An update on our inflation concerns

Simon Woodhead

Simon Woodhead

28th December 2022

By Pete Farmer

Avid readers of my musings on this blog may recall I opined on the subject of CPI recently. In that piece, I mentioned Simwood had written to the Minister regarding our concerns.  

Earlier this month, we had a reply from Ms. Lopez MP. While the document is not marked confidential, it would also be not cricket to publish it, so you will have to trust me when I make reference to it here. 

As expected, our suggestion that the Crown Guarantee of BT’s pension fund be revoked given their planned grand larceny on the British public, lasted the first paragraph of the response, before being tossed into the round filing cabinet under the Minister’s desk. However, the rest is illuminating.  

Since we wrote to the Minister, Ofcom has launched an investigation into whether or not the CPI+3.9%ers’ contract clauses to make this happen meet the relevant regulations. This news was given scant attention in correspondence; however, the Minister makes reference to the separate powers in the Consumer Rights Act 2015, which are concurrent with the potential foul Ofcom are investigating. 

It seems there is a coalition of Government and Regulator forming to ensure, through separate regimes, that consumers were not misled in taking out contracts with, in some cases RPI+3.9% price rises during the initial period.  

The focus appears to be on transparency. The regulatory economist in me, in principle, sees nothing wrong with cross-subsidising the first year of a contract with a higher price in year two – which is essentially what a CPI+3.9% clause does. It is an extreme version of ‘get your first month free’ types of offers, but as the Minister says, ‘it is important for businesses to be up-front about important terms in consumer contracts that could have a significant impact on their customers by taking extra steps to bring these types of terms to their attention.’ Years of experience engaging with regulatory policy which goes to consumer behaviour tells me that only a handful of customers read beyond ‘shiny new iPhone, 20GB data, unlimited calls for £50 a month for two years.’ and that burying CPI+3.9% in the small print might not pass muster.  

The regime that came into force on 16th June 2022, with such terms having to be teased out in Contract Information/Contract Summary documents at the point-of-sale should address transparency concerns. Well, insofar as the key facts document rules addressed similar concerns in financial services, which might not be much. Those that took out contracts before then, which are still in term coming up to the planned April price rises, could find themselves the unwitting focus of Ofcom flexing its muscles with their chosen providers though. 

The other interesting part of Ms. Lopez’s letter was a discussion about the “voluntary” implementation of social tariffs by major providers. Each provider has its own qualifying criteria and implementation, but, broadly, if you are a low-income household, you get a discount. Why the scare quotes on “voluntary?” Well, there is an existing legislative provision whereby the Government could mandate it anyway, so it is somewhat a foregone conclusion something would be done.  

The only guarantee that I will give about my future predictions is that they are wrong, but I suspect that there will not be a full-scale implementation of CPI+3.9% (or RPI+3.9% in the case of some) across the board by all providers to all customers whose contract prima facie permits it. I suspect, in a smoke-filled, oak-panel lined room, deep in the bowels of Westminster, over a taxpayer-subsidised glass of single malt, there will be some form of settlement, wrapping up the issue of transparency with social tariffs. The result? Essentially, a cross-subsidy of broadband and mobile prices from the affluent to the poor.  

I now need to go track down my A-Level Politics teacher; I could have sworn he said redistribution was a matter for the Government via taxation…  

Finally, the letter was silent on our concerns about CPI in the wholesale space, in respect of charge controls. Conspicuously silent. Not sure why, but this is a matter we will be taking up with Ofcom when they publish a call for input in preparation for the next market review. 

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