The business of being a consumer

Scotland’s 350,000 micro and small businesses face a wide range of challenges. This report examines small businesses experiences and challenges as consumers – in other words, as purchasers of goods and services that their businesses use.

In this report, we generally use the term ‘small business’ as short hand for micro and small businesses (those employing fewer than 10 and 50 employees respectively), although we distinguish micro and small businesses when it makes sense to.

Small businesses are a vital part of Scotland’s economy, accounting for over 900,000 jobs. Understanding small businesses’ consumer experiences – and the extent to which small businesses act as confident consumers or feel constrained by their consumer experiences – provides important information about the extent to which markets help small businesses to thrive, and are conducive to supporting economic growth more broadly.

Consumer Scotland’s founding legislation, The Consumer Scotland Act 2020, defines ‘consumers’ to include small businesses. This reflects the sense that small businesses often face similar challenges to individual consumers when purchasing or using goods and services.

However, the experience of micro and small businesses as consumers has not been extensively studied. This report aims to help fill that gap, developing a better understanding of the specific issues that micro and small businesses (collectively referred to as ‘small businesses) in Scotland face as consumers, and the impact those issues have on businesses.

Our research, which included a telephone survey of 700 small businesses in Scotland to explore their experiences in 11 consumer markets, found that small businesses engage in a wide range of markets as consumers. In general small business experiences as consumers are broadly positive. Nonetheless, there is also evidence of negative experiences, particularly in some markets, which can sometimes impact business performance.

Key findings

When acting as consumers, micro and small businesses face similar challenges as individual (domestic) consumers

All small business owners or managers experience life as both an individual consumer, and life as a small business consumer. On average, small business respondents to our survey did not think that any aspect of the consumer experience was materially easier or more difficult as a small business compared to being an individual.

And although specific results varied from market to market, small businesses were generally just as likely – if not more likely – to report having experienced a consumer problem within a market when compared to individual consumers.

This suggests that small businesses’ lives as consumers are no easier on average than is the case for individual consumers.

Consumer protections and consumer advice available to micro and small businesses differs across markets

• Despite similarities in the consumer experience, micro and small businesses often have less legal protection, fewer rights and fewer routes to redress than individual consumers. Rather than being able to rely on protections enshrined in legislation, small businesses are generally reliant on contract law, and often implicitly treated as though they bargain with the same market power as a large trader.
• Although protection differs between markets, and micro businesses often have some additional protections, small businesses are often not included in regulatory protections or mandatory ombudsman schemes. They also have less access to advice services to help them resolve problems.

Small businesses are generally fairly satisfied with their experience as consumers – but some markets perform better than others

• Most micro and small businesses in Scotland report reasonably positive consumer experiences: in seven of the eleven markets studied, over 75% of respondents expressed satisfaction with products and services, and fewer than 10% expressed dissatisfaction.
• Energy, water and telecoms markets performed worst across a range of metrics including satisfaction, dissatisfaction, likelihood of experiencing an issue, and the likelihood of an issue impacting business performance.
• Satisfaction was lower and dissatisfaction was higher in the energy market than it was in any other surveyed market. This is likely to be, at least in part, a reflection of high increases in energy prices in 2022 and 2023. But our research also shows that it reveals dissatisfaction in the energy market in relation to underlying challenges in contacting energy suppliers and understanding bills, and a sense that terms and conditions can be unfair. The energy market consistently performed more negatively on these metrics than other markets.

A significant number of small businesses have experienced consumer problems, and these can often impact on business performance

• Almost half of all businesses experienced at least one problem when purchasing or using products during the previous 12 months. Common problems include unclear contractual terms, particularly in the energy, water, financial and telecoms markets, as well as issues of delivery reliability (particularly for postal services), and poor service quality and misleading information (a feature of telecoms issues).
• These issues can have real impacts on business performance. One quarter of surveyed businesses had experienced problems which affected business performance during the past 12 months. Problems were particularly likely to impact business’ turnover or profit in energy, telecoms, and financial services. One fifth of businesses who had engaged in the energy market had experienced a problem which affected business performance, with equivalent figures of 14% and 12% in telecoms and financial services respectively.

Implications and recommendations  

Until now, the impact of consumer issues on small businesses have tended to receive less attention than many other challenges facing small businesses. This report has demonstrated how important those consumer issues can be. Given the criticality of micro and small businesses to the Scottish economy, it is imperative that they are not impeded by a lack of information, poor service, or unclear routes for redress.

Our recommendations span both cross-market issues, and specific recommendations in relation to the energy and water markets. Further detail is provided in Chapter 6.

While micro and small businesses share many similar consumer issues as larger firms and domestic consumers, their smaller scale on the one hand and more limited legal protections on the other can leave them particularly exposed to information asymmetry, reliability problems, and unfair contract terms. Given the importance of micro and small businesses to the Scottish economy, it is important that regulators and policy makers regularly review how effectively and fairly  markets operate for micro and small businesses.

We acknowledge that getting the balance right is not easy. The freedom to contract has been a fundamental principle of UK law, supporting commercial autonomy, certainty and efficiency. There is sometimes a case for limiting this freedom to protect micro and small business consumers from unfair practices and harm. But policy makers do also need to ensure that any regulatory burden associated with the objective of protecting small business consumers is proportionate.

Recommendation 1: Monitoring small business consumer issues

To inform and further evidence priorities for policy change, regulators including Ofgem, Ofcom and FCA should enhance their monitoring of consumer issues faced by small businesses in order to identify systemic issues and appropriate mitigation measures. This will include systematic monitoring of complaint data held by regulators, suppliers, advice bodies and ombudsmen (where relevant) – which should be published regularly to allow stakeholders to monitor trends – combined with regular surveys of small business sentiment.

Recommendation 2: Reviewing the provision of consumer and contract information for small businesses

A finding from this report is that micro and small businesses do not always feel they can access robust information about accessing goods and services and enforcing their rights when things go wrong in different markets. Enhancing the provision of relevant information is a useful way to improve small businesses consumer experience without requiring new regulation or significant additional investment.

In relation to specific markets, regulators – notably including Ofgem, FCA, and Ofcom – should regularly review the appropriateness and effectiveness of information provided specifically for micro and small businesses.

In terms of consumer issues more generally, the Scottish Government should work with small businesses representatives, consumer advocacy organisations and advice bodies to explore the scope to enhance access to consumer and contract law information for small businesses, and the organisation best placed to deliver this.

Recommendation 3: Improving standards in energy and water

This report finds consistent evidence of lower business satisfaction with the energy and water markets compared to other markets, with satisfaction particularly low in relation to issues around billing and the ability to contact suppliers.

While recent reforms have extended consumer protections to small businesses in energy, more work needs to be done. We make recommendations to the UK government, Ofgem, and advice providers covering enforcement of existing regulations, improving the third party intermediaries (TPI) regulatory framework, and improved signposting to existing advice services. Consumer Scotland intends to produce a follow-up report looking in more detail at recommendations for the energy market.

In water, our priority is ensuring that the new Code of Practice delivers on its potential to address many of the issues expressed by businesses in this report. Through our role as the Chair of the Code’s governance group, Consumer Scotland will work with other market stakeholders to ensure that the Code continues to evolve and deliver an improved experience for business customers.

As shown in Chart 2.1, small businesses in Scotland operate in a diverse range of industrial sectors (as defined in the UK Standard Industrial Classification of Economic Activities 2007[x])

What are consumer issues for small businesses?

This report considers the experience of small businesses as consumers. When we talk about this, we are referring to any occasions where small businesses purchase or use goods or services as part of their business operations.

This could include for example small businesses procuring physical goods that they use as part of a production process or as part of their day-to-day operations (whether office stationery or a vehicle). But it could also include the procurement of professional services such as legal, accountancy, marketing, financial or communications services (e.g. broadband, telephony, or postal services), procurement of utilities such as water or energy, and the rental or purchase of business property.

Businesses might purchase these services directly from a supplier, or in some circumstances, they may purchase these services via a landlord (particularly in the case of energy and water), or via a broker or third-party intermediary.

When thinking about how effectively these markets work for small businesses as consumers, the international consumer principles provide a useful framing. The consumer principles set out what good consumer outcomes look like for any given market or service.[xi] The seven consumer principles if adapted for small businesses would be:

• Access: Can small businesses access the goods or services they need, or do some small businesses face barriers to access based on their location or market power?
• Choice: Do small businesses have a sufficient range of choice (not just in the range of products but how these are provided) to meet their needs?
• Safety: Are the goods or services dangerous to health or welfare?
• Information: Do small businesses have access to accurate and useful information that enables them to make informed choices?
• Fairness: Are some small businesses unfairly discriminated against by virtue of their size, location or status?
• Representation: Do small businesses have a say in how the goods or services are provided?
• Redress: When goods and services are unreliable or do not meet needs, are there systems in place for enabling small business to put things right?

As well as considering the range of issues that small businesses face as consumers, it is also helpful to consider the sorts of issues that are not consumer issues.

Small businesses face a wide range of issues. They have to ensure that their products conform to any relevant regulations, standards and codes of practice; they have to manage relationships with their customers; they have to ensure that they have sufficient turnover and cash-flow. Many small businesses do not have employees, but for those which do, issues of recruitment, skills and HR are important. Small businesses also need to ensure that they pay any taxes that they are liable for.

Small businesses therefore face a range of important issues in their roles as sellers, employers, taxpayers, exporters and more. We distinguish these issues from their roles as consumers, but there are potentially overlaps. For example, whilst issues around recruitment, financial reporting or regulation are not considered consumer issues, small businesses might procure a range of professional services to support them in meeting their legal, regulatory and financial requirements; and small businesses for the purposes of this research would be considered consumers in using those services.

How important are consumer issues for small businesses, in the context of other challenges they face? The main official surveys of small businesses in the UK and Scotland ask small businesses what they consider to be the major obstacles to business success.

Whether considering the results for small businesses with employees or those without, and whether considering the UK-wide results[xii] or Scotland-specific results[xiii], the latest findings are broadly similar. Many of the main obstacles to business success are not directly consumer issues – they include taxation, issues related to the UK leaving the European Union, staff recruitment and skills, levels of competition, late payment of invoices by customers. However, in both 2022 and 2023 (the latest year for which data is available), the level of energy prices has been the most frequently cited barrier to small businesses success. Moreover, costs generally have been a frequently cited factor for small businesses since the cost of living crisis in 2022, with the literature often referring to this as a ’cost of doing business crisis’.[xiv]

As well as cost-related issues, there is also evidence that some small businesses face inadequate access in some markets. For example, the main UK-wide survey of small businesses finds that issues around access to finance are an obstacle to some small businesses.[xv] The FSB’s 2023 Small Business Survey found that 17% of small businesses didn’t have access to adequate broadband and one third could not access adequate financial advice.14

This suggests that, whilst certainly not the only challenges facing small businesses, consumer issues can have important impacts, and these have become more prominent following the cost increases of 2022 and 2023.

However, most of the research on small businesses necessarily provides a fairly high level assessment of the issues that small businesses face as consumers – what those issues are, what difficulties they create, and how small businesses seek to resolve them. The purpose of this new research is to shed more light on these issues.

Consumer protections for micro and small businesses

Micro and small businesses engage with a wide range of markets as consumers. However, the consumer protections afforded to these businesses differ considerably depending on the sector, reflecting factors such as the varying regulatory frameworks and extent of market oversight.

We identified eleven markets to focus on in this research. These markets are defined broadly in order to capture the range of different products that micro and small businesses might engage with. The markets themselves were largely selected to reflect those which small businesses are most likely to engage in. The eleven markets covered in this research are:

• Energy
• Telecommunications
• Financial services
• Legal and accountancy services
• Water services
• Postal services
• Digital services, IT and software
• Renting / leasing property
• Building repairs, improvements or maintenance
• Vehicles
• Any goods other than vehicles

This analysis section considers the extent to which consumer protections for micro and small businesses align or differ from those available to individual consumers in each of these eleven markets.

Regulatory oversight     

A key differentiator across markets is the presence (or absence) of dedicated regulatory bodies and independent redress schemes. In regulated sectors such as energy, telecommunications, financial services, and water, micro businesses often benefit from protections similar to those afforded to individual consumers. These may include access to ombudsman services, transparency requirements, and contractual safeguards. However, the extent of these protections is often significantly lower for small businesses than for individual domestic consumers.         

In energy, recent reforms by Ofgem have extended important protections—including access to the Energy Ombudsman and mandatory use of redress scheme-affiliated brokers—to small businesses from 2024 onwards.[xvi] This represents an instance where small businesses are being brought closer in line with individual consumer protections. Similarly, in financial services, while only micro businesses tend to benefit from measures such as cooling-off periods in some circumstances, broader FCA oversight through the Consumer Duty also extends to small businesses (again in some circumstances) and they can access the Financial Services Ombudsman.[xvii]    

In contrast, in telecommunications, regulatory protections are mostly limited to micro businesses (fewer than 10 employees).[xviii] 

In markets such as vehicles, digital services, and building services, regulatory oversight is minimal. Consumer protections in these sectors are typically derived from general contract law.

Contractual transparency and mis-selling protections    

Protections around transparency, mis-selling, and fair contract terms are unevenly applied across markets. In telecommunications and energy, regulators such as Ofcom and Ofgem enforce transparency and prohibit unfair practices, but again, micro businesses benefit more than small businesses. Ofcom, for example, extends rules on switching and exit rights to micro businesses, whereas small businesses must secure such protections contractually.

Financial services also offer some mis-selling protections—particularly where regulated advice is provided—but the extent to which these apply to small businesses is limited and context-specific. In property leasing and building services, businesses receive little formal protection against mis-selling, relying instead on basic contract law or pursuing legal recourse.

Cooling-off periods and switching rights      

Individual consumers benefit from statutory cooling-off periods under consumer law—typically 14 days for distance or off-premises sales. Such protections are seldom extended to businesses. In financial services, micro businesses may sometimes access cooling-off rights, though less consistently than individual consumers, and small businesses rarely can.

Switching rights are supported in regulated markets such as energy and telecoms (for micro businesses), where ease of switching is seen as a means of driving competition. However, in most other markets no such switching rights exist beyond what is agreed contractually.

Ombudsman and alternative dispute resolution services

While ombudsman schemes can be mandatory in regulated consumer markets, participation is patchier for business-facing services. For example:

• In energy, the Energy Ombudsman now covers both micro and small businesses.[xix]
• In telecoms, only micro businesses have access to dispute resolution services via schemes like the Communications Ombudsman or the Communication and Internet Services Adjudication Scheme (CISAS).[xx]
• In financial services, both micro and small businesses may complain to the Financial Ombudsman, but eligibility depends on size, turnover, and complaint nature.[xxi]
• In postal services, small business consumers using Royal Mail’s USO (Universal Service Obligation) services can access the CEDR’s (Centre for Effective Dispute Resolution) ‘Postal Redress Service’ (POSTRS) to attempt to resolve disputes. However, non-USO services provided by other postal services providers do not benefit from the same level of regulatory consumer protections as the USO services do.[xxii]
• Vehicle disputes generally fall outside the Motor Ombudsman’s scope for businesses, unless linked to warranties or FCA-regulated finance.[xxiii]
• Legal, accounting, and property services may offer redress through sectoral regulators (e.g., Scottish Legal Complaints Commission[xxiv] or Financial Reporting Council[xxv]), but access for small businesses is less clear-cut and often limited. Where the dispute relates to building services there are a number of options relating to alternative dispute resolution but they are not free.

Consumer advice services for small businesses

When individual consumers in Scotland experience a problem with goods and services they are able to seek free advice and information from a number of organisations, including Advice Direct Scotland’s ‘Consumer Advice’[xxvi] helpline and Citizens Advice Bureaux.[xxvii] In contrast, the options for small businesses relating to free information and advice are more limited.

If the issue relates to Energy then ‘Energy Advice’[xxviii], a service provided by Advice Direct Scotland , can provide free information and advice for micro and small businesses. ’Business Debtline’[xxix] is a registered charity who also provide free expert debt advice to small businesses in England, Wales and Scotland.

Where the small business needs advice relating to other consumer issues there are no funded specialist free advice and information services like there are for individual consumers, although in practice ‘Consumer Advice’ and local Citizens Advice Bureaux may provide some advice depending on the nature of the query.

‘Business Companion’, from the Chartered Trading Standards Institute provides free legal guidance to businesses on consumer protection law.[xxx] However, its focus is on businesses’ own responsibilities under the law as sellers rather than what their rights are if they experience a problem themselves.[xxxi] Local authority Trading Standards Services may also provide advice on consumer issues as part of their general business advice role but this will vary according to individual local authority priorities.[xxxii]

Advice may be available from other sources. ‘Business Gateway’ has local offices all over Scotland and can be an important source of general advice for small businesses.[xxxiii] If the business is a member of a trade body or similar, they can also be an important source of general business information and advice. However, these bodies may not have the same expertise on consumer issues that consumer advice bodies can provide. If a small business needs specialist legal advice on a consumer issue their only option may be to pay for advice from a solicitor.

There does not appear to be any Scottish specific research on legal issues for small businesses. In England and Wales the Legal Services Board undertake a regular Small Business Legal Needs survey. Its most recent survey (2021) found that nearly one third (32%) of small businesses experience a legal issue annually.[xxxiv] Interestingly, ‘trading issues’ which seem to be closely related to what we have called consumer issues in this report were experienced most often (21%).[xxxv]

This survey also found that only a quarter (25%) of small businesses in England and Wales with a legal issue used professional help in response to a legal issue, with accountants, membership or trade bodies, and advice organisations such as Citizens Advice Bureau all also providing support.

Summary       

Across all markets, individual (non-domestic) consumers typically receive a higher baseline of consumer protections. These include:

• Universal access to ombudsman and redress schemes where they exist
• Statutory rights to information, cooling-off, and cancellation
• Stronger protection from unfair contract terms and mis-selling
• Access to free consumer advice       

Micro businesses are sometimes granted similar protections, particularly in regulated sectors, but small businesses are more commonly treated as commercial actors expected to negotiate their own safeguards.   

Energy, financial services and water stand out as sectors where some protections are being extended to small businesses, reflecting recent reforms and a recognition of small businesses’ vulnerability to rising costs and unfair practices. Even in these markets however, the degree of protections on matters such as pricing is lower than for individual consumers; for example in energy, there is no equivalent for business consumers of the ‘price cap’ that has been extended to individual consumers.

Telecommunications offer some protections for micro businesses, but less so for small businesses.         

Most other markets are less regulated in the business-to-business space, with redress relying heavily on contract law and with minimal statutory support.

How do small businesses perceive their experiences in different markets?

For each of the market loops that they participated in, small businesses were asked to indicate the extent to which they were satisfied or dissatisfied with their overall experience of engaging in that market. Respondents were then asked the extent of their agreement with seven statements that were designed to provide further insights into their experiences of engaging in those markets. The statements were designed to provide a measure of small businesses’ confidence in engaging in the markets, their experience in relation to specific aspects of the consumer experience such as the reliability of a product and clarity of billing, and their perceptions of the extent to which they were treated fairly when engaging in markets. (Businesses’ experience of specific problems in each market was covered in subsequent questions, and is described in Chapter 5.)

Some statements were framed positively, while others were framed negatively. This reflected a conscious effort to maintain cognitive attention during the survey.

The positively framed statements were:

• The products we have procured meet the businesses’ needs and aspirations
• We pay a fair and reasonable price for the products we receive
• When I need to purchase or renew a product in the future, I'm confident I know how to secure the best product at the best deal for my business
• Billing arrangements are easy to understand
• It is easy to contact the supplier to resolve issues with the product or contract

The negatively framed statements, which were interspersed with the positively framed statements, were:

• The terms and conditions are unfair
• The products have not been reliable

The rest of this chapter presents the results of the question on overall satisfaction, and the responses to the seven statements.

Overall satisfaction is generally high, but less so in energy, water and telecoms

Respondents overall satisfaction of their experience in engaging in different markets is shown in Chart 4.2. In most markets covered, over three quarters of respondents were satisfied with their experience of engaging in the market, and fewer than ten per cent were dissatisfied.

The lowest level of satisfaction was in the energy market where fewer than 60 per cent of businesses were satisfied with their experience. The energy market was also the market with the highest levels of dissatisfaction, at 20 per cent.

Other than energy, the markets with the lowest levels of satisfaction were water, telecoms, and financial services, Dissatisfaction was also relatively high in water and telecoms (although less so in financial services).

The majority of small businesses feel that products procured meet their needs

In all markets, the majority of businesses agreed that the products they have purchased meet their needs and aspirations. Typically, just over 80% of participants agreed with this statement across markets – the lowest level of agreement was in relation to energy (72% agreed).

The results suggest a generally high level of cross-market satisfaction about the suitability of products for business needs. The levels of positive response were perhaps surprisingly high in relation to vehicles and building repairs – markets which are sometimes associated with higher detriment in the non-domestic sector – and in physical goods other than vehicles.

In most markets, a majority of small businesses think they pay a fair price for the product received – but energy is a clear exception

In nearly all markets, between 70 – 80% of participants agreed with the statement that they paid a fair and reasonable price for the products received.

Water was a slight outlier, with only 60% of businesses agreeing with the statement. But the clear outlier was energy, where only 37% of participants agreed that they paid a fair and reasonable price. Indeed, ‘energy’ was the only market where disagreement (46%) outweighed agreement (37%).

Small businesses find it trickier to contact suppliers in the regulated utilities markets

Agreement with the statement ‘It is easy to contact the supplier to resolve issues with the product or contract’ was lowest in water, energy, post and telecoms. These are markets dominated by relatively few large suppliers, overseen by sector-specific regulators.

Agreement with this statement varied between 70% - 80% in other markets – somewhat lower than levels of agreement with most other statements. Agreement was particularly high in relation to legal and accountancy services. This may reflect a tendency of small businesses to establish longer term relationships with their (often smaller) service providers.

Billing arrangements are generally perceived as being easy to understand

Generally, there were fairly high levels of agreement that billing arrangements are easy to understand – with the responses in most markets ranging from 80% to 90%. A lower percentage of respondents agreed with the statement in relation to the energy and water markets. But on the issue of billing, energy was not as much of an outlier as it was for pricing as a whole. However, it should be noted that energy stakeholders confirmed in discussions that billing issues are the commonest form of complaints.

Small businesses confidence in finding the best deals for their firm is fairly consistent across markets

In terms of having confidence in securing a good deal when purchasing products in the future, a majority of respondents expressed their confidence in relation to all of the markets – ranging from 69% for ‘energy’ to 91% for ‘vehicles’. ‘Energy’ and ‘water services’ (73% agreement) attracted the lowest levels of positive responses.

Terms and conditions are most likely to be perceived as unfair in the energy market

Unlike the preceding statements, this one and the following statement were phrased negatively.

The energy market featured prominently in relation to terms and conditions being unfair, with 31% of respondents expressing this view. Agreement was also higher than average in relation to water.

In contrast, terms and conditions were less likely to be seen as unfair in legal and accountancy, building repairs, other goods, and financial services.

In several markets, at least one in four respondents felt that products were unreliable

There were several markets in which a quarter or more of respondents indicated that the products they had used had not been reliable – ‘water services’ (28%), ‘energy’ (27%), ‘postal services’ (25%) and ‘digital services, IT and software’ (25%).

In some of these markets, notably energy and water, it is not clear how respondents have interpreted this question – it seems unlikely that a quarter of respondents in these markets would have regularly experienced loss of power or water services, although it is at least possible that lack of reliability could refer to perceived unreliability of meters or other specific elements of service.

In aggregate, small businesses’ experiences are least likely to be positive in regulated utilities markets

To bring the analysis from the preceding seven statements together, we calculated the average rank of each market across all of the seven statements. This approach assigned a score of 1 to the market with the highest percentage of positive responses for each statement and a score of 11 to the market with the lowest percentage, and an average score was then calculated for all seven statements.

The results of this analysis are summarised in table 4.2. This analysis confirms starkly how energy and water services were consistently perceived most negatively across all seven statements. In these two markets, businesses were less likely to think prices are fair, and less likely to think that it is easy to contact suppliers, or understand billing arrangements. In these markets, businesses are also less likely to be confident about their ability to identify the best products for their needs. In energy in particular, terms and conditions were more likely to be perceived as unfair.

The next least positively viewed markets in the context of our seven statements were telecommunications and post. These markets were not viewed as negatively as energy and water, but it is nonetheless striking that the least well perceived markets are regulated utilities markets. However, it should be noted that only Royal Mail’s services are regulated and small businesses’ perceptions of post may be influenced by their experiences of private mail/parcel services.

What is perhaps equally striking is that, across all the statements, ‘legal and accountancy services’ was fairly consistently perceived relatively positively, followed by ‘building repairs, improvements or maintenance’ and ‘any goods other than vehicles’.

Experiences and satisfaction with using intermediaries

In some markets, many small businesses rely on Third Party Intermediaries to help them secure the right type of contract for their needs. Third Party Intermediaries (TPIs) are companies that help customers find and agree a contract or tariff, or that provide advice and support with service procurement. In the non-domestic sector, TPIs typically include brokers, advisers, consultants and payment aggregators – but they can also include price comparison websites.

TPIs can play an important role for small businesses, helping them engage in complex markets, advising them on products and suppliers, and enabling them to choose options most suited to their needs.

However, TPIs have also been associated with less positive behaviours and negative impacts on small businesses, particularly in the energy[xlii] and water markets.[xliii]. These include some examples of mis-selling and misrepresentation or products, inconsistent approaches to consumer protection, poor customer service and lack of access to dispute resolution.

It is also important to note that the way that TPIs are regulated differs substantially across markets.

In the energy market, TPIs are not regulated. A range of Codes of Practice and accreditation schemes exist, but these are voluntary. The UK government has recently consulted on options for a more comprehensive regulatory framework for TPIs with the intention to “fortify consumer protection and bolster trust, whilst also promoting competition”.[xliv]

In the financial sector, intermediaries are regulated by the FCA. The specific authorisation scheme depends on the nature of the financial products that a firm intends to supply. In some cases, firms require to be directly authorised by the FCA, whereas in other cases, firms need to register with the FCA but are not authorised.[xlv]

In the Scottish non-domestic water market, TPIs are not regulated. A 2021 report highlighted that, whilst TPIs provide a number of benefits to small businesses engaging in the water market, there were significant concerns about inconsistent approaches to consumer protections and standards.[xlvi] A new voluntary Code of Practice commits Licensed Providers to ensure that TPIs acting on their behalf are aware of, and comply with, the provisions of the Code of Practice.[xlvii] This is a positive development and is supported by all Licensed Providers in the market signing up to the Code. However, while these commitments represent welcome steps to strengthen customer protections when engaging with TPIs, they are indirect in that they apply to signatory Licensed Providers. This means that there is significant reliance on Licensed Providers to have visibility of the activities of intermediaries operating on their behalf. The nature of the Code also creates inherent limitations to its scope, as it must focus primarily on TPIs acting on behalf of Licensed Providers or engaging with them directly.

With that in mind, what does our research say about small businesses’ use of and satisfaction with TPIs?

The survey asked which markets respondents had used the services of brokers / TPIs to make purchases in. Chart 4.10 shows the proportions of survey respondents who engaged with third parties when making purchases in different markets.

Intermediaries were most often used for ‘financial services’ with over two thirds of respondents citing this market. In ‘energy’, just under a third of respondents said they used brokers. Just over 1 in 10 used third party services in relation to the ‘water services’ and ‘telecommunications’ markets. One third of respondents also said they used TPIs in markets other than those covered here.

Satisfaction with intermediaries

Generally, satisfaction with intermediaries appeared to be fairly high. Chart 4.11 shows the proportion of businesses who suggested that they were dissatisfied with the services provided by intermediaries in relation to different markets.

Dissatisfaction rates were very low in most markets, including ‘financial services’ which was the market that respondents most commonly used third party services to purchase products in.

Respondents were relatively more dissatisfied with these services in relation to the ‘energy’ and, to a lesser extent, the ‘water services’ markets. The level of dissatisfaction in the ‘energy’ market was higher than that found in recent UK SME research from the regulator which found that 9% were dissatisfied with brokers that were used to switch contracts.[xlviii] However the question in this small business survey was broader and did not explicitly refer to switching contracts.

The relatively higher level of dissatisfaction with TPIs in the energy market reiterates the case for regulatory reform, which the UK government and Ofgem are taking forward. In 2024, the energy regulator announced amendments to existing regulations that are designed to give all businesses greater transparency in relation to broker’s fees and non-domestic suppliers can now only work with brokers that are members of a redress scheme when they are arranging contracts with small businesses.[xlix] In our discussions with stakeholders, we heard evidence that the nature of complaints in relation to TPIs in energy is often around sales approaches, rather than billing issues per se.

In the non-domestic water market in Scotland, the debate around TPI regulation is still live. However, the recommendation of a 2021 report to better understand the use of and standards delivered by TPIs in the non-domestic market in Scotland has not yet been implemented.[l]

The nature of problems experienced

The type of problems experienced varied across markets. Chart 5.2 shows how experiences of the different issues varied across sectors for the five most prevalent problem types and is based on the proportions of small businesses who experienced an issue rather than all small businesses who purchased in the market.

Table 5.1 provides further detail on the main problems experienced in each market.

• In energy, a range of problems were commonly identified, with misleading price, unfair or unclear terms and conditions, and misleading information all frequently cited. Energy was the only market for which misleading price was the leading problem identified – this is discussed further in the next sub-section.
• Unfair or unclear terms and conditions were the dominant problem identified in water, financial services, and renting/leasing property. The finding that unfair or unclear terms and conditions caused issues in the water market reinforces survey research from 2020, which flagged SME issues in relation to billing and debt management practices, communication, information and customer service. These were all linked to a lack of consumer understanding around how the non-domestic water market is structured and operates, and suboptimal levels of transparency in relation to contractual terms and conditions.[li]
• In telecoms, the dominant problems were poor quality and misleading information. Poor quality was also the dominant issue in vehicles and legal and accounting.
• In post, by far the most widespread problem cited was ‘problems with delivery’. Problems with delivery was also the dominant problem associated with general goods (i.e. goods other than vehicles) and building services.

Impact of consumer problems on small business performance

Overall, 24% of small businesses surveyed had experienced at least one issue that had affected their business performance.

To get a sense of the prevalence of consumer issues that impact small businesses in Scotland, Chart 5.3 shows what proportion of small businesses who engaged in each market experienced a consumer problem that impacted their businesses’ performance.

There are three sectors in which more than ten per cent of respondents to our survey reported having experienced an issue which affected business performance – energy, financial services, and telecoms. In other markets, between 5-10% of small businesses had experienced problems which affected their performance.

Whilst this does demonstrate that only a minority of small businesses that participate in each market experience impactful problems in any year, that is a reasonably significant minority.

The proportion of small businesses experiencing impactful issues is highest (above 10 per cent) in energy, financial services and telecoms. The following sub-sections expand on what we know about the nature of these impacts.

Energy

In energy, the relatively high levels of impactful problems, and identification of misleading price, unfair terms and conditions and misleading information as the top three issues chimes to an extent with findings from broader research. A 2023/24 regulatory review of the non-domestic energy market drew attention to issues that small businesses had been experiencing in relation to energy contracts, such as: onerous requirements for security deposits; businesses being locked into high fixed price contracts; and difficulties changing tenancy/occupier status in recently occupied premises. [lii]  The regulatory review also drew attention to widespread perceptions of generally poor customer service. Further research by the regulator in 2024/25 found that there had been an increase in business complaints in relation to billing and overcharging, including perceived unfairness around pricing, a lack of transparency around pricing, and one in six businesses feeling that they had been treated unfairly in their dealings with their supplier.[liii]

These findings reflect the type of queries received from small businesses by Advice Direct Scotland’s energy advice service. During 2024, ADS’ energy advice service received around 100 queries per quarter from small businesses.[liv] The most frequent issues raised were: pricing and billing issues, and contract issues. Billing issues largely related to businesses’ struggling to understand their bills, or bills being higher than expected. Contractual issues included misunderstanding of contract terms (exacerbated by a lack of a ‘cooling off’ period for many small businesses), and businesses being moved on to higher ‘deemed contracts’ once their initial contract period comes to an end.

The 2025 ‘Energy Ombudsman Broker Dispute Resolution Scheme Annual Review’ highlights common dispute themes they received for microbusinesses.[lv] Some of these themes may reflect the misleading price, information and unfair terms found in our research. For example, the Review highlights the use of “blend and extend” contracts, where a high-rate supply contract is renegotiated and extended for a lower, but still higher than market rate, price. Issues were also raised in relation to ‘deemed contracts’ following a change in tenancy.[lvi] Micro businesses reported misleading impressions and unrealistic promises in this practice.

The findings also mirror those from research by Citizens Advice in 2024 which found that 75% of micro and small businesses had experienced a billing problem in the past 12 months.[lvii] The same research also found small businesses suffering from poor customer service in the energy sector, characterising customer service in the sector as being ’defined by low expectations’.[lviii] Citizens Advice has called on Ofgem to investigate billing practices for micro and small businesses.

It is difficult to disentangle the likely effect of aspects of the consumer experience, such as contractual terms and billing information, from energy price rises. Business surveys such as the Scottish Government’s ‘Business Insights and Conditions’ survey typically find that energy prices feature prominently in business concerns and they are considered to be key operating cost variables.[lix] But whilst it is difficult to disentangle the effects of price increases from more general consumer issues, affordability issues are likely to be exacerbated by challenges in understanding billing. Ofgem’s 2024/2025 research found that those businesses that had low self-reported energy literacy were more likely to say that they were struggling with payments compared to those with moderate and high energy literacy.[lx]

It is also important to reiterate that the regulator has instigated regulatory and legislative changes (described in chapter 2), but that these did not come fully into effect until December 2024. If these changes are leading to improvements in small businesses’ consumer experiences, those impacts may not have been picked up by our survey - which asked businesses about their experiences in the 12 months up until March 2025.

Financial Services

In financial services, ‘unfair or unclear terms and conditions’ was the most commonly cited problem. Nonetheless, this is a broad market, and small business organisations have drawn attention to a number of general issues in this market.

In recent years, high interest rates and access to credit more generally have been repeatedly flagged in other research. Quarterly survey data from the Federation of Small Businesses suggests that perceptions of credit availability and affordability have been predominantly negative in recent quarters and data for Q1 2025 indicated that-over half of the surveyed businesses had negative attitudes.[lxi] Specific issues include the widespread requirement that many financial institutions have for company directors to provide personal guarantees,[lxii] and the challenges for the self-employed of securing essential financial products.[lxiii] The FSB report argued that there is “a prevailing lender bias and risk-averse culture that fails to adequately consider the contemporary landscape of entrepreneurship, ultimately hindering economic growth”.

Telecoms

In telecoms, the incidence of impactful problems was relatively high, with ‘poor quality’ and ‘misleading information’ as the most frequently cited problems.

Successive reports have highlighted the criticality of telecommunications to micro and small businesses, particularly since the pandemic accelerated the adoption of hybrid working. Issues associated with broadband outages and areas of weak mobile coverage generally have been well publicised and may be behind some of the issues of detriment identified in our survey. FSB research (from 2019) indicated that almost half (47%) of small businesses experience unreliable data connectivity, which rises to 59% of SMEs in rural areas.[lxiv] In August 2024, various business groups, including the FSB and Institute of Directors, wrote to Ofcom to call for an automatic compensation scheme for businesses affected by broadband outages. The letter highlighted research that 51% of businesses in the UK experienced at least one outage of a fixed connectivity line.[lxv]

These issues are likely to be more accentuated in Scotland. There is recent evidence from the regulator that suggests that while the quality of telecommunications services has increased year on year, Ofcom’s 2024 Connected Nations report found that “Scotland remains, by many metrics, the least connected of the UK’s four nations.”[lxvi] Ofcom research indicates that SMEs based in rural areas of the UK, and Scotland, and less likely to be satisfied with the service they receive, and more likely to have experienced issues with slow upload speeds and increased mobile charges, compared to businesses in the UK as a whole.[lxvii]

Are some small businesses more likely to experience problems than others?

It is important to understand whether some types of small businesses are more likely to experience problems than others. We considered this question by examining whether the likelihood of a small business experiencing a problem was associated with the characteristics of that business, in terms of its size (number of employees), its age, its legal form, its geographical location, and the sector that it operates in.

We examined the significance of these characteristics in a multivariate analysis, in other words, by examining the significance of characteristics simultaneously rather than separately. This approach is useful because, by controlling for different characteristics simultaneously, it helps to identify the real characteristic of significance. For example, one might find that rurality was significantly associated with having problems, if considered on its own; but this might simply reflect that rural businesses are more likely to be small, and the smallness might be the ‘real’ factor of significance.

We examined this first by looking at the likelihood of a small business experiencing an issue in any market, and also on a market-by-market basis.

The characteristics were generally not statistically significant (at the 5 per cent level) across markets as a whole (Chart 5.4), nor were they systematically significantly different across individual markets. (The higher likelihood of businesses in retail, distribution and hospitality experiencing a problem was statistically significant at the 10 percent level).

There were no statistically significant or meaningful differences by legal form of small business (sole traders were one percentage point more likely to experience a problem than private limited companies or partnerships), nor by business size (businesses with 1-9 employees were slightly less likely to experience a problem than either businesses without employees, or businesses with 10-49 employees).

We also considered whether any business characteristics influenced the likelihood of a small business experiencing an issue that affected their business performance ‘somewhat’ or ‘to a great extent’.

Overall, the story here is similar as it was to problems generally (Chart 5.5), with most characteristics not associated with statistically significant differences in the likelihood of experiencing impactful issues.

The conclusion from this analysis is that small businesses’ experience of problems is widespread and fairly ubiquitous across all small businesses by business size and legal form. There is some evidence that problems – and problems that impact the business – are somewhat more likely to occur amongst rural small businesses and those in retail, distribution and hospitality. Nonetheless, these differences are not significant enough to suggest that policies should focus on a specific type of small business. Instead the focus should be on finding policy solutions that will improve the situation more widely.

What actions do small businesses take when they experience problems in a market?

The survey asked what actions respondents took to attempt to resolve any issues that they experienced with purchased products. As is demonstrated in chart 5.6, by far the most commonly cited action was to contact the seller/supplier directly – more than 8 in 10 respondents who experienced a problem suggested that they would take this approach (this is legally the ‘correct’ first action). The next two most commonly cited actions were to switch provider (about a quarter of businesses) or contact an organisation for advice (almost 1 in 5 businesses).

There was some evidence that the approach to resolving problems varied across markets. Contacting the supplier/seller directly was a very common action in all markets - ranging from 94% of small businesses who experienced a problem with ‘digital services, IT and software’ to 69% of those who had an issue with a ‘financial services’ product.

The proportions of respondents suggesting they ‘switched provider’ was a fairly common behaviour (subjectively defined as 20% or more) in all markets apart from ‘water services’ (11%) and ‘vehicles’ (8%).

In terms of the energy market, the finding that 27% switched supplier was broadly in line with recent regulator research which found that about a third of SMEs switched supplier in the UK in 2024.[lxviii] However, it should be noted that the regulator’s research is not directly comparable to this small business survey which asked about switching supplier in the context of experiencing problems rather than switching for other reasons such as alternative terms and conditions or tariffs.

Energy was the market that was most frequently associated with contacting an external organisation for advice with more than a third of small businesses who experienced a problem indicating that they did this. This might reflect the fact that energy is one of the only markets where independent consumer advice is available to small businesses (via ADS). This finding contrasts somewhat with recent SME research from the regulator which found that less than 10% had sought external advice.[lxix]48 However, the regulator’s research focused on seeking advice in general rather than in relation to resolving problems, which could partially explain this discrepancy between the two survey’s findings.

Organisations such as CAS (‘Citizens Advice Scotland’) and ADS (‘Advice Direct Scotland’) currently receive requests for advice and assistance from small businesses with energy market issues, via the ‘Extra Help Unit’ and ‘energyadvice.scot’ respectively.[lxx] The proportion of small businesses seeking advice could increase in the future as the regulator has recently introduced a requirement for non-domestic suppliers to signpost all small businesses (previously limited to micro businesses) to CAS for support and advice.[lxxi]

In other markets, approximately a quarter of small businesses sought advice for ‘financial services’ issues and it was also a prominent action in relation to ‘building repairs, maintenance or improvements’ (23%) and ‘water services’ (22%).

Outcomes

Having collected data around what action respondents typically took when they encountered a problem in a market, the survey also asked if the issues were resolved to their satisfaction.

Across each of the surveyed markets, Chart 5.7 shows the proportion of small businesses who reported that the issues had not been resolved to their satisfaction. It should be noted that fairly large proportions in many of the markets indicated that the problem had not yet been resolved at the time of the survey. However, given that the survey did not ask how long the issues had been unresolved for (days or months, for example), the proportion of unresolved issues may be somewhat exaggerated.

The market with the highest level of unsatisfactory outcomes was ‘financial services’ where more than 1 in 3 small businesses said that the issue had not been resolved to their satisfaction. ‘Water services’ also featured prominently with more than a quarter dissatisfied, and ‘energy’ was the third highest at 18%.

For all markets, further research would be required to understand why small businesses were dissatisfied with the outcomes.

Whilst respondents as a whole were broadly split as to whether it is easier or more difficult to be a small business consumer than a domestic consumer, it is interesting to consider whether responses differ by characteristics of the business. We examined the extent to which respondents’ responses to the five statements – either individually or in combination - were associated with businesses’ legal form, size (employees), age or rurality, when these characteristics were considered individually or together (i.e. in a univariate or multivariate setting).

There were no strong associations between businesses’ characteristics and their responses. Whilst there was some evidence that sole traders were more likely to say that it was more difficult being a small business consumer than an individual consumer, and that rural businesses were slightly less likely to say it was more difficult to be a business consumer, these associations were not statistically significant.

Market Detriment: Small Businesses vs Individual Consumers

In Chapter 5 we described the incidence of problems experienced by small businesses in engaging in specific markets. The results from these questions permit tentative comparisons to be made with a recent survey of consumer detriment experienced by individual consumers – the Consumer Detriment Survey 2024 (‘CDS 24’).[lxxii] Whilst the questions, markets and products in the two surveys cannot be directly compared, the data does permit some assessment of the extent to which small businesses experience more or less detriment than individual consumers.

In the CDS 2024, consumer detriment was highest in the market for second-hand vehicles, at 28%. In our survey, incidence of ‘problems’ was higher than this in four of the surveyed markets – ‘telecommunications’ (32%), ‘postal services’ (32%), ‘energy’ (31%) and ‘any goods other than vehicles’ (30%). While none of the differences are statistically significant, it should be noted that the subgroup sizes are fairly small and in broad terms, this comparison could still suggest that the levels of detriment that small businesses experience in certain markets is fairly substantial and worthy of attention from consumer advocacy/protection organisations.

When comparing specific markets – for which broad comparisons can be made – there is evidence to suggest that detriment incidence could be at least as high amongst small businesses in Scotland as it is for individual consumers. In energy, 31% of businesses in this survey reported problems compared to 21% of individual consumers reporting detriment for ‘electricity and gas services’ in CDS 24. For telecommunications, 32% of small business respondents reported problems in our survey. This compares to 22% of individual consumers for ‘internet provision services’ , 14% for ‘mobile telephone services’ and 10% for ‘fixed telephone services’ in CDS 24.

Although it should be stressed that the two surveys may not be capturing exactly the same products in the surveyed markets, this high level comparison does suggest that small businesses seem to be experiencing similar or slightly  higher levels of detriment in some markets than individual consumers are.

Implications and recommendations  

Until now, the impact of consumer issues on small businesses have tended to receive less attention than many other challenges facing small businesses. This report has demonstrated how important those consumer issues can be. Given the criticality of micro and small businesses to the Scottish economy, it is imperative that these businesses are not impeded by a lack of information, poor service, or unclear routes for redress.

Improving the consumer experience for Scotland’s micro and small businesses can help these businesses thrive. And when small businesses can engage in markets with confidence – knowledgeably and with a willingness to try new products and suppliers – this helps create the conditions for economic dynamism which support growth.

While micro and small businesses share many similar consumer issues as larger firms and domestic consumers, their smaller scale on the one hand and more limited legal protections on the other can leave them particularly exposed to information asymmetry, reliability problems, and unfair contract terms. Given the importance of micro and small businesses to the Scottish economy, it is important that regulators and policy makers regularly review how effectively and fairly  that markets operate for micro and small businesses.

We acknowledge that getting the balance right is not easy. The freedom to contract has been a fundamental principle of UK law, supporting commercial autonomy, certainty and efficiency. There is sometimes a case for limiting this freedom to protect micro and small business consumers from unfair practices and harm. But policy makers do also need to ensure that any regulatory burden associated with the objective of protecting small business consumers is proportionate.

Recommendation 1: Monitoring small business consumer issues

To inform and further evidence priorities for policy change, regulators in all sectors need to enhance their monitoring of consumer issues faced by small businesses in order to identify systemic issues and appropriate mitigation measures. This will include systematic monitoring of complaint data held by regulators, suppliers, advice bodies and ombudsmen (where relevant) – which should be published regularly to allow stakeholders to monitor trends – combined with regular surveys of small business sentiment.

This recommendation is particularly important in relation to the business-critical markets of energy, telecoms, financial services and water. As such, it is aimed particularly at Ofgem, Ofcom, FCA and WICS.

Monitoring is particularly important where regulatory changes have recently been implemented, in order to understand how services are being used and the impact this is having. This includes, for example, the recent extension in access to the Energy Ombudsman to small (previously only micro) businesses.

Recommendation 2: Reviewing the provision of consumer and contract information for small businesses

A finding from this report is that micro and small businesses do not always feel they can access robust information about accessing goods and services or what to do when things go wrong in different markets. Enhancing the provision of relevant information is a useful way to improve small businesses’ consumer experience without requiring new regulation or significant additional investment.

It is important to distinguish between information for small business in relation to specific markets, and information on procurement or contracting more generally.

In relation to specific markets, regulators – notably including Ofgem, FCA, and Ofcom – should regularly review the appropriateness and effectiveness of information provided specifically for micro and small businesses. This should include the effectiveness of information on navigating business choices and choosing products and suppliers, and factors to consider when entering contracts or when circumstances change. Regulators should also regularly review the adequacy of signposting to appropriate sources of advice and redress, including that provided by suppliers themselves.

In terms of consumer issues more generally, our research found that small businesses do not always know where to find information about their contractual rights and obligations. The Scottish Government should work with small business representatives, consumer advocacy organisations and advice bodies to explore the scope to enhance access to consumer and contract law information for small businesses, and the organisation best placed to deliver this. There could be a case for incorporating such advice into existing Business Companion services (delivered by the Chartered Trading Standards Institute), or by extending the remit of Advice Direct Scotland in relation to small businesses.

Recommendation 3: Improving standards in energy and water

This report finds consistent evidence of lower business satisfaction with the energy and water markets compared to other markets, with satisfaction particularly low in relation to issues around billing and ability to contact suppliers.

In energy this points to a number of recommendations for different organisations including:

• Regulator Ofgem should explore how licence conditions could be used to tackle the issues experienced by small businesses relating to poor satisfaction such as misleading pricing, unfair contractual terms, and difficulties in contacting suppliers.
• We welcome that the UK Government is continuing to drive forward efforts to establish a comprehensive regulation framework for TPIs that enhances small businesses and micro businesses access to, and trust in, energy markets and strengthens their abilities to choose and procure affordable, flexible and sustainable energy services.
• The regulator, the energy ombudsman, suppliers, consumer bodies and charities should work together to signpost the services provided by the advice sector and energy ombudsman to small businesses and micro businesses, reduce the time taken to reach resolutions and monitor redress outcomes.

Consumer Scotland intends to produce a follow-up report looking in more detail at recommendations for the energy market.

In relation to the non-household water sector, the evidence in this report reinforces many of the concerns which prompted the development and adoption of the Code of Practice by Licensed Providers across the water sector. The Code itself is at an early stage in the market, being introduced in April 2025 and the ‘Market Health Check’ process (which validates if retailers are meeting their new commitments) will begin in October 2025.

Nevertheless, the Code of Practice was initially developed to address many of the issues highlighted in our research, with provisions focused on areas such as clearer terms and conditions and improved communication between Licensed Providers and customers.

Consumer Scotland are working with the sector to establish a new Governance Group to maintain and update the code and ensure it acts as a foundation for continual service improvement. This group will be chaired by Consumer Scotland and informed by additional consumer research on the experience of businesses in this sector next year.

This upcoming research will be crucial to demonstrate if the Code is beginning to deliver on its potential and is addressing the issues highlighted by firms in this research.

In the meantime, Consumer Scotland will be working with WICS, the Central Markets Agency and retailers to ensure that customers are fully aware of the enhanced service they should expect from Licensed Providers under the Code.