, they would not have the information. Some change has happened in recent years in terms of MyData, although that seems to have run out of steam, and in terms of trying to encourage switching.
Switching itself, however, is not the issue. The issue is knowledge, the ability to understand how action could work in a policy frame in order to change attitudes and approaches and action, not just sitting around waiting to switch in the hope that that will work. Her description that this was tiddlers playing with giants rang true. The asymmetry of information and the way in which big business ever since the time when Adam Smith identified it will always conspire against the consumer means that we do not have a very satisfactory or fair situation.
The second point is whether the regulatory system that has been created in recent years has consumers’ interests at heart. It does, as my noble friend said, look more like an economic regulator than it does a regulator in support of those who are being affected by decisions of business. One issue that I have raised before in your Lordships’ House is this question of what would be seen as a result in some of the cases that are being discussed. They always seem to revolve around the question of whether the market is working well in terms of price and whether the firms involved are getting a reasonable return on capital invested. It is not about whether consumers are being ripped off and whether harm is being done.
I recall an earlier regime, but I am afraid some of the thinking has moved forward to this one, in which I was involved in the film industry. At the British Film Institute we were concerned about the apparently monopolistic behaviour of the American film distributors. There was virtually no UK-based distribution and therefore no market in which they could operate. On three occasions submissions were made to the then Competition Authority about this issue. Each time it found that there was a complex monopoly operating, so there was no question that harm was being done. On each occasion, however, it said that it lacked the ability to interrogate that on behalf of consumers because the foundation Acts did not deal sufficiently with the issue concerned in the way that was wanted.
So I think that this is a long-term solution. I do not think that the Government should be picking up the blame for everything, but I think the basic, underlying point—I think this was the point of my noble friend’s original argument—was that we need to rethink what is required of the sort of market arrangements that are being set up in terms of both initial concern for consumer rights and how that can be expressed in a change of policy as we go forward.
I will take three short examples and end with a proposal. The first, as mentioned by my noble friend, is the question of secondary ticketing arrangements. She and I and others were involved in trying to change the Consumer Rights Bill that was going through Parliament in 2015. The incident that caused us the most concern was that, as is normal with many of these Bills, we were receiving lobbying from a number of people, including many of the companies involved in the secondary ticket market.
What was extraordinary about the meetings that we held with these bodies was that they were incredibly unconcerned by the prospect of the amendments that we were considering and the campaign and the coalition that we were building up across the House. We were pretty confident that we could get changes to the Consumer Rights Bill, as it then was, because we felt that we had made the arguments in Committee and we were approaching Report with a real chance of getting some change. We knew that this would also have support in the other place. They were not concerned at all. They were completely insouciant about the prospect of action being taken in Parliament, and indeed were extraordinarily challenging about some of the basic assumptions we made about how the market might be transformed. Of course, it turned out that they had reason for that. In parallel to the discussions that they were having with us, they were talking to the CMA about a series of undertakings which, when they were produced, were less burdensome on them than anything that we were proposing to do in our amendments. They knew, and we did not know, what was going on and what was going to happen as the result of the discussion.
I find that unacceptable, and I hope that when the Minister responds he might reflect on whether there is an issue here that needs a bit more ventilation about the operations of the competition authorities as we currently have them when an issue of public interest is being discussed and legislation is being considered. Although it is right and proper that the CMA, in its present constitution, is independent of government, I do not think that it is right that we should be in the position of possibly making bad law as a result of lack of knowledge and understanding of what is going on.
My second point is topical. We are considering in Committee, and are about to go to Report on, the Higher Education and Research Bill. Within that, the Government are proposing to set up a new body called the Office for Students, which they consistently, in all the debates and discussions, refer to as a regulator of higher education. When they are asked, however, to respond to amendments on that, it is very difficult to see whether it is a regulator. It is not, apparently, to be part of the Regulators’ Code. It will not have economic requirements, as do all other regulators, as required by previous Acts discussed in your Lordships’ House, to take account of growth and economic well-being. It would not have those responsibilities. It is apparently a regulator without a regulatory superstructure. It can operate in a regulatory mode but it will not have the responsibilities or, indeed, the fall-back or the ability to be queried and appealed against as a regulator.
This is complicated by the fact that, in the Consumer Rights Act 2015, the CMA is given responsibility for assessing competition issues in relation to consumers accepting places at universities. This is turning out to be quite interesting in the sense that the CMA seems to have no problem saying that some of the practices it is seeing are not acceptable. It is now apparently obtaining undertakings from a range of institutions that it has been involved with—it has done a study of about half a dozen—which will involve changes to the ways prospectuses are published and what they say. It will change the nature of conditions placed on some students when they graduate. There is quite a significant range issues which would, I think, probably, in most people’s minds, be more appropriately applied by OfS if it was a regulator. My question to the Minister, therefore, is: is there a possibility that we might look at the boundary issues relating to when you have a generic regulator and when you have a specific sector regulator? I am not expecting a full answer today—I am not going to get one, clearly—but I think this is a matter for further debate, possibly after the Bill is finished. I register it as being an important issue.
Finally, I think my noble friend is right. I think now it is appropriate to think in terms of reviewing where we are in terms of where the public interest is in how consumers are protected. The existing bodies, as I said, seem to be broadly inhabiting an economic and not a policy world, but there does not seem to be any mechanism because there is nothing left in government that could take that forward. Even having a consumer panel, as my noble friend said, would be a step forward, but we do not have one in the CMA.
The other question is whether additional duties might be responsible. My noble friend did not mention this, but I know she bears the scars of attempts over the years to try to get mainly the financial regulators but also those in a broader range to have inserted into their main mission statement a fiduciary duty. I think that is something to be looked at. Again, we also should think about how all this is carried out in terms of bodies such as the Chartered Trading Standards Institute because, at the end of the day, you cannot have effective consumer action unless there are people checking what happens to consumers. With the cuts made in local government affecting the number and the activity of Trading Standards, there is a perfect storm there—again, something that we might return to at a later point.
My Lords, I thank the noble Baroness, Lady Hayter, for enabling me to respond to this interesting debate. Some important points were made both by the noble Baroness and by the noble Lord, Lord Stevenson.
I agree with the noble Baroness that it is important that markets work in the best interests of consumers. That issue is at the heart of what the Government believe. My right honourable friend the Prime Minister has said:
“Where companies are exploiting the failures of the market in which they operate, where consumer choice is inhibited by deliberately complex pricing structures, we must set the market right”.
My department is in the front line of making markets work for consumers. Empowering consumers is critical to delivering the department’s aims and objectives. The departmental vision includes a commitment to secure better outcomes for consumers by creating a more competitive business environment. I recognise that it is important that we live up to that vision. That is why, in the Autumn Statement, my right honourable friend the Chancellor announced that the Government will produce a Green Paper that will closely examine markets which are not working fairly for consumers.
The Government are working up proposals to step in to strengthen competition where markets fail and consumers may not be getting a good deal. This provides support to the CMA’s statutory objective to make markets work in the best interests of consumers. As Her Majesty’s Government we are keen to give the CMA the right resources and the right incentives to help it deliver on its statutory goal. This is why we have set the CMA the target of achieving £10 of consumer benefit for every £1 it spends.
The Government continue to challenge the CMA to deliver more for consumers. Through the Government’s strategic steer to the CMA we have made clear where we think it should focus its efforts to ensure that competition thrives for the benefit of consumers. It is important, though, that the CMA remains free to use its resources as it considers most appropriate, to get the best deal for consumers. To help achieve this goal, the CMA uses a set of prioritisation principles to decide which work it should undertake to have the biggest impact. The principles include impact and strategic significance.
Every year, the CMA consults on and publishes its annual plan, which sets out its strategic goals for the year. In the annual plan on which it has recently consulted, the CMA commits to,
“continue to prioritise work that has the greatest impact on ensuring a good deal for consumers—including the most vulnerable”.
This approach has led the CMA to tackle some key markets in recent years. It has recently concluded two of the largest and most complex market investigations that the United Kingdom has seen—into the energy and retail banking markets, as mentioned by the noble Baroness and the noble Lord. It has also undertaken important market studies into higher education and the provision of legal services, and it recently announced a new study looking at the operation of the care homes market. The CMA continues to assess mergers to make sure that they do not create market conditions which could lead to poor consumer outcomes or a lack of choice or competition. It has also upped its game on cartel and anti-trust enforcement, concluding high-profile cases—for example, in the pharmaceutical sector—and issuing substantial fines.
It is clear that this work is not a purely academic exercise and it is important that the CMA and the Government assess and measure the impact of the CMA’s work. To this end, the CMA assesses its total impact on consumers as part of its annual report. Between 2013 and 2016, the CMA demonstrated that it delivered on average £687 million-worth of benefit to consumers per year on an annual budget of £65 million, exceeding its 10:1 target. The NAO has also recently looked at the operation of the UK competition regime. It found that overall the regime is working well. However, it identified that the CMA could do more. The CMA is keen to build on its success and has committed to review the way that it conducts market investigations to ensure that they are as efficient and effective as they can be and improve the CMA’s brand. That review will conclude in the next financial year, and the CMA hopes to use it to develop this important tool to help make the greatest difference to the largest number of consumers and businesses.
The Government also take very seriously their obligation to review the operation of legislation to ensure that it is achieving its objectives in the best possible way. We consulted on a number of measures last year to improve the regime. A response will be issued in due course. That is why we are committed to review the operation of the parts of the Competition Act 1998, the Enterprise Act 2002 and the Enterprise and Regulatory Reform Act 2013 which give the CMA its powers. These reviews must be concluded by April 2019. Over this Parliament the Government will continue to keep under review whether the CMA has the right powers and whether it is using them to achieve its statutory goal.
The noble Baroness mentioned the connection between the CMA and Brexit. On
I referred to it; it was the one given in Miami, which I read with great care.
To continue with the Brexit theme, we fully take the point that the effects of Brexit on consumers must be an important part of the Government’s planning. Ministers had a consumer round table before Christmas, and there is a lot of engagement at official level.
The noble Baroness also mentioned the CMA’s energy market investigation, as did the noble Lord, Lord Stevenson. The Government are continuing to consider their response to the CMA’s report and will respond soon. Following npower’s announcement that the cost of annual dual fuel bills was to increase by 9.8% on average from
The noble Baroness raised the point about ensuring that the CMA undertakes its work for the benefit of consumers. The CMA is the independent, expert competition body. It is the body best placed to assess the likely impacts on competition and business behaviour. Consumer advocacy groups have a valuable and vital role to play in helping to identify markets that may not operate in the best interests of consumers. To ensure that its voice is heard, the CMA works closely with consumer advocacy groups, including Which? and Citizens Advice. The CMA is also an active member of the Consumer Protection Partnership, which brings together publicly funded consumer enforcement, advocacy and advice organisations to share, compare and interpret intelligence to identify trends in the causes of consumer detriment.
The noble Baroness also mentioned bank overdrafts being more expensive than loans. The Government will continue to engage closely with the FCA to understand the issues in this market and to ensure that it has the appropriate tools to take action where problems are identified. The FCA’s current review will examine the rest of the high-cost credit market, including overdrafts, and will enable the FCA to assess whether there is evidence of consumer detriment.
The noble Baroness, Lady Hayter, also mentioned the 2010 OFT study into house buying and selling. As well as the open letters to the sector, the CMA has produced materials tailored for SMEs to emphasise competition as an essential part of doing business and that companies can themselves be victims if their rivals or suppliers flout the law. Obviously, we must not forget the consumers in this equation.
It was suggested that the CMA’s retail banking market investigation did not address the real problems. The Government welcome the CMA’s final report on that investigation as an important step towards the goal of a highly competitive banking system. Taking forward this kind of high-impact work is exactly why we have created this authority. The noble Lord, Lord Stevenson, asked what the CMA was doing on ticketing. The CMA announced on
The noble Lord, Lord Stevenson, referred to the Higher Education and Research Bill. I will, of course, pass all his comments on to my noble friend Lord Younger. He mentioned in particular the Office for Students. The Bill requires the Office for Students to have regard to the principles of the best regulatory practice. This will include taking account of requirements such as the Regulators’ Code, and the Bill requirements are consistent with the code. Once the OfS is established, the Government can decide to make it formally subject to the Regulators’ Code by making an order under the Legislative and Regulatory Reform Act but, whether it is applied formally or not, the OfS must operate under the same principles.
The noble Baroness asked a number of other questions. If she will excuse me, I shall arrange to write some answers. I shall also arrange for them to copied to the noble Lord, Lord Stevenson, and for copies to be put in the Library.
I reassure the House that the CMA has consistently acted in line with the statutory duty to improve competition for the benefit of consumers. The CMA’s published prioritisation principles put consumer impact at the centre of its decision-making about the way that it uses its resources. While it is right that the CMA is independent of government, it is also right that it is held accountable for the way that it uses public money. The CMA routinely assesses its competition and consumer work to establish its impact on consumers. It publishes an annual impact assessment, judging its performance against its statutory duty and against the target set by the Government to realise £10 of consumer benefit for every £1 spent.
The NAO has also recently published a report into the operation of the UK competition regime, which found that, in the most part, the regime operates well. The CMA is now assessing its market investigation processes to see whether it can build on its current, effective approach to competition issues.
Finally, the CMA’s powers to investigate mergers and markets will be reviewed before the end of March 2019 to assess whether they are appropriate and are achieving their aims and objectives.