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Regulating to protect consumers: Utilities, communications and financial services markets

The National Audit Office has found that the four main regulators – Ofwat, Ofgem, Ofcom and the Financial Conduct Authority – understand the significant difficulties facing consumers across utilities, communications and financial services markets, but cannot prove if they are effectively responding to consumer concerns or offering enough protection for those who need it.

Regulators have a statutory responsibility to protect the interests of consumers. This includes promoting competition, encouraging fair prices, setting maximum prices where competition is insufficient, ensuring adequate services are delivered and preventing unfair practices.

The NAO has found that the most common problem people seek help with across all four regulated sectors is dealing with debt associated to paying bills and credit repayments. This is set against a backdrop of rising prices with real-terms increases of 28% in gas, 37% in electricity and 6% in water since 2007.

People also find it difficult accessing the best deal or service, resulting in customers who do not switch typically paying more for the same service as new customers. This ‘loyalty penalty’ costs consumers an estimated £4.1bn a year at least. Vulnerable customers, in particular, are less likely than an average customer to switch.

The NAO has also identified service issues across all sectors. In 2018, 15% of broadband customers had reason to complain about their service with the most common cause being connection problems; and 36,000 homes were left without any water for more than a day, following severe cold weather.

The four regulators have developed a good understanding of these consumer issues through their own research, insight and working with stakeholders. However, government, Parliament and other stakeholders have expressed concerns about whether these sectors are working as well as they can for consumers, raising questions about the effectiveness of the regulators.

In its report, the NAO has recommended that regulators need to do more to measure their performance so that they can understand what is working well for consumers and what isn’t. This will help regulators prioritise their interventions, which is important given the diversity and conflict of responsibilities they have to consumers, Parliament and government.

There is no common set of standards for how or what regulators report on consumer outcomes. Nor do they share a way to measure issues that cut across multiple sectors, such as affordability and debt, which the NAO reported in 2017 was a challenge. For instance, of those people seeking help with debt problems 32% had issues in two of the four sectors and 11% in three out of the four1.

Regulators have also not been specific enough in defining the overall outcomes they want to achieve for consumers. For instance, they have high-level aims such as high quality, good value services, but do not set sector-wide targets or other success measures to define what these mean in practical terms, such as what level and distribution of prices or service reliability they would consider good or bad.

They also rely on the actions of service providers they regulate, the behaviours of consumers and stakeholders to understand what influence their actions are having on consumers. With that said, regulators find it hard to distinguish from their own performance and the sector. The performance of a market or sector does not always reflect how regulators have performed because it is also influenced by other factors such as consumer behaviour or government policy. However, regulators should make that distinction clear to improve accountability for their actions.

The NAO recognises that regulators are improving how they measure their performance and that stakeholders find the wide range of information published by regulators on their markets and consumers’ experiences useful. Reports and data published by Ofgem and Ofwat on vulnerability and affordability, and by Ofcom on the roll out of superfast broadband, have been well received. While the FCA has begun work to understand its impact and influence and has evaluated the direct impact of its activities on consumer outcomes.

The NAO has recommended a consistent and more meaningful approach to measuring regulators’ influence and impact on consumers. Regulators also need to work with government to resolve potential conflicts or trade-offs between regulatory objectives or groups of consumers.

Amyas Morse, the head of the NAO said: “Regulators need to do more to show the concrete results they are aiming to achieve for consumers. I understand that there is a difficult balance to be struck between long- and short-term outcomes, between the needs of businesses and the interests of consumers. But at present the regulators’ results can come across as somewhat academic and detached from peoples’ practical concerns and pressures.”

Full report:  Regulating to protect consumers: Utilities, communications and financial services markets

Notes for Editors

4 number of regulators covered in this report – covering water, energy, telecoms and retail financial services £140bn total amount that UK consumers spent on bills in water, energy and telecoms, and fees and charges in financial services, in 2017 £855m total running costs in 2017-18 of Ofwat, Ofgem, Ofcom and the Financial Conduct Authority, which vary substantially in size It is important for regulators to measure and report transparently their performance to highlight what progress they are making in protecting consumers' interests. 92% reduction in the total number of electricity and gas disconnections for people in debt between 2016 and 2017 28%-37% real-terms increase in average gas and electricity prices between 2007 and 2018 94% proportion of UK premises in 2018 able to access superfast broadband, up from 91% in 2017 15% proportion of broadband customers in 2018 who had reason to complain, the most common issue being connection problems £150 million per year estimated saving for borrowers as a result of the introduction of the Financial Conduct Authority’s price cap on short-term high-cost credit in 2015 70% increased likelihood of consumers in deprived areas of the UK using unarranged overdrafts, which are twice as expensive as arranged overdrafts, than those in less deprived areas 43% proportion of water customers in England and Wales in 2017 who were aware of special non-financial assistance that water companies can provide to customers, up from 29% in 2009 36,000 number of homes in England and Wales left without water supply more than a day following the cold weather in early 2018

  1. In 2017 we published a report on Vulnerable consumers in regulated industries. Following this, in 2018, we published a report on Tackling problem debt.
  2. This report assesses how well Ofwat, Ofgem, Ofcom and FCA measure and report their performance in protecting the interests of consumers. The report does not evaluate the regulatory performance of each regulator, no their statutory objectives.
  3. In 2016, we published Performance measurement by regulators, a guide setting out best practice for regulators to measure and report their performance.
  4. Press notices and reports are available from the date of publication on the NAO website. Hard copies can be obtained by using the relevant links on our website.
  5. The National Audit Office scrutinises public spending for Parliament and is independent of government. The Comptroller and Auditor General (C&AG), Sir Amyas Morse KCB, is an Officer of the House of Commons and leads the NAO, which employs some 785 people. The C&AG certifies the accounts of all government departments and many other public sector bodies. He has statutory authority to examine and report to Parliament on whether departments and the bodies they fund have used their resources efficiently, effectively, and with economy. Our studies evaluate the value for money of public spending, nationally and locally. Our recommendations and reports on good practice help government improve public services. Our work led to audited savings of £741 million in 2017.

Contact

NAO Press Office 
+44 (0)20 7798 7400 or email pressoffice@nao.org.uk

Channel website: https://www.nao.org.uk/

Original article link: https://www.nao.org.uk/press-release/regulating-to-protect-consumers-utilities-communications-and-financial-services-markets/#

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