Price and Choice in Remote CommunitiesReport on a call for evidence

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The call for evidence

The Office of Fair Trading (OFT) has carried out a review to help us understand more about the challenges facing consumers and businesses in remote communities across the UK.

The OFT recognises that prices of many goods and services are often higher in remote communities, there may be fewer suppliers available, and access to key services such as shops, dentists, chemists, banks and public transport can be limited. Fuel prices are a common cause of concern for those who need to travel long distances to get to school, to work or to the shops. While shopping online may provide broader choice and quality, deliveries to more isolated areas can sometimes be difficult or costly.

Our call for evidence from February to April 2012 explored these and other problems with communities and businesses in remote areas. Our aim was to improve our understanding of the range of effective responses and in particular how consumer or competition law can help tackle these problems.

Who we heard from

Consumers and businesses from remote communities across the UK have shared their experiences about price, choice and access to goods and services.

We have not used a formal definition of remoteness as this varies across the four nations of the UK. At least half a million people live in communities that can be classified as remote. Their circumstances vary in terms of geographies, population, income and government support.

We gathered written views from all parts of the UK and held discussions in Shetland, Highland, Northumberland, County Tyrone, Gwynedd, Bridgend and Devon.

Figure 1: Map of respondents

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A wide range of concerns has been brought to our attention

Each is important on its own, and in combination the effects can be significant for both consumers and for businesses. These concerns have been grouped according to sectors and there are many connections.

Figure 2: Issues for remote communities

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What we heard about

We received 494 written responses. The graphs below show the results and the word cloud contains a snapshot of the issues and topics raised most frequently.

Chart 4: Main issues mentionedChart 3: Price, access, quality and choice of goods and services

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The introduction of national supermarket chains improved choice and lowered prices. These benefits were limited to consumers with internet access, which was often of a poor quality.Bridgend, Wales

Delivery Road fuelPricing

The residents are well aware that they live in a remote location and that some services will cost more than in other more central areas. They are not looking for something for nothing. But service providers should not be allowed to monopolise or profiteer from this situation. Shetland, Scotland

The internet has been a wonderful life enhancer when it comes to purchases… Isle of Anglesey, Wales

Self-serve fuel pumps were established in the Wester Ross region, but poor broadband connection means that the credit card payment system is unreliable.Highland, Scotland

There are some great family businesses in the area but even some of these struggle to keep going now. They know the area and provide good service, like free delivery, but can’t always compete on price. Devon, England

Many times when trying to buy goods online I have got to the checkout, only to find that the company will not deliver here or charges very high premiums for doing so. Western Isles, Scotland

Some companies refuse to use Royal Mail services, but will employ more expensive couriers instead. Shetland, Scotland

I think twice about going to Belfast – even for business meetings. County Tyrone, Northern Ireland

I work a lot from home and my broadband connection is terrible. It is really slow and costs me a lot in wasted time…Shropshire, England

Consumers said that delivery prices were not clear enough.Highland, Scotland

Internet

The fuel price affects everything. Shetland, Scotland

Rural consumers understand the grip the supermarket chains have on the urban market for transport fuel and the tools they have to maintain/strengthen that grip. Rural fuel stations are simply unable to compete with the supermarkets on price. Nor can they offer cross deals on groceries and fuels or run loyalty card schemes. Northumberland, England

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Entertainment and leisure

Post Office/financial services

Economic development

Ferry links are far too expensive. Ferries are cancelled without good reason (often if there are fewer people queuing to travel). This makes it difficult to keep appointments or to connect to and from trains. Isle of Wight, England

The lack of any local facilities means that any social activities require travel which makes everything cost so much more. Kent, England

Why should orange juice cost 15p a litre more? Shetland, Scotland

…large supermarkets have a detrimental effect on local shops, even as far away as 25 miles from the store… we are going to be even more badly served in terms of access to buying food, having to travel further, and our small towns will suffer by the closure of the small retailers that we have, changing the character of the towns and adversely affecting the local economy. Powys, Wales

…most of the rural areas have little by way of services from Post Offices, the banks have long since abandoned rural areas, with the result that the Post Offices were the last bastions of financial services and with their loss there is now no access to such services. MP from Scotland

Post Office services are brilliant and cost the same despite where I live. Western Isles, Scotland

Groceries/supermarkets/local shops

…the lack of access to reasonably priced food locally depresses the economy by sending all the shopping money east, reducing availability of work, and further depressing the potential for population and economic growth. Isle of Skye, Scotland

Salaries and wages tend to be lower and the number of jobs is limited. Isle of Wight, England

A limited bus service in Pwllheli means that residents rely on private transport to get to work, shops or entertainment and leisure activities.Llyn Peninsula, Walesˆ

Public transport

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Who plays a part in respondingWe have thought about why these issues arise

Hearing about these important problems and the ways in which they are linked has challenged the OFT to consider and to explain both the economics and the practicalities that affect the way the market works. This leads us to think about which solutions, including those available to the OFT, can be most effective.

The economics• highpricesbecauseoflongdistancesorcomplexjourneys• highpricesbecauseofsmallvolumeofsales• highpricesbecauseofmonopolypower• highpricesaddingupacrossarangeofgoodsandservices• limitedchoicebecauseofasmallcustomerbase• highpricesandlimitedlocalchoicedrivesomecustomerstoshopfurther

away from home which makes the customer base in the local community even smaller.

The practicalities• Spendingonfuelisveryhighbecauseofhigherpricesandlongerdistances.• Shoppersfindthebestpricesbybuyinginbulkoutsidethelocalmarket.• Vulnerableconsumerswhocan’ttraveleasilyloseaccesstoservicesasthe

local market shrinks.• Internetspeedscanbetooslowtosupportonlinesearchandcomparisonand

access to advice which can help consumers. • Deliveryservicesareoftenlimitedorchargedathigherprices.• Evenwhensubsidised,publictransportcannotmeeteveryone’sneeds–butpublic

transport remains some people’s main option.• Problemsinonearea,suchasdeliveriesorlimitedonlineaccess,canleadtoproblemsin

another, such as internet shopping or banking or local enterprise.• Problemswithhighpricesandchoicemakeotherproblemsworse,suchaslowwagesand

limited employment opportunities.

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Things that work

We have heard of many current initiatives and potential solutions

Transparency• Businessoperators,bothpublicand

private, can build trust by being clearer about the costs of doing business in remote communities, though in some situations consumers need assurance from third parties

• Usersofpublicserviceswantmoretransparency in procurement and in wider decision making, particularly about location of services

• A‘PriceWatch’schemeforretailpetrolprices has been effective in Australia

• Aschemetolistretailersthatofferfree delivery to the Highlands is under consideration

Competition enforcement• TheOFTcaninvestigateevidence

suggesting anti-competitive behaviour or abuse of a dominant position. This can put a stop to monopoly profits and give the opportunity for others to enter a market

• Mergercontrolcanpreventthecreationof new monopolies such as in cases of fuel distribution and petrol retail, supermarkets, funeral services and buses

• Marketstudiescanidentifytheneedto reform the structure of a market and lead to Competition Commission remedies, for example in the bulk LPG market

• TheOFTcanadviseontherightwaytomanage cooperation to avoid impinging on competition

Consumer enforcement• TheOFTandTradingStandards

Services can take enforcement action under regulations including those on consumer protection. These may tackle problems related to delivery such as misleading omissions, failure to provide early notification of charges and price discrimination by location without good reason

• Rulesonunfairtermsofcontractsmay apply if advertising is misleading, perhaps where a service in some locations does not reach the levels claimed by providers

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Things that work

Action by government• Investmentininfrastructure,suchasthe

rollout of broadband• Procuringpublicservicessuchassome

buses and ferries• Determiningpricingarrangements,for

example in the road equivalent tariff for selected ferry traffic

• Rebateontaxes,forexamplethefuelduty rebate for some island communities

• Subsidiessuchasthoseforislandresident air transport to the mainland

• Promotinglocalenterprise• Requirementsforuniversalservicein

important sectors

Consumer awareness• Knowyourrightsandwheretoseek

advice, whether from Citizens Advice or from Trading Standards

• Bediscriminatingandshoparoundforthe best deal, including the best cost and convenience for delivery

• Beawareofthelocalconsequencesof where you shop – local stores that are not used are lost

• Usethepowerofconsumercampaigns to raise wider awareness, such as on delivery, which started in the Skye and Lochalsh Citizens Advice Bureau

Action by communities• Cooperationbetweenconsumersto

increase buying power: for example through group purchase of heating oil

• CommunityBuyingGroupsinwhichconsumers join with local businesses to buy items in bulk

• Localownershipsothatthereisanincentive to supply at the best price to meet local needs and to expand local business opportunities

• Communityprovisionoflocaltransport(taxis and buses) where the wider market fails to provide

• Ownershipoflocalassetstoprovidealternatives to national providers, as in community broadband schemes

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OFT role

The OFT is an independent, non-ministerial government department, with lead responsibility for enforcing competition and consumer law in the UK. Our mission is to make markets work well for consumers. Markets work well when businesses are in open, fair and vigorous competition with each other for the consumer’s custom. We pursue our mission by:

• encouragingbusinessestocomplywithcompetitionandconsumerlawand to improve their trading practices through self-regulation

• actingdecisivelytostophard-coreorflagrantoffenders• studyingmarketsandrecommendingactionwhererequired• givingconsumerstheknowledgeandskillstomakeinformedchoicesand

get the best value from markets.

The OFT has a range of enforcement powers under different statutes to address competition concerns in markets and to protect consumers.

Examplesoftheactionswearetakingandrecentprojectsofparticularrelevance to remote communities include:

• adviceonpricedifferentialsinthesupplyofroadfueltotheScottishIslands

• publicationofguidanceoncooperationagreementsinfarmingandpotential for further guidance to businesses and advisers on competition law on certain rural issues

• partnershipwithHighlandCouncilTradingStandardsoncompliancewithconsumer protection law relating to delivery

• newpublishedmaterialrelatingtoremotedeliveryintheOFTinformationhub on Distance Selling Regulations

• mergerreferencesinfuelretail,andongoingconsiderationofmergersamong supermarkets and bus companies

• consumerprotectionenforcementworkintheheatingoilandLPGsectors

• considerationofastudybytheCounciloftheIslesofScillyontransport• discussionswithDefra,thedevolvedadministrationsandeconomic

development agencies about price and choice in remote communities.

Other themes highlighted in the call for evidence will inform the OFT’s future agenda.

How to tell us more

Details of how to contact OFT follow. We welcome information about problems arising because markets are not working well. We receive a wide range of complaints and can take action most readily where these are well supported. We have a leniency programme for businesses which supply information about anti-competitive arrangements in which they find themselves.

Useful contacts

OFT publishes a wide range of information at www.oft.gov.uk

For guidance on the work of the OFT and to report anti-competitive or other behaviourbybusiness,youshouldcontacttheEnquiries&ReportingCentreon 08457 22 44 99 or email enquiries@oft.gsi.gov.uk. But please note the OFT cannot provide advice or assistance to individual consumers or traders. The organisations listed below will be able to offer advice.

For businessesIf you suspect one of your competitors, suppliers or customers is part of a cartel, contact our cartel hotline on 020 7211 8888 or email cartelshotline@oft.gsi.gov.uk

The OFT’s Sale of Goods Act and Distance Selling hubs are available free of charge from: www.oft.gov.uk/saleofgoodsact

www.oft.gov.uk/distanceselling

Business Link is the government’s online resource for businesses providing guidance on regulations, best practices and access to funding options. It is available at www.businesslink.gov.uk

For consumers The Citizens Advice consumer service provides free, confidential and impartialadviceonconsumerissues.Visitwww.adviceguide.org.uk or call the Citizens Advice consumer helpline on 08454 04 05 06.

Advice for consumers based in Northern Ireland is available from Consumerline.Visitwww.consumerline.org or call their helpline on 0300 123 6262.

OFT1421 Edition 06/12