Lambs to the slaughter
Last week John Kay published an astute analysis of what only an economist would term tariff opacity (“Sometimes a spot of collusion can be a good thing”, Financial Times, 4 September; also free on his website), but the issue he describes will be recognised by everyone: it is the multiple ways in which we are ripped off by businesses that exploit our circumstances to cheat us in what is ostensibly an open market. Naively we think competition should eliminate such practices, but, whether hiring a car at an airport or renewing our insurance, we are all victims of the petty frauds he describes. Put simply, whether it is laziness or cognitive error, we are surrounded by modern cutpurses who will fleece us – legally. What is worse, businesses that treat us honestly and display transparent pricing are squeezed out by the dishonest.
Kay concludes that–
Tariff opacity is today the biggest concern in consumer protection – and the principal challenge facing the Competition and Markets Authority, which begins operations next year. Dealing with it requires a fundamental rethinking of our understanding of competition.
But I wonder whether he doesn’t ask too much of this new body. Few of these commissions are established to effect real change, still less fundamental rethinking: they are there so that politicians can handle awkward questions thrown at them on the Today programme. One look at documents such as this guidance or the speech by a Government minister (whose name the government website is unable get right: Lord Currie is not I think the son of a marquess or duke) makes me doubt whether this will be the exception.
What can be done short of this fundamental rethinking of competition?
Considerable help could be obtained from an overhaul of the Unfair Terms in Consumer Contracts Regulations, and in particular the exclusion of price from the scope of their protection.
Secondly, many of the areas Kay cites, such as financial services, are covered by ombudsmen schemes, and because of the scale of the petty frauds he mentions are unlikely to come before the courts. But in my experience, even where the Regulations apply, the Financial Ombudsman Service choose not to apply the principles, substituting its own concept of “fairness” which fails to recognise the imbalance in the business–consumer relationship the regulations seek to rectify.
Thirdly, even where ombudsmen rule against these scams, they do so only for an individual case. There are very few products which are handled on a “broader issue” basis as PPI has been: in general there is no effective mechanism for learning from an individual complaint, even though it applies to every other consumer cheated in the same way – most of them, the businesses calculate, will not bother to take the matter further. On the contrary there is a stubborn refusal to communicate with the FCA on the grounds that this would compromise the FOS’s impartiality.
That’s a much easier rethink.