Clause 8 - Promoting good consumer practice

Enterprise Bill – in a Public Bill Committee am 6:00 pm ar 16 Ebrill 2002.

Danfonwch hysbysiad imi am ddadleuon fel hyn

Question proposed, That the clause stand part of the Bill.

Photo of Miss Melanie Johnson Miss Melanie Johnson Parliamentary Under-Secretary, Department of Trade and Industry

The clause sets out the OFT's function to encourage and approve codes of practice produced by a variety of bodies. It sets out the OFT's powers to implement the new codes of practice regime to make it easier for consumers to identify reliable traders, give formal approval to good business-to-consumer codes and encourage such codes. The OFT will be able to oversee the operation of approved codes, withdraw approval from codes that are not operating satisfactorily, and signify approval of codes in any manner that it sees fit, including the creation of a logo and authorisation of sponsors and their members to use it. That will help consumers to recognise approved codes.

It is intended that adherence to a code of practice should ensure good practice by business when dealing with consumers. Only codes that regulate the conduct of members will be approved. For example, a code may contain a redress mechanism or a complaints procedure. A code might also include sector-specific criteria. The OFT will be able to encourage the making and use of such codes of practice that it considers will safeguard and promote the interests of consumers.

The clause clarifies the OFT's powers. It was uncertain whether such powers existed under the Fair Trading Act 1973, which is to be repealed by schedule 26, because that legislation was stated in very general terms. The new regime attempts to build on it and will benefit consumers and business alike. It will make it easier for consumers to find reliable businesses. Good codes of practice are sometimes more effective at solving consumers' problems than recourse to law. Businesses will gain a marketing advantage from OFT approval. It will also help good businesses to distinguish themselves from rogues.

Self-regulation can be a viable alternative to statutory regulation. It is sometimes better for protecting consumers, as legislation can be inflexible and difficult to change. Codes, however, can be changed quickly in response to new unfair business practices that are detrimental to consumers. Regulation can impose unnecessary bureaucracy and additional costs upon business, with the knock-on effect for consumers of increased prices.

With an effective marketing campaign on the value of codes, we believe that businesses in most sectors will want to sign up to approved codes, or to set up codes where they do not exist. We want to enable the widest possible range of businesses to join, including small local firms. The provision will, therefore, allow a range of organisations to be code sponsors, such as local authorities, chambers of commerce, registered charities and the promoters or landlords of shopping centres. Businesses will not have to belong to a trade association to gain the right to use a logo. That will make it easier for small businesses to find a suitable point of entry.

It is time for a new, effective codes of practice

regime that benefits both consumers and business. I therefore commend the clause to the Committee.

Photo of Nigel Waterson Nigel Waterson Ceidwadwyr, Eastbourne

I do not want to detain the Committee for long because we think that the clause is a thoroughly good idea–that is why we have not tabled any amendments to it. The Minister referred to the Fair Trading Act 1973. She slightly understated its relevance because in that provision the director general had a general duty to encourage the preparation and dissemination of codes of practice.

I often think that one can go through an entire Committee stage with no one referring to the explanatory notes to a Bill. That must be frustrating for the officials who prepare them, so I thought that I ought to make at least one foray into them. The notes make the point that the existing power, function or duty–or whatever it might have been in 1973–supported the development of codes by 42 trade associations in 24 sectors.

As the Minister said–it bears repetition–codes are attractive to the good companies and businesses who want to do only the best for and by their consumers. The motive is to help consumers identify reliable suppliers. Indeed, the booklet ''Empowering Consumers in the Enterprise Economy'' published in January, states:

''codes are more flexible than regulation, as they can be changed more quickly in response to the development of new business practices.''

The Minister makes the same point. This is a good illustration of how a simple provision will probably have a more practical effect for the average consumer than any panoply of powers and duties that may be imposed under the Bill . It will have a limited cost to business, and the good businesses will sign up in any event. Indeed, some are already signed up; it has already made a difference.

Unsurprisingly, codes are welcomed by the various consumer bodies. The CAB Service says that it welcomes the proposed functions to enable the OFT to approve and withdraw approval for consumer codes of practice, but, with a sting in the tail, it then says that the OFT should be able to monitor the effect of the codes of practice. I hope that that is inherent in clause 8. The OFT says that the provision should result in much more consumer confidence in trade associations' codes of practice. A similar point is made by the Consumers Association, which particularly welcomes the powers given to the OFT in respect of industry codes of practice. Consumers often rely on logos and their codes as a reassurance that they are selecting a reputable firm. Unfortunately, some codes of practice are purely cosmetic and offer little consumer protection. We all know from our duties as constituency Members how elderly folk can be taken in by the flamboyant logo on the side of a van that purports to say that the firm is a member of an organisation–an organisation probably set up by the company. In fact, such practice carries no guarantee of competence or honesty.

The CBI, too, welcomes the new powers in principle. It said that self-regulatory codes can play a key part in giving consumers confidence when purchasing goods and services. It looks for further discussion with the OFT on the framework and the principles by which the codes will be judged, and says that it is essential that the scheme is well resourced and promoted.

On a final note, and expressing slight caution, given that the OFT also has the power to withdraw support for the codes, I assume that a practical system will need to be worked out–it is not a matter for the Bill–whereby due notice is given and due discussion will take place before it happens. Nevertheless, the provision is thoroughly useful and helpful, and it has our full support.

Photo of John Pugh John Pugh Democratiaid Rhyddfrydol, Southport 6:15, 16 Ebrill 2002

I want to make a technical point that I am sure my hon. Friend the Member for Twickenham (Dr. Cable) would have made. We are in favour of having good codes and of having the Ministerial imprimatur on them. They are extremely sensible and decent suggestions. I listened carefully to what the Minister said about which codes would be approved. I wrote down that she said that only codes that regulate members of organisations will be approved. I am sure that she is right, because a code used for guidance only, or one that will not be adhered to or implemented, is not the sort of code that Ministers would wish to authorise.

However, subsection (4) states:

''A consumer code of practice is a code of practice . . . which is intended to–

(a) give guidance to persons engaged in production or supply of goods or the supply of services''–

then there is the word ''or''–

''(b) regulate the conduct of persons so engaged''.

I suggest to the Minister that that is a technical error. Following the thrust of her remarks, ''or'' should be replaced with ''and'', because there is clearly no ministerial intention to approve codes that do not regulate the people to whom they apply. That sort of technical change would make the measure more worthy of support.

Photo of Mark Field Mark Field Ceidwadwyr, Cities of London and Westminster

I, too, shall speak briefly. Like my hon. Friend the Member for Eastbourne, I am in principle supportive of the clause. I certainly support the idea that we should use codes of practice instead of ham-fisted regulation, but I offer one word of warning. If the codes of practice are to be self-regulatory and in the hands of some trade-related body, it is important that there is sufficient will to enforce them.

That concern arises from my own experience. If trade associations require some sort of subscription income from their associate bodies, they may prove reluctant to come down hard on offenders against codes of practice. I accept that the Government should not necessarily take a hard regulatory stance, but consumers may find themselves disappointed if certain codes of practice are not properly enforced. The biggest offenders may happily sign up to the code of practice, knowing that it will not be enforced at all,

and the protection given to consumers would be at best illusory.

Photo of Jonathan Djanogly Jonathan Djanogly Ceidwadwyr, Huntingdon

I fully support the clause, as everybody else does, on the ground of identifying reliable suppliers. I also support the provisions on fee monitoring. It is all good news. I have not studied any of the 42 codes and 24 sectors, as mentioned by my hon. Friend the Member for Eastbourne. I am sure that they are all highly reasonable and were worked out in close co-operation with the relevant trade bodies. If I were to have a concern, it would relate to the potential for the introduction of unreasonable codes.

An unreasonable code might be introduced if a large company, perhaps one with strong lobbying powers, persuaded the powers that be at the OFT that the code should be made more stringent–perhaps more than was necessary. Small businesses would lose out because of the additional costs of complying with new regulations or dealing with code-compliance issues arising from that. In what sense will there be an ongoing review of the codes from the point of view of small businesses and the consumer, who would pay the costs of any extra regulation?

Photo of Miss Melanie Johnson Miss Melanie Johnson Parliamentary Under-Secretary, Department of Trade and Industry

I shall first respond to the hon. Member for Southport on the use of the word ''or'' between subsections (4)(a) and (b). We will consider that point and perhaps come back to it on Report.

Having listened to the hon. Gentleman's remarks and those of the hon. Member for Eastbourne and other Opposition Members, I welcome the Committee's strong support for the codes regime and its valuable role in protecting consumers. I agree strongly with many of the remarks made. It will be part of the compliance mechanism and the OFT core criteria to ensure that the codes are properly enforced. Perhaps I could briefly explain some of the changes that are taking place.

The OFT has a new approach to codes, which takes the form of a two-stage process. The first stage requires code sponsors to satisfy the OFT that their codes meet the criteria. That relates to the point about individual businesses, because it is for sponsors of codes, which are likely to be representative bodies of one kind or another, to satisfy the OFT. Once sponsors have demonstrated that their codes meet the criteria, the OFT will publish a list. At that level, there will be no independent check on how well the codes work, so the OFT will not be approving the codes, but, at the second level of consideration, the OFT will publicly endorse codes where sponsors can prove that they have delivered on their initial promise. That endorsement is comparable to the proposals in the consumer White Paper and will probably include a mark or logo signifying OFT approval. The OFT will need to promote the regime and its core criteria, and to publicise vigorously the benefits of the scheme in order to persuade businesses to sign up. I hope that I can assure hon. Members that the codes are important, that the role of enforcement is adequately recognised and that we will not accept unreasonable codes.

Question put and agreed to.

Clause 8 ordered to stand part of the Bill.

Clause 9 ordered to stand part of the Bill.