OPINION: Strengthening consumer protections is fair, but also boosts growth

Originally published in  The Times Red Box 30 September 2022. Permission to publish sought and granted on 21 April 2023.

If there is one issue on which all major parties agree, it is the need to improve the country’s productivity and put in place a robust plan to grow the economy.  The government clearly has an ambition to do this through supply-side reforms, some of which were unveiled in last Friday’s fiscal statement. 

Improvements in skills, infrastructure and innovation will need to be part of the picture. But the focus cannot only be on the supply-side. In order to get growth, we need to ensure the demand side of markets also work well and are fit for a digital age. At present, a lack of good consumer protections, effectively enforced, is holding things back.

Consumer protections and a growing economy go hand in hand. After all, it’s consumers who must buy products and services that will keep businesses afloat through current turbulent times, and try new ones enabling innovative businesses to grow. 

Yet far too often, consumer policy has been marginalised. The consequence is a set of business practices in some markets that both harm customers and weaken their ability to put pressure on companies to improve. Take, for example, firms being deliberately misleading about the quality of a product or service, or making it difficult to exit contracts should we find better deals. That in turn makes it harder for good firms to win their custom. 

How is this allowed to happen? Why do poorly-performing firms continue to get away with it? The answer lies in the toothlessness of regulators responsible for clamping down on bad behaviour. Key regulators do not even have the powers to fine companies that break the rules. 

The system rewards failure, helping firms maintain their market position at the expense of potential competitors. Improving that system would not only make life fairer for consumers, but level the playing field for other businesses that offer better products or prices. 

At the very least, the CMA needs to be given stronger powers - for example, to directly fine companies for repeated breaches of consumer law. The alternative - putting cases through the courts - is time-consuming, which can easily lead to firms dragging their heels, wasting time and taxpayers’ money for regulators.

Consumer protection rules have especially not kept up with the rapid development of digital markets and it is no coincidence that anti-competitive practices are common in online markets. 

Damaging practices like fake reviews, which artificially inflate a company’s product or services, are rife. Which? investigations have repeatedly exposed unscrupulous firms engaged on an industrial scale in cheating their way to the top of the Amazon or Google rankings. 

When rule-breaking companies have algorithmic tools at their disposal they can hoodwink millions of customers with a click of a mouse or swipe of a screen, it’s vital that regulators can move quickly to crack down on bad behaviour. Otherwise companies will realise it’s easier to mislead or manipulate consumers than invest in making a good product.   

Poor consumer protections also reduce our willingness to try new things, which reduces the incentive to develop them in the first place. Initiatives like open banking have the potential to stimulate competition in retail banking and payments, but consumer mistrust about how their data is used and the lack of the right consumer protections holds them back from embracing it. Through a strong regulatory framework we can give consumers the confidence to engage in such services - knowing that compensation and redress is easily accessible if anything goes wrong.

The UK has an opportunity to develop its own, world leading consumer and competition policy. Fixing these problems will stimulate growth and innovation. It will lead to better consumer experiences through more choice and lower prices. Greater trust and confidence in the tech sector will encourage investment and competitiveness - something the new government is keen to do.

It was a Conservative manifesto commitment, reiterated in this year’s Queen’s Speech, to introduce legislation to implement these important protections. Given what could be achieved, its passing into law cannot come quickly enough.