Report of the Working Group on consumer and competition policy

1. Context

Working Group on Consumer and Competition Policy

In June 2015, the Scottish Government established an independent, short-life Working Group to consider optimal arrangements for delivering consumer protection and competition policy in Scotland. The Group was tasked with providing recommendations to the Scottish Government on specific improvements that could be made to the consumer protection and competition landscape. The Group was set a number of objectives to deliver its overall aim:

• consider how best to implement changes to the consumer and competition landscape in Scotland;
• develop practical solutions which optimise future arrangements for consumers in Scotland, encompassing links to relevant devolved and reserved policies and services;
• make practical recommendations for an innovative and bespoke model of delivery for consumer and competition policy in Scotland; and
• shape development of a competition policy fit for Scotland, which places consumer interests at the heart of economic and competition regulation.

Five expert panels were created to support the Working Group - one for each of the pillars of consumer protection and a further one for competition. Each panel delivered a report to the Working Group, and these played a key role in informing the Working Group discussions and shaping the final recommendations.

The Working Group and Expert Panel's membership and meeting schedule can be found in Annexes A and B to this report.

Existing landscape

A robust system of consumer protection is sustained by four mutually supporting pillars:

• advocacy;
• advice (including education & information);
• enforcement; and
• redress.

The Scottish Government's paper " Consumer Protection and Representation in an Independent Scotland" ^[4] outlined how all four pillars complement one another. Through advocacy, the rights of consumers can be represented to Parliament, governments, regulators, public services and businesses, so that new policies can be pursued or refined. Through advice, individual consumers can be made aware of their rights and become more empowered, making it easier to avoid unscrupulous businesses, or to take action when they suffer harm. Through enforcement, traders who flout consumer protection or competition laws can be held accountable. Through redress, consumer detriment can be overturned and consumers gain access to justice.

On the ground advice, including education and information, can empower consumers, making it easier for them to avoid harm in the future. If aggregated properly the data from this can be used to identify problem areas and unscrupulous practices early on. With this knowledge, it should be possible to respond quickly with enforcement measures to prevent further detriment, or advocate for needed policy changes. And, when consumers are harmed, a simple and easy dispute resolution system ensures consumers are able to get access to justice.

With new powers devolved to the Scottish Parliament in the Scotland Bill and a willingness to innovate in the existing landscape, there is now a golden opportunity to unite all four pillars and develop a world-leading system of consumer protection, which would be supported by new competition powers. The following section describes each pillar and the opportunities for realising this vision.

Advocacy

A strong system of consumer advocacy is essential for an effective system of consumer protection. With a powerful enough voice, it brings balance to markets, public services and regulatory processes and ensures the consumer interest is paramount. For this reason, Scotland needs a robust system of consumer advocacy that is comprehensive, effective and widely respected. Such a system must reduce duplication and should be applied consistently.

In Scotland, statutory advocacy on behalf of consumers has, until recently, been provided by a range of different organisations. Until UK Government reforms took effect in 2013, Consumer Focus Scotland ( CFS) carried out general advocacy work (in addition to sectoral advocacy work in the post, energy and water sectors). Following the reforms, CFS was abolished and Consumer Futures was created to carry on CFS's advocacy role. In the final stage of this landscape remapping, Citizens Advice Scotland ( CAS) took over the role of Consumer Futures, and since 2014 has been the lead national organisation for advocacy in Scotland. It is responsible for both general advocacy work and advocacy in the regulated sectors. However, a number of other bodies also continue to perform a consumer advocacy role, such as Which? and Transport Focus.

Advice

The Citizens Advice Service and the Citizens Advice Consumer Service are the principal providers of advice to consumers in Scotland, offering assistance face-to-face, online and over the telephone. There are also a number of other organisations offering services such as legal and financial advice. These bodies often provide similar or related services to the better known consumer organisations. Furthermore, several agencies involved in the money advice arena, such as the Money Advice Service, Money Advice Scotland, Money Advice Trust and CAS, have related functions. In addition to these bodies, some local authorities also offer money advice as part of Trading Standards. Other sectors, including energy, have multiple consumer advice providers, whereas transport has one agency for consumer protection on rail travel (Transport Focus), another for protection on bus travel (Bus Users Scotland) and the Traffic Commissioner.

Finally, important second tier advice, which assists consumers with complaints, is provided by most Trading Standards services. It helps consumers obtain a resolution when they have been unable to do so on their own. But it is also the intelligence which informs Trading Standards of persistent trading malpractice. In response to a second tier referral from the consumer advice helpline, Trading Standards will contact the trader on the consumer's behalf and explain the basis of the complaint and the legal obligations placed upon the trader. If - through dealing with second tier complaints, Trading Standards identifies persistent malpractice, it may seek a formal civil law undertaking from the trader to desist. If breached, criminal proceedings can be instigated.

Enforcement

The current model for local enforcement has led to variations in how different local authorities protect consumers and regulate businesses. There is consensus that action is needed to strengthen protection for consumers through more collaborative working at a national and local level.

The effectiveness and viability of the current enforcement regime has been under scrutiny for a number of years, including reports from the Accounts Commission in 2002 ^[5] and 2013 ^[6] and a report from Consumer Focus Scotland in 2010 ^[7] . For example, the 2013 report found that:

• 1.3 million people in Scotland thought they had reason to complain about goods and services in the last year;
• 35,000 consumer complaints and advice requests were dealt with by councils' Trading Standards services in 2010/11;
• the long-term viability of councils' Trading Standards services is under threat, and urgent action is needed to strengthen protection for consumers;
• the lack of any national priorities, standards and reporting in Trading Standards services in Scotland has led to variations in how different councils regulate businesses; and
• many consumers do not know where to go for help when they have difficulty with a purchase.

The current consumer protection landscape is a barrier to ensuring a strategic and consistent approach is taken to addressing these problems. It is on this basis that the UK Government is currently reviewing Trading Standards while the National Audit Office is due to begin a study of Trading Standards in the near future. COSLA, the Scottish Government and local authorities are also working to address these challenges through the Trading Standards Strategic Review Group.

Redress

The recent EU directive on consumer alternative dispute resolution (ADR) ^[8] covers:

"….any entity that is established on a durable basis, offers the resolution of a dispute between a consumer and a trader through an ADR procedure and is listed in accordance with this Directive. This Directive may also cover, if Member States so decide, dispute resolution entities which impose solutions which are binding on the parties."

This definition of consumer ADR has been adopted by the Scottish Government in its consideration of consumer redress. Under this formulation, consumer ADR can take many forms, ranging from informal mechanisms such as mediation, which seeks to help parties reach agreement, to more formal routes, like ombudsmen, which can potentially deliver binding rulings to settle a dispute.

What all consumer ADR schemes have in common is the opportunity to solve disputes without using the courts. Courts are often seen as too costly, time consuming or intimidating for consumers to pursue complaints, so it is essential that there is an effective, less formal system of consumer redress available as an alternative.

There is evidence that the current consumer redress landscape is not working well for consumers in the UK. According to research undertaken by the Office of Fair Trading ^[9] ( OFT) in 2013, only 64 per cent of people who experienced a problem took any steps to complain about it. This figure is far lower in some industries; for example in legal services just 13 per cent of those who were dissatisfied pursued a complaint. ^[10]

One reason for this is that there is a diverse array of industry and enforcement bodies dealing with consumer detriment. There are multiple consumer ADR providers, both accredited and unaccredited, each with their own procedures and powers. Navigating all of these is unnecessarily complicated for consumers. In terms of consumer ombudsmen, some of the most prominent schemes are:

• the Scottish Public Services Ombudsman - covers disputes between citizens and public authorities in Scotland;
• the Scottish Legal Complaints Commission - covers disputes involving the legal profession;
• Ombudsmen Services - covers disputes in a wide range of sectors, including statutory schemes in energy and communications;
• the Financial Services Ombudsman - covers disputes involving providers of financial services; and
• the Pensions Ombudsman - covers disputes relating to pensions.

Even this does not represent the entirety of the landscape. There is, for example, a plethora of other ADR bodies, such as the Furniture Ombudsman, and Removals Industry Ombudsman.

At the EU level, the new European Directive on ADR ^[11] , which came into force in July 2015, requires that:

• in the event of a dispute, businesses must provide consumers with information on an accredited ADR provider eligible to deal with the dispute;
• a competent authority is established to accredit ADR bodies; and
• businesses in all sectors (with a few notable exceptions, such as healthcare provision) have access to an accredited ADR provider.

To comply with the Directive, the Department for Business, Innovation and Skills has appointed the Chartered Trading Standards Institute, along with a number of bodies responsible for operating statutory redress schemes, as UK competent authorities for accreditation purposes. However, there is no requirement for businesses to engage with an ADR scheme, and no outline of what jurisdiction approved ADR providers will cover.

Finally, the Directive also requires a residual body to be established to hear disputes in any area which is not covered by an existing provider. This role currently seems likely to be provided by Ombudsman Services, which launched a new online portal, called the Consumer Ombudsman in August 2015. This is expected to make it easier for consumers to complain about goods or services in any sector not currently served by an accredited ADR body.

Smith Commission

Following the Referendum in September 2014, the UK Government established the Smith Commission to consider further powers for Scotland. It published its recommendations ^[12] in November 2014, and recommended that "consumer advice and advocacy will be devolved to the Scottish Parliament". The UK Government published its command paper with draft clauses for a new Scotland Bill ^[13] in January 2015, and the Bill as introduced to the UK Parliament in May 2015. The Scotland Bill proposes to devolve two of the four consumer protection pillars - advocacy (although exceptions remain for telecommunications and wireless telegraphy, and transport) and advice. It also devolves competition powers to Scottish Ministers enabling them, acting with the Secretary of State, to require the Competition and Markets Authority ( CMA) to carry out a second stage market investigation.

It is the Working Group's understanding that the Scottish Government believes that, as currently drafted, the Bill does not honour the intent of the Smith Commission, and would only allow Scottish Ministers to make a reference to the CMA in the most exceptional circumstances and only with the involvement of the Secretary of State. Similarly, Scottish Government (and civic Scotland more generally) is clear that Clauses 43 and 44 on consumer protection also do not live up to the spirit of the Smith Commission. In respect of consumer advice (and advocacy) specifically, Clause 43 of the Scotland Bill does not cover all relevant reservations in Schedule 5 to the Scotland Act 1998 (for example, telecommunications and wireless telegraphy, and transport are not covered).

In practice, enforcement is already devolved operationally through the block grant to local government, as this is the source of funding for Trading Standards. Additional grant funding from the Department of Business, Innovation and Skills to COSLA is used to co-ordinate cross border enforcement issues. The Scottish Government is also working to clarify the scope of its powers in relation to redress and in any event, will continue to make the case to the UK Government that both enforcement and redress should be devolved entirely.

Scottish Government vision

The UK Government's 2012 response ^[14] to its consultation on institutional reform in consumer policy, Empowering and Protecting Consumers, ^[15] described the landscape of bodies responsible for consumer protection as "inefficient and confusing, leaving consumers uncertain who to turn to for help and advice when things go wrong." Despite this, the Scottish Government found the resulting proposals for reform to be insufficient for Scottish consumers and businesses and made clear its intent to simplify the consumer and competition landscape.

Following initial consultation with a wide range of stakeholders, both national and international, these ideas were developed in the Scottish Government's paper Consumer Protection and Representation in an Independent Scotland, ^[16] which proposed a single body that would bring together consumer protection and competition regulation. It also proposed the creation of a one-stop-shop for consumers to seek redress in disputes with traders.

At the heart of this vision was a coherent system of consumer protection that united the four pillars of consumer policy - advocacy, advice (including education and information), enforcement and redress - and complements and supports them with a distinctive Scottish competition policy. Further devolution of consumer and competition powers creates an opportunity in Scotland to realise this vision by creating a unified consumer body - Consumer Scotland - to be combined with competition expertise. This could bring benefits of closer alignment between market arrangements and consumer interests. As a result, Consumer Scotland has the potential to be a stronger advocate and enforcer on behalf of consumers than separate bodies working in this area have been to date.