America is not the land of the free but one of monopolies so predatory they imperil the nation

Its growing economic crisis is in contrast to a thriving and newly innovative Europe writes Will Hutton in The Guardian


  

Illustration by Dom McKenzie


Tomorrow, President Trump arrives in London for the annual Nato summit. Despite the boasting and the trappings of superpower status, he is an emissary from a country whose economy and society are in increasing difficulty, and whose global leadership is under challenge not just from the usual suspect, China, but from Europe. With the unerring capacity to be wrong that defines the Brexit right, Britain is about to decouple itself from a continental economy beginning to get things right, and hook up with one that is palpably beginning to fail.

This is not the conventional wisdom. The EU is sclerotic, undynamic, stifled by quasi-socialist red tape, and hostile to insurgent startups. It is so degenerate it cannot even defend itself – as Trump will undoubtedly remind its leaders over the next two days. The US is the mirror opposite. A free trade agreement post 31 January with the US is the number one strategic policy aim for Brexit Britain – unshackling the UK from the declining old, and embracing the English-speaking, dynamic new. Best be nice to “the Donald”.

Except the latest research demonstrates the reverse is true. Britain is about to make a vast mistake. In the recently published The Great Reversal, leading economist Thomas Philippon of New York University and member of the advisory panel of the New York Federal Reserve, mounts a devastating attack on the conventional wisdom, so perfectly embodied by the witless Boris Johnson. The news is that over the last 20 years per capita EU incomes have grown by 25% while the US’s have grown 21%, with the US growth rate decelerating while Europe’s has held steady – indeed accelerating in parts of Europe. What is going on?

Philippon’s answer is simple. The US economy is becoming increasingly harmed by ever less competition, with fewer and fewer companies dominating sector after sector – from airlines to mobile phones. Market power is the most important concept in economics, he says. When firms dominate a sector, they invest and innovate less, they peg or raise prices, and they make super-normal profits by just existing (what economists call “economic rent”). So it is that mobile phone bills in the US are on average $100 a month, twice that of France and Germany, with the same story in broadband. Profits per passenger airline mile in the US are twice those in Europe. US healthcare is impossibly expensive, with drug companies fixing prices twice as high or even higher than those in Europe; health spending is 18% of GDP. Google, Amazon and Facebook have been allowed to become supermonopolies, buying up smaller challengers with no obstruction.

This monopolising process gums up everything. Investment in the US has been falling for 20 years. Because prices stay high, wages buy less, so workers’ lifestyles, unless they borrow, get squeezed in real terms while those at the top get paid ever more with impunity. Inequality escalates to unsupportable levels. Even life expectancy is now falling across the US.

But why has this happened now? Philippon has a deadly answer. A US political campaign costs 50 times more than one in Europe in terms of money spent for every vote cast. But this doesn’t just distort the political process. It is the chief cause of the US economic crisis.

Corporations want a return on their money, and the payback is protection from any kind of regulation, investigation or anti-monopoly policy that might strike at their ever-growing market power. Boeing, for example, ensured – as one of the US’s biggest lobbyists – that regulation was friendly to its plans to shoehorn heavier engines on to a plane not designed for them – the fatal shortcut behind the two crashes of the 737 Max 8. Philippon shows this is systemic; how both at federal and state level ever higher campaign donations are correlated with ever fewer actions against monopoly, price fixing and bad corporate behaviour.

In Europe, the reverse is true. It is much harder for companies to buy friendly regulators. The EU’s competition authorities are much more genuinely politically independent than those in the US – witness the extraordinary fines levied on Google or the refusal this February to allow Siemens to merge with the French giant Alstom. As a result, it is Europe, albeit with one or two laggards such as Italy, that is bit by bit developing more competitive markets, more innovation and more challenge to incumbents while at the same time sustaining education and social spending so important to ordinary people’s lives.

Even starting up businesses is now easier. France is generating multiple hi-tech startups, with unemployment falling. Parts of Paris, Barcelona, Amsterdam or even Milan are now rivalling San Francisco’s Bay area.

The EU’s regulations are better thought out, so in industry after industry it is becoming the global standard setter. Its corporate governance structures are better. And last week, to complete the picture, Christine Lagarde, the incoming president of the European Central Bank, in the most important pronouncement of the year, said the environment would be at the heart of European monetary policy. In other words, the ECB is to underwrite a multitrillion-euro green revolution. In short – bet on Europe not the US.

Thus Jeremy Corbyn, seizing on leaked documents showing how US trade negotiators want UK drug prices to rise to US levels, is on to something much bigger than the threat to the NHS, fatal though that is. Any trade deal with the US will require the UK to accept the protections that are making US capitalism so sclerotic, predatory and high priced – while dissociating itself from a European capitalism that is not only beginning to outperform America’s, but so much better reflects our values.

This election is set to seal not just the geopolitical but geo-economic mistake of Britain’s recent history. The tragedy is that our national conversation is hardly aware of how high the stakes have become.

How to get away with financial fraud

Dan Davies in The Guardian


Guys, you’ve got to hear this,” I said. I was sitting in front of my computer one day in July 2012, with one eye on a screen of share prices and the other on a live stream of the House of Commons Treasury select committee hearings. As the Barclays share price took a graceful swan dive, I pulled my headphones out of the socket and turned up the volume so everyone could hear. My colleagues left their terminals and came around to watch BBC Parliament with me.

It didn’t take long to realise what was happening. “Bob’s getting murdered,” someone said.

Bob Diamond, the swashbuckling chief executive of Barclays, had been called before the committee to explain exactly what his bank had been playing at in regards to the Libor rate-fixing scandal. The day before his appearance, he had made things very much worse by seeming to accuse the deputy governor of the Bank of England of ordering him to fiddle an important benchmark, then walking back the accusation as soon as it was challenged. He was trying to turn on his legendary charm in front of a committee of angry MPs, and it wasn’t working. On our trading floor, in Mayfair, calls were coming in from all over the City. Investors needed to know what was happening and whether the damage was reparable.

A couple of weeks later, the damage was done. The money was gone, Diamond was out of a job and the market, as it always does, had moved on. We were left asking ourselves: How did we get it so wrong?

At the time I was working for a French stockbroking firm, on the team responsible for the banking sector. I was the team’s regulation specialist. I had been aware of “the Libor affair”, and had written about it on several occasions during the previous months. My colleagues and I had assumed that it would be the typical kind of regulatory risk for the banks – a slap on the wrist, a few hundred million dollars of fines, no more than that.

The first puzzle was that, to start with, it looked like we were right. By the time it caught the attention of the mainstream media, the Libor scandal had reached what would usually be the end of the story – the announcement, on 27 June 2012, of a regulatory sanction. Barclays had admitted a set of facts, made undertakings not to do anything similar again, and agreed to pay finesof £59.5m to the UK’s Financial Services Authority, $200m to the US Commodity Futures Trading Commission and a further $160m to the US Department of Justice. That’s how these things are usually dealt with. If anything, it was considered quite a tough penalty.

But the Libor case marked the beginning of a new process for the regulators. As well as publishing their judgment, they gave a long summary of the evidence and reasoning that led to their decision. In the case of the Libor fines, the majority of that evidence took the form of transcripts of emails and Bloomberg chat. Bloomberg’s trading terminals – the $50,000-a-year news and financial-data servers that every trader uses – have an instant-messaging function in addition to supplying prices and transmitting news. Financial market professionals are vastly more addicted to this chat than teen girls are to Instagram, and many of them failed to realise that if you discussed illegal activity on this medium, you were making things easy for the authorities.

The transcripts left no room for doubt.

Trader C: “The big day [has] arrived … My NYK are screaming at me about an unchanged 3m libor. As always, any help wd be greatly appreciated. What do you think you’ll go for 3m?”

Submitter: “I am going 90 altho 91 is what I should be posting.”

Trader C: “[…] when I retire and write a book about this business your name will be written in golden letters […]”.

Submitter: “I would prefer this [to] not be in any book!”

Perhaps it’s unfair to judge the Libor conspirators on their chat records; few of the journalists who covered the story would like to see their own Twitter direct-message history paraded in front of an angry public. Trading, for all its bluster, is basically a service industry, and there is no service industry anywhere in the world whose employees don’t blow off steam by acting out or insulting the customers behind their backs. But traders tend to have more than the usual level of self-confidence, bordering on arrogance. And in a general climate in which the public was both unhappy with the banking industry and unimpressed with casual banter about ostentatious displays of wealth, the Libor transcripts appeared crass beyond belief. Every single popular stereotype about traders was confirmed. An abstruse and technical set of regulatory breaches suddenly became a morality play, a story of swaggering villains who fixed the market as if it was a horse race. The politicians could hardly have failed to get involved.

It is not a pleasant thing to see your industry subjected to criticism that is at once overheated, ill-informed and entirely justified. In 2012, the financial sector finally got the kind of enemies it deserved. The popular version of events might have been oversimplified and wrong in lots of technical detail, but in the broad sweep, it was right. The nuanced and technical version of events which the specialists obsessed over might have been right on the detail, but it missed one utterly crucial point: a massive crime of dishonesty had taken place. There was a word for what had happened, and that word was fraud. For a period of months, it seemed to me as if the more you knew about the Libor scandal, the less you understood it.

That’s how we got it so wrong. We were looking for incidental breaches of technical regulations, not systematic crime. And the thing is, that’s normal. The nature of fraud is that it works outside your field of vision, subverting the normal checks and balances so that the world changes while the picture stays the same. People in financial markets have been missing the wood for the trees for as long as there have been markets.

Some places in the world are what they call “low-trust societies”. The political institutions are fragile and corrupt, business practices are dodgy, debts are rarely repaid and people rightly fear being ripped off on any transaction. In the “high-trust societies”, conversely, businesses are honest, laws are fair and consistently enforced, and the majority of people can go about their day in the knowledge that the overall level of integrity in economic life is very high. With that in mind, and given what we know about the following two countries, why is it that the Canadian financial sector is so fraud-ridden that Joe Queenan, writing in Forbes magazine in 1989, nicknamed Vancouver the “Scam Capital of the World”, while shipowners in Greece will regularly do multimillion-dollar deals on a handshake?

We might call this the “Canadian paradox”. There are different kinds of dishonesty in the world. The most profitable kind is commercial fraud, and commercial fraud is parasitical on the overall health of the business sector on which it preys. It is much more difficult to be a fraudster in a society in which people only do business with relatives, or where commerce is based on family networks going back centuries. It is much easier to carry out a securities fraud in a market where dishonesty is the rare exception rather than the everyday rule.

 

Traders at Bloomberg terminals on the floor of the New York stock exchange, 2013. Photograph: Brendan McDermid / Reuters/REUTERS

The existence of the Canadian paradox suggests that there is a specifically economic dimension to a certain kind of crime of dishonesty. Trust – particularly between complete strangers, with no interactions beside relatively anonymous market transactions – is the basis of the modern industrial economy. And the story of the development of the modern economy is in large part the story of the invention and improvement of technologies and institutions for managing that trust.

And as industrial society develops, it becomes easier to be a victim. In The Wealth of Nations, Adam Smith described how prosperity derived from the division of labour – the 18 distinct operations that went into the manufacture of a pin, for example. While this was going on, the modern world also saw a growing division of trust. The more a society benefits from the division of labour in checking up on things, the further you can go into a con game before you realise that you’re in one. In the case of several dealers in the Libor market, by the time anyone realised something was crooked, they were several billions of dollars in over their heads.

In hindsight, the Libor system was always a shoddy piece of work. Some not-very-well-paid clerks from the British Bankers’ Association would call up a few dozen banks and ask: “If you were to borrow, say, a million dollars in [a given currency] for a 30-day deposit, what would you expect to pay?” A deposit, in this context, is a short-term loan from one bank to another. Due to customers’ inconvenient habit of borrowing from one bank and putting the money in an account at another, banks are constantly left with either surplus customer deposits, or a shortage of funds. The “London inter-bank offered-rate” (Libor) market is where they sort this out by borrowing from and lending to each other, at the “offered rate” of interest.

Once they had their answers, the clerks would throw away the highest and lowest outliers and calculate the average of the rest, which would be recorded as “30-day Libor” for that currency. The process would be repeated for three-month loans, six-month loans and any other periods of interest, and the rates would be published. You would then have a little table recording the state of the market on that day – you could decide which currency you wanted to borrow in, and how long you wanted the use of the money, and the Libor panel would give you a good sense of what high-quality banks were paying to do the same.

Compared with the amount of time and effort that goes into the systems for nearly everything else that banks do, not very much trouble was taken over this process. Other markets rose and fell, stock exchanges mutated and were taken over by super-fast robots, but the Libor rate for the day was still determined by a process that could be termed “a quick ring-around”. Nobody noticed until it was too late that hundreds of trillions of dollars of the world economy rested on a number compiled by the few dozen people in the world with the greatest incentive to fiddle it.

It started to fall apart with the onset of the global financial crisis in 2007, and all the more so after the collapse of Lehman Brothers in 2008, when banks were so scared that they effectively stopped lending to each other. Although the market was completely frozen, the daily Libor ring-around still took place, and banks still gave, almost entirely speculatively, answers to the question “If you were to borrow a reasonable sum, what would you expect to pay?”

But the daily quotes were published, and that meant everyone could see what everyone else was saying about their funding costs. And one of the telltale signs that a bank in trouble is when its funding costs start to rise. If your Libor submission is taken as an indicator of whether you’re in trouble or not, you really don’t want to be the highest number on the daily list. Naturally, then, quite a few banks started using the Libor submission process as a form of false advertising, putting in a lowballed quote in order to make it look like they were still obtaining money easily when, in fact, they could hardly borrow at all. And so it came to pass that several banks created internal message trails saying, in effect, “Dear Lowly Employee, for the benefit of the bank and its shareholders, please start submitting a lower Libor quote, signed Senior Executive”. This turned out to be a silly thing to do.

All this was known at the time. There was an article in the Wall Street Journal about it. I used to prepare PowerPoint slides with charts on them that had gaps for the year 2008 because the data was “somewhat hypothetical”. Even earlier, in late 2007, the Bank of England held a “liaison group” meeting so that representatives from the banks could discuss the issue of Libor reporting. What nobody seemed to realise is that an ongoing fraud was being committed. There was a conspiracy to tell a lie (to the Libor phone panel, about a bank’s true cost of funding) in order to induce someone to enter into a bargain at a disadvantage to themselves. The general public caught on to all this a lot quicker than the experts did, which put the last nail in the coffin of the already weakened trust in the financial system. You could make a case that a lot of the populist politics of the subsequent decade can be traced back to the Libor affair.

Libor teaches us a valuable lesson about commercial fraud – that unlike other crimes, it has a problem of denial as well as one of detection. There are very few other criminal acts where the victim not only consents to the criminal act, but voluntarily transfers the money or valuable goods to the criminal. And the hierarchies, status distinctions and networks that make up a modern economy also create powerful psychological barriers against seeing fraud when it is happening. White-collar crime is partly defined by the kind of person who commits it: a person of high status in the community, the kind of person who is always given the benefit of the doubt.

In popular culture, the fraudster is the “confidence man”, somewhere between a stage magician and the trickster gods of mythology. In films such as The Sting and Dirty Rotten Scoundrels, they are master psychologists, exploiting the greed and myopia of their victims, and creating a world of illusion. People like this do exist (albeit rarely). But they are not typical of white-collar criminals.

The interesting questions are never about individual psychology. There are plenty of larger-than-life characters. But there are also plenty of people like Enron’s Jeff Skilling and Baring’s Nick Leeson: aggressively dull clerks and managers whose only interest derives from the disasters they caused. And even for the real craftsmen, the actual work is, of necessity, incredibly prosaic.

The way most white-collar crime works is by manipulating institutional psychology. That means creating something that looks as much as possible like a normal set of transactions. The drama comes later, when it all unwinds.

Fraudsters don’t play on moral weaknesses, greed or fear; they play on weaknesses in the system of checks and balances – the audit processes that are meant to supplement an overall environment of trust. One point that comes up again and again when looking at famous and large-scale frauds is that, in many cases, everything could have been brought to a halt at a very early stage if anyone had taken care to confirm all the facts. But nobody does confirm all the facts. There are just too bloody many of them. Even after the financial rubble has settled and the arrests been made, this is a huge problem.

 

Jeffrey Skilling and Sherron Watkins of Enron at a Senate commerce committee hearing in 2002. Photograph: Ron Edmonds/AP

It is a commonplace of law enforcement that commercial frauds are difficult to prosecute. In many countries, proposals have been made, and sometimes passed into law, to remove juries from complex fraud trials, or to move the task of dealing with them out of the criminal justice system and into regulatory or other non-judicial processes. Such moves are understandable. There is a need to be seen to get prosecutions and to maintain confidence in the whole system. However, taking the opinions of the general public out of the question seems to me to be a counsel of despair.

When analysed properly, there isn’t much that is truly difficult about the proverbial “complex fraud trial”. The underlying crime is often surprisingly crude: someone did something dishonest and enriched themselves at the expense of others. What makes white-collar trials so arduous for jurors is really their length, and the amount of detail that needs to be brought for a successful conviction. Such trials are not long and detailed because there is anything difficult to understand. They are long and difficult because so many liars are involved, and when a case has a lot of liars, it takes time and evidence to establish that they are lying.

This state of affairs is actually quite uncommon in the criminal justice system. Most trials only have a couple of liars in the witness box, and the question is a simple one of whether the accused did it or not. In a fraud trial, rather than denying responsibility for the actions involved, the defendant is often insisting that no crime was committed at all, that there is an innocent interpretation for everything.

In January this year, the construction giant Carillion collapsed. Although they had issued a profits warning last summer, they continued to land government contracts. It was assumed that, since they had been audited by KPMG, one of the big-four accounting firms, any serious problems would have been spotted.
At the time of writing, nobody has been prosecuted over the collapse of Carillion. Maybe nobody will and maybe nobody should. It’s possible, after all, for a big firm to go bust, even really suddenly, without it being a result of anything culpable. But the accounting looks weird – at the very least, they seem to have recognised revenue a long time before it actually arrived. It’s not surprising that the accounting standards bodies are asking some questions. So are the Treasury select committee: one MP told a partner at KPMG that “I would not hire you to do an audit of the contents of my fridge.”

In general, cases of major fraud should have been prevented by auditors, whose specific job it is to review every set of accounts as a neutral outside party, and certify that they are a true and fair view of the business. But they don’t always do this. Why not? The answer is simple: some auditors are willing to bend the rules, and some are too easily fooled. And whatever reforms are made to the accounting standards and to the rules governing the profession, the same problems have cropped up again and again.

First, there is the problem that the vast majority of auditors are both honest and competent. This is a good thing, of course, but the bad thing about it is that it means that most people have never met a crooked or incompetent auditor, and therefore have no real understanding that such people exist.

To find a really bad guy at a big-four accountancy firm, you have to be quite unlucky (or quite lucky if that was what you were looking for). But as a crooked manager of a company, churning around your auditors until you find a bad ’un is exactly what you do – and when you find one, you hang on to them. This means that the bad auditors are gravitationally drawn into auditing the bad companies, while the majority of the profession has an unrepresentative view of how likely that could be.

Second, there is the problem that even if an auditor is both honest and competent, he has to have a spine, or he might as well not be. Fraudsters can be both persistent and overbearing, and not all the people who went into accountancy firms out of university did so because they were commanding, alpha-type personalities.

Added to this, fraudsters are really keen on going over auditors’ heads and complaining to their bosses at the accounting firm, claiming that the auditor is being unhelpful and bureaucratic, not allowing the CEO to use his legitimate judgment in presenting the results of his own business.

Partly because auditors are often awful stick-in-the-muds and arse-coverers, and partly because auditing is a surprisingly competitive and unprofitable business that is typically used as a loss-leader to sell more remunerative consulting and IT work, you can’t assume that the auditor’s boss will support their employee, even though the employee is the one placing their signature (and the reputation of the whole practice) on the set of accounts. As with several other patterns of behaviour that tend to generate frauds, the dynamic by which a difficult audit partner gets overruled or removed happens so often, and reproduces itself so exactly, that it must reflect a fairly deep and ubiquitous incentive problem that will be very difficult to remove.

By way of a second line of defence, investors and brokerage firms often employ their own “analysts” to critically read sets of published accounts. The analyst is meant to be an industry expert, with enough financial training to read company accounts and to carry out valuations of companies and other assets. Although their primary job is to identify profitable opportunities in securities trading – shares or bonds that are either very undervalued or very overvalued – it would surely seem to be the case that part of this job would involve the identification of companies that are very overvalued because they are frauds.

Well, sometimes it works. A set of fraudulent accounts will often generate “tells”. In particular, fraudsters in a hurry, or with limited ability to browbeat the auditors, will not be able to fake the balance sheet to match the way they have faked the profits. Inflated sales might show up as having been carried out without need for inventories, and without any trace of the cash they should have generated. Analysts are also often good at spotting practices such as “channel stuffing”, when a company (usually one with a highly motivated and target-oriented sales force) sells a lot of product to wholesalers and intermediaries towards the end of the quarter, booking sales and moving inventory off its books. This makes growth look good in the short term, at the expense of future sales.

Often, an honest auditor who has buckled under pressure will include a cryptic-looking passage of legalese, buried in the notes to the accounts, explaining what accounting treatment has been used, and hoping that someone will read it and understand that the significance of this note is that all of the headline numbers are fake. Nearly all of the fraudulent accounting policies adopted by Enron could have been deduced from its public filings if you knew where to look.

More common is the situation that prevailed in the period immediately preceding the global financial crisis.Analysts occasionally noticed that some things didn’t add up, and said so, and one or two of them wrote reports that, if taken seriously, could have been seen as prescient warnings. The problem is that spotting frauds is difficult and, for the majority of investors, not worth expending the effort on. That means it is not worth it for most analysts, either. Frauds are rare. Frauds that can be spotted by careful analysis are even rarer. And frauds that are also large enough to offer serious rewards for betting against them come along roughly once every business cycle, in waves.

Analysts are also subject to very similar pressures to those that cause auditors to compromise their principles. Anyone accusing a company publicly of being a fraud is taking a big risk, and can expect significant retaliation. It is well to remember that frauds generally look like very successful companies, and there are sound accounting reasons for this. It is not just that once you have decided to fiddle the accounts you might as well make them look great rather than mediocre.

If you are extracting cash fraudulently, you usually need to be growing the fake earnings at a higher rate. So people who are correctly identifying frauds can often look like they are jealously attacking success. Frauds also tend to carry out lots of financial transactions and pay large commissions to investment banks, all the while making investors believe they are rich. The psychological barriers against questioning a successful CEO are not quite as powerful as those against questioning the honesty of a doctor or lawyer, but they are substantial.

And finally, most analysts’ opinions are not read. A fraudster does not have to fool everyone; he just needs to fool enough people to get his money.

If you are looking to the financial system to protect investors, you are going to end up being disappointed. But this is inevitable. Investors don’t want to be protected from fraud; they want to invest. Since the invention of stock markets, there has been surprisingly little correlation between the amount of fraud in a market and the return to investors. It’s been credibly estimated that in the Victorian era, one in six companies floated on the London Stock Exchange was a fraud. But people got rich. It’s the Canadian paradox. Although in the short term, you save your money by checking everything out, in the long term, success goes to those who trust.

Britain is over-tolerant of monopolies

Jonathan Ford in The Financial Times


The old joke that asks why there is only one Monopolies Commission may no longer work now the watchdog has rechristened itself the Competition and Markets Authority. 

But perhaps it’s no coincidence that the UK’s trustbusters have dropped the word “monopoly” from their name. 

Contemporary Britain can seem oddly complacent in the face of declining competition. True, it is not the only country to face the uncomfortable concentrations of market power that new technology and global capital make possible. 

Many advanced economies struggle with the “winner takes all” nature of the internet. 

Large parts of the UK’s competition mechanism are in any case delegated to Brussels. But even so, the country often contrives to drop the trustbusting ball. 

Take the ongoing dispute between Transport for London and Uber over whether the car-booking service should retain its taxi licence. 

TfL is up in arms about safety standards. But the real scandal here is the way Uber has been allowed to hoover up the London taxi market.  

Almost unseen, the US company has been able to turn a price-regulated black cab monopoly into an unregulated one where it increasingly dominates the capital’s streets. 

Facts on market shares are hard to obtain, in part because of Uber’s un-transparent structure. 

Fares for its services are paid not to a UK company, but to a Netherlands vehicle, which remits only sufficient money to the UK subsidiary to cover its costs and pay vestigial amounts of tax. 

Nonetheless, it is clear that Uber has built a very substantial position in the five years since it received a licence, the only app-based service yet to do so. 

The service has 40,000 drivers on its network, four times the number of black cab drivers. The second largest non-black cab private hire operator in London, Addison Lee, has just 4,800 drivers on its books. 

Compare that, for instance, to supposedly highly regulated Paris. There, customers have a choice of numerous app-based services, including Uber, Taxify, Allocab and Le Cab, as well as traditional regulated taxis. 

Travis Kalanick, Uber’s founder, may talk about London as the “Champion’s League of transportation”. But it is also one of the company’s top three cities worldwide in terms of profitability. Unsurprisingly, perhaps, given that in this “competition”, the authorities have excluded its main rivals. 

Other app-based services such as Taxify have been unable so far to obtain licences. Perhaps Uber has been treated as a guinea pig by the regulators. But if so, that careless decision may have allowed it to steal an uncatchable head start. 

Taxis are not the only area where competition has been allowed to take a back seat. Take the concentration of market power that occurred in the banking sector after the financial crisis, largely prompted by the merger of Lloyds TSB and HBOS. 

The CMA has placed its faith in limp behavioural remedies and backed away from any muscular changes such as break-ups. 

Or the telecoms sector, where the regulator allowed BT, the old national network, to buy EE and create a preponderant mobile operator without proposing any material steps to redress its evident market power. 

A recent study by the Social Market Foundation shows how the cumulative effect of market concentration increasingly threatens consumers’ interests. 

Out of 10 key markets accounting for 40 per cent of consumer spending, it found that eight — including groceries, mobile phones, gas and current accounts — were concentrated, meaning they were dominated by a small number of large companies. 

Only the car industry and the mortgage market were genuinely open, with no single operator in the former sector controlling more than 15 per cent of the market. Meanwhile, in telephone landlines, BT has about 80 per cent. 

Concentration and competition are not the same thing. In some sectors, such as groceries, it can be possible to have both because of the ease of switching. 

But in many sectors the concentrated market power erodes competition to the detriment of consumers. 

The lack of competition in banking, for instance, costs customers £6bn a year, or £116 each, according to a competition inquiry in 2016. In the energy sector, another inquiry found that Britons are paying £1.7bn too much each year for their power. Despite official investigations galore, neither has been addressed. 

Like the famous line about empire, Britain appears to be acquiring oligopolies in a fit of absence of mind. It is a dangerous inattention. 

For these concentrations do not just hit consumers in the wallet. They exact a cost in terms of public loss of confidence in private business and free markets. A state that believed in either would bust more trusts.

Don't blame addicts for America's opioid crisis. Here are the real culprits

America’s opioid crisis was caused by rapacious pharma companies, politicians who colluded with them and regulators who approved one opioid pill after another

Chris McGreal in The Guardian



‘Opioids killed more than 33,000 Americans in 2015 and the toll was almost certainly higher last year.’

Of all the people Donald Trump could blame for the opioid epidemic, he chose the victims. After his own commission on the opioid crisis issued an interim report this week, Trump said young people should be told drugs are “No good, really bad for you in every way.”

The president’s exhortation to follow Nancy Reagan’s miserably inadequate advice and Just Say No to drugs is far from useful. The then first lady made not a jot of difference to the crack epidemic in the 1980s. But Trump’s characterisation of the source of the opioid crisis was more disturbing. “The best way to prevent drug addiction and overdose is to prevent people from abusing drugs in the first place,” he said.

That is straight out of the opioid manufacturers’ playbook. Facing a raft of lawsuits and a threat to their profits, pharmaceutical companies are pushing the line that the epidemic stems not from the wholesale prescribing of powerful painkillers - essentially heroin in pill form - but their misuse by some of those who then become addicted.


The amount of opioids prescribed in the US was enough for every American to be medicated 24/7 for three weeks”

In court filings, drug companies are smearing the estimated two million people hooked on their products as criminals to blame for their own addiction. Some of those in its grip break the law by buying drugs on the black market or switch to heroin. But too often that addiction began by following the advice of a doctor who, in turn, was following the drug manufacturers instructions.

Trump made no mention of this or reining in the mass prescribing underpinning the epidemic. Instead he played to the abuse narrative when he painted the crisis as a law and order issue, and criticised Barack Obama for scaling back drug prosecutions and lowering sentences.

But as the president’s own commission noted, this is not an epidemic caused by those caught in its grasp. “We have an enormous problem that is often not beginning on street corners; it is starting in doctor’s offices and hospitals in every state in our nation,” it said.

 ‘This is an almost uniquely American crisis.’

Opioids killed more than 33,000 Americans in 2015 and the toll was almost certainly higher last year. About half of deaths involved prescription painkillers. Most of those who overdose on heroin or a synthetic opiate, such as fentanyl, first become hooked on legal pills. 

This is an almost uniquely American crisis driven in good part by particular American issues from the influence of drug companies over medical policy to a “pill for every ill” culture. Trump’s commission, which called the opioid epidemic “unparalleled”, said the grim reality is that “the amount of opioids prescribed in the US was enough for every American to be medicated around the clock for three weeks”.

The US consumes more than 80% of the global opioid pill production even though it has less than 5% of the world’s population. Over the past 20 years, one federal institution after another lined up behind the drug manufacturers’ false claims of an epidemic of untreated pain in the US. They seem not to have asked why no other country was apparently suffering from such an epidemic or plying opioids to its patients at every opportunity.

With the pharmaceutical lobby’s money keeping Congress on its side, regulations were rewritten to permit physicians to prescribe as many pills as they wanted without censure. Indeed, doctors sometimes found themselves hauled before ethics boards for not supplying enough.


It’s an epidemic because we have a business model for it. Follow the money


Unlike most other countries, the US health system is run as an industry not a service. That gives considerable power to drug manufacturers, medical providers and health insurance companies to influence policy and practices.

Too often, their bottom line is profits not health. Opioid pills are far cheaper and easier than providing other forms of treatment for pain, like physical therapy or psychiatry. As Senator Joe Manchin of West Virginia told the Guardian last year: “It’s an epidemic because we have a business model for it. Follow the money. Look at the amount of pills they shipped in to certain parts of our state. It was a business model.”

But the system also gives a lot of power to patients. People coughing up large amounts of money in insurance premiums and co-pays expect results. They are, after all, more customer than patient. Doctors complain of patients who arrive expecting a pill to resolve medical conditions without taking responsibility for their own health by eating better or exercising more.

In particular, the idea has taken hold, pushed by the pharmaceutical industry, that there is a right to be pain free. Other countries pursue strategies to reduce and manage pain, not raise expectations that it can simply be made to disappear. In all of this, regulators became facilitators. The Food and Drug Administration approved one opioid pill after another.


The Food and Drug Administration approved one opioid pill after another.


As late as 2013, by which time the scale of the epidemic was clear, the FDA permitted a powerful opiate, Zohydro, onto the market over the near unanimous objection of its own review committee. It was clear from the hearing that doctors understood the dangers, but the agency appeared to have put commercial considerations first.

US states long ago woke up to the crisis as morgues filled, social services struggled to cope with children orphaned or taken into care, and the epidemic took an economic toll. Police chiefs and local politicians said it was a social crisis not a law and order problem.

Some state legislatures began to curb mass prescribing. All the while they looked to Washington for leadership. They did not get much from Obama or Congress, although legislation approving $1bn on addiction treatment did pass last year. Instead, it was up to pockets of sanity to push back.

Last year, the then director of the Centers for Disease Control, Tom Frieden, made his mark with guidelines urging doctors not to prescribe opioids as a first step for chronic or routine pain, although even that got political pushback in Congress where the power of the pharmaceutical lobby is not greatly diminished.

There are also signs of a shift in the FDA after it pressured a manufacturer into withdrawing an opioid drug, Opana, that should never have been on sale in the first place. It was initially withdrawn in the 1970s, but the FDA permitted it back on to the market in 2006 after the rules for testing drugs were changed. At the time, many accused the pharmaceutical companies of paying to have them rewritten.

Trump’s opioid commission offered hope that the epidemic would finally get the attention it needs. It made a series of sensible if limited recommendations: more mental health treatment people with a substance abuse disorder and more effective forms of rehab.

Trump finally got around to saying that the epidemic is a national emergency on Thursday after he was criticised for ignoring his own commission’s recommendation to do so. But he reinforced the idea that the victims are to blame with an offhand reference to LSD.

Real leadership is still absent – and that won’t displease the pharmaceutical companies at all.

The Indian Pharmaceutical Sector

 

By Jill E. Sackman, PhD,Michael Kuchenreuther

Biopharma companies should not overlook India's growing market.

ABHIJITMORE/ROOM/GETTY IMAGES

Recognizing that emerging markets continue to play a significant role in terms of future growth, most major pharmaceutical companies have accelerated efforts to strengthen their presence within these markets through R&D investment, licensing deals, acquisitions, or other partnerships. However, with global markets facing dynamic demographic and disease trends, changing market demands, and evolving regulatory requirements, it has been hard for manufacturers to devise the strategies needed for success in each of these areas.


India, a member of the BRIC nations (Brazil, Russia, India, and China), is much more comparable to the United States in terms of market size and must be included in this list of promising potential markets for global pharmaceutical manufacturers. Recent changes in India’s population and economy have contributed to a shift in the country’s epidemiological profile towards ‘lifestyle’ diseases that are more prevalent in Western markets. Such changes have increased the demand for better healthcare and for medications that address chronic diseases. Furthermore, India’s own pharmaceutical industry, a recognized world leader in the production of generic drugs, offers manufacturing expertise to organizations looking to outsource or create networks of collaboration and discovery. However, a more granular assessment of India’s pharmaceutical market reveals growing concerns over patent protection, price capping, quality, and safety. Understanding this country’s complex market dynamics will be crucial for manufacturers exploring new opportunities for growth in India.

India health and pharmaceutical market overview

India is the second most populous country in the world with about 1.27 billion people, and is projected to surpass China by 2028 (1). As the Indian population has continued to grow in recent years, so too has the country’s economy. Over the past decade, India’s economy grew above the Organization for Economic Co-operation and Development (OECD) average, which can be attributed to rising average income levels, an expanding middle class, and a drive toward urbanization (2). These socio-economic changes are contributing to a significant shift in India’s epidemiological profile. With working-age adults accounting for the majority of the overall population and more people becoming affluent and living longer, Indian health service users are facing increasing challenges associated with the prevention and treatment of chronic diseases such as obesity, heart disease, stroke, cancer, and diabetes (3).

At the same time, India continues to be challenged by a range of infectious disorders. Despite economic advancements, significant income inequality still exists throughout the country. In fact, per capita gross national income in India was only $3,391 in 2012 when adjusted by purchasing power parity (compared to $50,000 in US) (4).  In rural areas, where two-thirds of the nation’s citizens are located, hundreds of millions of people are still living in severe poverty, and vaccination coverage for children remains poor.

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Taken together, this high incidence of infectious and chronic disease and the large number of disadvantaged communities have created an even greater need for patient access to quality healthcare delivery as well as new and innovative therapeutic products. Historically, India has had one of the world’s lowest levels of health spending as a proportion of gross domestic product (GDP). In 2011, India’s total health expenditure was 3.9% of GDP (public expenditure was only 1.2% of GDP) compared to 10.1% of GDP, an average across all G-5 countries (4). The lack of government funding in healthcare has led to significant gaps in the quality and availability of public facilities and has pushed an increasing proportion of Indian patients to use private healthcare facilities that are associated with high costs. Where other countries have a well-established insurance sector that seeks to reduce this economic burden, health insurance in India is still in its infancy.

Approximately 243 million people are covered by different forms of government-sponsored insurance schemes while approximately 55 million rely on commercial insurers (5). With the vast majority of people in India uninsured, out-of-pocket payments are among the highest in the world. According to the World Health Organization (WHO), 70% of Indians are spending their entire out-of-pocket income on medicines and healthcare services (6). On top of this, most insurance plans only provide coverage for inpatient healthcare services and do not include coverage for outpatient treatments, including prescription medicines. Thus, it is no surprise that approximately 90% of India’s pharmaceutical market is currently made up of branded generic drugs (7).

Against this backdrop, India’s Ministry of Health has been focused on improving access to healthcare facilities, increasing population coverage by way of healthcare insurance, and creating initiatives for the prevention and early stage management of chronic diseases. In 2012, as part of the country’s 12th Five-Year Plan, the government proposed to double its public expenditure on healthcare to 2-3% of GDP in an effort to boost local access and affordability to quality healthcare. In light of these efforts, the Indian healthcare industry as a whole is expected to reach $158 billion by 2017 (8).
India’s pharmaceutical market accounts for about 10% of the global pharmaceutical industry in terms of volume and represents a major component of growth for the country’s healthcare industry (9). The Indian pharmaceutical market was estimated at $18.4 billion in 2012 and is expected to almost double by 2016. Although India’s market is currently dominated by generic drugs, rising incomes, enhanced medical infrastructure, and insurance coverage could provide a valuable opportunity for manufacturers’ higher-priced branded healthcare products moving forward.  

Key market challenges and considerations

Regulatory. Similar to many other countries, India’s medical regulatory structure is divided between national and state authorities. The Drug Controller General of India (DCGI) is the national authority responsible for the regulation of pharmaceuticals. The DCGI registers all imported drugs, new drugs, and biologicals in selected categories and has responsibility for approving clinical trials and quality standards in the country. Recently, these standards have come under question by FDA, citing quality-control problems ranging from data manipulation to sanitation. While FDA and regulatory bodies in other countries step up inspections of Indian plants in response to these developments, global manufacturers have had to reassess their contracted relations with these plants and give careful consideration to developing new strategic partnerships in this country moving forward (10).  

Concerns over quality and data integrity have also impacted manufacturers’ perception of India’s clinical trials system. India’s large and diverse patient pool and low drug trial costs have made the country an attractive destination for multinational pharmaceutical clinical trials. However, India has recently seen the number of clinical trials fall dramatically among allegations that protocols were not being conducted properly and that companies were taking advantage of disadvantaged patients (11). In response to these developments, manufacturers have been forced to either shift their trials to another country or encounter significant delays in clinical trial approval--both of which are holding their organizations back.

Market access and pricing. The high prevalence of self-pay generic drugs throughout the country has created little incentive for the development of certain market access disciplines such as health economics and outcome research (HEOR) and reimbursement. Government affairs and pricing functions, on the other hand, play an important role and have been broadly cited as the most crucial challenges global manufacturers face in the Indian marketplace.

India’s National Pharmaceutical Pricing Authority (NPPA) controls product pricing throughout the country. In 2013, the NPPA expanded the National List of Essential Medicines (NLEM) to include 652 drugs, a substantial increase over the 74 drugs previously listed. These products will now be subject to price controls that are projected to reduce prices by more than 20% for half the drugs (12). As if this did not challenge manufacturers enough, the Indian government recently decided to revise the NLEM later this year in response to complaints that the list should include all dosages, strengths, delivery mechanisms, and combinations of these previously identified drugs (13). The NPPA is also allowed to control prices of patented drugs that lie outside this list, and last month the government began exploring the possibility of using a reference pricing system for these products (14).  With intense generic competition already driving down drug prices in India, these additional controls pose a significant threat to international manufacturers’ ability to generate revenue.

Intellectual property. Aside from pricing, patent protection has also come under the microscope as of late. In an effort to ensure greater accessibility to higher-cost, branded drugs, India, as well as other BRIC countries, has begun to allow generic-drug manufacturers to market these drugs at dramatically reduced costs without consequence through compulsory licenses.  While only one compulsory license has been approved by India’s government to date (Bayer’s Nexavar), other manufacturers have recently had their patents weakened, revoked, or rejected. While appeals to some of these rulings are still in process, precedents have been set, leading manufacturers to question their future investment in India.

Implications for successful market entry 

Despite the aforementioned challenges, major pharmaceutical companies recognize the long-term prospects of this market and continue launching new patented drugs and pursuing unique business opportunities in India. To encourage future investment, the government has made tax breaks available to the pharmaceutical sector, including a weighted tax deduction of 150% for any R&D expenditure incurred. In addition, the government recently declared that all drugs that offer some form of innovation would be exempt from price regulation for the first five years following approval. Here, innovation refers to drugs or drug delivery systems that arise from native R&D efforts or existing drugs that are improved upon by an Indian company. This measure is aimed to spur growth in the domestic pharmaceutical market and to ensure that pricing regulations do not turn global manufacturers away from India. Thus, companies that develop strategic partnerships with local businesses and outsource some of their R&D and manufacturing activities will be well-positioned to maximize revenue by avoiding steep price cuts. This opportunity for manufacturers will only apply, however, for those products that offer true innovation by providing economic and/or clinical value.

Uncertainty over patent security and obstacles to clinical trials are discouraging Western companies from conducting drug research in India. With that said, the government has already initiated clinical research reform efforts through new amendments and regulations that could quickly restore the growth of clinical trials throughout the country.  At the same time, there is speculation that a transfer of power in India’s upcoming election could dampen fears of additional compulsory licenses (15). Manufacturers should closely monitor these internal developments and react accordingly.

Moving forward

A growing middle class that is projected to see a significant rise in noncommunicable diseases provides an excellent opportunity for global companies to launch their premium products and expand their market share. India’s underdeveloped insurance industry and high poverty rates, however, require that manufacturers first develop a careful pricing strategy. Pricing products appropriately can go a long way towards ensuring future growth as well as avoiding disputes over patent protection and licensing agreements.  In a country that holds about one-fifth of the world’s population, India’s market is too big for pharmaceutical companies to shy away from, despite all of the hurdles placed in front of them.  

This privatisation of the Royal Mail would be a national disaster

The Royal Mail must remain in British ownership and remodelled like Germany's Deutsche Post

• 
• • Will Hutton
  • The Observer, Sunday 14 July 2013

A great British institution: the Royal Mail. Photograph: Tim Graham/Getty Images

Britain is 159th in the world league table that ranks investment as a share of GDP. This is not new. Owners of British companies have long been permitted a feckless lack of responsibility. Smart countries, from the US to Germany, make sure that they insulate their companies as far as they can from the myopia and short-term greed of stock markets. Instead, the British approach to ownership exposes our companies to stock market thinking: shrivelling investment, cutting back on innovation, minimising training and hoarding cash to please their irresponsible, transactional owners.

It is a national disaster that another great British organisation, the Royal Mail, is to be cast into this maelstrom. (As I explain later, a more imaginative "protected" private model could work.) The directors of the Royal Mail will be under the same relentless hammer as those in every other British plc. They will put up prices as much as the regulator will allow, cut into universal provision and relentlessly contract out as much of the delivery to the lowest paid, least protected workers; none of this will be enough to satisfy their owners.

Eventually, the directors, vastly enriched with share options, incentive plans and 200% bonuses, will run up the white flag. Within a decade, the Royal Mail will be sold overseas, probably to another state-owned postal service, if not to a private equity fund based in a tax haven. Who knows? It could even be the Chinese communist party that ends up owning this great British institution.

You don't need to be a great seer to predict this future. It is exactly what has happened with our privatised water and energy companies. Economists will say the mail service is more efficient, rather as they discussed the way financial deregulation promoted banking efficiency up to the financial crash of 2008 without ever anticipating the costs of the crash that overwhelmed those gains. By one yardstick, this "efficiency" is guaranteed: the Royal Mail's 150,000 workforce will shrink.

But economists' definition of efficiency is pathetically narrow. It will take no account of the lost tax revenues when the Royal Mail is owned offshore, nor the cost of the state guarantees that will be necessary to support crucial investment. (See the demands from the privatised Thames Water and BT are seeking for their investment in, respectively, the super sewer and national broadband.) Neither will it measure the social impact of a diminished, expensive and fractured postal service, part of the glue that holds the country together, nor the need for state support if some unexpected event threatens. In short, any efficiency gains from privatisation have to be qualified by large costs, some of which only become obvious over decades.

Thus, although all the big six energy companies are more efficient in the sense they produce more power, with fewer employees, than they did a generation ago, any calculus of gains and losses must include the price guarantees the government offers to secure the investment Britain needs in renewable energy and nuclear. Centrica, withdrawing from its partnership with EDF Energy over building nuclear power stations, acknowledged its shareholders wanted higher returns over a shorter period than any deal the government might offer.

If energy provision in Britain were only to be delivered by British privately owned plcs pleasing their tourist stock market owners, they would all build gas-fired power stations, an energy mono-culture that would make the country reliant on one energy source. It would also be environmentally disastrous. The state cannot stand back.

We know all this, but somehow there is a political and cultural incapacity to face the reality. State ownership is seen as cumbersome, socialist, bureaucratic and hidebound. Private ownership is seen as none of those things and little mention is made of the acute depredations wreaked in the private sector. Try getting Ukip to promise that it would oppose the Royal Mail being owned by a Cayman Islands private equity fund, an Arab sovereign wealth fund or some plutocrat. There is silence. Ownership does not matter.

The Department for Business website talks loftily of ensuring that the Royal Mail has the necessary access to investment through privatisation, "untying its hands", as business minister Michael Fallon puts it. But this is the same Department for Business that was so concerned that privately owned plcs were short-termist and anti-investment that it commissioned John Kay to investigate. Even if his report shrank from any meaningful action, it at least dramatised the problem.

The model of privately owned postal companies competing in a regulated market is not a priori wrong: it seems to work in Germany with the privatised Deutsche Post. It is just that British private ownership structures maximise every adverse possibility and outcome. We are about to experience a boom in parcel deliveries as online shopping explodes. Universal parcel delivery is going to become an indispensable utility. Any government that consigns this crucial service to British-style private ownership – for a mere £3bn with 10% of shares given free to workers as a blatant bribe – is as short-termist as the stock market.

Instead, with ownership configured more imaginatively, the Royal Mail could become a de facto trust, a British postal and logistics group ready to exploit the coming boom. A creative government would transform it into a private trust with its own supervisory board on top of the management board, modelled along the lines of Deutsche Post that pro-privatisers like to cite but without ever doing any homework on the detail. For this model would be charged with ensuring managers protect and improve Britain's universal postal and parcel service, as well as seeking other commercial opportunities. The board would have public interest directors along with directors elected by the workers, enfranchised by the collective ownership of, say, a quarter of the shares in an employee ownership scheme. External investors could thus only buy into an organisation whose constitution, purpose and ownership were permanently shaped to deliver public good.

No such template has been floated. It is an opportunity Labour should seize as the embodiment of responsible capitalism. If Ed Miliband and Chuka Umunna were suitably adept, they could even create a parliamentary majority, with dissident Lib Dems and Tories, for it. Apart from ideologues, no one thinks privatisation as it has been practised works and everyone knows that in a decade the Royal Mail will probably be foreign owned. On this, the Communications Workers union and the Labour party are right. But supporting the status quo is insufficient to win the argument. What they need is an alternative prospectus. There is nothing to lose and everything to gain.

Petrol price 'rigged for a decade'

Motorists may have paid thousands of pounds too much for their petrol over the last decade, after two of Britain’s biggest companies were raided on suspicion of manipulating oil prices.

European investigators said the alleged price-rigging could have had a 'huge impact' on the cost of oil Photo: ALAMY

By Rowena Mason and Emily Gosden

9:57PM BST 14 May 2013

425 Comments

MPs and energy experts tonight raised fears motorists have been “taken for a very expensive ride”, after officials searched the offices of BP and Shell for evidence of price-rigging.

The companies are suspected of distorting the oil price since 2002, meaning drivers have potentially been ripped off for more than 10 years.

Over that time, petrol prices have risen dramatically by more than 80 per cent to around 135p per litre.

European investigators, who raided the London offices of BP and Shell, said the alleged price-rigging could have had a “huge impact” on the cost of oil, including the price of fuel for consumers.

The investigation into market-fixing already has echoes of the Libor scandal, which saw the banks falsely report key interest rates used to calculate mortgages. It cost several British banks hundreds of millions of pounds in fines.

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Robert Halfon, the MP for Harlow who has long campaigned for an investigation into the oil market, said high prices have been “crushing families across Britain”.

He called for UK authorities to launch an urgent inquiry and for oil companies to “come clean and show some responsibility for what is happening to the international price”.

The raids were part of an investigation across the continent by the European Commission’s competition authorities. Offices owned by Platts, a price-reporting agency, and Statoil, a Norwegian oil company, were also raided.

European officials said several companies may have colluded in manipulating the price of both oil and green “biofuels”.

This could have happened if the oil companies provided false information to Platts, the main reporting agency that collects and reports prices to the wider market.

“Any such behaviour, if established, may amount to violations of European antitrust rules that prohibit cartels and restrictive business practices and abuses of a dominant market position,” the European Commission said.

“Even small distortions of assessed prices may have a huge impact on the prices of crude oil, refined oil products and biofuels purchases and sales, potentially harming final consumers.”

It said the raids were a “preliminary step to investigate suspected anticompetitive practices” and “does not mean that the companies are guilty of anti-competitive behaviour nor does it prejudge the outcome of the investigation itself”.

The inquiry comes after The Daily Telegraph revealed growing concerns about the reliability of oil prices last year.

A study for G20 finance ministers, including George Osborne, said traders from banks oil companies and hedge funds have an “incentive” to distort the market and are likely to try to report wrong prices.

Scott O’Malia, a top official at the US Commodities Futures Commission, has also previously drawn attention to the “striking similarity” between the potential for manipulating oil and Libor. The price reporting agencies strongly deny any similarities between their methods and the way Libor was calculated.

The information published by Platts and other reporting agencies is used widely by companies as a guide for pricing their oil-related products, including petrol.

Brian Madderson, chairman of the Petrol Retailers’ Association, tonight said any manipulation of the benchmark oil price over a decade could have cost motorists “thousands of pounds each”.

He said the PRA has repeatedly warned the regulators that the oil price appears to have been manipulated.

An 8p rise in the price of petrol last winter cannot be explained by basic supply and demand, unusual geopolitical events or other factors, he said.

Like Libor – the interest rate measure that banks were found to have rigged – the market is unregulated and relies on the honesty of the firms to submit accurate data about all their trades.

Lord Oakeshott, a senior Liberal Democrat and former Treasury spokesman, urged the UK authorities to take a closer look at the oil market.

“Rigging oil prices would be as serious as rigging Libor,” he said. “The price of energy ripples right through our economy and really matters to every business and families.

“All credit to the European Commission for taking action if they have evidence of collusion-but why have we had to wait for Brussels to find out if British oil giants are ripping off British consumers?

"I will be putting down parliamentary questions asking who has UK regulatory responsibility for ensuring fair and open competition in the oil market and what action they have taken in the past 5 years to investigate and enforce it.”

The oil companies tonight confirmed their offices have been raided.

A spokesman for BP said the company is “cooperating fully with the investigation and unable to comment further at this time.”

A Shell spokesman also confirmed its companies are “currently assisting the European Commission in an enquiry into trading activities”.

“We are fully cooperating with the investigation. For legal reasons we cannot make any further comment at this stage”.

Platts, the price-reporting agency, said the European Commission has “undertaken a review at its premises in London” and confirmed it is “cooperating fully”.