The Rt Hon Margaret Hodge MP, Chair of the Committee of Public Accounts, today said:
"Consumers are being ripped off to the tune of £7 billion a year by sellers of defective goods, dodgy doorstep traders and online fraudsters. But the arrangements for protecting victims are incoherent and fragmented.
Local authority Trading Standard Services deal with cases within their areas, but rogue traders do not respect local authority boundaries. The NAO reports that consumers lose an estimated £4.8 billion each year through regional or national malpractice and the enforcement system for dealing with scams at this level is inadequate. It was established to deal with single instances of trader malpractice, such as selling short measures, and has not kept pace with the rise of mass market scams, often perpetrated online.
Too often cases of consumers being ripped off fall through the cracks between enforcement bodies. £247 million was spent on enforcing consumer law in 2009-10, mostly by local authorities, but most Trading Standards Services are too poorly resourced to take on regional work. In 2009-10, the Department provided £8 million of funding to tackle scams and malpractice that occurred at a regional level. This funding has now ended.
The Department must ensure that there is funding and proper systems in place to escalate cases to the right enforcement body. It plans to abolish Consumer Focus and scale back the work of the Office of Fair Trading. The Department must ensure that these changes do not allow new sophisticated scams to emerge and persist without challenge.
Doorstep selling of substandard or non-existent services is a massive issue for consumers, particularly those who are vulnerable. The Department has too little information on what the cost of protecting consumers is or how successful current interventions are."
Margaret Hodge was speaking as the committee published its 54th Report of this Session which, on the basis of evidence from the Department for Business, Innovation and Skills (the Department), the Office of Fair Trading and the Trading Standards Institute, as well as representatives of Citizen's Advice and Consumer Focus, examined the current arrangements for the enforcement of consumer law, and the proposed changes to the regime.
Individual consumers lose around £6.6 billion every year because of the malpractices of traders, for example by purchasing defective goods, being misled by advertising or being offered inadequate redress by traders. At least £4.8 billion is lost through malpractices which occur at a regional or national level, such as mass market scams, counterfeiting, and unscrupulous traders who operate over large geographical areas.
The Department has overall responsibility for policy on consumer protection. However, the majority of enforcement work, from weights and measures testing to the prosecution of rogue traders, is carried out by local authority Trading Standards Services, each with jurisdiction in only its own local area. The Office of Fair Trading enforces some laws at a national level, such as breaches of competition law, the Unfair Terms in Consumer Contracts Regulations and the regulation of consumer credit.
The enforcement of consumer law cost taxpayers £247 million in 2009-10. Local authorities spent £213 million of this on the provision of Trading Standards Services, and the remaining £34 million was spent by Central Government, to support regional and national enforcement work, including that of the Office of Fair Trading.
Despite the high cost to consumers of regional and national problems, it is not clear which of the various enforcement bodies is ultimately responsible for tackling them. Furthermore, the level of funding available to different Trading Standards Services varies widely. Some areas have as few as two Trading Standards Officers while others employ over a hundred. This results in very different levels of coverage in different areas, and there are enforcement deserts where local authorities do not spend enough money to provide an acceptable level of protection to consumers.
Taking on enforcement work which has regional or national importance can expose enforcement bodies to considerable financial risk, for example if a case goes wrong and the costs incurred by the defendant are recovered from the prosecuting body. Furthermore, the potential profitability of committing an offence can outweigh the maximum available penalty, meaning that existing penalties and powers are often insufficient to provide an adequate disincentive to would-be offenders.
The Department has limited understanding of the true cost of protecting consumers or of the success of existing interventions. The impact of doorstep crime, where traders with no registered premises go from door to door selling substandard or even non-existent services, has not been quantified despite it being a hugely important and serious issue for consumers which has a disproportionate impact on people who are most vulnerable. Furthermore, there is no clear and complete information on how much enforcement activity actually costs. Without collecting better quality information, it is impossible for policy makers to make sure money is focussed on tackling effectively the problems that cause the most harm to consumers.
The approach to enforcing consumer protection has not kept pace with the changing nature of the problems it is intended to tackle. When the enforcement system was first established, trading was more localised and consumers tended to lose money through singular instances of malpractice, for example, by being overcharged or sold a short measure. Now, the increase in the number of companies who operate nationally and the trend towards online shopping have caused problems which are more likely to affect consumers on a regional or national level. The system for protecting consumers has not kept up with these changes and is not properly equipped to tackle new problems as they emerge.
The Department has recently consulted on reforming consumer law enforcement. It should address the committee's recommendations in its reforms. The changes the Department makes must deliver a system fit for the modern era. Responsibility for tackling regional and national instances of malpractice or rogue trading must be clearly designated. In particular, the committee is concerned about instances where companies across the same sector are engaged in the same behaviour, which can therefore cause extensive consumer detriment. Enforcement bodies must have access to sufficient resources and powers to tackle these cases.