Rip-Off Bills: A Drain on Wallets and the UK Economy
Have you ever felt cheated by the small print in your mobile contract, confused by a maze of insurance products, or trapped in a subscription you didn't mean to sign up for? If so, you are far from alone. A new analysis suggests that the way markets for essential services operate is not only a monumental headache for consumers but is also actively harming the UK's economic prospects.
The Productivity Predicament and Sticky Inflation
In a paper titled "Getting Britain Out of the Hole," economists Andrew Sissons and John Springford propose a more muscular approach to fixing broken markets. They argue that a lack of proper competition in key services is a significant factor behind the UK's frustratingly persistent inflation.
While soaring goods prices, chiefly energy, drove the initial post-Covid price surge, it has been services inflation that has proved stubbornly high. Part of this is due to rising wages and the £25bn increase in employer national insurance contributions introduced by Chancellor Rachel Reeves, costs which companies have passed on to consumers where possible.
However, the authors identify a deeper issue: the failure of regulation to ensure markets for household energy, mobile phones, and insurance actually benefit their customers. "Too many markets for services are beset by problems with limited competition, ineffective regulation or problematic market structures that hurt consumers and make services inflation more persistent than it should be," they state.
How Consumers Are Being Shortchanged
The specific problems vary by sector, but customers commonly face a bewildering array of complex tariffs, endure eye-watering automatic price hikes, or struggle to cancel online subscriptions. The report highlights that since 2022, there has been a noticeable spike in inflation every April, coinciding with automatic price increases in many phone and broadband contracts.
These increases are often pegged to the Retail Prices Index (RPI) plus an additional percentage—a practice the authors argue regulators must strictly limit. In other markets, the rip-off is more subtle. A plethora of companies may appear to compete, but the baffling complexity of products and the hassle of switching mean only the most diligent consumers get a fair deal.
This is fundamentally a problem of "information asymmetry," where companies exploit their superior knowledge. "Most consumers don't have the time or the skills to read the terms and conditions, and producers have access to troves of data about how consumers behave in the real world, and can take advantage of them," the authors explain.
A Call for Smarter, Stronger Regulation
Since coming to power, Chancellor Reeves has urged regulators to consider economic growth, often framing regulation as "red tape" and a "boot on the neck" of business. In contrast, Sissons and Springford contend that to foster dynamic markets, the UK needs better-resourced and more interventionist regulators.
Their radical proposals include:
- A government-enforced rule that any service subscribed to online must be cancellable online.
- Ending auto-renewing contracts as the default, except perhaps for essentials like car insurance.
- Having regulators define standard, "plain vanilla" products in certain markets, allowing for genuine competition on price and service instead of confusing small print.
Ultimately, the economists warn that this spending, gobbled up by companies as "producer surplus," could be far better spent elsewhere in the economy, raising overall efficiency. The message is clear: to stop consumers being systematically shortchanged and to boost the UK's economic health, better regulation is not an option—it's a necessity.
