Dominic Raab MP: We need to arm the little guy to take on big business

Dominic 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.

> Read ConservativeHome's series on Little Guy Conservatism here.