Watch Sainsbury's CEO sing "we're in the money" while waiting to talk about the £12 billion merger with Asda – he's since apologised for his "unguarded moment" https://t.co/Kuaowz0q1u pic.twitter.com/jYMngcahS2

— ITV News (@itvnews) April 30, 2018

Coupe certainly is in the money. The planned £12 billion merger between Sainsbury’s and Asda would place the him at the head of a retail behemoth, their combined market share of 31% catapulting them past Tesco’s 27%. Reflecting an expectation of big profits, Sainsbury’s share price closed 15% up after the announcement, giving Coupe’s own shareholdings a nice £600,000 boost.

Good news for shareholders then. But what about consumers? Sainsbury’s and Asda have promised cheaper goods – a 10% cut to the price of everyday items – which is encouraging news for families struggling with low wages but a rising cost of living. The merger also ups the ante for the other big players, such as Tesco, Morrisons and Waitrose who are already in stiff competition with relative newcomers Aldi and Lidl, discount chains from Germany.

That sounds good for consumers too, then – cheaper goods driven by another episode of supermarket price wars. But while, in the short-term, that’s money in our pockets, in the longer-term it’s a narrowing of consumer choice. And a narrowing of choice reflects less competition, or, to put it another way, a more captive market; producers are able to take advantage of consumers unable to take their business elsewhere. That’s not how free markets should work.

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Scott Corfe, Chief Economist at the Westminster-based think tank the Social Market Foundation, and an expert on market concentration, is unequivocal. The proposed merger, “risks undermining competition”, he told me. Citing emerging evidence from the US, he advises policymakers to be cautious: “Mergers in concentrated consumer markets risk undermining investment and innovation in the economy, as well as leading to higher levels of inequality.” For sustainably low prices producers need to be in constant competition, racing to develop the best products and offers to entice people to their brand. Increased market concentration undermines that.

It’s a point Elizabeth Warren, outspoken consumer protection advocate and Democrat Senator from Massachusetts, has made repeatedly about the oligopolistic consumer markets in America. In an interview with The Nation earlier this year she described the effect of a few big players controlling an entire industry as “devastating for both the economy and political system”. The solution? “Block anticompetitive mergers; stop anticompetitive conduct; and prioritise protecting competition.”

You might expect Warren, doyenne of the American Left, to be critical of market economics. But the truth is quite the opposite. Warren used to vote Republican because of what she saw as their “principled…conservative approach to economics and to markets”. She broke ties with the GOP when she felt it had moved away from free markets towards crony capitalism: politicians in hoc with big business, whose vast wealth and lobbying prowess enable them to tilt the scales in their favour.

This is what risks happening with supermarkets here. If Sainsbury’s combined with Asda, that would leave almost 60% of the entire market in the hands of a “Big Two” – them and Tesco. Then who benefits? The more concentrated markets are allowed to get, the more they serve the producer at the expense of the consumer. The bigger the businesses dominating markets, the harder it is for new entrants to break through. And the weaker the political and regulatory response, the more daring the corporate behaviour. Just look at the consumer problems which bedevil other concentrated retail markets, such as energy and banking.

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Just as the Republicans in America look to be on the side of big business and the wealthy executives running those corporations, the Conservative party in Britain risks the same fate. Being pro-free markets is not the same as being pro-big business, in fact sitting on the side lines as consumer choice decreases is what is undermining people’s faith in capitalism.

Competition is key to prosperity. Scott Corfe told me that denying the supermarket merger could be the best option, it would “force Sainsbury’s and Asda to try harder – innovating, rather than merging, their way out of their current trouble”. That way, we might all be in the money, not just Mike Coupe and his fellow executives and shareholders.

This dross can be broadcast, even on channels with a public service broadcasting mandate, between midnight and 6am. That’s thanks to an Ofcom decision in 2009, which not only classified TV gaming and betting as teleshopping, it also reduced the restrictions about when it could be broadcast. Ofcom’s argument was that since hardly anyone is watching in the middle of the night, channels should be able to do whatever they like for money.

Fair enough? No. Because the question they should have asked is: who, precisely, is watching TV when the vast majority of the population is snoring in bed?

It’s pretty obvious. People who can’t sleep watch TV at 3am. People who are drunk or stoned. People who are ill. People who are depressed. In other words: vulnerable people. And remember – advertisers will only do this because it gets them a return, which means those vulnerable people are buying. Advertisers broadcast predatory products and services in the middle of the night to make money from people whose defences are down; the broadcasters then use the money from those predatory advertisers to subsidise programming for everyone else.

This kind of predatory targeting isn’t limited to TV, or to the hours of night time. Payday lenders, pawn brokers and rent-to-buy retailers such as Bright House put their shops on the poorest high streets for exactly the same reason. Doorstep lenders don’t ply their trade on leafy tree-lined avenues, but in tower blocks and downtrodden estates.

On the internet, cookies make it even easier to find prey and chase them from site to site: if you’ve gambled, you’ll find casinos follow you with special offers. If you’ve browsed for a loan, it’s the lenders who pop up on every page. Until I flagged it with Google last year, if you searched for how to voluntarily self-exclude from gambling, it was gambling ads that popped up.

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And remember: this isn’t happening in a bubble. It creates cross-subsidies in the market which mean prosperous people pay less. People who don’t switch energy provider keep prices low for those who do. People who run up charges on their credit card keep prices low for those who don’t. Big losses by gambling addicts keep the odds good for those who can stick with the occasional flutter.

I believe this is unfair, though some may disagree, and be comfortable with these kind of subsidies from the poorest to the most financially capable. But protecting the vulnerable from exploitation isn’t just a matter of fairness or morality. Exploitation of stuck customers actually prevents markets from operating effectively – so even market purists should accept it needs to be tackled.

Let me explain.

Inactive consumers who don’t exercise their market right to switch undermine competition. Because they don’t switch, they pay over the odds. In the energy market, for example, they pay hundreds of extra pounds per year. That cash doesn’t, as a general rule, go in the back pockets of the shareholders. It goes to subsidise prices for the switchers, enabling companies to slash costs for the most active – and least vulnerable – market participants.

Then along comes a new company. It can’t match those intoxicatingly low prices because it hasn’t got the legacy customers overpaying. But it can’t persuade the high-paying customers to switch either, because they’re not natural switchers. So the new company attracts no one and it folds. The monopoly – or oligopoly – prevails.

Smart regulation should stop these unfair cross-subsidies from the vulnerable to the affluent, as well as knocking out providers whose business model is predicated on exploiting the vulnerable. Open banking regulation is a great example that should allow fintech innovators to build tools which dive into our bank accounts and help us switch providers, products and deals without even thinking about it. In energy, price caps for vulnerable consumers are helping reduce unfair cross-subsidies, but smart meters could enable us to go much further, with customers automatically switched to the cheapest provider.

But the most important job for regulators is to understand where the traps exist for the most vulnerable consumers. Proper segmentation of customer demographics should be at the core of regulators’ research priorities – because wherever you find a concentration of vulnerable people in a market, you’re finding exploitation. The 3am telegaming. The payday loans and doorstep lenders. The pre-pay energy meters. The fixed odds betting terminals. The fee-charging cash machines.

If a product is only ever bought by people who don’t have a choice, we can be pretty certain it shouldn’t have a place in our consumer markets at all. TV roulette should be the first to go.

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Now imagine you’re struggling to make ends meet, earning the National Living Wage; and the hours you work fluctuate week to week, making it near impossible to plan; and you have no savings at all to fall back on, which is particularly difficult because your Universal Credit benefit top-up isn’t always accurate. Oh, and because of all that, you had to borrow money from a payday lender to fix the washing machine that broke suddenly. That £67 now sounds huge; insurmountable even.

Yet that is the situation for millions of families in the UK who, by virtue of living on low incomes, are paying a ‘poverty premium’ – a higher cost for essential goods and services. Research by the University of Bristol found that in 2016, the average low-income household paid a premium of £490, while one in ten paid at least £780.[1. Sara Davies and Andrea Finney, Making the poverty premium history, Personal Finance Research Centre, University of Bristol, November 2017] For someone living on low, often unpredictable income, that additional cost could mean the difference between just about managing, and not managing at all.

Last week the Social Market Foundation, a London think tank, and non-profit Joseph Rowntree Foundation held a conference to explore how markets can be made fairer for disadvantaged households – how they can tackle the poverty premium.

The Bristol University study argues that:

“At its core, the poverty premium represents a mismatch between the needs and circumstances of low-income households and the markets that serve them.”

On the face of it, that might sound counter-intuitive: markets, as Adam Smith long ago argued, are dynamic; consumers and produces create a mutually-beneficial relationship that delivers prosperity for both. How, then, do you end up with such a mismatch? Because, crucially, that’s just part of Smith’s argument. The 18th century economist and philosopher recognised that self-interest was not, in fact, sufficient for a functioning society. And that monopolistic tendencies undermine the key ingredient of the free-market model he advocated: competition.

Looking at the major consumer markets today, Adam Smith would not recognise a free market system, he would see oligopolies, markets captured by the big boys whose producer self-interest had been allowed to trump that of their consumers. Which brings us back to the poverty premium.

The biggest drivers of the poverty premium are energy costs, insurance premiums and access to credit.

As we all know, to get the best deals you need to be able to commit to longer contracts and pay by direct debit. And that, of course, is something many low-income families can’t do. That’s why, when it comes to energy, a third still have pre-payment metres. And, to avoid the ‘loyalty premium’, you need to be a frequent switcher – which is easier said than done if you don’t have internet access, or suffer from poor mental health or illiteracy (more than five million adults in England are ‘functionally illiterate’). Add to that a lack of meaningful competition – the sort that would disrupt markets that are failing particular customer groups – and it becomes clear that a shake-up is needed.

Take the energy industry, which is dominated by the “Big Six”. In 2014 Ofgem, the energy regulator, was so worried about market failure that it referred the sector to the Competition and Markets Authority (CMA). The CMA reported that the six firms supplied energy to more than 90% of domestic customers, and that 70% of those customers were still on expensive ‘default’ standard variable tariffs – i.e. they were getting a bad deal.

Over 30 reforms came out of their investigation, all aimed at increasing competition and protecting consumers. Which is exactly what an effective regulatory framework should do. Only this week, Ofgem announced it is testing “collective” switching for consumers on the worst deals, and is trailing digital products to help others. At the extreme end, last year the regulator introduced a “safeguard tariff” – a price cap – for prepayment meters.

There are promising signs that the steps taken are starting to bear fruit: the market share of the Big Six has dropped to 80%, still pretty concentrated, but going in the right direction. Between the third quarter of 2016 and the third quarter of 2017, the number of suppliers increased from 48 to 66 – an almost 40% rise.[2.  ‘Retail market indicators’, Ofgem, accessed 13 February 2018] Jade Kirk, Head of Customer Service at new supplier Robin Hood Energy, a non-profit launched by Nottingham City Council, told conference delegates that they hadn’t been affected by the prepayment cap, because they already had lower prices. Tackling fuel poverty is the company’s raison d’etre, and they see competition as central to that – “It’s time to say goodbye Big Six, hello smaller bills”, quips their website.

That’s what regulators should be doing – acting in the interests of the consumer to make markets fairer by boosting competition. It means fighting the oligopolies we’ve allowed to develop – research by the Social Market Foundation published late last year found, shockingly, that eight out of ten consumer markets were “concentrated”, not competitive.[3. Scott Corfe and Nicole Gicheva, Concentration not competition: the state of UK consumer markets, Social Market Foundation, October 2017] Adam Smith would not approve.

But while there is clearly scope for regulators to do more, markets are not instruments of social policy, and nor should they be. Which is why tackling the poverty premium must be about more than regulatory intervention.

Take the insurance sector. Compounding the higher pay-monthly costs of insurance are the higher premiums charged for living in a high-risk area – the average area-based premiums account for 17% of the poverty premium.[3. Sara Davies, Andrea Finney and Yvette Hartfree, Paying to be poor. Uncovering the scale and nature of the poverty premium, November 2016] “I’m very sorry that you are living in a run-down, high-crime neighbourhood, but that’s going to cost you extra”. Which seems unfair, but, from a market perspective, it’s logical – higher risk, higher price. Yes, companies should ‘do good’ in the communities they operate in, but they are profit-making businesses, not an arm of the welfare state. They are not a substitute for a social security system that genuinely supports the poorest; an education sector that prepares young people for the future world of work; a skills strategy that enables people to progress and shift careers; an industrial strategy that supports job creation. That, as Adam Smith recognised, is the job of government.

Even if everyone practiced Smith’s enlightened self-interest, markets would still need muscular regulators, fighting for ordinary consumers, and government would still need to deliver good schools and employment support and a benefit system that works. Competition is essential to driving down prices; social policy can ensure they are affordable for all.

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“Top university in England for long-term graduate prospects.”

“London’s top modern university – and one of the top 10 in the UK.”

These were among the more spurious claims put forward in the marketing materials of six universities that the Advertising Standards Authority this week singled out for misleading prospective students with trumped-up claims. The decision is noteworthy for its timing: the consumer watchdog is cracking down at a moment when university fees are front-page news. That the ASA received complaints about university prospectuses in the first place signals a shift in how we see universities – from hallowed institutions to which we seek admittance to one of the pricier items on our shopping lists. A big transaction but, still, a transaction.

UnHerd asked Chief Executive Guy Parker about why the ASA chose to intervene now, and what else is coming down the road in the increasingly commercial sphere of education.

This interview has been edited and condensed.

Universities have been making boastful statements about their rankings and status for a while. Why did the ASA decide to provide more scrutiny now?

There’s nothing wrong with universities promoting themselves in the best possible light.  But we’ll step in when an advertising claim crosses the line, whether it’s in a paid for space or on a university’s website or social media posts.

Our action follows a case in the summer involving Reading University and its claim to be a “top 1%” world ranking university. It also responds to a series of complaints that other universities have been making similar claims.

Is there really any meaningful way to substantiate a claim like ‘top 1% in the world’?

There may well be if the claim is carefully worded and qualified.  Universities have to follow the same rules that apply to all advertisers – if you’re making an objective claim, make sure it’s presented unambiguously and make sure you can prove it.

It seems like there’s more advertising for universities than ever. In the US, it’s not uncommon to hear radio commercials complete with jingles. Is that a trend?

The ad landscape surrounding universities has certainly changed in the UK.  Thanks to the introduction of student fees and the removal of the cap, it’s an increasingly competitive marketplace.

Can you give us an idea of what the new guidelines will look like?

It’s common sense stuff, like providing context to universities about how the advertising rules are applied, the kinds of claims that are likely to be problematic, the evidence the ASA is likely to expect you to hold when making a claim and how to avoid breaking the rules.

And we have a range of sanctions that we can impose if an advertiser is unwilling or unable to work with us and follow the rules. That includes, ultimately, referring them for potential statutory action, including fines. But that’s unlikely to happen here.  The universities we’ve investigated have responded positively to our findings – even if some of them have disagreed with them.

Where did the initial complaints come from? Is there any recourse available to students who feel they’ve been duped? 

It’s not an issue that we get many complaints about, but that doesn’t mean there isn’t a problem or that we shouldn’t take action.

Going to university is a big financial commitment and misleading would-be students is not only unfair, it can lead them to make choices that aren’t right for them. In this instance we thought there was a real risk of consumer detriment and that the problem was widespread.

Most people choosing a university are really young – where to go is the first big decision they make for themselves. Even for older folks, it’s not like buying a car or clothes – it’s a highly specialised product. Everyone buying it is an inexperienced consumer. Does that factor into the ASA’s decision?

It does, yes. When judging whether an ad is likely to mislead we use the ‘average consumer test’: what is the likely knowledge and understanding of the average consumer who sees and responds to a claim in the ad?

In these cases, we took into account that the claims are targeted at students, predominantly young, relatively inexperienced consumers. Clearly, they won’t have the same level of understanding about league tables as the marketing department of universities.

Those responsible for crafting and proving the advertising claims need to realise that.