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Small businesses need better consumer protection, says FSB
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Thursday, 13 March 2014

The Federation of Small Businesses (FSB) is calling on Government to give small, and especially micro businesses the same level of consumer protection when drafting legislation as domestic customers. As it stands, many are disadvantaged compared to large businesses and domestic consumers when taking out a contract with a new energy, telecoms or water provider.

The FSB believes the 2003 Communications Act which regulates the telecoms industry is a model of best practice that could be copied across all regulated industries. Under this law, the regulator treats micro businesses like domestic consumers other than where there are clear reasons not to. This would give a much fairer level of consumer protection to these firms.

In addition, the FSB also wants the energy regulator to make utility suppliers publish their default tariffs for smaller business customers who currently face difficulties when attempting to switch providers. The report, Small Businesses as Consumers: Are They Sufficiently Well Protected?, launched today, also recommends that all regulators with powers to enforce Consumer Protection Regulations are given the ability to protect businesses from the mis-selling of products or services. 

The report finds major issues affecting small businesses centre on:

• Lack of expertise in purchasing the product or service. Most small businesses have a similar level of expertise as a domestic customer when purchasing most products and services and they are far less likely than large businesses to have staff with a specific procurement role.

• High opportunity cost of time spent making purchasing decisions. A small business will often be working flat-out trying to run its core business effectively. The perceived cost of spending a lot of time choosing an energy supplier, may therefore be high, and is compounded by the lack of published tariffs in the energy sector. 

• Low benefits (actual or perceived) of time spent making purchasing decisions.  A small business will typically have relatively low requirements for products and services that are not directly linked to its core trade – they want their heating to work and water to be on. Small businesses often do not think they will benefit significantly if they by spending time choose their ideal energy supplier.

• Poor bargaining power. Smaller businesses have far less bargaining power, especially in respect of large companies such as major utility service providers, and in some cases (such as energy) they may not have access to standard published tariffs. 

John Allan, National Chairman, Federation of Small Businesses, said:

"This research confirms what we at the FSB have been saying for a long time. Small, and especially micro, firms don't have the same capacity to make buying decisions in the way large businesses do. They have much more in common with domestic consumers and we believe it makes sense for the level of consumer protection afforded to micro and small firms to reflect that.

"Every minute small business owners spend away from running their business costs them, so many owners aren't in a position to spend time to find the best deal from their energy supplier. As part of major reforms we want to see in the energy market, the big six should publish their tariffs for small business customers in a clear and transparent way. Business owners want to make informed decisions on which energy supplier to choose and not being able to make meaningful price comparisons places too big a burden on the smallest firms."

Amelia Fletcher, Professor of Competition, Economic and Social Research Council Centre for Competition Policy, said:

"Existing consumer law assumes that firms are broadly able to look after their own interests when making purchases. This may be true of larger firms, but many smaller firms are relatively unsophisticated as purchasers, and no better able to protect themselves than individual consumers are. Our report therefore recommends that Government considers carefully the evidence for extending the provisions of consumer protection legislation to micro businesses."
Consumer Minister Jenny Willott, said:

"This report goes to show the importance of SMEs, not just as the backbone our economy, but also as a powerful consumer voice. They are an essential part of our sustainable economic recovery and we should do all we can to support them in growing their business."

(Source - FSB News Release)


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