Business, Innovation and Skills

Julian Huppert Excerpts

Tuesday 20th December 2011 Commons Chamber

[Dr Julian Huppert (Cambridge) (LD)]

It is a great pleasure to speak in this debate on credit and debit card surcharges. This Christmas, more people than ever are buying their presents online. Last week’s retail figures showed that internet shopping, or, as it is rather mysteriously called by the Office for National Statistics, non-store retailing, rose nearly 20% between November 2010 and November 2011—a staggering increase. Purchases made online now constitute 12.2% of non-fuel purchases. It is therefore essential that the Government do everything they can to ensure that when we buy something online the prices are fair, the process is easy and the transaction is transparent.

That is simply not the case and the problem with surcharges is getting worse. A recent study by Which? found that in 2004 Ryanair charged its customers 80p for debit card payments, but that now passengers have to fork out £12 just to be able to pay for their flight. The British Retail Consortium, meanwhile, estimates that the transaction costs are 37p for credit cards and 9.2p for debit cards—rather less than £12. Those costs are no longer surcharges but a business model in their own right, and one that severely undermines legitimate economic growth. If Ryanair’s surcharges have risen 15 times in seven years, just think what such charges will do to economic growth across the country as we pull ourselves out of recession.

When consumers choose to buy something, they do so in the belief that the price is fair and that they have got a good deal. So, when hidden surcharges are added at the end, consumers come away feeling wronged and the incentive to buy is greatly reduced.That is compounded by the fact that businesses are incentivised to think of new ways to get away with hidden costs, rather than delivering desirable products or services at the cheapest possible price. Prices go up and innovation is throttled, harming society as a whole. The Government must act now or risk stifling our fragile recovery.

This November, retail sales were down 0.4% on the previous month, a disappointing outcome for hopeful high street shops. Clearly, the depth of the recession, the ongoing crisis in Europe and the difficult economic circumstances around the globe have had a severe impact on consumer confidence and people’s disposable income. Over the same month, however, online shopping was up 2.4%. The fact that internet shopping is growing is not exactly news, but what is important is the pace of that growth compared with that of other industries in this country and of online shopping in other countries. A recent study by the Federation of Small Businesses estimated that online trade will represent 10% of gross domestic product by 2015. If the Government also hope to eliminate the structural deficit by roughly that year, they would do well to pay close attention to internet shopping.

Ofcom has found that eight in 10 UK internet users ordered goods or services online in 2010, a higher figure than that in any other European country. What we have here in Britain is a very large number of people who have access to the internet, use it on a regular basis and are turning to it as the means by which they trade. In that respect, at least, we are leading the way in Europe. As a consequence of those benefits—the savings for customers and the convenience—the Government have already announced £100 million to support the roll-out of high-speed broadband. Although it is nice to see the Chancellor embracing some Keynesian investment, card surcharges already represent a major supply-side restraint which could be removed without any significant cost to the Exchequer. One of the many questions that any Government must ask themselves is what are the barriers to growth. Here we have a significant and growing barrier to progress, and it is time we took action to end the distorted market and unleash the full potential of online retail. Otherwise, consumers will be put off internet shopping.

Hidden costs harm confidence and skew the market away from productive enterprises, but they are also inherently unfair and damaging to a free and open society. The Deputy Prime Minister spoke yesterday about the need for an open society, the need to be transparent, and the need to have a fair distribution of wealth and property. Such non-transparent charges entrench inequalities in wealth and property; they make more difference to those with less.

It has always been the case that the most discerning consumers—those who have the luxury of time and possess significant purchasing power—are able to sit back, compare prices and select what they want; that is something that those who are always working to pay the bills simply cannot afford to do. It should be of concern to the Government that a recent Which? survey found that half of people think that card surcharges make comparing prices difficult. The free market is distorted and undermined by any hoarding of information, and the effect that such charges have on our fundamental sense of fair play is damaging to society as a whole. The charges engender significant mistrust in businesses. That is as harmful to their balance sheets as it is to the consumers who feel betrayed.

It is great that the reduction in travel associated with internet shopping has significant environmental benefits, in terms of CO₂ emissions and problems associated with overcrowding. In particular, it eases congestion on the transport network. I am sure that any of my constituents who have tried to cut through the Grand Arcade these past few Saturdays would greatly appreciate slightly fewer Christmas shoppers there; those shoppers could, of course, go to the independent shops on Mill road and elsewhere.

What can we do? What should the Government do? How can we enable internet trade to grow, and ensure that prices are fair? This is one of those extremely rare circumstances where the solution is as simple as it is effective: we can require card surcharges to be included in the advertised price. I am sure that many hon. Members, particularly on the Government Benches, will be delighted to know that the European Union is already taking a step in that direction—the 2014 consumer rights directive is set to limit debit card surcharges—but we can and should take action now, and go further. We could be leaders in Europe.

In June, the Office of Fair Trading upheld the super-complaint brought by Which? about payment method surcharges. The OFT said that the Government could amend the Payment Services Regulations 2009 to ban the surcharges and make pricing more transparent and fairer. The Government must respond by taking that small step, in order to unleash growth, empower consumers and build and safeguard a free and fair society.