By Max Clarke

The Office for Fair Trading (OFT), the Government’s consumer rights watchdog, is launching a ‘market study’ into extended warranties to determine whether or not they deliver value to consumers.

British consumers spend £750 million a year on warranties and are often not informed that they are optional, say the OFT.

“Consumers buy millions of extended warranties on domestic electrical goods each year and we want to make sure they are getting value for money,” said Claudia Berg, Director of the OFT's Consumer and Goods Group.

“We plan a short and focused market study to find out quickly what, if any, action is needed to make this market more competitive, to the benefit of consumers and the wider UK economy.”

Today's announcement follows an OFT review of aftermarkets for domestic electrical goods which was launched in November 2010. During this review, some parties raised credible concerns that competition is limited by retailers' advantage in being able to sell warranties at the same time as they sell domestic electrical goods. There were also more general concerns that warranties are not good value for money.

This is consistent with their evaluation in 2008 which showed that the Supply of Extended Warranties on Domestic Electrical Goods Order 2005, introduced to improve competition, was by that time only addressing around £19million per year of an estimated annual consumer detriment of £366million.