The business column - Patrick Hosking on how two public schools boys did the OFT a favour
The problem with the Office of Fair Trading hasn't been a shortage of manpower (it employs 700 peopl
Illegal anti-competitive behaviour is not restricted to geezers in smoke-filled rooms plotting to fleece their customers over the price of cement. It is sometimes perpetrated by the nicest people. Revelations of how the bursars of Britain's top public schools conspired against fee-paying parents make riveting reading.
Information on raising fees was shared annually between 51 schools, orchestrated by Sevenoaks School in Kent. E-mails between the bursars, as revealed in the Sunday Telegraph, show how blatant the conspiracy was. Bill Organ, then bursar of Winchester College, warned in one e-mail: "Confidential, please, so we aren't accused of being a cartel." The evidence of collusion in pushing up prices was clear-cut. A Clinton College official wrote: "We are working on the basis of 5 to 6 per cent [increase in fees]. As always, if we find the others raise the 'bar' then so will we."
It was not the competition authorities who exposed the scam but two 15-year-old Winchester boys, who hacked into the school computer. The whistle-blowers were rewarded by being expelled and reported to the police. The boys were wrong to infiltrate the system, of course, but one wonders whether the Office of Fair Trading, which later used the information to find the schools guilty of operating a price-fixing cartel, would have secured these scalps without their help.
The OFT comes out of a recent National Audit Office inquiry as a timid and leaden-footed organisation. Under the leadership until last month of the cerebral Sir John Vickers, the former Bank of England chief economist, it has won plaudits for the intellectual deftness with which it shapes competition policy. It just isn't so good at nailing actual cartels, stopping anti-competitive mergers, or speedily righting anti-consumer wrongs.
The problem hasn't been a shortage of manpower. The OFT's budget has been boosted by 70 per cent to £57m in the past five years and it now employs 700 people. It hasn't been lack of powers either. The Competition Act 1998 and the Enterprise Act 2002 gave the OFT extra muscle. Yet few cases are resolved and investigations can drag on for years. This month, the NAO found that, as of April, six
out of the 37 ongoing inquiries had already exceeded
three years. According to Edward Leigh, chairman of the Commons public accounts committee, the OFT has been "too slow and too cautious".
Consumers continue to be ripped off in the meantime, and businesses, which have to devote resources and time to cases and can be unfairly tarnished by the negative publicity. One company, whose case started in 2001, has so far paid out £1.7m in legal fees, the NAO said.
The OFT does have successes, such as the replica football kits case. Manchester United, the Football Association, Umbro, JJB Sports, JD Sports and others were found guilty of price fixing and fined £18.6m. Before the case England, Man United, Chelsea and other shirts typically sold for £39.99. Afterwards, prices came down to as little as £25. But the investigation had lingered long into extra time, taking five years to complete.
One problem is high staff turnover. Alarmingly, one-fifth of OFT staff left last year. The OFT attributes this in part to its policy of encouraging private sector lawyers and economists to serve short spells in Salisbury Square. OFT lawyers typically serve for just two years - and so, they struggle to see a single major investigation through from start to finish.
I can see the benefit of this "revolving door" policy to the private sector. Individual lawyers can boast of seeing regulation from the inside, which boosts their prospects and pay back in the private sector. Having gamekeepers-turned-poachers on the staff also boosts the credibility of law firms and helps win clients. But the benefit to the OFT is less clear. Private sector disciplines and skills such as speed, working to deadlines, hunger for results and willingness to innovate (by wielding criminal powers, for example) should have energised the OFT. Yet these are precisely the attributes it lacks.
Callum McCarthy, chairman of the Financial Services Authority, recently issued a timely warning that organised criminals are infiltrating the banking industry. There is plenty of evidence of criminals hanging around in pubs used by call-centre workers and trying to bribe or blackmail them to divulge customer information. But gang members trying to get jobs in banks shows the problem is escalating.
The FSA is right to be concerned. Yet at the same time it is cutting red tape so that tens of thousands of City workers will no longer be checked for criminal records. The procedure that identifies convicted fraudsters, insider dealers and other white-collar criminals and stops them working in the wholesale financial markets is to be dropped. The FSA says it will be up to the City firms to make sure they do not hire bad apples. Quite how they are supposed to do this in the face of the Human Rights Act is anybody's guess.
Patrick Hosking is investment editor of the Times