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Regulatory Impact Assessment of proposed changes to the Consumer Credit Act 1974: survey results

March 20, 2004

Oxera was commissioned by the Finance and Leasing Association to undertake a Regulatory Impact Assessment of the Department of Trade and Industry’s (DTI) changes to the Consumer Credit Act 1974, proposed in its December 2003 White Paper.

The study focused on the regulatory changes that were most likely to have a significant impact on credit providers and consumers. These included the changes to the extortionate-credit provision, rules on early settlement, and financial limits, with particular attention paid to the impact on securitisation.

Providers envisaged significant costs resulting from the imposition of retrospective changes to the rules. These included the direct costs of making changes to existing agreements and the indirect cost due to the increase in the risk of lending, through the greater uncertainty caused by ex post regulatory intervention.

Oxera surveyed credit providers to collate quantitative evidence on the behavioural response of credit providers and the compliance costs they would incur in implementing the proposed changes to the Act.

The Oxera report was included in the FLA’s response to the DTI White Paper.

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Review of the impact of the Financial Services and Markets Act 2000 on competition

January 1, 2004

Oxera was commissioned by the Office of Fair Trading (OFT) to conduct an assessment of the impact of the Financial Services and Markets Act 2000 on competition in the UK financial services industry. The Act created a new regulatory regime and established the Financial Services Authority as the single statutory regulator for the industry. It is a complex piece of legislation covering many different markets, including banking, insurance and investment business.

The Act’s competition review, to which the UK government committed itself when the Act was going through Parliament, is being carried out by the OFT in three stages. The first stage involved the design of a methodology to allow identification of the key areas where the Act is likely to have had a significant competition impact on the UK financial services industry.

The second stage was an application of the methodology to the Act to identify and rank those areas of the legislation that are of particular concern in terms of likely competition impact. At the third stage, the OFT may decide to undertake a more detailed market investigation into the most problematic areas identified. Oxera was commissioned by the OFT to carry out the first two stages of the review.

The research report for the first stage set out in detail Oxera’s methodology to carry out the FSMA competition review, while the report for the second stage, ‘Competition review of the Financial Services and Markets Act 2000’ was published in 2004 and can downloaded by going to All reports.

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Cost–benefit analysis of local-loop unbundling in New Zealand

December 21, 2003

Oxera undertook a cost–benefit analysis for the New Zealand Commerce Commission (NZCC) on local-loop unbundling. New Zealand is one of the few OECD countries not to have forced the incumbent telecoms provider to open up local access to new entrants.

The NZCC reviewed the situation in line with the requirements of its Telecommunications Act 2001. Having examined the issues and the local environment, Oxera used this information to build a cost–benefit analysis model of unbundling, which was relied on by the NZCC in its determination to unbundle the local loop

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The cost of flexibility provision by electricity generators

November 21, 2003

The government’s 2003 Energy White Paper has, at its core, a commitment to the environment and renewable energy. As we move towards a future in which a significant proportion of renewable energy development is expected to come from wind generation, and the remainder of the generation mix changes in response to environmental concerns—in particular, a reduction in coal-fired generation—there is a question about the ability of the system to maintain its real-time fluctuations in demand, and the cost associated in doing so.

To address this question, The Coal Authority commissioned an Oxera study to evaluate the cost of keeping the electricity system in balance under a range of generation mixes, differentiating between ramping costs, imbalance costs and system-security costs.

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Estimating the relative efficiency of Telecom New Zealand

November 21, 2003

Oxera undertook a performance assessment of Telecom New Zealand for the New Zealand Commerce Commission. Oxera’s performance assessment was based on numerous models using regression analysis, stochastic frontier analysis and data envelopment analysis, and examined both operating and capital expenditure, using the US local exchange carriers as comparators to Telecom New Zealand.

The analysis dealt with monetary conversion issues, differences in the operational, regulatory and the data reporting environment faced by telecom companies in the USA and New Zealand. In addition, a substantial cost standardisation exercise was undertaken, and, given the uncertainties surrounding the data underpinning the analysis, Oxera carried out extensive sensitivity analysis of the relative efficiency estimates.

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Passenger rail services and economic performance

October 20, 2003

Oxera was commissioned by the Strategic Rail Authority to investigate the impact on the wider economy of rail punctuality and reliability. In particular, Oxera examined the impact of rail performance on business travellers, businesses via impacts on commuter productivity, individuals, and services such as tourism.

Oxera applied the theoretical model derived by Bates et al. (2001), using punctuality data from the SRA and assuming individuals will choose an optimum departure time that minimises their disutility from poor rail performance. Values of time and journey certainty were then applied to the outturn arrival times relative to simulated desired arrival times, in order to evaluate the disutility associated with current levels of rail performance for business, commuter and leisure travellers. The simulation modelling was backed up with surveys carried out of businesses, government departments, employee and business organisations. In addition, data from Visit Britain was used to analyse the impact of rail performance on tourism.

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A review of PWCC’s efficiency study for Telecom New Zealand

October 19, 2003

Oxera provided a critical review of the comparative efficiency analysis implemented by Price Waterhouse Coopers Consulting (PWCC) on behalf of Telecom New Zealand.

The review provided a discussion on the use of comparative efficiency for the regulation of telecom operators, the various estimation techniques available, the likely issues the analysis will have to face when using international comparisons (the analysis compared Telecom New Zealand with US local exchange carriers) and dealt with issues relating to the standardisation of costs and operating characteristics, the application of a variable selection methodology and PWCC’s application of stochastic frontier analysis.

See ‘Efficiency analysis to support cost–benefit analysis: report by Oxera’ in the attached report.

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Assessment of the economic impact of the proposed EC Consumer Credit Directive

September 19, 2003

In 2003, Oxera was commissioned by the Association for Payment Clearing Services, the British Bankers’ Association, the Finance & Leasing Association, and the Council of Mortgage Lenders to assess the impact of the draft EC Consumer Credit Directive (CCD) on credit for consumers and, more broadly, the implications for the UK economy.

The study consisted of three elements:

a qualitative cost–benefit analysis of the CCD;
a quantitative impact assessment of changes in the usage and costs of credit on the UK economy;
a quantification of additional net welfare effects.

Oxera’s analysis showed that the CCD is unlikely to achieve its objectives—the economic costs may be significantly larger than envisaged by the European Commission, and its benefits are likely to be small.

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The regulation of licensed taxi and PHV services in the UK

August 28, 2003

Oxera was commissioned by the Office of Fair Trading to analyse consumers’ valuation of different aspects of taxi services and to enable calculations of the effect of taxi regulation on consumer welfare. To inform the design of a stated preference survey, a revealed preference exercise was undertaken, which provided guideline estimates for the levels of the attributes, and their likely relative importance. The stated preference survey was constructed using the outputs from the revealed preference survey and other information on taxi markets, and the survey design was tested through the use of a pilot survey. 

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Water industry financial model of periodic review of pricing 2004

August 20, 2003

Using Oxera’s bespoke financial model developed for the Environment Agency, Oxera modelled several hypothetical scenarios for the potential price limits at the 2004 price review of the UK water sector. The model provided a useful and easy-to-use tool for a detailed examination, at the aggregate industry level, of several scenarios regarding the main building blocks (eg, operating expenditure efficiency, capital expenditure, depreciation, and the cost of capital).

In particular, the model assessed the possible impact on price limits of different levels of water quality and the environmental improvement programme. The future prices modelled in the scenarios were particularly sensitive to the cost of capital assumption in the model. Although financeability considerations were not explicitly modelled, this also illustrates the impact, in setting price limits, of potential adjustments to the allowed rate of return to reflect financeability considerations.

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