HL Deb 31 January 1997 vol 577 cc1321-9
The Earl of Bradford

My Lords, I beg to move that this Bill be now read a second time.

The aim of the Bill is extremely simple: that new motor car prices will be quoted fully inclusive of delivery charges and number plates.

The anachronistic, confusing practice of not including delivery charges started in the days of purchase tax and was designed to avoid payment of a portion of that tax. It remained in place through the time of the car tax, but now that this has been removed there is no financial reason for it to continue any longer. Not to include number plates in the price of a car seems plain daft.

At least we have got rid of the strange practice of charging separately for seat belts. However, one still finds a plethora of different pricing scenarios from full on-the-road pricing, sometimes even including road tax and extended guarantees, to other cases where it seems that everything is an extra.

Gradually there has been a move within the industry towards all-inclusive pricing. However, this is still proceeding slowly and the Bill would put the final nail in the coffin. It would also ensure that there would be no backsliding in the future, as it is so easy for people and companies to revert to bad old habits if they see financial advantage in doing so.

Only this week, I received a press release from a major importer of Far Eastern manufactured cars in which it is stated that the on-the-road package price has increased from £590 to £610, effectively demonstrating that people have not changed their policy yet.

The Bill is being supported by the Consumers Association, which sees it creating a more transparent and simpler situation for car buyers, ending the confusion between on-the-road prices, often in rather smaller print, against prices exclusive of delivery and number plates. It is also supported by the Retail Motor Industry Federation and privately by many others in the retail motor trade.

The Society of Motor Manufacturers and Traders is sitting on the fence. It produced a rather strange letter opposing the Bill, addressed to me, which was never signed or dispatched. However, a copy was sent to the DTI. This has now been withdrawn by the society as it did not agree with the contents itself. I believe that it wishes to see an effective voluntary scheme put in place which it would attempt to police. That does, though, aptly demonstrate how confusing the present situation is.

Considering the clear consensus that action is required, I hope that your Lordships' House will be content with my Bill. It is simple; it is progressive; there are no disadvantages. I hope that the Government and Opposition parties will give it their support. I commend the Bill to the House.

Moved, That the Bill be now read a second time.—{The Earl of Bradford.)

11.10 a.m.

Lord Lucas of Chilworth

My Lords, in taking part in this short debate this morning, I should perhaps remind your Lordships of my interest. 1 have been involved for many years in the retail motor industry and to some, albeit small, extent I still am involved. I am grateful to my noble friend for his explanation of the Bill, which is, indeed, simplicity itself. I am slightly ambivalent about the progress of the Bill, however, as I do not believe that it is necessary. I have a number of reasons for so saying.

The background to the sale of new motor cars is merely numerical. For example, in 1995 about 1.94 million cars were sold and in 1996 just over 2 million were sold. Of those numbers, over half (in 1995, 53 per cent. and, in 1996, 54 per cent.) were sold to what one might call the professional buyer, people such as the rental companies and some of the banks—the big buyers. So the point made by my noble friend is irrelevant in that respect. It leaves about half the number being sold to what one might call the general public.

Two-thirds of all new motor cars sold have a part-exchange element in the transaction. So there has to be some negotiation as to that value. It follows fairly logically, therefore, that the indicated price is no more nor less than an indicated price. It is not a fixed price because that is only part of the transaction.

Lord Marlesford

My Lords, I apologise for interrupting my noble friend, but I did not follow the logic. He said that a large proportion of cars are sold to big buyers—the banks and so on. It did not seem to me obvious—perhaps he would explain—why that made my noble friend's Bill irrelevant.

Lord Lucas of Chilworth

My Lords, I was simply trying to suggest that over half the number of new motor cars sold are sold to those big buyers, who negotiate the price. Therefore, there is an irrelevancy in relation to half the sales.

Lord Marlesford

My Lords, so are they not charged delivery charges or for number plates? It does not seem to me obvious why everybody else should be so charged.

Lord Lucas of Chilworth

My Lords, if I were privy to every contract that a major buyer entered into with a manufacturer, I should be able to answer the question. All I know is that a price, probably different from that which may be displayed, would be negotiated by a big fleet buyer. I went on to say that two-thirds of purchases have a part exchange element. Therefore there is another element in the contract; namely, the value of the used motor car. There is no fixed price on that.

I come to the remainder of the buyers. Certainly to my knowledge nobody pays straight cash. They take advantage of the multitude of purchase schemes that are available. Some are called personal contract plans. They could include leasing, hire purchase and so on. So there is another element of negotiation. In a sense, the displayed price, the so-called "recommended retail price" is rather meaningless as part of the entire transaction.

Lastly, I want to refer to that leading authority Chitty on Contracts. I quote from the 27th edition, volume I, published in 1994. Chapter 2, Section 2-007 deals with display of goods for sale. It says: As a general rule, a display of goods at a fixed price in a shop window or on a shelf … is an invitation to treat and not an offer". The concluding lines of that paragraph state: The distinction between an offer and an invitation to treat depends, in the last resort, on the intention of the maker of the statement". The maker of the statement in this case is the motor dealer; and the intention of all motor dealers in the retail trade is to offer a product for sale—an invitation for a buyer to come in and discuss a transaction. I have described quite briefly one or two of the elements that go into that transaction.

Further in Chapter 2, Section 2-008, headed "Other displays", says: The principles stated in § 2-007 above also apply to other displays … There is no perfectly general answer to the question whether such displays are offers or invitations to treat; the answer depends in each case on the intention with which the display was made". It seems to me that any price indicator on the windscreen or a board sitting on the roof of the motor car is an invitation to treat—an invitation to negotiate. So the pricing is irrelevant. That is the irrelevancy that I see in the Bill.

I accept what my noble friend said about the manufacturing and retail industries moving towards an all-inclusive price. I understand that that is the subject of discussion between the industry and the Office of Fair Trading. It seems therefore that we have an invitation to enter into a transaction which involves buying a new motor car. It is negotiable and therefore any price indication in that regard is something of an irrelevance, which I see reflected in the Bill.

I would not force my view upon the House by opposing my noble friend's request that the Bill be read a second time, if he goes so far. But I do not believe that there would be any great benefit to the consumer.

11.17 a.m.

The Viscount of Falkland

My Lords, the noble Earl very clearly explained his Bill, which he described rather ominously, I thought, as "a simple Bill". That is rather like someone who prefaces his story or remarks by saying, "To cut a long story short". Those stories inevitably go on for a long time.

This matter has become rather complicated. It is not the fault of the noble Lord, Lord Lucas of Chilworth, who is an expert on this subject. But I have some sympathy with the noble Lord, Lord Marlesford, who intervened, in order to have further explanation of some of the noble Lord's remarks. Like other noble Lords, I suppose, over the years I have bought a number of vehicles, both cars and motor cycles, and have always been irritated by the retention of the additional charge for delivery and number plates. I am not so much concerned about number plates as about delivery charges.

With motor cycles, delivery charges represent quite a cost to the distributor. When a motor cycle arrives from the distributor or the manufacturer at the point of sale it sometimes arrives in boxes and has to be put together. That exercise takes many hours and then the vehicle has to be road tested to make it a vehicle ready to go on the road and perform according to the manufacturer's warranty. Most motor cycle dealers and indeed car dealers do that extremely well, but it is a cost.

I agree with the noble Earl that there is no reason nowadays to separate the delivery charges and the cost of the number plate from the total cost. As he so rightly said, it was originally arranged in that way in order to separate the charges from those which were subject to purchase tax.

It is an irritation. But if I understand the noble Lord, Lord Lucas, correctly, he is saying that if people are buying a car or motor cycle under a finance agreement, partly because of the mood they are in at that time—they are excited and not in a normal state of mind, particularly when it is a second-hand vehicle, though we are not talking about second-hand vehicles—they accept all the charges and will not be relieved of the charges when they enter into the agreement. If one wants to pay cash or pay immediately without going into a finance agreement, the first thing one does is say, "I do not want anything to do with the delivery charges and the cost of the number plate. You can knock that off for a start and whatever further discount you will give me". Usually one can obtain a generous discount, except for vehicles which are in demand at the time.

To me it seems a nonsense. It is like many other things that have arisen over the years—for example, food rationing which went on for five or seven years longer than in most other countries which suffered terribly during the war—and ought to be removed. It is illogical and irritating. I would like to see, as would the noble Earl, vehicles offered for sale at an inclusive "on the road" price. The manufacturers and dealers can sort out what that "on the road" price should be.

Perhaps I might add at this stage that it is extremely expensive to buy a vehicle in this country, whether it is a car or a motor cycle. A very good British motor cycle which is now extremely popular will be on sale in this country, when it arrives at the dealers, for around £10,000. In the United States, for reasons which escape me, it will be on the market for around £7,000. I do not understand that. People who are prepared to go through complicated paperwork are able to go to Denmark and make arrangements to buy a car for several thousand pounds less than the retail price at which they can buy it here. Most people cannot be bothered to do that, even if they have the cash to do so.

There is a whole area which needs to be explored way beyond the simple measure—it is a simple measure—suggested by the noble Earl. I do not know what the noble Earl intends to do with the Bill. It has been an interesting debate and I shall follow it further outside the Chamber with the noble Lord, Lord Lucas of Chilworth, who is always so interesting when he speaks on these subjects. I am sure that the points in his speech which confused me and his noble friend Lord Marlesford will be made clear. Having said that, I support the noble Earl in whatever he decides to do.

11.23 a.m.

Lord Haskel

My Lords, once again I congratulate the noble Earl, Lord Bradford, on showing his concern for the consumer. He showed great concern that diners should not be ripped off over service charges in restaurants; now he is showing his concern for those buying motor vehicles.

It seems to me that the noble Earl is absolutely right. Number plates are required by law and customers cannot drive a vehicle away from a dealer without them. They are not an optional extra. Equally, delivery is not an optional extra. I agree with the noble Viscount, Lord Falkland, that we buy the vehicle from the dealer's showroom, not from the factory gate. The vehicle is delivered to the dealer before the consumer has decided whether or not to buy it.

The practice of plates and delivery being charged separately has grown up from the days of purchase tax. It is extraordinary that customers are not always offered a price "on the road". It would be good customer relations to do so. It would make for clarity.

I would say to the noble Lord, Lord Lucas, that there is a cost to quoting the law to customers. A confused customer is a wary customer. After all, every dealer wants the customer to come back and buy another vehicle. If there is argument and confusion over the price, the customer may feel ripped off or confused because he has been charged extra for items which are not a matter of choice. The customer is then likely to go elsewhere when he next wants to buy a car.

However, on these Benches we are committed to eliminating unnecessary regulation. Because it seems to me to be good customer relations to offer an all-in price, including delivery and plates, I wonder whether regulation is required. Is it not a matter for the motor trade? The vehicle industry has an active and effective trade organisation, in spite of its inability to write a letter. Could not the noble Earl persuade that organisation to introduce an inclusive price as part of a code of practice? Normally a code of conduct incorporates best practice, and most companies are anxious to carry it out, otherwise they will not remain in business for long.

There will always be special deals, and the law will not prevent that. In relation to the retail consumer, it is clear that some firms do not adopt that misleading approach. I saw an advertisement for a Peugeot 306 this week quoting an all-inclusive price. It also avoided the other trick of proclaiming one price in large letters and then again, in the smallest print, stating a much larger price for the car illustrated. That leads me to make one further comment. It is strange that that trick is acceptable to the Advertising Standards Authority. It could make a contribution to consumer protection by disallowing that kind of advertising.

We are in entire agreement with the noble Earl's objective of greater clarity. But could it not be more easily and effectively achieved by a code of practice rather than by regulation? The noble Earl is persuasive; perhaps he could persuade the trade to put its house in order—the alternative will be something much more draconian—if not now, then in the future.

Lord Marsh

My Lords, before the noble Lord sits down perhaps I may ask a question. Is not the reason the industry continues this practice because, when a customer begins to negotiate the price as the noble Lord, Lord Lucas, does, the large majority of suppliers have fixed a common "add-on" which can be anything up to 15 per cent. of the price where there is no competition at all across most of the industry? The actual additional cost of placing the vehicle on the road is normally estimated at a figure which can be anything up to 10 per cent. of the other retail price for the vehicle. There is no competition in that regard. The cost for the add-ons is always the same proportion, and it is a large proportion. That is why the industry continues the practice.

Lord Haskel

My Lords, the industry can surely get over that by quoting a price "on the road". That seems to be a practice which is being followed more frequently.

11.28 a.m.

Baroness Miller of Hendon

My Lords, I have listened to this short debate with great interest. I appreciate the concerns which prompted my noble friend Lord Bradford to present his Bill, and the clear way in which he explained it. His aim of promoting greater clarity in the manner in which the price of motor vehicles is presented to the public is a laudable one. Indeed, it accords with the Government's own aims of ensuring that consumers are given full and accurate information and that the price of goods and services is indicated in a transparent manner.

There is already a body of legislation in place designed to promote transparency in the giving of price indications for most goods and services—including cars—and it may be helpful if I first outline the provisions of the legislation.

The Price Marking Order 1991 applies to any goods—including motor vehicles—which are or may be offered for sale by retail, and also to advertisements which refer to the selling price of those goods. The order provides that, where the purchase of a product is dependent upon payment being made for ancillary goods or services, the price of the product shall be indicated in such a way as to make it clear whether it is exclusive or inclusive of the ancillary goods or services. The order further states that, where the price quoted is an exclusive one, the indication of the price of the ancillary goods or services shall be given as prominently as that of the product itself.

It seems to me that this legislation goes a long way to meeting the concerns which underlie my noble friend's Bill. There can be no doubt that, properly applied, it offers no less than a clear and transparent means of letting consumers know, before they enter into a transaction, what they will have to pay for a product—in this case, a motor vehicle. However, there is more.

There is, in addition, protection of a more general nature for consumers in the form of the Consumer Protection Act 1987. Part III of this Act makes it an offence to give consumers a misleading indication as to the price at which any goods or services are available. It is the definition of "misleading" in this part of the Act that my noble friend's Bill seeks to amend. However, the "catch all" nature of this part of the Act is already designed to provide wide-ranging protection in any circumstances in which a price indication is given to consumers. It therefore has the effect of promoting transparency in any transactions involving any goods, including the retail of motor vehicles.

I recognise that my noble friend is seeking to go further than this. He wishes to see inclusive pricing made, in effect, compulsory for motor vehicles. As I shall explain, the Government have reservations about pursuing such a policy. Our general approach is to be sceptical of making such matters compulsory. But, even if we were persuaded that inclusive pricing for motor vehicles ought to be mandatory, the machinery exists for us to do that without a provision such as my noble friend is proposing.

Section 26 of the 1987 Act already empowers the Secretary of State to make regulations in relation to the circumstances and manner in which price indications may be given. That would certainly allow us to make inclusive pricing mandatory if we were convinced of the need to do so. It would be inappropriate and would not be economical use of parliamentary time to amend an Act of Parliament by primary legislation when that Act already contains provisions for making regulations to achieve the intended aim. Incidentally, Section 26 of the Act makes provision for a consultation process where the Secretary of State chooses to use his regulation-making powers—and for good reason: the importance of canvassing the views of all interested parties on a measure likely to have far-reaching consequences is self-evident.

Your Lordships may be aware of the existence of a statutory code of practice for traders on price indications made under Section 25 of the Consumer Protection Act. This already provides all manner of detailed provisions regarding specific aspects of the indication of price. Compliance with the code is not mandatory but deviation from its recommendations can be used to support a prosecution of a misleading price indication under the Consumer Protection Act. I understand that the code plays an important part in the interpretation by the enforcement authorities of the relevant provisions of the Act. My noble friend Lord Bradford is certainly aware of it and of the fact that review and revision of the code is currently under consideration by my department. Revisions to the code would provide a more flexible way of giving statutory encouragement to the use of inclusive prices. It is not something I think we should rule out altogether at this stage. But, as I have already suggested, before going down this route we would need to be persuaded that this is a proper matter on which we should be seeking to change market practice.

This brings us to the nub of the issue. Is this a matter on which we should be legislating? Given that there already exists legislation to prevent traders from misleading their customers, should we be prescribing the exact manner in which traders should indicate their ancillary costs? In such instances it is useful to ask—if this is such a good idea, why are not market pressures bringing it about? In fact, as I understand it, market pressures are leading to greater use of inclusive pricing. I refer to a new industry-led initiative on this issue. This, I understand, emanates from car manufacturers who are aiming to move to all-inclusive motor vehicle pricing over the course of the next 12 months. We regard this as a most promising initiative which should go a long way towards meeting my noble friend's concerns. I hope he will agree with me that this is the case and that he, like myself, will be watching closely for further developments in the coming months. It would certainly be highly inappropriate for the Government to consider any action before the full effects of this new initiative have been seen.

Should nothing come of the industry's initiative, I am sure that my noble friend and others will press on us the arguments for making regulations under Section 26 of the 1987 Act or for making a suitable amendment to the code of practice. As always, we shall listen very carefully. In doing so, we will wish to remain mindful of the Government's commitment to reducing the regulatory burden on business and continuing to do that. The idea of deregulation has been so well thought out by our party that I am sure the noble Lord, Lord Haskel, will not mind me commenting on the fact that he said that his party certainly wants to deregulate as much as possible. This is something which can be easily overlooked in the well-intentioned clamour to provide another layer of protection for consumers. However, too much regulation can work to the detriment of both businesses and consumers by unnecessarily tying business down with bureaucracy, increasing costs and reducing choice, thus achieving the opposite of the effect which is intended.

As I have said, we believe that the concerns of my noble friend Lord Bradford are likely to be met by the existing legislative protection and that, even if that were not the case, there are, in addition, regulation-making powers and the possibility of amending the code of practice to which I have just referred.

In addition, we have the new industry initiative which I have also just mentioned. In the absence of compelling arguments to the contrary, and also of any evidence of significant consumer concern on this issue, I hope my noble friend will understand that I cannot recommend the Bill to the House.

The Earl of Bradford

My Lords, it would seem that there is a large measure of agreement in your Lordships' House that the aim of my Bill is a laudable one, but that primary legislation is the wrong course of action.

I should like to thank all the Members of your Lordships' House who took part in the debate for their contributions. There is clear support for the practice of all-in pricing for new motor cars, including motor bikes, as the noble Viscount, Lord Falkland, pointed out, and that this should be brought by means of a voluntary but effective code of conduct by the trade. However, it may prove, as has so often been the case in the past, that it will be difficult to achieve this with 100 per cent. support. In that case, let us keep the threat of government action hanging over their heads like a proverbial Sword of Damocles, in the hope that this will encourage them all to come into line. Accordingly, I beg leave to withdraw the Motion for Second Reading.

Motion for Second Reading, by leave, withdrawn.

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