The current Government has squandered the competitive environment it inherited from Labour, tolerating quasi-monopolies who abuse their position to harm consumers. The policy responses to these monopolies should be strong and decisive, not weak and acquiescing.
In all the ‘utility’ sectors (gas, water, telecommunications) and some emerging markets, such as search, there is a compelling need to redress the balance between incumbent vested interests and consumers.
In the late nineties the Labour Government put in place one of the best competitive regulatory environments in the world. It ranked third behind the US and Germany in an independent review by KPMG. ‘Light touch’ evidence-based economic regulation was the order of the day. The theory was that once a ‘level playing field’ was established, monopolies broken or their competitive advantage regulated away and consumers empowered to make informed choices, the market would ensure optimal outcomes for the consumer and for the economy.
Regulation should be based on evidence, particularly forward looking economic analysis. During my time in Ofcom we undertook months of detailed analysis to assess the number of competitors necessary to ensure the benefits of competition in the wholesale telephony market. This approach gave Britain the most competitive broadband market in the world.
In the rail, water and energy markets it arguably led to oligarchies, but they were kept relatively benign under Labour and are now allowed much more profit seeking.
In financial markets it allowed (though did not lead to) the financial crash. As well as vast swathes of our financial services industry, the crash buried the view that unregulated markets necessarily deliver optimal outcomes. And the challenging economic fallout gives regulators new challenges, particularly regarding investment and the consumer interest.
But this Government is confused as to whether effective competition, consumer benefit or deregulation should be the principle driver of competition policy. In communications markets, we are heading back to an effective monopoly for superfast broadband. It is truly ironic that a Conservative led Government with Margaret Thatcher as its poster girl has managed to take competition in telecoms back to the seventies.
Current competition policy fails in two key areas:
1. It is letting down consumers by not giving them a strong voice, and by overestimating their ability to make informed choices when the availability of information about their energy bills or mobile phone contracts is controlled by the market players.
2. It does not sufficiently consider the UK market in the context of European and global markets, as highlighted by EU Commissioner Neelie Kroes’ proposals for a Single Telecoms Market .
The answer is not to strip away all regulation in the belief that naturally monopolistic markets will suddenly become competitive. We need instead to set out a competitive environment fit for the globalised world, and we need to empower the consumer to be an active player in it. This should include how consumers can be enabled to assess the full costs of what they buy, for example with responsible capitalism reporting.
A new Labour Government would seek to capture once again the leading position in competition regulation with a tough, fair evidenced -based competitive environment where the consumer has a leading voice, one which is forward looking and also outward looking, to Europe and beyond.
Chi Onwurah is MP for Newcastle-upon-Tyne Central. She will be discussing ‘Are Britain’s regulators up to the task?’ at Policy Exchange on Tuesday at 12:30.
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