The
Committee consisted of the following
Members:
Baron,
Mr. John
(Billericay)
(Con)
Burt,
Lorely
(Solihull)
(LD)
Cruddas,
Jon
(Dagenham) (Lab)
Cryer,
Mrs. Ann
(Keighley)
(Lab)
Dowd,
Jim
(Lewisham, West)
(Lab)
Main,
Anne
(St. Albans)
(Con)
Moran,
Margaret
(Luton, South)
(Lab)
Murphy,
Mr. Denis
(Wansbeck)
(Lab)
Prisk,
Mr. Mark
(Hertford and Stortford)
(Con)
Riordan,
Mrs. Linda
(Halifax)
(Lab/Co-op)
Scott,
Mr. Lee
(Ilford, North)
(Con)
Seabeck,
Alison
(Plymouth, Devonport)
(Lab)
Slaughter,
Mr. Andy
(Ealing, Acton and Shepherd's Bush)
(Lab)
Stanley,
Sir John
(Tonbridge and Malling)
(Con)
Teather,
Sarah
(Brent, East)
(LD)
Thomas,
Mr. Gareth
(Parliamentary Under-Secretary of State for
Business, Enterprise and Regulatory
Reform
)
Turner,
Dr. Desmond
(Brighton, Kemptown)
(Lab)
Glenn McKee, Edward Waller,
Committee Clerks
attended
the Committee
First
Delegated Legislation
Committee
Tuesday 6 May
2008
[Mr.
Jim Hood
in the
Chair]
Draft Business Protection from Misleading Marketing Regulations 2008
4.30
pm
The
Parliamentary Under-Secretary of State for Business, Enterprise and
Regulatory Reform (Mr. Gareth Thomas):
I beg to
move,
That the
Committee has considered the draft Business Protection from Misleading
Marketing Regulations
2008.
The
Chairman:
With this it will convenient to consider the
draft Consumer Protection from Unfair Trading Regulations
2008.
Mr.
Thomas:
It is a pleasure to serve once again under your
chairmanship, Mr. Hood. The consumer protection regulations
implement the unfair commercial practices directive. Both sets of
regulations implement EC directives. The consumer protection
regulations prohibit traders in all sectors from engaging in unfair
commercial practices with consumers. A commercial practice is unfair if
it amounts to conduct below a level which might be expected towards
consumers, in accordance with honest market practice or good
faith.
That broad
category of unfair commercial practices is supplemented with more
specific categories concerning misleading actions and omissions and
aggressive practices. The vast majority of practices that would be
considered unfair will fall under these provisions. Indeed, for a
practice to be unfair under these rules, it must be likely to change
consumers economic behaviour. The normal benchmark for
determining the likely effect of a practice is the average consumer.
However, where a practice is targeted at particular groups of consumers
or is likely to adversely affect the economic behaviour only of a
clearly identifiable group of vulnerable consumers in a way that the
trader can reasonably foresee, the average consumer of the group
becomes the benchmark against which the effect of the practice would be
assessed.
The
regulations also ban 31 specific practices in all circumstances,
irrespective of whether they affect consumers economic
behaviour. The prohibitions will be enforceable through part 8 of the
Enterprise Act 2002. In addition, and with limited exceptions, a breach
of the prohibition on unfair commercial practices will be a criminal
offence. The Office of Fair Trading and trading standards will have a
duty to enforce the regulations.
Another
benefit of the regulations is that some further regulatory
simplification is achieved. The regulations, for example, will repeal
provisions in a number of laws, including most of the Trade
Descriptions Act 1968. They represent the biggest change to consumer
protection law in the UK for almost 40 years and will put in place a
more comprehensive framework for tackling sharp practices and rogue
traders who exploit loopholes in the existing
prescriptive legislation. I believe that that is good law for both
consumers and honest businesses.
The business
protection regulations will implement the misleading and comparative
advertising directive 2006. Those regulations prohibit advertising that
misleads traders and sets out the conditions under which comparative
advertising is permitted. Comparative advertising is advertising that
identifies a competitor or a competitors product. Again, the
OFT and trading standards are given the power to apply to the courts
for injunctions to supply compliance with the regulations. In addition,
advertising that misleads traders is a criminal offence. The
regulations will ensure that there is no reduction in business
protection following the repeal of certain laws that protect businesses
as well as consumers. I commend the regulations to the
Committee.
4.34
pm
Mr.
Mark Prisk (Hertford and Stortford) (Con): I welcome you
to the Chair to guide our proceedings this afternoon, Mr.
Hood. I also thank the Minister for his opening remarks. What a
talented individual he is. This morning, I was in my showernot
with the Minister, I hasten to add. We are a caring and compassionate
party, but not quite that caring. There he was, talking on the radio in
dulcet tones about international development, and this afternoon here
he is, talking about consumer protection. It is encouraging to see that
he is able to cover both briefs with such great attention. I should
perhaps move along from opening remarks in which the words
shower and briefs come
together.
The Minister
is right that the two statutory instruments before us are distinct,
albeit related. They are embedded in, or drawn from, a single European
directive: the unfair commercial practices directive. As he said, that
directive establishes a general principle, a duty not to trade
unfairly. That is an important and welcome improvement to the law, both
for consumers and for business, and representations that Iand I
suspect other members of the Committeehave received both from
the CBI and the Consumers Association have reflected that. The general
principle is welcome, and I am pleased that on this occasion it is not
my intention to divide the Committee on the principle. The Minister
will not be surprised, however, that I wish to raise some practical
issues.
First, can the
Minister discuss the timing? While common commencement dates clearly do
not apply to EU regulations, it would be helpful to know whether the
Ministers Department sought to get this important set of
regulations, which would apply to the high street, on to one of the two
common commencement dates, not least to help business. If the Ministers
made that application, why did it
fail?
Secondly, what
preparation time has the Ministers Department given businesses,
particularly small businesses? We can all envisage that the kind of
practices that are being dealt with here will impinge on markets where
small businesses are key players. The regulations change 23 laws and
establish 31 unfair sales practices, so implementing them and ensuring
that businesses are compliant will be a major piece of work. What
guidance did the Department issue to businesses about the regulations,
and when was it sent to them? The commencement date of the instruments
is 26 May.
It would be useful to know how much time businesses have been given to
put them into
practice.
Thirdly,
given that the regulations affect 23 UK laws, it is important that
business is able to understand the difference between its current
position and the proposed position, and that business can feel
comfortable and be assured by the Minister that no gold-plating has
occurred. Can the Minister give us that assurance? In the European
Parliament my Conservative colleague, Malcolm Harbour, has played an
invaluable role with his colleagues in the European deliberations on
the directive. He tells me that there is a potential danger that some
of the key concepts in the directive are being implemented in a
different way. In France, Belgium and Denmark they have so far failed
to implement the directive appropriately. Given that that could present
serious problems for UK companies in those markets, what
representations have the Government made to ensure that the directive
is enforced right across the European
Union?
Turning to the
two statutory instruments before us, while the principles of the draft
Consumer Protection from Unfair Trading Regulations are sound, there
are a couple of practical points on which I hope the Minister will be
able to help me, not least with regard to misleading or copycat
packaging of consumer goods. The leading trade body in that area, the
British Brands Group, has pointed out that the Government decided not
to give civil enforcement powers to companies, despite the huge threat
that copycat packaging can represent, to both individual products and
brands. Instead, only the OFT and trading standards will have civil
powers to tackle copycat and misleading packaging. I have just been at
a conference where innovation internationally was at the top of the
agenda, and in a commercial world that absence of powers could leave UK
businesses vulnerable.
Can the Minister tell us why
the Government have decided to exclude private civil enforcement when a
number of our fellow, competing nations within the European Union,
including Ireland, have adopted it? Why have the UK Government chosen
not to? What assurances can he give that the UK enforcement regime will
be prompt, effective and firm? Businesses will be concerned about that,
as will consumers because they will be the end victims in any deceit.
Will the OFT and trading standards have the resources needed to police
this area in terms of manpower and money? Will the Minister confirm
that he is prepared to review the effectiveness of the regulations on
misleading packaging earlier than in three years if the Government are
able to provide evidence that the new regime is not working? That is an
important principle and I know that everyone in industry would like
some clarification about
it.
The other side of
the coin is the consumers point of view and I have received a
number of representations on that. I think that it would be helpful for
us and for those who will be affected by the regulations to understand
the Governments position. Given the breadth of the statutory
instrument, with 31 practices being outlawed, it is clear that there
will be many circumstances where unfair trading practices have been
employed that contravene the regulations, but which do not contravene
existing law. That may well be the case with aggressive selling
tactics.
The Consumers
Association and others are concerned that a number of consumers will
find themselves bound by what we might call unfair contracts. Why have
the Government decided that consumers do not need protection in the
form of a right to terminate such a contract? I can see the dangers,
but it would be helpful to understand the thinking of the Government on
what is an important part of consumer
law.
Turning
to the draft Business Protection from Misleading Marketing Regulations
2008, I will focus on part 4 on enforcement and in particular the
powers under regulation 23. During the consultation, the question arose
as to whether powers to enter a premises, with or without a warrant,
should be exercisable and, if so, in what circumstances. As I
understand it, a majority of businesses in the Government consultation
thought that there was a danger that the powers could be misused for
what we might loosely describe as fishing expeditions. What assurance
can the Minister give that the authorities will not engage in such
activity?
It is right
to go after the rogue trader, but we must ensure that legitimate
businesses are also dealt with in a fair and balanced way. Given that
and the conduct of the OFT with regard to Morrisons, where a fine
ensued, it is important that legitimate businesses understand the
circumstances in which these quite substantial regulations will be
enforced and how they should prepare for
them.
As I have said,
it is not my intention to seek to divide the Committee on the general
principle because the principle of not trading unfairly is good and it
needs to be put carefully into law. However, there are practical issues
from the point of view of businesses and consumers. I would welcome the
Ministers response to the small number of points that I have
chosen to
raise.
4.43
pm
Lorely
Burt (Solihull) (LD): May I add my welcome to you,
Mr. Hood? This legislation must be extremely welcome from
the perspective of the consumer and from that of all traders who wish
to trade fairly.
From the
draft Consumer Protection from Unfair Trading Regulations 2008, I have
learnt about practices that I have never heard of, such as buzz
marketing where the trader pretends to be something other than the
trader in order to get the word out. An important principle that
advertisers and traders should bear in mind when selling to consumers
is that the overall presentation should not deceive, even if it is
factually correct in context. I am also glad to see the inclusion of
advertorials, where it is not clear that the trader has paid for the
copy. Of late, I have seen in my local newspaper a number of obviously
paid-for articles that have not included any indication that they were
advertorials. That could have ramifications for all forms of attempts
to reach people, including in political
situations.
The use of
unbelievable prices is another important issue. I recently introduced a
Westminster Hall debate on will writing and described people who
offered to visit peoples homes to write a will for
£19.50, which bore no relation to the eventual price. Therefore,
the measure is very welcome in that regard.
On advertising to children, the
directive says that there should be no direct exhortation to children
to buy or to persuade their parents to buy. As a parent, I am
intrigued to know how that will work in practice, given the increasing
subtlety of marketing methods to children used on TV and many other
media.
I am
particularly pleased to see a tightening-up on pressure selling. This
is a scourge, particularly for some of the more elderly and vulnerable
people in our society. I would be delighted to see the pressure to
buyfrom salesmen who will not leave until people sign, or who
say that it must be done today or that time is limitedoutlawed
further. However, I would endorse the comment of the hon. Member for
Hertford and StortfordI think we have been reading the same
briefsabout the lack of a right to terminate a contract that
has been entered into as a result of unfair trading practices.
According to the EU directive, there was a facility for that to have
been incorporated as part of the legislation. We would both be
interested to know why the Government did not take the step of allowing
people who have been tricked into an unfair contract to regard that
contract as
terminated.
On
the Business Protection from Misleading Marketing Regulations 2008, the
idea of criminalisation of misleading adverts or indications is
extremely welcome, as is the definition of in any way, including in
presentation, deceiving or being likely to deceive the trader.
Deception includes fake reviews and hyping a business on online forums
by posting endorsements, which has many implications for e-commerce.
Copycat packaging exploits consumers and companies alike. Again, to
bring up the points made by the British Brands Group, why cannot
companies take civil action to protect their brands? Its concern is
that the OFT might not treat the matter with the same urgency as a
company whose livelihood is at stake because it is being bled
financially by such unfair practices. Why do the Government not
consider that it would be possible for civil action to be taken in that
way?
Finally, although
the regulations are very welcome, as with many parts of Government
legislation, implementation will be the key. I share the concern of the
hon. Member for Hertford and Stortford about communicating their
contents and requirements to small businesses. If such businesses are
already trading fairly, then 99 times out of 100 I am sure that they
will not be in difficulty. However, as some of the terms were new to
me, it should be made as easy as possible for small businesses to
understand the workings, both as a trader and potentially as a
victim.
4.49
pm
Mr.
Thomas:
Let me try to reply to the questions put by the
hon. Members for Hertford and Stortford and for Solihull. I welcome the
collaboration with the CBI, the Consumers Association and a range of
other organisations that we have consulted about the detail of the
regulations and the process of helping businesses to understand their
implications. If the hon. Gentleman will forgive me, I shall not follow
him down the showers and briefs route, but I thank him for the
compliments.
On timing, we
wanted to introduce the regulations by 6 April, but I became aware that
we were having difficulty in completing the preparations for
implementation. We have had to review a considerable amount of existing
legislation to see where the unfair commercial practices directive, for
example, will have an impact. That took longer than we would have
liked. After discussion with business representatives, to give them a
full three months to prepare, I judged that on balance it was better to
delay the implementation of the regulations slightly until 26 May,
rather than attempt to rush for 6 April. I hope that that explains the
slight
delay.
Mr.
Prisk:
In that consideration, did the Minister reflect on
the opportunity to look at October, to achieve the common commencement
date principle, or did something prevent him from going that far
out?
Mr.
Thomas:
Given that we had gone a substantial way towards
doing all the necessary work to introduce the regulations, although the
commencement dates are important we felt that rather than wait until 1
October and delay giving consumers those additional rights, only a
short gap was required. After discussion with businesses, we felt that
we should delay until 26 May rather than for a much longer
period.
The hon.
Gentleman asked me about the guidance and time scales. If he wants
chapter and verse on exactly when interim guidance was published and
consultation arrangements took place, I am happy to provide that level
of detail. I can assure him that there has been considerable contact
with a range of stakeholders within the business community and among
consumer groups, to look at how to transpose the directive into UK law
and to consider the consequences. We have also looked at how to make
businesses aware of the consequences of the legislation. Indeed, there
is currently interim guidance on the Department website about some of
the newer concepts mentioned by the hon. Member for Solihull, and what
those concepts might mean in practice for
business.
Mr.
Prisk:
The Minister is quite right: I do not need chapter
and verse. But when was the guidance for businesses on the final
directive
issued?
Mr.
Thomas:
I will have to come back to the hon. Gentleman on
that date, but interim guidance has been on the website for some time.
I am happy to give him the specific detail after the
Committee.
The hon.
Gentleman acknowledged the contribution of a Member of the European
Parliament in advising him. I acknowledge the considerable work of
Arlene McCarthy, who currently chairs the Committee on Internal Market
and Consumer Protection in the European Parliament, and who has been
extremely helpful. In that context, the hon. Gentleman raised the issue
of different interpretations in different member states. I do not know
whether his European colleague was able to update him, but the
Commission has now established a working group of member states to
ensure that there is consistent interpretation across
Europeexactly the hon. Gentlemans pointso that
we can give certainty not only to the business community but to UK
consumers wanting to shop overseas. We will obviously engage at
appropriate levels with that working group.
The OFT and
trading standards have considerable resources to police such matters.
We review the OFTs resources directly through the Department
for Business,
Enterprise and Regulatory Reform. The funding for trading standards
comes, in part, through funding streams from the Department for
Communities and Local Government. The hon. Gentleman might be aware of
the additional funds that we have given for Scambuster pilots and
tackling illegal
lending.
Mr.
Prisk:
Just so that the Committee can understand, what is
the net addition? The Minister has mentioned the various elements to
the addition. What is the total financial addition to the
resources?
Mr.
Thomas:
My right hon. Friend the Secretary of State for
Business, Enterprise and Regulatory Reform announced an additional
£7.5 million for the roll-out of the Scambuster pilots across
the whole UK, for
example.
The hon.
Gentleman also asked about the issue raised by the British Brands
Group. It asked me in particular to bring forward the review date from
three years to one year. I have decided to bring it forward, not to one
yearbecause the regulations will still be bedding down after 12
monthsbut to two years, with a proper review at that
point.
We did not take
advantage of the provision on consumers withdrawing from contracts
because of a concern about unintended consequences. That is a
point that both hon. Members raised. We have asked the Law Commission to
consider the potential impacts of that provision and whether other work
would be needed. I reserve my right to bring forward measures that
would implement such a provision once the Law Commission has done its
work.
Lastly, on the
worry of the hon. Member for Hertford and Stortford about fishing
expeditions, the regulations contain a requirement that documents can
only be seized if there is reasonable cause to suspect that a breach of
the regulations has been committed. With that, I hope that I have given
sufficient reassurance to hon. Members on the Opposition Benches and,
indeed, on my own
side.
Question put
and agreed to.
Resolved,
That
the Committee has considered the draft Business Protection from
Misleading Marketing Regulations
2008.
Resolved
,
That
the Committee has considered the draft Consumer Protection from Unfair
Trading Regulations 2008.[Mr.
Thomas.]
Committee
rose at one minute to Five
oclock.