Select committee inquiry
Consumer protection inquiry
Closed
What the inquiry looked at
“In 2017, UK households spent a total of around £140bn on water, energy, communications and financial services. These services are essential for security, well-being and social participation, however the characteristics of some markets mean they risk failing to produce behaviour or results in line with public interest. For instance, a lack of competition or consumer engagement can lead to higher prices and poor-quality services. Regulation is used to correct market failures and protect consumers, small business and the environment. Each sector is overseen by a regulator to ensure that services are provided in a way that meets public policy objectives, who are directly accountable to Parliament: 1. Ofwat (water in England and Wales); 2. Ofgem (energy in the UK); 3. Ofcom (UK-wide communications); and 4. The Financial Conduct Authority (financial services UK-wide). A recent National Audit Office (NAO) report found that consumers are facing significant issues across all four sectors. This includes: affordability concerns, which are compounded by real-terms price rises of 28% for gas, 37% for electricity and 6% for water since 2007; loyalty penalties for consumers who do not switch providers and end up paying more for the same service, with Citizen’s Advice estimating that this totals £4.1bn a year; and service failures across the sectors – for example, 36,000 homes were left without water supply for more than a day following the severe cold weather in 2018, and Ofcom found the most common cause of complaints was broadband connection problems. The NAO report also highlights that regulators a) are not clear about the overall outcomes they want to achieve for consumers, b) do not use the consumer experience data they already collect to assess their own performance, and c) have improvements to make in how they communicate with consumers. On 20 May, the Public Accounts Committee will question the Chief Executives of the four main regulators on the work they are doing to protect consumers. They will also investigate how regulators define the overall outcomes they want for consumers, as well as the action they take to assess their own performance.”
The committee's words, from the inquiry page on parliament.uk ↗.
What it found
In the committee's words, from the summary of 107th Report - Consumer protection ↗
Consumers are facing difficulty accessing the water, energy, telecoms and financial services that they are paying for. The regulators in these sectors have a statutory responsibility to protect the interests of consumers, and the problems faced are often the same across all sectors—for example, difficulties with paying bills, mounting debts, switching to better deals, and deciphering overly complex bills and other information.
These issues are particularly prevalent and serious for consumers in vulnerable circumstances. Despite common issues, the individual regulators take different and often inconsistent approaches to tackling them, have not made enough progress in working together, and with government, to improve services for consumers and develop common solutions where there is scope to do so. T hey also need to be more specific on what exactly they are trying to achieve for consumers, and how they will measure and report on how well they are doing it. A huge part of the problem is that regulators have traditionally worked on the basis that competition will lead to the best outcomes for people. However, the regulators need to work better together to ensure that competition leads to better services and more choice for consumers, rather than presenting opportunities for them to be exploited by suppliers. Despite our concerns, we welcome the regulators’
acknowledgement that they can and should do more to address these issues. We will follow up with them in due course to examine what progress they are making.
What the government said
No government response is linked to this report.
How the inquiry ran
Each dot is a dated item listed on this page, from the inquiry's opening on 20 May 2019 to 12 July 2019.
- Oral evidence 20 May 2019
- Report 12 Jul 2019
What it recommended 1 recommendation · 26 conclusions
1Consumers are facing serious problems with accessing essential services: affordability constraints, difficulties accessing the best...
Concluded (the committee's words)
Consumers are facing serious problems with accessing essential services: affordability constraints, difficulties accessing the best deals, and confusing and often incomprehensible bills. Vulnerable consumers, in particular, face a number of common challenges. Many struggle to afford all of their essential services, and often owe debts to more than one service provider at a time. Rising utility prices, including a 37% real-terms rise in electricity prices since 2007, put further pressure on affordability. Ofwat estimates that over the next five years the number of households receiving assistance to pay their water bill will nearly double. Elderly consumers, those who are less well-off and those who do not use the internet are also least likely to switch provider to access the best deals. Consumers are being penalised for loyalty: estimates suggest that people who do not switch their energy, telecoms and financial services providers could be overpaying by up to £1,000 a year. While the expansion of digital platforms has increased accessibility in many respects, it has also restricted it. Digital exclusion is cross-sector problem, with consumers increasingly needing to access or manage services or information online (for example, internet banking, digital utility bills or price comparison websites). The ability of consumers to choose deals, know what support is available or avoid being missold inappropriate products also depends on how well they understand bills and other information, which are often unnecessarily complicated.
2The regulators take different and often inconsistent approaches to common consumer issues, and are not...
Concluded (the committee's words)
The regulators take different and often inconsistent approaches to common consumer issues, and are not fully utilising the mechanisms they have to collaborate to produce tangible benefits. Ultimately, we are concerned that variation in approach is leading to disparity in consumer experience. For example, each sector has different rules for providing compensation and redress when things go wrong. Some have flat rates for specific problems such as supply disruptions, while others set compensation based on the level of detriment to the consumer. The regulators also set different rules and principles relating to how firms treat consumers in problem debt or in other vulnerable situations, and how firms should provide information to customers (for example in bills or annual statements). These inconsistent approaches make it more confusing for consumers, and mean the regulators are not maximising their effectiveness by sharing best practice. The regulators do have forums such as the UK Regulators Network to meet and share insights, but could not give us any examples of meaningful joint working that they had achieved. We are not convinced that their current engagement translates into tangible improvements in outcomes for consumers. Recommendation: The four regulators should develop a mechanism for working together to develop consistent approaches to common problems for consumers across all four sectors, developing joint strategies where appropriate. Recommendation: Each of the regulators should write to us by the end of 2019 explaining the specific joint projects they expect to complete and what metrics they are using to measure the impact on consumers’ lives. 6 Consumer Protection
3Government and regulators need to work more closely together to overcome barriers to effectively protecting...
Concluded (the committee's words)
Government and regulators need to work more closely together to overcome barriers to effectively protecting consumers. Regulators have significant powers to protect consumers, but they also face some policy or legislative constraints outside their direct control. They believe that there are changes that would improve protection for consumers but which require government to introduce legislation, for example to help address data sharing barriers and to establish an ombudsman service in the water sector. Regulators also need to work closely with government on social policy objectives and priorities to help manage potential conflicts or trade-offs between objectives or groups of consumers when making regulatory decisions. For example, there are significant questions about how to regulate online content, the extent to which consumers should pay for decarbonisation through energy bills, and what level of local banks and cash machines should be maintained for consumers who rely on them. Greater engagement between regulators and government would enable more proactive discussions and joint strategies on factors affecting consumers that government and regulators need to jointly address. Recommendation: Using the mechanism outlined in recommendation one, the four regulators and their relevant policy departments should work together to identify and where possible address legal or policy barriers to protecting consumers. Recommendation: Based on the joint work on legal and policy barriers, each regulator should write to us by the end of 2019 outlining the approach they have taken and work done with their relevant policy departments. Specifically: • Ofwat should update us on the work they have done into introducing an independent ombudsman in the water sector; • Ofgem should update us on how they will approach the question of how to fund decarbonisation; and • All regulators should update us on work done to identify what legislative changes would be appropriate to enable better data sharing.
4Regulators are not clear enough about what they are trying to achieve for consumers.
Recommended (the committee's words)
Regulators are not clear enough about what they are trying to achieve for consumers. It is important for any public body to be clear about and accountable for what it is trying to achieve, and what criteria it will use to judge whether it is being successful. The four regulators have set out overall intended consumer outcomes at a high level, such as affordability, high quality services or value for money. These are commendable ambitions but are not specific or measurable, and therefore cannot be used to judge progress. For example, we are disappointed that the aims do not typically include targets or success measures and question how the regulators intend to monitor progress. We recognise that in some cases there can be challenges with setting targets, which can create perverse incentives and unintended consequences. However, the regulators accept that it is not enough to simply point to the challenges involved and that they can do more in this respect. Recommendation: Each regulator should set out, by the end of 2019, more specific, measurable, and understandable aims for consumer outcomes in their sector. Where quantitative success measures are not appropriate, regulators should articulate why this is the case and how they plan to measure progress. Consumer Protection 7
5The regulators do not yet have a good enough understanding of their own impact and...
Concluded (the committee's words)
The regulators do not yet have a good enough understanding of their own impact and effectiveness in protecting consumers. Regulators need a good understanding of how effective they are and what impact they are having, so that they can judge progress and take corrective action when things are not on track. But their performance information does not sufficiently examine the extent to which they are improving outcomes for consumers, and there is no consistency between regulators in what they measure or how they measure it. The regulators highlight the difficulty in isolating the effects of their own actions from other factors that affect consumer outcomes, such as economic conditions or the effects of wider government policy. But they also recognise they can do more to assess their effectiveness. We believe they need to find a way of considering, monitoring and assessing all these factors as a whole to truly understand—and respond to—consumer outcomes. The Financial Conduct Authority (FCA) has made most progress with its new structured programme of evaluations, and the other regulators are now looking to learn from the FCA’s approach. Recommendation: Regulators should work together to develop common principles and methodological approaches to measuring their effectiveness and impact on consumers. Recommendation: Each regulator should write to us by the end of 2019 setting out the progress they have made on this and how their understanding of the consumers they serve has improved.
6Regulators’ publicly available information is not sufficiently useful or accessible for consumers and other stakeholders.
Concluded (the committee's words)
Regulators’ publicly available information is not sufficiently useful or accessible for consumers and other stakeholders. The information that independent regulators make publicly available should help consumers, Parliament and wider stakeholders hold regulators to account for protecting consumer’s interests. We are therefore surprised and concerned that the regulators acknowledge that much of their reporting could be more accessible for the public. In particular, their regular publications such as annual reports should show the link between what they are trying to achieve, what they have done and what the actual outcomes are for consumers. Regulators’ websites are clearly an important method of communicating with the public, however the information on them is muddied by jargon in place of plain English, and complex layouts which make it difficult to find accessible and understandable information on what the regulator is doing and how it is performing. Recommendation: Each regulator should take steps to enhance the clarity and transparency of publicly available information, including annual reports, and the usability of their websites. Recommendation: Each regulator should report back to us by the end of 2019 on the action they have taken to make their public information more accessible and engaging. 8 Consumer Protection 1 Protecting consumers
7In all four sectors, consumers increasingly need to access or manage services and information online...
Concluded (the committee's words)
In all four sectors, consumers increasingly need to access or manage services and information online (for example, internet banking, digital utility bills or price comparison websites). It is much more challenging for consumers without access to a computer or the internet to find the best deal or tariff.14 Some areas of the country are less well connected than others, and some consumers can find themselves excluded on that basis, while others may simply need additional support to help them navigate complex systems.15 Scope, the disability charity, told us that digital exclusions means some disabled people find it more difficult to access the most accessible deals. It highlighted that 20% of disabled people have never accessed the internet, compared to just 5% of all adults in the UK.16
8We also asked the regulators about the challenge some consumers face reading and understanding bills...
Concluded (the committee's words)
We also asked the regulators about the challenge some consumers face reading and understanding bills and other information. The quality and accessibility of the information available to consumers will influence their ability to choose deals, know what support is available or avoid being mis-sold inappropriate products. Ofcom has found that how telephone companies provide information to customers has a material impact on whether they switch provider at the end of their contract. The regulators acknowledged that despite making progress, companies still provide consumers with bills, statements and contracts that are often not particularly user-friendly and can be overly complicated.17 Differences in regulators’ approaches
9We asked the regulators to explain how they tackle common consumer issues, including what redress...
Concluded (the committee's words)
We asked the regulators to explain how they tackle common consumer issues, including what redress is available when things go wrong, how firms treat consumers in problem debt, and how firms provide information to consumers such as in bills.18
10Each sector has different rules for providing compensation and redress when things go wrong.
Concluded (the committee's words)
Each sector has different rules for providing compensation and redress when things go wrong. For example, Ofcom introduced a voluntary scheme in 2019 involving most big providers, whereby consumers receive an automatic flat rate compensation for specific problems with their landline telecoms services. This includes £25 should an engineer not turn up to undertake repair work and £5 a day if an installation does not happen when 10 Qq 16, 88 11 Citizens Advice Report, The cost of loyalty, February 2018 12 Q 19; C&AG’s Report para 2.9 13 CON003 14 Q 16 15 Q 22 16 Written evidence from Scope (CON0005) 17 Qq 15, 86–88 18 Qq 2–35, 43–51, 85–91 10 Consumer Protection scheduled. In energy and water, compensation is not automatic but is available at different rates for supply interruptions or other problems. By contrast, the level of redress that consumers are entitled to in financial service is calculated based on the level of detriment they experience.19
11The regulators set different rules and principles guiding how firms treat consumers in debt or...
Concluded (the committee's words)
The regulators set different rules and principles guiding how firms treat consumers in debt or other vulnerable situations. Consumers in vulnerable circumstances are likely to face additional challenges with all services they access. But despite this, each sector has different requirements regarding discounts or support available, how firms collect debts, and how they serve vulnerable consumers in general.20 The regulators explained that some of these differences are due to differences in the tools and powers that they have available.21
12Each regulator also imposes different rules on how firms provide information to customers, such as...
Concluded (the committee's words)
Each regulator also imposes different rules on how firms provide information to customers, such as in bills, bank statements or contract terms. Despite good work to improve the readability of such information this is not universal, and the sectors differ in what information is presented and how it is described.22 Ofcom also told us that it is just about to introduce new rules about how companies notify customers that their contracts are coming to an end, where similar rules have already been in place in other sectors.23
13The regulators have forums to discuss common challenges and share insights, lessons and methodologies that...
Concluded (the committee's words)
The regulators have forums to discuss common challenges and share insights, lessons and methodologies that may help improve outcomes for consumers. For example, the UK Regulators Network includes these four regulators as well as a number of others. Senior representatives from the regulators meet approximately ten times a year through this network, while the Chief Executives meet three to four times a year.24
14We asked the regulators to provide examples of the joint solutions that have been developed...
Concluded (the committee's words)
We asked the regulators to provide examples of the joint solutions that have been developed as a result of their collaboration. The regulators highlighted consumer vulnerability as the current focus of the network and a key priority for the regulators over the coming 18 months. They pointed to ongoing work looking at power of attorney and using data sharing to identify customers in vulnerable consumers. But they did not provide any examples of successful joint initiatives or solutions that have led to tangible improvements for consumers.25 The need for regulators and government to work together
15Regulators have both the statutory responsibility to protect the interests of consumers and the powers...
Concluded (the committee's words)
Regulators have both the statutory responsibility to protect the interests of consumers and the powers to intervene to discharge these responsibilities.26 However, the regulators explained to us that they also face several constraints outside their direct control that they need to work with government to overcome.27
16The regulators particularly highlighted legislative barriers to data sharing that prevent firms and regulators from...
Concluded (the committee's words)
The regulators particularly highlighted legislative barriers to data sharing that prevent firms and regulators from providing more joined-up support to consumers. With appropriate safeguards, data sharing can help essential service providers identify 19 Qq 26–34 20 Qq 25–28, 31, 33–35, 44–46 21 Q 45 22 Qq 85–89 23 Q 88 24 Qq 27, 66–67 25 Q 68 26 C&AG’s Report, para 2.1 27 Qq 34–44, 95, 102–106 Consumer Protection 11 potentially vulnerable consumers who may need additional support or protection, such as those who are disabled or experiencing debt problems.28 But Ofgem and Ofwat explained that the regulators’ efforts to introduce new data sharing approaches between energy and water companies have made limited progress so far due to data protection laws. Specific consent is required from customers, and the regulators foresee it being even more difficult to extend to telecoms or financial services providers.29
17Ofwat also highlighted that there is no statutory body within the water sector, such as...
Concluded (the committee's words)
Ofwat also highlighted that there is no statutory body within the water sector, such as an ombudsman, to independently adjudicate on consumer complaints and levels of compensation. An ombudsman would provide an additional source of data on consumer issues, and another mechanism to keep pressure on water companies to be consumer focused. But establishing an ombudsman would require legislative change.30
18The regulators also noted a number of areas where they need to work more closely...
Concluded (the committee's words)
The regulators also noted a number of areas where they need to work more closely with government on social policy objectives and priorities to help manage potential conflicts or trade-offs that affect consumers when making regulatory decisions. For example, the FCA raised the question of whether and how it should best maintain the provision of local bank branches and cash machines, when technological changes mean that fewer consumers use these functions but they are still vitally important for some.31 Ofgem also told us that it needs greater clarity over its role with respect to promoting decarbonisation while managing the costs to consumers. This would, for example, help the regulator to make decisions around whether to extend Britain’s gas network, how to fund the infrastructure to support the roll-out of electric vehicles, and the extent to which consumers should pay for decarbonisation through energy bills.32 The regulators also highlighted concerns over the regulation of online content and cyber-security, particularly with complex new issues such as the marketing of crypto-assets through social media.33 28 Qq 27, 35 29 Qq 36–44 30 Qq 34, 102–103 31 Q 95 32 Qq 62, 105, 115 33 Qq 83, 89–90, 101, 115 12 Consumer Protection 2 Measuring and reporting performance What regulators want to achieve for consumers
19The National Audit Office’s report concluded that the regulators have not been specific enough in...
Concluded (the committee's words)
The National Audit Office’s report concluded that the regulators have not been specific enough in defining the overall outcomes they want to achieve for consumers.34 We agree that it is important for any public body to be clear about and accountable for what it is trying to achieve, and what criteria it will use to judge whether it is being successful. Each regulator sets overall intended consumer outcomes at a high level, such as affordability, high quality services or value for money. But they have not translated these aims into measurable criteria, such as targets, that they could use to assess progress.35
20The regulators all highlighted the difficulty in setting meaningful targets and outcome measures when they...
Concluded (the committee's words)
The regulators all highlighted the difficulty in setting meaningful targets and outcome measures when they do not have direct control over all of the factors that impact on consumer outcomes.36 We also recognise that, in some areas, setting specific targets can create perverse incentives and unintended consequences.37
21However, the regulators acknowledged that the outcomes they have set can be too high-level and...
Concluded (the committee's words)
However, the regulators acknowledged that the outcomes they have set can be too high-level and vague, and that there would be value in being more specific about what they are trying to achieve. Ofgem noted that from 2020 it will need to report on the impact of the energy price cap, and whether the market is working well enough for consumers for the cap to be removed. In order to do this, Ofgem will need to be define what conditions need to be met in order to judge whether the market is working well enough for consumers.38 Ofcom told us that it has work under way to develop a set of metrics that feel real to consumers, for example relating to better access and more affordable prices, and which Parliament and the public could use to track progress.39 Ofwat also noted how it was working with other water regulators—the Environment Agency and Drinking Water Inspectorate - to set longer-term targets for the water sector.40 Regulators’ understanding of their own impact
22Regulators need to measure their performance and assess their impact to make sure that they...
Concluded (the committee's words)
Regulators need to measure their performance and assess their impact to make sure that they are achieving their objectives and take corrective action where necessary. The National Audit Office’s report found that the performance information that regulators use is focused on data that tracks the progress of individual projects and programmes. The regulators do not typically use information on consumer outcomes to monitor and assess their own overall performance.41
23The regulators highlighted the difficulty in isolating the effects of their own actions from other...
Concluded (the committee's words)
The regulators highlighted the difficulty in isolating the effects of their own actions from other factors that affect consumer outcomes, such as economic conditions or the effects of wider government policy. But they also recognised that they can do more to measure their effectiveness.42 The FCA has made the most progress in starting work 34 C&AG’s Report, paras 12, 22 35 C&AG’s Report, paras 2.13–2.14 36 Q 69, 74–75 37 C&AG’s Report, para 2.14 38 Q 75 39 Q 69, 83 40 Q 74 41 C&AG Report, paras 3.6–3.10 42 Qq 69–70, 74–75; C&AG’s report, para Consumer Protection 13 to better understand its impact and influence, and has committed to a programme of evaluations to examine whether specific interventions worked out as expected.43 The other regulators recognised the benefits of these exercises and have similarly committed to undertaking more evaluations. Ofcom told us that it is planning to do serious evaluations of two or three of its interventions on an annual basis.44 Similarly, Ofgem told us that it had recently published its first review and it plans to more of these in the future.45 Ofwat also noted that it currently reviews its five-yearly price control process, but is committed to expanding its approach to include reviews across the different levers and interventions that it uses.46
24The regulators also told us about some of the ways they were trying to improve...
Concluded (the committee's words)
The regulators also told us about some of the ways they were trying to improve their regular performance information. Ofwat told us that while it currently monitors data on individual companies, it is developing sector-wide dashboards with information on consumer outcomes.47 Ofcom also explained that it plans to turn the information it uses on the progress of specific interventions into more effective tools for holding itself to account for protecting consumers.48 Regulators’ publicly available information
25The information that independent regulators make publicly available should enable consumers, Parliament and wider stakeholders...
Concluded (the committee's words)
The information that independent regulators make publicly available should enable consumers, Parliament and wider stakeholders to hold them accountable for protecting consumer’s interests. The regulators told us that they could do more to help the public understand what they are doing to protect consumers and why. Ofcom told us it hasn’t done enough to publicly explain how it has developed its priorities based on its consumer research and the changing issues in the market.49 Ofwat similarly noted its intention to communicate more clearly its understanding of the challenges consumers face and its own decisions on how to address them.50 Ofgem told us that it has made progress by introducing its annual ‘Consumer Impact Report’ which attempts to quantify the total expected benefit to consumers of Ofgem’s interventions over the past year.51
26We also challenged the regulators about whether their public reporting helps consumers understand what difference...
Concluded (the committee's words)
We also challenged the regulators about whether their public reporting helps consumers understand what difference they are making in practice. The FCA told us that it could do more to report on the effectiveness of its actions, and noted that it is working to improve this, particularly in its annual report.52 Ofwat acknowledged that, to date, it has not been clear or consistent in reporting on consumer outcomes, and noted that it planned to report annually on progress against a new set of high-level consumer outcomes.53 Ofcom also explained that it planned to use its annual plans and annual reports to provide more transparency about what they have and have not achieved, and a clearer link between what they set out to achieve and what progress they are making.54 43 Qq 69, 74; C&AG Report, para 3.14 44 Q 69 45 Q 76 46 Q 74 47 Qq 74–79 48 Q 80 49 Q 83 50 Q 84 51 Qq 75–76 52 Q 74 53 Q 74 54 Qq 71–73, 83 14 Consumer Protection
27We asked the regulators about their websites, and the type and consistency of information provided...
Concluded (the committee's words)
We asked the regulators about their websites, and the type and consistency of information provided online to the general public. While there is some good practice, for example Ofcom’s website is generally accessible, there are several areas where regulators’ websites and the documents they contain could be improved. In particular, the regulators could do more to improve the use of plain English in their online material and minimise technical jargon. The layout of the webpages for consumers could also be improved, to make it as easy as possible for consumers to access the information they need.55 55 Qq 96–100 Consumer Protection 15
Evidence
Oral evidence sessions 1
- 20 May 2019No witnesses recordedparliament.uk ↗