Business, Innovation and SkillsWritten evidence submitted by the Federation of Small Businesses

The Federation of Small Businesses (FSB) is the UK’s leading business organisation representing the self employed and those who run their own business. The FSB has around 200,000 members with many in the retail, services and construction sectors. We therefore envisage the Bill will impact on a large proportion of our members.

In general whilst we welcome the Bill we would call on the Department for Business, Innovation and Skills to invest heavily in a communications programme setting out a clear step by step guide for small business in dealing with consumer rights. Whilst large retailers will be monitoring the Bill closely, the vast majority of small businesses will not have the resources to do so. Even though we can help reach our members, this still represents only a fraction of the number of businesses that will be affected by changes.

Our response to the draft Bill is detailed below.

Consumer Contracts for Goods, Digital Content and Services

The FSB welcomes the clarity of the draft Bill in relation to consumer contracts for goods and services. Consumer legislation already covers contracts for goods and services and we do not anticipate that the changes will affect how our members do business most of the time.

In considering goods, it is our view that the majority of our members in the retail sector will go beyond the scope of the current legislation either in the interests of customer satisfaction or because they are unaware of their existing rights and obligations. Given this we believe the 30 day time limit in which consumers can reject a faulty good and imposing a limit of 1 repair or 1 replacement before a consumer can insist on some money back will not impact heavily on our members. Similarly applying this to all contract types should add clarity and simplicity to the draft Bill. Some businesses may be affected by the six month period within which businesses cannot deduct from the refund where they can currently can, but we do welcome exceptions in the draft Bill where deductions can be made if a clear second-hand market exists. This is an important safeguard for retailers of high value goods that depreciate quickly in value.

With regards to services, we know that most tradesmen for example do not make use of written contracts. Since verbal agreements are currently binding—albeit with burden of proof making this difficult to prove in practice—again, we do not anticipate our members being affected by changes to current legislation most of the time. Although there is a new requirement to introduce statutory remedies, most responsible businesses would offer this as a matter of course and to safeguard their reputation.

We would request a clear step by step guide for small businesses and tradesmen providing goods and services to consumers, so they are aware of consumer rights as well as their own rights and obligations under the Bill. This will add greater clarity to those businesses who will struggle to keep up with changes to current legislation.

Although we see the rationale for including digital content in the draft Bill, in practice we are unsure how this will work. Although consumers of digital content should be protected by consumer legislation, digital content is subject to changes and updates in a way that goods are not. Although it is important that consumers of digital content get what they pay for, sometimes, for example in relation to software, updates can change digital content to make it better and more relevant for the consumer, but also very different from its original description. We do not believe many of our members operate in this sector at the moment, but it is likely an increasing number will do and we would not want to make it harder for people to set up a business providing digital content.

Unfair Contract Terms

The FSB agrees that contract terms must be fair to consumers as well as businesses. Smaller businesses however are unlikely to have legal departments and many will struggle to pay for solicitors.

We would therefore request Government guidance specifically tailored to small and micro businesses regarding contract terms so they can ensure contracts are fair. We would further suggest that fairness be defined on the face of the Bill to assist businesses when drafting contracts.

Investigatory Powers

The FSB welcomes the safeguards that have been introduced to assist businesses in preparing for inspections, in particular the requirement for inspectors to give reasonable notice, provide evidence of their authorisation or identity, issue a receipt for goods/documents seized and restrict powers to enter wholly or mainly private dwellings. We believe all inspections should be proportionate, risk-based, consistent, and where possible booked in advance.

We do not believe that booking inspections in advance will negatively impact how Trading Standards operate. On the contrary, it should make inspections more worthwhile. It is our view that in the majority of cases (not those involving rogue traders), non-compliance is the result of a knowledge gap, meaning the two day notice period will not change behaviour but will allow for the business owner to make sure they are available on the day in order that they get the most out of inspections.

We also support changes allowing Trading Standards to work across local authority boundaries. It is important that Trading Standards have the powers needed to deal with rogue traders, as rogue traders undermine legitimate businesses.

Essentially we believe inspectors should always see themselves as supporters of better regulation and sustainable growth. The Deregulation Bill has a growth duty meaning all regulators must consider growth as part of the way they conduct interventions. This should be the case with Trading Standards Officers. It is important they enforce rules and regulations in order to deal with rogue traders, but for legitimate businesses it is equally important to work with them in a co-operative manner and build up good working relationships so that they can learn best practice.

Enhanced Consumer Measures

The FSB is extremely concerned by the introduction of enhanced consumer measures in the draft Bill. This is an entirely new concept which businesses will not be aware of nor prepared for. Small and micro businesses will naturally find compliance harder than a large company with the resources to keep up to date with consumer legislation. The UK Government is committed to “Think Small First” when it comes to new policy and regulatory proposals, a stance which it is championing within the EU. However these measures appear not to have been through a micro/small business test. As a result, the FSB believes that consumer law may be breached due to a simple human error or lack of understanding. Ideally, these measures should be removed from the Bill. However, if they remain then it is imperative that BIS communicate changes to small and micro businesses in an easily digestible format before the Bill’s provisions come into force.

Whilst it is important that traders comply with consumer law to improve their compliance and reduce the likelihood of future breaches, the safeguards for businesses that remedies should be “proportionate”, “just and reasonable” and relate to consumer choice, compliance and/or redress are open-ended and do not go far enough to protect small and micro businesses that simply make a mistake. Even though the draft Bill states the cost should not exceed the loss suffered by customers, this excludes administrative costs and also unknown costs (eg loss suffered by reputational damage).

For example if a business is forced to sign up to a customer review or feedback site, or publicise details of a breach or even a potential breach in the media, this might not create direct costs to the business. However it could do long term damage to that business’s reputation and harm the business in the long term. Similarly if a micro business with less than five members of staff was told to appoint a Compliance Officer this too would impose a significant cost in terms of the proportion of staff costs.

Also, even though remedies must relate to consumer choice, compliance and/or redress, details of possible measures are not included in the legislation which potentially leaves businesses open to a whole range of unknown and un-costed remedies. We understand that this is because the Government’s intention is for Trading Standards Officers to have flexibility, but we believe there should be a requirement for officers to take into account the size of a business when considering enhanced consumer measures to further ensure actions of Trading Standards Officers are proportionate for small and micro businesses.

Private Actions in Competition Law

It is important to state from the outset that the FSB is very much against US-style class actions which are, we believe, bad for business. Even though we note the reforms in the draft Bill include safeguards to prevent this, these safeguards must be maintained in order that the Bill does not set a precedent for class action law suits going further than intended in the future. This would potentially change the whole litigation culture in the UK to the detriment of businesses.

However, we do support the current intention to introduce reforms to the Competition Appeals Tribunal to allow the CAT to hear stand-alone cases, as well as follow-on cases, and grant injunctions. We also provisionally support further changes to competition law to make it possible for consumers and businesses to claim damages through a representative group or trade association for breaches in competition law on an opt-out basis.

However, in order that small and micro businesses are able to benefit from these reforms, the CAT must be user-friendly and inexpensive. We have also assumed that we, the FSB, would be able to take forward collective action cases on behalf of our members since the draft Bill will enable any appropriate consumer representative body or trade association to bring claims on behalf of consumers or businesses. The FSB has super complainant status with the FCA and would like to see this model applied in the CAT framework for us and also for other consumer and trade bodies.

We would very much hope to take forward action on behalf of small and micro businesses if required, however once again we would stress that this must be an affordable and straightforward process. Many trade organisations including ourselves operate on a not-for-profit basis and also have a charitable arm. We believe our small and micro businesses who have suffered losses due to breaches in competition law should be the main beneficiaries of reforms to consumer law.

We very much welcome measures to promote alternative dispute resolution.

Conclusion

The FSB welcomes measures to update, consolidate and clarify consumer legislation. However we do have stark concerns regarding the enhanced consumer measures—not because we would defend businesses that deliberately flout competition law—but because it is imperative that businesses understand and are aware of changes to consumer law. We believe Government has a duty, in the interests of better business and better regulation, to invest in a communications programme specifically targeting small and micro businesses as well as sole traders who are likely to be unaware of some of the detail in the Bill that could affect them. We will of course keep our members informed, but even though our membership is large and diverse, it is still only a minority of those businesses that will need to be aware.

12 September 2013

Prepared 20th December 2013