Consumer Scotland Chief Executive Sam Ghibaldan gave the following speech to an online conference on the role of Scotland’s regulators organised by MacKay Hannah:
In 1962 JFK broke new ground by setting out four consumer rights in a speech to Congress.
- The Right To Safety
- The Right To Be Informed
- The Right To Choose
- The Right To Be Heard
It was a groundbreaking speech, but it was just a beginning.
In the UK the first Under-Secretary of State for Consumer Protection was appointed in the 1970s.
In 1985 the United Nations adopted Guidelines for Consumer Protection.
Those UN guidelines were revised to include sustainable consumption in 1999, and again in 2015 to take account of developments including e-commerce.
Taking the long view, thinking about consumers has steadily evolved, with consumer protection the primary consideration.
Is consumer protection enough?
But in 2023 is consumer protection enough?
When we are facing the twin crises of rapid global warming and the cost of living, will regulators find solutions in simply protecting consumers?
When the interests of business, shareholders and governments are represented by Boards, how are those of consumers articulated?
And when decisions are taken do regulators ensure consumers also have a say?
You might ask: why should they?
The aim of regulation is to ensure markets work for those making purchases, or that good quality services are delivered to those requiring them.
So it is no great leap to assert that good regulation should be based on a genuine understanding of consumers’ experiences and behaviours.
But while the other key interest groups – government, business and shareholders – are organised and have a defined role, consumers are diverse and dispersed.
That diversity has been apparent with the varied impact of the energy crisis on different groups of consumers.
Consumer Scotland has been tracking that with research over the past eighteen months. Our most recent survey, published last week, found:
- low-income households, those limited a lot by their disability, and those with a child under 5 are more likely to experience affordability challenges with energy bills
- almost one fifth of households have borrowed money or missed rent or mortgage payments in the last six months as a result of the high cost of energy, and younger people are more likely to be in energy debt than older ones
- one third of respondents say that energy bills are affecting their mental health either ‘a lot’ or ‘a fair amount’
- while rural households as a group are not more likely to face affordability challenges, off-gas grid rural households are
A regulatory system has to work for all those groups of consumers. And consumer diversity in every market and sector is likely to vary.
Understanding consumers’ experience within a market is therefore key to protecting them.
Consumers and regulatory decisions
But can regulation go further?
A successful market is one that consumers feel works in their interest. One they are happy making purchases in.
Consumer confidence has benefits for regulators and businesses, providing a stable environment for long-term investment.
Regulators would be better able to ensure markets work, or good quality services are provided, if their strategic objectives align with those of consumers.
To make that leap – to put consumers’ aspirations at the heart of markets and services – needs regulators to ensure that consumers have a voice at the table when decisions are made.
For regulators to enable consumers to become active shapers of markets and services.
There are good examples of how this can work.
Pre-payment meters have often been controversial but early this year a crisis emerged. An energy company was reported to have been caught breaking the rules on force-fitting pre-payment meters.
Ofgem put in place a moratorium on the practice, but they needed to quickly understand the scale of the problem, and find a solution. They did that by bringing key consumer groups and companies together to hammer through the issues.
The outcome of that was a revised Code of Practice, developed over a just a few weeks, drawing on consumer insight from a number of organisations.
It was a good example of how to bring the voice of consumers into decision-making on an urgent issue.
For longer-term strategic planning there are other models that allow time for in-depth research and engagement.
The Water Industry Commission for Scotland – working with consumer groups and Scottish Water – created the Customer Forum to negotiate with Scottish Water during its Strategic Review.
Crucially, it made clear it would be minded to agree Scottish Water’s business plan if it had first been agreed by the Forum, effectively empowering consumers.
That had significant success, resulting in a 25 year Strategic Plan that was demonstrably aligned with consumer aspirations.
Elsewhere, both Ofgem and Ofwat required companies to establish Customer Engagement Groups during their recent regulatory reviews of energy networks and water companies respectively.
Though these Customer Engagement Groups were less obviously central to regulatory decision-making, the in-depth process of joint working had a demonstrable impact on the companies’ business plans.
There are other models including Ofcom’s statutory Consumer Communications Panel.
There is - and shouldn’t be - a one size fits all approach.
Innovation
There is a risk that companies become culturally used to managing a particular model of engagement, reducing its benefit.
For while stability is an advantage, stagnation is not. Fresh thinking helps markets and services evolve with consumers.
In the water sector in Scotland the Customer Forum has had a hugely positive impact on the last two regulatory reviews.
But for the next Strategic Review it may be time to innovate.
Directly engaging consumers through a long-term deliberative process could bring a new dynamic to the review.
Consumer Scotland will work with the Water Industry Commission for Scotland and Scottish Water to agree how consumers should be central to the next Strategic Review.
Whole system
Consumers are, of course, not just consumers in any single market. They participate in multiple markets every day.
Correspondingly, regulators need a broader and deeper understanding of the consumer interest, making connections across markets.
Consumer Scotland can help. Our broad remit spans the private and public sectors and allows us to look at the blurred edges of regulatory or policy boundaries and identify opportunities to make the whole system work better for consumers.
Viewed from that consumer perspective cross-market questions arise:
- how do we achieve a whole home approach to the Net Zero transition, joining up information and support across sectors?
- how do affordability schemes work in different markets, and which are effective?
- how is debt treated, and what opportunities are there for sharing good practice and making the system more coherent for consumers?
Conclusion
So what is my answer to the question of what regulators should be thinking about it terms of consumers?
I’ll draw inspiration from the UK’s first Under-Secretary of State for Consumer Protection whom I mentioned earlier. ,As it happens, two decades after his time in ministerial office he was also my boss.
When talking about how those in public life should relate to the public he often quoted the novelist E. M. Forster.
“Only connect”.
It is just as relevant for regulators.
As market decision makers - as leaders - regulators can inspire connection with consumers.
The need to connect with consumers should be integral to the thinking of regulators and companies.
People should not simply be being told “here are your choices” but asked “what do you want” and how do you want us to provide it?”.