Consumer Rights Bill

Written evidence submitted by the Confederation of British Industry (CR 09)

1. The CBI welcomes the opportunity to submit written evidence to the Bill Committee on the Consumer Rights Bill. The CBI is the UK's leading business organisation, speaking for some 240,000 businesses that together employ around a third of the private sector workforce. Overall, the rationale behind the majority of the Bill is sensible. The Department for Business (BIS) has stated that there are currently 12 pieces of legislation covering consumer rights and 60 covering the investigatory powers of consumer enforcement bodies. Law Commission studies have also shown that consumer law is confusing and unclear in the UK. On that basis, the Consumer Rights Bill could provide much needed clarity.

2. During the pre-legislative scrutiny stage, the CBI provided written and oral evidence to the BIS Select Committee. In most cases, our main concern was to ensure that proposed changes that were on the whole sensible were drafted with enough detail to prevent unintended consequences. Across most areas, we feel this is moving in the right direction and welcome the additional scrutiny that will be provided by the Bill Committee.

3. However, there is one area that remains a major concern for business. The CBI supports the objective of delivering effective redress for those that have suffered loss through anti-competitive practices but opposes the introduction of an opt-out scheme for competition private actions. It is the wrong measure at the wrong time and is an anomaly in a Bill that otherwise rationalises and updates existing legislation. It would be a substantial and detrimental change from the existing legal approach, introducing an opt-out scheme into UK law for the first time.

The Government’s proposal gold plates EU recommendations without a clear mandate

4. The introduction of an opt-out scheme is a clear example of "gold plating" of EU legislation, with the UK position running counter to the position taken by the European Commission. In a series of common, non-binding principles for collective redress published in June 2013, the Commission states that "collective redress should, as a general rule, be based on the opt-in principle". The Commission goes on to state that "any exception to this principle, by law or by court orders should be duly justified by reasons of sound administrative justice". The Government introduced their proposal before the Commission recommendation and we do not feel they have presented strong reasons to justify their decision to move away from the opt-in principle.

5. While there have been efforts in the past to explore the use of an opt-out scheme, these have been blocked due to the lack of a compelling case. Under the previous Government, the Ministry of Justice rejected a general opt-out and proposals for an opt-out scheme included in the Financial Services Bill were also removed.

6. The current proposal was announced following a consultation launched in April 2012. Even here, there was no clear mandate for the changes that are now in the Bill. Opinions were split down the middle with opposition coming not only from UK business groups, but also European and international groups such as the International Chamber of Commerce, the US Chamber of Commerce, the European Justice Forum and the Federation of German Industries. Given the upheaval and uncertainty that will be caused by such a fundamental change to the UK legal system, it seems inappropriate to proceed when there is not even a majority in support of the measure.

An opt-out scheme could have a negative impact on the UK economy

7. The introduction of an opt-out scheme risks introducing a US style litigation culture to the UK that will increase costs without delivering meaningful benefits. A recent study [1] , found that the United States has the highest liability costs as a percentage of GDP in the world, at 1.66%. The UK already has the third highest costs at 1.05%, well ahead of the Eurozone at 0.63% and between 2008-2011 litigation costs grew by 47%. The Government’s opt-out proposal runs the risk of further exacerbating this problem and widening the gap to other international competitors.

8. A recent survey [2] in the UK also found that 57% of respondents felt the UK Government should not change the civil legal system to be more like the American system compared to only 16% who thought they should.

9. Aside from our serious concerns over the introduction of an opt-out scheme for competition private actions, we also believe it would be very hard to hold the line in the future and contain the use of opt-out actions solely to competition law. Once the principle has been breached, pressure will continue to grow to expand the use of opt-out which would only increase the move to a US style class action culture.

10. The debate around improving safeguards is also one that serves only to distract from the real problem. We oppose the introduction of an opt-out scheme as a whole and do not believe it is possible to strike the right balance on strong safeguards that will not erode over time. If safeguards are tightened significantly to prevent abuse, the scheme as a whole will be too restrictive to function effectively for consumers. But if they are loosened to allow an opt-out scheme to work, the risk that it will be open to abuse will be too high.

Alternative Dispute Resolution mechanisms provide a better route than an opt-out scheme

11. The CBI maintains that there are serious concerns over the introduction of an opt-out scheme and as a result, this should not be taken forward in legislation. We also strongly believe that once the principle of an opt-out scheme has been established in one area of consumer redress there is a real risk it will spread to others, while any proposed safeguards will erode over time.

12. Instead of introducing an opt-out scheme for competition private actions, the CBI has consistently argued that further use should be made of ADR mechanisms. These can provide a much more effective route to deliver redress, and can do so in ways that best suit the claimant i.e. cash payments, money off bills, discounts etc.

13. Positive work is already going on to promote ADR mechanisms. The CPR 21st Century Corporate ADR Pledge, established by the International Institute for Conflict Prevention and Resolution (CPR) and Centre for Effective Dispute Resolution (CEDR) is one such example. The pledge commits companies to resolving issues through ADR processes wherever appropriate. It is a good example of innovative work that is going on in this field, and exactly the kind of thing the Government should be encouraging rather than looking to introduce an opt-out scheme that will encourage the use of the much costlier legal route.

February 2014