Counting the cost of regulation

It should be happy days for the PRS business, if PPP is to be believed, because its consumer survey – carried out independently by ThinkTank – finds that consumers welcome the new code of practice on PRS and that having a clear and fair regulatory regime will give people the confidence to spend more money through such services.

Just as well really, since PPP’s annual report also seen by Telemedia-news this week reveals that the PRS sector in the UK is currently worth £730million: 11.4% down on 2008 and a whopping 54% lower than the industry peak in 2006, when it was worth an estimated £1.6billion.

The annual report puts this drop down to the recession and there can be no denying that it probably has had some sort of an impact – but to see the industry cut in half in three years is really quite something.

Industry body AIME, which has assessed PPP’s figures in detail, has found that the cost of regulating the industry has gone up from £3.6million in 2006 to £4.8million in 2009. That’s a doubling in cost to the industry per £1000 of revenue from £2.25 in 2006 to £5.28 in 2009.

AIME’s study of the numbers also suggests that despite the reduction in revenues from PRS, complaints have dropped even more dramatically – representing about one compliant per 50,000 PRS transactions.

Now, you could argue that its money well spent as the complaints to PPP are falling dramatically: something seems to be working. However, you could also argue that, while the cost of regulation has gone up, the value in terms of revenues from services that it has delivered to consumers and the industry has, in fact, gone down.

Of course, this is all under the old, 11^th Code regime, so I don’t think its right to be too critical. PPP is shifting how it regulates the industry and is embracing many of the ideas put to it by industry body AIME over the past four years into its new code of practice – we may yet see a shift towards the nadir of light and fair regulation that delivers value to the industry and encourages consumers to use the services.

The new code, as most of you know, will see AIME suggestions of a much more proportionate apportioning of blame along the value chain, a more open approach to trying to correct errors in services, rather than let them run then instigate actions, and the introduction of a registration scheme come into play.

All great news for the industry, in theory, and it has being warmly welcomed – not least by the public if the survey is to be believed. But the proof will be in the pudding. PPP believes that the new code will have a soft launch early next year and will be properly in force – all teething troubles overcome – by the summer of 2011. I guess we won’t then know until the summer of 2012 how well it has worked.

But those teething troubles, many of which will be thrown up by the overlap from 11^th to 12^th codes are already causing headaches for some in the industry. As we reported in our monthly Telemedia360 newsletter last month, there are concerns as to how the registration scheme will work long term. PPP is confident that it is listening to these concerns and adjusting how systems will work as we speak and it would be foolish to assume that they won’t get it right for the soft launch.

But what no one can foresee or answer now is whether it offers better value for money regulation or not. The PPP survey suggests that consumers welcome clear, yet not overly nanny-ish, regulation and that this would persuade a significant number to use PRS than do at the moment.

Whether this comes about or not remains to be seen, but for now the traditional two way tug of war between PRS industry and the regulator has now taken on a new dimension – consumers pulling in a third direction. Watch this space (or at least watch out for the July issue of T360 which will have an in depth look at the how the new code is shaping up and what it all means for the industry).