NAO report on protection of consumers by regulators

By agency reporter
March 21, 2019

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 per cent in gas, 37 per cent in electricity and six per cent 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 £4.1 billion 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 per cent 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 is not. 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 per cent had issues in two of the four sectors and 11 per cent in three out of the four.

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 and 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. 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. 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.”

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

* National Audit Office



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