Leading Article: Volvo has seen that British consumers are no longer dummies

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VOLVO'S ADMISSION that it secretly rigged the price of its cars sold in the UK, with what the director general of the Office of Fair Trading described as "blatant disregard" for the law, gets the tough new competition policy announced in the last budget off to a promising start. It also provides a poignant follow-up to the Prime Minister's speech the other day, when he warned car-makers and other companies not to treat Britain as a "treasure island" where they can amass multi-billion-pound profits through exorbitant prices. He went on to state a simple but important truth: "We pay too much, not just for our basic goods, but for cars, for luxury items, across a whole range of services." We do pay too much, and "something must be done", but the Government still has a long way to go to prove that it is willing to take on powerful business interests on behalf of the British consumer.

After all, it was an expose by the BBC's Panorama programme, rather than any political activity, that triggered the Office of Fair Trading's investigation of Volvo. And even though the agreement by dealers to fix prices had been caught on film, the company owned up only after a further year of official investigation. At last, it sensibly decided that it might start to rebuild its reputation as the driver's reliable friend by voluntarily agreeing not to overcharge its customers in future. Volvo, it seems, is to stop taking its British customers for dummies. It is an important moment.

The wheel of fortune has turned for the car-manufacturers and dealers. Rover has already announced that it will sell its new 75 model at more uniform prices across Europe, although frankly it is doing so badly with its UK sales that it should cut prices anyway. The European Commission is to investigate "block exemption", which allows these abuses to occur. The UK Competition Commission is launching a broader investigation into UK car prices. It has the supermarkets in its sights, too. We shall shortly get a consumer White Paper, and from next March the OFT will have greater powers, including the ability to fine offenders. Any car-maker found out after 1 March could be fined tens of millions of pounds for price-fixing. All these initiatives are important, and will do much to improve the British consumer's purchasing power.

Yet this does not add up to a culture of competition in the UK. Imagine if Bill Gates had been a British nerd. Would the Government be trying to break up Microsoft, as the US authorities may demand? Or would ministers be inviting Mr Gates to cocktail parties in Downing Street and offering him exclusive access to a captive market in British schools? Silly question. New Labour's instinct is to cosy up to business success. The American authorities have forced the dismantling or restructuring of every giant corporation that many European governments would have feted as a national champion, from Standard Oil to IBM. They support US companies to the hilt abroad, but at home the full force of authority backs the right of the man or woman on Main Street to buy at the best possible price. No surprise, then, that British families pay at least 25 per cent more than those in the US for a host of products, from groceries to cars.

Forces beyond the reach of any government are taking Britain and the rest of Europe slowly towards greater competition and lower prices. The Internet is one, although here too we lag behind the US. It has already started to cut the cost of some goods such as books and CDs. Globalisation is another: the American giant Wal-Mart's takeover of Asda and the sharper competition that this may bring should show the positive side of this phenomenon. Joining the euro would greatly increase transparency. There are signs already that after six months, the prices of branded goods within Euroland are falling towards the lowest common denominator - even before most consumers see price tickets in the new currency.

However, European law still allows designer-labelled goods to be sold at fixed prices from restricted outlets even though British supermarkets want to sell them for less. MPs last week called for legalisation of the "grey market" in designer goods. But big names such as Levi's, Calvin Klein and the French perfume-makers are fighting to retain high prices because they say these are essential to their cachet. Oddly, though, American consumers are not thought by the same companies to need artificially high prices to convince them of this snob-appeal. Such goods sell for up to 50 per cent less across the Atlantic.

So the Volvo announcement is the first stage on a very arduous and long road towards greater competition and lower prices. It is a necessary journey. British and Continental businesses will never catch up to the productivity levels of their US rivals if they are allowed to shelter behind lazy competition policies. Greater competition will be good for the competitiveness of UK plc. What big business really needs from Labour is tough love, not a love-in.