Budget 2015: We need a second wave of the consumer revolution to restore faith in capitalism
Today, the chancellor presents his last Budget before the General Election. With limited room for tax giveaways, and a need to show that the Tories are on the side of the “little guy”, it’s time for the second wave of the British competition revolution – to arm consumers to take on big business.
Ed Miliband’s Labour Party can be expected to lead those baying for bankers’ blood. But that’s an unsavoury thirst that will never be quenched. Over the long term, restoring faith in capitalism – and big business – requires more consumer power.
Those making the case for the free market must remember that deregulation in the 1990s was no ivory tower exercise. It boosted the raw purchasing power of the average customer – the London cabbie, or a teacher from Newcastle. Opening up European air travel meant they could fly EasyJet or Ryanair to places like Nice 83 per cent cheaper. Breaking up BT’s monopoly over international calls meant they could call a cousin in Australia at a fraction of the tariff. Cracking down on price-fixing meant they could buy their son a replica football T-shirt at a 15 per cent discount. Whether it was purchasing the latest Tom Clancy thriller from Waterstones or a flu remedy at Boots, these pro-consumer capitalist reforms saved them pounds and pence.
We need a second wave of the consumer revolution. And it should be a Conservative theme tune at the election. It’s no coincidence that some of big business’s worst excesses take place in uncompetitive markets. The “Big 6” energy firms still control over 90 per cent of the market, so we need to encourage challengers like Ovo Energy to break their chokehold. One way is to level the playing field, by requiring price comparison websites offering gas and electricity deals to remove filter buttons that mask the most competitive offers in favour of suppliers paying a commission. That alone would save customers around £20 on an average bill, while incentivising smaller firms to innovate and compete for their business.
Likewise, even the energy regulator Ofgem admits bills are so confusing that it is impossible to say whether people are being over-charged. Energy suppliers should be required to adopt comparable pricing – like petrol pump displays – so customers can compare deals more easily, and avoid being ripped off amid the complexity of the tariffs on offer.
Next, take the banks. The government introduced a duty to let customers change banks within seven days. Customer switching has inched up, but is still only forecast to hit 5 per cent by 2023. That is half the level of customer switching you would see in other healthy, competitive markets. The Big 4 banks retain a vice-like grip on customer choice. Their share of the current account market has stayed almost static over the last three years, currently at 77 per cent. Meanwhile, the numbers wanting to switch accounts – if it were easier – has risen. The answer is to introduce portable bank account numbers, that can be transferred easily with all their direct debits and standing orders. The Centre for Economics and Business Research estimates it could double the rate of switching – forcing banks to offer more competitive rates of interest.
At the same time, we need to cut the bureaucratic barriers to entry that deter innovative smaller banks, like Metro Bank, competing for our custom. Of course, the big boys will always object to any threat to their monopoly. A senior banking executive recently told me the evidence on portable bank accounts from Australia and Sweden showed it did nothing to improve customer choice. When I checked, Australia had never introduced the measure, and Sweden only tried it for corporate clients, not consumers.
As well as current accounts, mortgage deals could be made more competitive by requiring clarity about compulsory and contingent fees, along with a clearer statement of total charges payable throughout the mortgage deal period. Given mortgage bills absorb around one in every five pounds of a family’s budget, consumer magazine Which? argues that there is substantial scope for savings.
Finally, price comparison website Moneysupermarket.com points out that auto-renewal of car insurance policies – without customer consent – stifles competition, costing customers up to £1.3bn each year. Introducing greater transparency – a clear display of policy changes, along with next year’s fee compared to the previous year – and a requirement of consent to renew would encourage motorists to shop around. That would save them over £100 per year on a typical policy.
It may not quite leave voters “feeling epic”, as Moneysupermarket’s adverts boast, but strengthening consumer clout will leave more money in their pockets than bashing big business.