Rachel Wolf: Net Zero risks upending our lives and livelihoods. Here’s why carbon pricing gives it a better chance of working well.

2 Oct

Rachel Wolf is a partner in Public First. She had co-charge of the 2019 Conservative Manifesto. She was an education and innovation adviser at Number 10 during David Cameron’s premiership and was founding director of the New Schools Network.

Worrying about the state of the environment in the middle of a pandemic might feel like rearranging the deckchairs on the Titanic. Will the public question the Government’s sense of priorities if ministers start talking about how to protect the environment in the midst of a health crisis and a long potential downturn?

Actually, no. This week marked the first substantial policy intervention of the Prime Minister in months – a long awaited change to the education system that will make it easier for adults to retrain, and support more technical education. The rationale was clear: now, more than ever, we need to make sure people are trained for their next job.

The same argument can be made for the environment. The hard lockdown and the gentle recovery reminded people of two things: that everyday life is better for everyone when roads are quieter and the air is cleaner; and that economic growth is always precarious. That means we need to focus on industries and technologies of the future that will help maintain jobs and living standards.

In short, precisely because of their Covid-19 experience, the public have seen the importance of a practical, commercially-minded environmentalism.  That is fortunate, because there are some major choices to be made, and we are unprepared for them.

The target of Net Zero emissions by 2050 was passed into legislation with little public notice – most people still haven’t heard the term. There was also remarkably little Westminster debate: all the leadership candidates in 2019 signed up to the policy, so scrutiny was absent. Then, of course, the pandemic halted the entire domestic policy agenda. For this reason, we are still waiting to understand exactly what ending a 200-year dependence on fossil fuels really entails.

In my view, carbon pricing must form a large part of the answer.

As someone on the centre-right, I have always simultaneously applauded the aims and had great fears about the execution of Net Zero.

First, I worry it might upend too much. Our economy and lives are built off copious amounts of affordable energy. It is the main reason we were able to escape the destitution of the past. A life unimaginable to even the elite in the eighteentj century is now accessible to nearly all.

Therefore, any successful programme to reduce emissions must understand that people will not go backwards. Policies must work within the grain of people’s lives – not rewire them. We cannot be against trade; or consumption; or travel.  We just need ways to achieve all three without catastrophic environmental effects.

Second, I worry the plans rely on an implausible level of omniscience and competence from governments. We cannot engineer economies. We do not know exactly what innovations to support. We are likely to end up with endless unforeseen consequences and costs. We can encourage and support technology and invention; but prescribing what it should look like in 50 years time? That’s implausible.

It is for both of these reasons that I have spent much of the last six months working for an independent commission on how carbon pricing might practically, and technically, work.

To put it simply, possibly too simply, a carbon price requires those who produce, distribute, or use fossil fuels – or who produce greenhouse gas emissions in other ways – to make a payment for every tonne of greenhouse gases that enters our atmosphere.

In principle, the arguments for a carbon price are fairly obvious. It works with the grain of the market. It doesn’t make grand regulatory predictions about what will work, what we should do, or how exactly people ought to change their behaviour. It just prices in the ‘bad’ – in this case, emissions.

In practice, too, it has been effective. Electricity is the only area we have had a consistent approach to carbon pricing in the UK, and that is why electricity is the area where we have driven down emissions the most.  But electricity represents only a minority of our carbon emissions, and we now need a clear approach to the rest of the economy.

Carbon pricing also provides two things that we now – badly – need.

First, revenue. In some countries, carbon pricing is completely revenue neutral, and the money is distributed back to households. This deals with the challenges of the environment without leaving people worse off. But in others, it is used to support general government objectives – like funding the health service (or reducing the deficit).

If the Government needs to raise money, doing it in a way that will win public support and support environmental aims, without burdening businesses excessively, is a sensible way to do it. The other way to use revenue is to support transitions to cleaner energy alternatives and new green jobs – incentivising people away from carbon emissions, while supporting innovation.

Second, it provides certainty. A lot of the money for net zero should come from private investment. A fixed, clear price gives them the confidence to spend.

We already have some carbon pricing in the UK tax system. Unfortunately, it lacks transparency, is far too complicated and is piled sequentially on top of electricity bills. It has the bizarre consequence of actively encouraging people to move from electricity to gas – the opposite of what we want if we care about carbon emissions. Neither consumers nor suppliers have a clear idea of who is paying what and why.

Carbon pricing is not a silver bullet. I have oversimplified the changes necessary to reach Net Zero, and in our commission report we outlined a list of complementary policies required for different sectors to reach it. They recognise that the cost of reaching Net Zero is likely to be different for electricity, heating, industry and agriculture, and that the technologies are less mature for some sectors than others. Nor can it be too high: the economy is fragile, and business must be able to recover and grow. But the basic human principles remain – if there is a price, people will change their behaviour, and human ingenuity will always outstrip governments’.

We have been submerged in environmental rhetoric for years. Now the UK, alongside other countries with similar commitments, is having to make some real choices. Often, understandable fear of a public backlash has held them back – our research suggests there’s a credible way of gaining public consent and achieving our environmental aims: by having a clear price, credible alternatives for people to switch to, and cushioning so that no one is too badly affected. That is both deliverable and desirable, and it should form the core of the UK’s net zero roadmap.

David Gauke: We’re urged to return to the office – but Ministers must face the fact that the world of work is changing.

29 Aug

David Gauke is a former Justice Secretary, and was an independent candidate in South-West Hertfordshire at the recent general election.

Some months ago, I made the observation on this site that there was a danger that the Government’s then message – ‘stay at home’ – might work too well. Given that the Government is launching a campaign to get us back in our offices, it looks as if they have reached the same conclusion. By international standards, far fewer of us have returned to our place of work and, as a consequence, businesses that depend upon the custom of office-workers are suffering terribly. In the view of the Government, as we inch back to some kind of normality, now is the time for us to start to go back to the office.

This is understandable. For some people, working from home is a miserable experience and bad for their mental health. Creating an environment where people have the opportunity to go to work is to be welcomed. But there are five reasons why I would urge a degree of caution in the messaging.

First, and perhaps most fundamentally, it is not obvious why a return to work will not increase the infection rate. The UK has seen a lower return to work than other countries but it has also seen a smaller increase in infections (so far). Cramming people into trains and then into offices will increase social interaction and, therefore, the opportunity for the virus to spread. Given that the Prime Minister, Health Secretary, Cabinet Secretary, Chief Medical Officer and half of Whitehall appear to have caught the virus in the office, I do not think this concern can be dismissed.

Other activities, such as getting the schools back, are more important than getting those who can work from home to work in the office. So, in the event of a second wave, any messages about getting back to work will need to be reversed.

We must not forget that what really drives behaviour is the perception of the health risks. Of course, the Government can help inform the public of the real risks but, fundamentally, people will be happier to return to the office if they think it is safe. So my second point is that demonstrating we have the virus under control – with an effective test, trace and isolate system that identifies and suppresses local outbreaks – will count a lot more than exhortations to get into the office.

Third, the decision of where someone works is principally one to be worked out between employer and employee. Some employers are keen to get their staff back; some employees are desperate to return to the office. But that is not always the case and, as Matt Hancock has said in the context of the Department of Health, his concern is that his staff can do the job. His experience, and the experience of many employers, is that they can.

We do not live in a command economy and the man or woman in Whitehall (or Godalming or Hitchin or wherever it is they might live and, currently, work), doesn’t necessarily know best. It is particularly unhelpful if Ministers give the impression that working from home is a step in the direction of being made redundant. This is neither true nor helpful to businesses who have sought to reassure their employees.

What appears to be driving the Government’s message is concern about businesses located in city centres. Although entirely understandable, my fourth point is that we also have to face the reality that the world of work is changing. We are likely to see a structural change with people spending more time at home (and spending more money close to home) and spending less time and money in cities. Trying to push-back against a long term change in consumer preferences will only preserve economic inefficiencies. More people are going to mix working in the office with working from home and our retail and hospitality sectors are going to have to adjust.

And, finally, giving the impression that the Government thinks that the very many people who want to work from home are lazy and unpatriotic does not strike me as obviously good politics.

– – – – – – – – – –

The row over the Last Night of the Proms has probably come as a bit of a relief to the Government. Speaking as a metropolitan, liberal, remoaner type, attempts at cancelling the lyrics of Rule Britannia! and Land of Hope and Glory results in me getting in touch with my inner Nigel Farage (to be fair, we are not in regular contact).

It is hard to believe that anyone really takes offence at the lyrics, but rather that a patriotic celebration of this country should not even be permitted. It is an attitude that infuriates large numbers of people, feeds into a cultural backlash and does nothing to help the disadvantaged.

As an event, it is not to everybody’s taste. I can see why people might find the whole occasion anachronistic, absurd and a bit naff, but surely that is the essence of good Saturday evening telly? After all, the same could be said of Eurovision and Strictly.

If the Last Night of the Proms is too jingoistic for your tastes, the solution is to watch something else. Don’t spoil the innocent fun for the rest of us.

– – – – – – – – – –

Brexit has rumbled on. I have always been a bit of a pessimist as to whether a deal would be reached and, after an apparently acrimonious round of talks earlier this month, the odds of No Deal are increasing.

Both before and after the 2016 referendum, plenty of advocates for Brexit made the case that we would get a very good deal that would mean we would have control over our own laws and excellent access to EU markets. It was argued that anyone who doubted that failed to appreciate how we held all the negotiating cards, especially given the large trading deficit we run with the EU.

When such an offer was not forthcoming, this was blamed on the failure of the May Government to play hardball or the ‘Remainer Parliament’ of 2017-19. Now those impediments have been swept aside and we have a Government that would be prepared to end the transition period without a deal, the EU will presumably accept our demands.

The counter-argument has always been that the EU has certain interests it will be determined to protect, such as the integrity of the Single Market, and considers itself to be better able to withstand the disruption of no deal. Consequently, the threat to walk away was never the bargaining chip some people believed.

In the next few weeks, as the negotiations come to a head, we will find out which interpretation of the EU’s motives and actions – and the efficacy of particular negotiating strategies – will have turned out to be correct. Will the EU cave or not?

This won’t necessarily tell us whether Brexit is a good idea or not, but it will mean that the promises and predictions of politicians and commentators over the last four years or more can be scrutinised in a more informed way. If we get very good access to EU markets and complete regulatory autonomy, I for one will have to admit that I got it wrong. If we do not get that, others are going to have to eat some humble pie.

David Gauke: We’re urged to return to the office – but Ministers must face the fact that the world of work is changing.

29 Aug

David Gauke is a former Justice Secretary, and was an independent candidate in South-West Hertfordshire at the recent general election.

Some months ago, I made the observation on this site that there was a danger that the Government’s then message – ‘stay at home’ – might work too well. Given that the Government is launching a campaign to get us back in our offices, it looks as if they have reached the same conclusion. By international standards, far fewer of us have returned to our place of work and, as a consequence, businesses that depend upon the custom of office-workers are suffering terribly. In the view of the Government, as we inch back to some kind of normality, now is the time for us to start to go back to the office.

This is understandable. For some people, working from home is a miserable experience and bad for their mental health. Creating an environment where people have the opportunity to go to work is to be welcomed. But there are five reasons why I would urge a degree of caution in the messaging.

First, and perhaps most fundamentally, it is not obvious why a return to work will not increase the infection rate. The UK has seen a lower return to work than other countries but it has also seen a smaller increase in infections (so far). Cramming people into trains and then into offices will increase social interaction and, therefore, the opportunity for the virus to spread. Given that the Prime Minister, Health Secretary, Cabinet Secretary, Chief Medical Officer and half of Whitehall appear to have caught the virus in the office, I do not think this concern can be dismissed.

Other activities, such as getting the schools back, are more important than getting those who can work from home to work in the office. So, in the event of a second wave, any messages about getting back to work will need to be reversed.

We must not forget that what really drives behaviour is the perception of the health risks. Of course, the Government can help inform the public of the real risks but, fundamentally, people will be happier to return to the office if they think it is safe. So my second point is that demonstrating we have the virus under control – with an effective test, trace and isolate system that identifies and suppresses local outbreaks – will count a lot more than exhortations to get into the office.

Third, the decision of where someone works is principally one to be worked out between employer and employee. Some employers are keen to get their staff back; some employees are desperate to return to the office. But that is not always the case and, as Matt Hancock has said in the context of the Department of Health, his concern is that his staff can do the job. His experience, and the experience of many employers, is that they can.

We do not live in a command economy and the man or woman in Whitehall (or Godalming or Hitchin or wherever it is they might live and, currently, work), doesn’t necessarily know best. It is particularly unhelpful if Ministers give the impression that working from home is a step in the direction of being made redundant. This is neither true nor helpful to businesses who have sought to reassure their employees.

What appears to be driving the Government’s message is concern about businesses located in city centres. Although entirely understandable, my fourth point is that we also have to face the reality that the world of work is changing. We are likely to see a structural change with people spending more time at home (and spending more money close to home) and spending less time and money in cities. Trying to push-back against a long term change in consumer preferences will only preserve economic inefficiencies. More people are going to mix working in the office with working from home and our retail and hospitality sectors are going to have to adjust.

And, finally, giving the impression that the Government thinks that the very many people who want to work from home are lazy and unpatriotic does not strike me as obviously good politics.

– – – – – – – – – –

The row over the Last Night of the Proms has probably come as a bit of a relief to the Government. Speaking as a metropolitan, liberal, remoaner type, attempts at cancelling the lyrics of Rule Britannia! and Land of Hope and Glory results in me getting in touch with my inner Nigel Farage (to be fair, we are not in regular contact).

It is hard to believe that anyone really takes offence at the lyrics, but rather that a patriotic celebration of this country should not even be permitted. It is an attitude that infuriates large numbers of people, feeds into a cultural backlash and does nothing to help the disadvantaged.

As an event, it is not to everybody’s taste. I can see why people might find the whole occasion anachronistic, absurd and a bit naff, but surely that is the essence of good Saturday evening telly? After all, the same could be said of Eurovision and Strictly.

If the Last Night of the Proms is too jingoistic for your tastes, the solution is to watch something else. Don’t spoil the innocent fun for the rest of us.

– – – – – – – – – –

Brexit has rumbled on. I have always been a bit of a pessimist as to whether a deal would be reached and, after an apparently acrimonious round of talks earlier this month, the odds of No Deal are increasing.

Both before and after the 2016 referendum, plenty of advocates for Brexit made the case that we would get a very good deal that would mean we would have control over our own laws and excellent access to EU markets. It was argued that anyone who doubted that failed to appreciate how we held all the negotiating cards, especially given the large trading deficit we run with the EU.

When such an offer was not forthcoming, this was blamed on the failure of the May Government to play hardball or the ‘Remainer Parliament’ of 2017-19. Now those impediments have been swept aside and we have a Government that would be prepared to end the transition period without a deal, the EU will presumably accept our demands.

The counter-argument has always been that the EU has certain interests it will be determined to protect, such as the integrity of the Single Market, and considers itself to be better able to withstand the disruption of no deal. Consequently, the threat to walk away was never the bargaining chip some people believed.

In the next few weeks, as the negotiations come to a head, we will find out which interpretation of the EU’s motives and actions – and the efficacy of particular negotiating strategies – will have turned out to be correct. Will the EU cave or not?

This won’t necessarily tell us whether Brexit is a good idea or not, but it will mean that the promises and predictions of politicians and commentators over the last four years or more can be scrutinised in a more informed way. If we get very good access to EU markets and complete regulatory autonomy, I for one will have to admit that I got it wrong. If we do not get that, others are going to have to eat some humble pie.

Nicky Morgan: Ministers must act swiftly to avoid a disaster – bailiffs abusing vulnerable people over council tax arrears

21 Aug

Baroness Morgan is a former Secretary of State for Education, and for Digital, Culture, Media and Sport

Marie is 76, and usually pays her council tax via Paypoint at the Post Office. However, for the last five months she has been shielding due to a chronic lung condition. Recently, her council contacted her regarding council tax arrears of just £13, threatening court action.

The prospect of council tax arrears escalating to court action and enforcement is an imminent concern for people like Marie. From next Monday, bailiffs are set to restart in-person visits, and will be able to chase Coronavirus-related debts. Yet a knock at the door poses a threat to Marie’s long-term finances, and worse, poses a serious risk to her health.

Across the country, many thousands of people are in a similar situation. Debt advice agencies report that three million people face the threat of bailiff action on missed council tax, while according to StepChange, around a million people are in council tax difficulties directly attributable to Covid-19.

In this environment, pulling the trigger on a wave of high-risk bailiff visits is not a decision that should be taken lightly. While it’s right for councils to seek to recoup their losses to fund essential services, there remain huge questions over the efficacy of bailiffs and whether they are genuinely always used as a last resort.

When I was Chair of the Treasury Select Committee, we reported in 2018 on how local authorities have come to use bailiffs almost by default, with public sector debt collection regarded as ‘worst in class’. With this in mind, what lessons should the Government learn before it allows bailiff visits to resume?

Lesson one: Despite glimmers of progress, council tax debt collection is in need of major reform.

The law governing local authority debt collection means that small debts quickly escalate. Non-binding guidance has failed to stop councils from sending in the bailiffs, with referrals totalling more than 2.6 million last year. That’s despite only 27p of every £1 of debt referred being recovered. Meanwhile, councils can be penalised for trying to offer more sustainable payment plans.

By contrast, household debt problems are dealt with far more sustainably in other sectors. Among mortgage lenders and consumer credit providers, forbearance and debt advice referrals are more widely used. Regulated sectors have seen the benefit of more holistic measures which have resulted in better collection rates and fewer defaults, whilst also crucially giving people mired in debt a sustainable way out.

Support for household finances during the crisis should now be twinned with reform of council tax collection and additional hardship funds. The Government’s initial £500 milion Hardship Fund has offered welcome respite for many, but with increased funding and wider eligibility criteria it could achieve even more. Ministers should also look to introduce a statutory pre-action protocol for debts owed to government. This would help reduce court-based enforcement and enable those most at risk from bailiff visits to set up an affordable repayment plan.

Lesson two: Independent regulation is needed to control the behaviour of bailiffs and bailiff companies.

Aggressive and intimidating bailiff enforcement plagued our system long before Coronavirus: now is not the time to cross our fingers and hope that this might change.

For too long, bailiff self-regulation has failed to protect people in financial hardship from widespread poor practice. Independent polling by YouGov conducted before lockdown for StepChange and Citizens Advice showed one person every minute experiencing a rule-breaking bailiff.

The Government has recognised the case for strengthening regulation,and started a review on this matter back in 2018. However, despite repeated calls from the Justice Select Committee, which ran a parallel inquiry to encourage Government action, the Ministry of Justice has so far failed to report back.

The case for independent regulation has never been stronger. The Government should now commit to plans for bailiffs to follow the rules and ensure the industry is held to account.

Lesson three: The basis for the temporary ban on bailiff visits has not gone away.

The Government’s decision to outlaw bailiff visits in April was welcome. In explaining the ban, the Ministry of Justice correctly identified that incentives in the industry and “financial pressures [from firms and creditors]” would create the risk of poor practice and unnecessary visits “which could endanger the health of both enforcement agents and debtors”.

In the context of an ongoing global pandemic, the nature of bailiff visits – going between people’s homes without knowledge of underlying health conditions – still presents a high risk to public health.

The use of virtual compliance methods is growing and from next week it has been agreed that any enforcement visits will not seek access to premises and will be contactless. But the visits will still happen.

Ministers could give further direction on how bailiffs can operate in a Covid-secure way. That means at the very least, guidance and oversight on test-and-trace, treatment of people in Covid-related difficulties, and suspension of visits during local lockdown.

Without the introduction of new safeguards, strong Government initiatives to help people recover from financial difficulty, such as next year’s Breathing Space scheme, are in danger of being undermined. Far better to change course now than risk a public health disaster and financial catastrophe for millions of people in financial difficulty, people like Marie.

While the original factors that prompted the ban are still in play, the solution is within our grasp. This is an area for Government rather than individual local authorities to take the lead,.  National Government must learn from these three lessons in order to reverse the tide of harmful and unnecessary bailiff visits, and ensure people are protected, as far as possible, when bailiffs return. If the ban on bailiff visits is not to be extended then these changes must be made urgently. In the absence of these modest safeguards, the return of bailiffs is something we can ill afford.

Andrew Bowie: Evidence today that Ministers won’t negotiate trade deals that expose British farmers to unfair competition

29 Jul

Andrew Bowie is MP for West Aberdeenshire and Kincardine.

As someone who believes in the levelling-up agenda and vision of a Global Britain, I am excited by our re-emergence as an independent trading nation. For the first time in more than 40 years, we are able to devise our own trade policy and export the best of Britain abroad in ways we haven’t always been able to.

As MP for West Aberdeenshire and Kincardine, home of the best beef, lamb and malting barley, I cannot wait to see more of our brilliant food and drink sold abroad. But as we develop our own agricultural trade policy once again, it is absolutely vital that the voice of the industry and the public are heard, and that their interests are advanced and protected.

Alongside many colleagues, that is why I welcome the government’s decision to set up the Trade and Agriculture Commission – which launches formally at an event in Whitehall today. Now is the right moment to step up engagement not just with the farming industry, but also with consumer, animal welfare and environmental groups across the UK.

The Commission includes representation from all these groups, and will be engaging more broadly with stakeholders like the RSPCA, British Veterinary Association, National Sheep Association, Food Standards Agency, and Tesco – all of whom are at today’s launch event.

The Commission will work with these and other organisations across the UK to ensure that the UK agriculture sector remains among the most competitive and innovative in the world. Its work will inform the fundamental principles of the UK’s agricultural trade policy, and provide expert advice to government on areas like increasing export opportunities, and on how Britain can remain a world-leader in animal welfare and environmental standards.

To her credit, Liz Truss has been clear that this government will stand up for British farming as part of any trade deal, and will never sign an agreement that means British farmers face unfair competition. I, for one, am reassured by that, and see this Commission as further evidence that the government is serious about taking expert advice and pursuing trade policy that benefits farmers and consumers.

We should be optimistic out there for some of the fantastic opportunities available to out UK farmers and producers. The US, for example, is the world’s second biggest lamb market – if we take a three per cent market share, it could boost lamb exports by £18 million a year. One in five agri-food and drink companies sell abroad, so there is a real opportunity to increase that number and sell more of our brilliant produce overseas.

We also have the opportunity to lead the global debate around agriculture trade policy and drive higher standards across the world. Our environmental and animal welfare standards are among the highest in the world. Leaving the EU actually gives us the freedom to engage the WTO on this issue and build an international coalition that pushes up standards beyond Britain. This is part of the work of the Commission.

Its establishment is a welcome step at a critical time for UK farmers and food producers, and will help ensure British farming and consumer interests are at the heart of UK trade policy.

Andrew Bowie: Evidence today that Ministers won’t negotiate trade deals that expose British farmers to unfair competition

29 Jul

Andrew Bowie is MP for West Aberdeenshire and Kincardine.

As someone who believes in the levelling-up agenda and vision of a Global Britain, I am excited by our re-emergence as an independent trading nation. For the first time in more than 40 years, we are able to devise our own trade policy and export the best of Britain abroad in ways we haven’t always been able to.

As MP for West Aberdeenshire and Kincardine, home of the best beef, lamb and malting barley, I cannot wait to see more of our brilliant food and drink sold abroad. But as we develop our own agricultural trade policy once again, it is absolutely vital that the voice of the industry and the public are heard, and that their interests are advanced and protected.

Alongside many colleagues, that is why I welcome the government’s decision to set up the Trade and Agriculture Commission – which launches formally at an event in Whitehall today. Now is the right moment to step up engagement not just with the farming industry, but also with consumer, animal welfare and environmental groups across the UK.

The Commission includes representation from all these groups, and will be engaging more broadly with stakeholders like the RSPCA, British Veterinary Association, National Sheep Association, Food Standards Agency, and Tesco – all of whom are at today’s launch event.

The Commission will work with these and other organisations across the UK to ensure that the UK agriculture sector remains among the most competitive and innovative in the world. Its work will inform the fundamental principles of the UK’s agricultural trade policy, and provide expert advice to government on areas like increasing export opportunities, and on how Britain can remain a world-leader in animal welfare and environmental standards.

To her credit, Liz Truss has been clear that this government will stand up for British farming as part of any trade deal, and will never sign an agreement that means British farmers face unfair competition. I, for one, am reassured by that, and see this Commission as further evidence that the government is serious about taking expert advice and pursuing trade policy that benefits farmers and consumers.

We should be optimistic out there for some of the fantastic opportunities available to out UK farmers and producers. The US, for example, is the world’s second biggest lamb market – if we take a three per cent market share, it could boost lamb exports by £18 million a year. One in five agri-food and drink companies sell abroad, so there is a real opportunity to increase that number and sell more of our brilliant produce overseas.

We also have the opportunity to lead the global debate around agriculture trade policy and drive higher standards across the world. Our environmental and animal welfare standards are among the highest in the world. Leaving the EU actually gives us the freedom to engage the WTO on this issue and build an international coalition that pushes up standards beyond Britain. This is part of the work of the Commission.

Its establishment is a welcome step at a critical time for UK farmers and food producers, and will help ensure British farming and consumer interests are at the heart of UK trade policy.

Ryan Bourne: Why Tyrie’s attempt to make the Competition Authority more like Which? magazine was wrong

24 Jun

Ryan Bourne holds the R Evan Scharf Chair in Public Understanding of Economics at the Cato Institute. 

Shelves lay barren, yet the price stickers read “Buy 1 Get 1 50% Off.” Hand sanitiser was like gold dust here in Washington DC in March. Demand surged after the Covid-19 hand hygiene advice. Unsurprisingly, stores rapidly emptied of existing stock.

More surprising was the shortages’ duration. Prices usually rise with prolonged elevated demand, encouraging new supply and making consumers rethink “unnecessary” purchases or hoarding. Markets ultimately clear – providing more at higher prices.

But no adjustment came. Big chains worried about reputational risks of raising prices in a pandemic. DC’s emergency “anti-price gouging law,” meanwhile, meant small outlets opted not to bother selling at higher prices, lest they be punished for charging “more than normal.” So prices remained notionally low, but sanitiser was unavailable.

Economists oppose anti-price gouging laws for this reason. Price controls denying market realities harm economic welfare. It might seem in consumers’ interests to keep prices low by government decree to prevent “rip-offs.” But if consumers are unable to get products they’re willing to pay more for, they can be worse off collectively than with market pricing.

I remember thinking at the time that I’d never heard of such bad pricing laws in the U.K. Just two days’ later, Andrew Tyrie’s Competition and Markets Authority warned it would use existing powers to “consider any evidence that companies may have broken competition or consumer protection law, for example by charging excessive prices” during the pandemic [my emphasis].

Last week, the CMA confirmed it is investigating four pharmacies and local convenience stores for “suspected charging of excessive and unfair prices for hand sanitiser.” Under current law, the CMA must prove these retailers have abused a dominant market position.

Given none of these businesses seem likely to much affect market realities, this is really an attempt to stop price gouging by spooking retailers. The CMA wants to make an example of them to show it is “pro-consumer,” focusing on local outlets in all likelihood because consumers had fewer options to shop elsewhere, especially those without internet accdess, giving some semblance of credibility to the idea of dominance.

This absurd use of resources is befitting of Tyrie’s legacy as CMA chairman. The former Treasury Select Committee chair resigned last week, frustrated that his demand for ever-more expansive CMA powers from government went unanswered.

But, importantly, Tyrie aimed to shift the emphasis of the CMA’s role away from its bread-and-butter role of helping to regulate economic competition (such as breaking up BAA for airport competition, or blocking the merger of Asda and Sainsbury), towards beefing up its consumer protection role as well.  He synthesised by pledging that the CMA should champion the “consumer interest.”

A Social Market Foundation speech last May outlined his vision. An address on the limits of competition law quickly descended into an analysis of public perceptions about capitalism, with a sort of call to arms that the CMA should bend the knee to “what most concerns ordinary consumers,” lest it be swept away by populism.

Tyrie acknowledged he was potentially exiting his lane, but didn’t care. Competition experts – who see the most important CMA role as protecting consumer welfare through effective competition law – bemoaned his “grandstanding,” in private.

Despite his denial, Tyrie’s vision was clearly strongly influenced by a new U.S. anti-monopoly movement that says big is bad, more competitors in a market is good, and consumers face constant threats of exploitation. Economists challenge all such claims empirically. But Tyrie puts huge weight on sentiment. Consumers “feel” they are being ripped off. Even where they pay nothing, for social media, they feel terrified about data harvesting. “We are all vulnerable now,” he concluded.

Such generalisations bode ill as a guide even to the CMA’s primary role. Amazon is regarded as one of the most reputable brands in the country, as is Google. Digital advertising has lowered advertising costs for social media’s true customers, so advertising spending has plunged as a share of GDP.

Platform users meanwhile have the option of free services that economic studies find generate big benefits to them. Even on the supposed “big is bad” opposition to tech acquisitions such as Whatsapp by Facebook and YouTube by Google, opponents ignore the many more acquisitions that don’t work or consumer welfare gains from better products when they do.

But that’s the point: Tyrie wasn’t primarily animated by the idea the competitive process protected consumers’ welfare. No, what he envisaged in championing the “consumer interest” was a more populist body with huge discretionary powers marauding around stamping out practices unfavorable to some consumers, or which consumers disliked in other more subjective ways than conventional consumer welfare analysis considers.

This distinction between “consumer welfare” and “consumer interest” is crucial. Consumer welfare can be assessed and debated using facts about the structure of the market, pricing, and evidence on innovation. Consumer interests are defined by slipperier concepts of “fairness.” Someone caring about consumer welfare might consider higher prices an unfortunate reality in a pandemic market when demand rises; someone animated by the “consumer interest” might see it as unfair to some vulnerable consumers.]

A “consumer interest” champion looks at higher prices some loyal customers pay for utilities, and sees an unfair penalty. Those interested in overall consumer welfare muse that teaser rates for new customers encourage switching, pressuring companies to remain efficient to the benefit of consumer welfare. A competitive market allows companies to compete on pricing strategies too.

A consumer interest lens, then, could sometimes actually harm competition, by eliminating businesses’ opportunities to profit where reputational constraints bind on large firms or where consumer welfare-enhancing pricing strategies exist. The CMA’s ham-fisted intervention on Covid-19 prices almost certainly prolonged shortages of numerous household products, and encouraged supermarkets to remove pro-poor discount deals instead.

Now whether Tyrie is a symptom of a within-CMA attitude shift or its cause, I’m not sure. But his tenure overall accelerated a worrying push towards such discretion. On the audit market, the CMA bypassed the standard market investigations reference process designed to investigate new anti-competitive practices.

His proposals for new CMA powers, meanwhile, would have stripped protections from companies and heightened the risk of wrongful punishments. In short, he wanted the CMA to be an aggressive consumer champion and decision-maker simultaneously – “too much prosecution, judge, and jury” according to some experts.

Tyrie now promises to push his agenda strongly in the Lords. But with so much important competition activity coming the CMA’s way post-Brexit, this “consumer interest” shift couldn’t come at a worse time.

Thankfully, the Government has resisted Tyrie’s demand for power – hence his resignation. It should now select a new chair intent on returning the competition regulator to its primary role, rather than becoming the governmental arm of Which? magazine.