Do limited companies need better consumer protection?

Wednesday 19 March 2014

Limited companies may be disadvantaged when it comes to taking out contracts, according to the Federation of Small Businesses (FSB).

The body is now calling on the government to give small and micro businesses better consumer protection, claiming they need to be treat the same as domestic customers when drafting legislation.

Currently, this business segment is often unable to get the sort of deals offered to larger companies or consumers when taking out contracts for energy, telecoms and water, for example.

The FSB claims the 2003 Communications Act is a model of best practice that should be used for all regulated industries, as it treats all micro businesses like domestic consumers, except when there are clear reasons not to.

By rolling out this model, the body claims small companies will receive a much fairer level of consumer protection.

In a new report, 'Small businesses as consumers: Are they sufficiently well protected?', the FSB found that there is a lack of expertise in purchasing the product or service among small and micro businesses. Indeed, they have similar skills as domestic products and are less likely than larger businesses to have staff with a specific procurement role.

What's more, there is a large amount of time spent making purchasing decisions, which smaller companies do not have. The FSB maintains that the cost of spending time choosing a supplier may be high and made greater due to the lack of published tariffs.

This is balanced against  the perceived small benefit of spending time making purchasing decisions. Limited companies will often have a very basic need for services, such as ensuring the lights turn on. Consequently, they often do not feel that they will benefit significantly by spending time choosing the right energy supplier.

Even if small businesses spend time doing their research, they often have poor bargaining power.

John Allan, national chairman of the FSB, 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."

The FSB is calling on the energy regulator to make utility suppliers publish their default tariffs and recommends all regulators enforce the Consumer Protection Regulations to ensure smaller business get a fair deal.

"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," Mr Allan said. "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."

Amelia Fletcher, professor of Competition, Economic and Social research Council Centre for Competition Policy, added that existing consumer law assumes small and micro businesses are capable of looking after their own interests. This is a dangerous place to start from and it is important to understand the nature of limited companies.

By Victoria McDonnell

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