Business, Innovation and Skills - Minutes of EvidenceHC 697

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Oral Evidence

Taken before the Business, Innovation and Skills Committee

on Tuesday 8 October 2013

Members present:

Mr Adrian Bailey (Chair)

Mr Brian Binley

Paul Blomfield

Katy Clark

Caroline Dinenage

Julie Elliott

Rebecca Harris

Ann McKechin

Mr Robin Walker

Nadhim Zahawi


Examination of Witnesses

Witnesses: Chris Warner, Lead Lawyer (Consumer Rights), Which?, David Hertzell, Law Commissioner, Law Commission, and Matthew Fell, Director for Competitive Markets, CBI, gave evidence.

Q1 Chair: Good morning. Can I thank you for agreeing to address the Committee and answer our questions? First of all, could you just introduce yourselves for voice transcription purposes? If we start with you, Matthew.

Matthew Fell: Good morning, I am Matthew Fell. I am Director of Competitive Markets at the CBI.

David Hertzell: Good morning. I am David Hertzell; I am the Commercial Law Commissioner.

Chris Warner: Good morning, I am Chris Warner, Lead Lawyer at Which?, the Consumer’s Association.

Q2 Chair: Thanks very much. Also, for the benefit both of the members of the Committee and any members of the public, I understand we have some of the Bill team sitting behind you. It may be that, if there is a matter of fact or information, the Committee will ask you questions as well, and I understand you are ready and prepared to respond to that. Before I open with the questions, can I just make it clear that some questions will be general, others will be specific to the organisation concerned? You do not all have to wax eloquently on all aspects of the general questions, only add or subtract as you feel appropriate, otherwise we could be here for a very long time.

With that, I will start with a fairly general question concerning the draft Bill and the context within European consumer rights legislation. As you will obviously be aware, there are in fact wider reforms to consumer law being brought in through the EU Consumer Rights Directive and the Alternative Dispute Resolution Directive. There are measures that might have been in the draft Bill that are going to be dealt with through the implementation of the European legislation. Do you think the omission of these from this Bill makes it better or worse, or should that be altered? David, you are smiling, so I will invite you to open the remarks.

David Hertzell: There is never a right time, is there? There is always something going on. It is very difficult. I think there comes a point where you have to take a decision to proceed, and I think it is the right time to proceed with this particular measure. Work has been going on for several years, and it has, I think, drawn together some of the best parts of European law and existing English law. Putting things into one place is of benefit both to businesses and to consumers. We can always wait for something to come from Europe, but at some point, I think, we have to proceed.

Q3 Chair: Would it be fair to summarise your position as saying that it is better to move with what we can now than wait for Europe to step in?

David Hertzell: I think so. In a sense, that was our experience with the recent Consumer Rights Directive: that it did not turn out to be anything quite like it was originally envisaged. If we had waited for that, we would have waited for something that did not actually come.

Q4 Chair: Have either of the other two speakers anything to dispute in that, or add or subtract?

Matthew Fell: I would agree with that position. In particular, in the areas that the Bill touches on around services and digital, there is a broad feeling that the time is right to make sure that consumer law keeps in step with how those areas of the economy have evolved, so it makes sense for a refresh.

Q5 Mr Binley: Mr Hertzell, are you saying that this is a way of bullying a sovereign Parliament into taking action when it need not perhaps take action?

David Hertzell: Bullying Parliament? No, I do not think it is bullying Parliament. I think it is just the right thing to do at this particular point in time.

Mr Binley: I am referring to the fear of the great beast, the EU.

David Hertzell: No, I do not think that that is a relevant driver. It is because you do not really know what is going to come from the EU.

Mr Binley: That was what I was about to say.

David Hertzell: It could be little, or it could be much. It is not that it is necessarily going to beat us, as such. We had an issue here where we were originally asked to look at this work, which was essentially that there was a mismatch between existing English traditional law and some European directives that had already been passed, and it was adding to business cost and consumer confusion to keep that situation. You can wait forever, but there has to be a point where-

Q6 Mr Binley: Therefore, in fact, for the purposes of this Committee’s work, we can remove that fear from our thinking, can we?

David Hertzell: I cannot really speak for the Europeans.

Mr Binley: You raised it.

Q7 Chair: Can I just continue, because I just want to mention an example of this. This is directed to Chris Warner: the Government introduced a ban on excessive card payment surcharges in April 2013, which effectively brought forward a provision of the European Consumer Rights Directive. Do you think the ban has been effective?

Chris Warner: We have been monitoring closely the implementation of the ban, and we have been engaging with companies to make sure they are aware of the rules. Many companies are bringing their surcharges into line, so to some extent it has. However, what we have noticed is that companies have engaged in different pricing practices, and have moved the goalposts, as it were. We are seeing more admin charges and more additional hidden charges. We therefore need to make sure that the rules that we implement through the Consumer Rights Bill are future-proofed to anticipate such changes going forward.

Q8 Chair: If I can just try to get you to expand on this a bit, what you are saying is, in effect, that it has not been that effective because the companies concerned have found other ways of levying charges. Is that a fair summary?

Chris Warner: In some cases, that is correct.

Q9 Chair: Could you give examples?

Chris Warner: In some of the ticketing industry, for example-

Chair: Sorry, what industry?

Chris Warner: In the ticketing and the travel industries, we have seen the occurrence of holiday charges or administrative charges or booking fees where previously we had card surcharges. To the extent they simply are rebranded, the card surcharges regs apply, but to the extent that they now capture a broader range of services, then the regs are not comprehensive enough.

Q10 Chair: Interesting. Do you think this legislation could prevent that?

Chris Warner: The provisions on the unfair terms legislation within the Consumer Rights Bill could go a long way to help prevent some of the hidden charges that we see. There is also legislation already in action-the Consumer Protection from Unfair Trading Regulations-which helps guard against hidden pricing as well and aids transparency. Working together, they can deliver a good outcome to consumers.

Q11 Chair: Can I just move on to Matthew Fell? Micro and new businesses are exempt from the relevant regulations. Is this important to businesses? Do you think they have benefited or not benefited, or what?

Matthew Fell: There is a broad point there. I think businesses of all sizes are different from consumers, and the legislation should recognise that.

Q12 Ann McKechin: If I can just turn to the question of goods: currently consumers are entitled to a repair or a replacement for a faulty good can gain further redress if the repair or replacement is not done without "significant inconvenience"-that is the phrase used-for the consumer goods, or within "a reasonable time", terms that BIS’s own impact assessment found to be "unclear in practice", but the draft Bill uses exactly the same terms in Clause 23(2). I would just be interested in your comments about whether the lack of definition of these terms is, in your opinions, still likely to cause the problems for consumers and businesses that have been identified by BIS. I do not know if David wants to go first on this particular point?

David Hertzell: It is one of those issues that are generic to this particular piece of legislation. The difficulty that we have with this is that this is a one­size­fits­all description of rights and responsibilities covering a huge range of different services, goods, etc, and at some point you do end up with phrases like that. They are required, because you are trying to cover the generality, but they are probably going to need some guidance or some kind of assistance to clarify them for the particular areas that they are seeking to cover.

Q13 Ann McKechin: Would that be based on case precedent of previous cases, or would this be guidance that you think would be provided by BIS or the agencies responsible for enforcement?

David Hertzell: An element of both, I think, to be frank.

Q14 Ann McKechin: You will forgive me-and I should declare an interest as a member of the Law Society of Scotland-but has there been any discussion with the Scottish Law Commission about any of these particular proposals?

David Hertzell: These were joint projects that we originally did with the Scottish Law Commission.

Q15 Ann McKechin: Thank you very much for that. Is there a risk that the Bill exacerbates existing uncertainty about exactly how and when consumers can move from Tier One to Tier Two remedies? I would be happy for anyone on the panel to answer, if they had any views.

Chris Warner: Yes. To answer your previous question as well, there can be more clarity introduced into the Bill to provide more certainty for both businesses and consumers. Generally, a lack of certainty, flexibility and a lack of clarity is not good for either side of a dispute.

Q16 Ann McKechin: Would you actually want that to be put on the face of the Bill, or would you be quite happy if there were pretty clear and precise guidelines issued by the Government along with it?

Chris Warner: There is a role for both. There is one example in the Bill where it is introducing the right to move to a Tier Two remedy after one failed repair or replacement, and that is a good example of where clarity on the face of the Bill works really well. It goes to the heart of one of the problems many consumers experience, in terms of a cycle of failed repairs and replacements. We have all been there, where the first repair does not work and does not solve the problem. It provides clarity and empowers consumers to engage with the business they are dealing with. Where you have got a slightly nebulous term it is much harder for consumers, and consumers tell us that it is harder to engage at that point.

In terms of moving from Tier One to Tier Two, I think there is scope to clarify that. In some circumstances, it is appropriate to move through very quickly. It will not always be appropriate to seek a repair, for example, where the failure has shown significant health and safety concerns, such as a laptop that has caught fire; as a consumer you are quite right to have lost faith in that. You don’t want to risk that again, and the Bill needs to clarify that you can move through there. Recognising the one­size­fits­all concerns, in today’s day and age the ability to repair-to obtain spare parts from all around the world-is very quick, and I think it is appropriate to put a long-stop date in there to help define significant inconvenience. Interestingly, a recent Which? survey of the public found that over 50% of consumers thought a trader should have no more than 14 days to effect a repair.

Q17 Ann McKechin: I suppose there would be a difference between a standard laptop and, for example, a bespoke, top-of-the-range car, where perhaps the parts may be more difficult to obtain within a 14-day period.

Chris Warner: That may be right, but we must not forget that most consumers are reasonable and most consumers will spend a long time choosing and making their purchasing decision, particularly for an expensive item like a car. They do not want to quickly move to a refund in those circumstances; they are willing to engage with the traders. What we are concerned about here is making sure that the backstop is appropriate, and that there is an appropriate lever to use to engage with the business. It is also worth remembering that the consumer who has a failed good is a captive customer, as it were, and the after-sales service is not exposed to the same competitive pressures as the initial sale.

Q18 Ann McKechin: Thank you very much for that. Can I just go on to the point about the fact that the Bill would allow businesses to make a deduction for use within six months of purchase if the goods have a proven second­hand value and an active second-hand market? Cars was, I think, one of the examples provided about that. However, with Internet sites such as eBay, surely such a market exists for just about every type of good these days, in a way it did not exist 10 years ago. I just wondered whether the panel feels that consumers are actually much less likely to obtain refunds for faulty goods when they reject them after a failed repair or replacement. Does anyone have any views?

Chris Warner: Yes, I can go again; apologies. Yes, one of our concerns about the section on remedies and faulty goods is this deduction for use. Again, in a recent Which? survey, a third told us that they should always get a full refund if the good is faulty. Nearly two­thirds said that you should be entitled to a full refund if the good fails in the first 12 months. The difficulty with deduction for use is that it is inherently uncertain how you calculate it, and the value ascribed to the good is very different from the consumer’s perspective and from the business’s perspective. The lack of clarity, again, results in disputes. We are also conscious that when the Law Committee consulted on the remedies for faulty goods back in 2009, businesses responded to say that they very rarely this right; with that in mind, there is actually a real benefit to actually removing it in total.

Q19 Ann McKechin: Perhaps I could turn to Matthew, as the business representative on the panel, as to what you or your members’ views are about this type of proposal.

Matthew Fell: I would just like to return to the earlier point as well, if I may: the overall thrust for greater clarity has to be the right thing. On your question of, "Do we need supplementary guidance in terms of interpretation, or do you allow that just to build up through case law?", I think it is insufficient to just rely on the case law-particularly at the outset-and guidance is particularly important, not least given David’s remarks about this being broadly speaking a one­size­fits­all approach that is applying to a hugely diverse range of goods and, indeed, services. I think you would just need to have something that gives you that sense of proportionality about what is the right response to a different set of circumstances. To take the motorcar example, I think you would want to move quite rapidly to a different set of conclusions if you had a faulty set of brakes on the vehicle or if there was a mass recall than you would if there was a faulty intermittent interior light, for example. When you just read through the proposals at the moment, you do not quite get that sort of reassurance that that common sense and proportionality is always there and is going to be applied. The guidance piece is particularly important there.

Nadhim Zahawi: Does that cover electronic goods? There is a new market in the purchasing of apps, in-app purchases and so on, and I know currently PayPal, for example, does not cover software-type downloads versus physical goods when it comes to disputes. Can you shed some light on that?

Chair: We are going to go into this area. Would it be better to raise it then?

Nadhim Zahawi: I can come back to it, sure.

Q20 Rebecca Harris: I am just thinking about the example of an expensive car purchase. You have paid a lot of money for your car; there is a faulty light now, six months down the line. I can see that they are now being offered the second-hand value as a remedy, rather than, for example, the rental value as the value that they would have had out of it. I can see a huge number of grievances if we are not careful. They will find that, through no fault of their own, they are at considerable financial loss, and when you do buy a new purchase like that you expect to have vast value; you particularly expect it to be perfect. There is a real risk there for real irritation of the consumer: they have had a minor defect for a very expensive item, and they could be greatly at loss for it.

Matthew Fell: For the avoidance of doubt, I would not be quibbling with that assertion whatsoever. If there is an ongoing inconvenience and irritant, if you paid the full amount for a high quality purchase, you would expect it to be working absolutely right. My point was more about where you escalate from a Tier One to a Tier Two remedy, how you do that and the speed at which you proceed to do that. That might be different dependent on the circumstances of the fault, and that was my proportionality point on common-sense, practical application.

David Hertzell: Can I just make a point on deduction for use? This is a big area. When we were originally asked to look at this sale of goods project, we were asked to try to simplify things; an element of swings and roundabouts would have to be applied to that. Some could argue that by introducing the fixed period of 30 days as the norm for the right to reject goods, we have reduced consumer rights by that recommendation. Part of the swings and roundabouts was to look at deduction for use; at the time, we came to the view that it was virtually impossible to come up with a methodology for calculating that: the depreciation curves of goods are so vastly different. Part of the swings and roundabouts would be that we would take that out of the equation, because it was simply too difficult to do it. At the time, there was a consensus view that that was the correct approach-including from the business community. Whether that is still the case, I do not know, but at the time it was.

Q21 Ann McKechin: On that final point, do the panel have views on any alternative mechanisms that could be more effective in deciding a fair deduction of value, given David’s comments that, of course, the depreciation curve in products is vastly different?

Chris Warner: It is a very difficult issue to tackle. It is clear that the value of use is not the same as the reduction in retail value or the current market value of the good. The new car is a perfect example of that: you lose a huge amount of value as soon as you drive it off the forecourt, even if you have only driven it a couple of miles. A new rule needs to be clear, simple and objective, and the idea within the Bill where there is no deduction in the first six months is good. I think consumers would like to see that strengthened to 12 months, and thereafter, if there is to be a deduction for use-and I question whether that is appropriate-then it needs to be based on the expected lifespan of the goods, rather than a retail value.

Q22 Mr Walker: Looking at the digital section of the Bill, it provides that freedom from minor defects should be an aspect of the quality of digital content. We have heard some evidence from the British Software Association that they do not think this is realistic when bugs and the fixes for bugs are a core part of the industry and what it does. Does the panel have a view on that?

Chris Warner: Yes. I have heard those arguments, and we do not have any particular concerns with how the provisions are laid out in the Bill. Consumers are very accepting of updates and patches within the software development world and when purchasing apps. I think that will necessarily form part of the satisfactory quality assessment. However, what they do expect is for software to work as they are told and as described when sold. In any given situation, you would be able to tell the difference between a faulty piece of software and one that is just evolving.

Q23 Mr Walker: There is a difference, obviously, between an evolving piece of software and a faulty piece of software, as you say. However, there is also a difference in the scale of some of the companies involved in the space: where you have small companies developing their software with a lot of feedback from consumers, they should not be stopped from doing that by a piece of consumer legislation that would perhaps advantage the bigger players in the industry. Do you not see that as a risk?

Chris Warner: Taking it to its logical degree then potentially, but I think it is overstated. That is not how consumers will engage with the digital space and the apps, and businesses should not base their development decisions on that extreme view of the consumer perspective.

Q24 Mr Walker: This looks to be something that could be dealt with through a relatively straightforward amendment that would just clarify exactly where it is supposed to be focused, rather than potentially discouraging people from working with their consumers to get fixes. Would the panel have a view on an amendment that would suggest "freedom from minor defects that impair functionality or usage", as opposed to that broader term of "freedom from minor defects"?

Matthew Fell: I think I would be open to that proposal.

Chair: Sorry, can you speak up?

Matthew Fell: Sorry. I think we would be open to that proposal. I would happy to take soundings on it and revert to the panel.

Mr Walker: Anything on that from a Which? perspective?

Chris Warner: That sounds sensible. I think that that is how the clause as currently drafted would be interpreted.

Q25 Mr Walker: If that would be brought in, it might give some additional clarity. More broadly, in terms of this issue of the number of smaller players in the sector, I was slightly surprised to read the argument about not having an exception for small and micro­businesses in this space. The argument appears to be that the consumer legislation will be seen as an advantage to the big players, and that therefore the small and micro­businesses will miss out if they are not part of this. Do you know if there is any evidence to support that?

Chris Warner: No; apologies.

Q26 Mr Walker: This is a space, obviously, in which there is a huge amount of competition and a very open market in which people are very easily able to compare different products, very able to get feedback very easily, particularly if you are shopping for apps: you can get feedback on how products are maintained and supported. It seems slightly surprising to me that this broad view has been taken that it would be a disadvantage to micro­businesses to be covered by the legislation, when in most other areas-and in most other areas of this Bill-we feel that there ought to be an exemption for small and micro­businesses.

Chris Warner: From the consumer’s perspective, when they are purchasing a product, a service or digital content, they are entitled to the same protections whether they are buying from a small or a large company. That is the policy view behind it, and I think that is absolutely right, but I have no evidence to offer in terms of the competitive advantage either way.

Matthew Fell: I would like to make a broader point, if I may, on digital. I do think that in digital, which is such a rapidly­moving area, you need to be quite careful how you hardwire into legislation judgements around quality. That is really important to reflect. The broad approach that you have just described, Mr Walker, would sort of pass the test, but if you are trying to make fixed judgements as to what looks like quality today, it could very rapidly outdated in only a short space of time.

Q27 Mr Walker: That is a very fair point. We have heard some evidence that the short lifespan of software on digital products, such as smartphones and televisions, means that consumers can be left with products that fail, as software is not updated and as manufacturers focus on the most recent models. Do you think there is scope to update the Bill to include lifespan as an aspect of the quality of digital content?

Chris Warner: Yes. It should be made clear that, when you are buying an electrical item or a smartphone or a computer that comes with preloaded software, the lifespan of that software is part of the durability test for the goods themselves. We have received anecdotal evidence that this issue does arise, where software ceases to be supported after a relatively short space of time. It has cropped up on Android phones in the past and people are now buying smart TVs with the expectation that the software that comes with it will be available for the duration of the lifetime of the TV. We can capture that as part of the durability test.

Q28 Mr Walker: The lifetime of a TV nowadays can be quite a long time. Technology can change quite a lot during the lifespan of a product.

Chris Warner: That is true, but then it comes down to the clarity of the marketing when selling the television in the first place.

Q29 Mr Walker: We have had some evidence from the British Retail Consortium that they are disappointed at the lack of European progress on consumer rights and online retail-digital retail in particular. We have been conducting a separate inquiry as a select committee into 21st­century retail, and we have heard quite a lot of evidence about the enormous export opportunities for British businesses in that space. Do you think defining the consumer rights in this way and using this Bill will actually provide a competitive advantage to the UK in retail overseas?

Matthew Fell: My sense, in answer to that, is that the UK is one of the most advanced online marketplaces, and we have the most advanced set of consumers in the UK in terms of their use of online. It ought to be possible to extend those strengths to be a competitive advantage and do more business overseas. If there are measures that will help to enable that through commonality of rule and approach, then that logic would suggest that would be a good point.

Q30 Mr Walker: Do you think this draft Bill, on balance, is a competitive advantage or a competitive disadvantage, in terms of the regulatory burden that it might impose?

Matthew Fell: I do not see this as being a regulatory disadvantage overall, in the digital space. There is a broader point about making sure that we have a regime for digital content that brings it into the 21st century and is fit for consumers. On balance, I would say that having an environment that is very well­trusted and where there is clarity around that would be a positive, rather than a negative.

Chris Warner: If I may just add to that, I think this Bill does introduce clarity in an area where clarity is significantly lacking at the moment; that is true both in the UK and across Europe as a whole. This is an opportunity for the UK to trailblaze, as it were, in this space. It is also in tune with the noises coming out of Europe and in other parts of the EU; it is all supportive in that sense.

Q31 Paul Blomfield: I wonder if I could explore the different approach taken to goods and services, at least in terms of initial redress. Where a consumer is given the right to require repeat performance of services, the Bill provides that it has to be within a reasonable time. Does that offer sufficient protection, or is the vagueness of "reasonable time" just going to create a basis for dispute?

Chris Warner: The comments I made earlier in relation to goods apply equally here. Clarity, where possible, should be encouraged; a clear timeframe would help resolve disputes and help empower consumers. People understand what is meant by a fixed deadline, rather than a reasonable period of time. One of the bugbears for consumers is trying to get the trader to come back, he is busy, and then you have to wait for a week, two weeks, three weeks until something that should have been done properly first time can be resolved. There is scope to introduce greater specificity and clarity.

Q32 Paul Blomfield: Are there any differing views from that?

Matthew Fell: On specifying timeframes for repeat performance on services, I do think this goes back to the issue of having a one-size-fits-all approach. Given the breadth and the range of services that are provided, you have a different acceptable timeframe, dependent on the nature of the service. There is an example cited in the BIS proposals around a catering firm failing to deliver at 6 pm rather than 10 pm for a surprise party. Clearly, if that happens, that has rather ruined the show, and I think that would be deemed unacceptable. It is quite easy to envisage a range of other services that, if they were delivered four hours late, that would be an inconvenience, but it would not be the same show-stopper as that example that I have just cited. Being any more specific around timeframes does have inherent difficulties with a one­size­fits­all approach.

Q33 Paul Blomfield: Whilst it has inherent difficulties, is there not a big frustration for consumers in relation to services that do not live up to expectations; precisely the one Chris describes, the difficulty of getting people to come back to sort it out? Should we not be looking for some way of tackling that frustration?

Matthew Fell: I agree that, where things have not happened as they should, getting them resolved promptly and well is really important.

Q34 Paul Blomfield: Does "reasonable time" actually give the consumer any more confidence that that is going to happen?

Matthew Fell: You have got a trade-off there. If you try to hardwire it, as I say, given the huge breadth of services that this is going to cover, I think you would be hard-pressed to pick an absolute timeframe that covered all the breadth of services. However, I would readily concede that there is a trade-off to be had here.

David Hertzell: This is really more of a drafting issue than a policy issue. I do not think there is any dissent from anybody about the policy that you are describing, but to put that into primary legislation when you are trying to cover the multiple series of services that you would be trying to cover is actually quite a hard thing to do.

Q35 Paul Blomfield: Do you think there would be an expectation that there should be supplementary guidance that looks at different sectors of service delivery?

David Hertzell: I think that is probably right, yes.

Chris Warner: It is worth adding that, where something has gone wrong, consumers are generally very willing to engage with the trader in most circumstances to try to fix it. Where there is a real intention from both parties to get the issue resolved then consumers are willing to wait the time that it takes. However, what is important here is that the law is creating a backstop to make sure that that is not unbounded. Nebulous terms can be interpreted very broadly, and it is very difficult for a consumer to argue that something is taking too long. Again, there is not the sharp incentive to focus on delivering the follow-up service quickly.

Q36 Paul Blomfield: I wonder if I can move onto a similar area that, again, the Bill provides in Clause 46(1), that a trader would be required to reduce the price to the consumer by an appropriate amount if the repeat performance is not possible, is not within a reasonable time, or does not deliver. Should the Bill-or, again, the accompanying guidance-actually provide more detail about what an appropriate amount would be? I know this takes us back onto similar territory.

David Hertzell: It is back to this deduction for use depreciation issue again. I do not see how the Bill can do that for everybody when you are trying to cover so many different things. It would have to be done by guidance or maybe in some instances by regulation.

Chris Warner: One thing the Bill could do to help increase clarity is to specify that that appropriate amount can be a full refund, and make that very clear on the face of the Bill. The general interpretation at the moment would be that it would always be a partial refund, but I think we can take the example that Matthew just referred to, the catering turning up at the end of the party. From the consumer’s perspective, they have got no value out of that service and they would be aggrieved at having to pay any portion, to be honest.

Q37 Paul Blomfield: I saw you nodding, David. Would there be agreement that at least the provision for a full refund as an option should be on the face of the Bill?

David Hertzell: I think it is implied, but it might help to clarify it, yes.

Chris Warner: In a similar vein, it would also be worth clarifying that in certain circumstances, you can go straight to a full refund without having to give the trader the chance to repair or replace the service, as it were: the much-maligned dangerous electrician who comes round and leaves your fuse box in such a dangerous state that you do not want to bring him back. The examples will be few and far between, but it has to cater for that, and again, the consumer should be able to short­circuit and get the appropriate-

Paul Blomfield: Short­circuit?

Chris Warner: No pun intended.

Paul Blomfield: Okay. Thanks very much.

Q38 Mr Binley: I want to carry on from where we left off in that last discussion. Can we be more precise: should the Bill provide for circumstances in which a consumer could move directly to a remedy of price reduction, rather than ask for a repeat performance of what had been bad service? That would be particularly important in the building industry, I would have thought. Should the Bill be firmed up in this way?

Matthew Fell: I would suggest that having that degree of flexibility would be a good thing, so that you do not have to go through a very prescriptive set of steps. The industry that you talk about-the building and construction industry-is a good example of that. If, for example, at the base of the wall there was a minor alteration or defect from the original specification, but one that posed no structural problems whatsoever, I think it would probably be inconvenient and disproportionate for both parties to demand a complete rebuild from ground zero for a whole building just to put that right. That common sense and flexible approach to move around in terms of the nature of the remedies would be a welcome step.

Q39 Mr Binley: Can I then move on, just very quickly, to proving that there had been a lack of skill and care? The television programme makers have a lot of fun with hiding cameras in lofts and cowboy builders come along and create problems, rather than solve them, it seems. Do you understand the question I am asking? Could you answer that?

Matthew Fell: I think, for this question of appropriate skill and care, being more specific than those principles is very difficult in hard legislation, given the breadth of issues covered. Again, I would point to a role for guidance in clarifying what that means and looks like in practice.

Q40 Mr Binley: That is my concern, because it seems to me that we are trying to create a catch-all policy, which is highly difficult with such a diverse level of service and product providers. It seems to me that there is a real problem here about applying a rule that covers all and catches all. My example of the small building and works sector is a particularly good example here. I am just concerned that we are not really helping in this respect when we are talking about slightly different definitions that are very difficult to come to a conclusion about. Is that a concern?

Matthew Fell: I think you would be hard-pressed to find anyone who would disagree with the overarching principle of this: that the trader must perform the service with reasonable care and skill.

Q41 Mr Binley: I just wonder how you put it into effect. My concern is that we are going to give lawyers a field day again, and this place is almost designed to do that, quite frankly. Are we doing that?

David Hertzell: We did not consult on services, so this is a bit of an off­the­cuff view, but this is an issue that is there in the law anyway. When you are looking at whether something was done at a reasonable standard, you would tend to look at the reasonable standard in that particular profession or industry, or whatever it is. It is an evidential issue; I am not sure how you can draft it in a Bill.

Q42 Mr Binley: But this is a slightly different phrase, "Where there has been a lack of reasonable skill and care". It is a new phrase, is it not? It is a different phrase, and I am fearful that it will be the phrase that the small claims courts and those sorts of people argue over for evermore. I think it is an immensely difficult one, and I think we are giving lawyers a field day-I repeat that. Is that a possibility?

Chris Warner: This issue of a liability standard within services is something that has been doing the rounds at a policy level for a little while. We are advocating aligning the liability threshold for goods where services delivered have to be of a satisfactory quality, and we think there is an opportunity here to introduce more clarity, but also give greater protection for consumers. I wonder whether that is something that the Committee might like to consider as an option. One of the key advantages of that is that it tackles the very point you are raising: how difficult it is for consumers to engage and to prove where there has been a lack of reasonable skill and care, and consumers do tell us that this is a key reason why they do not complain about services, or cannot get issues resolved. Now, spotting something of satisfactory quality is not always straightforward, but the average consumer has a handle on what that means. They are used to it with goods; they know whether what has been delivered is a good outcome or not, and again, it empowers consumers to engage with the trader and gets those discussions to happen and get resolved before going anywhere near court. That could encourage that.

Matthew Fell: If I may, the problem with that is that you are almost replacing one problem with another. You are then introducing a subjective judgement around satisfactory quality, and that could be very different in the eyes of the individuals who receive that service. For me, it would be better to try to attempt to measure a consistent set of inputs, because that is the service that is being provided, rather than putting the onus on a subjective judgement.

Q43 Mr Binley: We do have a bit of a problem here that perhaps we could look at and question a little more than we are doing. Might I ask a final question on this issue? Most small craft traders do not give quotes or quotations in written form. My gardener comes along and cuts my lawn; we agree a price, and if I want him to do extra work, he says, "That’s another 20 quid, Brian." That is how most of these sorts of contracts are made, at that sort of level. Does a definition of the kind you are making add to the problems in that respect, where no written contracts exist?

Chris Warner: I do not think so; I think it facilitates and encourages discussions between the parties. As I say, the vast majority of traders and consumers are keen to just get things working and get things done. This does not come into play for the vast majority of transactions, but the key thing to bear in mind is that when something does go wrong, it is about making sure there is an appropriate framework to enable the parties to navigate through that, and give the clarity to resolve things quickly and easily.

Q44 Mr Binley: So you are really saying that the lawyer is the last possible stop in this process, and that is how it will work. Are you saying that?

Chris Warner: I am saying that-

Mr Binley: Because, as a lawyer, you could answer me.

Chris Warner: No-one wants to go to court to resolve-

Mr Binley: Excellent. And will this help to stop that?

Chris Warner: It can do with the changes we are advocating, I think.

Chair: Are you finished, Brian? Thank you.

Q45 Mr Binley: No, I have got another question. I do apologise, panel. I think you hoped that you might have seen the last of me; I have been too voluble. Can I ask about unfair terms? The Bill provides that terms relating to price are exempt from being assessed for fairness if they are "transparent and prominent". That is Clause 67. I am not being clever; I am reading my brief. "Transparent" is defined as "plain, intelligible and legible", while "prominent" is defined by reference to the awareness of an "average consume". Are businesses and consumers likely to need further guidance about what "transparent and prominent" means in practice? I apologise for reading that, but it is rather complicated.

David Hertzell: I would hope not. This came from us; I would hope not. We were trying to put in select phrases that were relatively plain English and that would establish pretty simple concepts. The basic idea here is that if you wish to exempt something from being assessed for fairness, you need to make it pretty clear what that thing is to the other party, but to be fair to the businesses that has to be an objective test on the average consumer, because they do not necessarily know who they are talking to.

Q46 Chair: You were not asked, and I believe it has been defined, but perhaps it would help if you could tell us how you would define an average consumer, as well.

David Hertzell: It is a European definition, I think. It means somebody who is reasonably "knowledgeable and circumspect"-I think that is the phrase. It means a reasonable degree of awareness of what they are doing and appropriate to the particular circumstances in which they are doing it, so for a small item they are going to pay less attention than for a major purchase.

Q47 Mr Binley: So it is the European version of the man on the Clapham omnibus.

David Hertzell: Yes, I think so.

Chris Warner: However, it is worth noting that it is a higher threshold than the man on the Clapham omnibus. The European courts have imposed quite a stringent view of the average consumer. I worry that, in certain circumstances, I do not fall within that category of "average consumer", despite my knowledge of the rules and the law. I think we have to be quite wary of the impact that does have in practice.

Mr Binley: Sitting on the Council of Europe, I understand your point totally.

Matthew Fell: Your point about clarity on "prominent" is a good one. I do think that is something that should be looked at, because I was just thinking through scenarios of whether-particularly if you are transacting online, for example-"prominent" could seem very different if you are looking at it on a mobile phone, a tablet, or a widescreen PC monitor.

Q48 Mr Binley: Absolutely right. So we need more guidance on this?

Matthew Fell: I would agree with that, yes.

Q49 Mr Binley: Well, the Bill writers are sitting right behind you, and they are taking notes; let us hope that that will be useful. Can I just ask, as a supplementary, if there are circumstances in which a term could meet the definitions of transparent and prominent, but in reality be unlikely to be taken into account by the consumer at the time of purchase? If so, what risk is there to the consumer in that respect?

Chris Warner: I am pleased you have asked that question; I was just about to make a similar point. Prominence is very good, and in terms of guidance that will help, but you tend to know it when you see it, because we are talking about doing the right thing. Prominence does not take us all the way; just because you are told about something or something is disclosed to you upfront does not mean you take it into account. The risk of encouraging disclosure of information that consumers will not take into account is that those prices are both immune from competition and immune from regulation, and there is a potential regulatory gap there.

The unauthorised overdraft charges are a very good example of this case in point, if I may run through that. When you are opening a bank account, you are hit with an awful lot of information: lots of terms and conditions, lots of marketing information. The vast majority of consumers will open that bank account expecting to run it in credit; you will look at your interest rates and you will probably agree an authorised overdraft. You will not be taking fully into account the cost of having an authorised overdraft because, frankly, you do not expect to ever use it. You don’t take it into account, and therefore if and when it does become relevant in years to come, you then get caught out, and this information is kind of hidden in plain sight. It is that kind of information that we need to grapple with.

Mr Binley: Can I ask our clerks to underline that? Again and again, businesses-and, in fact, I have done the same-have been levied with high overdraft charges because it has gone over for a short time, when you did not really take that into account when you arranged the overdraft, quite frankly. Business after business is being hit with this. Now, we all know banks are the villains of our age-that seems to be the case-and they had not used to be, actually. When the bank manager was in the wardrobe, the whole thing was a happier situation. However, there is a real concern here, and we do need to take note of that and we do need to pass that real concern on to the Bill writers.

Chris Warner: It is also worth noting that it is not just bank accounts and unauthorised overdraft charges.

Mr Binley: No, I have just got a bee in my bonnet about them, that’s all.

Chris Warner: It happens across a whole range of sectors, and it is becoming increasingly relevant given the advent of price comparison websites, which have been a great boom for consumers: it encourages transparency and price competition, but what it is doing is making businesses compete for the headline price. The incentive is to move some of the price to other parts of the transaction, and we need to be able to tackle those things. We also need to take account of consumer behaviour as part of this: when you buy your mobile phone contract, you take account of the number of minutes and the amount of data and the number of text messages and so on, and the average consumer expects to stay within those limits. You do not take account of the out-of-bundle costs until it is too late, and we need to make sure that the regulators are empowered to tackle such charges where they are unfair. We are not saying that they are unfair per se, but we just need to make sure that the OFT and the enforcers are not in a situation where things can go unchallenged.

Mr Binley: But the average small businessman, when he goes for £10,000, is not in a situation to make the judgements that you are talking about, about the differential in where the hidden cost might be. We do need to take note of that.

David Hertzell: Could I just add a bit to that?

Mr Binley: Sorry?

David Hertzell: Could I just add a little bit to that, as well?

Mr Binley: Yes, of course.

David Hertzell: It is quite a tough policy decision to make here, actually. There is a balance. Everything Chris has said is right, and we all know that when we buy things, we probably never even look at those standard terms because life is too short, really. In a sense, even putting something in as prominent may not actually achieve the result that you want. On the other hand, businesses do need a degree of certainty that when they have given somebody a contract, they have tried to make it as clear and possible, done everything they can and acted perfectly reasonably, that there is some certainty around that contract, particularly in terms of price and the main subject matter of the contract. There is quite a complex balancing issue for me.

Q50 Mr Walker: I just wanted to pick up on this point about the terms and conditions. As a non­lawyer, my reading of the "prominent" thing would be that most businesses would then say, "If we stick it in our terms and conditions, that is sufficiently prominent to deal with it."

David Hertzell: No.

Mr Walker: No?

David Hertzell: One way of looking at it is that, supposing the word processor would no longer work-a blessing that would be, in many ways-and you had to write your contract and the standard terms out with a quill pen, those terms that you would choose to right with a quill pen would be the ones that need to be prominent. They are the ones that matter.

Q51 Mr Walker: A lot of online businesses, particularly, would say they have the check-box where you have to say "I have read the terms and conditions". That would presumably be sufficiently prominent. They are not necessarily able to provide information in any other way.

David Hertzell: Prominent first of all has to be relating to main subject matter and price, and it has to be right up front. These are the things that really count. If you think about when you buy insurance, for example, they give you this "key facts" thing. That is the idea; you are told the three or four key things that you need to know about this. All those other 70/80 clauses in seven-point font do not count.

Q52 Mr Walker: The point I was going to make is: is part of the problem not the sheer length and complexity nowadays of most terms and conditions that are currently set out? Something, perhaps, that this bill ought to be setting out to do is to simplify those and make it clear what ought to be spelled out to customers and what need not.

David Hertzell: Exactly, yes.

Q53 Caroline Dinenage: Just on that point: it may seem a silly question, but do you think that there should be some kind of onus on companies not only to spell out in quite simple terms what is included, but some of the key things that are not included that might be in a comparable product? You have just mentioned insurance companies: if it is a form of travel insurance, there are just certain things that a layman would probably expect from a travel insurance cover without looking through the terms and conditions, but, going back to it, they then discover that they have not got coverage. Should there be any onus to point out any kind of major omissions?

David Hertzell: Yes, there should, because what you are talking about there is the subject matter of what you have bought. If it does not cover something and you could reasonably expect that it normally would cover it, then that needs to be prominent. You need to be pretty clear that that is not included; otherwise, if it is tucked away further down, it could be assessed for fairness.

Chair: Can I bring in Nadhim Zahawi now on a question to Chris Warner on a particularly arcane area?

Q54 Nadhim Zahawi: It certainly is. Chris, your evidence argues for the inclusion of a new indicative unfair term in the grey list, schedule two, in relation to unilateral changes by the trader during minimum or fixed-term contracts. The Bill proposes additions to the grey list in relation to the trader’s discretion to alter the price or the subject matter of a contract after the contract has been entered into. Why do you believe that the proposed additions in the Bill will not go far enough?

Chris Warner: Thank you very much.

Chair: Do you want to repeat it?

Chris Warner: No, that is fine. We see, time and time again, contracts for the long­term provision of a service varying after a consumer has made a commitment and has become tied into a contract. There are some examples I can bring to bear to emphasise this, but if a consumer has made the commitment to be tied into a contract for one or two years or bought a product that is for a fixed term, like an insurance product or a mortgage, then you do not expect-while you are tied in, or during that period-for the bargain to significantly change. We need to recognise that, and at the moment the grey list does not provide adequate protection, in my view. For those who are not as familiar with the grey list as myself, let me just explain what the grey list does: it sets out an indicative list of terms that are presumed to be unfair, and it also sets out a number of exemptions, which are caveats from that list of unfair terms. If you fall within the exemption, it is not presumed to be unfair.

Chair: There are not 50 shades of grey, I presume.

Chris Warner: The problem that brings is that the interpretation by many is that if you fall within the exemption it is presumed to be fair, which is not how the law is intended to be read. I apologise; it is quite technical. If you fall within the exemption, it is just not presumed to be unfair, and the exemptions in the grey list are not drafted articulately enough to represent the different types of contract and the different types of scenario that a consumer will engage with. Introducing a new grey list terms brings clarity that, when a consumer has entered into a fixed-term contract and-they are tied in-or where the contract lasts for a fixed duration, then the presumption is that the bargain should not be changing significantly during the term of that contract, just to avoid any doubt.

The Bank of Ireland mortgage rate from earlier this year is quite a good example of this, where people have entered into a tracker mortgage for 25 years. They expected it to track base rate for the whole duration of the term of the mortgage, but after 10 or 15 years for many people, the "X" in the "base rate plus X" was changed due to small print in the contract into a fundamentally different product from what people had previously perceived it to be. What you had there was that halfway through the term, consumers were faced with a significant rise in their mortgage repayments. Because the consumers were given notice and because they had the ability to exit, it fell within one of the exemptions, so it was presumed to be a fair term. Actually, the reality for those consumers was that it was not fair on them at all. For some, they were not able to get an alternative product, so they could not switch out of the mortgage even though technically they were allowed to. Even if you could switch out of the mortgage, you could not get a comparable deal. Either way, you were faced with a significant rise in your costs, whether you stayed or went. It was Hobson’s choice, and that is exactly the kind of hidden surprise in small print that the Unfair Terms legislation should be seeking to address. Introducing a clear presumption of unfairness for changes in such circumstances would be of significant advantage to consumers, and also help create the right incentives for companies to trade fairly.

Q55 Nadhim Zahawi: Thank you very much, Chris; that was a very elegant way of explaining it. I certainly have a number of cases in my surgery of the Bank of Ireland type of situation. Moving on to enhanced consumer measures, the Government impact assessment on enhanced consumer measures identified a gap in the remedies that enforcers can secure for consumers who have suffered detriment through a breach of consumer law. The Government estimates that the budget for Trading Standards is likely to fall by 20% to 30% by 2015, which the Government says will result in fewer inspections. In these circumstances, should the proposed remedies be extended to private enforcers as well?

Chris Warner: If I may be so bold to jump in again?

Nadhim Zahawi: Absolutely, and if yes, what safeguards would need to be put in place if the proposed remedies were extended to private enforcers?

Chris Warner: We welcome the civil remedies regime proposed as part of the Bill, and we think it is important that consumers have access to redress and an efficient means of redress. That can form part of the enforcement process, but we, like yourself, have recognised that there is a big drain on public resources, so it should not be limited to just those public enforcers. There are private enforcers, such as Which?, who would be able to share the burden on the public purse. In terms of the safeguards that are necessary, it is worth noting that we have been designated through legislation being a body suitable to bring enforcement action already, so hoops have been jumped through already. I do not think additional safeguards are necessary, save that-speaking from our own perspective-we have a responsibility to our brand to use these powers appropriately, wisely and proportionately, and in line with the Regulator’s Code and so on. I therefore think the safeguards are already in place.

Q56 Chair: Just briefly pursing this a little bit more: Which? is generally perceived as an acceptable private enforcer. Do you not think that there might be a case for regulations on what would comprise a private enforcer, and what other the bodies might carry this out?

Chris Warner: When the enforcement regime was first introduced in the Enterprise Act, there was a process for a number of bodies to apply. There is no reason why Citizens Advice could not apply to be a designated enforcer, for example. As I mentioned, the hoops and safeguards have already been jumped through. There are also safeguards and interpretation of the Regulator’s Code and regulatory good practice that any enforcer would adhere to.

Q57 Rebecca Harris: Do you envisage that these changes should change the way enforcers operate, in terms of the fact that-whether it is Trading Standards or private-we might find in future that enforcers feel pressurised to prosecute more cases, given the greater emphasis on redress, when they have perhaps previously focused more on compliance from traders? Thinking forward, do you think there might be a financial incentive to increase the number of prosecutions for enforcers if there is a wider field?

Chris Warner: There is an obvious tension for Trading Standards to consider whether they seek redress in a particular case or move on and tackle the next problem, as it were, which will need to be resolved. That is part of the rationale for saying that private enforcers should be able to share the burden. However, I think it is also relevant to see this as part of a wider range of reforms concerning redress more generally. At the outset we mentioned the ADR directive being implemented over the next year or two, and I think there is scope for seeing this as part of a wider implementation of consumer redress, with the implementation of alternative dispute resolution processes to alleviate some of that burden on the public purse and the public enforcers.

However, what is important to note is that individual redress is not always going to be possible or appropriate. If we think back to the bank charges case, where thousands upon thousands of consumers were seeking redress through the courts and through the Financial Ombudsman Service, there is a good argument to say that redress obtained collectively-by the public enforcer or a private enforcer-would be a more efficient use of the courts system, a more efficient use of the regime, and a reduced burden on consumers and businesses as well. It is part of the whole package and needs to be seen together.

David Hertzell: Just to reinforce what Chris has said there: redress was not part of our consultation as such, but when we were consulting on other issues, I think it was quite clear that the methods of enforcement and how that is done are probably more important to consumers and to businesses than what it is you are trying to enforce. It is a very big topic that does need quite a lot of careful thought, particularly in times of financial austerity.

Matthew Fell: I would say that if there is an unintended consequence buried in here that shifts the emphasis from compliance to redress, that would be a negative step and one that should be ironed out.

Q58 Rebecca Harris: Do you see that as a real risk?

Matthew Fell: If people have identified that risk, I think putting in a check and balance to make sure you have done the compliance bit first would be a good addition to the Bill.

Q59 Rebecca Harris: Has anyone else got anything else on that, before I move on?

Chris Warner: Compliance and redress are two aspects that both need to be considered. Compliance in itself is good and should be encouraged, but for the consumers who have suffered from a breach, what they often want is things put right. You cannot lose sight of one over the other; it is getting the balance right that’s important.

Q60 Rebecca Harris: My other question is about familiarisation costs. The Government’s impact assessment said that, "Only those firms that think they may be at risk of infringing current regulations would need to become familiar" with the enhanced consumer remedies, so therefore only non­compliant businesses should actually incur familiarisation costs. Now, are you confident that that is a realistic assessment of the situation? It could be seen as quite optimistic in terms of being comfortable.

David Hertzell: From the work we did with the British Retail Consortium-who can probably answer for themselves-there is an ongoing training requirement in most larger retail businesses anyway, and so there would be an updating process if the law changed. It would just be part of that familiarisation process, so I do not think there is a huge extra burden from doing that. There was a perceived burden in the current legislation that there was conflict and uncertainty and confusion, so there was a cost from that itself. However, I think it would be unreal to expect there to be no familiarisation cost if the law were to change, because by natural prudence people would think they ought to know what the new law said and to train their staff for it. It must be there, although I suspect it is a curve that then flattens out as time goes on.

Matthew Fell: I would expect that, with the entirety of the Bill-of which this enhanced consumer redress is a part-most organisations would roll out that refreshed training staff awareness programme in the way that David has described, and this would be a component part of it. It would be difficult, then, to say what proportion or element of that relates to this particular part of the bill, but in total it will require a familiarisation cost associated with an updated training programme.

Chris Warner: If I may just add one comment to that: what the Bill is seeking to do is, to a large extent, codify best practice and what good businesses are already doing. It does not represent a significant departure from their current practices, if at all, for good businesses. Prudence says that they should be taking the Bill into account and reviewing, but the familiarisation costs, I think, would be limited. What this Bill drives at is something that is important for both consumers and good businesses, in the sense that any familiarisation costs will be outweighed by removing the economic incentive to cheat from the bad businesses and removing the competitive advantage that bad businesses get from continually breaching the rules to the disadvantage of the good business.

Q61 Caroline Dinenage: I would like to talk about private actions. Do you feel that that making private actions-and, particularly, collective actions-more accessible will lead to a significant increase in unmeritorious claims?

Matthew Fell: I think private actions is our single biggest area of concern in the whole Bill. If the broader exam question is, "Have we got the balance right between ensuring proper consumer redress on the one hand and not imposing undue burdens on business on the other", I think our reading would be that without the private actions part, the Bill achieves that balance. We think private actions tips the answer to "no", it does not strike that right balance. It is important to know that this would be the first example of introducing opt-out actions to the UK, so it is a significant step to take, and whilst the Government in its proposals says that it does not want to echo US-style class actions and introduce those to the UK, there are a number of features of the US system that are inherent in these proposals, including the use of opt-out, distributing of surplus claims-

Q62 Chair: Can you just elaborate on these opt-out provisions?

Matthew Fell: Yes: at the moment, we have private actions that can be conducted on an opt-in basis, where individuals have to state that they wish to be part of a claim. The fundamental difference for an opt-out approach is that anybody can be introduced and brought as part of a claim even without their knowledge, so it significantly enhances the pool, if you like. There are three concerns that are worthwhile pointing to in this. The first is that this Committee hears a lot, I am sure, about gold-plating of Brussels regulation. Only in June of this year, the European Commission concluded that collective redress should as a general rule be based on the opt-in principle, so this would be a clear example of the UK going above and beyond Brussels and Europe.

On litigation costs, it is no surprise to learn that the US has the highest litigation costs in the world, at something like 1.6% of GDP. That is only 0.6% in the Eurozone at the moment, but already the UK is heading in the wrong direction, we feel, approaching a 50% increase in litigation costs between 2008 and 2011. We feel this would accelerate it in this direction. The final point I would make on this is that there seems to be no clear mandate for the proposals: in the original consultation responses, the BIS summary of that says that roughly 40% were in favour of the proposals, 40% were against, and 20% had no opinion or thought that an entirely different approach should be pursued. For such a fundamental change to be introduced into the UK, for us, would require a clearer mandate than has currently been set out.

Chris Warner: I beg to differ. There is a wider question here about whether we think it is a good idea for consumers to have access to redress when things have gone wrong. The whole Bill is aimed at empowering consumers. Part of an empowered consumer is they are confident that when things go wrong they will be put right. Collective redress has a role to play in that. As I mentioned earlier, there are times when it is more efficient to have a single action than multiple actions in the courts. Competition action, which is what this Bill is talking about, is looking at cartel behaviour and breaches of competition law. In those circumstances, it is entirely appropriate that a consumer should be entitled to redress. For the vast majority of those cases, the individual redress for a consumer is relatively low and does not merit going to the time and expense of what is a very complicated case to bring before the courts. Parliament has already acknowledged that there is a need for a collective regime for competition actions; it has been on the statute book for a number of years now. We are a designated representative body under that existing regime and we tried to bring a case a few years ago in relation to JJB, where there was a pricefixing cartel amongst retailers and manufacturers of replica football shirts. We estimated there were about two million people who had bought shirts that had been overpriced due to the cartel. Individually, they were owed about £20 in terms of redress, but there was a £40 million benefit to the cartelists and it is only right that consumers have access to the money they have been overcharged.

In terms of "will we have a USstyle system", to some extent this is scaremongering. There are a number of safeguards in the proposals. We are far removed from the excesses of the US system. The cases will be heard by a specialist tribunal, not a jury. We do not have the opportunity to have treble damages. It is just about seeking redress, not three times the redress. We do not have damagesbased agreements for these types of claims. The Bill explicitly excludes those, which means that it is not all about the lawyers getting the money; it is focused on consumers getting redress. It is also worth noting that we have optout regimes in a number of other European countries without any of the perceived concerns or excesses of the US system. I can quote Spain, Portugal, Poland and Norway, who all have examples of optout systems. Canada and Australia, further afield, have optout systems without the excesses, but what they do deliver is redress for consumers in circumstances where it is not economical or suitable for them to get redress on an individual basis.

Q63 Caroline Dinenage: David, do you have any thoughts on this?

David Hertzell: We did not consult on this, so I had better stay in Matthew’s 20%.

Q64 Caroline Dinenage: Finally, Chris, you have already partly answered this, the Bill provides that the terms of a proposed collective settlement must be just and reasonable in order to be approved by the Competition Appeal Tribunal that you have mentioned. Is the draft Bill sufficiently robust to ensure collective settlements are just and reasonable?

Chris Warner: No. It is not quite enough and we have proposed a number of small changes. Let me just explain why. We are very supportive of the use of alternative dispute resolution for settlement negotiations but, inevitably, some of those negotiations will only happen once proceedings are underfoot and once court proceedings have started. In those circumstances, the costs regime of litigation comes into play and it is important to bear those in mind.

In terms of agreeing a fair and just settlement, it is very difficult for the representative to know what is a fair and just settlement. The cartelists are privy to all the relevant information and there is very limited public information available to the representative. What that means is there is an incentive created by the costs regime whereby the representative knows that if they do not accept an offer that later turns out to be fair, they will be penalised in terms of costs and the defendant’s costs, if they continue litigation, which means the representatives like to play safe. The economically rational defendant will seek to maximise the outcome of their litigation and, knowing this, will be incentivised to make a low offer, knowing that there is an incentive for the representative to accept it, to play it safe. They also know it will be difficult to counteract that due to the information asymmetry. What we are proposing is that absolutely the settlement should be fair and reasonable, it should be certified by the CAT, but the party making the offer should be required to prove that that is fair and reasonable rather than it being a joint basis.

Q65 Caroline Dinenage: Okay, thank you. Any other comments on that?

David Hertzell: It is a litigation risk, which Chris is accurately describing.

Q66 Ann McKechin: A couple of points, Chris, about the issue of class actions. Whilst I think many people will be sympathetic to the idea of a consumerled campaign class action by Which? or another voluntary organisation, I think people might be a bit more concerned about the way in which, for example, PIP claims are now being dealt with, where people are phoned up constantly and asked to become part of a compensation claim and people skim a percentage of the fee off, which is not really of any value to the consumer. You have mentioned a variety of other nation states within the European Union that have collective action schemes, but to be frank, all of these are based on a continental legal system and not on a common law system, which you find in North America and the UK, so the way in which actions are raised is quite different. I would suggest to you it is not a like-for-like comparison. How do you prevent people who are keen to see a moneymaking opportunity using a class action approach as a way to try to drum up business, rather than genuinely looking after the consumer interest? We do have a problem at the moment with PIP claims and people phoning people up constantly and they could very easily just put the claim in themselves without incurring any cost. In effect, they just take a fee off it.

Chris Warner: In response to those questions, Australia and Canada are much more aligned in terms of legal system than us-

Ann McKechin: Yes, I would agree.

Chris Warner: -and those systems work without the excesses of the US. As currently drafted, the Bill builds in a number of safeguards that will prevent exactly that kind of concern. There is a certification process overseen by the CAT whereby the representative will have to prove that it is appropriate for them to bring the case and to do so on the optout basis. With the ‘loser pays’ principle that is inherent within the UK legal regime, which is not inherent within the US regime, that will have a significant chilling effect on any unmeritorious claims and I just do not see claims getting off the ground to any real extent with the safeguards that are anticipated with the Bill.

Chair: That concludes our questions. Can I thank you for your assistance and just reiterate what I have said to other panellists on conclusion of our questioning: if you feel, in retrospect, that you would like to add or even subtract from something that you have said to us today, do feel free to write in and tell us. Similarly, if we feel that there is a question that we should have asked you but did not and would be grateful for a reply, we will write to you and would be grateful for a response. That was very helpful indeed. Thank you for your assistance. I will now call the next panel.

Examination of Witnesses

Witnesses: Paul Downhill, Chairman, Consumer Policy Advisory Group, British Retail Consortium, Sue Edwards, Partnership Intelligence Manager, Citizens Advice, and Mike Cherry, National Policy Chairman, Federation of Small Businesses, gave evidence.

Q67 Chair: Good morning and thank you for agreeing to answer our questions. Could I just start by inviting you, for voice transcription purposes, to introduce yourselves, starting with you, Paul?

Paul Downhill: I am Paul Downhill. I am the Consumer Affairs Manager for Home Retail Group, which is better known by its brands of Argos, Homebase and Habitat. I am here because I am the Chairman of the Consumer Policy Advisory Group at British Retail Consortium.

Sue Edwards: I am Sue Edwards. I am the Partnership Intelligence Manager at Citizens Advice, which is the national charity of Citizens Advice Bureaux in England and Wales.

Mike Cherry: Mike Cherry, the National Policy Chairman at the Federation of Small Businesses, representing around 200,000 small and micro-businesses in the UK.

Q68 Chair: Thank you. I will just repeat what I said to the other panel. Some of the questions will be specific; others will be general. If I ask you a general question, do not feel that you all have to answer if you have nothing to add to what the speaker previously has said.

I will just start with a question about goods and the provisions in clause 21 of the Bill, where there is a fixed period of 30 days in which a consumer may reject faulty goods. What the Bill does not do is make an exception where it is reasonable for a consumer to purchase a good beyond the 30 days time period, but only, if you like, uses it later-for instance, a Christmas present bought in October in anticipation of Christmas. The Law Commission recommended that there should be an exception made for cases like that. What is your opinion?

Paul Downhill: We welcome the drive of the legislation to provide clarity for retailers. It is really important that, as retailers, our staff understand what customers’ rights are. To see the 30 days set quite in stone is helpful to us, because if you start to introduce exemptions from that and a reasonableness test there is a question around how much is included in that and what circumstances would arise. There is a question around competitive positioning. Argos, for example always has a policy at Christmas whereby we do extend customers’ rights beyond Christmas Day, accepting that there will be gifts bought, so that is a matter that is addressed by policy. To put it into statute would deal with that issue, but there are a whole load of other circumstances that might be drawn into that. For example, customers who buy items at the end of a season-buy a lawnmower in October but not use it until April or May the next year-which means there is a significant amount of time between the purchase and the item being maybe discovered as having a fault, which would be very difficult for us to deal with. We welcome the clarity of keeping it a very simple provision.

Q69 Chair: Are there any other opinions?

Mike Cherry: We welcome the consolidation and the simplification that this brings in. We do not see that there should be exemptions on this. As Paul has very rightly said, most normal traders would make that exemption in their own business to either position themselves or just to behave properly.

Q70 Chair: I just want to clarify something with Paul. My interpretation of the BRC’s original position was that it was not necessary because this was considered to be part of, if you like, good practice of reputable traders, but my understanding is that you think it is a good provision and there should not be exceptions. Is that correct?

Paul Downhill: The 30day period of time drives clarity, so we are very happy with the idea that the acceptance period is defined in law. That is a good outcome. To then add exemptions to that to make it more ambiguous again would be a problem.

Q71 Chair: Is that view shared by you, Mike?

Mike Cherry: It is, Chairman. As I said, we welcome the consolidation, we welcome the simplification this brings. We do not feel that it is necessary for there to be exemptions to this 30day period.

Q72 Mr Binley: This is one example of many where the changes will impact upon very small businesses and very small businesses are not the best sorts of people, because they are concentrating solely on a whole range of demands upon them, from being the lawyer of the company to being the salesman of the company to being the marketer, to being the finance director. It is all rolled into one man, who perhaps has an apprentice or a couple of apprentices and a couple of people working for them. I am really concerned about the need for communication of what is happening in this consolidation. I am concerned that small business managers and owners really do have the information presented to them in a way that will explain what is happening in this welcomed consolidation. Can I ask whether you feel the Government is doing enough at this moment in that respect?

Mike Cherry: We have some real concerns over this. You only have to look at the estimated cost impact assessment, for instance, and our question really is: has enough thought been given to all those businesses (a) that are going to have to change all their contract terms on the back of invoices or however they define them; (b), as you have very rightly pointed out, it is often the smallest and micro-businesses and sole traders who are the single person responsible in that business and it is going to take a lot of time for them to get to know the different changes in here. We have "satisfactory" as against "of merchantable quality", for instance, and things like that. There is therefore going to be a time delay and I would suggest that the impact assessment severely underestimates the actual cost and particularly the administrative time and understanding this is going to take before businesses particularly-let alone consumers-understand that the law that we have all been used to for some considerable time has changed and is then worked into practice.

Q73 Chair: Could I just come back to you? To me-and tell me if this is wrong-that would contradict, to a certain extent, your position taken previously that you are in favour of this 30 days.

Mike Cherry: As we have said, we welcome the consolidation and the simplification this brings. It brings a lot of different bits of law together in one place and that is to be welcomed, but it will take time for businesses, in particular, to understand those changes and to work to them. Consumers are able to go to somewhere for good advice. As we have heard from the previous session, lawyers are very expensive and small businesses very often avoid them like the plague.

Q74 Chair: Given your concerns on the cost outlined in the impact assessment-which I accept you think is an underestimate-do you not think the benefits of having consolidated legislation may offset that, even in financial terms in the long term?

Mike Cherry: In financial terms there is a possibility that might happen, but if we are seeking clarification of the current mismatch in legislation then we need to be bringing it together and making it easier going forwards. The overriding need overrides the cost here that has been underestimated, in our opinion.

Q75 Chair: Just before I move on, coming back to my initial question, you do not feel there is a need for exceptions, but do you think there is a need for guidance setting out circumstances where there is a presumed exception to the 30day period?

Sue Edwards: From our perspective, we welcome the simplification of the law to 30 days; that is simple for consumers to remember. We think that, obviously, there are some circumstances-as Paul has suggested-where it would be unreasonable to be very strict about the 30 days and perhaps nonstatutory guidance could address that. It could be easily updated without the need to go back to Parliament to change the law, but also it would be publicly available, so consumers and traders could refer to it.

Chair: Katy was going to ask about the impact assessment, but we have probably gone through that. Is there anything else on that you want to ask? Do not feel that you have to.

Q76 Mr Binley: I think Paul wanted to come in on the overall guidance; I am not talking specific guidance or specific issues.

Paul Downhill: Sorry, yes, I was going to pick up on the question of the Government doing enough to support small businesses. The British Retail Consortium is a broad church, so there are members like ourselves, big business, but we also have to represent the interests of small business. One of the things I would say in response to "is the Government doing enough" is you only have to look at the Enterprise and Regulatory Reform Act, which took effect on 1 October, which broadens the scope of the primary authority to include small businesses through trade associations. Businesses that have a common approach to compliance can access the primary authority principle and, therefore, that is one way of businesses accessing the resources that Trading Standards have deployed to them to help them understand the legal requirements and comply. More than that, if there is assured advice given to the business that has a statutory footing, so it helps everyone understand the interpretation of the legislation and the application of that. It is early days. We do not know what that looks like in practical terms for trade associations, but there are a lot of pilots going on and a lot of work to focus on what that will look like practically, for small businesses to have access to that wealth of information and, therefore, drive compliance.

Q77 Katy Clark: I have been listening to what you have been saying and it seems to me that what you seem to be saying is that it is not so much the cost that this will lead businesses to have in financial terms, which the Government put at £2.8 million. You may disagree with that and, if you do, we would want to know why you disagree and what you think the real cost would be. However, it seems to me that what you are saying is that it is more the bureaucracy involved and the change that is going to be difficult specifically for small business. Is that fair? Is it the £2.8 million that you think is unfair or is it the change that is difficult for a business to deal with?

Mike Cherry: To try to answer your question, they are one and the same, because the one thing that we always underestimate is the administrative cost of doing something, so the time taken. There is a cost associated with that and very often it takes the owner of the small business, in particular, away from being able to get on with doing their business. We highlight this time and time again in bad regulation. Therefore, to bring simplification into it is welcome, but the impact assessments invariably grossly underestimate the cost that is going to be incurred by the business in the time, in particular, and not the pure cost of compliance.

Q78 Katy Clark: Have you done any work at any point to quantify what you think the real cost is in financial terms?

Mike Cherry: No, we have not.

Q79 Paul Blomfield: I was exploring with the first panel the different approaches in relation to goods and services and redress. Paul, in your evidence to us you said that you regret the Government was not able to fully align the approach to remedies for services with remedies for goods. I can see the case from the consumer point of view. What benefits do you think there would have been through a closer alignment from a business perspective?

Paul Downhill: It drives the simplification. Goods and services are not the same, but clearly where there are similarities in the solutions to problems that customers approach, then clearly the more aligned the approaches are the simpler it is to train it out to staff and to set policies that deal with those. We have an interesting issue in the DIY sector where obviously you have contracts where there are services and goods rolled into one-the supply of kitchens and bathrooms-and that is an area where clarity and compatibility between the two requirements would obviously be a good outcome for us.

Paul Blomfield: That specific one about mixed contracts is one that my colleague, Ann, was going to explore.

Q80 Ann McKechin: Yes. On this issue, you mentioned about kitchens and bathrooms. I suppose another case would be someone installing a central heating boiler. You have suggested the Bill should try to expressly address these types of contracts. Do any of you have any particular views of how the Bill could be altered to reflect these types of contracts? I see Sue is shaking her head: what is your own view, Sue?

Sue Edwards: I agree it can be confusing for consumers to work out what their rights are when having a kitchen fitted and the oven does not work or where it is not fitted correctly, for example. It would be beneficial if people’s rights in relation to the faulty goods or the faulty services could be the same and we would support a way forward to address this, but we do not have a view as to how it could be done. We would be quite happy to work with Paul and Mike to do that.

Q81 Ann McKechin: Paul, does your own membership have any particular views of what might be the best way to resolve this problem?

Paul Downhill: It is a good question. Obviously, we have not come up with a proposal for a part of the statute that would deal with it. It is really looking at the outcomes of when things go wrong and the potential for that and trying to find a solution that avoids, for example, the appliance that is delivered as part of the kitchen fails, one repair is carried out and that fails: can the customer reject the whole kitchen? Obviously, that is disproportionate, so it is about looking at maybe the remedies and making sure there is proportionality continued through that process. Whether that is achieved through the statute, I am not a lawyer, so obviously I have looked at the statute and can draw from that what I think is appropriate and there are some good things in there. For example, there is not a shortterm right to reject in relation to mixed contracts.

Q82 Ann McKechin: As we mentioned in the earlier panel, we talked quite a bit about guidelines and how things are defined. From your point of view and your membership and from the consumers’ view that Sue is representing, are clearer guidelines on that type of scenario what you would expect?

Paul Downhill: I would suggest that is a good way forward. We are talking about kitchens and, in DIY, the way of dealing with kitchens is, because of the amount of money involved, the big players-Argos, Homebase, B&Q-use organisations such as the Furniture Ombudsman, so we do not take final payment until the customer is happy; they have an alternative dispute resolution built into the contract. In those scenarios we have already spotted there is a problem and a complexity, so we use services like that to deliver certainty and customer satisfaction. The guidance, therefore, would be maybe pointing to that as a good way forward. Where it might need to have some thought is the simpler contracts. For example, if you buy a bulb from Halfords and the man goes out and fits it in your car, how do you address that? That feels like a very simple scenario, so maybe does not need guidance, but there are going to be some grey areas in the middle between the kitchen and the simple "here is an item and I can fit it for you" type scenario. Guidance is welcome to drive out those uncertainties.

Q83 Ann McKechin: A point has been made earlier about the impact assessment, and my colleague, Katy Clarke, talked about the cost to businesses. How likely are we to see these costs passed on to consumers, if we are going to have different mechanisms to deal with resolutions?

Paul Downhill: From our point of view, it is a wait-and-see question. We accept that the estimates that go into impact assessments are trying to put a number against something where we do not know what is going to happen. It is difficult to know whether this has a major impact or whether it is something that becomes business as usual very quickly. Big retailers maybe have more scope to pass costs on to other people-for example, the supply chain, the suppliers of goods to manufacturers-but we cannot exclude the possibility that some of the costs will have to be passed on to consumers in higher prices. From a competitive point of view, that is not a good way forward, because obviously customers are what pay my wages, so if we do something that is against the interests of consumers, they will vote with their feet. As I say, it is a wait-and-see question. Maybe six months of letting this bed in and seeing what the costs do look like and whether there is a rise in the cost of returns because customers are accessing their rights in a different way, but I cannot give you a definitive yes/no answer. It is a wait-and-see-type answer.

Mike Cherry: It is very much wait and see. Small businesses are struggling at the moment to pass on increased costs, from the evidence we have, certainly in certain sectors and you cannot pass on your time. That is a finite demand on the business and it is almost lost; it is not recoverable.

Q84 Ann McKechin: Would you agree that this new approach about further clarity would be of assistance to everyone?

Mike Cherry: Further clarity is always helpful and I will throw something in here, if I may, as we are talking about clarity. We are carrying out quite a significant piece of work on small businesses as consumers and this needs to be recognised as we go forwards. Small businesses, micro-businesses in particular, are very often consumers in exactly the same way as individuals are. The one thing that needs to be recognised is that we do not get the same protection, as a small or micro-business, as consumers do. We would ask for that to be extended or certainly to be looked at to be extended to cover at least micro-businesses, if not small and micro-businesses.

Q85 Nadhim Zahawi: This question is to Paul and Mike. The Bill provides that terms relating to price are exempt from being assessed for fairness if they are transparent and prominent. How difficult would your members find it to meet this test?

Mike Cherry: Most businesses would always try to make their prices transparent to anybody who wanted to know about them or find out about them. We would definitely be asking for some guidance about how you make it prominent and what the definition of "prominent" is in practice. As you heard in the earlier session, you have the difference between iPads, iPhones and other digital gadgets these days. You also have websites and the word "prominent" itself is subjective by its nature.

Paul Downhill: I would agree with Mike’s first answer, that basically good retailers want to be transparent and clear to customers, so we strive to give the information in a transparent and prominent way. The challenge for us is around multichannel retailing, where offering goods through a number of routes for fulfilment does mean that sometimes costs are likely to be added, for example, a delivery charge. That is the challenge that we face into: making sure that those add-ons are prominent and transparent. We strive very hard to do that, so we believe that we have a solution that works.

From the point of view of other members, it is difficult to speak on behalf of every business model. Being a multichannel retailer myself, I can see the challenges that the internet guys face into, the high street guys face into and there is no one size fits all.

From the point of view of prominence, there is plenty of other material out there-the Advertising Standards, the CAP Code, the price guidance that BIS has published on prominence-and information that gives us a really good steer as to where that is pitched. Compliance with those guidance and practices would be a good starting place, for those are prominent and transparent. If you have not complied with those, then maybe the question of transparency and prominence could be asked. There is stuff already out there that people can refer to, to give a steer on this.

Q86 Nadhim Zahawi: Clause 71 requires that a written term of a consumer contract or notice is transparent, and if a term is especially onerous or unusual the trader must ensure it is drawn particularly to the consumer’s attention. Does this place an undue burden on business, do you think?

Paul Downhill: A burden; I would not say an undue burden, because again there is stuff out there that helps us signpost what is potentially unusual and onerous. For example, in the Consumer Protection from Unfair Trading Regulations it talks about professional diligence and what that looks like in relation to your sector, so there is a good steer there as to what you should be doing if you are in that sector. That helps us to understand perhaps more with what is an unusual contract term.

If you are doing something that is completely out of kilter with the rest of the marketplace, then that feels like that is an unusual term. Again, coming back to multichannel retailing and the online space, there are ways of dealing with contractual issues that are different from what you would do in a high street scenario, because of the lack of immediacy of the contract. If those are common practices across the sector and consumers are happy with those and the regulators are happy with those, then those are not going to be unusual. It is when you start blending in odd clauses and maybe if those then become onerous because they put an undue burden on the consumer, that is the point where this test would kick in. Most retailer members of the BRC would step forward and say, "We know what the guidance looks like from the point of view of the Unfair Commercial Practices Directive; we know what the ASA abide by, so if our terms are consistent with those signposts would we ever be using an unusual or onerous term?" Probably not. There are people who probably do and they would never sit around the table at the BRC or come to a group like this to discuss the way forward. They would be out there and, therefore, maybe it is a job for the regulators to address that.

Mike Cherry: I am not going to add anything to what Paul has already has said. He has covered the points I would wish to make.

Q87 Mr Binley: I have been an advocate for some time of excluding micro new businesses from certain regulations for a period of time, on the basis that many of them work in a local marketplace and the local marketplace can be, quite frankly, the best regulator available within the business sector. I just wonder if this is the sort of regulation that we can use to do what the Germans do and release new micro/small businesses for a period of time from regulations, whether you thought this was one of those regulations that we might do that with.

Mike Cherry: I have a suspicion that that would possibly add greater confusion into the marketplace. As an organisation, we are not happy with exclusions. We prefer regulation to be right first time and to think small first. If the regulators took that on board, we would move an awful lot further forward. I come back to the opening comment I made: to consolidate, to simplify, to clarify, to put it in plain English and to give adequate guidance is incredibly helpful to businesses who are often no different from consumers, particularly at that micro end. That is where I would rest that particular case.

Paul Downhill: I would concur with that, that maybe not regulating in a particular way is the solution to this. The solution is around enforcement, how the enforcement is delivered. We have seen moves to incorporate the growth duty in the way that enforcers operate; we have seen the Regulators’ Code reviewed. There are prime examples where it is not about what the legislation says, it is about how it is enforced and, when appropriate, sanctions are imposed. In the case of the growth duty, when they see exactly the tensions you have understood, sometimes a business needs to grow into that space where they can deliver full compliance. Minor misdemeanours can be forgiven, but once that growth has been attained and the business has a foothold into the market, then better practice can be driven forward.

Q88 Caroline Dinenage: The details of possible enhanced consumer measures are not included in the draft Bill to retain flexibility for courts, public enforcers and traders. Would you prefer to see details included and, if so, would this be in legislation or in nonstatutory guidance?

Sue Edwards: We very much welcome clause 81, because it gives greater flexibility and we are very supportive of these new powers for enforcers, because it is really important that consumers do not lose out and can access redress when traders misbehave and break the law. It also means that traders do not benefit from bad practice and consumers gain. We are already seeing some evidence about the impact of redress for PPI. Consumers have been able to use it in other ways to get the economy going. There was a press release from the Society of Motor Manufacturers and Traders last week, which said just that: people are buying new cars because they are getting large amounts of compensation from missold PPI.

We know that the Bill does not contain details and we understand that the reason for that is so that there is flexibility in the system and to put the detail and guidance in is something that we would support.

Mike Cherry: I would suggest that any action needs to be proportionate, particularly where it is a small or micro-business. Uncertainty is not good, so some clarification around that to help businesses in particular, I would suggest, needs to be brought in.

Sue has mentioned PPI and again it does come back to this business as consumers, because with PPI consumers have had full redress. On interest rate swaps we are still waiting for virtually any redress for the business community.

Paul Downhill: We await with interest how the UK Government addresses the ADR proposals. Alternative dispute resolution might be an area that might see some fresh thinking to crack some of the issues that arise in relation to consumer redress. As we said earlier, for businesses, customers are our lifeblood. Why would we not want to give them redress in the cases where there has been a misdemeanour? It is making sure that is delivered in a proportionate and ordered way. There are a number of things that are coming through the pipeline that might help both businesses and consumers to achieve that common objective.

Q89 Caroline Dinenage: Do you think that the safeguards in the draft Bill in relation to the proposed enhanced consumer measures-for example, that the power to enter premises is subject to two days’ notice-offer sufficient protection for small and microbusinesses?

Mike Cherry: A very simple word: yes, I think that does give some clarity. It is proportionate. You can always argue that it needs to be more and I think that certainly enforcers need to respect the issue where the owner may not be available within that 48hour time period and be flexible in how they support the business in compliance. As long as that is understood and taken into account, we have no problem with that twoday period.

Paul Downhill: The BRC broadly supports the proposal. It is an interesting debate around what different types of retail business want from the regulator, because there is a view amongst some retailers that we do not mind them coming in on a spot check because it helps us to drive good practice within our stores and make sure our managers are doing what they are supposed to. The conclusion we reach is that the way it is worded currently is very helpful, because one of the exemptions is that a business can opt out of having notice before an inspection. If a business says, "We do not want the administrative burden" or, "We do not want to not have that spot check, because we think it makes our systems work better", then obviously that is a route that the business can take. How that is delivered, I guess the suggestion is again that is a role for the primary authority to play in coordinating inspections, which they already have through inspection plans. It is not as if the idea of regulators having to think about how they intervene in the businesses is a new thing. That has already been there, from a primary authority point of view, with inspection plans, so it would just form part of the preflight check that the authority has to do before they make an intervention.

Clearly, a lot of businesses have said they welcome it, for exactly the reasons that Mike has said: that if you do not have the right man there on the day it is a waste of time for everybody. What we would welcome is some clarity around whether it is two days’ notice or whether it is an obligation to make an appointment, because if it is around the right people and the right resources being available, to say, "We are going to come sometime over the next few days" is not as helpful as knowing exactly when the regulators are going to pay a visit, so those resources can be available. We do not think that compromises consumer protection, because if there is evidence of a serious or immediate breach, then the regulators can intervene. They do not have to make an appointment if they believe that there is something going on that they need to deal with, so again the safeguards in the statute are absolutely perfect. They allow that flexibility for a much better evolved relationship between the business and the enforcement community.

Q90 Katy Clark: You will have heard the previous panel being asked about the optout collective actions, which are being proposed. Are these types of actions something that you support and do you think the detail in the legislation is correct?

Sue Edwards: Yes, we are very supportive of this particular proposal, but we would like to see it applied to more than just competition law. We would like to see it applied to all types of consumer issues. One of the things that we quite like about the proposals for the competition law is that there is a real focus on trying to get things solved at an early stage and not causing a lot of time costs and trying to escalate things always to court. We did some research last year and 94% of consumers who took part in our survey told us that they had complained and attempted or tried to get a problem put right. For those consumers, access to collective redress could be very useful. We would want to make sure that if collective redress was more widely applied it did not encourage ambulancechasing, so it would be maybe only limited people who could take this type of action and there would have to be real emphasis on trying to settle before court to keep the costs down for everybody.

Mike Cherry: We are broadly in favour of collective actions, unlike the earlier panel, where I think you heard the CBI say that they were against. We are in favour because it should, providing the right checks and balances are in place, enable quick, cheaper and easier access to redress. Certainly from the business side as well, when you are looking at businesses as consumers, in particular, perhaps, that has some significant benefits to our members.

Paul Downhill: I am going to be the party pooper and say that if you read the BRC submission, we have great anxiety over the proposals in relation to competition cases. The way it is structured is not how we would like to see it structured, with an optin and, perhaps more importantly, a regulatorled approach. Clearly, if there has been a breach of competition law that has been proven through the courts, that is the point where we should engage with a collective redress mechanism rather than it being something that could be led by consumer groups or the consumers themselves when joined up through a legal joint action, to avoid the concerns about an Americanstyle system. The flag post is clear that the European Commission thinks that the way that we would support is the way to go, in the documents that have been published as proposals at early stages from the European Commission around how collective redress should work and highlights those as the way forward. Unfortunately, I am the one person on the panel who says we are not sure that this is the right way to go.

Chair: Thank you. We will give that further consideration, given the range of opinions there. That concludes our line of questioning, but I will repeat what I said to the previous panel: if you feel there is any further information you would like to give us, please do so. Similarly, if we feel there is a question we should have asked but did not, we will do so and would be grateful for your response. Thank you very much for agreeing to attend today.

Prepared 20th December 2013