Regulators must work together to prevent consumers being exploited
12 July 2019
The Public Accounts Committee has today published a report on Consumer Protection.
- Many consumers face problems accessing water, energy, communications & financial services
- Regulators take an inconsistent approach in protecting often vulnerable consumers
- Regulators must work together to improve choice and services for consumers, and prevent consumers from being exploited
- Read the report summary
- Read the conclusions and recommendations
- Read the full 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. They 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.
“Consumers – disproportionately vulnerable ones – can face serious problems in accessing essential services such as water, energy, communications and finance.
“Issues including debt problems, struggling to access the best deals, and seemingly impenetrable bills can significantly impact people's daily lives.
“The primary role of regulators is to protect consumers from such issues. The main regulators of these sectors, however, too often take inconsistent approaches. They need to be clearer about what they are trying to achieve for consumers and the common solutions they can bring.
“Regulators must work closer together with the best interest of consumers at their heart. They must ensure that competition leads to more choice, better services and prevent consumers from being exploited by suppliers.”
Conclusions and recommendations
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 mis-sold inappropriate products also depends on how well they understand bills and other information, which are often unnecessarily complicated.
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.
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.
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.
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.
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.
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