Domestic Building Works (Consumer Protection) Bill

Gagan Mohindra Excerpts

Friday 19th November 2021 Commons Chamber

[Mark Garnier]

I have privately asked all sorts of senior people and, weirdly, they just roll their eyes and say, “It is what it is.” Perhaps we could, but I am certainly not qualified. I was an investment banker rather than a lawyer, so I approach this from a slightly different direction.

One of our colleagues pointed out that the process of negotiated settlement is like being mugged and then being charged for the mugger’s knife, and it has the backing of the law. The consumer of repair, maintenance and improvement building services has no consumer protection at all. There is absolutely no practical protection for consumers that avoids the highly risky, unbelievably expensive and emotionally draining prospect of prosecuting contract law. Indeed, the subcontractors working on our home were victims of the same rogue builder. They were eventually paid, but they were not paid initially.

While we were going through this nightmare, an unrelated subcontractor came to me with a complaint that he had not been paid by the firm with which we were in litigation. The builder’s manager even boasted to our subcontractor that he usually had five legal cases on the go at any given time, playing the system to get more money. This is not just an accident; it is a deliberate action by these builders.

It is extraordinary that consumers are completely unprotected. When we think about the whole building process, it is even more astonishing. The proud homeowner who is seeking to improve their home will go to an architect, who will be regulated by the Architects Registration Board. They might contract a quantity surveyor, who will be regulated by the Royal Institution of Chartered Surveyors. They will probably need to borrow money, so they might approach a mortgage broker who is regulated by the Financial Conduct Authority. The mortgage broker will help with the mortgage, which will be provided by a lender, again regulated by the FCA and possibly by the Prudential Regulation Authority, with advice from a solicitor regulated by the Solicitors Regulation Authority. The money will then be deposited in a bank, regulated again by the FCA and the PRA. The whole process is laden with consumer protection and regulation, right up to the point at which the money is handed over to someone with no regulation—and possibly no qualifications—and with no protection mechanisms for the consumer in any way, shape or form.

Unbelievably, the problem gets worse. The victim may well prosecute the court and win—possibly both damages and costs—but at that point the rogue builder goes bust with no assets and starts a new business the following day to continue the process of ripping off consumers. Meanwhile, the costs to the victim, running into hundreds of thousands of pounds, are unpaid. The reality is that there is absolutely no disincentive for the cowboy builder to present fictitious bills or to do shoddy and appalling work. While the consumer must engage in a risky legal process to seek redress or protection, the rogue builder can game the system with no jeopardy whatsoever.

What is the solution? How do we protect honest builders and subcontractors, builders’ merchants and, importantly, consumers? I repeat that most people in the trade are very honest people who also need to be protected from the activities of rogue builders. How do we redress the balance of risk away from favouring the rogue builder to giving equal weight to both consumer and builder? We must remember that the builder is not always in the wrong, so we need to ensure that the solution is balanced. The answer must lie in a regulation and licensing scheme.

My Bill asks the Government to come up with a scheme of compulsory licensing for SME building firms working in the RM&I space. While it does not set down the specific framework for a licensing scheme with associated regulations—it would be wrong for a Back Bencher to try to undertake that work, because it is complicated—I will suggest my vision of how it would work. My experience, which informs how I look at it, is with financial services and banking regulation—back in the 2010 Parliament, we were heavily involved in changing financial services regulation—and while I do not propose anything remotely as complex as the FCA or PRA, there are some important carry-acrosses from financial regulation.

First, any regulatory scheme must not be a financial burden on the wider taxpayer. A licensing scheme for builders must be self-financed through licence fees. Rules for having a licence must be straightforward; they cannot be complicated. Importantly, no firm can be allowed to offer services direct to customers without a licence. That in itself would result in the wider industry policing the market. For example, mortgage lenders would require evidence that money would be spent on a licensed firm, while architects and surveyors acting as project managers would need to see a licence to engage a building firm, ensuring that builders were licensed. The consumer could check the builder on the regulator’s website, just as can be done with the FCA. The regulator should probably be TrustMark, which currently operates a voluntary scheme. There should be rules regarding code of conduct, honesty, safety and quality of work. Those failing to comply should face a series of sanctions resulting in the ultimate sanction of the loss of licence and, therefore, the loss of the ability to work in that industry.

[Mr Gagan Mohindra (South West Hertfordshire) (Con)]

My hon. Friend is making some valid points. Does he think that the voluntary scheme is not effective as things stand?

[Mark Garnier]

Self-evidently not. My hon. Friend is right to ask that. A voluntary scheme is good, because builders who sign up to it can demonstrate that they are maintaining a certain level of trust and obligations to their consumer. The problem is that the consumer needs to know an awful lot about the building trade to know about that scheme in the first place. We as Members of Parliament have many people coming to our surgeries who have got themselves into trouble with, for example, financial advisers, only to discover that they were not regulated. The problem is that those people did not understand the system well enough to work that out. While some will recognise that there is a voluntary scheme that they can check out, it was not until I got deep into the weeds of the Bill that I discovered it, having spoken to all sorts of quantity surveyors and all the rest of it as I tried to progress my own building problems.

Within all this, there should be rules regarding a code of conduct, honesty, safety and quality of work. Failure to comply should carry a list of sanctions, including losing the licence. An option that could be included is a compensation scheme rather like the Financial Services Compensation Scheme. That is an example of how consumers who have lost out as a result of poor and bad practice are compensated for their loss from a scheme financed, again, not by the taxpayer, but by levies placed on licence holders of the relevant sector. The double effect is that the consumer gets their losses covered, if that is deemed appropriate, while the industry as a whole is incentivised to self-police. At the end of the day, the industry does not want to pay more money to bail out these compensation schemes for rogue builders; it would be incentivised to report rogue builders. Importantly, an ombudsman would be able to assess loss to consumers without the need for expensive and lengthy engagement of legal and professional experts to defend bogus bills or to challenge poor work.

These proposals are aimed at ending the decades-long history of consumers who being ripped off in one way or another by shoddy, rogue, cowboy builders. Voluntary schemes do not seem to have done away with this problem, and the building industry seems to be the one industry remaining where consumers spend quite significant amounts of money in a totally unregulated and uncovered area. Indeed, many people agree that this is beyond redemption. The report of the Federation of Master Builders on this subject in 2018 cited the fact that even the construction firms themselves agree that a compulsory licensing scheme is necessary: 77% of SME builders agreed to the FMB proposals, while 78% of consumers did likewise. I think we would all agree that enough is enough. To steal a phrase from those on the Front Bench, you cannot build back better if you cannot trust your builder.

This is a very complicated area, and I do appreciate that it is not straightforward to go rushing in and create a compulsory licensing scheme, but I am very interested to hear what the Minister has to say. By the way, I am very grateful to him for coming along. Although building is his area, his role does not cover the Bill, but the Minister responsible for consumer protection—the Under-Secretary of State for Business, Energy and Industrial Strategy, my hon. Friend the Member for Sutton and Cheam (Paul Scully)—was not available. However, I am very interested to hear what he has to say, and incredibly keen to continue to collaborate with the Government to try to find a solution to this quite huge problem.