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DrDominic Raab is the Member of Parliament for Esher & Walton.

From
bank interest rate-rigging to soaring water bills, free market enterprise is
dogged by criticism that it stands for parasitic cartels – not the ordinary
person. Yet, the weakness of capitalism lies not with the free market, but
where it lacks competition. We need a consumer revolution to arm the little guy
to take on big business.

De-regulation
since the 1990s strengthened UK competitiveness and productivity. But, what was
in it for a London cabbie, or a hairdresser in Newcastle? Plenty. He could fly
to Nice on holiday 83% cheaper. She could call her sister in Australia at a
fraction of the tariff – or buy her son a football T-shirt at a 15% discount. Whether
it was the latest Tom Clancy thriller from Waterstones, or a flu remedy at
Boots, it cost them less.

Since then, capitalism’s reputation has been tarnished – from bailed out banks to
water executives pocketing bonuses in a year that saw the dual farce of floods
and hose-pipe bans. For many, it points to systemic failure. Yet, these flaws point
to a lack of competition that should allow consumers to deprive lousy service
providers of their custom. The ‘big six’ energy suppliers wrap up 98% of the
market – yet none rank above ninth place for customer service. The ‘big four’ banks
control 78% of the current account market – but are some of the most loathed by
customers.


There are reasons to be more optimistic. Websites like MoneySupermarket enable customers to compare suppliers of services –
from insurance to broadband – at the click of a switch. In May 2012, consumer
magazine, Which?, coordinated ‘The
Big Switch’, a reverse auction enabling energy companies to bid for group
custom. 38,000 consumers switched supplier – delivering average annual savings
of £223 on bills. How do we strengthen such consumer bargaining power?

Tomorrow,
I am publishing Capitalism for the Little
Guy – 10 Ways to Extend Competition and Strengthen Consumer Clout
with the
Centre for Policy Studies, calling for an expansion of competition to increase
customer choice.

Take
energy prices. Subsidies for solar and wind power inflate bills, without delivering
energy efficiency or cutting carbon. They should be phased out. Then, last
autumn, the Big Six hiked prices by 6 to 11%, while complex tariffs confuse
customers. Rather than government dictating prices, which companies can
circumvent, we should strengthen consumer bargaining power. Industry is working
up an online system that would allow customers download clear, portable,
billing information to help them switch to the best deals. Government could
incentivise energy companies to sign up, by offering a temporary tax break to
help cover implementation costs. Promoting group-switching would save customers
money, and break the chokehold of the Big Six.

UK
banks receive 10,000 complaints each day, while 59% of customers say they would
switch if it was easier. Requiring banks to give customers clear statements of
their fees, and portable bank accounts, would enable customers to switch. That
needs to be backed up with an overhaul of the barriers to entry that prevent
smaller retail banks breaking into the market, offering competitive deals and
better services. The new Financial Conduct Authority should also be given a
clear mandate to promote competition in retail banking.

The
government is introducing a Water Bill to allow businesses to switch the water
company that bills them, in a bid to break open regional monopolies. That may
have limited impact, unless retail and supply arms of water companies are
legally separated – a move that would pave the way for extending choice to
household consumers.

Public
appetite for greater choice is not limited to the free market. According to
ComRes, 75% of people believe that a variety of providers of public services is
preferable. Given financial pressures, incremental expansion of competition in
public services is necessary to deliver greater choice and value for money.
Allowing businesses to make a profit from running academies and free schools –
as following Sweden and the US – would raise extra money to fill the 14% rise
in primary school places expected by 2018, and broaden parental choice. Requiring
firms to plough at least half of any profit into school investment, and strict
educational performance standards before dividends can be paid, would guarantee
schools always gain. The NHS remains sensitive ground. Even here, we should
level the playing field. Where private firms already deliver services, large NHS
providers shouldn’t be able to rely on massive tax and regulatory exemptions to
win contracts and deny patients real choice of services.

Milton
Friedman said ‘business corporations in general are not defenders of free
enterprise. On the contrary, they are one of the chief sources of danger’. It
is monopolies – not markets – that are tainting capitalism. We need a new wave
of competition to take on the cartels, and put the paying customer in charge.

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