Progress in Protecting Consumers' Interests (HC 430) Public Accounts Committee 17 Mar 2003

Mr. Gerry Steinberg (City of Durham): I am going to be very naughty. If you do not want to answer the questions, do not. Perhaps you could write to me. I do not think we are going to get the opportunity to question you again before the pharmacy issue is actually settled one way or the other. Bearing in mind that on page 29, Figure 13 , your organisation has already been found guilty of maladministration by the Parliamentary Ombudsman, I have a letter from clearly vested interests in the pharmacy industry - clearly vested interests; I shall not dispute that - making certain accusations that the pharmacy report should never have been produced because the Enterprise Act has been brought in and consequently it was not your responsibility to do it any longer. Secondly, more seriously, there is an accusation that apparently in The Guardian it was pointed out that you had done some work as a consultant for the supermarket industry and that you had kept yourself clear from the Safeway argument on the basis of that and you had allowed Penny Boys to be responsible for that particular problem. When it has come to the pharmacy situation, which in effect could hand billions of pounds worth of trade to supermarkets at the expense of the chemists, you have not declared an interest and accusations are being made on those grounds. If you do not want to answer that because it is unfair to drop it on you today and you want to write to me, I am quite happy with that.

Professor Vickers: No, I am very happy. I do not regard it as an unfair question at all and if the Chairman is willing, I shall explain.

Professor Vickers: If I may take the question of my own personal position first, more than five years ago I did some advisory work on a supermarket merger question. Within the last five years I have been working at the Bank of England and then at the Office of Fair Trading, as is public knowledge. There was no question of the conflict of interest in the normal sense. However, because the supermarket merger question before the OFT was very similar to one on which I had given advice, even at that distance in time, I thought the better course was to excuse myself from the OFT's consideration of that supermarket merger question. That was the reason why I took the decision in that case. I do not believe that there is a read-across to the study into pharmacies. On the first part of your question, that it was inappropriate for the OFT to conduct this study in view of the imminent Enterprise Act, first of all, I do not believe that there was anything in the Enterprise Act or in existing legislation which stood in the way of our carrying out that study and indeed our overall goal is one which is with a solid basis in law of trying to make markets work well for consumers. The consideration of government laws and regulations which might unnecessarily be affecting adversely the way that markets operate is a completely proper subject for the OFT to examine. Whereas under some legislation we have a decision-making role, this kind of study leads to recommendations of a very public kind with all the reason and all the evidence very much in public, but those are recommendations for government to consider and the decisions lie with government. It is a fact-based rigorous study published for all to see and that is what we did in that case.

Mr. Gerry Steinberg (City of Durham): You do not believe that you have taken advantage of loopholes before the Act comes in?

Professor Vickers: No, not at all. The Fair Trading Act is a perfectly proper basis for this kind of study and it is not entirely the first of its kind. We looked a year or so earlier at some questions about competition in the professions. That led to a report which consisted in part of recommendations to government, which again are very much for government to decide. That report had some other recommendations in it as well. We have a study under way into taxi services across the UK, where there were different regulations in place in different parts of the country. That study is not concluded; we are mid way through it. There again the question is one about whether the way these activities are regulated is beneficial or not. That is the context.

Mr. Gerry Steinberg (City of Durham): I am not going to pursue it. I just thought it was important that you had the opportunity to put your point of view about these accusations which were being made and bandied around.

Professor Vickers: Thank you for that.

Mr. Gerry Steinberg (City of Durham): Moving on to the report itself, I am afraid I have to support the Chairman and David Rendel in that the recommendations which have been made from our last meeting do not seem to have been taken very seriously at all in terms of getting the problems solved. On page 14, Figure 4, we see the position of different sectors and where they are with regard to the codes of practice. Here again the criticism that things seem to have moved very slowly is borne out by the information we are given in Figure 4. It does not make very encouraging reading, does it? Only three have reached stage one. Incidentally, how many stages are there?

Professor Vickers: Two.

Mr. Gerry Steinberg (City of Durham): So none has reached stage two yet. Three have not even reached stage one yet. In paragraph 2.6 it tells us that the funeral industry has not even put a submission in yet. Why is it taking so long?

Professor Vickers: May I comment on the remark you made at the beginning of that question. You said there was an appearance that we had not taken seriously the recommendations the Committee made before. I absolutely assure you that the reality is that we took the recommendations and the concerns that underlay them with total seriousness and I am pleased that we have made progress on the fronts where we have made progress. I share the Committee's disappointment that we have not made progress on some of the other fronts. In relation to codes, the principal reason why we have not reached stage two yet is that the statutory base for stage two is not yet in force. The Enterprise Act has provisions which allow for explicit approval through a logo or mark of the OFT and measures for the withdrawal of approval of codes. A month ago we launched our logo to business and we are all ready for that, but we do not have the statutory basis yet for that. The other point I would make is that what we are trying to do with codes is in the area of self-regulation. It is self-regulation in the proper sense, that it is for businesses and industries to do things for consumers and it is not entirely within our power to magic those things forward.

Mr. Gerry Steinberg (City of Durham): When do you expect to see some real progress in these industries?

Professor Vickers: We have seen and are seeing progress.

Mr. Gerry Steinberg (City of Durham): Let us face it, reputedly one of the worst industries under the sun for consumers is the second hand car industry, and clearly it is not in their interest - perhaps that is being a bit unfair - in the interest of many of these dealers to co-operate with you. When are you going to force them to do something about it?

Professor Vickers: In that very sector, we have being doing things with other powers we have, including the refusal and revocation of consumer credit licences, including the provision of guidance, targeting that particular sector on what the Consumer Credit Act means for traders in that sector.

Mr. Gerry Steinberg (City of Durham): You are saying that you do actually police them, even though they have no self-regulating code.

Professor Vickers: Yes. I should explain. The self-regulatory initiatives are complementary to the enforcement responsibilities which we have, will continue to have and which indeed the Enterprise Act is widening. This is not an alternative, this is in addition.

Mr. Gerry Steinberg (City of Durham): Even so, it is still a bit slow. Should any other industries be in this? My constituency has time-share sellers who are getting round the codes by being very dishonest in what they are saying, I would suspect, but they seem to be able to get away with it. I have written to the local authorities and they say they are within the Act. Why are these people not included?

Professor Vickers: The question you refer to is one which we are very much aware of. It is not a question of codes, but of laws and regulations. It would not be right for me to talk about individual cases before they are concluded, but I assure you that we are fully aware of that issue and are pursuing it by other means. I would again say that these efforts to facilitate good self-regulation through codes are allied to enforcement activity, they are not instead of it.

Mr. Gerry Steinberg (City of Durham): Is it a coincidence that the ones which seem to be the most dodgy are the ones which are not actually co-operating?

Professor Vickers: In broad terms one would say that it is not a pure coincidence, but let us recognise that there are code sponsors who have achieved stage one approval in four of our seven initial priority sectors and discussions are going on with others. Where I say it is not a coincidence is in sectors and markets where consumer detriment is well-known to arise, such as some of those sectors. The way I think of it is that the gains of getting codes to work well in those areas, just as the gains to successful enforcement action, are especially great and that is why they are priority sectors.

Mr. Gerry Steinberg (City of Durham): I want to go on to paragraph 4.4 on page 32. This is a section I find very interesting indeed and it is to do with the number of complaints about unfair contracts. It seems that the number of complaints is actually rising. Why do you think this is happening? Presumably customers complain after they have signed the contract. If that is the case, if complaints are rising, after the contract, are we getting to a situation now where contracts are so complicated that we need a solicitor before we buy something? That is what seems to be happening. When I go out to buy a washing machine or a microwave oven, I do not want this huge contract telling me what I am entitled to and what I am not entitled to. I do not want to have to employ a solicitor to tell me what I am entitled to. I want to feel safe when I buy something, that I am not being ripped off, that I have my rights without having a huge legal document to go through. Are businesses, are manufacturers or whatever, making contracts so complicated that they assume people will not read them and then they cheat them on the basis of ignorance?

Professor Vickers: I would not want to use the terms at the end of your question, but many, many people do feel exactly as you do about the question of complex contracts. You gave some examples about electrical goods and possibly you had in mind there the area of extended warranties which has been a particular focus of our work which led to the reference to the Competition Commission and also the consumer campaign on our part with the message of Think Before You Buy. The unfair contract terms regulations cover a range of issues of fairness in relation to contracts and the intelligibility of contracts is one of the things which is central to that.

Mr. Gerry Steinberg (City of Durham): How do you make them more transparent?

Professor Vickers: One strand of the work we do in the contract terms area is precisely to combat the ills which you describe and we seek to do that partly after the event, because the signing up of a contract is a context where the problems sometimes do not occur until well down the track. At the same time, we are trying to pre-empt and prevent as many of these problems arising in the first place as we possibly can, by the work on tenancy terms, by the work on sports clubs, by the work on airline contract terms, by the work on railcard contract terms and many other examples. In contracts affecting thousands and thousands of people, a lot of progress has been made within the two and a half years since the Committee's last report. The foundation for that progress was laid earlier because these regulations have been in force since 1995. Some regard the OFT as something of a pioneer in some of these areas of contract terms across the EU.